Baillie Gifford’s flagship £5 billion fund, the Scottish Mortgage Investment Trust plc — which recently entered the FTSE 100 index for the first time in its history — said it is raising £125 million in a private placement of debt.

“The purpose of this transaction is to obtain long dated unsecured sterling denominated financing at what the company believes to be attractive pricing levels, with the intention of enhancing shareholder returns over the long term,” said the company.

Scottish Mortgage’s share price has soared about 40% over the past year to give it a stock market valuation of roughly £5 billion.

John Scott, chairman of Scottish Mortgage, said: “Our current borrowing facilities comprise principally some $450 million in floating rate loans and three fixed rate, long term debentures totalling £145 million.

“The latter were arranged many years ago and pay interest rates which reflect the circumstances of those times — which are considerably higher than the rates available today.

“We are unable to pre-pay these debentures without significant penalty, but I am pleased to say that we have taken advantage of current market conditions which allow us to access long term fixed rate sterling at rates of just over 3% per annum. 

“We will use this to reduce Scottish Mortgage’s exposure to possible future increases in interest rates, as well as starting the programme of replacing our existing fixed rate debentures, the first of which will mature in 2020, and whose successor facility is now in place. 

“When this new £20 million facility replaces its predecessor in 3 years’ time, the interest rate on that £20 million tranche will fall from 14% to 3.65%. 

“In committing Scottish Mortgage to a borrowing programme which stretches to 2047, the board looked both at the interest costs, which average some 3.22%, and the company’s long term investment record, which in the five years to 28 February 2017 has seen a compound increase in net asset value per share of 19.2% per annum.” 

Scottish Mortgage said it agreed to raise the £125 million in long term, fixed rate, senior, unsecured private placement notes, denominated in sterling.

“The private placement agreement provides for total borrowings of £105 million, with a funding date of 6 April 2017, through the issuance of three notes: one 25 year note for £45 million with a fixed coupon of 3.05%, one 27 year note for £30 million with a fixed coupon of 3.30% and a 30 year note for £30 million with a fixed coupon of 3.12%,” said Scottish Mortgage.

“All coupons will be payable semi annually. The funds raised will be used to retire, in part, an existing bank debt facility of $165 million which is to due to mature in early April 2017.

“Further, the company has agreed to raise an additional sum of £20 million to refinance the company’s existing £20 million debenture, at the time this matures in 2020.

“This note will have a fixed coupon of 3.65%, payable semi annually, and a tenor of 24 years.”