10 key questions about Manchester United's debts under the Glazers
Source:www.guardian.co.uk
[How big is Manchester United's debt?
Manchester United's holding company carries £509.5m in debt secured on the club and its assets. A further loan, secured on the Glazers' shareholding in the club, is believed to be worth £200m.
What is the current interest rate?
The interest rate on the £509.5m secured on the club ranged between 2.15% and 5% above the rate at which banks lend to one another and was spread between four loans due to be repaid between 2013 and 2016. The offer document reveals that, fearing uncertainty over interest rates, last year it swapped those rates for a fixed rate of just over 5%. That hedging position had lost the club around £35m by 6 January this year. The interest rate on the so-called Payment in Kind loans taken out by the Glazers from US hedge funds is 14.25%. It "rolls up" annually, meaning that a debt of £138m has already ballooned to £200m.
Why launch the £500m bond issue now?
Partly because confidence has returned to the bond markets. The Glazers hoped to refinance in 2008 when the markets turned against them. The MU Finance plc offering is just one of a glut of issues coming in the early part of this year. But there are other reasons to move quickly, in the hope of capitalising on results boosted by a transfer profit of £80.7m and a run of recent on-pitch success that has realised bumper sponsorship and TV revenues. If the Glazers' own finances are beginning to be squeezed, it would also increase their appetite for refinancing the debt secured on the club.
Why structure it this way?
Under the terms of its four bank loans, the Glazers were unable to use the club's revenues to repay their own high interest PIK loans. A note in the document makes provision for up to £70m to return to the Glazers' ultimate parent company for "general corporate purposes, including repaying existing indebtedness". For the first time they appear to have a mechanism to funnel some of the club's revenues to the parent company to repay the PIK loans.
What if they default on the PIK loans?
The hedge funds would not gain any say over the operational side of the business, but they could prevent it incurring fresh debt or paying out dividends, as well as gaining the power to block any potential sale.
On what terms will the bond be offered?
The price will not be set until a roadshow has gauged interest. Experts say the offer documents assume an annual yield (interest) of around 9.25%, or £45m a year. The bond's term will be for seven years, with a buy-back option after three.
Isn't that more interest than the club is currently paying?
Yes. But – as well as giving them a mechanism to divert £70m to the parent company – the Glazers will claim it offers greater certainty in managing United's cashflow and debt repayment and consolidates various loans with different end dates into a single sum.
Do the Glazers have a plan?
The prospectus trumpets their success in increasing ticket prices, achieving 8.5% compound growth between 2006-07 and 2008-09 and a further 2.5% increase this season. However, it warns corporate hospitality sales will remain "challenging" then, confusingly, suggests they will be a key engine of growth. Aside from an £80m shirt sponsorship deal with Aon, £35.9m of which has been banked up front, and its ongoing £303m Nike deal, they say they will be able to greatly increase the £19.5m brought in from other global sponsors.Beyond that, and the possibility of a game-changing development such as a European league, it admits that much is dependent on the team's continued success on the pitch. In the meantime, they insist they can continue to service the debts and finance a successful team from existing cashflow.
What is their exit strategy?
If they can successfully refinance and start to reduce the amount they owe through the onerous PIK loans, they will still hope to at some point sell the club - still saddled with debt - on at a large profit. But the pool of potential buyers appears to be contracting all the time, and the possibility of having to deal with a tumultuous post-Alex Ferguson era is an ever-present fear.
Does Ferguson have money to spend?
Yes, money could be found to fund player transfers. But to say all of the £80m-plus raised has been made available is disingenuous, because under the new terms of the bond issue up to £70m of the club's free cashflow of £116m could be diverted to the parent company to help repay the PIK. The club also plans to use a new £75m credit facility provided by a syndicate of banks led by JP Morgan to help fund player transfers, according to the offer document. But that facility, which replaces an existing undrawn £50m overdraft, will add to the overall £700m debt pile.
Manchester United's holding company carries £509.5m in debt secured on the club and its assets. A further loan, secured on the Glazers' shareholding in the club, is believed to be worth £200m.
What is the current interest rate?
The interest rate on the £509.5m secured on the club ranged between 2.15% and 5% above the rate at which banks lend to one another and was spread between four loans due to be repaid between 2013 and 2016. The offer document reveals that, fearing uncertainty over interest rates, last year it swapped those rates for a fixed rate of just over 5%. That hedging position had lost the club around £35m by 6 January this year. The interest rate on the so-called Payment in Kind loans taken out by the Glazers from US hedge funds is 14.25%. It "rolls up" annually, meaning that a debt of £138m has already ballooned to £200m.
Why launch the £500m bond issue now?
Partly because confidence has returned to the bond markets. The Glazers hoped to refinance in 2008 when the markets turned against them. The MU Finance plc offering is just one of a glut of issues coming in the early part of this year. But there are other reasons to move quickly, in the hope of capitalising on results boosted by a transfer profit of £80.7m and a run of recent on-pitch success that has realised bumper sponsorship and TV revenues. If the Glazers' own finances are beginning to be squeezed, it would also increase their appetite for refinancing the debt secured on the club.
Why structure it this way?
Under the terms of its four bank loans, the Glazers were unable to use the club's revenues to repay their own high interest PIK loans. A note in the document makes provision for up to £70m to return to the Glazers' ultimate parent company for "general corporate purposes, including repaying existing indebtedness". For the first time they appear to have a mechanism to funnel some of the club's revenues to the parent company to repay the PIK loans.
What if they default on the PIK loans?
The hedge funds would not gain any say over the operational side of the business, but they could prevent it incurring fresh debt or paying out dividends, as well as gaining the power to block any potential sale.
On what terms will the bond be offered?
The price will not be set until a roadshow has gauged interest. Experts say the offer documents assume an annual yield (interest) of around 9.25%, or £45m a year. The bond's term will be for seven years, with a buy-back option after three.
Isn't that more interest than the club is currently paying?
Yes. But – as well as giving them a mechanism to divert £70m to the parent company – the Glazers will claim it offers greater certainty in managing United's cashflow and debt repayment and consolidates various loans with different end dates into a single sum.
Do the Glazers have a plan?
The prospectus trumpets their success in increasing ticket prices, achieving 8.5% compound growth between 2006-07 and 2008-09 and a further 2.5% increase this season. However, it warns corporate hospitality sales will remain "challenging" then, confusingly, suggests they will be a key engine of growth. Aside from an £80m shirt sponsorship deal with Aon, £35.9m of which has been banked up front, and its ongoing £303m Nike deal, they say they will be able to greatly increase the £19.5m brought in from other global sponsors.Beyond that, and the possibility of a game-changing development such as a European league, it admits that much is dependent on the team's continued success on the pitch. In the meantime, they insist they can continue to service the debts and finance a successful team from existing cashflow.
What is their exit strategy?
If they can successfully refinance and start to reduce the amount they owe through the onerous PIK loans, they will still hope to at some point sell the club - still saddled with debt - on at a large profit. But the pool of potential buyers appears to be contracting all the time, and the possibility of having to deal with a tumultuous post-Alex Ferguson era is an ever-present fear.
Does Ferguson have money to spend?
Yes, money could be found to fund player transfers. But to say all of the £80m-plus raised has been made available is disingenuous, because under the new terms of the bond issue up to £70m of the club's free cashflow of £116m could be diverted to the parent company to help repay the PIK. The club also plans to use a new £75m credit facility provided by a syndicate of banks led by JP Morgan to help fund player transfers, according to the offer document. But that facility, which replaces an existing undrawn £50m overdraft, will add to the overall £700m debt pile.
Source:www.guardian.co.uk
