MANCHESTER UNITED is considering a £600m bond issue as part of the Premier League club’s battle to bring its spiralling debts under control.
It is understood that the Glazer family, the American leisure tycoons who bought the club in 2005, have asked two investment banks to look at ways of easing the debt burden.
JP Morgan, the US bank that engineered the Glazers’ £790m takeover, and Deutsche Bank, have been working on options to improve the club’s financial situation amid concerns that its debts could soon have serious repercussions.
In the past few weeks, advisers have begun sounding out potential investors on a bond issue. The cash would be used to pay back some of the club’s existing debts.
Manchester United ‘will not be spending big’
Glazers hit the wall over refinancing, although Manchester United is not the only big club to face debt problems. Last week Roman Abramovich, owner of Chelsea, converted £340m in interest-free loans into equity.
Manchester United, champions for the last three years, owe about £700m to banks, financial institutions and hedge funds, according to debt specialists, Capital Structure. Most of this stems from the Glazer family’s takeover, which was criticised by fans because so much debt was being loaded on to the club.
The club insists the debt is not a problem because the annual interest on the various loans is covered by its operating profit. In 2008, net interest on all its debts was £69m against an operating profit £72m. The main concern for the club’s owners is the £175m of loans that the Americans are personally responsible for and which “roll up” interest at an annual rate of 14.25%.
The so-called payment in kind (Pik) notes borrowed from Perry Capital and Citadel, two American hedge funds, initially stood at £138m in 2006, but have since accrued £40m of unpaid interest.
If the club’s financial performance deteriorates below a certain level then the hedge funds have the right to appoint their own directors to the board.
Sources familiar with the situation say the amount that Manchester United will seek to raise depends on the appetite shown by investors. At present the figure is between £500m and £600m. If demand is strong, the club could seek more.
It is unclear whether the proceeds of a bond issue would be used to repay the controversial Pik debt or the £520m that is secured against the club. The Glazers would prefer to pay back the more costly Pik debt, but experts said any attempt to prioritise the hedge funds that lent the money would be met with stiff opposition from the club’s senior bank lenders.
Instead, bankers said that the club might look to pay off the bank debt, which is likely to have higher interest rates than the cost of the annual coupon on the bond.
The club put in place a more long-term financing structure in 2006 and has since attempted to refinance on a number of occasions but, as many British companies have found, the credit crunch and resulting economic climate have scuppered their efforts.
Fans’ groups have cast doubt on whether the world record £80m transfer fee the club received for Cristiano Ronaldo last summer will be reinvested. However, the club has said publicly that Sir Alex Ferguson, the manager, has plenty of money available to spend.
Source: Timesonline
So, we are simply paying the interest on the loan, as suspected, and not reducing the amount borrowed. That spells trouble! If the worst should happen and United slip from the World power that we are, what happens if the glazers get bored?
For Information, the MUST response was as follows:
MUST response to a report in the Sunday Times today that the Glazers are exploring a bond issue to address the threat of the increasing debt on the club.
Two questions spring to mind - firstly why are they interested in doing this?
Clearly for the Glazers they hope to reduce the interest rate on the current debt to reduce their repayments and no doubt the existing lenders (JP Morgan etc) would be delighted to shift the risk onto another lender. But why would any potential bond investor be prepared to take on this risk if the return is going to be less than the current lenders receive and now in an environment where the risk is clearly much higher than the time (pre-credit crunch) at which these loans were first negotiated? Sounds a great deal for the Glazers and their current lenders but what's in it for the bond investors? How can they get better security than the current lenders?
The second question is why now?
Is the financial situation for the Glazers as bad as recent speculation has suggested? Despite the extra income from TV and the huge ticket price rises they have been clawing back expenditure both at Manchester United (job cuts and more than 100m of transfer funds so far unspent this season) as well as at the Tampa Bay Buccaneers where fan discontent is starting to mirror that at Old Trafford. Is the situation much worse than we thought?
Furthermore numerous reports have highlighted a huge drop in demand for corporate matchday hospitality with facilities unsold or at reduced prices and this is also showing in the drop in demand for ordinary match tickets too. Even Premier League games are going on general sale and any season ticket holder will tell you how much harder it is to resell an unwanted ticket this season as the previously seemingly bottomless excess demand has evaporated. Of course these effects are yet to show in the financial figures and perhaps it is therefore seen as an opportune time to shift the debt onto other lenders before the true impact shows through?
However, whether they do manage to shift the debt onto other lenders the situation for United fans and our club will be little changed - weighed down by the millstone of the Glazers debt and with the supporters having to foot the bill through ever increasing ticket prices and reduced expenditure on players.
The Glazers have taken us from being a club that were the richest in the sporting world to now the most indebted. In the four years before the Glazers' takeover the Manchester United invested over £80 million in the form of players like Rooney and Ronaldo. In the four years since the Glazer takeover the turnover has doubled but, despite protestations to the contrary, independently published figures suggest the net transfer spend is now negative. We have to be thankful for the magnificent job the manager and his squad have done. Where would we be now without the success Sir Alex has managed to maintain on the pitch?
This is surely the time for the Glazers to exit and make way for a new investor interested in working with the supporters to build a stronger football club and business together. In the best interests of the club MUST is keen to explore that possibility with all interested parties.
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Source: Duncan Drasdo, MUST CEO
It is understood that the Glazer family, the American leisure tycoons who bought the club in 2005, have asked two investment banks to look at ways of easing the debt burden.
JP Morgan, the US bank that engineered the Glazers’ £790m takeover, and Deutsche Bank, have been working on options to improve the club’s financial situation amid concerns that its debts could soon have serious repercussions.
In the past few weeks, advisers have begun sounding out potential investors on a bond issue. The cash would be used to pay back some of the club’s existing debts.
Manchester United ‘will not be spending big’
Glazers hit the wall over refinancing, although Manchester United is not the only big club to face debt problems. Last week Roman Abramovich, owner of Chelsea, converted £340m in interest-free loans into equity.
Manchester United, champions for the last three years, owe about £700m to banks, financial institutions and hedge funds, according to debt specialists, Capital Structure. Most of this stems from the Glazer family’s takeover, which was criticised by fans because so much debt was being loaded on to the club.
The club insists the debt is not a problem because the annual interest on the various loans is covered by its operating profit. In 2008, net interest on all its debts was £69m against an operating profit £72m. The main concern for the club’s owners is the £175m of loans that the Americans are personally responsible for and which “roll up” interest at an annual rate of 14.25%.
The so-called payment in kind (Pik) notes borrowed from Perry Capital and Citadel, two American hedge funds, initially stood at £138m in 2006, but have since accrued £40m of unpaid interest.
If the club’s financial performance deteriorates below a certain level then the hedge funds have the right to appoint their own directors to the board.
Sources familiar with the situation say the amount that Manchester United will seek to raise depends on the appetite shown by investors. At present the figure is between £500m and £600m. If demand is strong, the club could seek more.
It is unclear whether the proceeds of a bond issue would be used to repay the controversial Pik debt or the £520m that is secured against the club. The Glazers would prefer to pay back the more costly Pik debt, but experts said any attempt to prioritise the hedge funds that lent the money would be met with stiff opposition from the club’s senior bank lenders.
Instead, bankers said that the club might look to pay off the bank debt, which is likely to have higher interest rates than the cost of the annual coupon on the bond.
The club put in place a more long-term financing structure in 2006 and has since attempted to refinance on a number of occasions but, as many British companies have found, the credit crunch and resulting economic climate have scuppered their efforts.
Fans’ groups have cast doubt on whether the world record £80m transfer fee the club received for Cristiano Ronaldo last summer will be reinvested. However, the club has said publicly that Sir Alex Ferguson, the manager, has plenty of money available to spend.
Source: Timesonline
So, we are simply paying the interest on the loan, as suspected, and not reducing the amount borrowed. That spells trouble! If the worst should happen and United slip from the World power that we are, what happens if the glazers get bored?
For Information, the MUST response was as follows:
MUST response to a report in the Sunday Times today that the Glazers are exploring a bond issue to address the threat of the increasing debt on the club.
Two questions spring to mind - firstly why are they interested in doing this?
Clearly for the Glazers they hope to reduce the interest rate on the current debt to reduce their repayments and no doubt the existing lenders (JP Morgan etc) would be delighted to shift the risk onto another lender. But why would any potential bond investor be prepared to take on this risk if the return is going to be less than the current lenders receive and now in an environment where the risk is clearly much higher than the time (pre-credit crunch) at which these loans were first negotiated? Sounds a great deal for the Glazers and their current lenders but what's in it for the bond investors? How can they get better security than the current lenders?
The second question is why now?
Is the financial situation for the Glazers as bad as recent speculation has suggested? Despite the extra income from TV and the huge ticket price rises they have been clawing back expenditure both at Manchester United (job cuts and more than 100m of transfer funds so far unspent this season) as well as at the Tampa Bay Buccaneers where fan discontent is starting to mirror that at Old Trafford. Is the situation much worse than we thought?
Furthermore numerous reports have highlighted a huge drop in demand for corporate matchday hospitality with facilities unsold or at reduced prices and this is also showing in the drop in demand for ordinary match tickets too. Even Premier League games are going on general sale and any season ticket holder will tell you how much harder it is to resell an unwanted ticket this season as the previously seemingly bottomless excess demand has evaporated. Of course these effects are yet to show in the financial figures and perhaps it is therefore seen as an opportune time to shift the debt onto other lenders before the true impact shows through?
However, whether they do manage to shift the debt onto other lenders the situation for United fans and our club will be little changed - weighed down by the millstone of the Glazers debt and with the supporters having to foot the bill through ever increasing ticket prices and reduced expenditure on players.
The Glazers have taken us from being a club that were the richest in the sporting world to now the most indebted. In the four years before the Glazers' takeover the Manchester United invested over £80 million in the form of players like Rooney and Ronaldo. In the four years since the Glazer takeover the turnover has doubled but, despite protestations to the contrary, independently published figures suggest the net transfer spend is now negative. We have to be thankful for the magnificent job the manager and his squad have done. Where would we be now without the success Sir Alex has managed to maintain on the pitch?
This is surely the time for the Glazers to exit and make way for a new investor interested in working with the supporters to build a stronger football club and business together. In the best interests of the club MUST is keen to explore that possibility with all interested parties.
--
Source: Duncan Drasdo, MUST CEO