Glazers to pay off PIK debts on 22/11/2010

[DanH84]

Manchester United to Pay Off $353 Million of Soccer Team's Corporate Debt
By Tariq Panja - Nov 15, 2010 8:58 PM GMT

Manchester United’s owners agreed to pay off a payment-in-kind loan worth about 220 million pounds ($353 million), according to a corporate filing by the English soccer club.

Red Football Joint Venture Ltd. will “prepay 100 percent from the outstanding loan on Nov. 22,” the team’s parent company said. The document, called a voluntary free-payment notice, was signed Joel Glazer, co-chairman of Red Football, and was sent to the holders of the loan. Philip Townsend, a spokesman for Manchester United, declined to comment.

The Glazer family, which also runs the National Football League’s Tampa Bay Buccaneers, bought the 18-time English soccer champion in 2005. United supporters have protested against owners because of the debt they’ve added to the team. The Glazers were shouldering 16.25 percent annual interest charges on the PIK debt because of concern they’d face fans’ anger if they used the soccer club’s cash to pay off the loans.

The Glazers aren’t going to take any money out of the club to pay down the debt. With PIK loans, interest rolls up annually and increases the amount owed.

The Glazers bought the 18-time English champion for 790 million pounds. In January, they converted a bank loan secured against the team into a 526 million-pound bond. Under the bond’s terms, the Glazers could make a one-time withdrawal of 70 million pounds from the club to pay down the PIK loan.

Anti-Glazer protests increased after details of how the owners were financing the once debt-free club were revealed in the bond prospectus. Thousands of supporters took to wearing the green and gold colors of the team’s original incarnation, and a group led by Jim O’Neill, chairman of Goldman Sachs Asset Management, emerged as a potential buyer.

16.25 Percent Interest

The PIK loan issued in August 2006 to Red Football Joint Venture is held by fewer than 10 investors, mainly hedge funds. The facility started out as a 138 million-pound loan, accruing annual interest of 14.25 percent. That rose to 16.25 percent after the club breached a debt-to-earnings ratio agreement. The Glazers bought back between 15 and 20 percent of the loan in 2008.

The PIK loan to United was due to mature in 2017. If the Glazers had held the debt until then, they would have owed almost 600 million pounds at the current interest rate, according to Bloomberg calculations.

On Oct. 8, the team announced a record loss of 83.6 million pounds for the year ending June 30. Much of that was attributable to interest payments and costs related to replacing long-term bank debt with the bond. Sales reached a record 286 million pounds.

Since the Glazers’ purchase, United has won three domestic league titles and took the Champions League in 2008.

The club has increased revenue from various sources since the takeover, notably in commercial operations. A London-based sales team has negotiated sponsorship and partnership deals in industry sectors across the world.

United is currently third in the Premier League, three points behind leader Chelsea and one behind Arsenal.

To contact the reporters on this story: Tariq Panja in London at [email protected].

To contact the editor responsible for this story: Christopher Elser at [email protected].

 

[DanH84]

So you will no longer be in debt

we will still be in debt.


There's 2 types of debt still in existence which were used to fund the takeover.

The parent debt is secured against the club, it's the bond and stands at around £530million. Interest payments on that are around £40mill/annum

The second and nastier type of debt is these Payment In Kind Notes. They are not secured against the club (directly on the Glazers) however the assumption has always been that United's funds will be used to pay them down.

The interest on these is a huge 16.25% currently but one area in which they differ from a traditional loan is that rather than paying the interest it simply rolls up in to the capital. If these had been left untouched (never really going to have happened) they would have been worth near 600mill on maturity (2017).

Essentially the Glazers never plan on having United debt free, they won't pay down the parent debt they'll simply seek to refinance on more favourable terms when the bond matures. They never need to have United debt free to be honest. They simply want the debt payments to become insignificant in comparison to our revenue.

 

[DanH84]

Sounds like the Glazers are shifting some of Man Utd's money around to pay off the last of the debts which they are personally responsible for. Call me cynical but I doubt this £220m is coming from their pockets

Who knows. They can't remove that amount from the clubs accounts though. The maximum they could possibly take is £95million they aren't entitled to any more from the clubs funds.



*They could secure a loan as finance at a lower rate though,

 

[DanH84]

That would be the only saving grace for Utd fans wanting to get shot of the Glazers any time soon.

The last thing Utd fans would want is the Glazer's to no longer be responsible for any of the debt.

A slightly narrow view but impossible to say more until more details are out. It would appear to be good news though. Even if refinanced it would appear that the future interest commitments of the club will be reduced.

Known unknowns and unknown unknowns
Monday, 15 November 2010

This evening Bloomberg's Tariq Panja has broken a story that Red Football Joint Venture Ltd (the parent company that issued the famous Payment In Kind loans) is to redeem all £220m of the PIKs on 22nd November. Perhaps more importantly, Bloomberg report that none of the funds to redeem the PIKs will come from Manchester United.

As has been well documented, under the terms of the bond issue, the Glazers can take £95m from the club whenever they wish. The fact that they are NOT using this dividend entitlement to repay the PIKs raises the obvious question; where is this money coming from?

There seem to me to be three main possibilities (and probably a few dozen less likely ones):

1. Refinancing
The PIKs are being refinanced with a new form of debt, secured (as the PIKs are) on RFJV's shares in Red Football Ltd. If this was the case, it would be reasonable to suppose that the interest rate on this new debt was lower than the 16.25% currently being paid on the PIKs. The question would remain as to how this debt would be repaid in the long-term and whether the burden of this repayment would fall on the football club.

2. Sale of an equity stake
The Glazers have sold a stake in Red Football Limited to a third party outside investor and are using all or some of the proceeds to repay the PIKs. The consequences of this would obviously be hugely uncertain. Who could this investor be? What stake would they own? How would their ownership impact the running of the club?

3. Sale of other assets
The Glazers have secured significant sums from another source, perhaps by selling assets. I find this incredibly unlikely as the only asset valuable enough is the Tampa Bay Buccaneers. The fact that redemption notices for the PIKs have already been issued suggests the funding is already in place which does not tally with a sale of the NFL franchise.

As someone who has repeatedly and vehemently stated that the club's money would be used to repay the PIKs, I can only eat humble pie at this point. Another source has clearly been found and that means I was wrong. I do believe however that until we have concrete answers about the source of this £220m it is best to reserve judgement about what this means for United.

Tomorrow (Tuesday 16th November) Red Football Limited announces its results for the three months to September 30th. These results may cast more light on what is going on, but there is a good chance that no further information will be forthcoming as the PIKs are held by the parent company that is not reporting its figures. I will be blogging about the figures tomorrow.

LUHG

 

[DanH84]

Interesting comment from the CEO of one of the funds that held the PIK debt:

Quote:
“From a portfolio manager’s standpoint, it’s tantamount to ‘the Grinch who Stole Christmas,’” said Mark Baker, chief executive officer of ADM Capital Europe. “The Glazer’s are eliminating arguably the best asset in the European High Yield universe from a risk/return perspective. Delighted for the fans but our portfolio will miss the 16.25% coupon.”

 

[DanH84]

Well do yourself a favour and don't rely on MUST as your information source. We'll see later on. If it has come from United's account then it has to be announced to the bond holders. Even if so the maximum is 95mill from the account.

 

[DanH84]

+would I be right in saying that an NFL franchise asking for concessions from the state is not exactly uncommon practice?

 

[DanH84]

MUST isnt my information source - not sure why you thought it was!!

Given the state of the team currently - £95m would be a huge loss from the cash reserves theoretically still in the bank (even the figures announced today are roughly 2 months old)

Admittedly I hadnt thought that it would have to be announced immediately (to the bond holders) - surely only announced before the next set of figures after today?




No that isnt pure profit at all - just because the team can spend X millions on wages, doesnt mean it actually has that money to spend in the first place!!

I havent looked into the accounts of the TBB's for a long time, but from the financial reports its strange that its hardly ever mentioned as a source of revenue for the Glazers if the team is producing so much income for the family



It isnt uncommon at all - but it seems strange to me that if the team is so successful you ask your fans (and other locals) for money you never need to pay off.....seems to me like they are more likely to alienate fans rather than bring them in

I love Utd and I would happily buy shares if they were available , even if I didnt even have 0.0001% I would still legally own a fraction of Utd - if Utd asked me to build them a training ground for free to replace Carrington its a completely different kettle of fish even if the £ value is the same as the shares mentioned above (I would probably say **** ***)

They aren't nice, they're just businessmen for all the ethical questions getting 12mill for nothing is good business. Real Madrid have been getting similar at tax payers expense for decades. Indications are that there is no carve out although this isn't definite. If they had to source an alternative means of finance and wished to leverage this against the club they would have to forewarn the bond holders.

 

[DanH84]

I do imagine they would take things like that into account. I can't imagine that a few pence on my tax bill would cause me to not buy merchandise if I wanted it.

Anyway it's kind o beside the point. Conference call to take place soon - will be interesting!

 

[DanH84]

Cash carveout not taken as yet. Other funding could be in place.

 

[DanH84]

In an ideal world no club would have debt loaded against it. It does increase our stability and lessen commitments even further.

You have to live within the realities of the situation and while I've always tried to ignore scaremongering anything that costs us less can only be a good thing.

 

[DanH84]

everything is worth posting. It's all very speculative currently.

 

[DanH84]

Heh no, a paper made a mistake and some 'tards started teething and blogging that we'd been bought by them. They'll just be another sponsorship partner. Did you also hear that he Springfield rumour was apparently started on red issue?

 

[DanH84]

well we'll see but I would have thought they'd be one of these.

http://www.manutd.com/default.sps?pagegid={235041B8-C516-4517-8D04-AEEBB5882B8A}

Sponsorship partners.

 

[DanH84]

fair enough

 

[DanH84]

sadly we won't know. If it doesn't touch the club they won't need to report anything.

Oh and I saw this today Frank:

Man Utd announce deal with Epson
November 26, 2010

* Email
* Print

By ESPNsoccernet staff

Manchester United have announced a seven-figure sponsorship deal with leading computer accessory manufacturer Epson.

• Rooney committed to United

United confirmed the three-year contract, confirming Epson as their official office equipment partner.

It is the latest in a succession of such deals as the Red Devils commercial staff have pursued a policy of bringing in global partners to maximise the value of the United brand.

''This partnership with help Manchester United stay at the top of English and world football,'' said chief executive David Gill, who was at the announcement along with Sir Alex Ferguson and his squad for the Premier League encounter with Blackburn.

Rumours had circulated last week Epson were actually on the brink of buying United, speculation Gill was happy to refute.

''Social media networks may make it easier to stay in touch with our fans but they don't get it right all the time,'' he laughed.

The deal extends an association with sport by Epson that began in 1964 when they provided the timing devices for the Tokyo Olympics.