ALL issues relating to the bond issue and club finances

sammsky1 · 2nd January 2010, 22:30

Quote:

Manchester United examine £600m bond issue

Ben Marlow
From The Sunday Times
January 3, 2010

SOURCE: Manchester United examine £600m bond issue - Times Online

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 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.

Im not a finance whizz so please can somebody explain in layman's terms what a 'bond' is and how this would be beneficial to the club given our financial situation?

George the Giraffe · 2nd January 2010, 22:34

I'm sure someone who understands this kind of thing, and also has a good knowledge of the clubs financial situation will be along soon.

*Waits for Ralphie*

WeasteDevil · 2nd January 2010, 22:37

Why don't they just cut their losses and float the fucker again?

RonaldoVII · 2nd January 2010, 22:38

I'm no boffin either but my understanding is that only James Bond can save us now.

Striker10 · 2nd January 2010, 22:39

Quote:

Originally Posted by RonaldoVII

I'm no boffin either but my understanding is that only James Bond can save us now.

that's God damn awful

esmufc14 · 2nd January 2010, 22:41

Why don't the Glazers sell 49% of the club?

Valentino · 2nd January 2010, 22:47

Quote:

Originally Posted by RonaldoVII

I'm no boffin either but my understanding is that only James Bond can save us now.

i though it meant that our team must start smoking these

Makki · 2nd January 2010, 22:47

Quote:

Originally Posted by esmufc10

Why don't the Glazers sell 49% of the club?

I think they need 75% of it to be able to write their debt on the club.

Burndogg · 2nd January 2010, 22:47

Im still astounded this happened to us.

Ole'sbodyguard · 2nd January 2010, 22:50

Quote:

Originally Posted by WeasteDevil

Why don't they just cut their losses and float the fucker again?

I've asked this question myself since May 2005, hoping it was a reliable get out.

I am no financial wizard, but they'd need someone to underwrite it first, and from what has been muted on refloating they'd be hard-pressed to find somebody who'd do that at an acceptable price.

It'd be far easier for them to offload the club to some rich multi-billionaire in a single transaction.

WeasteDevil · 2nd January 2010, 22:50

Quote:

Originally Posted by Burndogg

Im still astounded this happened to us.

The club bought itself, essentially. There is nothing astonishing about it.

kietotheworld · 2nd January 2010, 22:53

Quote:

Originally Posted by esmufc10

Why don't the Glazers sell 49% of the club?

The monetary value of 49% of the club is probably significantly less than 49% of the monetary value of the club as a whole, if you get my meaning.

Suedesi · 2nd January 2010, 22:54

Quote:

Originally Posted by sammsky1

Im not a finance whizz so please can somebody explain in layman's terms what a 'bond' is and how this would be beneficial to the club given our financial situation?

It's like you're trying to get a new credit card to pay the ones that are charging 20%+ in interest.

Hardly ideal, but not the end of the world either.

WeasteDevil · 2nd January 2010, 22:54

Quote:

Originally Posted by Ole'sbodyguard

I've asked this question myself since May 2005, hoping it was a reliable get out.

I am no financial wizard, but they'd need someone to underwrite it first, and from what has been muted on refloating they'd be hard-pressed to find somebody who'd do that at an acceptable price.

It'd be far easier for them to offload the club to some rich multi-billionaire in a single transaction.

They had a significant holding in the first place, they wouldn't necessarily have to offload the lot would they? It was just a stupid idea in the first place though. I can't see that the value of the club has dropped very significantly, as the income stream is quite stable, in fact probably better now than it was. Also, I'm sure that many disgruntled United fans would lap up the chance to get the club into fan ownership. They should be able to recoup most of their money.

Twigginater · 2nd January 2010, 22:56

Bond

Spoiler

rednev · 2nd January 2010, 22:58

Quote:

MANCHESTER UNITED is considering a £600m bond issue as part of the Premier League club’s battle to bring its spiralling debts under control.

Great.

But we'll still be in debt, only it'll be in the form of bonds.

esmufc14 · 2nd January 2010, 23:01

We could just open a money-printing factory.

Sultan · 2nd January 2010, 23:01

How about life memberships for fans at discounted rate?

rednev · 2nd January 2010, 23:02

Quote:

Originally Posted by esmufc10

We could just open a money-printing factory.

We can employ Mickey Thomas to oversee it.

CptMarvel · 2nd January 2010, 23:07

Sounds like a great way to reduce interest payments.

CptMarvel · 2nd January 2010, 23:23

Quote:

Originally Posted by sammsky1

Im not a finance whizz so please can somebody explain in layman's terms what a 'bond' is and how this would be beneficial to the club given our financial situation?

A bond is an investment that lasts for a specific amount of time (I'd guess 10 years in this case), over that period you get the money paid back to you with interest (much like a loan in reverse). As we'd be selling bonds as opposed to borrowing money we'd get to set the interest rate (which is currently around 5.25% for long term fixed rate bonds).

Anderson Searl · 2nd January 2010, 23:46

Quote:

Originally Posted by CptMarvel

A bond is an investment that lasts for a specific amount of time (I'd guess 10 years in this case), over that period you get the money paid back to you with interest (much like a loan in reverse). As we'd be selling bonds as opposed to borrowing money we'd get to set the interest rate (which is currently around 5.25% for long term fixed rate bonds).

So essentially:

- Sell off bonds of 1 Million, which equates to:
- Getting back 1.0525 Million in 10 years

Over a course of hundreds of millions of pounds?

kietotheworld · 2nd January 2010, 23:48

Presumably it'd be 5.25% per annum?

Anderson Searl · 2nd January 2010, 23:56

Quote:

Originally Posted by kietotheworld

Presumably it'd be 5.25% per annum?

Aaaaah.

So if we did a million pound bond at 5.25% for 10 years, we'd get back 1.525 Million instead?

Which over a span of hundreds of millions of pounds makes a bit of an impact, but how would we re-pay increasing debt off if monies used to do that is being spent on these bonds.

Most of my financial knowledge of football comes from FM so this is all spanlgishneese to me

Anderson Searl · 3rd January 2010, 00:21

Question answered:

Quote:

Originally Posted by WWITT

Hi,

Newbie here.

The investors buying the bonds would pay the club £600m and in return they get 5.25% (probably a bit higher in reality) in annual interest paid to them by the club over let's say a period of 10 years. When the 10 year period is finished they then get repaid the £600m in full. They also would be given security in the form of Manchester United's assets (like the stadium etc).

The club would then use the £600m to repay the current Senior debt and PIK holders which have interest rates of 8% and 14.25% respectively.

The whole point of course being that the club would be able to significantly reduce the amount it pays out annually in interest.

Someone send this lad some rep for me please.

Devil_forever · 3rd January 2010, 00:47

Quote:

Originally Posted by Anderson Searl

Question answered:

Someone send this lad some rep for me please.

That's got to be WeWonItTwoTimes. That just has to be.

esmufc14 · 3rd January 2010, 00:48

Why was he banned anyway?

Devil_forever · 3rd January 2010, 00:50

Quote:

Originally Posted by esmufc10

Why was he banned anyway?

Not sure to be honest but he's stupid for registering with the abbreviation and his financial knowledge gives him away. Good poster when he was up here though.

rednev · 3rd January 2010, 00:52

WWITT was indeed a very good poster. He was a bit of a conservative loon, but a good poster nonetheless.

I think he was banned quite unfairly, but that's just me.

GAngel · 3rd January 2010, 00:59

Quote:

Originally Posted by Anderson Searl

Aaaaah.

So if we did a million pound bond at 5.25% for 10 years, we'd get back 1.525 Million instead?

Which over a span of hundreds of millions of pounds makes a bit of an impact, but how would we re-pay increasing debt off if monies used to do that is being spent on these bonds.

Most of my financial knowledge of football comes from FM so this is all spanlgishneese to me

Not sure what you mean exactly. It's essentially a loan from investors who get guaranteed interest. Investors like pension plans or hedge funds are usually the most interested because they get guaranteed returns over the long term which is what there shareholders want. It helps united because they won't have to worry about paying 69 million interest per year it would be something in the 15-20 million range (I'd guess). That way they free up operating profit to pay down the debt that will come due in X amount of years.

sammsky1 · 3rd January 2010, 02:53

Quote:

Originally Posted by Sultan

How about life memberships for fans at discounted rate?

What would that entitle the member to? How would it be different to having a season ticket like you or owning PLC shares like I used to?

sammsky1 · 3rd January 2010, 02:54

Quote:

Originally Posted by Suedesi

It's like you're trying to get a new credit card to pay the ones that are charging 20%+ in interest.

Hardly ideal, but not the end of the world either.

Quote:

Originally Posted by CptMarvel

A bond is an investment that lasts for a specific amount of time (I'd guess 10 years in this case), over that period you get the money paid back to you with interest (much like a loan in reverse). As we'd be selling bonds as opposed to borrowing money we'd get to set the interest rate (which is currently around 5.25% for long term fixed rate bonds).

Got it. Many thanks

Sojiro · 3rd January 2010, 04:33

Quote:

Originally Posted by Devil_forever

That's got to be WeWonItTwoTimes. That just has to be.

there was a newbie named "WeWonItThreeTimes" when i was back in newbieland (early Sept) and i remember WeWonItTwoTimes saying something about he could change his name since it was taken.

amir51 · 3rd January 2010, 05:53

This may not be a bad idea depending what rate of interest is on the bond.

For those who don't know a bond, is a financial certificate which is issued by a firm and bought by an institution or a regular investor. Hence, people give them 600M and this is treated as debt. MUFC has to pay interest to these bond holders (monthly or quarterly). Each bond has a maturity date and when it does mature, they must pay the remaining interest and the full principal of the bond.

Now they are probably issuing a bond because they are struggling to refinance their loans. Hence, they will take the proceeds and pay off the bank loan and thus just have the 600M in bond debt. This can be advantageous if the interest rate is lower than the bank loan (so we pay less interest). On the flip side, it could have a higher interest rate and we could be paying more interest because they cannot meet their payments and are just looking to delay it.

Unfortunately, I don't know much about how interest is set or if a bank loan would be cheaper or bonds. Anyone a specialist about interest rates?

RK · 3rd January 2010, 06:03

What happens when the bond matures though? Where does the 600M come from then?

beardsleybob · 3rd January 2010, 06:20

Quote:

Originally Posted by RedKnight

What happens when the bond matures though? Where does the 600M come from then?

From inside Glazer's mattress

Chris H · 3rd January 2010, 06:35

Quote:

Originally Posted by esmufc10

Why was he banned anyway?

The cnut couldn't count.

GAngel · 3rd January 2010, 06:41

Quote:

Originally Posted by RedKnight

What happens when the bond matures though? Where does the 600M come from then?

They would get a new loan hopefully for significantly less assuming they were using what they spent on interest payments to pay down the loans. Say they freed up 30 million a year they could pay off half of the 600 million and only need a bank loan of 300 million which is much easier to service than current debt.

Just think of it as going from a 10 year mortgage to a 20 year one. You pay more in the long run but it makes it easier to afford your house.

Chapster · 3rd January 2010, 07:24

too bad they wouldn't be able to do it in convertible notes since noone would buy into that and htey don't want to dilute their control

Interval Level · 3rd January 2010, 08:42

Won't bonds attract a much higher intrest rates making it costlier for us? The only thing I can see in this is that it might protect us against Interest Rate hikes and give us a longer term rather than refinancing often

2nd January 2010, 22:56	#15 (permalink)
Twigginater WUM Alert! Join Date: May 2008 Location: Obertans #1 fan. Posts: 7,228	Bond Spoiler James Bond

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2nd January 2010, 22:34	#2 (permalink)
George the Giraffe Reserve Team Player Join Date: Aug 2007 Location: Manchester Posts: 1,494	I'm sure someone who understands this kind of thing, and also has a good knowledge of the clubs financial situation will be along soon. Waits for Ralphie

2nd January 2010, 22:37	#3 (permalink)
WeasteDevil Redcafe's Greatest Poster Join Date: Jun 2001 Location: Salford in Castellón de la Plana Posts: 101,922	Why don't they just cut their losses and float the fucker again?

2nd January 2010, 22:38	#4 (permalink)
RonaldoVII First Team Regular Join Date: Aug 2008 Location: E236:24:101 PSN:FrozenInHell BetfairPromo: UTFAKVVTJ Posts: 13,821	I'm no boffin either but my understanding is that only James Bond can save us now.

2nd January 2010, 22:41	#6 (permalink)
esmufc14 9 Pages of infractions Join Date: Aug 2007 Location: Lake Fianga Posts: 24,838	Why don't the Glazers sell 49% of the club?

2nd January 2010, 22:47	#9 (permalink)
Burndogg Magic Meat Join Date: Mar 2006 Location: Viva La Soviet Union Posts: 17,146	Im still astounded this happened to us.

2nd January 2010, 23:01	#17 (permalink)
esmufc14 9 Pages of infractions Join Date: Aug 2007 Location: Lake Fianga Posts: 24,838	We could just open a money-printing factory.

2nd January 2010, 23:01	#18 (permalink)
Sultan السلام عليكم و رحمة الله و بركاته Join Date: Sep 2004 Location: It is better for a leader to make a mistake in forgiving than to make a mistake in punishing Posts: 34,333	How about life memberships for fans at discounted rate?

2nd January 2010, 23:07	#20 (permalink)
CptMarvel Reserve Team Player Join Date: Sep 2008 Location: Cmabridge Posts: 2,758	Sounds like a great way to reduce interest payments.

2nd January 2010, 23:48	#23 (permalink)
kietotheworld Banned Join Date: Sep 2006 Posts: 12,656	Presumably it'd be 5.25% per annum?

3rd January 2010, 00:48	#27 (permalink)
esmufc14 9 Pages of infractions Join Date: Aug 2007 Location: Lake Fianga Posts: 24,838	Why was he banned anyway?

3rd January 2010, 00:52	#29 (permalink)
rednev God Save My Gracious Queen Join Date: Jul 2006 Posts: 20,339	WWITT was indeed a very good poster. He was a bit of a conservative loon, but a good poster nonetheless. I think he was banned quite unfairly, but that's just me.

3rd January 2010, 05:53	#34 (permalink)
amir51 Reserve Team Player Join Date: May 2007 Posts: 1,765	This may not be a bad idea depending what rate of interest is on the bond. For those who don't know a bond, is a financial certificate which is issued by a firm and bought by an institution or a regular investor. Hence, people give them 600M and this is treated as debt. MUFC has to pay interest to these bond holders (monthly or quarterly). Each bond has a maturity date and when it does mature, they must pay the remaining interest and the full principal of the bond. Now they are probably issuing a bond because they are struggling to refinance their loans. Hence, they will take the proceeds and pay off the bank loan and thus just have the 600M in bond debt. This can be advantageous if the interest rate is lower than the bank loan (so we pay less interest). On the flip side, it could have a higher interest rate and we could be paying more interest because they cannot meet their payments and are just looking to delay it. Unfortunately, I don't know much about how interest is set or if a bank loan would be cheaper or bonds. Anyone a specialist about interest rates?

3rd January 2010, 06:03	#35 (permalink)
RK First Team Regular Join Date: May 2008 Posts: 15,163	What happens when the bond matures though? Where does the 600M come from then?

3rd January 2010, 07:24	#39 (permalink)
Chapster Reserve Team Player Join Date: Jun 2006 Posts: 3,212	too bad they wouldn't be able to do it in convertible notes since noone would buy into that and htey don't want to dilute their control

3rd January 2010, 08:42	#40 (permalink)
Interval Level First Team Sub Join Date: Jan 2009 Location: Oh Teddy Teddy Posts: 7,109	Won't bonds attract a much higher intrest rates making it costlier for us? The only thing I can see in this is that it might protect us against Interest Rate hikes and give us a longer term rather than refinancing often