He could rightly say that the 'Ronaldo money' was available and had been ringfenced for Fergie to use when you take the into account the RCF. Of course you could pass off the c.£90m end of year balance (with £70m having been deducted) as clearly showing the cash was available but effectively you'd have to use RCF cash at some point to finance such a large expenditure in one year. We won't need to do that though and even if we did the cash outflow would be spread over at least two financial years. In any case we used the old RCF for working capital requirements so yes as far as I'm concerned that would be the club operating normally.
A ringfenced reserve is a cash free reserve that wouldn't invoke debt.
THe pik money of 70m, if it goes, would not require the use of the RCF (and it shouldn't). Spending 80m or the 'Ronaldo money' will involve the use of the RCF. In effect, the Ronaldo money is essentially borrowings against future income, money not yet received. I am not saying that Fergie would or should use the supposed 80m in one go; but if the money is truly ringfenced, he could without involving more debt. If I say I have set aside money to buy a car and end up putting most of the cost on my credit card, to what extent could I rightfully argue that I have set aside the required amount?
Our cash needs this accounting year, 2010/2011 are much heavier than the last period. According to the JCM report, 52m will leave the club to service the bond and the swap loss (31 last year). THe Glazers could take a dividend by March 2011. In addition, there is the impact of aon deal on working capital.
If we spend the planned annual budget of 25m (distinct\separate from the 'Ronaldo money'), then the cash position around march 2011 will be weak.
Based on the JPM report, and using the Q3 results from 2009 as a guide, I reckon our cash balance in March 2011 will be roughly (154m-77m) 80m. If you assume the pik money is taken by then, the balance drops to 10m.
Spending the supposedly ringfenced 'ronaldo money' by then would drop the balance to -70m (ie pretty much a full drawdown of the RCF). Future revenue(deferred income received in may/june of 2011) will have to be used to pay down the RCF so as not to breach the RCF's maintenance covenant; thereafter the cycle would repeat itself- the RCF would be called on again to meet heavy working capital needs and the process would continue until free cash flow in future years negate the need for the RCF (Notably, cash generation under the JPM report is forecast to be weak on their best estimate basis and they don't even model the annual dividend entitlement).
Spending the 'Ronaldo money' would involve a series of short term borrowings over a number of years and would incur an interest expense in each year.
Spreading the 'Ronaldo money' spend over a couple of years doesn't fix the problem; the impact on the RCF will be additive.
In conclusion, once the PIK money of 70m heads west, so does the free cash reserve formerly known as the 'Ronaldo money'. What remains, if spend, would involve heavy use of the credit card known as the RCF. And there is no way the club would put heavy player expenditure on the credit card:
1, It's not designed for that purpose; we previously had a 50m RCF which wasn't traditionally used to purchase players.
2 It's difficult to control and manage short term debt instruments such as this, especially when you have to counterbalance its use to allow for significant working capital needs at the same time.
3 There could be complications wrt to taking dividend entitlements.
4 A heavily drawn RCF together with the first lien bond would make a possible refinancing of the pik more difficult.
No, I think the RCF will be used to meet heavier than usual working capital needs- the latest refinancing allows for additional casflow out of the club. The ceiling of 75m on the RCF has the added benefit of being close to the 'Ronaldo money' amount, a useful comparable from a P.R. perspective. I expect it to be used sparingly for player spend.
