ALL issues relating to the bond issue and club finances

[Interval]

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

 

[Chapster]

you'd expect bonds would be cheaper than PIKs

 

[samabachan]

Surely a £600m bond issue would see us owing around a billion to our investors in 10 years time, and since it's in the form of bonds I'm guessing there's no way to pay it off in installments?

 

[Interval]

Surely a £600m bond issue would see us owing around a billion to our investors in 10 years time, and since it's in the form of bonds I'm guessing there's no way to pay it off in installments?

Yep. Unless we re issue

 

[Tibs]

I understand this as much as I understand Chinese commentators on SopCast.

Apple could buy us...and then we could have an official Manchester United iPhone app

 

[peterstorey]

It's never going to fly, if it was a goer you'd have done it at the start instead of getting screwed by the PIKS. You've got nothing left to back it with everything's already in hock to the banks.

 

[greater wall]

Bonds are basically an IOU. The club is in debt by 560-600m already, the only reason they would do this is to see if they can reduce the annual interest payments. As the interest rates are currently very low, investors who require income would like to hold bonds which pay them interest much higher than what you would get in a bank account. Investors buy bonds yielding them anything from 5-10% for a top notch company.

Think of this exercise as remortgaging your house. You bought the house when interest rates were high, you now see that rates have dropped and you wish to remortgage on a fixed rate and you investigate with the banks what rate you can get so that you pay less than your current deal.

 

[Gambit]

So basicaly all the Glazers are going to do is keep remortgaging the club for less and less interest deals thereby allowing them to earn more money themselves, until someone comes in and offers them what they believe the club is worth.

 

[friendlytramp]

How did the takeover ever make sense for the Glazers if all they get is debt? has the banking crisis/credit crunch/recesson significantly impacted on their plans? It can't always have been destined for shit, surely?

 

[friendlytramp]

So basicaly all the Glazers are going to do is keep remortgaging the club for less and less interest deals thereby allowing them to earn more money themselves, until someone comes in and offers them what they believe the club is worth.

ah right think you probably answered my question...

 

[Rood]

It's never going to fly, if it was a goer you'd have done it at the start instead of getting screwed by the PIKS. You've got nothing left to back it with everything's already in hock to the banks.

I would be suprised if it happened - however the reason it might work now and not at the start is due to the fall in interest rates

 

[CptMarvel]

Surely a £600m bond issue would see us owing around a billion to our investors in 10 years time, and since it's in the form of bonds I'm guessing there's no way to pay it off in installments?

No, you pay off the interest over time so the debt would remain at 600m.

Paing it off in installments is less desirable than keeping the installments in a high interest account and handing it all over in 10 years time.

 

[Doogie]

No, you pay off the interest over time so the debt would remain at 600m.

Paing it off in installments is less desirable than keeping the installments in a high interest account and handing it all over in 10 years time.

It depends actually on the type of the bonds. I can't remember all the English words for them but iirc there are three main types.

1) You pay both interest and the principal over a period of time.
2) You pay only the interests yearly (or monthly) and then the principal at the end of the period.
3) You pay nothing until the end of the period when you need to pay both the interest and the principal in one payment.

Those three types have all different variations.

 

[Anderson Searl]

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.

My question was answered so not sure what you're at exactly.

 

[Rood]

Now I dont actually agree with this article but thought it worth posting in this thread anyway ...

Is Man United’s Bond Plan Another Tactical Masterstroke? - The Source - WSJ

Football’s rumor mill is in overdrive as speculation swirls over which players will change clubs in the January transfer window, but news that Manchester United is reportedly considering a £600 million ($968 million) bond issue to cut its debt is one of the least surprising developments so far.

United was left laden with debt following the club’s highly leveraged £790 million takeover by the Glazer family in 2005, and subsequent attempts to refinance its debt on a number of occasions have been scuppered by the credit crunch and the tough economic climate.

Yet the timing of the report—coming as it did just two days after January transfer window opened—is certainly curious.

The January window is one of two periods—the other lasting 12 weeks in the summer—in which clubs are allowed to retool their rosters by buying players. And United’s line-up could certainly do with reinforcements.

The reigning Premier League champion is two points adrift of leaders Chelsea following a period of patchy form that culminated in Sunday’s humiliating FA Cup exit at the hands (feet) of Leeds United, a team from the third tier of English football.

With only a fraction of the £80 million recouped from last summer’s world record sale of Cristiano Ronaldo reinvested in the current playing squad, United would appear to be in the market for replacements this month.

Yet the club’s manager Sir Alex Ferguson has repeatedly played down suggestions the club will buy players. This week’s news that the club is attempting to sell its debt appears to lend weight to Mr. Ferguson’s claims, but could this be another canny tactical ploy by the legendary manager?

The January window is traditionally seen as a seller’s market because the restricted time period places pressure on buying clubs to act quickly before the window slams shut.

The knowledge that Mr. Ferguson has £80 million burning a hole in his pocket is also working against United, since selling clubs and agents will further inflate transfer fees and wage demands knowing that United has such handsome resources.

With that in mind, stories of a gloomy financial outlook at Old Trafford could be just what the club needs to make a low-key signing or two—without paying over the odds.

 

[peterstorey]

Sounds like complete bollox.

 

[sammsky1]

Taken from another blog site:

It really is about time the general media picked up on this subject and started to put some real pressure on UTD and in particular the Glazers as to the way the club is being financed as well as the possible implications of course.

I would also like the same of the authorities of Football - what is the point of having rules like "good and proper persons" or European bans for Clubs in debt, if they are not being acted upon??

The current financial position at UTD shouldn't really be a surprise to anybody; the UTD fans and supporters groups who had on previous occasions fought off similar styled takeovers talked long ago (still do) about what the implications would be (not could be) and we're now getting very close indeed to those theories being tested if not realised!!

It's been no secret that the Glazers have employed the services of JP Morgan & the Deutsche bank (at great expense) in order to find a way of raising new debt, to pay off the old.

In short, the interest on the "payment in kind" loan, or "hedge loan" as referred to here is currently 3-fold that being paid on the main loan, which is causing the problem and so by paying a new consolidated debt through a "Bond", albeit ironically which will result in a higher interest rate than the current Bank loan, it would nevertheless amount to an overall more manageable lower consolidated interest payment... the problem again of course will soon be, but for how long this time!!

Assuming a "bond" is sorted as being hoped for, then it would still take a consistent, unprecedented and unrealistic amount of success (and spending) to sustain the repayments long-term and as we all know, this will not happen.

It was always going to be a case of screwing the fans for all their worth & exhaust the current squad for as long as possible... I think it's now fair to assume the former has long since been done and the latter, more or less!!

This summer will give us our biggest indication yet of the Glazers future intentions for the team; apparently there's much money to be spent, including the Ronaldo £'s, (personally, I'm not convinced) of course we can only take the Glazers' word for it at the moment but considering that I don't trust them as far as I can piss, then my guess is that they need the "bond" first in order to enable them to spend... time will tell!!

No matter what the future brings though, above all the legacy which the Glazers will leave behind is how they split the UTD fans; in all my experience going to UTD I have never known anything like the political split within the "hardcore" which to this day remains as strong and bitter as ever both home and away.

Although I came close to quitting on a couple of occasions, like the dick I still re-new my S.T but it's definitely not the same for me now, mainly due to the fact that I begrudge having the piss taken out of me so much by our owners; I no longer feel like I'm supporting a club, I am of course, but not in the sense that I used to feel, it's like the club is gone now and it's just the team.

The whole situation at UTD (although humorous for a few idiots out there) is potentially very depressing indeed and it's about time the Footballing authorities stopped shitting themselves and instead started to ask a few questions and lay the law down!!

 

[ManRyan2]

We can employ Mickey Thomas to oversee it.

great man that

 

[CptMarvel]

Cambridge University follows Ivy League trend with £400m bond issue


The university has traditionally relied on government subsidy and grants for about half its £1.14 billion annual income
Alexandra Frean

For 800 years the University of Cambridge has stood solid as a rock, independent and, as universities go, strikingly rich. Not once has it ever resorted to significant borrowing to make ends meet.

Now, however, it is planning to raise up to £400 million from its first bond issue, following a trend set by Ivy League institutions in the United States to turn to the money markets for funding.

Andrew Reid, the university’s finance director, admitted that he was worried by the step into the relative unknown but insisted that it was the best way to secure the huge sums of money required for two one-off building projects.

“We usually raise money through benefactors but this time we need a significant sum so are turning to other methods,” he told The Times. “At the moment we are completely unleveraged. It worries me. But we are a very stable organisation and we need to manage our finances properly.”

The university’s recourse to the bond market suggests not so much penury — its investment assets as a whole are, after all, currently valued at about £4 billion. Rather, it appears to signal a new openness to the modern financial world from an institution that has traditionally relied on government subsidy and research grants for about half of its annual £1.14 billion operating income.

A bond is a certificate of debt issued by an institution — usually a government or a corporation — guaranteeing the lender repayment of the original sum borrowed, plus interest, by a specified future date.

Several American universities have issued new bonds in the past 12 months after market losses in their portfolios severely dented the value of their investments.

Among the most active issuers were Harvard, which sold $2.5 billion (£1.5 billion), Princeton, which sold $1 billion, and the University of California, which sold $1.6 billion in construction bonds, according to analysts at Roubini Global Economics and quoted by The Wall Street Journal.

It is not the first time that Cambridge has borrowed financial ideas from the Ivy League. Before the present crisis both Cambridge and the University of Oxford initiated US-style fundraising campaigns and hired in-house investment committees to reduce their dependence on state funding and build up endowment funds.

Their timing could not have been worse, however, and both universities saw the size of their endowments diminish after markets fell after last year’s credit crisis.

Lancaster University was the first in the UK to go for a bond in 1995 with a £35 million issue. The university claims that it has been a huge success and last year announced an £80 million refinancing of the debt.

Mr Reid said that Cambridge needed the money to finance two main projects: a development in northwest Cambridge and the redevelopment of two existing city centre sites — the New Museum site on Downing Street and the Old Press site near Silver Street.

The university investigated several options for raising money for the projects. “We remain open to bank financing, private placement or public bonds but the value of funding we anticipate needing, and the term [we are looking at, of 30 to 40 years] suggests that a bond issue is likely to be the best way forward,” Mr Reid said.

He added that the bond issue would be likely to be a “one off” action, rather than a regular fund-raising technique. “Projects like these only come along once every 15 years or so,” he said.

The university has been in talks with a number of banks about the issue for the past two to three years and is likely to proceed with the bond 6 to 12 months from now. It is expecting to earn a AAA credit rating.

Although the bond will be the first significant borrowing by the university’s central body, some of its 31 colleges have proved active in chasing investment opportunities during the financial crisis.

In October Trinity College spent £24 million to acquire the Meridian Delta Dome, the holding company of the 999-year lease on the O2 arena.

Last year Clare College, Cambridge, took advantage of low interest rates to borrow £15 million on a 40-year inflation-linked loan. It invested that money in rock-bottom stocks and shares, which it expects to deliver a £36 million profit in 2048 when it cashes in to repay the loan.

The University of Oxford said that it had no plans to issue any bonds, as did Eric Thomas, the Vice-Chancellor of the University of Bristol. “When we wanted to raise £250 million two or so years ago we just went to Barclays bank and borrowed it,” he said.

A spokesman for the Higher Education Funding Council for England said that using bonds to raise money was the exception rather than the rule for British universities: “It does happen from time to time, but the [market] conditions have to be right,” he said

Coincidence?

 

[Redfighter]

It's basically another American method of finding money that's not actually yours. American are top class at spending money they don't have and even better at failing to repay money they didn't have.

The only way this club can become stable again is for the Glazers to sell a percentage to another investor but maintain a majority share if they wish to remain in control or, refloat the club on the stock market.

There is another option but it would involve the entire Glazer family being killed in order for solictors the pay off any outstanding debts of their various companies.

 

[matt72]

the full article is in the dail mail (online)

truly shocking stats about the yanks we really do need to f*ck these lot off fergie should have loads of money to spend to compete with madrid


So, are you sure you've got £60m to spend at Manchester United, Sir Alex? | Mail Online

 

[Flying Fox]

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

Why don't they sell 51%?

More money to clear the debt and they no longer have majority in the club.

 

[Anderson Searl]

I thought 75% was for control?

 

[Rood]

BBC - BBC Sport: Matt Slater: Fergie's bond is a bind for everybody else

A decent summary of the whole bond thing here - it is quite long so I wont post it all but worth a read as it is better written than the usual sensationalist rubbish ...

 

[theimperialinn]

They have to do something before the PIKs spiral out of control.

 

[peterstorey]

A decent summary of the whole bond thing here - it is quite long so I wont post it all but worth a read as it is better written than the usual sensationalist rubbish ...

It does include the financial illiterates' mantra: 'United will be OK. They're a global brand now, too big to fail.'

They have to do something before the PIKs spiral out of control.

The original PIKS converted to equity if not redeemed if that's still the case Glazer might be better off letting that happen to the new ones than redeeming them.

 

[Rood]

It does include the financial illiterates' mantra: 'United will be OK. They're a global brand now, too big to fail.'

The original PIKS converted to equity if not redeemed if that's still the case Glazer might be better off letting that happen to the new ones than redeeming them.

Well obviously Lehman Brothers showed the world that no company is too big to fail but wouldnt you agree that the larger the company, the less likely it is that they will fail?
If you owe the bank a few hundred thousand then they might just close you down, if you owe them hundreds of millions then they will do whatever it takes to keep you going!

That's an important point actually - if the Glazers cant come up with the cash to pay off the PIKs, then it doesnt mean financial meltdown - it just means that some shares pass from the Glazers to the hedge funds.

 

[Drifter]

Manchester United have, as expected, revealed plans to raise more than US$800 million through a bond issue as the Glazer family seeks to restructure a debt burden of more than US$1.1 billion.

"Manchester United today announced that it will be seeking to raise approximately £500m aggregate principal amount from an offering of senior secured notes due 2017," said a statement from the club. "The notes, whose proceeds will be used to refinance existing debt secured against the club, will be issued by MU Finance Plc."

Last week The Sunday Times broke the news that the Glazers had tasked two investment banks to investigate ways of easing the debt burden.

Sir Alex Ferguson, the club's manager, who has delivered three Premier League titles in the last three seasons, said on Friday that he believes the bond issue to be a good move. "I don't have any concerns about the financial situation. There is absolutely no issue at all with the club's finances," he told the Daily Telegraph. "There is debt there, but it has never interrupted my plans for the team at any stage.


"I have no issue at all. There has been talk about a bond issue and I think that's a good thing for the club. Anything that helps with the repayment of the debt is a good thing," Ferguson added.

Manchester United continue to receive a lucrative income from both the Premier League and Uefa Champions League, as well as huge global merchandise sales. However, there have long been concerns amongst Manchester United fans about the debt taken on by the Glazers to buy the club.

 

[mariachi-19]

Interesting. If it gets rid of those massive interest payments i'm all for it. 5% compared to 14 is far more favorable.

 

[esmufc07]

I'm a nonce when it comes to all this debt business. Will overall debt be reduced, increased, or will it stay the same?

 

[Nistelrooy10]

Bond is only going to prolong the agony and put away the crisis for the time when SAF retires. It's interesting that they didn't list the interest in the official statement.

 

[Mitch Conor]

Interesting. If it gets rid of those massive interest payments i'm all for it. 5% compared to 14 is far more favorable.

from the articles over the last week or so - i'm not sure if that will be the case.

Seemingly we can't pay off the PIKs before the bank loans are paid off, and 500million is not enough to pay off both. Maybe the articles have been wrong and the PIKs can be paid off early and before the main bank loans.

 

[Average Joe]

I'm a nonce when it comes to all this debt business. Will overall debt be reduced, increased, or will it stay the same?

I'm with Elvis. Somebody please explain how this REALLY affects the state of our debt, if at all.

 

[Pogue Mahone]

from the articles over the last week or so - i'm not sure if that will be the case.

Seemingly we can't pay off the PIKs before the bank loans are paid off, and 500million is not enough to pay off both. Maybe the articles have been wrong and the PIKs can be paid off early and before the main bank loans.

You've also go to wonder if anyone will want to risk buying the bonds they issue. I know I wouldn't.

 

[Nistelrooy10]

I'm with Elvis. Somebody please explain how this REALLY affects the state of our debt, if at all.

Debt will stay the same and be payable in 2017 in one lump sum. Until then, we pay interest payments on the debt. They are most likely smaller than current interest payments, otherwise, it wouldn't be worth doing the whole thing.

 

[dev1l]

from the articles over the last week or so - i'm not sure if that will be the case.

Seemingly we can't pay off the PIKs before the bank loans are paid off, and 500million is not enough to pay off both. Maybe the articles have been wrong and the PIKs can be paid off early and before the main bank loans.

I posted one such article - It was from the Irish Examiner and it stating exactly what you re saying re: PIK's.

But as you said, the reporter could have got it wrong....I mean the information we re talking about, is normally a bit "confidential"..

 

[mariachi-19]

I'm with Elvis. Somebody please explain how this REALLY affects the state of our debt, if at all.

Going by the rest of thread and my minimal knowledge It seems to me it goes something like this.

Think as bonds as loans. The only difference is that instead of 14% interest on 3 different loans each year (each loan valued at close to 275 million quid each) the bond is issued by investors/banks allowing us to wipe away those loans. What this does is remove any outstanding debt United has with current creditors and removes the 14% interest payments. Instead we are left with interest repayments of something like 5% based on each bond issued. so instead of paying something like 70 million pounds on interest each year, its around 25million 'massive difference'. I may be wrong in thinking, but at the end of bond lease, the repayments are made in full. What I see United doing is in part investing that money saved from paying interest repayments in to a high interest savings account '12-13%' and adding every year to increase profitability on the interest return. Effectively you could make enough to pay the Bond interest of each year using the interest made from the money in the high interest savings account. My old school has one massive bank account 'in the order of 30 odd million dollars, and the interest made on that account alone paid for the schools scholarships.

 

[dev1l]

Going by the rest of thread and my minimal knowledge It seems to me it goes something like this.

Think as bonds as loans. The only difference is that instead of 14% interest on 3 different loans each year (each loan valued at close to 275 million quid each) the bond is issued by investors/banks allowing us to wipe away those loans. What this does is remove any outstanding debt United has with current creditors and removes the 14% interest payments. Instead we are left with interest repayments of something like 5% based on each bond issued. so instead of paying something like 70 million pounds on interest each year, its around 25million 'massive difference'. I may be wrong in thinking, but at the end of bond lease, the repayments are made in full. What I see United doing is in part investing that money saved from paying interest repayments in to a high interest savings account '12-13%' and adding every year to increase profitability on the interest return. Effectively you could make enough to pay the Bond interest of each year using the interest made from the money in the high interest savings account. My old school has one massive bank account 'in the order of 30 odd million dollars, and the interest made on that account alone paid for the schools scholarships.

AFAIK only the 175 million PKI's have 14% interest payments on them. The interest rate on the rest of the debt (around 423 million) is around 2-5%.

 

[dev1l]

Dont know if this has already been posted...

Manchester United confirms refinancing plans
By James Chapelard

.........

These include payment in kind (Pik) notes of £175m. for which the Glazers are personally liable and which carry rolled up interest charges of 14.25 per cent per annum.

Red Football Joint Venture more than covered its £68.8m of interest charges last year with operating profits of £80.4m.

The club today released the accounts for Red Football Ltd – the holding company for Manchester United - for the year ending June 2009. Earnings before depreciation, amortization of players' registration and goodwill grew to £80.4m, from £91.3m, while the company made a pre-tax profit of £48.2m, compared with a £21.4 loss the previous year. The profit in the accounts was almost all due to the sale of Cristiano Ronaldo for £80m to Real Madrid before the summer.

Sales grew to £278.5m from £256.2m, with media revenue growing by 10 per cent to £99.7m and commercial revenues growing to £70m, from £64m in the previous year. Despite the recession, matchday revenue also grew to £108.8m from £101.5m.
Manchester United confirms refinancing plans - Crain's Manchester Business

 

[charleysurf]

Debt will stay the same and be payable in 2017 in one lump sum. Until then, we pay interest payments on the debt. They are most likely smaller than current interest payments, otherwise, it wouldn't be worth doing the whole thing.

But how the hell are they ever going to pay off 500m+ in 2017 unless they sell the club??