Manchester United today confirmed that the club has raised more than £500 million on the bond market, which will pay down the principal debt owed to several international banks. The bond, issued in two blocks of £245.22 million and $416.78 million, will attract interest repayments of £45 million per year that could cripple the club, warn city experts.
The bond will remove restrictive covenants placed on the Glazer family’s ownership of the club, enabling the Americans to draw significant amounts of cash out of the club over the next seven years.
The prospectus used to market the bond last week revealed that the family will remove up to £127 million from the club in the coming year. Further club cash will pay down the so-called Payment in Kind loans that will attract an eye-watering 16.25 per cent interest from 1 August 2010.
A spokesman for the family claimed the deal brought “transparency” to United’s finances, although no comment was forthcoming on the revelation that the club will haemorrhage £565 million over the next seven years in dividends, interest and management fees (see table).
The coupon rates on each tranche of the debt is 8.750 per cent and 8.375 per cent respectively, which will bring a yield of nine per cent to investors. Early trading saw the bond dip in value on the New York market, although there is little information to date about who bought the senior notes offering.
However, David Bick, a financial analyst, said that in the long-term the bond is “very bad news for the football club” because of the amount of money that will leave the club in dividends and interest.
“This is better news for the Glazers because it pushes back when they have to repay the debt to 2017,” Bick told Sky Sports News.
“It’s not good news for the football club because when you look at the details, the Glazers will take interest and dividends out of the club. It means that the manager will have less money to spend.”
United’s executive team, including Managing Director David Gill, held investor meetings in London, New York and Asia in the past week to drum up interest in the note issue, which has been over subscribed.
“It’s been over-subscribed because the interest rate is way above the underlying interest rate in the market at the moment. But if the manager doesn’t, in the long run, have sufficient resources to compete with Chelsea, Real Madrid and Barcelona inevitably they will decline,” added Bick.
“Old Trafford could be sold to help pay down the debt but if they do that they’ll only add to their operating expenses and will have still less money for the manager to spend on the playing squad.
“Ultimately its almost beyond argument that clubs must spend money, and if they are constrained they will run the risk of dropping out of the top four.”
A chilling thought for all United’s supporters.
For those of a financial disposition, the full bond details are as follows:
Issuer: MU Finance plc.
Sec Type: Senior Secured Notes (144A/RegS, no Reg Rights)
Maturity: February 1, 2017
Face amount: £250,000,000 | $425,000,000
Proceeds: £245,222,500 | $416,776,250
Coupon (s/a): 8.750% | 8.375%
Reoffer price: 98.089 | 98.065
Yield: 9.125% | 8.750%
Reoffer spread: UKT 4% Sep-16 +569bp | UST 3.25% Dec-16 +568bp
01-Feb-13: 108.750 | 108.375
01-Feb-14: 104.375 | 104.188
01-Feb-15: 102.188 | 102.094
01-Feb-16: 100.000 | 100.000
Min Denom: £50k + £1k | $100k + $1k
CUSIP: | 144A: 553799 AA5
Reg S: G63262 AA0
ISIN code: XS0479707688 | USG63262AA01 (RegS)
XS0479707845 | US553799AA50 (144A)
Interest Pay Dates: February 1 and August 1
Beginning: August 1, 2010
Trade date: 22-Jan-10
Settlement date: 29-Jan-10 (T+5)
Underwriters: JPM (b&d), BAML, DB, GS, RBS // Co-Manager: KKR
7 thoughts on “£504 million bond “very bad news” for United”
Like most fans, I struggle to understand our financial position, there’s differing views bombarding us at everyturn……however, do this bond ‘stuff’ make it harder for someone else to come in and buy us?
this sounds bad. rly bad.
this is beyond words, get these b******s out of OT.Simple as
There’s so much dumb stuff about this. The bond sale means that in the immediate future the debt the Glazers have will not involve the club being dragged into bankruptcy. And more important, whoever bought the bonds will be in a position of power to negotiate buying out the glazers if things go to the wall. Don’t believe the scare mongers…united will always be a force. And if you want to blame someone, don’t blame the Glazers, blame the bastards who walked away with millions after selling their share of United without considering the consequence of putting the cluub into debt. The Glazers are mugs if anything…just mugs thinking they could make a quick buck or two off the limey idiots, but they got taken and badly, so give them so slack. They are trying to play it straight it seems…but there who knows. At the end of the day, United is an incredible money pit and only a complete iudiot will **** it up.
And while we’re at it: anyone see how ******** good Nani is playing the last couple of games. Fergie is GOD. He’s turned Nani from a wasteful twat into a really good player!
4/5 good games in 2/3 years aint no sign yet of a really good player. I agree he was great today but thats not the standard thatwe need to measure aginst.lets see if he gets a look in against Arsenal and what he does 2nd half of season. really hope youre right as we cant afford him to be a flop….
The Glazers arent any paragon of virtue – they are typical bombay shit hawks out for their 30 pieces of silver – whatever the consequences….they deserve no benfit of the doubt. Although Id agree with the point on the previous shareholders starting with Edwards.
This club started going down the shitter from a purists point of view when they took the football club off the badge…..Ferguson attracted McManus and Magnier ot the club through his ambition to build up his power base vs Edwards and co – that backfiredon him thourgh his own ego and that has resulted directly in the above selling to the unscrupulous yanks that we now have. As I said – a deity as a football manager, not as a man….
I am completely fucking depressed when I read this on going shit- storm. We are really in trouble… I work for a US multi-national and have seen a lot of Mergers and Acquisitions US style. This is the same tactic. It is obvious that all these fucking yank scumbags are doing is leveraging the club short term to get out as soon as possible with maximum return. They do not give a shit what we think and they will do anything to optimise their their financial position by maximising Revenues and asset stripping and selling the club in the next possibly 2 years. There is no way that they can afford the current or indeed the 16+% interest rate from 2016 given the fact that Utd will be negative operating income even now. The value of any company is driven by 4/5 main criteria. 1 Top line revenue (trend +/- and how optimised/maximised this is ie ticket sales and price, advertising , sponsorship deals etc etc) 2 Operating Income or EBITA (Revenue minus operating costs – eg wages/travel)3 Asset Value ( minus OT and Carrington) 4 Goodwill(brand value)5 Cash/debt position ( how much money they have in the bank/owe the banks)
The current strategy in my view is:
Revenue maximisation and OI optimisation for sale within 2 years
– new and more attractive sponsorship deals eg Aon etc
– Increase ticket prices 98% increase in 5 years
– Maximise merchandise ( new kit per season?)
– Selling of Players ( Vidic etc)
– Transfer policy of under 26s (lower cost)
– Naming rights to OT/Sales and lease back of OT ( on latter – pay down debt and increase operating expenses as Interest on debt far exceeds short term increase in operating costs)
– Sale and lease back of Carrington( as above)
– No star acquisitions
Don’t know how many will agree (what’s the bet I’ll be crucified) but I have followed Utd for nearly 30 years and all of this is because of a fucking horse and no wonder Fergie is keeping his gob firmly closed and completely unsympathetic to the concerns of nearly all fans……I’m a fan of the football manager but not the man.
Red Paddy makes good points here.
Both about asset bleeding of the club and Fergie’s earlier role in all this.
Wherever money is concerned, it’s like the proverbial pigs around a trough.
Even if the ‘Red Knights’ save the day, how can we true fans be sure that some of them will not contrive to run club for their own ends ?