Has the Glazer family run out of money? It’s a question one prominent Manchester United blogger Andy Green asks as the family’s property business in the United States nose-dives. Despite putting up the ‘not for sale’ signs at Old Trafford, the Glazers are facing up to the realities of deep property recession in their homeland.
The Glazer family’s business empire includes both the property company First Allied Corporation and the Tampa Bay Buccaneers NFL team. Each has suffered in the past year.
Indeed, the Bucs have just completed one of the worst seasons on record, with the franchise $30 million below the salary cap and little business being done on the ‘free-agent’ market during the close season. Bucs fans, no friends of the Glazers during the family’s 15 year ownership, have reached United-esque levels of anger with attendances down more than 10 per cent.
Meanwhile, First Allied, which owns a series of strip malls in the US, has experienced foreclosures and an increasing number of vacancies across its portfolio in the past year, resulting in probable heavy borrowing to sustain the ailing property business, argues Green.
“Given the high void rate experienced by the company and the weak anchors in many centers, cash flow has probably been well below plan for the last two years or more,” argues Green, who is close to the so-called Red Knights group.
“It seems very likely that the Glazers will have had to put capital into First Allied… [which] fits entirely with the family’s management of its other businesses.
“The Buccaneers have been starved of investment on the playing side, at United no attempt has been made to repay any of the PIK debt.”
So short of cash has the family been that in 2009 the Glazers sold off two of their investments: Zapata Corporation for $74 / £46 million and the La Bellucia estate at $24 / £16 million, reports Green,
Meanwhile, in 2008 the Glazers borrowed £10 million from United and last year charged the club nearly £3 million in consultancy fees for the pleasure of having the family on the board.
“Has this money gone to shore up First Allied’s balance sheet?” asks Green pertinently
“What of the loans the family took from United? Are they a reflection of the fact that First Allied no longer has the capacity to pay the family dividends to which no doubt they were accustomed during the property boom years?”
“The Glazers’ other interests suggest the family are overstretched and in retrenchment mode. That doesn’t tally with the assertion that the club is “not for sale”.
“Perhaps someone should make them an offer,” he concludes.
In public at least the Glazers maintain a not for sale stance on the club they acquired for £790 million in 2005. Privately, many recognise that highly geared businesses such as United are always for sale. The only question remains the price.
Significantly the Knights have appointed Nomura’s Guy Dawson to head analysis of a potential summer bid. Dawson joined Nomura in December after he sold his advisory firm Tricorn Partners to the Japanese bank. That he advised the Manchester United board during the Glazers’ takeover in 2005 offers the Knights valuable insight.
12 thoughts on “Are the Glazers going bust?”
Someone needs to get some facts right on this article, they did not pay 790 million in 2005 at all, honestly stop giving people the wrong information and if you want to write about them check things first.
I think the majority of us all wish they are going bust and will sell United and i am sure they will in time but they are not going anywhere just yet and Malcolm Glazer has such a thick skin, insults and flag waving wont make any difference to him.
Well, according to my Unconditional Mandatory Cash Offer by NM Rothschild & Sons Limited on behalf of Red Football Limited dated 26 May 2005 (which I still have as a former shareholder) the Offer was 300 pence cash for each United share valuing the club at 790.3 million quid.
So Loyal Red, are you quibbling about 300 K ?
264,305,450 shares were bought at £3 each resulting in a purchase price of £792,916,350 or thereabouts.
Nice one Ed,
and the official offer document of 2005 also lists that
a) the Glazer family will provide 272 million in equity contribution comprising already owned United shares (at that time)
b) Red Joint Venture will provide 275 million of funding by issue to certain investors of the non-cash pay Preferred Securities
c) (and I like this one) certain lenders will provide to Red 265 million of term loan facilities .. etc etc.
And to sum up..
Rothschild is satisfied that resources are available to Red which are sufficient to satisfy the cash consideration.
Interestingly, these are the points I highlighted in my document at the time and remember feeling very uneasy but powerless.
Of all the potential billionaire owners in the world, we get landed with the ones with no bloody money.
Nice one munkey. U related to dear Humphrey Bogey by chance?
At last someone has written what has been whispered in financial circles for quite awhile about first allied.
You also forgot to mention they sold daddy’s Palm Beach house as well, last year.
P.S wouldn’t surprise me if (spawn of uncle Malc)contact is made by the their ‘lawyers’ claiming libelous content. It doesn’t take much for them to get their threat monkeys out of the trees.
Good rant. Good pointer.
Yes, the only question remains the price.. and who seals it.
I just wish the banks would lend me a billion, accept my promise to pay back PIK-like, buy whoever, not bother doing ‘owt except bleed ’em dry with my admin expenses and then sell on for 2 billion.
Nice little earner.
Of course the Glazers will say that United aren’t for sale and conceal their financial problems because they don’t want to appear desperate. Because that would depress the price.
Having said that they could sell the Bucs instead. That club is supposedly worth $1bn.
It would be utter suicide for them to not accept a bid in the region of 1.2-1.5b. It makes financial sense to quit while they’re loosing. Pay off what they owe, and look for new investment opportunities away from Manchester United, Tampa Bucs etc.
Green & Gold till they die or fold!!! LUHG
• Legal Entity: Red Football Limited (UK registered, incorporated in 2004)
• Chief Executive: David Gill
• Manager: Sir Alex Ferguson (68 years old). Shares business interests with Irish investors McManus and Manier who previously sold their stake in Man Utd to Glazer Family. Rumour of soured relationship with David Beckham (infamous boot incident and Beckham’s subsequent move to Real Madrid). Sir Alex Ferguson has been pivotal to Man Utd’s success where he has been in charge since November 1986 (23+ years)
• Owners: Glazer Family: Avram, Edward, Bryan, Joel, Kevin, Darcie
• Employees: 544
2. TRANSACTION DEATILS – ACQUISITION OF MANCHESTER UNITED (2005)
• Manchester United was acquired in 2005 by the Glazer family for £790m (via a leveraged buy-out)
A. Bidder/ Target Description
Target: Manchester United Football Club (72% acquisition, already held 28%)
Bidder: Red Football Ltd (acquisition vehicle owned by Malcolm Glazer for the purpose of his holding in Manchester United Football Club plc)
B. Sources of Funding
Debt Provider: JPMorgan
Debt Value: €355m (Senior Debt) and £18.9m (Cash Bridge)
• Term Loan A: €55m, 7-year @ LIBOR +275 bps
• Term Loan B: €62.5m, 8-year @ LIBOR +325 bps
• Term Loan C: €62.5m 9-year @ LIBOR +375 bps
• Woking Capital: €40m 7-year @ LIBOR +275 bps
• Revolving Credit Facility: €50m 7-year @ LIBOR +275 bps
• Second Lien: €85m 10-year @ LIBOR +650 bps
• Cash Bridge: £18.9m, 1 year @ LIBOR +275 bps
C. Deal Description
• Red Football Ltd (acquisition vehicle owned by Malcolm Glazer family), initially acquires 28.75% in Manchester United Football Club plc (UK-listed football club) from Cubic Expression (holding company owned by Irish investors McManus and Manier) for £3.00 per share
• The purchase adds to Glazer’s existing 28.1% stake and results in an aggregate ownership of 56.9% in Man Utd’s outstanding share capital – Under UK Takeover Code, Glazer family is obliged to submit a mandatory public offer for the remaining 43.11% of Man Utd’s share capital
• The £3.00p offer price values the 28.75% stake bought from Cubic Expression at £227.2m and the entire share capital of Man Utd at £790.3m and represents a premium of 12.8% over its closing price of £2.66p on December 17, 2004 (last trading day prior to the announcement that the board received an updated proposal by the Glazer family)
• Red Football Ltd intends to delist Man Utd should it receive acceptances of 90% or more, and then intends to propose a special resolution to re-register Man Utd as a private company
• Red Football intended to finance the acquisition of 71.9% it did not own before the Cubic Expression stake acquisition by £275m of non-cash pay preferred securities, without any security over Man Utd’s assets, and by a £265m loan facility
• Glazer already owns Tampa Bay Buccaneers (US American Football team)
• The offer follows a series of unsuccessful attempts by Glazer to gain control of Man Utd
• The latest attempt commenced on December 20, 2004, and resulted in the board of Man Utd allowing them to conduct limited due diligence by Glazer with the view of submitting an offer of £3.00 per share in cash (although it did not support the bid).
• The Takeover Panel imposed a ‘put up or shut up’ deadline on Glazer, on April 28, 2004, with final date for a firm offer being the May 17, 2005
• Previously, Glazer attempted to approach the company in two occasions, one in February 16, 2004 and one in October 4, 2004
• Glazer initially owned around 16% of Man Utd’s share capital and gradually increased its stake to 28.1% during 2004 mainly via partial purchases of Cubic Expression’s initial 28.9% majority stake
• Implied Equity Value: £790.29m
• Net debt/cash: -£32.34m
• Enterprise value: £757.95m
• Deal value: £535.5m
Target: Manchester United:
• Financial: Tricorn Partners LLP, JPMorgan Cazenove
• Legal: Freshfields, Bruckhaus Deringer
Bidder: Red Football Club:
• Financial: JP Morgan, Rothschild
• Legal: Allen & Overy, Clifford Chance, Herbert Smith
3. SHAREHOLDER STRUCTURE AND BOND ISSUE MECHANICS
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
Min Denomination: £50k + £1k | $100k + $1k
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
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
CUSIP: | 144A: 553799 AA5
Reg S: G63262 AA0
ISIN code: XS0479707688 | USG63262AA01 (RegS)
XS0479707845 | US553799AA50 (144A)
Bond Issue Mechanics/ Commentary (and extracts from 2010 Bond prospectus):
(1) On the closing date of the offering of the Notes, approximately £400 million of the proceeds of the offering will be loaned to Red Football Joint Venture Limited, the immediate parent company of Red Football Limited, on an interest-free basis from Manchester United Limited, which will then subsequently be passed to Red Football Limited by way of a capital contribution. This loan from Manchester United Limited to Red Football Joint Venture Limited will remain outstanding
(2) In connection with the offering of the Notes and the repayment of our existing senior credit facilities, the terms of our existing interest rate hedging arrangements will be modified. The mark-to-market value of these hedging arrangements as at 6 January 2010 was a liability of approximately £35m. In connection with the modifications to our existing hedging arrangements, we will crystallise the liability owed to our hedging counterparties as at the date of issue of the offering of Notes and we expect that we will make aggregate payments to such counterparties to reduce the liabilities by approximately £8 million. The amount of such liability and payments to our hedging counterparties will depend on changes in the mark-to-market value between 6 January 2010 and the closing date of the offering of Notes. In the event we increase the payments to our hedging counterparties, we will use available cash to fund such payments
(3) Note that none of the cash is being used to directly repay the £200m of PIK notes that the Glazer family used to finance the buyout
(4) However, the refinancing will allow the Glazer’s to start repaying the PIKs, which have a coupon of 14.25% that rolls up annually and reside in the Red Football Joint Venture near the top of the tree. This is because the new facilities are more flexible than the ones they are replacing
(5) Cash and liquid resources include cash at bank and in hand and deposits held at call with banks. Of our cash and liquid resources of £116.6m as at 30 September 2009, as adjusted to give effect to the offering of the Notes and the application of proceeds there from, we may, without restriction, make a distribution or loan of up to £70.0m to our immediate parent company, Red Football Joint Venture Limited, that may, in turn, use the proceeds of that loan for general corporate purposes, including repaying existing indebtedness
(6) Post the refinancing, the club’s total of gross borrowings will stand at £512.7m — made up of £500m of notes and debts from other subsidiaries. However, that figure will rise if the £70m referred to above is up-streamed to Red Football Joint Venture. Pro-forma net debt post refinancing will be £466m
(7) And if the PIK notes are added in, total debt held by all of the various Man Utd vehicles would stand at over £700m
(8) The notes, issued by MU Finance, are due in 2017 but there is a call option that allows the borrower to buy it back in three years
(9) The notes are not rated
(10) As for the interest hedging arrangements, Man Utd has suffered a £35m hit
(11) This looks to be due to swap arrangement: the club has been paying a fixed rate of just over 5% on £450m of debt in exchange for a floating rate
(12) In relation to our existing senior credit facilities, we entered into interest rate hedging agreements to hedge the interest costs on a notional amount of £450m. Under these hedging arrangements, we receive floating rate LIBOR in exchange for paying a fixed rate of approximately 5.08%. In connection with the offering of the Notes and the repayment of our existing senior credit facilities, the terms of and the amounts outstanding under these hedging arrangements will be modified. The mark-to-market value of these hedging arrangements as at 6 January 2010 was a liability of approximately £35m
(13) Man Utd has also entered into a new six year revolving credit facility to allow it to borrow an additional £75m, to be used for working capital and, assumed, for player transfers:
a. Although we have not historically drawn on our revolving credit facilities during the summer transfer window, if we seek to acquire players with values substantially in excess of the values of players we seek to sell, we may be required to draw from our revolving credit facilities to meet our cash needs
(14) Here are the rates and covenants on that facility:
a. Loans under the new revolving credit facility bear interest at a rate per annum equal to LIBOR (or in relation to a loan in euro, EURIBOR) plus the applicable margin and any mandatory cost. The applicable margin means 3.5% per annum
b. In addition to the general covenants described below, the new revolving credit facility contains financial covenants requiring the restricted Group to maintain a consolidated EBITDA of not less than £65,000,000. We will be able to claim certain dispensations from complying with the consolidated EBITDA floor up to twice (in non-consecutive years) during the life of the new revolving credit facility if we fail to qualify for the Champions League
(15) Covenant Review: The Asset Sales covenant is deficient in several ways: (1) This Covenant would allow the Parent to sell Old Trafford Stadium in a “Specified Asset Sale and Leaseback” and use the proceeds to repay the Revolving Credit Facility without requiring that the commitments to fund the Revolving Credit Facilities be terminated. Thus, the Parent could sell Old Trafford Stadium, repay the Revolving Credit Facility with the proceeds, and then re-borrow under that facility or other loans the next day. (2) The Parent could sell Collateral and reinvest the proceeds in assets that are not necessarily Collateral
a. Commentary: We think that means the Glazer family could in theory pay back £145m of its expensive PIK notes (H/T Taxloss) by selling Old Trafford and then using its revolving credit facility upstream cash to its parent company via a series of transactions
b. Borrow, repay (with stadium proceeds), and borrow again
c. That would, of course, leave the club with lease payments on Old Trafford and yet more debt
d. Analysts don’t think the issue will appeal to traditional high yield investors
Commentary – PRIOR to Bond Issue:
(1) From Bloomberg
a. Manchester United Plc may struggle to sell 500m pounds ($806m) of junk bonds because it isn’t rated and investors have other options, said Jonathan Moore, high-yield analyst at Evolution Securities Ltd
b. The 18-time English soccer champions plan to issue seven-year bonds in pounds and dollars. Management is meeting potential investors in Asia and Europe this week, and in the U.S. next, in an effort to interest the widest possible circle of buyers, said Tatjana Greil Castro, who manages about $1 billion of high yield debt at Muzinich & Co. Ltd. in London
c. “Most traditional high-yield investors won’t touch this,” said London-based Moore. “It’s unrated, so some investors can’t take it, and there’s a very busy new-issue calendar so there are plenty of alternatives. Most people just won’t focus on something with far too much leverage, limited free cash flow and lumpy earnings
(2) Analysts think the notes would need to have a “double-digit handle” to tempt any traditional high yield investors. And it is difficult to disagree. That does not mean Man Utd won’t get the offering away but it will probably have to target high net worth individuals and other non-mainstream investors. And it helps that the club is selling the notes into a bull market for high yield debt
(3) From Reuters:
a. Global high yield debt volume for the week of January 11th totalled $11.7 billion, the biggest week for high yield debt on record. The previous record was set during the week of November 5, 2006 when $11.4 billion was raised. With $14.4 billion raised so far this month, it is the best all-time start for the high yield markets since records began in 1980
b. Issuers from the telecommunications, materials and industrials sectors account for nearly 75% of high yield debt offerings so far this year. Companies in the United States and the United Kingdom have issued 88% of high yield offerings in 201.
c. This week’s $2.4 billion offering from UK-based Virgin Media ranks as the second biggest UK high yield offering on record behind the $2.9 billion offering from petrochemical manufacturer Ineos Group in January 2006
(1) In the 12 months to September 30, 2009 (the most up to date figures available), Man Utd generated revenues of £288.9m and EBITDA of £98.7m. But for the fiscal year ended 30 June 2009, revenues were £278.5m and EBITDA of £91.3m
(2) So, in 2009 the club swung to a pre-tax profit of £48.2m from a loss of £21.4m, helped of course by the enormous profits made on the sale of Cristiano Ronaldo
(3) Match-day revenues accounted for 39.1% of total revenues, media 35.8% and commercial deals 25.1%
(4) Net interest payments were almost £42m and operating profits before depreciation and amortisation of players’ registrations and goodwill were £91.2m. When amortisation and depreciation are included that figure drops to £9.35m
HMRC Player Investigation (including extracts from 2010 Bond prospectus)
(1) The prospectus also reveals that HM Revenue & Customers are investigating players’ image rights contracts
(2) HMRC’s initial investigation has focused on payments made in the financial years 2005/06, 2006/07 and 2007/08 but HMRC has reserved its rights in respect of earlier years. HMRC’s position is that payments in relation to image rights may be a form of remuneration and, as such, should be taxed as income
(3) On 18 September 2009, we submitted a letter to HMRC, setting out our view that these payments are not taxable as income. We are currently waiting for a response from HMRC. There is a possibility that this matter may lead to litigation
(4) Should HMRC succeed in any such litigation the club may be liable for, amongst other things, approximately £5.3 million (which relates to employer’s NIC contributions during the period 2000/01-2009/10)
Related Party Transactions (including extracts from 2010 Bond prospectus)
(1) £10m of loans which have been extended to the Glazer’s:
a. Manchester United Limited made loans to its directors on 19 December 2008 which have an aggregate value of £10 million
b. The agreement governing these loans was subsequently amended on 5 November 2009. The interest rate on the loans is 5.5%, stepping up to 7.5% after the fifth anniversary, payable in cash annually.
c. The loans are repayable on demand from Manchester United Limited after the fifth anniversary, and prior to that upon the occurrence of certain events of default
(2) Management Fees
a. Management fees during the period from 1 July 2006 to the date of this offering memorandum, management and administration fees of approximately £0.6 million, £1.8 million, £1.4 million, £3.1 million and £3.1 million were paid to our affiliates. Under the Notes, we are permitted to pay up to £6 million per annum to one or more entities related to our ultimate shareholders for administration and management services. We expect to enter into a management services agreement
b. 6m per annum permitted under the new financing deal
c. And there’s also a consultancy agreement: On 30 June 2009, Manchester United Limited entered into a consultancy agreement with SLP Partners, LLC (SLP), a company related to certain of our ultimate shareholders. An annual fee is payable by Manchester United Limited to SLP, capped at £2.9 million per annum. This agreement will be terminated prior to the issuance of the Notes and no further payments will accrue thereafter
5. RECENT NEWS
22-25 January 2010: Financial Times
• Bond was priced with interest rates at the high end of the expected range. Manchester United has secured the £500m ($806m) funding it was seeking to give it the financial flexibility to repay its bank debt and an expensive subordinated loan from hedge fund investors
• However, the plunge in equity markets last week and the rush of borrowers to issue bonds made it difficult for many trying to raise funding. Manchester United chose to sell more of its bonds in dollars than in sterling, and had to offer an interest rate at the high end of the expected range to attract investors
• “It has not been helped by the weaker market conditions and a lot of new issuance that it is competing with in the high-yield market that has been negatively hit by collapse of equities,” said Jonathan Moore, analyst at Evolution Securities
• Manchester United cut the size of the bonds it had planned to sell in sterling, reducing a planned £300m issue to £250m and sold $425m of dollar denominated bonds instead of $325m, with particularly strong interest from the US
• The sterling bond was priced with a yield of 9.125%, when lead managers had indicated to investors it would price at about 9% earlier in the week. The dollar bond was priced to yield 8.75%, in line with guidance
• A large proportion of the bonds were sold to asset managers and banks but demand was not from a majority of traditional high-yield bond investors, people close to the deal said
• “This is potentially a warning sign for other borrowers that they may have left things too late,” said Mr Moore. “The smarter borrowers have got their funding done, those trying to be more opportunistic may find market conditions more difficult. If the … deal had come a few weeks later they might have struggled more.”
• The Premier League champion is the first football club to issue high-yield bonds to refinance its bank debt, extend the maturity of its debts but also give it flexibility. The new bonds will not have the same restrictive covenants as the existing bank debt and will allow the club to use some of its cash flows to repay a payment-in-kind loan
• Manchester United faces having to pay more in interest to investors in its high-risk debt because it is in danger of exceeding a threshold measuring its leverage. The English Premier League champions are at risk of exceeding a threshold set in payment-in-kind (Pik) notes which were issued as part of its £790m buy-out in 2005. Exceeding that limit requires the company to pay 2 percentage points in additional interest. The test for whether the threshold has been crossed comes up in August
15 January 2010: Debtwire
• Glazer Family intends to retain ownership of Man Utd at least until bond maturity in 2017. Investors were informed that United’s wage bill has not exceeded more than 50% of turnover
• Roadshows for the £500m (€565m) bond began on Monday 11 January, in Hong Kong. Roadshows also occurred in London
• Investment Banks: JPMorgan, Merrill Lynch, Bank of America, Goldman Sachs, RBS, and Deutsche Bank
12 January 2010: Debtwire
• Manchester United owners, the Glazer family could receive up to £70m from proceeds of a £500m bond issue. The report cited the offer document for the bond issue, which states that Manchester United’s holding company, Red Football will be left with £117m cash and liquid assets, after paying £15m in fees and £8m towards a £35m hedging loss
• Of that amount, the football club can give or loan up to £70m to Red Football JV, which holds the PIK notes that the Glazer family are directly responsible for repaying. The cash available to Red Football JV will antagonize the club’s supporters, who will claim that the cash could be spent on players rather than paying down the Glazer’s family debt. The club had operating profits of £91m
• One insider said that that United’s business model is to keep a steady hand on the debt obligations while increasing cash flow
• A person familiar with the debt issue said in the report that even if the Glazer family takes the £70m available to Red Football JV, the club would still be left with £47m cash, plus a new £75m revolving loan facility to spend on new players
• The article went on to note that UEFA, the organisation which regulates (the organisation that regulates the European football), is putting together new rules requiring clubs to spend within their means. Player transfers are not financed by debt
• Someone close to the bond sale said the club’s road shows to promote the bond issue had pleasantly surprised the bookrunners. An estimated yield of 8.5% was stated for the Manchester united bonds
• The Glazer family’s rationale for the bond issue was to pay off the club’s senior debt so as to make inroads into repaying the PIK’s, the value of which was estimated at £200m. The PIK notes have a higher rate of interest that the club’s senior debt, which cost £41.9m to service last year. Manchester United’s senior lenders must be paid off ahead of the PIK’s
• The bond issue offer document for the information of investors on Manchester United’s stated that on 30th June 2009 it agreed to pay £2.9m in administration and management fees to SLP Partners, a company connected to the Glazer family. Since 1 July 2006, the club has paid a total of £10m in management fees to affiliates. It was also noted that the management fees payable to SLP Partners, the Glazer family and associated companies could be in line for a further £42m in payments from the club over the next seven years
15 March 2009: Debtwire, Observer
Loans which were taken out by Manchester United have been sold on at significantly distressed prices by lenders to the sporting groups. The report noted that financing discussions revolving around securitising gate receipts at Manchester United have been placed on hold as there is effectively no current market for this type of product. The football club’s senior debt is currently traded at a price of 70p in every pound
In the lead up to Wednesday night’s match I’m buggered if even I could focus my mind on those figures rather than the game.