Manchester United’s owners the Glazer family may struggle to sell their £500 million bond to the City, with many investors steering clear of the self-proclaimed “high risk” notes issue. The bond issue, which will yield investors an assumed 9.25 per cent annual return before maturing in 2017, is aimed at refinancing some of United’s £700 million debt.
“Most traditional high-yield investors won’t touch this,” Jonathan Moore, a high-yield analyst at Evolution Securities told Bloomberg yesterday.
“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.”
Indeed, a general air of skepticism about the notes issue pervades the City, with Virgin Media also selling a similar sized bond. Although United’s financial planning, contained in a 322 page document issued to potential investors, suggests the club is selling the bonds at just over nine per cent interest, the market may push the price up to 9.5 per cent.
United may need to find £70 million per season in debt repayments and interest, with 9.5 per cent equating to roughly £45 million in interest repayments on the bond alone per year. Additionally the Glazer family is taking £70 million in club cash immediately to repay a portion of the Payment in Kind (PIK) loans they are responsible for.
“This will be a difficult sale,” said Tatjana Greil Castro of asset management firm Muzinich & Co told Bloomberg.
“My first reaction is that I’m skeptical. It’s a sector thing, all based on how well they’re doing on the pitch and other things they can’t fully control.”