The Glazer family is to pay off the £243.7 million Payment in Kind (PIK) debt held by Red Football Joint Venture (RFJV) Ltd with “their own money” according to media reports today. The PIK notes, part of a 2006 refinancing round, incur 16.25% annual interest and will be repaid on 22 November according to a documents filed yesterday.
The move to repay the PIK debt, held by Manchester United’s parent company, was widely expected, with the eye-watering interest compounding rapidly. That the Glazer family has apparently not used club cash to do so is more surprising, with many analysts expecting the Americans to do so.
However, the move leaves several questions unanswered, particularly the source of finance used to repay the PIK debt and the timing of the move.
Indeed, documents released today by blogger Andy Green show that no restrictions on repayment of the PIK debt have existed since 2008. The Glazer family has been able, as widely suspected, to repay the PIK debt at their own discretion for the past two years. That the family has not done so has cost millions, leading to the assumption that the Americans simply could not afford to do so. Until now.
Bloomberg reported last night that the family has not removed up to £95 million in dividends from the club to pay down the PIK debt, confirmed by United in a statement today. The move had been widely expected as part of the bond refinancing last January, which released £70 million as a one-time dividend and up to 50 per cent of EBITDA on an ongoing basis.
The dichotomy of the Glazers not paying down PIK debt until now leads to a series of as yet unanswered questions about the family’s finances. Namely how can the Americans, whose US property business is in serious financial trouble, afford £243.7 million at this time?
The Glazer family moved to buy back around 15 per cent of the PIK debt in 2008 at a heavily discounted rate. The family’s stake, bought at a cost of £12.6 million is now worth £36.6 million, according to Green’s analysis today.
Yet the family has still found more than £200 million in new money, with the source highly likely a new round of refinancing by RFJV, secured on the company’s assets: MUFC. The new finance, should it now be in place, will presumably run at a substantially lower interest rate than the 16.25 per cent now charged by the small group of PIK holders. Any refinancing will leave United or its parent company with total ongoing debt of around £720 million.
Alternatively, the family may have sold a stake in United to finance the debt repayment. Although this is a potential scenario, the Glazers have previously shown no inclination to sell part or all the club despite widespread supporter unrest and interest in a purchase by the so-called Red Knights consortium. A new investor is the best possible scenario for Sir Alex Ferguson, leaving the club less financially hamstrung, although still highly geared with £520 million corporate debt, but in reasonable shape to invest in the transfer market next summer.
Possible, although less likely still, is that the Glazer family has sold other assets in the US. The family owns the Tampa Bay Buccaneers NFL franchise, although a sale of the Florida club would presumably have taken months and been widely covered in the media. The Glazers may also have sold part of their strip-mall business, although Green’s analysis earlier this year demonstrated the severely distressed state of their property empire.
The Manchester United Supporters Trust (MUST) called for greater clarity from the family today, amid more confusion about the state of the club’s finances. The Glazer family has kept financial issues largely secret during its five-year tenure at Old Trafford, with the January bond revealing more details than ever before.
“Now is the time for the Glazers to finally come clean and tell the truth about what is going on at Manchester United and what their plans are,” read a MUST statement today.
“What have they got to hide? No more secrecy. No more spin. Just tell the fans the truth.”
This seems unlikely though, with few further details released by the club as it announced its 2010/11 Q1 results today. Indeed, the club issued a terse 19-word statement confirming that “there has been no dividend of club cash”. The statement was very much in keeping with the club’s long-held view that supporters are owed no financial transparency.
The results, which follow a 2009/10 end of year loss of more than £83 million, show year on year quarterly revenue growth of 9.7 per cent to £63.3 million and £22.7 million paid out in interest over the quarter. The accounts showed a cash surplus of just over £150 million, although the highly cyclical nature of United’s reserves means that figure will deplete through the season.
The quarterly accounts also demonstrate the cost pressures on the club, with player salaries – pre Wayne Rooney’s new contract – up 14.8 per cent year on year. Other costs increased 4.8 per cent, with all costs up 11.7 per cent. Indeed, cost pressures have restricted EBITDA growth to just 4.8 year on year, placing doubt on the Glazer family’s claims that United is a ‘growth business’.
However, doubts still exist about the club’s ability to compete in the transfer market over the long-term, although Ferguson is widely expected to embark on the largest rebuilding programme at the club for years next summer. Whether the Scot will invest heavily in established internationals or continue to buy promising youngsters with a ‘resale value’ is as yet undetermined. The latter is effectively club policy.
Not in doubt, however, is the Glazer family’s record both on investment, price rises and attitude to fans.
The Americans promised a net spend of £25 million per season on takeover in 2005. To date net spend hovers just under £2 million per season, while aggregate ticket prices are around 50 per cent higher than in 2005, and the family continues to ignore supporter calls for greater transparency.
The latest move is unlikely to wash with United fans though. After all, no PIK debt repayment will compensate for chronic under-investment in the transfer market allied with ticket price rises – effectively a poorer quality product for a higher price.
Will we know more after Gill speaks to investors at 12pm today?
Triggs – not Gill, Woodward and he refused to answer questions on RFJV or the PIKS
When will we know how the Glazers have financed this?
Triggs – wish I knew. RFJV isn’t reporting accounts.
The Glazers are shitting bricks about what happened at Anfield and are blocking off potential avenues to a forced sale at under value.
Nothing they do is ever in MU’s interest and is always entirely in their own.
looks like good news to me, Heard just now from Swanson on SSN that the club debt is down to £509m.
Aj – £509m is pretty consistent with end of year accounts – that’s the bond basically. PIK debt is held in a separate company Red Football Joint Venture and not reported in these accounts. What we don’t know is whether the Glazer family has simply taken out another loan to pay off that PIK debt or whether they’ve sold assets (including partial sale of MUFC) to pay for it instead. So “looks like good news to me” is not based on facts at this stage.
Great post, very informative and couldn’t agree more. I think bruce thomas has it spot on, they’ve seen what’s happened down the M62 and realised that their impeachment is no longer a long-shot.
I don’t agree.
I don’t think the Glazers have any interest in what the fans think (provided they continue to consume). They decided to do this because it makes economic sense (for them) to do so. This is not a victory for the G&G campaign.
Although the fact that they appear not to have used £95M of United’s cash could perhaps be due to fears over the fans’ reaction to such an announcement. More likely that they simply have other plans for that money.
Probably got to agree Ed but I choose to look at it in a good way ad wait for more info before making mòre of a judgment.
Hmm…I dont know. Could be a case of “out the frying pan and into the fire situation”
Not sure if they are paying debts or just moving them to another, but it’s good to hear (if true!).
WE WANT ANWERS NOW DID YE RALLY NOT USE CLUB MONEY IF YE DID YE WILL DIE AFTER IT…. E.G. WE ALL DIE ONE DAY………..
thats 509m too much ffs
Wonder if this is true the song in the future will be Love United Love (well maybe until the debt is finally discharged etc) Glazers
Hehehehehehe
No chance!
Who cares if the Glazers have taken out another loan to pay off the PIKs? How many times do you need to be told, these are the Glazers’ debts not the club’s. That’s why they don’t need to tell us how they have paid them off. It’s not our problem.
It seems that Gill was telling the truth all along. I think some people owe him an apology.
Will not rejoice until all the debt is cleared and the Glazers are GONE!
OK. But the debt will probably be cleared by someone buying the club off the Glazers and the new owner will want some kind of return on their investment. So instead of paying bond interest we’ll be paying a regular dividend to the new owner. Is that really so different? And we’ll lose the tax advantages of the current setup.
According to todays news, both Man Utd and Chelsea are preparing to lodge bids in January for Jay Bothroyd. Don’t know how true this is, as he is already 28 years old, unless Michael Owen is on his way out.
FFS… surely after that, Gill owes you a blowjob.
Wrong… look… if a proper fan bought the club, they would own the only club in the game, able to pay its own way at the highest level.
They wouldn’t take a “dividend”, but the club would always hold its value.
Chumpski, City… these clubs don’t make their owners any money… they’re just money pits. Barca, Real… these clubs make plenty of money, but not enough to pay for their stupid tranfer policies or out of control wages… which is why these very powerful clubs still run in the red.
But United could buy the best players, pay competetive wages, maintain the best facilities, and keep ticket prices family friendly… all without costing it’s owner a penny… just the purchase price… oh to be worth a few billion.
You are right Alfonso, these are the Glazers debts and they need to deal with it. The club can get on and do what it has to do in the interest of football.
mufc fans must be stupid, the glazers fooked de club with nearly 1 billion debt all their usa business is fooked too, the club is going down down down
And how many times does Ed have to repeat that the PIK loans are secured against RFJV’s lone asset: Manchester United? That makes it our worry as well.
You owe all of us an apology.
If RFJV go bust that’s not the same as the club going bust. The first thing that RFJV’s creditors would do is sell the club to raise money. That’s what you want, right, new owners for the club? There is no shortage of people who would like to buy the world’s most profitable football club.
Alfonso, I’d love that to happen. The problem is that United, unlike just about every other football club in the world, are very profitable and that attracts owners who are in it for the money.
But anyway, things aren’t so bad. We still generate plenty of cash, we can outspend any English club except City and Chelsea. And when these new UEFA regulations kick in we might find we can outspend them too.
Rooney was right actually. The question is, have the owners got ambition? Will they allow us to spend enough for us to win major trophies or are they happy with a regular top four finish, which is almost as lucrative but costs less to achieve?
Once the debt is reduced, you would get more people interested in buying the club.
Your three statements are correct, and the answer to your question is “yes”. I would, however, prefer ownership to change hands with less drama than that experienced by Liverpool recently, and I’d like to be picky about who buys the club, but that is out of my hands.
I don’t know if I’d want anyone else to buy the club. Not that I like the Glazers particularly, but at least they leave everything in Gill and Fergie’s hands. Now that they’ve refinanced both sets of debt, things should be pretty stable and we’ll have a decent amount of cash for investing in football each year after meeting interest payments etc. Of course it’s annoying to have to pay off those debts, but at this stage I think I prefer the devil I know. There’s every likelihood that a new buyer would also leverage their purchase of the club, making things worse, or else we’d be in the fickle hands of some dodgy billionaire. With the financial situation stable and improving, I think I prefer rational, self-interested businessmen like the Glazers to some oil baron that could leave at any time. Look at Chelsea, their team is stagnating because Abramovich decided he didn’t want to keep pumping money into it.
Seems to me we’ve been through the worst now. The club probably decided to hold onto the Ronaldo money and not make any big outlays over the past season while the Glazers refinanced their debt. It seems like Plan A has worked though, both the club’s debt and the PIKs have been refinanced without needing to dip into that reserve kitty they’d set aside.
Seems to me that we now have a decent wad of cash for some big signings to replace Scholes, Giggs, etc., and then ought to have at least around £30M left over each year for signings in the future.
Of course the Glazers will take money out, but I reconciled myself to that a long time ago, they own the fucking club.
Think SAF and Gill both might step down at the end of next season, feeling like they’ve ensured the stability of the club through these uncertain years. Their successors will find a club with a steady, manageable debt load and steadily rising revenues, should be enough for success on the pitch.
The combined club and PIK debt is less than three times United’s annual revenue, and United’s revenue can be expected to rise steadily if not spectacularly. That’s really not that alarming a ratio now that the crazy interest rate doesn’t apply anymore.
Not to mention, the Glazers would likely flog some of their other interests before United. I think they’d flog the Tampa Bay NFL team first, it’s just not nearly as good a business to hold onto as United.
No, at this point having come through all the worst, I’d fear another buyout a lot more than just sticking with the Glazers. Another buyout would just as likely bring even more leverage and debt.
Bman – In the past year the club has benefited from a new domestic TV deal, a new overseas TV deal, a new Champions League TV deal, a new shit sponsor, five new regional exclusive sponsorship deals yet EBITDA rose just 4.8% year on year to the past quarter. Growth business – don’t make me laugh, they’re running just to stand still. Debt is 7 times EBITDA. Remember revenue is vanity and all that. But that’s not the point – United isn’t about to go bust but there’s no plan to deleverage at all.
Of course the club might also be amassing a decent war chest to appeal to the likes of Mourinho, so that they can buy in several new players of their choosing when they start the job.
I’m also wondering if Ferguson has told the Glazers when he will retire. If SAF insists he has money to spend I’m not going to call him a liar. But this “no value in the market” stuff is ludicrous. There was more value around last summer than there has been for years.
Maybe he’s agreed not to make any big signings in his last season or two? He signs youngsters and sets the foundation for the future, leaving most of the money for the new guy who will probably want to make a few big signings to start with.
Im surprised people are wondering where the Glazer’s got the money to pay off the pik – Forbes shows the tampa bucaneers as the 4th most profitable team in the NFL earning almost £40 million each year and as Andersred has previously reported – they sold their Zapata stock and a house for £65million last year – and this is just the stuff that is public – rich families like the Glazer’s always have a few assets hidden away
red.I.am – Forbes has moved the Bucs outside the top 10 this year, although the magazine was only £250m out on United’s debt so I wouldn’t trust its accuracy too much! You’re surprised people are wondering or just massively naive? Oh and the Bucs are hundreds of millions of dollars in debt themselves by the way.
This is interesting: http://www.rednews.co.uk/forum/showthread.php?t=93397
Wishful thinking.
Thin end of the wedge, foot in the door… etc…
I doubt the Glazers would want anyone else involved… especially a potentially disruptive influence.
Reading into rednews, they could be trying to make way to put more money in the club to buy players. They will need for the club to remain in the top 4 and to do so, they would need to invest in quality players. I think between January and next summer is going to be very interesting.
Despite all of this, most pundits still believe that Rooney will be sold, only because he wants to play in Spain or he is going somewhere else for more money. With or without Rooney, United will always be on top. One star leaves and another star is born.
Juast found out who the Glazers’ new mystery investors are — Tom Hicks and Geroge Gillet :)))
Are these Glazers a bunch of modern time gangsters?
the only thing the glazers do is for themselves-fair enough. Just dont forget how we have all been screwed since day 1 with these bastards. Dont forget the automatic cup scheme, how many other businesses take money off you for something and dont even tell you the price at the time. Dont forget the 50% ticket increases and dont forget that the glazers will screw you all and saddest of all, fans will go along with it. In short the glazers are superb business people or is it superb at fan screwing
Yeah, I don’t like Aon either. Still, it is an improvement over AIG – a corporation that spends millions sponsoring a football club, but requires a bailout from the government, and then rewards bonuses to top executives. Oh, the irony…
No, impact of the domestic TV and Aon shirt deal starts this season, I think producing an extra £16M combined from what I understand. I also think comparing quarters is not much use because revenue and expenditure is lumpy. Should see decent but unspectacular revenue growth if on-pitch performance is good. That’s the key issue now I think, if we don’t do so well in the PL, CL, etc. then less money is made on matchday and you get a smaller share of the collective pots for those tournaments.
I feel confident that the Glazers see the need to spend on the team now; I’d imagine that they told Rooney that they had been putting money in the piggy bank over the past couple of seasons to make sure that the refinanced the club’s debt and the PIK, which they’ve now done (whatever they did to pay off the PIK). Luckily it seems like that all went pretty well and they didn’t need to fall back on that hoard of the club’s cash.
The timing of all this is purely dictated by the financial markets and the Glazers’ wider business interests, I’m pretty sure that they don’t care very much at all about Green and Gold and all that, since they’ve never shown the slightest interest in good PR concerning the club. They still sell enough season tickets to just about fill Emirates, the second largest stadium in the country. In any case, everyone knows that will pretty much go away when the team starts winning and entertaining again.
So it all comes down to on-pitch success, hence their willingness to increase the wage bill substantially and probably (hopefully!) to buy new players. I’m sure everyone hoped that the decent investment made in players like Berba, Hargo etc. had worked out better. Fergie and Gill probably figured that they could keep delivering on the pitch until all the debt was refinanced, and it’s a credit to them that they have done as well as they have this season and the last given some of the big transfer flops and dipping form of players etc.
My main concern is that whoever the sell the club to a few years down the line isn’t even worse, and also that they don’t take too much cash out over the next few years at the expense of the team. I would think that with the debt stable, they’ll just pay off the interest every year, take out a decent amount for themselves as if the club’s a cash machine, and then the principle on the debt is the problem of whoever they sell us to.
Bman – I am comparing year on year. 4.8% growth this quarter in comparison to last Q1. 4.8% growth, including new deals. Massive rise in costs, as I said they’re running just to keep still.