The Glazer family must pay an eye watering 16.25 per cent on the Payment in Kind (PIK) debt it owes as part of the 2005 Manchester United acquisition, Bloomberg confirms today. The anticipated increase will add an extra £5 million annually to the debt that will climb to £270 million by 2011 and £310 million by 2012.
The notes, which are due in 2017, will continue to increase in value unless the family pays it off, culminating in a bill of more than £600 million if no payments are made. The Glazer family took out the notes in 2005 as part of the highly leveraged takeover, with two rounds of refinancing, including the January 2010 £504 million bond, failing to address the PIK debt.
Including the PIK notes – £202 million at last published figures – and bond, United’s total debt is effectively £706 million rising to around £770 next year and in excess of £810 million the year afterwards.
“PIKs can make sense at certain times but given the rate at which interest accumulates they can quickly wipe out equity,” said Jonathan Moore, a high-yield analyst at Evolution Securities, told Bloomberg.
“You’d expect owners to take them out as soon as they’re able to.”
Indeed, January’s bond removed the restrictive covenants placed by banks on the club’s former senior debt and offers United’s management greater flexibility in the way it uses the company’s cash reserves. The Glazers have an option under the terms of the bond to take £70 million out of the club to pay down other debt this year, and 50 per cent of United’s profits in dividends, management fees and loans on an ongoing basis.
The bond substantially increases United’s interest payments, leading most analysts, including underwriters JP Morgan, to conclude that partial PIK debt repayment will take place in the coming months. The family may already have removed the £70 million from United’s coffers but supporters may not find out until the club’s Q1 2010/11 results are published in the autumn.
Although United is not directly liable for the PIK debt – it is owned by a Glazer holding company called Red Football Joint Venture Ltd. – analysis by the blogger Andersred earlier this year demonstrated that the family has no other source from which to pay down the debt or face losing the club in 2017.
It is this very prospect, with Sir Alex Ferguson’s spending limited to a net £6.7 million per season under the Glazer regime, that so inflamed the United support this year, with more than 160,000 supporters joining the Manchester United Supporters Trust (MUST).
Ferguson has spent around £24 million bringing Chris Smalling, Javier Hernández and Bébé to the club this summer, with another £14 million recouped from the sales of Ben Foster, Zoran Tosic and Craig Cathcart.
However, with the Red Knights yet to make a bid for the club, and no other serious bidder yet on the table, United supporters may have to swallow limited net spending by the club in the coming seasons.
The Red Knights group, including Goldman Sachs Group Inc. Chief Economist Jim O’Neill, confirmed this week that it still intends to bid for the club, with reports of new “anchor bidders” from the Middle East injecting cash into the consortium.
Despite this, the group has said it will not bid for United until the Glazer family reduces its £1.5 billion asking price to “a sensible price” of less than £1 billion.
The Red Knights are dreaming if they think the Glazers will walk away willingly, from the United golden goose, for less than what they want. Why should they… the “Green and Gold” isn’t really having much impact… and what worries me, is that, even if protest and boycotts started to hurt the club… I wouldn’t be surprised if the Glazers didn’t threaten to sell assets… effectively blackmailing fans and potetial buyers to pay up, or see the club suffer.
I feel sick to know that the Glazers will make a fortune from United… but paying them what they want is the only way we will be shot of them.
What I don’t understand is why some rich Arab hasn’t come forth already to make an offer. United is one of a very few,(if not the only) clubs that can compete at the highest level and pay for it off its own back.
Even if it cost £2 billion to buy the club… it generates more than enough money to pay it’s own way, in buying players, and paying wages… and that £2 billion would always be safe and sound, as the club will hold its value.
No bidder has come forward because under any sensible enterprise value measure you can name, the club is £300m overpriced. Even for the oil rich that’s still a lot of cash. At the prices you mention somebody will only buy for love or vanity, not profit.
Yawn.
Quality post that.
Why bother…?
Sources confirm that John Smith is Uncle Malc’s long lost love child. Honestly I don’t know why he bothers either, John if you don’t want to read about the Glazers don’t come to the site. Nobody will shed any tears.
When are the Glazers likely to pay off this debt? It is obviously a drain on the clubs finances but with the real threat of it leading to them losing the club surely they want to get rid of it as soon as possible.
There’s a little process called “asset stripping” they’ll want to go through first.
RobDiablo – sadly this is probably true, although if they sell off the ground and Carrington, even the players, it will lower the bid price.
Liam – The only debt that the Glazers will pay down is the PIK debt and they’ll do that from club funds (see above, no other source of income). They’ll take 70m in the current financial year then up to 50 per cent of profits thereafter. In the last financial year that would have been 45m EBITDA, or around 20m after all those deductions. There’s NO plan to pay off the bond . Let’s make this really clear unless somebody tells you otherwise. In 2017 when the Bond debt matures the Glazers will simply refinance again meaning United is paying 45m interest per year for no good reason at all. Next time some Glazer loving lackey tells you “the Glazers have a plan” send them here!
They did, according to the Glazer PR machine, and the yanks ignored the offer
Speaking of the Red Knights, over summer the Red Knights have recruited millionaires from Asia and the Middle East to join the consortium bid
@ ED at 10.17am …well said ! Just read article about about Ozil at RoM .In the comments , someone was saying how we always spent within our means and stuck to strict wage structures going back to the PLC. Fine..but then claimed Utd now ” had more to spend safely ” ,had vastly greater revenues ,more profits and healthier cash reserves than under the PLC plus that it wasnt the Glazers stopping us outspending Real and City…No mention of the debt…On another note , our new transfer policy looks uncannily like the Bucs..reliance/ development of youth plus freebies…
Agreed. The (revised) plan – not having foreseen the financial crisis – will probably involve threatening to sell Carrington and/or Old Trafford in order to force the hand of a Red Knights type buyer; only someone who loved the club would agree to pay the Glazer’s (may they burn in Hell) valuation. I’m afraid Alf may be right: for us to get our club back, we’re going to have to make the Glazers a tidy profit.
Instead of listening to others view. Read about the MU finance here. And make up your mind. If you don’t know about Finance then ask or shut the fuck up!
http://www.mufplc.com/
A very good point I’ve always told readers. When I read the bond document and the financials I was angry and found it impossible to come to any other conclusion than the Glazers are leeches slowly but surely destroying our club.
Wish I’d have said this.
JOHN SMITH
SHIT BEER…SHIT POSTER
LKHF!!!
http://www.guardian.co.uk/football/2010/aug/24/manchester-united-glazers-mortgage-malls
LKHF will comment on this further later
Any truth in those comments then the Glazers will fight tooth and nail to hang on to United as its there only viable source of income, not sure what state the Buccaneers are in maybe some of our State side colleagues or Alf could comment on that.
I’m not sue Alf follows American Football Robbo, which is strange for a yank
Hi Alf *waves*
Can’t help you there; I stopped watching the NFL – except while attending the occasional Super Bowl party – in the early ’90s.