ALL issues relating to the bond issue and club finances

[UnitedRoadRed]

It would seem a bit silly to intentionally set something up which completely contradicts itself.

I am assured that the only thing the Glazers can do with their dividends is pay off their PIKs.

Why then set up an RCF if using it will mean that you can't pay yourself any money?

The wording is corporate indebtedness. It would be foolish to just say the PIKs because it would allow less room for manouvre (for example having to reduce the RCF debt if taken as per its own Ts&Cs).

There is something working it's way through the fog that is my brain at the moment which has something to do with the fact that the PIKs are due in 2017 and the Bond Issue runs out in 2017.

Why did they choose a 7 year bond? Is 7 some kind of magic number? It seems a little odd to me. Why not 5 year or 10 year?

I realise that there are all kinds of complications to what I am about to suggest but could it be that they intend to pay off some of the PIKs using dividends and the carve-out at certain points over the next 7 years (when it is "safe" to do so - ie when the cash situation is strong and there is no imminent need for massive squad investment) but their end plan is to somehow borrow against the equity on United in order to pay off whatever is remaining on the PIKs and setup another Bond Issue for a larger amount in 2017 to cover it all?

That both the PIKs become due and the current Bond expires in 2017 just seems a little too much of a coincidence to me.

I think it's obvious that they were designed to finish together. One lump sum to refinance then.

 

[TheMancRedDevil]

The wording is corporate indebtedness. It would be foolish to just say the PIKs because it would allow less room for manouvre (for example having to reduce the RCF debt if taken as per its own Ts&Cs).

Either I am misunderstanding or you are, I think.

To me, the RCF is a fancy way of saying "We have an Overdraft facility on the account".

When we were discussing the cashflow situation the other day, it became obvious that there's no way that the cash will allow the Glazers to take out £70-95million this year AND provide Fergie with, say, £60million for transfers without going into the red at some point.

But if going into the red AND taking the carve-out and dividend is forbidden then it becomes a moot point because it wouldn't erm... happen anyway. Or something. If you see what I mean.

Unless the Glazers give Fergie an extraordinary amount of money to spend on transfers then we are not going to get to the point where the RCF is needed because the only thing which could take us to that point is the £70m carve out and £25m dividend.

I think it's obvious that they were designed to finish together. One lump sum to refinance then.

Well, it's obvious that they both become due in the same year but that doesn't make what I have suggested obvious.

Can they actually do it? Can they borrow against United in this way in order to raise £200million (or whatever) to pay off their personal debts?

Doesn't this also go against Gill's line that the PIKs are not United's problem?

I wouldn't say that this suggestion is a "given" by any stretch but I would like to know one way or another if it is a possibility or not so that it can either be scrapped now or not.

 

[Julian Denny]

Gill Is being a little disingenuous. Money to service the PIKs will come out of United's profits. Also, as far as I know, security for this debt is by way of equity in the holding company - at least it's subsidiary RFJV. So one way or the other, United is affected by what happens to the PIK debt.

The RCF is irrelevant as the club hasn't used the cash currently available - even after the 70m or 95m - presumably to be channelled through to the Glazers to pay down part of the PIKs. What's more it's not going to be used as buying "expensive" players seems not to be part of the clubs transfer policy right now.

 

[TheMancRedDevil]

Gill Is being a little disingenuous. Money to service the PIKs will come out of United's profits.

That remains the likeliest scenario but, as yet, cannot be proven. By all accounts, this should have already started to happen but it hasn't.

In any case, disingenuous or not, I think any fair-minded person would accept that the Glazers are entitled to a share of the profits (being the owners, and all) and what they choose to do with those profits is their business.

This is old ground, really.

What I am saying is that if any part of the PIKs get paid off as part of any future refinancing deal then they do become part of United's "problem" and if that is the plan right now then they are already part of United's "problem" because everything is being done to work towards that.

What I'd like to know is: is this a realistic option or is there no way they could do this?

The RCF is irrelevant as the club hasn't used the cash currently available - even after the 70m or 95m - presumably to be channelled through to the Glazers to pay down part of the PIKs. What's more it's not going to be used as buying "expensive" players seems not to be part of the clubs transfer policy right now.

Due to the peaks and troughs in the cash situation throughout the year, there could come a time where the cash balance is down to £115m at one point in the year.

If £95m is taken then that becomes £20million. To my mind, this means that any player purchases beyond that would mean dipping into the RCF.

I suppose it depends on whether or not you consider £20million "expensive" or not. Given that we are potentially looking to replace Giggs, Scholes and VDS, I'd suggest it's not enough.

 

[UnitedRoadRed]

Either I am misunderstanding or you are, I think.

To me, the RCF is a fancy way of saying "We have an Overdraft facility on the account".

According to the bond prospectus, the RCF was put in place for player capex purposes only.

When we were discussing the cashflow situation the other day, it became obvious that there's no way that the cash will allow the Glazers to take out £70-95million this year AND provide Fergie with, say, £60million for transfers without going into the red at some point.

But if going into the red AND taking the carve-out and dividend is forbidden then it becomes a moot point because it wouldn't erm... happen anyway. Or something. If you see what I mean.

Unless the Glazers give Fergie an extraordinary amount of money to spend on transfers then we are not going to get to the point where the RCF is needed because the only thing which could take us to that point is the £70m carve out and £25m dividend.

I'm guessing they'd rather owe £50m on the rate that the RCF charges at and take £50m out of the club up to the parent level to either pay off the PIK interest/debt or to buy more of the PIKs (which is to all intents and purposes paying off the debt). It's certainly the way that I understood the RCF to be at the time the bond was promoted and I thought it was a good idea to get a tranche of debt moved over at half the APR of the PIK debt. Obviously this needs to be cleared down for a certain period each year and as GCHQ said, this can be done with the ST money in the summer.

Well, it's obvious that they both become due in the same year but that doesn't make what I have suggested obvious.

Can they actually do it? Can they borrow against United in this way in order to raise £200million (or whatever) to pay off their personal debts?

Doesn't this also go against Gill's line that the PIKs are not United's problem?

I wouldn't say that this suggestion is a "given" by any stretch but I would like to know one way or another if it is a possibility or not so that it can either be scrapped now or not.

I'm sure it's not a coincidence.

With the best will in the world, Gill has an agenda and a party line to toe. I think everyone on here acknowledges that the PIKs, being held against RFJV are ultimately a United debt rather than a Buccs or FAG debt.

What's more interesting is how much of the PIK will be left to pay to a third party (i.e. not Glazer in any shape or form) come 2017. That will be a true measure of how they've handled the debt.

 

[andersred]

Well, it's obvious that they both become due in the same year but that doesn't make what I have suggested obvious.

Can they actually do it? Can they borrow against United in this way in order to raise £200million (or whatever) to pay off their personal debts?

Doesn't this also go against Gill's line that the PIKs are not United's problem?

I wouldn't say that this suggestion is a "given" by any stretch but I would like to know one way or another if it is a possibility or not so that it can either be scrapped now or not.

Are you hypothesising that they would refinance the bond in Jan 2017 and in that refinancing borrow enough to repay the PIK too (due 2017)?

That sounds implausible as the amount required would be so great, over £1.1bn. It would be an enormous risk, the risk of failing to get the financing, to run.

 

[ciderman9000000]

Are you hypothesising that they would refinance the bond in Jan 2017 and in that refinancing borrow enough to repay the PIK too (due 2017)?

That sounds implausible as the amount required would be so great, over £1.1bn. It would be an enormous risk, the risk of failing to get the financing, to run.

If the Glazers take the £70m carve-out and write-off their 20% of the PIK's, they would then only need to make one more payment of £30m at anytime in the next seven years to keep the PIK's below £250m come 2017.

 

[UnitedRoadRed]

If the Glazers take the £70m carve-out and write-off their 20% of the PIK's, they would then only need to make one more payment of £30m at anytime in the next seven years to keep the PIK's below £250m come 2017.

Can you show your working for this please?

No I'm not a teacher but I'm not sure what you're basing your calculations on.

 

[ciderman9000000]

Can you show your working for this please?

No I'm not a teacher but I'm not sure what you're basing your calculations on.

Sure.

I assumed that the PIK's stood at £220m of which the Glazers own 20%, that the interest rate will revert back to 14.5% next year and, to show the most expensive scenario i described, that the second payment of £30m was made as late as possible in 2016.

£220m - 20% = £176m
£176m - £70m (carve-out) =£106m

Interest:

1. £106m + £15m = £121m
2. £121m + £18m = £139m
3. £139m + £20m = £159m
4. £159m + £23m = £182m
5. £182m + £26m = £208m
6. £208m + £30m - £30m = £208m
7. £208m + £30m = £238m

So the PIK level after just two payments in the next seven years (the £70m carve-out and a further £30m dividend in 2016) will be £238m.

We already know that with our current cash reserves the £70m carve-out can leave the club without effecting our spending power enough to make any real difference in the transfer market; if the next payment of £30m isn't then till six years down the line, would you expect that to effect us at all?

This would support reports that the Glazers just aren't that concerned about the PIK notes; they'll need to be well managed, but the options available for their management are many.

The PIK's can be managed whilst still giving SAF whatever funds he might need to manage the team, which has been GCHQ's point for a while now; there's a fair amount going out in debt payments, but there's also a fair amount of revenue being generated, and if none of it really effects the team at all or SAF's ability to build his squad then who cares?

Ticket prices would probably be a bit lower without the debt in place, granted, but i would imagine not drastically so; the PLC weren't a bunch of happy, altruistic, free-love Samaritains either, you know.

 

[UnitedRoadRed]

Sure.

I assumed that the PIK's stood at £220m of which the Glazers own 20%, that the interest rate will revert back to 14.5% next year and, to show the most expensive scenario i described, that the second payment of £30m was made as late as possible in 2016.

£220m - 20% = £176m
£176m - £70m (carve-out) =£106m

Interest:

1. £106m + £15m = £121m
2. £121m + £18m = £139m
3. £139m + £20m = £159m
4. £159m + £23m = £182m
5. £182m + £26m = £208m
6. £208m + £30m - £30m = £208m
7. £208m + £30m = £238m

So the PIK level after just two payments in the next seven years (the £70m carve-out and a further £30m dividend in 2016) will be £238m.

We already know that with our current cash reserves the £70m carve-out can leave the club without effecting our spending power enough to make any real difference in the transfer market; if the next payment of £30m isn't then till six years down the line, would you expect that to effect us at all?

This would support reports that the Glazers just aren't that concerned about the PIK notes; they'll need to be well managed, but the options available for their management are many.

The PIK's can be managed whilst still giving SAF whatever funds he might need to manage the team, which has been GCHQ's point for a while now; there's a fair amount going out in debt payments, but there's also a fair amount of revenue being generated, and if none of it really effects the team at all or SAF's ability to build his squad then who cares?

Ticket prices would probably be a bit lower without the debt in place, granted, but i would imagine not drastically so; the PLC weren't a bunch of happy, altruistic, free-love Samaritains either, you know.

Why would the interest rate revert back to 14.5%?

Also, why are you isolating the 20% at the start? As we (don't) know, nobody knows what the Ts&Cs are on the PIKs so it is perfectly feasible that the repayments must be rolled up across the whole PIK estate for the life of the loan. Similarly people have questions about the early repayment possibilities.

I appreciate your reasons for your figure, but they are based on assumptions. It may also depend at what point pay downs can be made though - a particular point of each year perhaps by which payments had to be made. It's still meaning that the whole amount would be over three quarters of a billion pounds outstanding in 2017 if we use your £238m figure.

 

[TheMancRedDevil]

I appreciate your reasons for your figure, but they are based on assumptions. It may also depend at what point pay downs can be made though - a particular point of each year perhaps by which payments had to be made. It's still meaning that the whole amount would be over three quarters of a billion pounds outstanding in 2017 if we use your £238m figure.

Isn't somewhere in the region of 90% of this whole thread based on assumptions?

The specifics of the figures are largely irrelevant. I was initially asking if it would be possible in principle for them to refinance them together with the senior debt when they all become due in 2017 so whether the figure on the PIKs at that time is £200million or £300million doesn't really matter too much, I wouldn't have thought.

 

[TheMancRedDevil]

Are you hypothesising that they would refinance the bond in Jan 2017 and in that refinancing borrow enough to repay the PIK too (due 2017)?

Yes, that is what I am hypothesising.

That sounds implausible as the amount required would be so great, over £1.1bn. It would be an enormous risk, the risk of failing to get the financing, to run.

Yes but that assumes that the PIKS roll up to their fullest extent. What difference would the £70m carve out have on the final balance? What about a couple of the divs being taken somewhere along the line? What would the impact of the fact that the Glazers own at least 20% of them have on the final figure?

Does it become more plausible? Is it a possibility? (I mean from a legal/logistical pov more than anything)

 

[TheMancRedDevil]

According to the bond prospectus, the RCF was put in place for player capex purposes only.

Well, yes but isn't this a little bit like the fabled "Ronaldo Money" scenario where we imagine that the various monies are stored in seperate boxes when the reality is that it is all in one big kitty?

I guess what it does mean is that the Glazers can't spend £20million on players but borrow the full £75million. That would be abusing the fund.

BUT if the carve out means that they are left with £20m cash and Fergie wants a player for £30m then we have to dip into the RCF for that £10m.

In theory, it is only because the carve-out was taken that the need for this arose but that would surely be ok?

 

[ciderman9000000]

Why would the interest rate revert back to 14.5%?

Also, why are you isolating the 20% at the start? As we (don't) know, nobody knows what the Ts&Cs are on the PIKs so it is perfectly feasible that the repayments must be rolled up across the whole PIK estate for the life of the loan. Similarly people have questions about the early repayment possibilities.

I appreciate your reasons for your figure, but they are based on assumptions. It may also depend at what point pay downs can be made though - a particular point of each year perhaps by which payments had to be made. It's still meaning that the whole amount would be over three quarters of a billion pounds outstanding in 2017 if we use your £238m figure.

It was reported that the 2% rise in interest would likely last as little as six months before reverting back to 14.5%

Even if the 20% cannot be written off it would mean that 20% of any payments towards the PIK's would be made from RFJV to itself so this money could be fed back in (Redjazz told me the technical term for this but i can't remember it) and the net effect to the remaining 80% would be the same as if the 20% was written off.

I don't think it realistic that there would be any restrictions on early payments, what do you mean? Surely a debt with such high interest would have no such restrictions.

It seems more plausible that payments may only be made at certain times of the year, but that doesn't effect the calculation at all.

Yes the PIK debt would still be £238m in 2017, but by then our revenue would likely have grown considerably so relative to income this wouldn't be as much.

I'm just showing how simple it would be to manage the PIK's whilst still allowing plenty of funding for squad investment; as i said, the Glazers, Gill etc. are reportedly unconcerned about the debt, Gill says that there's plenty of cash available for transfers, SAF says when he wants money it's made available for him; i see no reason to disbelieve any of this and instead proclaim that we're skint. The money's there.

 

[TheMancRedDevil]

I can't remember what it was now but I actually thought this a couple of months ago but then I thought of something which made it unfeasible but I have forgotten what it was now!

It was just the fact that the PIKs are being classed as "United Debt" - well, fine. For the purposes of this example, let's go with that.

Given that the Bond was reportedly twice over-subscribed, why didn't they make it a £700million Issue? The takers were obviously there to raise this kind of cash and the interest over the seven years would have been in the region of £63million/year.

It might not please anybody but it would have removed the need for all the financial gymnastics with carve-outs and dividends.

EDIT: There's clearly a reason why they didn't do this.

 

[UnitedRoadRed]

Well, yes but isn't this a little bit like the fabled "Ronaldo Money" scenario where we imagine that the various monies are stored in seperate boxes when the reality is that it is all in one big kitty?

I guess what it does mean is that the Glazers can't spend £20million on players but borrow the full £75million. That would be abusing the fund.

BUT if the carve out means that they are left with £20m cash and Fergie wants a player for £30m then we have to dip into the RCF for that £10m.

In theory, it is only because the carve-out was taken that the need for this arose but that would surely be ok?

No, the drawn down from the RCF is specifically for player capex as far as people could tell from the bond prospectus. Your second statement pretty much sums up the scenario. The third one is like paying your Tesco bill with £20 cash and £10 on your card. I would imagine, though, that there's nothing to stop the full £30m coming from the RCF; we wouldn't have to be flat broke to dip into the RCF.

It's scenario management for the Glazers - what if two top players were need to replace Scholes and Giggs for example?

It was reported that the 2% rise in interest would likely last as little as six months before reverting back to 14.5%

Even if the 20% cannot be written off it would mean that 20% of any payments towards the PIK's would be made from RFJV to itself so this money could be fed back in (Redjazz told me the technical term for this but i can't remember it) and the net effect to the remaining 80% would be the same as if the 20% was written off.

I don't think it realistic that there would be any restrictions on early payments, what do you mean? Surely a debt with such high interest would have no such restrictions.

It seems more plausible that payments may only be made at certain times of the year, but that doesn't effect the calculation at all.

Yes the PIK debt would still be £238m in 2017, but by then our revenue would likely have grown considerably so relative to income this wouldn't be as much.

I'm just showing how simple it would be to manage the PIK's whilst still allowing plenty of funding for squad investment; as i said, the Glazers, Gill etc. are reportedly unconcerned about the debt, Gill says that there's plenty of cash available for transfers, SAF says when he wants money it's made available for him; i see no reason to disbelieve any of this and instead proclaim that we're skint. The money's there.

The money's there for transfers, I agree; worst case it's the £70m RCF.
The 2017 situation still shows that the debt has grown unfortunately, unless they push the dividend and the carve out at the PIKs in a timely manner.

I can't remember what it was now but I actually thought this a couple of months ago but then I thought of something which made it unfeasible but I have forgotten what it was now!

It was just the fact that the PIKs are being classed as "United Debt" - well, fine. For the purposes of this example, let's go with that.

Given that the Bond was reportedly twice over-subscribed, why didn't they make it a £700million Issue? The takers were obviously there to raise this kind of cash and the interest over the seven years would have been in the region of £63million/year.

It might not please anybody but it would have removed the need for all the financial gymnastics with carve-outs and dividends.

EDIT: There's clearly a reason why they didn't do this.

Given they're in the Red Football group of companies, I think it would be naive to class it as anything else really.

The FAG going into administration wouldn't affect us, but RFJV doing so would.

 

[ciderman9000000]

I can't remember what it was now but I actually thought this a couple of months ago but then I thought of something which made it unfeasible but I have forgotten what it was now!

It was just the fact that the PIKs are being classed as "United Debt" - well, fine. For the purposes of this example, let's go with that.

Given that the Bond was reportedly twice over-subscribed, why didn't they make it a £700million Issue? The takers were obviously there to raise this kind of cash and the interest over the seven years would have been in the region of £63million/year.

It might not please anybody but it would have removed the need for all the financial gymnastics with carve-outs and dividends.

EDIT: There's clearly a reason why they didn't do this.

I think that the PIK's, whilst more expensive in the long-run, offer more financial freedom short-term. A £700m bond issue would have meant yearly payments of £63m rather than the £45m we have now, and at maturity the debt would still be £700m. With PIK notes though yearly payments aren't compulsory, which gives the club more working capital short-term. As long as they're well managed, which the bond issue made certain of by giving the option of the anytime carve-out, it would seem the PIK's offer freedom of options at a price. Obviously the Glazers prefer to work that way than be tied down to set annual payments.

This is assuming that it would have even been possibe to pay off the PIK's with a larger bond issue, i've no idea whether that was ever an option or not.

 

[ciderman9000000]

No, the drawn down from the RCF is specifically for player capex as far as people could tell from the bond prospectus. Your second statement pretty much sums up the scenario. The third one is like paying your Tesco bill with £20 cash and £10 on your card. I would imagine, though, that there's nothing to stop the full £30m coming from the RCF; we wouldn't have to be flat broke to dip into the RCF.

It's scenario management for the Glazers - what if two top players were need to replace Scholes and Giggs for example?

The money's there for transfers, I agree; worst case it's the £70m RCF.

I think you're misrepresenting the purpose of the RCF, URR.

As described in the quote from the prospectus posted by Redjazz above, the RCF in place as a short-term overdraft facility for in case funds are needed at a point in the season when our cash-reserves are experiencing a natural low-point.

Here's the quote:

Our cost base is more evenly spread throughout the financial year than our cash inflows. Wages and fixed costs make up the majority of our cash outflows and are generally paid throughout the 12 months of the financial year. Our working capital requirements tend to peak in December, in advance of Premier League and UEFA broadcasting receipts in January.
Historically, we have drawn on our revolving credit facilities in December and April to meet our working capital requirements.
In addition, transfer windows for acquiring and disposing of players occur in January and the summer. During these periods, we may require additional cash to meet our acquisition needs for new players and we may generate additional cash through the sale of existing players. Depending on the terms of the trade, transfer fees may be paid or received by us in multiple
instalments, resulting in deferred cash paid or received. 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.

It's just for very short-term borrowing is all.

GCHQ said a couple of pages ago that over the course of a season our cash in bank reserves tend to drop by as much as £40m mid-season as staff wages are gradually paid out; that money later comes back again as income, which is less evenly spread than costs, and the reserves rise again (as described in the prospectus quote above). So the RCF is in place to allow us all the funds we might need for running costs or transfer expenditure even at a time when the club is in one of these cash low-points, such as in the January transfer window. Making use of the RCF then is not really getting into more debt, or at least, it is only very temporarily.

To use your Tesco analogy, it's like spending £30 on your credit-card on a Thursday because your wages haven't gone in yet, but knowing that you'll be paid on Friday and be able to pay that £30 straight back.

Look at our cash reserves of £164m. In the event of the carve-out being taken and the £27m dividend, and us being in a -£40m trough, we'd still have £27m in the bank; plenty of cash to work with, but it's then that the RCF might come useful. Say we spent £40m on two new players in January. Our cash reserves would be -£13m into the RCF, but by the end of the season we'd get £40m back as our reserves peaked again; so even after spending £40m net, having the carve-out and maximum dividend taken (which i think unlikely) and spending £13m of the RCF, we'd still have £27m cash in bank come June. That's without including any cash profits for the year.

 

[UnitedRoadRed]

I think you're misrepresenting the purpose of the RCF, URR.

As described in the quote from the prospectus posted by Redjazz above, the RCF in place as a short-term overdraft facility for in case funds are needed at a point in the season when our cash-reserves are experiencing a natural low-point.

Here's the quote:

During these periods, we may require additional cash to meet our acquisition needs for new players and we may generate additional cash through the sale of existing players.

It's just for very short-term borrowing is all.

GCHQ said a couple of pages ago that over the course of a season our cash in bank reserves tend to drop by as much as £40m mid-season as staff wages are gradually paid out; that money later comes back again as income, which is less evenly spread than costs, and the reserves rise again (as described in the prospectus quote above). So the RCF is in place to allow us all the funds we might need for running costs or transfer expenditure even at a time when the club is in one of these cash low-points, such as in the January transfer window. Making use of the RCF then is not really getting into more debt, or at least, it is only very temporarily.

To use your Tesco analogy, it's like spending £30 on your credit-card on a Thursday because your wages haven't gone in yet, but knowing that you'll be paid on Friday and be able to pay that £30 straight back.

Look at our cash reserves of £164m. In the event of the carve-out being taken and the £27m dividend, and us being in a -£40m trough, we'd still have £27m in the bank; plenty of cash to work with, but it's then that the RCF might come useful. Say we spent £40m on two new players in January. Our cash reserves would be -£13m into the RCF, but by the end of the season we'd get £40m back as our reserves peaked again; so even after spending £40m net, having the carve-out and maximum dividend taken (which i think unlikely) and spending £13m of the RCF, we'd still have £27m cash in bank come June. That's without including any cash profits for the year.

No, I've not misrepresented it. I've bolded the bit of the quote that backs up what I said. As I discussed with GCHQ pages and pages (and pages!) ago, we'd established that it was like a credit card in the sense that it has to be cleared down below a certain amount (£25m iirc) for only 5 or so consecutive days during the year without penalty clauses kicking in. In that sense it differs from a credit card because Barclaycard would have no problem with you maintaining your balance at whatever you like as long as you meet the minimum interest payments. So you could pay it off with the cash at hand brought in from ST sales then use it again to buy a player the following week. Obviously that's not a strategy they'll want to pursue but it's a possible use of the facility.

Agreed, it's not likely to be a long term source of transfer funds, but similarly it can only be used for player capex when cash at hand would prevent us signing a player that Sir Alex wants - something that he says has never happened, so this is clearly in place to make sure it continues to never be the case.

 

[TheMancRedDevil]

So, we all agree that Fergie has plenty of money should he need it and is not being hamstrung by the Glazers? Excellent. Glad that's all sorted then!

 

[ciderman9000000]

So you agree then that there's plenty of cash available for transfers? Even in the unlikely event of us having to temporarily dip into the RCF (unlikely because our cash reserves are already so high!), there's plenty of cash available for one, two, or even three premium rate players.

I just cannot see the Glazers denying SAF that money should he need it. The money's there, we're not skint, SAF says he has no problems acquiring funds.

Why would the Glazers deny those funds and hinder the success of the team, and with it hinder the potential for further commercial and revenue growth? There'd be no point in paying off the PIK's as early as possible through maximum dividends and saving themselves £200m if by 2017 we've missed out on £200m in commercial revenues through poor squad investment and the club is worth £1.2bn rather than £1.6bn.

Squad investment is a cost that will pay for itself in the long-run.

 

[andersred]

I think that the PIK's, whilst more expensive in the long-run, offer more financial freedom short-term. A £700m bond issue would have meant yearly payments of £63m rather than the £45m we have now, and at maturity the debt would still be £700m. With PIK notes though yearly payments aren't compulsory, which gives the club more working capital short-term. As long as they're well managed, which the bond issue made certain of by giving the option of the anytime carve-out, it would seem the PIK's offer freedom of options at a price. Obviously the Glazers prefer to work that way than be tied down to set annual payments.

This is assuming that it would have even been possibe to pay off the PIK's with a larger bond issue, i've no idea whether that was ever an option or not.

There's a lot of sense being talked in this thread right now including by you Cider, but that's rubbish.

They would have repaid them in 2007 if they could. Nothing to do with "freedom" and all to do with cost. You could have issued redeemable preferred equity secured on the same thing as the PIKs but at half the rate pre-credit crunch. The existence of the PIKs today is just a cock-up.

The rate will not revert to 14.25% unless the cash-pay leverage ratio of the RFJV group goes back below 5x. As it is around 5.9x today, that will take a while....

 

[ciderman9000000]

There's a lot of sense being talked in this thread right now including by you Cider, but that's rubbish.

They would have repaid them in 2007 if they could. Nothing to do with "freedom" and all to do with cost. You could have issued redeemable preferred equity secured on the same thing as the PIKs but at half the rate pre-credit crunch. The existence of the PIKs today is just a cock-up.

The rate will not revert to 14.25% unless the cash-pay leverage ratio of the RFJV group goes back below 5x. As it is around 5.9x today, that will take a while....

I was talking about at the time of the bond issue though, January '10. I can understand why the existence of the PIK's is a feck-up from further back than that, but TMRD asked why they didn't remedy that with a larger (say £700m) bond issue?

I was only making a guess that it was for reasons of flexibility, i'd hoped my second paragraph would show that.

Do you know why they didn't just ask for more from the investors in January to cover the PIK's?

 

[TheMancRedDevil]

I think that the PIK's, whilst more expensive in the long-run, offer more financial freedom short-term. A £700m bond issue would have meant yearly payments of £63m rather than the £45m we have now, and at maturity the debt would still be £700m. With PIK notes though yearly payments aren't compulsory, which gives the club more working capital short-term. As long as they're well managed, which the bond issue made certain of by giving the option of the anytime carve-out, it would seem the PIK's offer freedom of options at a price. Obviously the Glazers prefer to work that way than be tied down to set annual payments.

This is assuming that it would have even been possibe to pay off the PIK's with a larger bond issue, i've no idea whether that was ever an option or not.

I think this is largely the same conclusion I reached when I first thought of it. They clearly believe that the PIKs can be completely cleared by 2017.

As they have shown no sign of doing this with money taken from United up to this point (despite assurances from some that this is the ONLY option open to them) the question has to be: How?

P.S. I hear what Andersred is saying about the PIKs being a cock-up but knowledgable though he is, a lot of what he now says has to be taken with a pinch of salt on this issue.

Making a cock-up is one thing. Making the situation even worse by not doing anything to rectify the mistake is on a whole new level of stupidity.

Perhaps some people have to get past their pre-conceived ideas that the Glazers are gimps and gnomes and do perhaps actually know what they are doing here.

The amazing cost-control that Anders had to acknowledge the other day did not happen by accident. Someone, somewhere knows to the penny what is going on.

 

[ciderman9000000]

I dunno, i'll bow to anders' knowledge on most things here.

 

[UnitedRoadRed]

I think this is largely the same conclusion I reached when I first thought of it. They clearly believe that the PIKs can be completely cleared by 2017.

As they have shown no sign of doing this with money taken from United up to this point (despite assurances from some that this is the ONLY option open to them) the question has to be: How?

P.S. I hear what Andersred is saying about the PIKs being a cock-up but knowledgable though he is, a lot of what he now says has to be taken with a pinch of salt on this issue.

Making a cock-up is one thing. Making the situation even worse by not doing anything to rectify the mistake is on a whole new level of stupidity.

Perhaps some people have to get past their pre-conceived ideas that the Glazers are gimps and gnomes and do perhaps actually know what they are doing here.

The amazing cost-control that Anders had to acknowledge the other day did not happen by accident. Someone, somewhere knows to the penny what is going on.

Like cider has, I'll bow to Anders' superior experience on this one. It's your defiance and insisting on ploughing a stubborn furrow in the face of ignorance that shadows some good points that you make.

Their cost control is without question, but that just comes naturally if you're a penny-pinching f*cker and desperately need to attack the profit margin from both sides. The increased commercial revenue is mildly impressive but the debt record is concerning.

So you agree then that there's plenty of cash available for transfers? Even in the unlikely event of us having to temporarily dip into the RCF (unlikely because our cash reserves are already so high!), there's plenty of cash available for one, two, or even three premium rate players.

I just cannot see the Glazers denying SAF that money should he need it. The money's there, we're not skint, SAF says he has no problems acquiring funds.

Why would the Glazers deny those funds and hinder the success of the team, and with it hinder the potential for further commercial and revenue growth? There'd be no point in paying off the PIK's as early as possible through maximum dividends and saving themselves £200m if by 2017 we've missed out on £200m in commercial revenues through poor squad investment and the club is worth £1.2bn rather than £1.6bn.

Squad investment is a cost that will pay for itself in the long-run.

So, we all agree that Fergie has plenty of money should he need it and is not being hamstrung by the Glazers? Excellent. Glad that's all sorted then!

Yes, I agree that we have a facility to go further into debt to acquire players. Do you disagree that the RCF is anything other than that?

 

[GCHQ]

There's a lot of sense being talked in this thread right now including by you Cider, but that's rubbish.

They would have repaid them in 2007 if they could. Nothing to do with "freedom" and all to do with cost. You could have issued redeemable preferred equity secured on the same thing as the PIKs but at half the rate pre-credit crunch. The existence of the PIKs today is just a cock-up.

The rate will not revert to 14.25% unless the cash-pay leverage ratio of the RFJV group goes back below 5x. As it is around 5.9x today, that will take a while....

You said it was because the ratio was above 6x when RFJV Ltd's 2009 accounts revealed the increase in the PIK interest rate. What's changed and what's your source? Have you got your grubby mitts on those PIK documents?

I'm a bit surprised if it really is 5x because there was much talk of the rate reverting back to 14.25% if EBITDA grew significantly in 2009/10 (which it did) but there would never have been any chance of coming in below 5x in 09/10 even if the Glazers had written off their 20% share of the PIKs.

 

[TheMancRedDevil]

I dunno, i'll bow to anders' knowledge on most things here.

On the subject of the PIKs, I think all bets are off at the moment.

No one knows what the true situation with them is and no one knows for sure what the Glazers have in mind for them.

Anders had a bit of a stab at it (you might have read about it) and ... well ...

When it comes to their personal finances, I'll back the Glazers' knowledge of the situation over Anders.

When it comes to known facts with Manchester United's accounts. Yup. Anders has it licked. Even if his reporting of the situation isn't always objective.

 

[ciderman9000000]

Yes, I agree that we have a facility to go further into debt to acquire players. Do you disagree that the RCF is anything other than that?

Well, you've missed the point again, i think. Unless you're just intentionally wording it badly?

Do you understand that using the RCF will not put us 'further into debt' for any longer than two or three months? It's there simply to act as temporary funding should our cash reserves drop low enough during a season for there to not be enough to meet our cost requirements, but then as income/costs even themselves out over the remainder of the season we'll effectively not have incurred any debt at all.

When i say there's money available for transfer, i don't mean that we'll have to borrow it, i mean there's money available for transfers in our bank account.

It's unlikely the RCF will be used even in the event of us making a couple of £25m signings, and if it is used (i.e. if we make those signings in January + the owners take the carve-out and, unlikely enough, maximum dividends) then by June 2011 it will have been paid back in full anyway.

Do you understand that?

 

[UnitedRoadRed]

Some more general questions
1/ How soon after the fact would we know if the Glazers wrote off their PIKs?
2/ How soon after the £70m was taken could we reasonably expect to know it had happened?
3/ Is the cash-pay leverage ratio of the RFJV group affected by the dividend payments?

Thanks in advance.

 

[Julian Denny]

So, we all agree that Fergie has plenty of money should he need it and is not being hamstrung by the Glazers? Excellent. Glad that's all sorted then!

As someone said "You cannot be serious". Fergie is hamstrung by the budget which means he cannot buy any current world class players. only potential ones (he hopes) who cost relative peanuts. The financial plan is for revenues to continue increasing and for costs to be curtailed - the biggest of which is wages. As someone pointed out it is likely to backfire due to lack of success on the pitch, resulting in a drop in revenues, because of lack of proper investment in the team. By that I mean investment which will give immediate returns and not ones in, maybe, with a bit of luck etc, in two or three seasons time.

As I pointed out previosuly, the dichotomy between experience and inexperienced potential in our squad is a serious issue. Made worse by injuries to Hargreaves, Valencia and, who knows, Rio.

Then again, you were being sarcastic, weren't you ?

 

[TheMancRedDevil]

Their cost control is without question, but that just comes naturally if you're a penny-pinching f*cker and desperately need to attack the profit margin from both sides. The increased commercial revenue is mildly impressive but the debt record is concerning.

No. That's called running a business properly.

Yes, I agree that we have a facility to go further into debt to acquire players. Do you disagree that the RCF is anything other than that?

Well, the clue is in the title really. Revolving CREDIT Fund.

Do you agree that this fund will only be used as a temporary measure to see us through temporary cashflow problems and may not be used at all?

Do you agree that its presense is a good thing and could even be a very useful safeguard against unexpected emergency situations (like a key player getting seriously injured the week before the January transfer window opens?)

 

[TheMancRedDevil]

As someone said "You cannot be serious". Fergie is hamstrung by the budget which means he cannot buy any current world class players. only potential ones (he hopes) who cost relative peanuts. The financial plan is for revenues to continue increasing and for costs to be curtailed - the biggest of which is wages. As someone pointed out it is likely to backfire due to lack of success on the pitch, resulting in a drop in revenues, because of lack of proper investment in the team. By that I mean investment which will give immediate returns and not ones in, maybe, with a bit of luck etc, in two or three seasons time.

As I pointed out previosuly, the dichotomy between experience and inexperienced potential in our squad is a serious issue. Made worse by injuries to Hargreaves, Valencia and, who knows, Rio.

Then again, you were being sarcastic, weren't you ?

Mischievous is the word, I think.

I know that it isn't very conducive to discussion but I don't think we'll be able to say for definite either way until next Summer and we know how successful (or otherwise) we have been this season and we know the state of play with the "oldies".

If VDS, Giggs and Scholes all retire and Fergie is still going with the "I'm happy with what I have, there's no value in the market" line but goes out and spends £2m on Ole Going Nowhere from the the Norwegian Second Division then we might have to revisit the subject.

 

[UnitedRoadRed]

Well, you've missed the point again, i think. Unless you're just intentionally wording it badly?

Oh no, I understand what the RCF is. Perhaps you haven't realised exactly what it is after GCHQ and I discussed it.

Do you understand that using the RCF will not put us 'further into debt' for any longer than two or three months? It's there simply to act as temporary funding should our cash reserves drop low enough during a season for there to not be enough to meet our cost requirements, but then as income/costs even themselves out over the remainder of the season we'll effectively not have incurred any debt at all.

Borrowing money will put us further into debt. You clearly don't understand that the during the season bit is a nonsense. We've never spent massively in the January window - Ruud, Rio, Veron, etc. all arrived during the summer. We may be forced into using it if we need to buy someone as soon as the window opens in May before we get sufficient ST money in for example, to grab a must have player. It has to be cleared down to £25m for only 5 consecutive days so can be used for over 11 months to its credit limit if required. You're suggesting one use for it - cost requirements. This can only be player capex and your scenario would only come into play if we break with tradition and sign someone big in the January window or if the rules are changed to revert to all year round transfers.

When i say there's money available for transfer, i don't mean that we'll have to borrow it, i mean there's money available for transfers in our bank account.

Yes there is but with carve out and dividends then Messi on the market, there's an option to employ the RCF in the short term.

It's unlikely the RCF will be used even in the event of us making a couple of £25m signings, and if it is used (i.e. if we make those signings in January + the owners take the carve-out and, unlikely enough, maximum dividends) then by June 2011 it will have been paid back in full anyway.

Do you understand that?

I understand that very easily; it's you that is inflexible in looking at the full way in which the RCF can be utilised.

 

[TheMancRedDevil]

Borrowing money will put us further into debt. You clearly don't understand that the during the season bit is a nonsense. We've never spent massively in the January window - Ruud, Rio, Veron, etc. all arrived during the summer. We may be forced into using it if we need to buy someone as soon as the window opens in May before we get sufficient ST money in for example, to grab a must have player. It has to be cleared down to £25m for only 5 consecutive days so can be used for over 11 months to its credit limit if required. You're suggesting one use for it - cost requirements. This can only be player capex and your scenario would only come into play if we break with tradition and sign someone big in the January window or if the rules are changed to revert to all year round transfers.

I think you need to refer back to what was written in the Bond Prospectus:-

Historically, we have drawn on our revolving credit facilities in December and April to meet our working capital requirements.

 

[UnitedRoadRed]

No. That's called running a business properly.

Not really. Depends what your goals are. You may keep prices lower to keep favour with your customers. But that's a whole separate economics debate that we won't explore.

Well, the clue is in the title really. Revolving CREDIT Fund.

Do you agree that this fund will only be used as a temporary measure to see us through temporary cashflow problems and may not be used at all?

Do you agree that its presense is a good thing and could even be a very useful safeguard against unexpected emergency situations (like a key player getting seriously injured the week before the January transfer window opens?)

It may not be used.
I hope it won't be used - just like a credit card, it's a last resort.
But you still haven't admitted that it puts us further into debt, have you?
The money to clear it down still has to come from somewhere.

 

[TheMancRedDevil]

Not really. Depends what your goals are. You may keep prices lower to keep favour with your customers. But that's a whole separate economics debate that we won't explore.



It may not be used.
I hope it won't be used - just like a credit card, it's a last resort.
But you still haven't admitted that it puts us further into debt, have you?
The money to clear it down still has to come from somewhere.

You're missing the point completely, I think. It is about cashflow and the RCF is there to even out the peaks and troughs.

EDIT: As for the business thing, no, we'd best not go there.

On the subject of keeping favour with the customers, I'll just say that I never saw anyone complaining about the cost when we won the PL and CL in 2008!

 

[ciderman9000000]

As someone said "You cannot be serious". Fergie is hamstrung by the budget which means he cannot buy any current world class players. only potential ones (he hopes) who cost relative peanuts. The financial plan is for revenues to continue increasing and for costs to be curtailed - the biggest of which is wages. As someone pointed out it is likely to backfire due to lack of success on the pitch, resulting in a drop in revenues, because of lack of proper investment in the team. By that I mean investment which will give immediate returns and not ones in, maybe, with a bit of luck etc, in two or three seasons time.

As I pointed out previosuly, the dichotomy between experience and inexperienced potential in our squad is a serious issue. Made worse by injuries to Hargreaves, Valencia and, who knows, Rio.

Then again, you were being sarcastic, weren't you ?

You just said yourself; the financial plan you described, the one you just assure us is indeed the Glazers' plan, is flawed. If you or i can see that then why do you think the Glazers, Gill or SAF cannot? Or do you think the Glazers will be following this plan regardless of its futlility and likelihood to cost them severely in the long-run?

I think some are reading too much into our last twelve months' transfer activity and concluding that we must be sticking to that pattern forever now (except Valencia).

It's a stupid plan which would cost the Glazers far more than the PIK's ever would.

SAF's not hampered, he's said so himself and the accounts support that. It would seem though that he's been biding his time (hmmm, any retirements impending?).

If the Glazers wish to maximise their profits over the next seven years (and we know that they do) then the logical step would be to continue to provide SAF with the players he asks for whilst using the bare minimum to keep the PIK's at bay (£70m now + £30m in 2016). Do this and maybe the club would be worth £2bn by 2017 and the £200m PIK's would be feck all.

Other option? Use this masterplan, starve the squad of funds, pay off the PIK's by 2017 and end up with a commercially unattractive club worth little over £1bn.

Tough choice.

 

[UnitedRoadRed]

You're missing the point completely, I think. It is about cashflow and the RCF is there to even out the peaks and troughs.

The RCF is there for player capex.

We have received a briefing of what it can be used for within the prospectus.

What is clear is that we didn't use the old one and we may not have to use this one so we have no precedent to go off. So I'm not missing the point. I've already highlighted that it's there to provide transfer funds if there is insufficient cash at hand to "write a cheque" with.

There is nothing in the bond prospectus about how it has to be paid back, barring the proviso to clear it down to £25m for 5 consecutive days during the year. Anything else is supposition and guesswork on your part.

 

[ciderman9000000]

The RCF is there for player capex.

We have received a briefing of what it can be used for within the prospectus.

What is clear is that we didn't use the old one and we may not have to use this one so we have no precedent to go off. So I'm not missing the point. I've already highlighted that it's there to provide transfer funds if there is insufficient cash at hand to "write a cheque" with.

There is nothing in the bond prospectus about how it has to be paid back, barring the proviso to clear it down to £25m for 5 consecutive days during the year. Anything else is supposition and guesswork on your part.

That's bollocks; the prospectus quote says we've traditionally used the RCF in December and April for general running costs. It's normal for us to use it as costs peak in December, that's exactly what it says.