Well the table doesn't really give us any further insight into the terms of the PIK - at the end of the day we dont really know and are all guessing.
However, as peterstorey has mentioned, we know the original PIK converted at around 30% so I dont see why they would agree a deal at 100% one year later - just doesn't make any sense to me.
Why? The old piks were much nastier than the current ones.
The preferred securities (essentially piks) of 275m were incredibly punitive carrying an unpaid interest bill of 50m per year and rising. They grew to 333m by 30 June 2006, less than 14 months after they were issued. This suggests that they carried an agg. interest rate of 18% plus per annum. I believe that 210m of the old piks accrued interest at 20% pa compound while the remainder accrued interest at 14.7% pa. Left unchecked, the total redemption cost in August 2010 would have been about 650m with interest for the year exceeding 100m (just for the piks alone).
The purpose of the 2006 refinancing (as with the 2010 version) was to deal with the nasty piks. In fact, pundits were surprised that the refinancing took so long even though early redemption of the piks carried a hefty penalty.
This from the JPM investment report IN 2006:
Red has decided to refinance the existing facilities, in order to refinance the existing Preferred Securities.
In effect, the outcome of the refinancing was to replace the older, more expensive pik of c. 340m on RJV's books with a more benign pik (14.25% interest) of 131m. RF saw its borrowings rocket from 271m to 514m as a consequence. This was a sweet deal for the Glazers: the new pik was much smaller in principal- they shifted a large chunk of debt on to the club; the interest wasn't as punitive; and in addition they had till 2017 to avoid any pik\equity conversion problems.
Under the terms of the older pik, the Glazers had until 12 August 2010 to redeem all of the preferred securities otherwise the hedge funds could enforce their charge over 30% of RJV. The hedge funds could appoint 30% of the directors on the board of all group companies. In essence, directors appointed by the hedge funds could have influenced (vetoed) business decisions relating to ticketing, transfers, sponsorships, management contracts, etc.
I also believe that the terms of the old piks carried directorial rights for the holders of the preferred securities in the event that certain EBITDA targets weren't reached within the first 2 years. The holders of the pik could appoint 25% of the directors to RJV, Red, and MU. Again, the pik holders could exert material influence on key business decisions.
For the second year, the consolidated EBITDA target was 85% of 89.1m (according to a report prepared by Shareholders United in June 2005 after gaining access to the pik documents held by Red's legal team). When the refinancing took place in August 2006, the estimated EBITDA for 2007 was 74m (just shy of the 85% target). Perhaps the Glazers were prepared to provide generous conversion terms for the new pik (way out in 2017) if it meant avoiding the old pik holders gaining material control over plans for the club as early as 2007.
In any event, the current pik holders will never see equity in the club. The Glazer's advisors have engineered the new refinancing to avoid that scenario. If things go according to their 'upside scenario' between now and 2017, the piks could be eliminated by 2015 (assuming maximum dividends are taken together with the 6m management fee). The piks are also eliminated in their base scenario even though they forecast no annual dividend in 2011 (though this forecast reveals a likely tradeoff- with squad investment suffering if the Glazers take maximum dividends). The key to the elimination is the exceptional dividend of 75m otherwise known as the 'ring-fenced' Ronaldo money. Without it, the Glazers would be hard-pressed to completely remove the pik by 2017 even on their optimistic basis.
