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GLAZER DEBT COST TO HIT £100m IN 2007 |
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News -
FFUC
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Monday, 10 September 2007 00:00 |
Today the Manchester United Supporters Trust release their report on the Glazer debt , which is believed to be spiralling out of control.
FINANCIAL MARKET TURMOIL AND FANS' REJECTION OF UNFAIR SEASON TICKET SCHEME LEAVES OWNERS WITH STEEP BILL AND FEW OPTIONS
Despite appearances to the contrary, Manchester United's owners, the Glazer family, continue to face an extraordinary and growing debt problem.
Since last year's debt refinancing (“a bit of housekeeping” according to a Glazer spokesman) United and the Glazers have been faced with a series of interest rate rises which have increased the annual debt service bill from a then-confirmed £62 million a year on the total acknowledged debt of £660m.
The interest bill is currently an annualised £100 million+, of which £77m is payable this year and the other £23m is payable in the future – a ticking debt time-bomb (see below). 
The recent and continuing turmoil in financial markets has not only forced the Glazers to postpone indefinitely any further refinancing, but has also seen the 6-month LIBOR rate (the variable interbank lending rate to which the United debt is undoubtedly tied) increase to almost one percentage point above the bank base rate, so that it today stands at 6.68875%, driving up the annual cost of servicing United’s debt to painful pre-refinancing levels.
No wonder then that the Glazers forced the club to pass on this eye-watering extra finance cost to the supporters by way of much bigger-than-anticipated 12-14% ticket price rises and the "write us a blank cheque" policy for the Automatic Cup Scheme. This totally foreseen and predictable reaction by the Glazers has forced many supporters to give up their season tickets as they are unable to afford the latest hike, which now represents a compound 50% increase in ticket prices in the two years since the Glazer takeover.
This has caused such a negative reaction from loyal fans being priced out of Old Trafford that for the first time in a generation, season tickets have not sold out this season and the much-vaunted waiting list for ST has disappeared. The waiting list is a key driver in the Glazers’ bullying strategy of forcing through huge price rises on the basis that supporters will pay up for fear of losing their seats – a tactic taken straight out of the Glazers Tampa Bay Bucs owners handbook.
And of course we know that some angry supporters are taking legal action against the club over the ACS and the unfair and cack-handed way in which it was introduced (at the last minute, for reasons which we can now clearly see in the rising debt cost). The likelihood of success in one or more of these legal actions is increasing as lawyers for the claimants assess the cases and discover the paucity of United’s defence claims.
We have it on authority of our own credible sources that this set of factors combined with the current uncertainty in the credit markets has caused at least one City institution to pass on the Glazers' latest attempt to defuse the ticking bomb of their 1980's style leveraged buyout. With no traditional investment houses seemingly willing to underwrite the debt and face the increasing anger of "customers" who, despite their steadfast support of the club, have reached the limit of what they can afford, it is no wonder that rumours of potential buyers of the club are again surfacing.
Taking the figures from the July 2006 refinancing documents, copies of which we have seen, we have calculated United’s current interest and debt service bill and it is frightening to anyone who remembers what happened to Leeds and who fears the same thing happening to United or any other club which takes on such massive debts.
Due to recent turmoil in the financial markets, and cumulative interest rate rises since July 2006 when the original acquisition debt was refinanced, the total annualised debt cost to Manchester United has hit £100 million for the first time since the takeover in 2005.
*We are assuming no draw down of the Working Capital Facility – if MU has drawn on this facility to e.g. fund new players in the summer of 2007, the interest bill will be higher but it is not public information as to how much if this facility, if any, has been used.
1. First tier senior secured debt
6-month LIBOR is currently at 6.68875% Annual interest
A loan 7 year term £75m 2.125% over LIBOR = 8.81375% 6.61m
B loan 8 year term £150m 2.625% over LIBOR = 9.31375% 13.97m
C loan 9 year term £150m 3.000% over LIBOR = 9.68875% 14.53m
Working Cap
Revolver 7 year term £50m Undrawn in 2006, interest rate unknown*
2. Second tier ‘lien tranche’
10 year term £150m 5.50% over LIBOR = 12.18875% 18.28m
3. PiK debt
£155.25m 15% p.a. rolling up into principal**
Total outstanding loans £660m*
Total interest payable annualised as at September 2007 = 53.39m
Total annual principal payments for 2007 (estimated) = 24.00m
Total annualised debt payments for 2007 = £77.39 million
Accrued interest on the PiK debt for 2007 = 23.28m
Total annualised debt cost for 2007 = £100.67 million
** Initial PiK debt was £135m, interest @ 15% rolled-up for 2006-7 = £20.25m, making total debt as at July 2007 £155.25m. Interest is not payable each year but only on redemption of the PiK.
Article courtesy of Independant Manchester United Supporters Trust www.joinmust.org
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