Manchester United defends refinancing as beneficial in the long term

Manchester United has taken flak for its refinancing efforts, which increased money borrowed against the club's assets, and likely means no influx of new talent.

A club spokesman confirmed last night that they were in advanced talks with investors about a debt structure that would reduce their annual interest payments by almost 30 percent.

The move comes 14 months after the Glazer family completed the GBP 790 million takeover of Old Trafford. But it is understood that, while the refinancing strengthens the Glazers' hold on the club, the impact on the transfer budget is "neutral."

"The amended structure following refinancing will continue to provide (manager) Sir Alex (Ferguson) with sufficient funds to compete in the transfer market," said the club spokesman.

The financing package also means that there is an increase in borrowed money on the assets of the club, such as Old Trafford and Ferguson's team, from GBP 305 million to GBP 375 million.

That surely will raise concerns among fans who remain suspicious of the Glazers' long-term intentions for Manchester United.

However, the club said the new deal with investors was "good housekeeping" and showed the owners' rising confidence in the future.

"The refinancing reflects the hugely improved outlook for the business," the spokesman said.

Under the terms of the financing arranged through JP Morgan Chase, the club's overall debt has risen from GBP 580 million to GBP 660 million, but it has reduced the amount owed in the form of risky payment-in-kind (PIK) notes.

Through three hedge funds — Perry Capital, Och-Ziff Capital Management and Citadel — the Glazers borrowed GBP 275 million in this manner to finance their highly leveraged takeover.

The debt came with punitive interest payments and penalties in the event of failure to repay the money. In the first year, the interest alone was GBP 63 million. If they had not repaid the money on time, the hedge funds could have demanded seats on the board and a share of the Glazers' share capital in the club.

Under the new arrangement, which looks as if it is being taken up by the same three hedge funds, the amount owed in PIK notes is reduced to GBP 135 million.

The remaining GBP 140 million will be paid off with the GBP 63 million interest rolled into the new debt structure. The rest of the GBP 660 million total debt figure is made up of a GBP 17 million penalty charge payable to the hedge funds for renegotiating the terms.

Forecasts suggest the club's earnings will rise greatly in the next two seasons after the GBP 56.5 million, four-year shirt sponsorship deal with the insurer American International Group. The Glazers have also just finished redeveloping Old Trafford, boosting seating capacity to 76,000. Financial benefits of this rise will not be felt until the end of next season.

From the start of the 2007-2008 season, Manchester United and the other teams in the Premier League will gain from the new GBP 1.7 billion television rights deal negotiated with Sky and Setanta Sports. With overseas rights still awaiting finalisation, clubs expect revenue from TV rights to rise from the present GBP 23 million to more than GBP 30 million.

Source: euFootball.BIZ © Copyright 2006 - All rights reserved.