The Glazers, owners of Manchester United, are finding it difficult to refinance their huge debts against the background of the recession. There are increasing concerns about the possible impact on the club. They have been trying for some time to secure a refinancing package for part of the club’s £699m debt. There are doubts whether the £80m obtained from the sale of Ronaldo to Real Madrid will ever be reinvested in the club. The main concern is thought to be about the £175.5m worth of debt that the Glazers are personally responsible for, not the £518.7m of loans secured against the club.
The Glazers, owners of Manchester United, are finding it difficult to refinance their huge debts against the background of the recession. There are increasing concerns about the possible impact on the club. They have been trying for some time to secure a refinancing package for part of the club’s £699m debt. There are doubts whether the £80m obtained from the sale of Ronaldo to Real Madrid will ever be reinvested in the club. The main concern is thought to be about the £175.5m worth of debt that the Glazers are personally responsible for, not the £518.7m of loans secured against the club. It is these so-called Payments in Kind (PIK) notes, money borrowed from US hedge funds that ‘rolls up’ at an annual interest rate of 14.25 per cent that the Americans are believed to have been trying to refinance. The intention was always to pay off these loans within a few years of the takeover in May 2005, but while they managed to redeem some of the original PIK debt of £275m, the credit crunch has made this a more challenging task.
By the time the debt matures in 2017 it will stand at £580m unless the Glazers can pay part or all of it before then or secure a preferential rate of interest. With the club also facing capital repayments from 2013, the PIK debt is a concern. It grew from £152m to £175.5m in one financial year. Claims that the Glazers could persuade the banks to refinance by offering securitisation against future match day revenues are said not to be well founded given that ticket sales are already factored into the borrowing. Given that the 14.25 interest rate was agreed the last and only time the Glazers were able to refinance in August 2006, when the financial climate was much better, they will do well to secure a lower rate of interest. United are thought to be operating well within the financial terms set by their lenders. However, the two US hedge funds that provided the Glazers with PIK loans – Perry Capital and Citadel – get a range of rights over the club in the event that their financial performance falls below a defined level, including the right to appoint their own directors to the board. Ultimately they could seize control of the club should revenues plummet. They could also put a cap on United’s spending.