Red card: Man United is junk
Published 20/08/2010 | 05:00
MANCHESTER United's owners begin paying 16.25pc interest this week on a loan they took out to refinance their purchase of the 18-times English soccer champions, company filings show.
US billionaire Malcolm Glazer will pay the rate on more than £200m (€243m) of payment-in-kind notes that are due in 2017.
PIK loans are typically used to hold down cash expenses in leveraged buyouts because they carry coupons that accumulate and are paid on maturity or when the debt is redeemed.
"PIKs make sense at certain times but given the rate that interest accumulates, they quickly wipe out equity," said Jonathan Moore, an analyst at Evolution Securities in London.
He added: "You'd expect owners to take them out as soon as they're able to."
The loan was agreed by a Glazer holding company called Red Football Joint Venture Ltd and is the responsibility of the family rather than the club, Manchester United CEO David Gill has said.
The club is liable for a £504m bond sale that it completed earlier this year.
The Glazers have an option under the terms of the bond to take £70m (€85m) out of the club to pay down other debt. (Bloomberg)