Saturday 25 November 2017

Glazers set to pay off £220m of United’s debt

Paul Kelso

The Glazer family, who own Manchester United, are set to pay off £220m of their high-interest PIK loans.

The Glazer family is understood to be preparing to pay off around £220m in high-interest 'payment-in-kind’ loans borrowed to fund the purchase of Manchester United.

In a letter to the holders of the loans, Joel Glazer is understood to have committed to pay off the loans on Nov 22. It is unclear how the Glazers have raised the funds to pay off the loans but according to Bloomberg, which revealed the loan repayment last night, club funds will not be used.

In a document known as a voluntary free-payment notice issued to the holders of the loans Manchester United’s holding company Red Football Joint Venture Limited commit to “repay 100pc from the outstanding loan on Nov 22”.

“I can’t speak for any other club but the United fans should not be concerned,” United chief executive David Gill said last night.

“We have a long-term financing structure in place, excellent revenues that are growing, we are controlling our costs and we can afford the interest on our long-term finance.”

The repayment of the loans in full raises the possibility that the Glazers may have sold a stake in the club to ease the debt burden.

Alternatively they could have refinanced the loans or sold other family assets to raise the money.

United are due to publish their results for the last quarter to bond holders today and they are likely to be asked to address the issue in a conference calls with investors.

There have been suggestions in recent weeks that the Glazers were troubled by the implications of the sale of Liverpool for a valuation of just £300m.

Even allowing for the distressed nature of the Liverpool sale to NESV the sale indicated that United may be less worth than the £1bn plus valuation the family have always put on it.

In that context selling a minority stake to ease the PIK burden while retaining control might appear an attractive option.

The payment-in-kind loans, which have been accruing interest at up to 16.5pc since the Glazers bought the club in 2005, have been one of the principal causes of concern among supporters opposed to the Americans’ ownership of United.

There has been long-standing concern among supporters that the Glazers would raid the club’s reserves to pay off the PIK loans.

Under the terms of a bond issue that refinanced around £500m of bank debts secured against the club at the time of the Glazer takeover, the family were permitted to take out up to £100m as a dividend in the first year of the bond.

Announcing the club’s annual financial results last month the club revealed that the Glazers had taken no such dividend and that the club had cash reserves of around £150m.

Despite concern that those reserves would be raided to ease the PIK burden the Glazers appear to have found other resources to pay off the debts. It is unclear how the Glazers have funded the repayment of the PIK loans.

By paying off the most expensive debt incurred during the takeover the Glazers will hope to change the terms of the debate over their model and the viability of the club going forward.

Last month United reported losses of £83.6m, with more than £40m attributable to interest payments on the £500m bond issue, and accrued interest on the PIK loans.

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