Again, I want to make this clear. Man U Financial situation?

I have seen a lot of people posting questions here about Man United's debts and speculating over whether the club are heading for administration. There has been a lot of speculation and arguing (as always) BUT it seems nobody actually understood the situation. Here's the scoop, (put the kettle on),

Manchester United was taken over by the Glaziers and the takeover was engineered by JP Morgan (huge banking corp). When the Glaziers and JPM engineered the £790M takeover the Glaziers had to take out a huge loan (£175M). This is not included in the debt that MU owe. (more on this later).

MU as a company owe £509m in debts because of this takeover, but these debts themselves are not the problem - as the annual interest on the various loans is covered by its operating profit. In 2008, net interest on all its debts was £69m against an operating profit £72m. Basically we currently make more money than we owe each year.

"So, Manchester Fellow you beautifully bronzed superstar" (you might say), "what happens if United stop making profits to cover the debts? Surely MU would head for administration".

Well, no. But the alternative isn't great... two companies - Perry Capital and Citidel would then have the power to legally remove the board and replace them with their own (do you see why we are angry now?).

So, if United are easily paying off their debts, why are they asking for bonds? Well united are not. The Glaziers are. You see the concern for the club’s owners is the £175m of loans that the Americans are personally responsible for and which “roll up” interest at an annual rate of 14.25%.

The so-called payment in kind (Pik) notes borrowed from Perry Capital and Citadel, two American hedge funds, initially stood at £138m in 2006, but have since accrued £40m of unpaid interest. It is the Glaziers that are in trouble and are risking dragging us down with them.

So why buy bonds?

The investors buying the bonds would pay the club £600m and in return they get 5.25% (probably a bit higher in reality) in annual interest paid to them by the club over let's say a period of 10 years. When the 10 year period is finished they then get repaid the £600m in full. They also would be given security in the form of Manchester United's assets (like the stadium etc).

The club would then use the £600m to repay the current Senior debt and PIK holders which have interest rates of 8% and 14.25% respectively.

The whole point of course being that the club would be able to significantly reduce the amount it pays out annually in interest AND you will make a quick buck yourself.

Q Do you understand now?

2Q Wanna buy some Manchester Fellow bonds? They are secured against my "assets".


Edit - Probably for the same reason that MJ's are posted from Yahoo UK and Ireland. When you use Google to search for this site it brings up relivant searches - I click on the first one which may happen to be Yahoo USA. If I wanted to change where I posted I could pick a flag down below and change it. Simple - no conspiracy.

Update 2:

@ Blue Fox - with respect I don't think you read my passage properly. I never said we had 10 years to make payments, I said usually bonds last for 10 years. As for the rest of your comment - it seems to be opinion rather than fact.

6 Answers

  • Favorite Answer

    Ha ha - you will need to invest a minimum of £50,000. Any takers?

    The bond if successfully subscribed to - note the IF - won't make much difference to the long-term debt, but may afford United the opportunity to start attacking the crippling PIK debt - note the MAY. .

    Whether investors are likely to stump up the funds to buy the bonds is debatable. When you apply you have to state what interest rate you want to receive and the bonds will be allotted at the one price (interest rate) to the successful bidders in what they call a Multiple-Unit Vickrey auction. Given the risks, the investors are likely to want a big return, meaning the club have to service higher interest rates to get their hands on the bond issue cash and thus negating the potential benefits.

    "Risk, what risk?" I hear you say. Well, much has been written about the supposed underlying strength of the business, but did you know that without the Ronaldo £80m the club would have made a loss last year - and this in an extremely successful year on the pitch. United are a risky proposition and their fate is increasingly out of the hands of the fans.

    Hope that's clear.

  • Skyfox
    Lv 7
    1 decade ago

    You forget that United's debt repayments are based on victories in the League and Champions League. United made a £42m profit only because they sold Ronaldo AND won the league, the Carling Cup, the Club World Cup and reached the semi final of the FA Cup and Champions League Final that year. Without them it's almost staggering to imagine how much a loss United would have made.

    It could be closer to £100million in the red for 2009 alone, and its not getting better either.

    The clubs operating sales were down 16% from the previous year, ouchy ouch.

    Don't forget too if someone buys a bond they can order it back at any time. United have based their repayments on constant and consistant success. Miss out on a victory in just one year and that sets you back. By 2017 you'll be ordered to pay back anywhere from £600million-1.1billion.

    It's NOT 10 years, it's 7. You have until 2017 to pay back the interest and bonds. The banks have basically said "enough is enough" and this was the ONLY deal they would offer United.

    Every financial expert has stated that this bond issue is good for United in THE SHORT TERM ONLY. The longer they leave it without a huge investment from an outside source (The Glazers could even take £130million out of the club throughout this period) United won't have any assets to sell as they will automatically be owned by the banks.

    It's a stay of execution while they desperately try and find a new owner willing to write off close to $1billion worth of debt AND run a football club. Businesses know nothing about football. Imagine United being run by investment bankers, people who ONLY care about getting their money back (i.e selling the most pofitable players). The plan only works if Fergie lives forever. Who would they bring in to replace him? If AC Milan knock you out of the CL it sets you back another year, something you can't afford.

    No-one expected Lehman Brothers to go under.

  • 1 decade ago

    lets take a dr pepper look at the situation.. if what you say is wrong .. in the worse case scenario we get a ten point deduction... the debts written off and the club get sold on to the highest bidder.. who hopefully will love and nurture the club and have us back on our feet within a couple of years.. there is no other club in england that can generate money like united .. look at the money being thrown around at city .. and they still struggle to fill the stadium... sod the glaziers let them fold ...

  • fauver
    Lv 4
    4 years ago

    they are making healthy revenue ever 365 days, paying off a important volume of their debt alongside with having finance to pay for some gamers aswell. no longer something new no longer something distinctive

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