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Old 20-01-2010, 10:32 PM
redloner
 
Default Re: This Bond Issue

Quote:
Originally Posted by Flix
I don't know, one forum for this, one forum for that

So is the interest paid over the term of the bond or when it matures? And if it's paid at a fixed rate, as appears to be the case, is the success of the business (or lack of it) irrelevant, providing it's still around to to pay you back?
The interest rate hasn't been set yet, but it's likely to be between 8.5%pa and 9.75%pa fixed. Interest is normally paid half yearly in arrears and the value of the bond is returned to the investor, in this case, after seven years.

So it's yet another interest-only loan for United.

The success of the business denotes its ability to meet the interest payments, nothing more. There is no earnings-related additional profit, like a dividend for example, as you are not buying a share in the company, you are merely lending it money.
 
Old 20-01-2010, 11:39 PM
wonky no
 
Default Re: This Bond Issue

to be totally fair its tis kind of fuckwittery that divides people. the vast majority of people who follow football do not understand finance on a big scale, myself very much included. so instead of knocking people who genuinely want to know, explain it.

bond
PIK
lease back

shit like that.

knowledge is power, we are supposed to spreading the word to all reds.
it's hardly as effective if you are trying to explain something to someone when you don't fully understand it yourself.
 
Old 21-01-2010, 08:39 AM
redloner
 
Default Re: This Bond Issue

Quote:
Originally Posted by wonky no
explain it.

bond
PIK
lease back

shit like that.
Bond

A bond is simply a loan to a company or government. The issuer promises to pay interest for the duration of the bond term and at the end, the issuer promises to repay the face value. The interest rate is fixed in this case.

So you put £50k in. You get (eg) 9% pa for the duration. So that's £4,500 to you in interest each year and when it matures (in 2017) you get your original investment, £50,000 back.

PIK

Stands for "payment in kind" but "deferred interest" would be closer to accurate. This is a loan where instead of paying interest each year, the interest is added to the capital and both capital and interest are repaid at a point in the future.

The Glazers borrowed £138m and the interest rate is 14.25%pa. After three years, the total owed is now £202m. The repayment date for the capital and interest is 2017. If nothing is done to repay early, the total owed in 2017 will be nearly £600m.

Lease Back (or sale and leaseback)

You sell a property. The firm you sell it to rents it back to you. You pay them rent.

This is a way of taking an asset and turning it into ready cash while still being able to use it. Downside - you will be paying rent and you no longer own it.

Amortise

Means "spread out" over a few years. If you pay £20m for a player and you give him a five year contract, you divide the £20m by five, so his cost to you is £4m a year. This smoothes out transfers, rather than leaving big hits to the accounts.

EBITDA

Gross earnings before tax, interest, depreciation and amortisation are taken into account. This is supposed to give a better picture of a firm's financial health as it's worked out before technical deductions are made.

If anyone has any more terms they'd like explained, post in this thread and I'll add them to this post!


Last edited by redloner; 21-01-2010 at 08:42 AM.
 
Old 21-01-2010, 09:04 AM
Surfers do Charlie
 
Default Re: This Bond Issue

Quote:
Originally Posted by Flix

So is the interest paid over the term of the bond or when it matures? And if it's paid at a fixed rate, as appears to be the case, is the success of the business (or lack of it) irrelevant, providing it's still around to to pay you back?
When it matures.

If you plan to keep it until it matures then yes.

However, if the business starts to look like it might default on the payment, so can always sell (trade) the bond to someone else, who would pay you less than you paid for it, taking on the risk of the default.

So if you plan to sell it before it matures, the value of the bond will fall or rise depending on how safe the company looks.

The value will also fluctuate depending on other factors, but that's basically it.

EDIT: Sorry, I thought you got the interest at the end, but others have explained it better than me anyway...

Last edited by Surfers do Charlie; 21-01-2010 at 09:07 AM.
 
Old 21-01-2010, 09:07 AM
redloner
 
Default Re: This Bond Issue

The Q&A I did a little while back;-

Does United have any cash?

Yes. United has £146m in cash in the bank.

How much debt is secured on United?

There is £509m secured on United by its parent company Red Football. £42m was paid in interest last year. Only a small part of the capital, around £9m was paid off the actual debt. The current debt has to be repaid in four instalments between 2013 and 2016.

Is there other debt?

Yes. Red Football Joint Venture has a debt, currently £218m where interest is added to the loan at 14.25%pa and this all rolls up until it is due to be repaid in 2017. This is known as Payment In Kind or PIK debt. In the current year, the added interest will be £29m. This is why you will see people talk about the total interest (£42m + £29m) being £70m a year. This debt is secured on the Glazers' shares in Red Football Ltd.

There is also an undrawn £50m overdraft facility.

So how much has to be paid back and when?

The senior debt (that means secured debt) is repayable between 2013 and 2016. That's £509m. The PIK debt will reach just under £600m by 2017 when it has to be repaid. Therefore £1.1 billion must be found to repay all the debt.

What is a bond issue?

Bonds are offered to investors who accept the risk of not getting their money back in return for a higher rate of interest. United is raising £500m and will offer 8.5% (maybe more) interest each year and will offer to give people their money back in 2017.

The bonds are being underwritten by a number of top banks, so the offer will be fully subscribed. At that point the coupon, or interest rate will be set. It will be in the region of 8.5%pa.

The plan is to take £30m from the cash pile to add to the £500m from the bonds. This will be used to repay the senior debt and the fees and other bits and pieces. So United will have lots of people on its creditors list, instead of just a few banks.

The interest on the bonds will be at least £42.5m a year, similar to what is paid on the senior debt now. The capital will not be repaid until 2017, so it's another "interest-only" deal. Look for another refinance in a few years.

So what happens to that PIK debt?

Not enough is being raised from the bonds to repay the PIK debt (we think). So they will continue. However the Glazers are planning to take another £70m out of United's cash to reduce the PIK debt to £148m. The interest payable in the next twelve months on the reduced debt will be £21m.

Other debt and transfers?

A new £75m overdraft facility is being agreed alongside the bond deal. It is being reported that this, together with the cash that will be left, £46m, will provide further transfer funds.

What about the new shirt deal with Aon?

Aon gave £36m upfront last year, so it was included in the cash in bank figure earlier. This means that instead of getting £20m a year for four years, United will now get only £11m a year. It seems it was important to get as much money in the bank as possible before the bond issue.

And United's general finances?

Are pretty good. While onfield success continues, servicing the debt should be straight forward. The remaining PIK debt will need to be repaid quickly and further calls on United's cash in future can't be ruled out to achieve that. There will be pressure on player purchases, sales will have to continue and the need for continued success for all the conditions for continued financial success to be met. The spiral must continue upwards.

At some point, another bond issue or refinance must take place to raise the £500m needed to repay this bond offer. This will carry more fees and the interest payable will once again depend on United's success both on, and off, the field.

And my ticket price?

Will likely rise again. The bond offer document makes it clear the Glazers feel prices are still low in comparison with other comparative teams, so another increase is probable.
 
Old 21-01-2010, 11:00 AM
Flix
 
Default Re: This Bond Issue

Thanks Redloner - that does make it a lot clearer.

So am I right in thinking tha, in effect, they're competing for investors with other companies that are issuing bonds, and as an investors you would be looking at which bonds are offering the best interest rate but also the stability of the company and their ability to meet the payments?

If there wasn't a great take up on the bond offer, pressumably that would leave the Glazers needing to refinance elsewhere? If that was the case, what options are open to them and what would the effect of that be?
 
Old 21-01-2010, 11:51 AM
Surfers do Charlie
 
Default Re: This Bond Issue

@redloner:

Over the next 5 years, what's the best case scenario, the worst case scenario, and what do you think is the most likely scenario ?
 
Old 21-01-2010, 03:07 PM
redloner
 
Default Re: This Bond Issue

Flix, the Glazers have got the bond offer away at between 8.5% and 9% as expected.

Obviously with just seven years before they have to find the £500m to give it back to the bond investors of today, there has to be another refinance at some stage.

Surfers - the best and worst are so distant I'd rather not even consider them. What I believe is, we'll manage to drag along with the Glazers siphoning cash to repay the PIK debt for the next three or four years then hopefully, when that's over, there will be a bit more in the kitty each year for players.

I can't see more than £20m a year being available in the next few years though.
 
Old 21-01-2010, 03:23 PM
forwardirektion
 
Default Re: This Bond Issue

Quote:
Originally Posted by redloner
Flix, the Glazers have got the bond offer away at between 8.5% and 9% as expected.

Obviously with just seven years before they have to find the £500m to give it back to the bond investors of today, there has to be another refinance at some stage.

Surfers - the best and worst are so distant I'd rather not even consider them. What I believe is, we'll manage to drag along with the Glazers siphoning cash to repay the PIK debt for the next three or four years then hopefully, when that's over, there will be a bit more in the kitty each year for players.

I can't see more than £20m a year being available in the next few years though.
I think we'll spunk most of the overdraft this summer, especially if the S/T renewals are slow.
Maybe £60m if we get £20m for Vidic.
 
Old 21-01-2010, 04:02 PM
RedMenace
 
Default Re: This Bond Issue

Yeah I'd expect them to do something that looks positive to create some "good news" stories especially as you say if ST sales are slow. Of course it'll just be putting us even further in debt.
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