The controversial bond launched to refinance Manchester United is an instrument to buy extra time for the Glazer family after their 2005 leveraged buy-out of the club, says a City of London expert.
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Anger continues to rage among fan activists about the state of Manchester United's finances following the release of the £500 million bond issue, with questions being continually raised about the Glazer family's intentions after last week's release of a prospectus aimed at potential investors.
The expert is sceptical about suggestions that the Glazers will go through with a sale and leaseback of Old Trafford, warning if they did it would saddle them with an additional annual interest payment of £15 million.
"Everyone has jumped on the possible sale of Old Trafford, but it is simply an option to leave the owners the flexibility of selling Old Trafford," a City of London expert in takeovers said. "If they sold Old Trafford for £300 million, then based on a 5% return, they will be compounding their repayment problems with a bill for £15 million per annum in rents on top of the £70 million they pay in loan interest and other debts. So a long lease and rental will mean even less money for Ferguson."
The banker, who specialises in sports, said the plan to raise £500 million through a bond would prove a financial success for the Glazers, despite a wealth of criticism. A report submitted to him last week concluded it was less to do with cheap financing and more about the Glazers' ability to service existing debts.
"They will have to pay back a proportion of debt in three years, then more in seven years," the City expert added. "The bankers' analysis suggests that the plan is to give them more breathing space, to give them more time before all the debt is repaid.
"At the moment, the first capital repayment starts in 2013, ranging from £50 million to £100 million, and, by 2017, the debt matures to £1 billion." The refinancing would extend the length of the debt at the cost of a small increase in interest payments.
Serious questions have been raised about the viability of the bond issue and what effect it will have on the club's future, with some analysis of the prospectus issued to potential buyers suggesting that an additional £500 million will fly out of the club's coffers via interest payments, a possible lease-back of their Carrington training facilities and, most controversially, "management fees" to the Glazer family, which have been estimated to equal £220 million between 2010 and 2017.
Tabloid reports on Tuesday suggest that the club's players have themselves been issued with prospectuses for the bond, with The Sun quoting one source as saying that "most are bemused that the people who pay their wages are basically trying to find out if they can have some back".
United are believed to be offering investors an annual return of over 7% on the bonds, which start at £50,000 a block, though the true yield will only be calculated after a series of "roadshows" have been carried out. Take-up of the bond issue is said in some quarters to be already oversubscribed.
Perhaps in response to such a raft of questionable publicity, United sources have suggested that Wayne Rooney will be offered a new contract before the World Cup finals to make him one of the highest-paid players in English football, with Sir Alex Ferguson convinced that Rooney will stay at Old Trafford because he loves it at the club and has no desire to play abroad.