Glazers Clear PIKs, But How?
Manchester United’s financial results for the first quarter of 2010/11, released earlier in November, were nothing out of the ordinary – confirming trends shown in the full year results – with increasing revenue sadly, predictably, offset by heavy interest payments on the club’s mountain of debt.
What offered far more intrigue however, was the news of the Glazer family’s intention to clear a substantial chunk of the debt on the 22nd November, by clearing £220 million worth of Payment in Kind (PIK) loans.
The PIK loans have been seen as a ‘ticking time-bomb’ under Old Trafford – the element of the debt which could have the most disastrous effect on the club, given the punitive rate they accrue interest – 16.25%. Indeed, were they left until maturity in 2017, they would have totalled more than £600 million.
Whilst these loans have existed since 2006 (when they amounted to a ‘mere’ £138 million), they first came under widespread public scrutiny earlier this year, when the club’s January bond issue revealed that the Glazers were entitled to draw up to £127 million directly from the club’s cash flow in order to help pay off them off. It was this revelation, amongst others, which served as a catalyst for the well-publicised ‘Green and Gold’ campaign staged by United fans hell-bent on unseating an American ownership which seems intent on leeching every last penny from the club and its supporters.
Surprisingly however, it has been revealed that contrary to the fears of supporters, no money will be taken from the club to facilitate the debt repayment, with a comment from the club’s board confirming ‘there has been no dividend of club cash’.
This raises the question then, of just how the Glazer family have acquired the money to repay the loans – which are actually held against their venture Red Football Ltd – rather than Manchester United Plc itself.
There seem to be three main avenues through which the funds could have been raised. Firstly, they could have sold off some of their other assets and businesses – although this appears unlikely given the parlous state of their heavily mortgaged shopping mall ‘empire’ in America. There are also suggestions that they have sold a small stake of the club to a third party, again seen as unlikely as it would be unusual for investors not to reveal their identity publically.
By far the most likely suggestion is that they have simply refinanced the PIKs with a new loan, which will gather interest at a much less painful rate.
Whilst they have managed to clear the PIKs, they have eliminated only a small amount of the huge debts looming over the club. The Glazer’s lack of transparency over their financial dealings is frustrating for fans, who deserve to know how their club – which has already been savaged enough – is being run - a sentiment highlighted by the Manchester United Supporter’s Trust – ‘What have they got to hide? No more secrecy. No more spin. Tell the fans the truth.’
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