Manchester United’s owners agreed to pay off a high-cost payment-in-kind loan worth about 220 million pounds ($353 million), according to a corporate filing by the English soccer club.
Red Football Joint Venture Ltd. will “prepay 100 percent from the outstanding loan on Nov. 22,” the team’s parent company said. The document, called a voluntary free-payment notice, was signed by Joel Glazer, co-chairman of Red Football, and was sent to the holders of the loan. Philip Townsend, a spokesman for Manchester United, declined to comment.
The Glazer family, which also runs the National Football League’s Tampa Bay Buccaneers, bought the 18-time English soccer champion in 2005. United supporters have protested against owners because of the debt they’ve added to the team. The Glazers were shouldering 16.25 percent annual interest charges on the PIK debt because of concern they’d face fans’ anger if they used the soccer club’s cash to pay off the loans.
“From a portfolio manager’s standpoint, it’s tantamount to ‘the Grinch who Stole Christmas,’” said Mark Baker, chief executive officer of ADM Capital Europe, which holds some of the PIK debt. “The Glazers are eliminating arguably the best asset in the European High Yield universe from a risk/return perspective. Delighted for the fans but our portfolio will miss the 16.25 percent coupon.”
Fans’ Protests
The Glazers aren’t going to take any money out of the club to pay down the debt and the payment isn’t secured against the team. The debt is being repaid privately by the family, which hasn’t revealed the source of the funds. PIK loan interest rolls up annually and increases the amount owed.
The Glazers bought the 18-time English champion for 790 million pounds. In January, they converted a bank loan secured against the team into a 526 million-pound bond. Under the bond’s terms, the Glazers could make a one-time withdrawal of 70 million pounds from the club to pay down the PIK loan.
Anti-Glazer protests increased after details of how the owners were financing the once debt-free club were revealed in the bond prospectus. Thousands of supporters took to wearing the green and gold colors of the team’s original incarnation, and a group led by Jim O’Neill, chairman of Goldman Sachs Asset Management, emerged as a potential buyer.
16.25 Percent Interest
The PIK loan issued in August 2006 to Red Football Joint Venture is held by fewer than 10 investors, mainly hedge funds. The facility started out as a 138 million-pound loan, accruing annual interest of 14.25 percent. That rose to 16.25 percent after the club breached a debt-to-earnings ratio agreement. The Glazers bought back between 15 and 20 percent of the loan in 2008.
The PIK loan to United was due to mature in 2017. If the Glazers had held the debt until then, they would have owed almost 600 million pounds at the current interest rate, according to Bloomberg calculations.
PIK holders were contacted by representatives of United’s owners last week and agreed to a waiver allowing the family to take 50 million pounds out of the team to buy back that amount of the bond. That permission isn’t needed now that the Glazers are buying back the PIK debt.
United today said the club’s first-quarter loss narrowed as it made more from sponsorships.
The team had a loss of 4.8 million pounds in the three months ended Sept. 30, compared with a loss of 7.7 million pounds, according to a corporate filing. Commercial turnover rose 25 percent to 24.2 million pounds. Gross debt declined to 509.4 million pounds from 514.7 million pounds.
Since the Glazers’ purchase, United has won three domestic league titles and took the Champions League in 2008.
The club has increased revenue from various sources since the takeover, notably in commercial operations. A London-based sales team has negotiated sponsorship and partnership deals in industry sectors across the world.
United is currently third in the Premier League, three points behind leader Chelsea and one behind Arsenal.
