Bluemoon115 said:
Prestwich_Blue said:
samharris said:
Really...could we see a crash ??
We could but it won't make any day-to-day difference to them. It might however hurt the Glazers personally as it's widely believed they secured a big loan on club shares. If the shares aren't worth enough then the lenders can call the loan in or demand more security. That would be quite funny.
Pretend the rest of us don't understand the inner workings and explain it in simple terms, for fun.
;)
Before the IPO, the rags were a private company with all the shares owned by the Glazers. They reckoned it was worth £2bn but no one agreed with them. But there's no easy way to value a private company accurately.
They've now formed a new company based in the Cayman Islands and issued shares to the public via the New York Stock Exchange. There are 16.67m shares so the 'value' of the company is 16.67m times whatever the share price is (currently $13.50).
It is rumoured the Glazers personally had to take out a huge loan (£250m) to pay off some very expensive debt they'd taken on to buy the club and which could have really wiped them out. They will have had to provide security for that loan so used the shares of Manchester United. If that was the case, the lender would monitor the Loan-to-Value (LTV) ratio to make sure it stayed at an acceptable level. This is quite common in big loans and if the value of the security drops, they usually request extra security or reduction of the debt.
There is speculation that the Glazers needed to reduce their personal debt so did that by selling their own shares aas part of the IPO. So of the 16.67m shares sold, half were new shares in the new company and half were the Glazers own shares. This got them about £75m, which they presumably used to reduce their personal debts.
However, now the shares are publicly traded, the value is easy to determine so if the price falls dramatically then the valuation of their security is less. As an example, if you borrow £700k and provide shares worth £1m as security £1m, your LTV ratio is 70%. Lets say it's 100,000 shares priced at £10 each.
If the share price falls to £5, your security is only worth £500k and therefore your LTV ratio is over 100% (you're in negative equity effectively). To get than down to 70% again, you either have repay £650k of that £1m loan so that the outstanding amount is only £350k (against security of £500k) or provide more shares to make the security worth £1m again. If you can't do either than the bank will generally sell the shares before they go down further to reduce the debt and protect themselves from losing even more.
