Thursday, 16 September 2010

So they bought the PIKs in 2008, where did they get the money?

Since Bloomberg revealed that the Glazers picked up around 20% of Red Football Joint Venture's PIKs in 2008, people have been asking "where did they get the money from?".

Bloomberg believe:
"The Americans, who also own the Tampa Bay Buccaneers, may have paid as little as 12.6 million pounds ($19.6 million) for the stake if they bought it at 35 percent of full value."
A wise man who posts under the name "redloner" on various United forums has a very good answer, pointing out that the Glazers' actually borrowed £10m from Manchester United on 19th December 2008.

How very convenient.

How very modern capitalism.

You buy a business with money you don't have. You struggle to repay that money. You borrow more money from the very company you bought. You use that cash (interest rate 5.5%) to buy your own original debt (keeping the tax break on it, thanks Mssrs Darling and Osborne). You roll up the new debt at 14.25% (now 16.25%) per annum. Finally you use the company's own cash to repay those loans, the receiptsare of course tax free (because you offet them against capital losses in your property business)....

Nothing illegal, nothing wrong, either here on in the US. Just something that, funded off the worship of thousands for an incredible football club seems to me to be wrong, wrong, wrong.



Eugene said...

Anders, I would note that there are "financial assistance" prohibitions in most common law jurisdictions that prevent companies from lending money to shareholders (existing or putative) to finance the acquisition of their own shares. However, as you say, the Glazers seem to have got round the UK version of the rules because, strictly speaking, they did not borrow from MUFC to finance the acquisition of the shares (at least originally) - no, they borrowed from 3rd parties, including hedge funds via the PIK notes, and then a couple of years later they borrowed from MUFC and conveniently purchased some PIK notes ie part of the debt taken out to finance the original acquisition! Absolutely disgraceful.

Anonymous said...

Very Interesting Development and looks like a First small step in the right direction,Perhaps the Glazers have purchased even more from the Hedge Funds since?What happens with the the piks that they own now?Could they demand imediate repayment or never seek repayment at all

andersred said...

I understand Bloomberg's sources are very credible and that this was the only purchase made then or since....

Late 2008 was a unique time in the markets and there hasn't been forced selling on that scale since.

They'll keep the PIKs they now own, in fact they have kept them as we can see from the RFJV accounts.

This is only good news for the club if the Glazers recycle their 20% share of any PIK repayments and use that money to make further repayments. If they just pocket their 20% share of any sums repaid the club (assuming the club is the source of the cash) will be footing the same bill. The only difference being 20% of that goes to the owners....


Darren said...

Now it makes sense! Must admit yesterday after I logged off I was wondering whether the timing of this coincided with them taking those loans out of the club. Of course it's only anecdotal evidence but it's most likely. Cheeky cheeky sods.

Wakey said...

First of all if they borrowed money from United to pay off some of the PIK's then so what. Its not like the money has been 'taken away' from the club, its still on the accounts and has to be paid back with interest.

And I don't believe this is what the loans were for. The loan wasn't a single loan. They were multiple loans to the companies of the Glazer Kids. Now unless they then all instantly loaned these loans to a central party they have not been used towards the PIK's

andersred said...


Just another step further from sport and closer to casino capitalism. Bothers me but I understand others are OK with it.

On the loans, think back to 2008. Lehmans goes under on 15 September. The shock waves roll through the market for a few weeks. The wave of hedge fund redemptions were particularly concentrated in Q4 2008 as investors deleveraged and rushed for liquidity. Depending on whose numbers you believe, $150-200bn was redeemed in Q4 with the majority (due to notice periods and quarterly dealing) being redeemed at the end of December.

So it is highly likely, but not provable, that the distressed fund or funds the Glazers bought from would have sold in December to fund year end redemption notices. It is therefore a spooky coincidence that the family took ou their loans on 19th December.

You mention individual loans, but actually the family tend to be individual officers (either personally or through irrevocable trusts) in their companies. The following Nevada companies related to Red Football have each Glazer sibbling as an officer:


I think it's highly plausible that they would each invest £1.67m into a new vehilce to buy the PIKs.

As ever, just speculation of course.....


Sniper said...

as I'm not finding my last comment, bcz I'm a new user..
I'd Like to put it again here...
and plz... if anyone can help here, I'll be thankful for his answer:
Hello Andy..
your Blog is really intresting...
Glazers are ruining our Club!
I'd just would luke to ask you few questions, that are really important to me... They are the real summary of Glazer's story with United..
Is, if Red Knights buy the club.. the dept will stay.. or with Glazers selling the club the dept will disappear? then the dept is Glazer's dept?
Tank you

LSD Eindhoven said...

I read in 2009 (Blommberg) that the piks were shared by 20 or so high yield funds after having been acquired at a considerable discount from the original 'pik holders'. The old bank loans were also on the market (at a big discount) around the same time. Depending on the discount perhaps the Glazers acquired a stake in those also! I am not sure what (if any) benefit accrues to the club from the Glazer's share in the piks. There are some possibilities.
They haven't cancelled their portion as yet. Perhaps they intend to do so after taking their 20% of the special dividend carveouts (95m). The 19m could be used to repay the original loan at 5.5% and leave them with a 'well-done-with-that' personal dividend of approx 7m. Cancelling their portion of the piks after would reduce the outstanding pik to c. 110m which on current terms would require roughly 16m a year for stabilisation (not elimination). The 16m might reflect 6m in management fees and 10m in annual dividend or 'just' 16m in annual dividend. Alternatively, they could seek to refinance on better terms given that the amount outstanding could be reduced by 20%on cancellation.
Other than cancellation, the other option (to benefit the club) would be for the Glazers to use the redemption proceeds to redeem the pik still further. The Glazers could cash the proceeds back in to RFJV and use it to pay down the pik- though technically iterative, it would essentially mean that the Glazers could build up a little fund to top up (or replace it for one year) the annual dividend if desired/required.
I use 'could' above to express positive possibilities for the club. The pragmatist in me suggests that it might be more pertinent to look at how the Glazers might manipulate the situation to best suit their needs.


LSD Eindhoven said...


As an investment, their original equity bought then a significant asset appreciator; with recent valuations, their CAGR is in the high teens (though pik dependant) from asset growth alone. Their personal dividend stream (the other component of equity return) has been quite modest (due to prior covenants). Investing in the Club's PIK loan (using club cash) is a discrete way of improving their personal dividend stream. They could simply pocket the 19m from the carve-outs mentioned above. And pocket 20% of the total redemption payments made thereafter by the club. The total amount payable in redemption proceeds is not set but if, for example, the annual dividend to the pik is 20m, the Glazers pick up 4m, bringing their annual take to 10m (4m plus the management fee of 6m). There is, I believe, a provision to take an additional 3m in 'corporate overhead expenses' as well! So how do these figures stack up against the dividend paid under the plc? I can't recall the dividend paid to shareholders exceeding 10m in the year.
Taking 20% of the 95m carve-outs as a personal dividend needs to put into perspective. The 95m is supposedly the 'Ronaldo money' (ringfenced according to David Gill) plus a bit. When those carve-outs are exercised- and they will- not only will the Glazers have indulged in a spot of asset stripping (by using the proceeds from the sale of an asset to reduce indebtedness), they will personally benefit by pocketing a sizeable chunk of the proceeds (16m). We need to remember that at the time of the sale of Ronaldo, nameless, faceless representatives of the Glazers emerged to inform us all that all the 'Ronaldo money' would be ‘used to buy world-class footballers’. Though the nameless and the faceless have since retreated to obscurity, David Gill doesn't seem to have had his memo updated because he alone still persists with the illusion that the 'Ronaldo money' is ringfenced within the club.
Using cash from the sale of our best player to pay down debt (not even the club's obligation) is unpalatable enough but were the glazers to benefit directly by pocketing 16m then.....

As for the 10m personal loan- I don't believe its repayment will constitute a positive cash flow for the club in the future. The Glazers will use cash from the club in one way or another to repay the loan which means a zero-sum 'gain' for the club. The loan could be construed as advanced fee or dividend really.

Anonymous said...

Is the purchase of the PIKs not a related party transaction?
If so why was it not disclosed on the RFJV 2009 stats?
What fines can the Glazers suffer for this non-disclosure?

Rob said...

Absolutely shocking. Even if they did not use United money, though that's unlikely seeing as they don't have any, its disgraceful. They are ripping United off in a different way now. They did not cancel their share, and do not intend to. If they did they would have publicized the fact that they are reducing the debt. But they kept this quiet, and just want to keep ripping us off.

Anonymous said...

The PIK is Glazer personal debt, why would they have to disclose anything about that?

Also it wouldnt make any sense to cancel the debt - makes more sense to use it a tax shield.

Seems many people, andersred included, have massively underestimated the Glazers - they are even more devious than anyone thought!

Rob said...

Personal debt? ow come its included on United books? How come its United paying for the debt. Its United who are stuck with the bill not the Glazers. otherwise out debt would be just over 500 million, but its will over 700 now.

Anonymous said...

@Anon 22:43
You clearly have no idea of the legal structure if you think the PIKs are "Glazer personal debt".

Legally, the PIKs are owed by Red Football Joint Venture Ltd, a UK company (see P30 of 2009 stats).

RFJV's accounts are prepared under UK GAAP and includes the requirement to disclose related party transcations.

The directors would be such related parties.

andersred said...

This issue of "related parties" is an interesting one. Looking at FRS 8 ("Related Party Disclosures"), I don't believe the RFJV accounts should have noted the transaction as it was NOT one to which RFJV was itself a party.

I then wondered whether the acquisition of debt at below par by a "connected" party (that is a term in UK law) should have led to a corporation tax liability for RFJV on the difference between the price paid and the face value.

At first glance, Section 361 of the Corporation Tax Act 2009 would suggest that such a liability DOES arise, but there is a loophole (Clause 361(2)) which means that if the PIKs were acquired by a new vehicle, no tax is due. I have no doubt that the (well advised) Glazers used a new company to make the purchase to take advantage of this loophole.

Interestingly, the Finance Act 2010 closed this tax loophole as part of the measures it called “Anti-Avoidance and Revenue Protection”. For the trainspotter a summary of the changes is described here: (

As usual, the authorities are running but failing to keep up with well advised wealthy people.....


Anonymous said...

@Anders. I don't agree as a related party is owed both the principal and the interest.
The interest due for 2009 year should have been disclosed as a minimum.
The only "out" is if this new company is a fully owned sub of Red Football Limited Partnership, the accounts for which are supposed to be publicly available.
Where would one get these??

andersred said...

I'm not an accountant, but the FRS says (my emphasis):

"Financial statements should disclose material transactions undertaken by the reporting entity with a related party."

I can't see how RFJV in any way undertook this purchase.

You can't get accounts for RFLP as it's a Nevada company. Information on state website here:


Anonymous said...

Why would owing a related party Interest and rolling up that interest NOT be a material transaction.
Does it only become material on payment?

andersred said...

Sorry, I wasn't clear. The transaction in question was some unknown Glazer family company buying PIKs in the market from a hedge fund (or funds). Red Football Joint Venture Ltd (the company owing the PIKs) wasn't a party to that transaction in any way that I can see. So it probably isn't a related party transaction under FRS 8.


One Look At City said...

@ Anders
Ignore the transaction being talked about (i.e. the Interest roll-up) if you want.

It is irrelvant if RFJV didn't sell it to them personally. They still owe the interest to them.

By having to disclose the interest to the related party, they would then have had to disclose who owned 20% of the PIKs.

Anonymous said...

Until RFJV actually PAY any interest on the PIK's (or the PIKS's themselves), then there is no transaction - in accounting terms - to report in the accounts.
Therefore there can be no 3rd party transaction to report in the last set of accounts.

Help with bankruptcy said...

Sometimes the business world just doesn't make sense. I don't understand how these people are allowed to get away with borrowing such ridiculous amounts of money to fund their ventures, whilst passing on their debts to long established teams that people care so much about. I know that when the Glazers took over Manchester United, there was and still is an uproar from the fans who think that they are ruining the club. When will people learn to live within their means and not to live just to finance their debts.