Wednesday, 2 February 2011

PIK repayment trail goes colder as United's ownership shifts to Delaware


Followers of the United finance story will know that unexpectedly on 22nd November last year, the Glazers found the £249.1m required to pay off the infamous PIKs.

In December, filings at Companies House showed that this money had been raised by issuing two new shares in United's UK parent company Red Football Shareholder Limited (2 new shares being 0.0002% of the issued share capital). RFS then bought two shares in its subsidiary Red Football Joint Venture (which owed the PIKs) for the same sum and RFJV used the money to repay the debt.

Today, with the filing at Companies House of Red Football Shareholders' "Annual Return", we learned a little bit more about that strange share issue. The Annual Return shows that 100% of RFS' shares (including the two new and very expensive ones) are now owned by a new company called Red Football LLC. Previously, all the shares had been owned by Red Football Limited Partnership, a Nevada company.

A quick search in the usual places shows that Red Football LLC is a new company in Delaware, the most secretive of all US states when it comes to corporations. The company, which through a string of four UK subsidiaries now owns 100% of Manchester United was formed on 4th November 2010, just under three weeks before the PIKs were repaid.

A 2009 report by the Tax Justice Network named Delaware, home to half of all US corporations, as the most secretive financial location in the world (beating strong competition from the Cayman Islands, British Virgin Islands etc). It is virtually impossible to get information on Delaware companies and it is almost as if the Glazers are trying to keep information about the PIK repayment secret. We don't know who the directors of Red Football LLC are, who its shareholders are or how it obtained the £249.1m.

This matters because there are really only two explanations for the repayment of the PIKs; either the Glazers have found some sort of equity to repay them (even though nobody can identify where that could have come from) or Red Football LLC has borrowed the money to repay the debt and the threat of the club's cash being used to service this new debt is still there. If it's the former then United are in a strong financial position despite the wasted £45m spent annually on bond interest. If it's the latter then the there is a high chance of the Glazers taking the £100m+ (and rising) of dividends to which they are "entitled" at some point in the future.

Naturally, we can't ask the Glazers anything about this as they won't talk to the fans and their employees in M16 don't appear to know. In my view that is not how the biggest football club in the world should be managed.

LUHG

36 comments:

Anonymous said...

Hi,

Great investigative work and really useful to have some explain the financial ins & outs to those of use with no financial account knowledge.

There is a sense that alot of questions have been raised and there is no prospect of any of these being answered.

Do we know when the 2011 company accounts for Man Utd will be realised?

GaryD said...

I love reading your blog and the news you bring, but i always feel angry after reading it!!!!

pharrap said...

How does transferring 100% ownership of Manchester United to a company whose shareholders and directors are secret tally with the much-derided "fit and proper persons" test?

It seems to make a mockery of it.

Tom Addison said...

@anonymous: A private company like United has (I think) 9 months to file its accounts. United's financial year end is 30th June, and I remember that I got the accounts for the financial year ended 30th June 2009 sometime in February 2010. So hopefully, very soon.

In the meantime, gonna see if I can find anything on this Red Footbal LLC!

Ed, United Rant said...

Great investigative work again. So basically your work has prompted the Glazers to become even more secretive. Begs the question - if we are to believe the post Rooney saga PR and the Glazers are planning to spend big and win over the fans, why all this secrecy?

And these people are great owners? Yeah right Fergie.

Anonymous said...

The 2010 statements have been available for quite some time on www.mufplc.com.
The Q2 2011 results are due up there at the end of the month.

Anonymous said...

As a City fan I do worry for United as things seem to be going from bad to worse.

I am not sure of the mechanisms around the F and PPT, but surely there cannot, and should not be a period of even one day where the question of who owns ANY PL team remain unanswered?

I don't expect there to be sporting sanctions against United (yet) but I for one would suggest that ALL payments from PL to United should be put on hold until we all know who the final recipients of the funds is.

Anonymous said...

@Anon 12:06. Don't worry about us my bitter little friend. You should be more concerned about your tiny club's league position - 9 pts down on us even though we're constantly reminded how rubbish we are.
FOREVER in our shadow.

Anonymous said...

Just to clarify, Delaware is not secretive when it comes to incorporating, they just make it easy. Since the company does not do business in Delaware, they are not subject to any taxes. They also have laws in place that are favorable to the corp, in case of a lawsuit.

LSD_Eindhoven said...

Hi Anders

"There is an active 'Red football limited' registered in Delaware. Delaware's Sec. of State website doesn't provide any more information. It could be a completely unrelated entity. Any ideas?"


A friendly poster made the above observation in the comments section of "Pik repayment: The..." from Dec 2010. This was in the context of searching UCC filings for recently perfected securities- the lenders registering a loan\pledge with the relevant Sec Of State (Nevada at the time, presumably).
You can find out more information about Red Football LLC in Delaware if you pay a fee of 10-20 dollars. I think you can conduct a UCC search (more fees) by using 'Authorised Searchers" listed on the Sec of State website.

I suspect that the formation of this new company in discrete Delaware is to assist in disapearing the source of the pik payment. If the Glazers provided the funds to pay down the PIK from their own resources, there would be no need to alter the parent structure.

Cheers

LSD

ja said...

At what point would the FA or any tax authorities or similar ever raise questions of money laundering, undeclared income, interest claimed against tax etc?

Anonymous said...

It's hard to see how a move from Nevada to Delaware could have anything to do with 'secrecy'. Nevada (or Wyoming) would be the states of choice if lack of transparency was a major concern. Typically corporations move from Nevada to Delaware to 'become more respectable', not because they are trying to hide something.

Anonymous said...

ja said...

At what point would the FA or any tax authorities or similar ever raise questions of money laundering, undeclared income, interest claimed against tax etc?

'Money laundering' implies a criminal enterprise - something not even andersred has suggested (at least so far). The other items would require the complicity of the club's (and their parent entities') auditors. I'm not sure what the FA's role would be in investigating this - seems more like a job for the Director of Public Prosecutions.

As far as the States is concerned, corporations are liable for taxes in the states in which they trade. Tax returns are filed in those states and with the Federal government. Irregularities in those returns could lead to prosecution at the state or Federal level. Delaware does not levy corporate income taxes on corporations that are registered in the state but do not trade there.

andersred said...

Thanks for all the comments. Just to be clear, I'm not suggesting that the Glazers are doing anything illegal. Delaware is slightly more secretive than Nevada but as people have pointed out, you locate companies there mainly for tax reasons.

What's interesting about this filing is that the Glazers have put a new company into the financial structure. As LSD_Eindhoven says:

"If the Glazers provided the funds to pay down the PIK from their own resources, there would be no need to alter the parent structure."

That's quite right. If they just had the PIK money, just feed into the top UK company, down to RFJV and pay them off. You don't need a new company.

My guess is that the they've borrowed money secured on the new company which is 100% owner of United, if they'd borrowed money secured on a UK company we'd be able to see it....

anders

LSD_Eindhoven said...

Anders

Some interesting\unique features on Delaware LLCs here:

http://www.delawarellc.com/learning/LLC-Background.htm

"You do not have to disclose any information about the beneficial owner of the LLC to the State of Delaware to form or maintain an LLC. Not all States are this flexible, and in Delaware you are required to have a contact person and a Registered Agent"....might be the reason why a $20 entity search returns nada about shareholders, managers, etc. It would be a real shame to cough up that sort of dosh for nothing. Cough.

Can we discount an outside investor having a minority interest(equity) in Red Football LLC? Some sort of preference share with control interest?
I'd imagine the notes to the RFJV accounts will provide some information on the change in corporate structure- for instance is RF LLC in Delaware a sub. of RFLP?
One further thing: Would the bondholders have to be notified as to any change in corporate structure? The bond has some T&Cs dealing with "significant" changes in parent control but what about new minority shareholdings?

Cheers

LSD


Anders

andersred said...

Hi LSD,

Nice snippet on Delaware LLCs. Thanks. Shame they have to tell the PL who the owners are (not 100% certain they had this morning!).

My guess is that RF LLC IS a subsidiary of RFLP and has no other purpose other than to own the UK companies. That would allow RFLP to borrow against RFLLC without having to disclose anything in the UK. As you say we'll see more on ownership in the RFS accounts.

An equity minority can't be ruled out, but we may never know....

anders

Anonymous said...

While I know there are numerous supporters with many agendas mostly fuelled by ignorance and a belief that anything Glazer is wrong or bad for the club I would have thought that anyone with an ounce of commercial sense would have realised Delaware is a very low tax jurisdiction and the main reason for registration in that jurisdiction. Many may think, and some foolish people, may even say that Delaware is a secretive state regarding corporation, this could not be further from the truth. There are many secrete jurisdictions such as Panama (a favourite for Florida residents) BVI, Seychelles, Caymans and many more that offer the secrecy many are suggesting Delaware offers. They are incorrect. I see this as a house tidying process while taking advantage of the tax solutions Delaware offers, nothing more.

andersred said...

Hi Anonymous @ 9:08,

The point isn't Delaware (vs. Nevada where the previous parent company was). It's the very existence of a new parent company and the appalling lack of disclosure to supporters.

Why insert a newco into the structure?

Who owns the newco (100% Glazers or them plus a new minority)?

Has the PIK been repaid or refinanced?

If it has been refinanced, will club cash be used to service it?

What are the terms of any refinancing?

All information relating to the PIKs and ownership were fully available in the UK. Now we don't even know if there is or isn't debt, let alone any other details.

There are lots of valid questions and no answers. That's the point, not Delaware's relative advantages vs. other corporation friendly jurisdictions.

anders

David said...

I dont see this as as a "house tidying process" the cynic in me suggests something more sinister.

Good news is normally shouted from the rooftops and bad news is always hidden in dark corners, keep up the excellent work Anders, I believe that there should be a few apologies coming your way from your numerous anonymous critics (hell freezing over?), these guys are nothing but shysters and will make £100 million disappear faster than a banker.

LUHG

redloner said...

Anyone seen a football club around here lately?

Anonymous said...

andersred: The point is Delaware V Nevada. Nevada offers the very same shareholder / ownership protection as Delaware however Delaware has a more advantageous tax system in particular for non US entities hence the change. Being a fund manager in the City you would know that so why are you trying to pretend this is not above board, a self serving motive maybe? Please consider this as well, IF as you are trying to state, some dark figure has bought 0.0002% of the club for 249.1 million please put your fund managers hat on and tell me do you think the club is worth 124.55 Billion? This is what you and Paul Kelso of the Telegraph are suggesting and while I certainly value Manchester United far in excess of what you do I do not value it at 124.55 billion. So you know, not that you will believe me, the PIK has been repaid the only amount outstanding is the bond and even you will know that this is an acceptable commercial amount of debt for a business like Manchester United. Maybe not as a club but as a business which Manchester United most certainly is, this presents no problem. The gearing is acceptable the debt to value ration is acceptable and future revenues are secure and increasing. You may not like the Glazers but there is no business case against them and they are proving there is not footballing case against them either.

Anonymous said...

David- you will see what you want to see and it seems to be Manchester United supporters personality to see only the bad! Cannot help with that!

andersred said...

Anonymous at 21.34,
You misunderstand me. Nobody has bought 0.0002% of the club for £249m. I am not suggesting that at all. In fact nobody has bought anything. I'm asking why the Glazers have inserted a new holding company into the structure.

It doesn't matter at all whether it's in Nevada or Delaware by the way. Any high secrecy law state will do...

I'm suggesting that they have inserted a new holding company in the US rather than UK so they can borrow against its equity to repay the PIKs. By doing that in the US rather than UK we can't see the details and people like you can be convinced the PIK debt has just vanished in a puff of smoke.

If my explanation is right, that means the debt in the United group could well be well over £700m.

As you've shown yourself incapable of understanding my blog post or Kelso's Telegraph piece I'd suggest you go back and have a rethink. On your point about the PIK repayment, you could suggest a few places where they could have got that £249m other than more debt.

2/10 I'm afraid.

anders

Anonymous said...

andersred - while you do not seem to answer any questions just make comments which are false I presume this is to support a position which you have based on fiction. So that you know both Delaware and Nevada have removed their secrecy for most part and there is little hidden about either State incorporation now. Secondly you are suggesting someone paid 249.1 for 0.0002% in this part of your blog "In December, filings at Companies House showed that this money had been raised by issuing two new shares in United's UK parent company Red Football Shareholder Limited (2 new shares being 0.0002% of the issued share capital). RFS then bought two shares in its subsidiary Red Football Joint Venture (which owed the PIKs) for the same sum and RFJV used the money to repay the debt." You clearly say 2 shares were bought for 249.1 million you also state that this represents 0.0002% of the of this issued share capital. Are you now saying that this does not mean the value of the club in your opinion is not 124.55 billion? If not then you understanding of company valuation is shocking.

ja said...

To the one or several anonymouses of the glazer rapid rebuttal unit:
I have never suggested the Glazers are doing anything illegal or shady, I did not even mention them by name. I think the ownership of Leeds United to name but one club, is shrouded in more mystery than is healthy for football as a game or as business supported by paying customers.
My question is at what point would the FA ever stand up and say 'X or Y does not pass our fit and proper person criterion'.
We knew where owners money came from in the old days, Lord and Edwards were butchers, Swales had a TV rental business, Bates and others were property developers, Sugar was electronics, if any of them had pulled 249 million out of thin air, questions would be asked, what is so different today?

andersred said...

Anonymous @ 6:44

Are you being deliberately obtuse?

Read what I said on 23rd December:

"Given these new shares represent only around 0.0002% of the shares already issued, we can pretty safely conclude that they have not been issued to a third party (who would pay £249m for 0.0002% of United?) and have therefore been issued to a Glazer company. We will know definitively in January or February when the "Annual Returns" are filed at Companies House."

The two shares WERE bought for £249m, that's in the SH01 "Return on allottment of shares" document filed at Companies House.

I am ABSOLUTELY saying that this does not mean the value of the club is £124.55bn. IT ISN'T.

Those shares were issued to a Glazer company, the questions are:

WHY A NEW COMPANY?
WHERE DID THEY GET THE MONEY FROM?

anders

Anonymous said...

I think it's quite obvious that the Glazers took out new loans.

As far as the UK group is concerned the PIK loans no longer exist.

The question then arises as to what the public (i.e. fans) get to know about the football club.

Like it or not, the club is not a plc so the info they have to provide is limited.

Indeed the only reason we get so much info now (i.e. the quarterly reports) is because of the bond issue.

If this goes then so does the information ... I know which one I'd like to see removed!!

Anonymous said...

If you have any proof of a new loan then present it otherwise stop making silly unfounded comments.

Anonymous said...

@Anon 14:52. I agree. Everyone knows they had the 249m lying around in a cookie jar.

LSD_Eindhoven said...

Anders,

There are no tax advantages to setting up an LLC in Delaware (as opposed to Nevada). Nevada has zero state tax. Delaware charges state income tax and state corporation tax. Now Delaware doesn't charge state tax on LLCs if the LLC conducts its business outside of Delaware, but the same applies to Nevada.
The most obvious difference is anonymity: Nevada LLC requires disclosure of LLC members, Delaware does not.
Another important difference (and as relevant here) is established LLC case law. Lenders and VCs would prefer dealing with Delaware LLCS because there is legal precedent wrt to disputes that may arise between LLC members or LLC members and lenders. Established case law enables lenders\capital providers to better secure their interest in a LLC; and allows for greater flexibility in how operating agreements are drawn up.
Nevada case law wrt to LLCs is not as advanced.

LSD

Nigel said...

I think the questions Anders raised make perfect sense and it really isn't that hard to understand.

On the GBP 249m spent to subscribe to the 2 new RFS shares - come on let's just make some sense here. Why would any sane person fork out that sum of money when it only represents 0.0002% of the issued shares? It has got to be the Glazers themselves because they would still maintain 100% control. It doesn't really matter whether they issue 2 shares at 31m+218m, or 2,490 billion shares at 0.01p per share. They'd still own the lot.

As for the new Delaware company - a very valid question here. As Anders have already mentioned, why not just inject the cash directly into RFS? There're so many ways they can do it, such as:

- Neveda Co directly subscribing to the new RFS shares;
- Neveda Co giving an interest-free shareholders' loan to RFS.

We simply do not see what is the BUSINESS LOGIC and ADVANTAGE to incorporate another entity. Delaware is NOT the key concern. The Glazers might as well incorporate another entity in Nevada and the same question still applies.

I'm not familiar with US tax laws so if somebody can explain why it is more advantageous to use a Delaware entity in THIS CASE rather than a Nevada company, I'll be more than happy to acknowledge my ignorance.

Anonymous said...

Nigel, If you are fully up to speed on US tax jurisdictions then I am sure you know that Nevada will introduce a State Corporate Income Tax in 2011. I am also sure you know that Delaware has no tax on companies earning their revenue outside Delaware.

You make my point exactly that it is the Glazers who paid the 249.1 million themselves there is no shadowy buyer as suggested by Kelso or andersred. Therefore the Glazers still own the company and in turn the club 100%. NOW where did the money come fro, well the Glazers do have substantial business holdings, the Glazers haters all focus on the malls but there is much more to the Glazers than the property. This great investigative journalism andersred or Kelso are credited with seem to have missed something - wonder what it is.

It really is scary to think andersred is a fund manager in the CITY I would have thought he would know better but then I am sure there are all sorts in the Coty some good and some well not so good.

andersred said...

Anonymous at 13.25,

You are making yourself look pretty stupid now. You say "there is no shadowy buyer as suggested by Kelso or andersred". Neither I or Kelso are saying there IS a shadowy buyer. Why can't you understand that? I quoted my 23rd December post to that effect earlier! On that point everyone agrees with you.

Have you read LSD_Eindhoven's explanation of the advantages of Delaware vs Nevada?

Have you read any of the above in fact?

You then say there is "much more to the Glazers than the property". Other than the Bucs, what is that? There is no disclosure of other significant business holdings in any SEC, Companies House or FSA approved filing in the last ten years. There is no media or press description of any major businesses except United, the Bucs and First Allied.

If you know of businesses nobody else has ever written about and the Glazers have (illegally) witheld information on in regulatory filings, do let us know....

If not, read what people have actually written not what you think they have written and stop coming on here talking crap about things you nothing about,

I'll wait for the details of these businesses with interest.....

anders

UTID said...

@Anders. I think you'll be waiting for some time for a response from Anon 13:25. Totally out of their element.

The MOST LIKELY source of the 249m is the result of new borrowings rather than cash generated or the sale of other business interests.

Anonymous said...

Hi anders,

thanks for the very interesting information you provide.

I recently read on an article on M&A that Delaware is regarded as a "target friendly" state. It seems that Delaware has laws that makes it more difficult to take over a Delaware corporation on a hostile basis.

Could the move from Nevada to Delaware be also a confirmation that indeed "Manchester United is not for sale"?

Thanks for your answer

Jean

Anonymous said...

Anon@17;15
Hostile takeovers is only an issue with public corps- not an issue with privately owned corps.