Saturday, 23 January 2010

Understanding the finer details of the bond pricing

So the bonds have been priced.  The annual interest bill will be £43.4m per annum, £307.7m over the life of the bonds.  Red Football has raised £504m and will repay £514m in 2017.
This huge sum of money provides no benefit or gain to Manchester United. Not a penny will be spent on players, the ground or Carrington.  Not a penny of this money will be applied to keeping ticket prices down or giving free tickets to local kids or subsidising better pies.

Every penny of this money will pay down old debt.  This is new shiny bond debt for boring old bank debt.

This shiny debt lets the Glazer family suck cash and assets out of our club.

For the masochistic, here is a guide to what all the terms in the bond pricing notice from the bank syndicate means (all $/£ conversions are at $1.6124):

Issuer: MU Finance plc.
Issuing company (100% owned subsidiary of Red Football Ltd).

Sec Type: Senior Secured Notes (144A/RegS, no Reg Rights)
The bonds are the senior debt, are secured on certain assets and are not registered under US Securities Act 1933 as they are being sold to "qualified" (i.e. expert) investors only.
Maturity: February 1, 2017
The bonds are to be repaid in full on this date.

Face amount: £250,000,000 | $425,000,000
Number of bonds being sold: 250m £ bonds and 425m $ bonds.  So £250m and $425m will have to be repaid.  That's £513.6m in total.

Proceeds: £245,222,500 | $416,776,250
What Red Football get from selling 250m £ bonds (250m x £98.089) and 425m $ bonds (425m bonds x $98.065).
Total proceeds are £503.7m ($812.2m)

Coupon (s/a): 8.750% | 8.375%
The interest payment pa on each type of bond.  So interest is £21.875m on £ bonds (250 x 8.75%) and $35.594m on $ bonds (425 x 8.375%).  In £ that's £43.95m per year. The interest payments are every 6 months.

Reoffer price: 98.089 | 98.065
Actual price for each £/$ bond as set by the banks.

Yield: 9.125% | 8.750%
The yield is the return investors get if they buy at the issue price, receive coupons twice a year until Feb 2017 and receive "par" (£100 or $100) back, expressed as an annual return
Reoffer spread: UKT 4% Sep-16 +569bp | UST 3.25% Dec-16 +568bp
How the yield compare to UK and US government bonds that mature (get repaid) at a similar date.
The £ bonds yield 5.69% more than UK government bonds
The $ bonds yield 5.68% more than US government bonds

Call Schedule:
01-Feb-13: 108.750 | 108.375
01-Feb-14: 104.375 | 104.188
01-Feb-15: 102.188 | 102.094
01-Feb-16: 100.000 | 100.000
Prices at which MU Finance can redeem some or all or some of the bonds from 1 Feb 2013 onwards

Min Denom: £50k + £1k | $100k + $1k
The minimun you can buy is £50k worth of £ bonds or $100k of $ bonds, and then increments of £1k/$1k

CUSIP: | 144A: 553799 AA5
Reg S: G63262 AA0
ISIN code: XS0479707688 | USG63262AA01 (RegS)
XS0479707845 | US553799AA50 (144A)
Various codes to identify the bonds when they start trading.

Interest Pay Dates: February 1 and August 1
Bit obvious!

Ratings: None
The bonds are not rated by a recognised "rating agency"

Trade date: 22-Jan-10
Settlement date: 29-Jan-10 (T+5)
The bond issue takes place 22 Jan and investors have to pay in 5 business days on 29 Jan.
Underwriters: JPM (b&d), BAML, DB, GS, RBS // Co-Manager: KKR
The banks doing the deal