Monday 1 June 2015

Good housekeeping at Manchester United – explaining the May 2015 refinancing

In the decade since the purchase of Manchester United by the Glazer family, the debt placed on the club has been “refinanced” four times. This week marked the latest of these refinancings.

A refinancing is where old debts are swapped for new debts. They are the corporate equivalent of switching mortgages or consolidating credit card debts into a single loan. The aim is usually to make the debt more affordable, sometimes by locking into a cheaper interest rate, sometimes by extending the life of the loan, sometimes both.

This post explains what United have done on this occasion. It is intended to explain what’s going on in layman’s terms.

The previous situation

Before this latest change, Manchester United plc (acting through two of its subsisidiary companies) had a $315.7m (£206m) “Secured Term Facility” (a bank loan) with Bank of America Merrill Lynch International Limited and $269.2m (£176m) of US dollar bonds called “8 3/8% Senior Secured Notes due 2017”. There was also a “Revolving Credit Facility” (essentially an overdraft) with a group of banks. The Revolving Credit Facility has never been used.

The Secured Term Facility paid an interest linked to LIBOR (a benchmark interest rate) plus a “margin” (markup) based on the level of United’s debt compared to its profits. The maximum margin was 2.75% if net debt was more than 4x EBITDA (cash profits) and the minimum margin was 1.5% if net debt was less than 2x EBITDA. This financial year net debt will be around 3x EBITDA meaning the total interest rate (using 3 month LIBOR of 0.29% and a margin of 2.25%) will be c. 2.54% per annum.  The interest cost is therefore c. $8.0m or £5.2m. The Term Facility is repayable in one amount in 2019.

The Senior Secured Notes are the remaining bonds that were originally issued in 2010. They pay a fixed interest rate of 8.375% per annum and therefore cost $22.5m or £14.7m. The notes are repayable in one amount in 2017.

The total debt today is $585m or £382m. The annual interest cost is c. $30m or £20m.

After the refinancing

United are changing both elements of the debt and increasing the size of the Revolving Credit Facility.

The Secured Term Facility, still with Bank of America Merrill Lynch, is being reduced from $315.7m to $225.0m. The repayment date is being extended from 2019 to 2025. The interest rate margin range is reduced from 1.5% - 2.75% to 1.25% - 1.75%.

The $269.2m of Senior Secured Notes are being redeemed (paid off) and $425m of new Secured Notes are being issued. The new notes are repayable in 2027 not 2017. Crucially, the interest rate on the new notes is 3.79% rather than 8.375%.

The total amount of debt is increasing from $585m (£382m) to $650m (£425m). The extra £43m will be available for the club to use.  None of this debt requires repayment or refinancing for another 10 -12 years. Following the refinancing, the interest bill will fall from around $30m/£20m per annum to around $20m/£13m.


This refinancing is an unequivocally good thing for Manchester United.

The amount of debt has increased slightly but the increase provides more cash for the club.

Crucially, the interest cost is now very low for a club of United’s profitablity. Even in this season of no Champions League football the club will make over £100m of EBITDA. An interest bill of £13m is therefore covered over 7x. Back in 2008 over 70% of EBITDA went on interest, next year it is unlikely to be 10%.

Around 75% of the interest is at a fixed rate for the next twelve years. Even if rates rise (as they must do at some point), United will be protected from much of the impact.

The financial story of Manchester United is no longer about the debt. It is about how effectively and wisely United spends its money.

Wednesday 18 February 2015

United - buying players on the never-never

Work and family commitments have prevented me from blogging for almost a year for which apologies.

I haven’t given up and intend to post the occasional blog as and when there is time.

Thanks for your patience!


We all know that the summer 2014 transfer splurge was unprecedented for Manchester United, reflecting the parlous state of the squad after years of under investment and the car crash season with David Moyes at the helm.

The accounts for the six months to 31st December 2014 show £120.8m of purchases occurred after 1st July 2014. This is in addition to the £60.7m spent in the three months up to 30th June 2014. In total we now know that Herrera, Shaw, Rojo, Di Maria, Blind and Falcao (well the fees associated with his loan) cost Manchester United £181,511,000 last summer.

There were sales as well of course.  Danny Welbeck, Kagawa, Vidic, Evra and Buttner were all sold and many others sent out on the loan. The accounts show the sales brought in £22.2m in cash.  That still leaves an extraordinary net spend of £159.3m. [Note: an earlier version of this blog incorrectly stated receipts of £75.4m, which was the original book cost of the players sold. Apologies].

Except United didn’t have £159.3m to spend. At 30th June 2014, United’s cash balance was £66.4m. And the club didn’t spend all that money in any case.

The last few sets of accounts show Manchester United are increasingly buying players on credit, from the clubs that sell them. Transfer fees are agreed but payments are staggered over time, with the vast majority due within a year or 18 months.

Whilst other clubs have frequently “funded” transfer with these deferred payments, this is a new practice for United. Less than five years ago, United only had £11m of outstanding transfer fees due to other clubs. Things really began to change in the 2013/14 season when the figure leapt from £33m to £82m. In this latest spending splurge it has risen again from £82m to £126m at the end of September 2014, before falling back to £116m by the end of 2014.

It’s important to understand that these huge figures owed to other clubs don’t include extra payments based on player appearances or other targets. These “contingent payments” are set-out elsewhere in the accounts and would add another £29.7m to the amount owed if all the payments became due, taking the total to £146m.

United is owed transfer money by other clubs of course, but this only amounts to £13.7m. The fact of the matter is that Manchester United owe over £100m in transfer fees to other clubs, more than a whole year’s cash profits.

Does any of this matter or is it just another financial “innovation” from ex-investment banker Ed Woodward? 

Accepting credit from the people you buy from is as old as the hills and a sensible way to fund any business. But the £100m+ owed has to be paid over the next one to two years. That’s going to put pressure on the club’s cash flow, making it even more imperative to get back into the Champions League and even more problematic if we don’t. Future transfers won’t be affected if selling clubs continue to accept stage payments on this scale, but that can never be guaranteed.

The new Premier League and Champions League deals promise ever higher revenue in the years to come, which for a Manchester United with debts of £380.5m, which owes other football clubs over £100m and only had cash in the bank of £37m at the end of 2014 is just as well…..

Edit at 19:32
A few people on Twitter have queried whether there is anything noteworthy about this sudden expansion of football creditors. For me the key thing of interest is that it's a new approach.

Take 2012/13 when we signed RVP, Kagawa, Buttner, Powell and Zaha. The accounts show spend of £51.2m and how much did we owe other clubs? £33.6m, up from £28.9m the year before.