PIKING APART THE MAN UTD REFINANCING
You have to look hard to find it, but it's there in the notes on page 30 of the (printed) prospectus -- what appears to be a key reason for Manchester United's £500m senior notes offering and refinancing.
(1) Cash and liquid resources include cash at bank and in hand and deposits held at call with banks. Of our cash and liquid resources of £116.6 million as at 30 September 2009, as adjusted to give effect to the offering of the Notes and the application of proceeds therefrom, we may, without restriction, make a distribution or loan of up to £70.0 million to our immediate parent company, Red Football Joint Venture Limited, that may, in turn, use the proceeds of that loan for general corporate purposes, including repaying existing indebtedness. See ''Description of the Notes-Certain Covenants-Restricted Payments''.
In other words, it frees up some cash: the Glazer family will be able to take £70m out of the club's resources of £116.6m and use it to repay some of the £200m PIK notes they personally used to finance the £780m buyout of the Premier League champions.
The PIKs, which have an eye-watering coupon of 14.25 per cent that rolls up annually, reside in the Red Football Joint Venture. This sits near the very top of the Manchester United financial structure.
If, as seems likely, the Glazers do that, the effect will be to make Manchester United even more leveraged than it is now.
Cash will be taken out of the club and up-streamed to the Red Football JV, leaving pro forma adjusted net indebtedness much higher than the £466.1m stated in the prospectus. Pro forma annual interest expense will also be higher than the £46.3m quoted and as for the quoted net debt/EBITDA ratio of 4.6...
All of which could mean a smaller transfer budget for Manchester United boss Sir Alex Ferguson.
And that's not good news, unless you are a Manchester City fan of course.