Posted by dentist 007 on January 26, 2010 at 5:44pm
Manchester United 8.75% Feb 2017: 26 January 2010Manchester United’s refinancing deal has attracted considerable comment in the press. The company has refinanced its debt with a new two-tranche bond issue, launching $425 million of USD-denominated bonds and £250 million of an 8.75% February 2017 bond into the sterling market. The purpose of the deal is to refinance the orginal debt raised by the Glazer family for their leveraged purchase of the footbal club in 2005. The refinancing was no doubt a deal worth doing. Amongst the other debt raised for the purchase, the original deal saddled the owners with the servicing of expensive "PIK" or "payment in kind" securities, reputedly rolling up at 14.25% per annum. Standing back from the situation, the club now has over £700 million in debt, which should be viewed in context against the 2009 revenues of £278 million.The new seven-year sterling bond is a senior obligation of MU Finance, guaranteed by Red Football. Launched at an issue price of 98.089, the bond carries a semi-annual coupon and has call features, with the issuer holding the right to redeem the bond at a price of 108.75 in February 2013. The call price thereafter rolls down each year to the final maturity at par. The bond has been issued with a minimum deal size of £50,000, suggesting that the private investor is not the target market. The lack of a credit rating also indicates that this bond will not find a natural home in conventional risk-adverse bond portfolios.Early comments from the media suggested that the bond would meet a warm reception, with investor demand stoked by the strong international brand recognition of the footbal club. The managers of the issue have marketed the Red Devil’s bond actively, with roadshows in Europe, Asia and the US. However, last Friday saw a lukewarm reception for the bond in initial secondary market trading and this week has seen the price of the Sterling tranche trade down in the 93 area, a price equivelent to a yield to maturity of 10%.My view: Manchester United is privately owned company, and investors do not have the benefit of financial transparency that would be afforded by a listed entity. Add to this the high levels of leverage that have been applied to the company and the varied history of football clubs and their owners. Whilst it is tempting to look at the high headline yield offered by this security, the new Man U bond should be viewed as an uncertain prospect.investors intelligence.com
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