Glazer Borrows at a Premium to Finance Manchester United Buyout June 10 (Bloomberg)
When the 11 players of Manchester United Plc take to the soccer field and face Hong Kong on July 23, each of them will be carrying 34 million pounds ($61.9 million) of debt owed by U.S. billionaire Malcolm Glazer. Debt, which has ravaged English soccer, will have a grip on the world's biggest sports franchise that until now had been debt- free. United will take on 373.9 million pounds in loans as television revenue has declined and the team has faltered on the field. Glazer, the 76-year-old owner of the Tampa Bay Buccaneers who fought shareholders and fans to acquire Manchester United, will be paying among the highest rates ever levied on a European buyout loan to finance his 790 million-pound purchase. JPMorgan Chase & Co. is charging him interest margins starting at 2.75 percentage points over benchmark interest rates, 0.5 percentage point more than on most seven-year buyout loans. �This level of debt can kill you,'' said Stephen Schechter, former head of cross-border debt at Lazard Ltd. �This isn't a leveraged buyout of a nice, boring manufacturing company.'' The debt load is for a team whose sales in 2004 fell for the first time in eight years, to 169.1 million pounds, and saw its first-half net income slump 52 percent to 9 million pounds. The team's decline hasn't been limited to finances; this season it failed for a second straight year to reach the quarterfinals of Europe's Champions League. Sebastian Howell, a London-based JPMorgan spokesman, declined to comment. Jeff Kamis, a spokesman for Glazer's National Football League team, didn't return phone calls. �Knife Edge' Glazer's loan package is made up of 283.9 million pounds in acquisition financing plus 50 million pounds for working capital and 40 million pounds for capital expenditure, such as improvements to the Old Trafford stadium, according to a May 23 offering document sent to investors. Glazer also sold 275 million pounds of notes to hedge funds. �His financing and business plan are on a knife-edge,'' Sean Bones, vice-chairman of Shareholders United, said in an interview. The pressure group has called on its 31,000 members to boycott sponsors including Nike Inc. and Vodafone Group Plc. Of the 187 seven-year buyout loans tracked since 1999, only 14 have margins higher than 2.25 percentage points above benchmark lending rates, Bloomberg data show. In addition to the seven-year credit, the package calls for margins above 2.75 percentage points on an eight-year loan and exceeding 3.25 percentage points for a nine-year deal. There is also an 85 million pound second-lien loan with a margin of 6.5 percentage points. Second-lien loans rank lower for repayment in the event of a default. More than Players Leeds United, a Champions League semifinalist four years ago, was close to bankruptcy last year after amassing debt of 100 million pounds. One in three English soccer clubs sought bankruptcy protection since 1997 as they piled on debt to buy players. Glazer may end up paying the equivalent of 88 million pounds a year to banks and hedge funds if he uses all the loans, according to Bloomberg calculations. That's more than United, English champion in eight of the past 13 years, spent in total on forwards Wayne Rooney, Ruud van Nistelrooy, Cristiano Ronaldo, Alan Smith and Louis Saha. In addition to failing to reach the quarterfinals of Europe's Champions League, the club finished third in the Premiership, 18 points behind Roman Abramovich's Chelsea, which won. �Ticking Bomb' Palm Beach, Florida-based Glazer controls at least 76 percent of northwest-England based United after he built a stake over two years and made an official bid of 300 pence a share last month. Investors have until June 13 to accept. Glazer on June 7 appointed his three sons to the club's board. He will also have to repay pay-in-kind securities, or so- called PIK notes, it sold at a discount to hedge funds managed by Citadel Investment Group LLC, Perry Capital LLC and Och-Ziff Capital Management Group, the offer document said. The PIK notes pay interest of as much as 20 percent, which accumulates and pays out when they mature in 2015, according to the subscription agreement. There's an unspecified premium charged on the notes if they're repaid within two years. The hedge funds take Glazer's shares in United if the notes are still outstanding after 63 months. �The PIK notes are a ticking bomb,'' said Howard Lacy, director of London-based Inner Circle Sports, a sports finance adviser. �Manchester United is now in a dangerous position.'' Dan Och, a founder of Och-Ziff, Kathryn Beiser, a spokeswoman for Citadel at Burson-Marsteller and Perry Capital spokesman Michael Neus all declined to comment. To contact the reporter on this story: Michael Rothschild in London at [EMAIL PROTECTED] ------------------------ Yahoo! Groups Sponsor --------------------~--> Has someone you know been affected by illness or disease? Network for Good is THE place to support health awareness efforts! http://us.click.yahoo.com/0xaSZB/UOnJAA/Y3ZIAA/GtUolB/TM --------------------------------------------------------------------~-> Please use [email protected] for general discussion. 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