03.02.2010
United's £500m bond leaves investors nursing losses
Manchester United fans demonstrate against the Glazer family's ownership of the club before the Premier League match against Hull City at Old Trafford, Manchester, north-west England, on January 23.
Manchester United's 500-million-pound (800-million-dollar) bond, the centrepiece of the club's recent refinancing, has become one of the worst performing issues of the year.
The bond was fully subscribed, enabling the club to slightly reduce its debt-servicing costs and enjoy greater flexibility on future spending plans.
But investors have been left nursing paper losses which could make it hard for United to return to the bond market in the future, according to the Financial Times.
The bid price of United's 250 million pounds of sterling-denominated bonds has dipped to 93 percent of face value while those denominated in dollars (425 million) were on offer for 94.5 percent of face value.
Bankers and analysts said the decline reflected over-pricing at the launch and the lack of a credit rating.
"In a benign credit market, Manchester United is one of the worst performing bonds since the beginning of 2009," Suki Mann, a credit strategist at Societe Generale told the FT.
The bond issued by United has proved unpopular with fans because of controversial provisions contained in the prospectus.
These include the possibility of United's Old Trafford stadium and Carrington training ground being sold and then leased back to the club, as well as authorising the transfer of funds from United's reserves to the club's parent company, Red Football Joint Venture Ltd.
The most recent accounts for Red Football, owned by the US-based Glazer family, showed that it had debts of 719 million pounds, including over 200 million owed to hedge funds in the form of 'payment in kind (PIK)' notes on which the interest rate now exceeds 16 percent.
United's chief executive David Gill said at the weekend he was "100 percent convinced" the sale and leaseback of Old Trafford and Carrington would never happen and stressed that the Glazers, not the club, were responsible for repaying the PIK notes.
Gill also insisted that the club's finances were not preventing United boss Sir Alex Ferguson from strengthening his squad, as many fans suspect.
Source: © 2010 AFP - Andrew Yates
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