Manchester United is simply not a convincing asset |
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| Economy | |
| Written by Paul Williams | |
| Wednesday, 03 February 2010 | |
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Goldman Sachs analyst right over concerns of value and risk presented by latest Manchester United bond. Manchester United are still facing a financially unsure future after the failure of its first ever bond issue proved to be the markets worst performing bond this year. Manchester United's sterling bonds have lost 7 per cent of their face value within two weeks of being issued.For the $425m of dollar-denominated bonds the bid price has fallen to 94.5% of face value SME Web reported last month that after studying the details of the bond issue Jim O'Neill, a Goldman Sachs economist and Manchester United fan, declared his opposition to the issue over leverage concerns. "There's too much leverage going on with Manchester United," O'Neill told Bloomberg. Despite the performance of the bonds it must be emphasised that the issue is not, as some media outlets would try and say, a complete failure. The club has secured the £500m ($798m) funding that it needs to refinance its bank debt. However - the debt still remains and the move merely gives that debt a longer shelf life. For a bond issue is just another form of debt. What O'Neill is implying is that the leveraged debt at Man U is essentially now not supported by an adequately large capital base - real money and savings held in a companies bank account. This base capital is something that is needed in the eventuality that the debt is suddenly called in. Without it the company, or the club in this case, will be effectively bankrupt. Just think back to the credit crunch and the banking crisis for an example of how too much leveraged debt can create spectacular problems. Indeed the problems are starting to show - yesterday fans protested outside the clubs Carrington training ground which could be sold off to ease the £716.5m debt run up by the Glazer family. This websites sister publication, Director of Finance Online, reported last year that Finance Director's at the top premiership clubs were struggling to juggle their finances to remain solvent. More than a third of clubs are under more pressure from their banks – an overall increase from 24% last year – and half of all respondents envisage using more than 90% of the bank overdraft facility in the year ahead – up from 41% in 2008. But the league under the most financial pressure appears to be the EFLC with more than three quarters of its respondents intending to use more than 90% of their facility this year – up from 44% last year. The issue has now even drawn the Prime Minister in. Gordon Brown is reportedly set to set up the pressure on clubs to slash debts and show more responsibility towards their fans; The Times says the game in England is sliding towards a financial precipice.
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