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I thought we had a thread like this already but clearly not. Feel free to post anything to do with owners here whether it's news, opinions or rumours.
I was reading up on the Liverpool takeover and there really isn't a good place for me to discuss now that the individual team threads have closed (Barclays Prem thread is more match based) so figured this would be a good idea.
Anyhow to get things started I just saw this posted on another forum which really helps me understand exactly what's going on at Liverpool. Not sure where it is from:
quote n/a
LFC Finances, debt and administration
How much does the club owe?
Recent press speculation suggests that the loan from RBS/Wachovia was restructured sometime in the spring of 2010 and that the debt is now held solely by RBS, amounting to 237m (albeit this may be growing due to rolled-up interest and potential penalty clauses.)
The structure of the debt is complicated, to say the least: the 233m bank borrowing was held by the club and Kop Football Ltd, whilst Kop Holdings owed 144m to Kop (Cayman).
The loan from Kop (Cayman) is interesting, in that it appears to be the "equity" put in by Hicks and Gillett in order to get RBS to agree to the refinancing. Speculation as to the source of these funds is rife, but suffice to say that (i) it doesn't seem likely that it's pure "equity"; and (ii) it attracts a 10% annual interest charge, so it's hardly equity: it's just another loan.
So, that's 377m of debt, even if accruals, trade creditors, tax owed and deferred income are overlooked.
Where did the debt come from?
Over three years, bank borrowing has risen from 185m to 377m, caused by two main factors.
Firstly, the club has been spending money, with the new stadium design costs (about 45m) contributing a large part of this.
Secondly, it appears that the interest costs of the loans have not necessarily been covered by the club's operating profit and that the interest has merely been added to the value of the loan. This is, in blunt terms, a spiral of unsustainable debt.
How bad is it?
The blunt assessment of the club's auditors is that there is uncertainty as to whether the club can continue as a going concern.
This is underlined by the worth of the group, which is insolvent to the tune of 128m, up from 75m the year before.
More than annoy other statistic, this figure is worth underlining: the value of the club, less the debt secured against it, is minus 128m. It is insolvent, bankrupt, broke, whatever else you want to call it.
To make matters worse, some of the assets of the group are probably worth less than they might appear to be.
Firstly, design costs and professional fees for the new stadium are included as assets of the club, totalling 45m. Whilst this is not unusual for a project that is in progress, were the plans not to go ahead in their current form, there is a massive loss to be taken when the costs are written off
.
Secondly, there are two amount of "goodwill" capitalised in the accounts: these represent the difference paid for an asset and its book value, which are then written down over a prescribed period.
On the books of the club is 13m of goodwill relating to the purchase of 50% of the LTC TV joint venture, from when the club bought out Granada.
Kop Holding has 46m of goodwill, relating to the original purchase of the club.
The significance of the stadium costs and the "goodwill" is that they're not actually asset that could be relied upon to be sold if an urgent sale were required: it's thus possible to consider that there's an additional 104m that could be added to the funding shortfall, thus bringing the level of insolvency to 232m.
It might also be worth mentioning "Intellectual Property Rights" at this juncture: these account for another 28m of assets, although in reality these probably do have a real-world worth.
Remember, though, that figure of 232m is as at 31st July 2009: it's got worse since then.
What's the club actually worth?
According to the accounts, the club has a total of 150m of assets:
Players (net book value): 108m
Tangible assets, cash & debtors: 14m
Land & buildings: 28m
Total: 150m
In addition to this are the new stadium costs (45m) and the LFC TV goodwill (13m)
However, in my opinion, the players are undervalued; and taking into account some of the stadium costs and in particular "brand value", Liverpool Football Club would be worth perhaps 300m-350m to a buyer, assuming it carried no debt.
That figure is "of course" speculative, but if you were to consider that Manchester United is reputed to be "worth" around 700m including a 75,000 capacity stadium; and that a new 75,000 capacity stadium for Liverpool would cost approximately 350m, then the figures lead towards a value in the region of 350m maximum.
RBS
RBS is the key to Liverpool's future: according to recent newspaper reports, the debt with RBS currently stands at somewhere in the region of 280m, taking into account various interest charges and the fees associated with the spring refinancing.
The current loan is due for review in October, but RBS have assured the Premier League that they will continue to support the club until the end of the 2010/11 season.
It now seems almost certain that the most recent refinancing was only approved by RBS as a temporary measure pending sale of the club.
The arrival of Martin Broughton as chairman, to oversee the sale of the club coincided with the resignation of Foster Gillett and Casey Shilts from the board of Kop Holdings; this gives RBS a 3-2 majority on the board, as long as Ian Ayre and Christian Purslow vote with Broughton's vote.
The reasoning behind this is pretty simple: RBS were not willing to allow Hicks and Gillett to retain a veto over the sale of the club and this would have been a condition of the refinancing.
Breaking point
Aside from the intricacies of the group structure and the fine detail of the accounts, the current situation is pretty simple.
Kop Holdings, considered as a group, owes 280m to RBS and 144m+ to its parent company, ie Hicks and Gillett.
It owns a single asset, Liverpool Football Club, which is probably worth between 300m and 350m.
The debt to RBS continues to grow, but crucially it is still less than the value of the club at the moment.
RBS have gained the ability to force the sale of the club, via its control of the boardroom: they have to do this while the debt they are owed is lower than the value of the club, otherwise they will make a loss.
The 144m owed to Kop Cayman is not a particular consideration to them: if the proceeds of the sale can cover that, all the better, but when it comes to the crunch, RBS's only responsibility is to its shareholders; and if that means selling the club for 290m when the debt is 290m; and Hicks and Gillett making a loss of 144m+, then so be it.
This, of course, explains the rumoured legal threats by Gillett and Hicks to allow them to attempt to refinance with someone other than RBS, with it appearing that RBS will only accept outright sale.
Similar, it would explain the apparent attempts by the owners to obfuscate the sales process, if anything just to buy time until richer buyers come along and enable them to find an exit strategy that includes a profit.
Administration looms?
Newspaper reports suggest that the current loan is due to be refinanced in October, with RBS having every intention of selling before then.
There is also some suggestion that the bank could then take effective control of the club at that point, by calling in the loan: if the owners were not able to find the money then the bank would become de facto owners, free to dispose of the club to cover the debt.
This strategy would, almost certainly, be subject to legal challenge by the owners, who would stand to lose in excess of 144m, that being the sum owed to Kop Cayman. However, it is likely to be the case that RBS has written provisions for such an eventuality into the current loan agreement, so any such challenge may be destined to failure.
The question then would be whether or not the bank assuming control of Kop Holdings in October would be considered "administration" by the Premier League: that's not an easy one to call at this stage, but it has to be a concern.
Were the club to be put into administration in October, then the 9 point deduction would immediately harm the potential sale value of the club, thus if RBS can avoid administration, they will do so. It is, certain that any October refinancing would be accompanied by even more onerous conditions imposed, removing yet more control from the owners.
If, by some combination of events, the club remained unsold at the end of this season, the value of the debt to RBS would almost certainly exceed the value of the club, even if there had been player sales in the January transfer window in an effort to bring down the debt. Under those circumstances, administration must be considered a very strong prospect.
The likelihood, however, must be that the club is sold at some point between now and October: that is what RBS are pushing for and that is the only means by which the spectre of administration will be lifted.
The point of no return
The words of Philip Long of PKF accountants, quoted in the Telegraph, are probably the most salient on the subject:
"Liverpool's is not a long-term business model. There simply is not a happy ending to leveraged buy-outs. The burden of the interest outweighs any profits the club make, and that becomes unmanageable.
The two Americans hanging on and seeing their debt refinanced by RBS, continuing to pay interest, is a far worse scenario than the bank taking over the running of the club. The debt burden will just increase to a point where the interest is not being serviced any more. The ultimate end game, if Hicks and Gillett cling on, is that Liverpool goes bust".
That point of no return, where the profits no longer cover the interest, has probably already been passed. The only question now is whether or not RBS can sell the club before it is forced into administration.
The article pretty much says there are two types of debt on the club: 237m owed to RBS and 177m owed to Kop Cayman (the club's parent company) which is the money we are "paying back" to G+H. RBS want their 237m but could not care less about the 177m for G+H.
In October when the refinance is up RBS can take control of the club and try to get back the 237m they are owed. They will effectively control the club and this could be considered "administration" by the Premier League, although administration would screw RBS as well because it devalues the club.
Right now our debt is less than the value of the club but if we don't sell by the end of the year then the debt will equal or surpass the value of the club. When this happens this will leave us with administration as the only option. The longer it takes the worse it will look to prospective owners also.
RBS have three options:
- Take over the club and find a good offer (this is our best option and it also means RBS will receive everything they are owed)
- Refinance the club themselves (RBS are receiving consistent payments for the debt and this will multiply the debt but put the remaining balance owed to RBS at risk although they stand to receive more money the longer this goes on)
- Allow G+H to refinance elsewhere (RBS could do this as well, but I don't think G+H will find another bank, and it said that there was a clause in the contract saying they could not do this iirc... I hear this is what G+H are trying to do)
Right now G+H want to hold onto the club for as long as possible until they can find owners willing to pay over the odds. As a Liverpool fan we need RBS to "takeover" the club and sell it for a decent price to a new owner.
I am confident we can find a new owner if RBS take over the club but according to
this article, that may now happen.
constantplanck
Cashis
