It was reported tonight that the American owners of Manchester United, the Glazer family, have agreed to pay off a £220m payment in kind (PIK) loan on 22 November.
The £220 million payment-in-kind (PIK) loan was taken out in August 2006 as a consolidation of the Glazer family’s £790 million takeover that took place in May 2005. Now, according to a corporate filing by Red Football Joint Venture Ltd, the club’s parent company, that loan will be exorcised in one payment. The source of these funds is yet to come to light – some speculate that there is new source of investment for the Glazers (loan refinancing) or they might have used the terms of the 2010 January bond to take money from club funds to pay off the loan.
In January this year the Glazers converted a bank loan secured against the club into a £526m bond, under which they could make one withdrawal of £70m from club funds in order to pay off some of their overall PIK loan. In October, Manchester United announced a record loss of £83.6m, much of which was attributed to interest payments and one-time costs relating to replacing long-term debt with the bond.
The PIK loan was initially taken out as a £138 million facility with exceptionally high interest of 14.25%, which in turn was raised to 16.25% as the club breached a debt-to-earnings ratio agreement.
Despite common sentiments against the Glazers, paying off a part of the debt (and especially a high-interest part of the debt) will naturally help bring down the annual interest payments that have been a drain on Manchester United’s finances in recent years, which in turn will result in United having more funds to invest in their playing squad. So, good news, as long as it’s not another loan…