John McKenzie, the new chairman of Leeds United, is close to agreeing a crucial refinancing deal with the holders of the debt-laden football club's £60m bond.
Mr McKenzie is holding discussions to extend the honeymoon period on the 25-year loan. Under the original terms, for the first two years only interest has been paid, with repayments due to start in September 2004. But Mr McKenzie is keen for that to be extended by between three and five years - and with an interest rate of 7.652 per cent, it is understood the bondholders are set to accept.
The bondholders currently receive around £4.5m annually in interest payments, and that will go up to in excess of £7m once repayments start.
Mr McKenzie was brought into the club earlier this year after its former chairman, Peter Ridsdale, was ousted when it emerged that the club had racked up around £80m of debts.
The City was particularly unhappy about Mr Ridsdale's ongoing involvement with the club, and it was reluctant to take part in further financing until he had left.
The accountancy firm Ernst & Young has also been brought in and is working with Mr McKenzie on a radical overhaul of the club's finances. As well as renegotiations with the bondholders, a £10m rights issue is being considered, and players have been either sold or loaned out in an attempt to curb the club's exorbitant wage bill.
The Australian international Harry Kewell, one of the best-paid players at Leeds, was sold to Liverpool for £5m, the midfielder Olivier Dacourt has gone to Roma at a cut-price £2m, and the club tried to sell goalkeeper Paul Robinson to Aston Villa for £3m. Other big-name transfers included the moves of Jonathan Woodgate and Lee Bowyer (the latter after a loan period at West Ham) to Newcastle United and the record-breaking £30m sale of England defender Rio Ferdinand to Manchester United.
Spending has also been brought under control at the club. Mr McKenzie says he has uncovered a host of costs since Mr Ridsdale's departure, including £600,000 a year on a fleet of 70 company cars and £240 on goldfish for the chairman's office.
Yet debts are understood to still stand at around £80m. When the club announces full-year results, along with the results of the financial overview, the figures are expected to be disappointing in the extreme.
City analysts are reluctant to forecast figures and one industry expert, Bill Gerrard, professor of sports management and finance at Leeds University Business School, believes the figures "could be the worst set of results ever by a UK-listed football club". A number of one-off costs, such as the payoff to former manager David O'Leary, are likely to contribute.
As well as a lack of control over internal spending, the club's debt pile was racked up through overspending on players in an overblown transfer market in an ultimately futile attempt to secure a place in the lucrative Champions League, the premier European competition.Reuse content