Manchester United's much-hyped bond issue, which sparked a furious response from the club's supporters, has already run into trouble. Launched little more than two weeks ago, investors in the £500m scheme have lost money on the deal after weaker markets and a perception that the club is a poor creditor led to a drop in its value this week.
The bond, which was issued accompanied by a brochure that laid bare the club's spiralling debts and outlined the possibility of selling off the club's training ground, was initially priced at a discount to attract investors and has since fallen even further. Bond holders wishing to sell now would make a five percentage point loss.
While the poor performance of the bonds will not affect the funds available to United, as the banks paid to arrange the deal have underwriten it, it may mean that investors that backed the deal this time would be unwilling to support another in the future. The problem is exacerbated by the tepid interest shown in the deal from traditional investment houses, which would normally underpin a deal, leaving wealthy individuals in Asia to pick up the surplus.
"The banks selling the bonds struggled to find buyers and went to the four corners of the earth to get it done," said Jonathan Moore, a high yield bond analyst at Evolution Securities. "There was very little appetite for the sterling part of the deal – of the 30 or so investors in London I have spoken to, only two bought it. As the markets have weakened since the deal was priced, the institutions have offloaded it, but there are particular worries on the Manchester United bond because of the weak covenants, and the Glazers' ability to take cash out of the company."
The structure of United allows the Glazer family to take money out of the club, which is a concern for investors who would normally want excess funds to be reinvested in a company to make it financially stronger. There is every chance that the bond markets will recover and those that hold the club's debt will recover their early losses. The club may also be relieved as it appears to have picked a period when the market was feeling temporarily upbeat, allowing it to price the deal with a lower than expected yield.
However, Moore argued that there is evidence that those holding the bonds are still trying to offload them. "It looks like some of the original buyers have been leaking them out. It is mainly to do with the poor credit and the weakness of the deal's structure," he said.