Ronaldo sale just enough to keep Manchester United ticking over

New bond scheme introduced to reduce club's massive interest payments
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The Independent Football

The Glazer family, who have taken Manchester United back into the black by banking the £80m raised by the sale of Cristiano Ronaldo, will remain exposed to crippling hedge fund interest rates despite announcing a £500m bond issue to raise new capital.

United's extraordinary earning power was revealed yesterday when it emerged that the club have grown turnover by nine per cent in the face of the global financial crisis. But the debilitating drain that the interest payments have on the club was once again revealed in the results which show that, without the Ronaldo money, United would have slipped £30.8m into the red.

To ease their financial position, the club have announced a bond issue, underwritten by banks and aimed at reducing the annual interest payments which at £41.9m – payable on a loan of £509.5m – soaked up more than half of the value of the world record transfer sum secured by Ronaldo's departure for Real Madrid.

But the bond issue is aimed at refinancing the debt loaded on to the club while the Glazers must apparently find other ways of extricating themselves from payment-in-kind (PIK) loans, commonly called "ticking time bombs" for the mighty 14.25 per cent interest they rack up, which they take the hit for.

The initial £138m borrowed in PIK loans from hedge funds when the Glazers refinanced United in August 2006 will have risen to £580m by 2017, when the capital is due for repayment, and it remains unclear whether the family will be permitted to use cash generated by the bond issue, which could yield about 8.5per cent interest to borrowers, to help extricate themselves from some of their exposure to the PIKS. Manchester United's secured bank debts total £510m, while the PIK loans stand at £202m.

The new bonds are underwritten, so will definitely yield United the money they are expecting, though the Glazers must pay several millions of pounds in underwriting fees to JP Morgan, Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs and Royal Bank of Scotland. Extricating themselves from the PIK loans would also carry heavy financial penalties.

While the Glazers seek ways of reorganising their debt, the United juggernaut continues its immense commercial performance. Media revenues are up from £90.7m to £99.7m, commercial revenues from £64m to £70m and though match-day hospitality packages are not entirely booked up, the club have the first annual payment from their sponsorship deal with Aon to include in next year's results.

At a value of more than £20m, the deal is understood to be worth more than Liverpool's deal with Standard Chartered – despite the Anfield club's claims that they have secured the biggest Premier League sponsorship package.

The boost of the initial £5m annual payment from Aon will not keep United in the black in the year to June 2010, however. Only the sale of a Wayne Rooney this summer can sustain the kind of figures released yesterday. The club also point to the hefty figure taken out of the balance sheet for depreciation and amortisation – the decreasing value of a player to a club's accounts as he comes closer to the end of his contract – and to the £91.3m operating profit before that accounting figure is removed from the equation.

Current profits are available to the manager, which gives Sir Alex Ferguson £50m to spend chooses to do so. The manager declared for the first time on Friday that it was his own decision – and not that of the Glazers or his chief executive, David Gill – that the money received for Ronaldo had not been reinvested in players.

"Concerns of the supporters are down to the fact that I haven't moved in the transfer market," said Ferguson.

"But that is nothing to do with the Glazers or with David Gill. It is simply because I am not going to pay £50m for a striker who is not worth it."

Raising stakes United's war on debt

*United have turned a profit. It's a healthy picture then?

A precarious one. Without the sale of Cristiano Ronaldo to Real Madrid for £80m last summer, their debt would have risen from £21.4m in the financial year to June 2008, to £30.8m in the year just reported. Though the club's revenues are up, the Ronaldo money was almost the sole transfer income, against £21.4 transfer income last season. With two successive years of profits on player sales, United are having to sell.

*What is a bond issue?

A way of raising money by asking the public to invest in the club, rather than banks or hedge funds. The interest rates on offer – 8.5 per cent, according to some sources – should be healthier than those on offer to investors who go to banks and it is also a healthier rate for United than those they have been paying.

*Will it raise the money needed?

Yes, it is underwritten by several banks so the issue, which will probably be announced next week, will definitely raise £500m, though there will underwriting fees to pay.

*Does that mean there is an extra pot of money available for players?

No. The bonds are a way of servicing existing debt. Sir Alex Ferguson seems to have around £50m at his disposal. The club also has a £75m revolving credit facility, though that is a overdraft facility rather than a sum for players. .........  ......... Ian Herbert