RBS ‘careless’ with $2.7bn loan to Formula One


Christian Sylt
Friday 29 November 2013 23:13
The valuation of Formula One is being questioned in the High Court case brought by Constantin Medien
The valuation of Formula One is being questioned in the High Court case brought by Constantin Medien

Royal Bank of Scotland (RBS) was “extremely careless” when it lent $2.7bn (£1.7bn) to Formula One motor racing in 2006, the co-chairman of the private-equity firm CVC has told a London court.

Giving evidence last week during a trial surrounding CVC’s purchase of F1, Donald Mackenzie told the High Court that RBS and the US bank Lehman Brothers lent $2.7bn based on a valuation of the sport by the accountancy giant EY, which he described as “ridiculous”.

Neither CVC nor Mr Mackenzie are parties to the case, which has been brought by German media-rights firm Constantin Medien. It claims that F1’s boss, Bernie Ecclestone, and his Bambino family trust, conspired with German banker Gerhard Gribkowsky to undervalue the sport when CVC bought it for $2bn.

At the time of the purchase F1’s teams were demanding more prize money and threatened to set up a rival series in 2007 on the expiry of the Concorde Agreement, the contract which commits them to race. The threat was averted in May 2006 when CVC agreed to double the prize money and signed a memorandum of understanding (MoU) with the teams.

Although the MoU was not legally binding, RBS and Lehman agreed to provide F1 with a loan of $2.7bn on the strength of it. The money was lent in November 2006 and was used to refinance F1’s debt.

“The banks, frankly, were extremely careless because, in their financing offerings to us, they said they wanted a signed Concorde but actually, when it came to completion, they didn’t have one. But nevertheless they went ahead,” said Mr Mackenzie.

“The banks were at the height of a banking boom. They didn’t read the MOU properly. They didn’t quite work out that it wasn’t a Concorde and they lent money against something that turned out to be very flimsy.”

According to Mr Mackenzie, the banks’ decision to lend the money was only partly dependent on the MoU. The court heard that in August 2006 RBS requested an “independent valuation” of the business and three months later F1’s parent company, Alpha Topco, engaged EY “to provide an independent view on the value in connection with the proposed refinancing”.

The court was told its report valued F1 at $5.9bn and this is at the heart of the trial as Constantin’s case is that F1 was undervalued when it was sold to CVC earlier in the year.

Mr Mackenzie disputed EY’s valuation in his evidence to the court and said F1 was worth $3bn.

The $5.9bn “was a value that the banks provided themselves to Ernst & Young”, said Mr Mackenzie.

He said EY “certainly wrote a document with that value in it but they only did that after they were requested to do so by the banks... They made all sorts of ridiculous assumptions in that document… So they got it wrong.”

RBS and Lehman declined to comment.

The case continues.

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