Glazers and Man Utd: Another sink or swim story

The Guardian reports that the Glazer family business, First Allied Corporation is facing financial difficulties which raise questions of repayment of Man Utd’s massive debt obligations much more difficult.
First Allied Corporation’s business is suffering, a consequence of the general malaise afflicting the weak retail and real estate market. The grim picture is encapsulated by the unprecedented 27% drop in house sales reported a day ago. At the current rate it would take a year to exhaust the inventory of houses on the market.
All over the USA, we see the phenomenon of shopping malls with vacant stores and thinning crowds.
In this unfavourable climate it is not hard to imagine the Glazers defaulting on their mortgages on some of the shopping malls that they own or some going out of business.
Does that equate with a real danger of them not able to pay off their debt? The bank debt of £500m has been refinanced The most pressing issue is the “payment in kind’ debt owed to the hedge funds which at current levels is estimated at £236m. The interest rates on this borrowed money have risen from 14.25% to 16.25%. This means that the accumulated amount will rise to £274m by next year. With their real estate investments ailing, do the Glazers turn to the club’s income to pay off the debt?
The BBC Panorama story that broke in June put the debt picture in catastrophic terms. But here is part of the statement issued by the Glazers in response:
“While First Allied represents only a small portion of their asset portfolio, it continues to generate significant profits, enjoys over 90 percent occupancy, and has long term non-recourse financing.”
Non-recourse financing is debt secured against collateral, in this case, the Glazers real estate properties. “If the borrower defaults, the lender can look only to the sale of the property. The borrower does not have personal liability for the loan.”
The levels of debt only become a problem if the Glazers cannot service that debt. So far they have honoured their repayments.
The company’s re-financed their loans at cheaper interest rates was a prophetic move before the real estate meltdown. Man Utd’s recent bond issue was significantly oversubsribed and raised £130m in funds. Long term bank loans of £500m were re-financed in January without any problems at an 8.5% interest rate. In July, Forbes reaffirmed Man Utd’s position as the most valuable sporting franchise in the world with a £1.15b market valuation, eclipsing America’s team the Dallas Cowboys and the most decorated franchise, the New York Yankees.
There is also no evidence that income generated by the Tampa Bay Buccaneers is being shifted to paying off Man Utd debt. The NFL club has one of the lowest ratio of debt to value, 13 percent. It also posted the third best profit figures of £44.9m last season in the league. The Bucs were 12th on the most valued global sporting franchises. The statistics point to a well run club which is highly respected for their accomplishments and responsible ownership.
These fears are amplified by an uncertain financial climate. Starbucks Coffee shut down a number of their stores but the ones that remained in business are booming. A retrenchment takes place in such lean periods. Ditto for shopping malls. But this is hardly a Liverpool like cause for alarm where a takeover with ownership that has real money is seen as a pre-requisite for survival. Those who play up Man Utd’s debt obligations have their own agendas in furthering the notion of a club in financial peril.