Topic: A going cause for concern - Emphasis of Financial Matters

[Laughter is the best medicine...]

anyway, is the obligitory shite mihir bose blogpost on the ownership on the bbc website yet?

[Jack Slater]

Transfer Expenditure

The one area that causes the biggest debate.  Every year we have fans complaining about the amount of money spent on players and every year they get it wrong, massively.  These are the true figures for the last 3 financial years.

(figures in £000s)

Financial Year Ending	2008		2007		2006
Purchases	69,966		69,972		41,753
Sales	29,740		25,946		16,838
Net Transfer Activity	40,226		44,026		24,915

These values include relevant levies to the premier league, VAT and agents fees.  Signing on fees go straight to the Profit & Loss at time of payment.

Since the year end Albert Riera, Peter Gulasci and Victor Palsson were bought by the club for total transfer fees of £7m (I assume this includes VAT and agents fees, but am not certain)

Is there any way of knowing which players the fees relate to?

I dont mean the individual price per player  (that would be great, but I'm assuming it's impossible).

I mean is it possible to be certain which signings are included in the total expenditure in these particular accounts?

[coffeehead]

i'm sure someone said that they cant sell players to pay off the loan - something to do with the terms of the loan

No what you're remembering is the notion taht they won't be able to sell players to pay off KOP debt BEFORE LFC debt, but once LFC debt is paid...

This is a standard covanent in these kind of deals and we assume it applies (but none of us have seen the actual documentation to prove this)

[Laughter is the best medicine...]

No what you're remembering is the notion taht they won't be able to sell players to pay off KOP debt BEFORE LFC debt, but once LFC debt is paid...

oh right - then i guess we shouldnt be shocked if one of our main players goes - madrid will no doubt be loving this

[Jack Slater]

What causes automatic relegation in other countries and points deductions in the football league is largely ignored in the Premier League.

Nearly being insolvent isnt the same as actually being insolvent.

The authorities cant just take points off a club because their finances look a bit ropey. 

PL rules now say an automatic points penalty, a transfer ban, and also a suspended expulsion in the event of insolvency of the club or its holding company.  The expulsion takes effect if the club eventually fails to pay its football creditors (other clubs, and players).

Since no top flight club has declared formal insolvency (of any type) in recent times, we can't say that the PL would not apply these rules.

[corkboy]

Thanks, Tim, that's sterling work as always.

Interesting to see Arsenal's wage bill is higher than ours, with their much trumpeted low wage structure. I think they've given in.

[LFCfan4Life]

AUDIT REPORT

The major issue arrising from the accounts this time, however, relates to the KPMG report on Going Concern.  Due to the facilities being due for repayment on 24 July 2009 and with no refinancing agreed/announced at the time of sign off by KPMG they have raised an emphasis of matter on the going concern status of the holding companies and club.  The club/owners are in discussions to refinance the facilities and looking for possible equity finance.  I don't think there is too much to say on this as I am sure everyone will have their views on this, and the results.

I will say that as a standalone company LFC should have no problems.  I'd imagine they would get refinancing for club debt, however the millstone of the purchase debt is having an effect.  This may explain some of the rumours going round recently about the owners being told to pay down the debt over the next couple of years.

There is a comment in the report about revised stadium plans going to the council in Q2 2009, however the refinancing issue needs to be settled before this can really be taken forward.

Future prospects are both bleak and positive.  Positively the club is back in the black and has increasing revenues again, especially in the commercial area (the one area at present that the club can really increase revenues by it's own actions).  The tv deal will provide a stable platform for the next 4 years and LFC.tv is improving year on year.

Bleakly the club needs to have the refinancing/takeover saga sorted quickly.  It always has, however with the new contracts, both staff and commercial, there must be a large amount of optimism that the refinancing will occur.  However it needs to be for longer than a year to ensure short to medium term stability.

Auditing fucking hate it - but thats another matter

Anyway since then had the loan not been extended beyond 29th July 2009 for another 6 months?

but i suppose not or the report would have been reissued.

lets hope they do sort it out by then at least we have a date by which they need to sell or refinance

[electricghost]

Would RBS  base their refinancing on this set of accounts, or would they be looking at the situation as it stands at this moment?
Is the current financial picture likely to be better or worse than this set of accounts show?

[Jack Slater]

i'm sure someone said that they cant sell players to pay off the loan - something to do with the terms of the loan

No, that can't be true.

What is sometimes (correctly) highlighted is that selling a player isnt like selling a training ground.  A player can only be sold if he agrees terms with the potential buyer.  Otherwise the player has the right to see out his contract.  (see Bogarde at Chelsea;  Diao & Le Tallec at Liverpool;  Fowler and many other at Leeds, for a variety of the different consequences which can follow).

[Jack Slater]

Would RBS  base their refinancing on this set of accounts, or would they be looking at the situation as it stands at this moment?
Is the current financial picture likely to be better or worse than this set of accounts show?

Current picture is what they'll look at.

But who says they're gonna refinance at all?

[Jack Slater]

Auditing fucking hate it - but thats another matter

Anyway since then had the loan not been extended beyond 29th July 2009 for another 6 months?

but i suppose not or the report would have been reissued.

lets hope they do sort it out by then at least we have a date by which they need to sell or refinance

It was originally due to run out in Jan 09.  G&H exercised their option (which no doubt cost a few bob) to extend till July 09.

The current deal (as negotiated in Jan 08) does not contain another option for G&H to further extend.  They need to negotiate a whole new deal.  It appears that they havent been able to convince KPMG to say that it looks reasonably likely that they will be able to find such a deal.

[keyo]

can be taken either way.  KPMG can only make a statement based on what's in front of them.  At the time of sign off there was no new financing in place to replace a huge amount of debt due in the matter of months.  If it was THAT bad, ie the club would not get financing then I think they would have refused to sign off as a going concern, even with a emphasis of matter statement.

Without an agreement on financing this will hang over the clubs head.  This is why they are scrambling over selling their other assets.  It's easier for them to do that than it is to sell the Kop Football Holdings group at present.

is the correct answer, the material uncertainty over going concern is that re-financing has not been agreed by the date of the audit report.....this is disclosed in the financial report, and is therefore pointed out in the audit report........basically it is a statement of fact, the club requires financing to be secured for future operations to be considered a going concern, until that financing is in place (whatever the source) then the auditor is unable to ignore it, kpmg are not able to merely accept that the refinancing will be in place unless there is someone able to provide an undertaking or guarantee that it will be......so the statement in the financial report and the one in the audit report is required to reflect this and is not necessarily indicative of anything other than what we already know......the refinancing needs to be agreed otherwise the owners and the club will have a problem

[OneKop]

And some people were saying that if we missed out on CL for one year that we would be alright, does not bear thinking about really does it

Its enough to make grown men cry seeing what the four horsemen of the apocalypse have done to our great club. thank you DM, RP, TH and GG

[LiverBirdKop]

Only thing I can say is FU.CK.

Can someone, ttnbd in case you're reading, break down what it would cost to purchase the club at zero profit from G&H?

I'm just hoping.....

[LFCfan4Life]

It appears that they havent been able to convince KPMG to say that it looks reasonably likely that they will be able to find such a deal.

Actually KMPG have only issued a emphasis of matter so they are convinced that its possible they could get a deal

they just couldn't leave out the emphasis of matter paragraph while their was no concrete deal in place because we all know how hard it is to get loans atm no matter how big it is.

If they thought it was a big problem and no chance of a deal im sure they would have qualified there opinion

[Jack Slater]

Actually KMPG have only issued a emphasis of matter so they are convinced that its possible they could get a deal

they just couldn't leave out the emphasis of matter paragraph while their was no concrete deal in place because we all know how hard it is to get loans atm no matter how big it is.

If they thought it was a big problem and no chance of a deal im sure they would have qualified there opinion

What you're saying is that, if they felt there was absolutely no chance whatsoever of refinancing, they would say so.

I agree.

What I'm saying is that if they thought there was a reasonable chance of refinancing, they would say so.  And they have not said that.  But you can bet that G&H tried very hard to persuade them.



I

[LFCfan4Life]

What I'm saying is that if they thought there was a reasonable chance of refinancing, they would say so.  And they have not said that.  But you can bet that G&H tried very hard to persuade them.

I get you i was just being a bit more positive so people don't grab the wrong end of the stick and start panicking way before there is any need to,

at least we know the future of the club will be sorted within these next 2 months of silly season and we wont be fucking about during the middle of the season worrying about newspaper stories about how the owners are going bankrupt and dragging us down with them etc.

[Retro Red]

Nearly being insolvent isnt the same as actually being insolvent.

The authorities cant just take points off a club because their finances look a bit ropey. 

PL rules now say an automatic points penalty, a transfer ban, and also a suspended expulsion in the event of insolvency of the club or its holding company.  The expulsion takes effect if the club eventually fails to pay its football creditors (other clubs, and players).

Since no top flight club has declared formal insolvency (of any type) in recent times, we can't say that the PL would not apply these rules.

Alright then, at the risk of landing someone in it. By any measure used in any other sector or industry they are insolvent and the Premier League doesn't want to know - Leeds were effectively "gone" before they went down. It was only once they were in the relative anonymity of the Football League that sanctions were applied.

In fact, look at our consolidated group accounts; the Balance Sheet shows net liabilities of 75.6 million. The Football Club, at the foot of the group structure, is solvent, the group itself looks like it's banjaxed.

If my place (a Company Limited by Guarantee rather than by shares) shows a negative balance sheet, even of £1, as there are no shareholders to give personal guarantees, we are bound by law to cease trading and declare insolvency. Kop Holdings is only hanging on because of some dodgy valuations (LFC TV's intellectual property = £29.5million!) and the owners' personal guarantees.

Be interesting to have a proper look in the morning and see what the informed posters like the person who started the thread make of it all in the cold light of day.

[oojason]

£35m in interest - that is a figure my head is struggling to get around 

[TheoRacle]

Alonso to City for 30m in todays papers! There's one year's interest payment. 

[LFCfan4Life]

If my place (a Company Limited by Guarantee rather than by shares) shows a negative balance sheet, even of £1, as there are no shareholders to give personal guarantees, we are bound by law to cease trading and declare insolvency.

i might be completely wrong but i don't think thats anywhere near the case for a normal ltd by shares, your place is a not for profit organisation right? so different rules income should service your organisation not debt?, a negative book value might not be the best of 'looks' but its not a case of automatic insolvency

[Jack Slater]

i might be completely wrong but i don't think thats anywhere near the case for a normal ltd by shares, your place is a not for profit organisation right? so different rules income should service your organisation not debt?, a negative book value might not be the best of 'looks' but its not a case of automatic insolvency

Exactly.  As long as the directors can plausibly claim that they expect to be able to pay the debts as they fall due, then they're OK to keep trading.

[Retro Red]

i might be completely wrong but i don't think thats anywhere near the case for a normal ltd by shares, your place is a not for profit organisation right? so different rules income should service your organisation not debt?, a negative book value might not be the best of 'looks' but its not a case of automatic insolvency

That's partially right. We can take on debt, in fact it's government policy to encourage us to take on a level of debt to finance growth and asset base development. But, that debt can only be secured against the assets of the company, there are no shareholders funds or guarantees

What I'm trying to say, albeit clumsily, is that the big difference isn't the definition of insolvency (ours is still a limited company governed by all the same companies acts as Kop Holdings - no special rules at all about debt), it's the fact that Kop Holdings has shareholders who can give personal guarantees etc. to satisfy creditors that they aren't going to go bump with out paying them first. In that sense, a company limited by shares may be technically insolvent but keep on trading as long as the banks and creditors are happy that the owners are good for the cash - e.g. Chelsea, in other countries they would relegated, in the Football League they would be docked points.

[Mad Men]

Which my explain why Hicks wants to sell his majority shares in the texas rangers in order to finance his "investment" in LFC. Which isn't good news for us.

Why can't they accept the fact they can't afford the club and sell it to someone who can! On that note, the last thing we need is a H&G mark 2 to buy us....

[Bronx Red]

Fuck me, we are so lucky to have someone on here that can cut through the bullshit and make complicated stuff like that appear clear to total fuckwitts like myself.

Cheers Tim

[Mad Men]

We are in need of some common sense and direction at board room level. You can't run a company like this and expect the shareholders not to be pissed, upset or worried. And you can't blame the auditors for telling it like it is..they are doing their job and are obligated to be as factual and truthful as can be.

[Gromit]

We are in need of some common sense and direction at board room level. You can't run a company like this and expect the shareholders not to be pissed, upset or worried.

How's that gonna happen?  There's only 2 shareholders and they're the ones without a clue.  I've read on these boards before that if we did go into administration, Hicks and Gillette will be among the last ones to suffer financially (in terms of their own personal fortune), if at all.  It seems without someone willing to pay way over the odds for us, we're stuck with them and screwed as a result.

[jckliew]

the owners' personal guarantees.

What are they worth? We've been scammed.........   

[royhendo]

The one thing to remember is that the increased commercial profitability of the actual club as a business probably makes us more attractive to a prospective buyer.

I'd say the worst case scenario isn't necessarily as bad as we're fearing it could be... but that's just my opinion. Sobering to see the difference in scale of the four clubs' turnover though eh?

[Mad Men]

How's that gonna happen?  There's only 2 shareholders and they're the ones without a clue.  I've read on these boards before that if we did go into administration, Hicks and Gillette will be among the last ones to suffer financially (in terms of their own personal fortune), if at all.  It seems without someone willing to pay way over the odds for us, we're stuck with them and screwed as a result.

What will happen is the RBS will take over the club if they default and the bank calls in its credit to them AND they cannot pay up. This is my understanding of the situation.

And the RBS will appoint either its own board members or CEO to run the club until a prospective buyer is found and is able to settle any outstanding dues and profit RBS might wish to tag on.

I could be wrong but this is my understanding of the situation.

[lfctitch]

Thanks for that TTND

---

Haven't been on these boards for the past few days, and I get back and look at what's unfolded.

1. We're in a lot of debt
2. We're paying very high interest

I think the worst thing for me is - if this club isn't sold the media will brandish our club a selling club for the foreseeable future, and whilst that is fine during the close season, when we get back into the new season, and all season long we have stories of Gerrard, Torres, Alonso, Reina, Mascherano all being sold to help the debt, its going to distract us considerably.

The owners cannot keep going with that level of interest, that is for starters. The other question has to be, Why do they want to hang onto us? We're an expensive asset. We need £20+ million a year in transfers to stay in the champions league, and if we're not in it, then we wont be able to pay the interest each year.

I can't understand why they would want to hold onto us seeing those accounts, its incredible.

Will RBS refinance? Will they give them a further few months to find a buyer, only can be speculated.

The only fact so far is these 2 have taken us over, and have just loaded us with debt, and interest payments, and us the fans (no disrespect to Benitez) but we're just expected to roll over and take it.

WHY?

P.S. Time for a statement from SoS if they can pull themselves away from the end of season doo...

[Jack Slater]

And the RBS will appoint either its own board members or CEO to run the club until a prospective buyer is found and is able to settle any outstanding dues and profit RBS might wish to tag on.

It wont be one of their own employees or officers.  They'd appoint a specialist insolvency practioner to be the Administrator. 

The fees of this expert would be met by the insolvent companies.

[ttnbd]

I haven't had chance to have a proper gander at the report yet, but I have discussed it with someone who's very experienced in corporate finance, accounting and audit.

ttnbd, would I be right in saying that these figures show that a further £50m debt has been taken on at the top of the group and passed into Kop Holdings, hence the net debt of near enough £300m as opposed to the bank loan at that level of £245m?

Also, does this mean, that with the debt on LFC standing at £105.5m (although I can't see that in the figures), the total group debt that has to be serviced from LFC revenues is now £400m?

Muchos gracias.

If the enitre £105.5m facility was drawn on and spent it would take group debt upto around £400m with £60m unable to be called in if it renders the group/companies insolvent.

[lfctitch]

It wont be one of their own employees or officers.  They'd appoint a specialist insolvency practioner to be the Administrator. 

The fees of this expert would be met by the insolvent companies.

Do you think Jack in your opinion that there is any chance RBS will give Hicks and Gillett a long term financing agreement?
And if not what does that suggest to you?

[lfctitch]

If the enitre £105.5m facility was drawn on and spent it would take group debt upto around £400m with £60m unable to be called in if it renders the group/companies insolvent.

£400 million debt was about the figure I guessed at last week, depending on how much the £60 million stadium debt had been spent, But didn't we conclude from media reports that only £19 million had been drawn down, thus leaving £40 million roughly?

I can see why they wanted to sell for such high amounts now anyway.

Thanks TTNBD

[Mad Men]

Do you think Jack in your opinion that there is any chance RBS will give Hicks and Gillett a long term financing agreement?
And if not what does that suggest to you?

No. Not unless H&G put up more collateral.

[ttnbd]

Is there any way of knowing which players the fees relate to?

I dont mean the individual price per player  (that would be great, but I'm assuming it's impossible).

I mean is it possible to be certain which signings are included in the total expenditure in these particular accounts?

Included are Leto, Insua, Plessis, Skrtel, Mascherano, Keane, Ngog, Cavalieri and Dossena.  The total would include vat, agent fees and premier league levy.

Only thing I can say is FU.CK.

Can someone, ttnbd in case you're reading, break down what it would cost to purchase the club at zero profit from G&H?

I'm just hoping.....

At the date the accounts are for it would have taken just over £300m (equivalent of net debt and acquisition costs).  That would have repaid inter-company debt and net bank debt.

This year, however, well that's a huge question.  Probably in the region of £350m.

[ttnbd]

No. Not unless H&G put up more collateral.

Exactly, to get long term they'll probably have to pay down atleast 25% of all bank debt, and probably convert the intercompany debt to equity.  That would reduce the debt by £100m+.

[lfctitch]

Exactly, to get long term they'll probably have to pay down atleast 25% of all bank debt, and probably convert the intercompany debt to equity.  That would reduce the debt by £100m+.

Where would they find £100 million+

I thought both Hicks and Gilletts other sports teams that there attempting to sell were also pretty highly loaded with debt? And if these were sold, and if they could scrape together £100 million, how long would that cement our future for?

The other question for me is. If you owned Liverpool football club and you were them, would you stick or twist? (by twist I mean try to sell up asap?)

[Jack Slater]

Do you think Jack in your opinion that there is any chance RBS will give Hicks and Gillett a long term financing agreement?
And if not what does that suggest to you?

They would give (for example) a loan of £380m until July 2011 if and only if they are satisfied that they will get that £380m in full in July 2011.

They would give (for example) a loan of £250m until July 2011 if and only if they are satisfied that they will get that £250m in full in July 2011.

And so on.

It follows that there is likely to be some sum that they will be willing to lend for some period.


I do not think that they will be willing to lend more than is already owed (including not being willing to allow refinancing costs to be added onto what is already owed).



One suggestion (which might just be a wild rumour) that was posted a couple of days ago seems very plausible.

It was that RBS will tell G&H that they will definitely not get a new loan from them.  However RBS would agree not to put the club into administration straight away, and not enforce the personal guarantees straight away.  Instead G&H would have to enter into a collateral agreement  (ie not one which replaces the current loan agreement).  The collateral agreement would provide that the debt must be paid off in accordance with a timetable.  In the event that the timetable is adhered to, all well and good (as far as RBS is concerned).  But if not, then RBS will use the breach of the current loan agreement to enforce the debt, demanding immediate repayment of the full amount (which would mean adminstration for the companies).

Of course, if RBS does go down that route, then the owners have several possibilities:
1.  Fail to meet the schedule, with the consequences mentioned above
2.  Get new borrowing, which they have obviously failed to do so far
3.  Come  up with the cash  by sale of other assets
4.  Come up with the cash by sale of LFC


Choose for yourself which is most likely.  Many people are optimistically assuming that number 4 will happen, and that that will solve are immediate problems.  I wish I could be so optimistic.  But, at the moment, I dont think there is anyone willing to pay the required amount