Friday, June 26, 2009

Liverpool Debt Not A Problem, Say Bankers


The Royal Bank of Scotland has taken the remarkable step of writing to Liverpool supporters to explain its continued financial support for the club's unpopular owners, Tom Hicks and George Gillett.

The bailed-out bank has faced severe criticism from Liverpool supporters angered at plans to extend the Americans' £350m credit facility with the RBS and Wachovia ahead of a 24 July deadline. Fans' protests coincided with revelations that Hicks and Gillett's parent company, Kop Football (Holdings) Limited, suffered a £42.6m loss for the year ending July 2008. However, in a response that effectively confirms the banks are content to refinance again next month, the RBS insists the club is "financially healthy", able to meet its debt obligations "comfortably" and revealed it hopes to continue its relationship with Liverpool "for many years to come".

It also stressed the government does not make commercial decisions for the bank since last year's rescue package. This follows attempts by a local MP, Peter Kilfoyle, to pressure the government into blocking the refinancing deal due to the absence of the proposed new stadium on Stanley Park and the repercussions for the regeneration of the area.

"The club does not suffer the burden of debt implied by a lot of the recent press reports and, in our view and that of the executive management of the club, it is financially healthy and able to service comfortably its debt obligations from cash flow generated by its playing and commercial activities," the RBS explained. "It is in our commercial interest to support the club in the manner described above so that it can continue to perform successfully on and off the pitch."

The debt on the club, according to the RBS, is lower than the debt on the parent company to ensure that Hicks and Gillett are legally responsible for the majority of the loans on Liverpool. Representatives of the Spirit of Shankly supporters group, however, claim a similar situation did not prevent Southampton falling into financial peril. The RBS states Liverpool are legally responsible for loans used to repay the debt Hicks and Gillett inherited following their takeover which, in February 2007, stood at £44.8m. "We took great care when making our original loan in early 2007 and when refinancing it last January to distinguish between obligations of the club and obligations of its parent company, the latter being secured by personal guarantees and collateral from the owners and a pledge of the shares they own in the club," added the bank.

Gillett and Hicks will be asked to increase their personal guarantees under the next refinancing deal, with the former agreeing a £333m deal for his stake in the Montreal Canadiens ice hockey franchise last weekend.

James McKenna, a spokesman for Spirit of Shankly, said: "We have been explaining our stance to the RBS about why they shouldn't refinance with Gillett and Hicks and we are very surprised with their response. We were expecting them to talk behind closed doors but the response gives fans a greater insight into how the debt is structured. Maybe if Gillett and Hicks had been more open the situation might be different, but it appears the only reason the RBS are happy is because of the interest repayments they are getting from Liverpool Football Club. The letter also claims the RBS attaches great value in being associated with Liverpool, but there are not many in Liverpool who want to be associated with Hicks and Gillett."

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