Back in May, the Arsenal Supporters’ Trust (AST) war-gamed a few scenarios that would allow Arsenal to access more cash to help cover short-term costs at a time when matchday revenue has fallen off a cliff and other income is likely to be affected.
Financial expert Nigel Phillips outlined that Stan Kroenke could:
- inject funds as a loan (to be paid back)
- guarantee an increased overdraft or loan facilities from existing lender Barclays or a new lender(s)]
- issue a new equity
- raise third-party funds be selling a portion of the club to raise extra cash
He’s going to restructure the £144 million of debt still owed to bondholders. Yes, contrary to what some people wish to believe, our stadium debt has not been paid off!
Let’s rewind a bit…
On completion of Emirates Stadium in 2006, we refinanced loans used to pay for its construction. £260 million of ‘credit wrapped bonds’ were issued to financial investors as follows:
- £210m of fixed rate bonds – annual interest rate 5.14%, to be fully repaid by 2029
- £50m of floating rate bonds, with the interest rate now fixed at 5.97% annually, with final maturity in 2031.
While a solid decision at the time, by today’s standards, those interests rates are very high. If only we’d known the world was teetering on the precipice of a financial meltdown!
Anyway, £144 million of the £260 million still needs to be repaid.
From what the AST can tell, Kroenke has decided to pay off the outstanding money. In doing so before the terms of the original agreement (2029 and 2031) he’ll also have to cover an additional £40 million penalty.
So Kroenke in total is paying off £184 million. Lovely.
However, and we can’t stress this enough, Arsenal will still have to pay off this outstanding debt.
Why? Because Kroenke himself is borrowing money to cover his Arsenal commitment.
He might be loaded, but he’s not so loaded that he buys everything upfront and cash in hand. For example, when he bought out Alisher Usmanov’s shares in 2018 to secure sole ownership of the club, he took a £505 million loan with Deutsche Bank to do so.
When you chuck in the latest commitment, he’s nearly £700 million in the hole.
So how will Arsenal pay Stan the £184 million? Well, Stan basically agrees a repayment plan with himself on more favourable interest rates, more aligned to the current market rate.
The AST estimate that Arsenal should save roughly £20 million a year in capital and interest repayments as a consequence of lower interest.
There will still be interest to pay, we’re just not sure how much and whether it will kick in immediately. Either way, we’ll save some money.
The other benefit of the club owing the money to Stan is that we’ll free up some of our cash reserves. Under the old agreement, we had to keep back £36 million in a bondholders’ debt service reserve account. We’ll now be able to access this £36 million to help cover the costs of running the club.
To give you some context Arsenal’s wage bill is around £232 million a year (probably slightly lower now thanks to those pay cuts). This money should keep us going for a couple of months at a time when we’d usually have an influx of season ticket cash.
As the AST is keen to point out, this debt restructuring process is not going to be a major game-changer (we’re not suddenly Man City or even Chelsea) but there should be some immediate benefits. Which is a relief because without Champions League football and Covid-19 we’re pretty exposed on the financial front.
One final thing. Unless Stan and KSE decide to go public on the terms of the loan, we may have to wait until the end of February 2022 – when the accounts for the year up to 31 May 2021 will be due – to get a clearer understanding.
Big thanks to the AST for their analysis which basically informed this entire piece. You can learn more about their important work and sign up as a member, here.