ALK Capital or Farnell/Elkashashy takeover

[NewClaret]

As most suspected would happen, the MSD Holdings loan is now secured over the fixed assets of the club (not the players).

Do we know how much it is for?

[Mala591]

A 2.5% annual interest rate on a £170 million loan is £4.25 million (yes every year). I wonder where this money will come from?

[Chester Perry]

A 2.5% annual interest rate on a £170 million loan is £4.25 million (yes every year). I wonder where this money will come from?

MSD Holdings don't really lend money at single digit rates and the assets of the club are not worth remotely close to that value

I suspect the loan is for less than £40m - hopefully much, much less and I hope it is for a very short period to allow investor money to arrive - not counting my chickens on that one though

[ClaretTony]

I suspect the loan is for less than £40m - hopefully much, much less and I hope it is for a very short period to allow investor money to arrive - not counting my chickens on that one though

I suspect so

[NewClaret]

I suspect so

Any idea when/if we’ll get any information on this CT?

[claretandy]

how thoroughly depressing

Aggi I am not seeing the detail of named assets in question at companies house, do you have any understanding as to just what the loan has been secured against - it may give an indication of the loan size

The turf, and various others.

[Chester Perry]

The turf, and various others.

In essence it is secured against everything at the Turf and Gawthorpe - that suggests it is for a value north of £15m

[KRBFC]

I suspect so

Any news on a press conference scheduled? we haven’t really got any information yet.

[ClaretTony]

Any idea when/if we’ll get any information on this CT?

I wouldn't expect it would be made public

[ClaretTony]

Any news on a press conference scheduled? we haven’t really got any information yet.

Alan Pace did the initial interview. I think it is wait and see how and how often they choose to communicate with the supporters.

[ewanrob]

I'm always fascinated by the differing views on this, especially from those shall we say are in the know with regards, shares, investment, company law etc...youd sort of expect everyone of you to be in agreement, so its slightly alarming that your not.

[aggi]

how thoroughly depressing

Aggi I am not seeing the detail of named assets in question at companies house, do you have any understanding as to just what the loan has been secured against - it may give an indication of the loan size

All the fixed assets of the various entities. It isn't unusual to go for that broad brush approach regardless of the size of the loan though.

[aggi]

I'm always fascinated by the differing views on this, especially from those shall we say are in the know with regards, shares, investment, company law etc...youd sort of expect everyone of you to be in agreement, so its slightly alarming that your not.

There's a whole school of thought on whether debt is a good thing and, if so, how much debt.

Added to that we have no idea how much debt, if any, Burnley are in and what the terms are.

[775claret]

"land to the north and south of Molly Wood Lane, Hampton". Presumably that should say "Hapton", and why would Burnley FC own land there?

That's adjacent to Burnley Bridge Business Park isn't it?

[Chester Perry]

There's a whole school of thought on whether debt is a good thing and, if so, how much debt.

Added to that we have no idea how much debt, if any, Burnley are in and what the terms are.

even Warren Buffet uses debt leverage on his investments, often at a multiple of l.7 or so - and in most forms of business it makes very sound logic - in football it is too easy for something to occur beyond plan and see a very dramatic fall in revenue very quickly to risk such leverage, Covid has only served to increase that risk and uncertainty to my eyes. the there is the added complication of emotional bond with supporters, there is a certain level of surety that they will pick up the pieces and try to regenerate any carcass that may remain if things go wrong, no matter the distress (financial and emotional) it causes them.

[Chester Perry]

"land to the north and south of Molly Wood Lane, Hampton". Presumably that should say "Hapton", and why would Burnley FC own land there?

That's adjacent to Burnley Bridge Business Park isn't it?

there was talk of us moving that way once of time wasn't there

[gandhisflipflop]

Alan Pace did the initial interview. I think it is wait and see how and how often they choose to communicate with the supporters.

Tony, do you see what has been posted today regarding loans against the club as a worry? I’m intrigued to know.

[ClaretTony]

Tony, do you see what has been posted today regarding loans against the club as a worry? I’m intrigued to know.

No I don’t. I don’t think anyone knows any detail to suggest I should be worried.

[Spijed]

There's a whole school of thought on whether debt is a good thing and, if so, how much debt.

Added to that we have no idea how much debt, if any, Burnley are in and what the terms are.

What safety net is there should we be relegated?

[arise_sir_charge]

What safety net is there should we be relegated?

Parachute payments and you’d expect multiple sellable assets in the form of players.

Can I just suggest we all stay calm and wait for more detail. It’s likely that detail will come in time via postings at companies house etc.

As it stands we have no idea how much the loan is, how long it is for or what purpose it is serving.

This is not the first time the club has owed money and I doubt t it will be the last. It’s only for a short period we have had no external debt. One way or another, the way things were progressing we were going to have to take some debt on at some stage.

[Paul Waine]

I'm always fascinated by the differing views on this, especially from those shall we say are in the know with regards, shares, investment, company law etc...youd sort of expect everyone of you to be in agreement, so its slightly alarming that your not.

Hi ewanrob, don't be alarmed at the differing views, we are all looking at this based on our own differing experiences, including making comparisons between BFC and other football clubs.

I don't think BFC is comparable to ManU - smaller club, modest/no international name/brand, limited v global demand for club merchandise, respective trophy cabinet records - all this, and more adds up to a high level of confidence in ManU's ability to generate revenue and meet loan obligations which means ManU can leverage their finances. BFC doesn't have these strengths, so whatever borrowings the club can raise will be low £10s of millions and be short term.

Similarly, I don't think we can raise significant borrowings on the players' contracts. Yes, there are transfer values, but their contracts run down very quickly to only one or two seasons left and what is a player worth if they get an injury - and where do the funds come from to re-build the squad if a player is sold and the money goes to repay loans?

Yes, MSD appears to be one of those non-bank entities that will lend high risk, sub-investment grade - and are not subject to banking capital adequacy regs - but, these types of business don't survive long if they make poor decisions. Whatever they lend against, I'd assume they very heavily "hair cut" the value of the security they take. Barnfield and Turf Moor may be worth £30 million (using a figure quoted above) as football club assets, but if BFC isn't around to use them, where is the other football club that would step in and buy these assets? So, you are looking at alternative use, if planning permission allows. What is the value of Turf Moor land in Burnley after BFC has gone into liquidation? I'm not saying that's where things are heading, just expressing the things a lender would be thinking about before deciding on making a loan.

Of course, there could be other considerations for a lender. They may know who the ALK investors are. They may know their track record in investing. They may even be given financial assurances by ALK and ALK's investors to lend to BFC where any shortfall on BFC assets will be covered by ALK directly.

Just some of my thoughts. I don't think they are definitive. I'm sure there will be stuff that can happen that will surprise me.... however, though I knew what was happening with sub-prime mortgages back in 2005-06 (the years before they blew up) I knew I didn't understand how the banks etc lending the money were taking those risks. Of course, it turned out when everything blew up, whether it was Northern Rock, Nat West/RBS, Lehmans or all the others, the banks (and their regulators) didn't understand what they were doing either and that's why it all went wrong.

Let's see how things turn out. In a few months we may all be a little clearer.

Exciting times.

UTC

[elwaclaret]

Establishing credit lines at the outset of any business is sound practice, it creates not only a buffer in the short term but also increases he credit worthiness of the business going forward.
If the club can show it is a good debtor the levels of available backup increases. Meaning their are additional finance on tap should further expansion require additional short term help.

[CrosspoolClarets]

The question in my mind is, if we have additional expenditure in the form of loan repayments, will income rise by more than this, and if so, how?

Given their background in investment and in scouting / transfer apps, I suspect the intention is for the club to become much more active in the market, buying and selling, making more profits from player sales.

[Paul Waine]

The question in my mind is, if we have additional expenditure in the form of loan repayments, will income rise by more than this, and if so, how?

First question any lender will ask is "what are you planning to do with the money you are seeking to borrow?" The second question is "can you show me how you will generate the income to (a) pay interest when due and (b) re-pay the debt at the end of the loan period?"

Of course, there is uncertainty, so the 3rd question is "what security can you provide for the loan?" and the 4th "How much is the security worth today and how much less will it be worth when I need to sell it to recover my loan to you?

Exciting times.

UTC

[Chester Perry]

Establishing credit lines at the outset of any business is sound practice, it creates not only a buffer in the short term but also increases he credit worthiness of the business going forward.
If the club can show it is a good debtor the levels of available backup increases. Meaning their are additional finance on tap should further expansion require additional short term help.

This is much more than a line of credit, this is a loan secured against all the key assets at the club at what some may refer to as "payday" loan rates - I don't think that they are that but they will be more than 1.5 times typical commercial rates. It all means that the club cannot secure a loan from elsewhere without paying MSD Holdings off in full

- it is not that long ago that the club shut down such it's own credit facility with Barclays because it had not been used for a number of years - you can safely assume that they would be a cheaper route even now.

[brexit]

"land to the north and south of Molly Wood Lane, Hampton". Presumably that should say "Hapton", and why would Burnley FC own land there?

That's adjacent to Burnley Bridge Business Park isn't it?

I think that land was acquired for the international airport when we were in Europe

[elwaclaret]

This is much more than a line of credit, this is a loan secured against all the key assets at the club at what some may refer to as "payday" loan rates - I don't think that they are that but they will be more than 1.5 times typical commercial rates. It all means that the club cannot secure a loan from elsewhere without paying MSD Holdings off in full

- it is not that long ago that the club shut down such it's own credit facility with Barclays because it had not been used for a number of years - you can safely assume that they would be a cheaper route even now.

I would have been really surprised if they had not done this. It transparently demonstrates valuations to investors and offers them peace of mind. APR’s only become a problem when the account is left to run. Should this deficit not be whittled down by next season then I may change my mind... but do not expect I will have anything to worry about. I can see many streams of untapped income coming into the club long before that, the non football potential of Burnley is staggering if you have multiple investors claiming their seat at the table. This will be a great opportunity for a whole host of commercial fields.

I should add I have not taken too long a look at the ins and outs as it is too much like work... but not seen or heard anything that I felt the need to go deeper on yet.

[Vegas Claret]

all this would have been in their business plan, passed as "good or acceptable practice" by both Garlick and the PL. Zero worry from me

[blake's wand]

I don't think there is anything to worry about based on the info so far as many above have said

- corporate loans like this are always secured and always taken over all assets (unless you're a huge plc and there is 0 chance of default). No point just securing one asset of the value of the loan, if you can't sell the asset then you miss out, so they always secure against everything.

- whether we can borrow more money or not depends on terms of the loan. Regardless, any new financing in future would likely to including paying off the previous loan - refinancing these types of things is very common practice

- banks don't lend unless they think they will will get their money back. ALK wouldn't invest if they think we are on very shakey finances.

[Father Jack]

This is much more than a line of credit, this is a loan secured against all the key assets at the club at what some may refer to as "payday" loan rates - I don't think that they are that but they will be more than 1.5 times typical commercial rates. It all means that the club cannot secure a loan from elsewhere without paying MSD Holdings off in full

- it is not that long ago that the club shut down such it's own credit facility with Barclays because it had not been used for a number of years - you can safely assume that they would be a cheaper route even now.

Chester - may be a stupid question but why would ALK not qualify for a commercial rate from a commercial lender?
Assume they went for MSD and a less advantageous APR because there was no other choice?

[aggi]

Chester - may be a stupid question but why would ALK not qualify for a commercial rate from a commercial lender?
Assume they went for MSD and a less advantageous APR because there was no other choice?

Football, unless you're a huge club, isn't viewed as a good credit risk. Teams that get relegated may default so the rates reflect that risk.

I did think that the Barclays facility that Chester referenced was an overdraft rather than loan facility so wouldn't have been cheap but I'm not entirely sure.

[elwaclaret]

Very few banks are willing to offer to football clubs, policy is not set at individual levels. Relegation is too scary. Banks have been burned in the past.

[Chester Perry]

Football, unless you're a huge club, isn't viewed as a good credit risk. Teams that get relegated may default so the rates reflect that risk.

I did think that the Barclays facility that Chester referenced was an overdraft rather than loan facility so wouldn't have been cheap but I'm not entirely sure.

Aggi, that was my understanding too

the thing is that the club should find it reasonably easy to source a facility like that for up to say £20m - it wasn't the club that sourced the finance though, it was ALK and they have little trading history or proof of income to secure such a facility, It may be now that the club has had it's ownership transferred then the loan will be refinanced from a cheaper/more reputable source.

what is still to be established is the purpose and amount of the funds, not forgetting for how long and who will bear the cost of servicing them.

[Nonayforever]

The loan from MSD, whatever the amount and for whatever purpose, is a last ditch desperate loan and should be viewed by everyone as a source of worry not excitement.
The length of time spent negotiating the deal should have excluded the need for such a loan.

[gandhisflipflop]

The loan from MSD, whatever the amount and for whatever purpose, is a last ditch desperate loan and should be viewed by everyone as a source of worry not excitement.
The length of time spent negotiating the deal should have excluded the need for such a loan.

How can it be last ditch if they’ve been in talks for months?

[arise_sir_charge]

The loan from MSD, whatever the amount and for whatever purpose, is a last ditch desperate loan and should be viewed by everyone as a source of worry not excitement.
The length of time spent negotiating the deal should have excluded the need for such a loan.

Nonsense.

[ClaretTony]

The loan from MSD, whatever the amount and for whatever purpose, is a last ditch desperate loan and should be viewed by everyone as a source of worry not excitement.
The length of time spent negotiating the deal should have excluded the need for such a loan.

I can't agree with that at all

[Chester Perry]

I can't agree with that at all

However much I don't like it I was struggling too - though the last line is what my initial reaction was

[Nonayforever]

I hope that i am wrong, and am encouraged that other people see it in a different light. But as an outsider looking at it purely from a business point of view, it is very much a last resort having charges placed against your assets.

[Winstonswhite]

Is it possible they could have borrowed money from one source to get the purchase over the line (similar to a bridging loan) and now they have full ownership they have effectively remortgaged to pay back that borrowed money that was probably at a very poor rate?

[gandhisflipflop]

Is it possible they could have borrowed money from one source to get the purchase over the line (similar to a bridging loan) and now they have full ownership they have effectively remortgaged to pay back that borrowed money that was probably at a very poor rate?

But if these investors are rich people why would they need such a loan in the first place? It is a head scratcher but I do take Mr Pace at face value and i trust that they know what they’re doing

[Rileybobs]

But if these investors are rich people why would they need such a loan in the first place? It is a head scratcher but I do take Mr Pace at face value and i trust that they know what they’re doing

The investors are a private equity firm. The directors aren't 'rich people', in the context of the Premier League.

[Winstonswhite]

A private equity firm that has been running for 14 months originally intending to buy Sheffield United

[scouseclaret]

I hope that i am wrong, and am encouraged that other people see it in a different light. But as an outsider looking at it purely from a business point of view, it is very much a last resort having charges placed against your assets.

There’s nothing “last ditch” about this - it will all be part of the business plan. I certainly don’t buy into the view that this will be a short-term loan to bridge any takeover expenses.

The fact of the matter - uncomfortable for many of us - is that we’ll need to get used to Burnley being run as a “business” rather than a “club”. Taking on debt alongside owners’ equity is all part of the efficient financing of a business- it’s how the owners “leverage” the return of their investment.

The good news is that making a return is largely dependent on the “club” being successful on the pitch. The downside is that the risks of failure are amplified - far greater than when we were debt-free with benign owners.

The takeover may well give us a better chance of sustaining our stay at this level, but in the absence of finding our own mini-Sheikh Mansour, this was always going to be the reality of it. Whether or not ownership structures like this can work in football remains to be seen - they certainly can’t work for everybody!

[RammyClaret61]

Ladies and Gentlemen. The Ranch as been bet!!

[Nonayforever]

Would everyone be whooping and hollering if MG & JB had taken out a massive loan and used the Turf as security ?

[Untinted Glasses]

The deal is done. Shouldn’t you lot just be chilling out now. Your all looking for bad news. There’s nothing at all you can do even if you were to find some. People can never be happy, it’s like your trying to find something to **** you off.

[Father Jack]

From Jack Gaughan - Daily Mirror ref today’s interview:

Pace quote that didn’t get in: “They (MSD Holdings) have no equity and no decision-making power. If you’re going to buy a house, would you not use a mortgage? It’s about choosing the right building society. It’s how we operate. It makes sense to do it in a sound, sensible way.”

[Top Claret]

Would everyone be whooping and hollering if MG & JB had taken out a massive loan and used the Turf as security ?

That is what MG & JB would have had to have done to achieve status quo.

The club could no longer expect to hold Premier league football with the lack of investment coming from the previous board, without raising funds

[Clarets4me]

About 18 months ago, I posted, rather " tongue in cheek " a mock press release from our new 'merican owners, which I can't find ...

" A small rust-belt Town in Lancastershire, England that lost it's industry and jobs but still had it's Soccer team and it's pride ... Pennsylvania, Ohio, Michigan, they've felt your pain, Arkansas, Mississippi, Tennessee and Alabama this is where your Cotton used to go and to any American who ever " pulled for the little guy " anywhere, this is your team !! Now led by " Stone Cold " Sean Dyche, Burnley roster a number of Irish Internationals in their weekly fight against the big guys, think a AA minor-league Ball Club from Billings, Montana taking on the Yankees or the Red Sox every week !!! They've been to the brink and back, " THE BURNLEY CLARETS, " A team for the average Joe !! "

The above is my post from 27th November ..... Here are two quotes from Mr Pace's " Mailonline " interview today ..

" It's our goal to make us England's favourite underdog, we want to take down some of the big boys " ..... " You've got to give people stories to follow, build a connection "

Hmm ....