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Interest hike to cost Manchester United an extra 75m

Wed 19th May 2010 | Money & Finance

The interest rate on the loan taken on by the Glazers to fund their investment in Manchester United will rise from 14.25 to 16.25 per cent this August as the club looks set to break financial rules set out in the Payment in Kind agreement.

According to The Times, the rate hike would mean United will owe an extra £75 million in interest on the £138 million loan taken out in 2006. That total will have hit £662.6 million by the maturity date of 2017.

United must keep the debts of its operating company at less than five times the level of their profits before interest under the terms of the PIK notes. Company debt currently stands at £539 million but the club’s profits will result in a shortfall of several million.

Jonathan Moore, an Evolution Securities analyst who covers United’s bond, said: “People knew this [interest rate hike] could happen, but it increases pressure on the Glazers to get money to pay down this PIK debt. And the obvious place for them to find that money is in the club itself.

“The Glazers said in the bond prospectus they could take out a dividend of £70 million. We expected them to do that sooner rather than later and for them to have done it already, although they haven’t told us that yet.”

The two per cent rise will strengthen fears of Manchester United fans that the Glazers will try to pay off the high-interest loans rather than spend money on the team.

The supporters trust led by Goldman Sachs chief economist Jim O’Neill, the Red Knights, is still working on an offer to buy the club.

Meanwhile, a new deal with Chilean winemaker Concha y Toro has brought Manchester United commercial revenue to around £200 million.

This is the fourth deal signed by the club in the last 3 months. The club now have 20 partnership agreements and its commercial revenue significantly grew since the opening of its sales office in London three years ago. 

Amongst the many benefits for Concha y Toro will be digital board advertising at Old Trafford stadium during home games that are televised around the world, advertising space in the Club's own communications media and co-branded marketing communications. The alliance also allows Concha y Toro to have presence with its wines in the stadium's lounges, boxes, bars as well as the possibility to invite its VIP customers to team games.

The official announcement of the partnership will take place in August at a press conference at Old Trafford, where the club will also announce the partnerships with Budweiser and South Korea’s Kumho Tire Co.

"We are proud to welcome Concha y Toro to our family of sponsors. The quality of their products and the synergy of the brands, particularly Casillero del Diablo – mean that they are a natural partner for us to seek. We are particularly excited to work with them to bring the partnership to life for our millions of fans around the world," said Richard Arnold, the club's Commercial Director.

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