21 December 2007

Liverpool owners face cash crisis

By David Bond, Chief Sports Reporter
Last Updated: 1:27am GMT 21/12/2007 (The Daily Telegraph)

Liverpool's owners, Tom Hicks and George Gillett Jr, have just over a month to refinance the loans they used to buy the club in a £220 million deal last February.
Although it was previously thought that the £270 million funding package arranged with the Royal Bank of Scotland was due to be repaid two years after they bought the club, The Daily Telegraph can confirm that the loan expires in February 2008, with an option to extend for a further 12 months.
That means the American businessmen are facing a race against time to finalise a new £350 million financial package with RBS and American investment bank Wachovia to pay off their original loans, inject £60 million into the new stadium project at Stanley Park and cover £25 million of credit notes used to buy players.
As revealed by yesterday's Telegraph, a plan to raise a further £300 million to complete the relocation from Anfield to a new 70,000-seater ground has been shelved until 2009 at the earliest. But of far greater concern to Hicks and Gillett is the need to reach an agreement with their bankers for the first phase of the refinancing.
Although RBS could take control of the club if the Americans defaulted on the loan in February, the extension option could give them some extra breathing space. But Hicks and Gillett are keen to conclude a new deal before the existing agreement expires.
City sources added that it was extremely unlikely that RBS would pull the plug on Liverpool, knowing the controversial move would be a public-relations disaster. And despite uncertainty surrounding the future funding of a new stadium, RBS know Liverpool remain a well-run business with an annual turnover in 2006 of £121 million. Qualifying for the group stages of the Champions League has also removed one added financial pressure.
Talks between RBS, Wachovia and the Americans' bankers, Inner Circle Sports, were continuing last night but while both sides remain hopeful of doing a deal, hopes are fading of clinching an agreement before the Christmas break.
Although a spokesman for Hicks and Gillett insisted yesterday that they were working towards announcing a deal in the next 24 hours, one banking source here said confirmation was unlikely to come before Christmas.
The hold-up is understood to have been caused by concerns over Gillett's ability to put up more than £87 million in cash and guarantees to underwrite the new bank financing.
Hicks and Gillett are being asked to pump in £20 million in cash each, along with £75 million in letters of credit and £60 million in personal guarantees. One solution could be for Hicks, the wealthier of the club's chairmen, to help cover Gillett's share of the guarantees.
According to City insiders, another major sticking point has been the owners' plans to load their £270 million acquisition debt on to the club's books. That is believed to have met fierce opposition from some members of the Liverpool board who don't want the club to be used to service the cost of the Hicks and Gillett takeover.
The attempt to load the acquisition debt on to the club's balance sheet is all the more controversial because Gillett and Hicks vowed not to follow the route taken by Manchester United owners, the Glazer family, when they took over last February.
Gillett said at the time: "We have purchased the club with no debt on the club so, in that regard, it is different [to the Glazers]."
An alternative structure is now being worked on which will result in more debt placed on to the club's parent company, Kop Football Ltd. But that has placed extra pressure on Hicks and Gillett to prove they have the money to guarantee the loans.
Liverpool chose to say nothing publicly about yesterday's Telegraph report, but a club source stressed plans for the new stadium would not be blown off course.
The Liverpool source added: "The stadium plans are still on track although, as was stated publicly earlier this week, the design may have to be scaled down in terms of extravagance. There is some tough talking going on between the Americans and the banks but the stadium plan is financially sound."
Liverpool announced earlier this week that the plans for the stadium, unveiled in July, were being scaled back after they came in £50 million over budget.

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