LONDON May 21 Closely watched plans by British soccer club Manchester United to borrow against future ticket sales could be scrapped in favour of more flexible debt options, a person familiar with the situation said on Monday.
The top club in England's Premier League has appointed Royal Bank of Scotland (RBS.L) and Deutsche Bank (DBKGn.DE) to start working on a securitization, or the wrapping of its 663 million pounds ($1.31 billion) of debt into a bond, using future ticket sales as collateral.
But now, Manchester United and the controlling Glazer family, is also considering a quick leveraged recapitalization, similar to the one it carried out last August, under which the most expensive debt tranches would be eliminated, increasing senior debt, the source said.
"Securitization is cheaper, but it has less flexibility than bank debt," said the source, who requested anonymity.
A securitization can place more restrictions on how a company operates than bank debt and may be easier to negotiate with bank lenders than bondholders, if necessary. Securitizations also generally have longer maturities than bank debt.
The change in capital structure is aimed at reducing the hefty interest costs that came with the loans that financed Malcolm Glazer's 790-million pound acquisition in 2005.
Manchester United's 150 million pound second-lien debt tranche costs as much as 500 basis points above the London Interbank Offered Rate (Libor), while the 375 million pounds of senior debt cost between 212.5 and 275 basis points above Libor.
German club Schalke 04 recently signed a debt deal costing just 160 basis points above Libor, another source familiar with the deal said.
Manchester United also has 138 million pounds of PIK notes, which charge a stinging 14.25 percent fixed interest rate. This tranche was reduced last year from 338 million pounds.
A decision may be taken soon, although talks between the club and its financial advisers about a securitization are proceeding, the source said.
Manchester United declined to comment.
The Manchester United securitization, which is being closely watched by other clubs, could be the catalyst for other similar transactions, bankers say, as investor appetite for soccer financing deals increases. The Premier League has doubled its sales to 2 billion euros in five years, with matches being broadcast in more than 200 countries.
US corporate giant General Electric Co (GE.N), whose finance unit has over $230 billion assets under management, recently said it would beef up its presence in European soccer deals.
Clubs are increasingly in need of financing as they build new stadiums and face soaring players' salaries.