Wasps breach agreement with bondholders (1 Viewer)

chiefdave

Well-Known Member
Before this descends in to the usual circular argument this is the relevant bit from the bonds
The valuation of the Arena given by Strutt & Parker for the long leasehold interest as at 23 April 2015 is £48,500,000. This is significantly higher than the valuation in the audited accounts of ACL (see Section 15 (Financial Statements – Annual report and accounts of Arena Coventry Limited for the financial years ended 31 May 2013 and 31 May 2014)) as the ACL accounts value the Arena purely at its historic cost less depreciation, whilst Strutt & Parker make assumptions as to future trading (i.e. Strutt & Parker give the market value). In addition, pursuant to the Conditions of the Bonds, Guarantors and ACL2006 have undertaken that they will together require further independent appraisals of the value of the Arena, together with the current value of the P- Shares, not less than once in each consecutive 24 month period, the first such valuation date to be no later than 30 June 2016.
And from the accounts
The Group revalued the property located at Judds Lane on which the stadium is located during 2015. The revaluation brought the value in the financial statements to £48.5m. Management believe that there is no impairment of this value for 2016.
On the face of it he does seem to have a point as what is in the accounts isn't an independent appraisal. I assume there's an obvious answer though as I can't imagine they've made such a basic error.
 

Rusty Trombone

Well-Known Member
Could the wording of the covenant mean that it's just the guarantors and ACL2006 that are required to be provided with an independant valuation? You would think if one had been done it would have been mentioned though.

I would also imagine the valuer from before would be prepared to keep the valuation the same anyway, it would look as though they don't know what they're doing if they reduce it materially a year later.
 

chiefdave

Well-Known Member
I would also imagine the valuer from before would be prepared to keep the valuation the same anyway, it would look as though they don't know what they're doing if they reduce it materially a year later.
They should have to use a different valuer, that would be interesting.
 

oldfiver

Well-Known Member
Before this descends in to the usual circular argument this is the relevant bit from the bonds

And from the accounts

On the face of it he does seem to have a point as what is in the accounts isn't an independent appraisal. I assume there's an obvious answer though as I can't imagine they've made such a basic error.

Also in Principal Risks:
Strategic Report for the Year Ended 30 June 2016

Valuation of Arena materially lower than revaluation Impact: Asset cover reduced for Bondholders. Mitigation: Use professional valuation companies to provide accurate valuation on a regular basis. Long term contracts and income growth to support valuation

Conflicts with Management believe that there is no impairment of this value for 2016.
 

oldfiver

Well-Known Member
Could the wording of the covenant mean that it's just the guarantors and ACL2006 that are required to be provided with an independant valuation? You would think if one had been done it would have been mentioned though.

I would also imagine the valuer from before would be prepared to keep the valuation the same anyway, it would look as though they don't know what they're doing if they reduce it materially a year later.

Not necessarily so - they can only base it on what the Directors provide at the time. 12 months later and looking forward from there may be totally different
 

oldfiver

Well-Known Member
Could the wording of the covenant mean that it's just the guarantors and ACL2006 that are required to be provided with an independant valuation? You would think if one had been done it would have been mentioned though.

I would also imagine the valuer from before would be prepared to keep the valuation the same anyway, it would look as though they don't know what they're doing if they reduce it materially a year later.
The valuation of the Arena given by Strutt & Parker for the long leasehold interest as at 23 April 2015 is £48,500,000. This is significantly higher than the valuation in the audited accounts of ACL (see Section 15 (Financial Statements – Annual report and accounts of Arena Coventry Limited for the financial years ended 31 May 2013 and 31 May 2014)) as the ACL accounts value the Arena purely at its historic cost less depreciation, whilst Strutt & Parker make assumptions as to future trading (i.e. Strutt & Parker give the market value). In addition, pursuant to the Conditions of the Bonds, Guarantors and ACL2006 have undertaken that they will together require further independent appraisals of the value of the Arena, together with the current value of the PShares, not less than once in each consecutive 24 month period, the first such valuation date to be no later than 30 June 2016.
 

Rusty Trombone

Well-Known Member
Not necessarily so - they can only base it on what the Directors provide at the time. 12 months later and looking forward from there may be totally different
I don't particularly disagree, however in this case I don't see what is totally different, and if they are asking the Directors the outlook will no doubt be very good.
 

chiefdave

Well-Known Member
The valuation of £48.5m has never made much sense to me. Appreciate it is the value of the lease not of ACL but given the price Wasps paid for ACL and the fact adding 200 years to the lease was only worth £1m (and the original lease was something like £24m) its never sat right.

I can't see how that valuation can be correct and the price CCC sold both their shares in ACL and the lease extension standing up to scrutiny.
 

chiefdave

Well-Known Member
One question. How did Higgs sell Wasps a 250 year lease?
They didn't CCC sold their 50% of ACL to Wasps, Higgs sold their 50% of ACL to Wasps and CCC sold a 200 (or probably about 210 given its back up to 250) year lease extension for £1m.

In what I imagine will be the focus of a future thrilling JR the sale of the lease extension was agreed in the same meeting as the sale of the ACL shares. I suspect SISU will argue this means CCC have effectively sold the freehold as the lease is now longer than the stadium lifespan. Think they will argue this was done specifically to avoid regulations around disposal of assets. Regulations which would cover selling a freehold but not selling shares in a company.
 

skybluetony176

Well-Known Member
They didn't CCC sold their 50% of ACL to Wasps, Higgs sold their 50% of ACL to Wasps and CCC sold a 200 (or probably about 210 given its back up to 250) year lease extension for £1m. [QUOTE ]

someone should probably explain that to Les

In what I imagine will be the focus of a future thrilling JR the sale of the lease extension was agreed in the same meeting as the sale of the ACL shares. I suspect SISU will argue this means CCC have effectively sold the freehold as the lease is now longer than the stadium lifespan. Think they will argue this was done specifically to avoid regulations around disposal of assets. Regulations which would cover selling a freehold but not selling shares in a company.

Doesn't that just mean that the council have now just saved the taxpayer millions in future redevelopment costs as this responsibility will fall on the leaseholder not the taxpayer?
 

singers_pore

Well-Known Member
Wasps are going to hit financial problems very soon as I predicted last year. Their losses this year are even bigger than last year. Realistically I don't see any way they can meet the EBITDA covenant which takes effect next year. The ticket revenue figures show that the boost in attendances is largely due to the free ticket giveaways.

I tried to short them already but it's not possible unfortunately. However I would urge any bond holders on here to sell before the price drops. I am confident the price will fall and given the lack of liquidity the drop could be quite large when it happens.
 

oldskyblue58

CCFC Finance Director
Have to say I was expecting to see a formal valuation, which leads me to a couple of questions

- The directors know the bond terms and I assume would take professional advice as to what/when valuation is required annually
- the auditors surely have to consider the value of the Groups largest asset, the assumptions used, and how the principle risk of going concern is affected. Yet there is no mention of the risk in their audit certificate or for that matter a breach of the bond covenants.

That said I am not sure how or what causes the value to drop in 1 year to affect the overall value of the long lease materially, nor that using similar assumptions why a new firm of valuers would not arrive at similar values or why Wasps would not use the same valuers again.

Strutt & Parker are no corner street valuers, https://beta.companieshouse.gov.uk/company/OC334522/filing-history we might not understand the valuation, I don't, but to state it is wrong, over valued, etc on the basis of the little knowledge we have of valuations is in itself incorrect. I am sure SISU will argue the things that CD suggests above, doesn't mean they will win, and is going to depend on the timeline of events and when things were actually created and negotiated to signing rather than an intention that will decide it

I would like the non valuation of the lease explained clearly, and confirmation given as to when a formal valuation will be done. I suspect that Mr Reid will not get direct replies to his questions though, does he have any professional relationship with those in charge at Wasps to be able to get them?.

The bond price has dropped yes but seems to have levelled out over the last couple days. Still trades at a premium of 7% though

Think many agreed on another thread that we wont see where this is heading for another year or so. Will wait and see I think, we do not know what is in the pipeline in terms of income streams and potential cost savings. I would think the recent release of share premium on IEC Experience Limited has something to do with hitting bond covenant targets. There are some costs to save but equally it would seem additional costs to add in on the wages side (however it seems the playing squad has been trimmed in numbers from 57 in the accounts to a suggested 40 according to the wasps director of rugby)

Not sure how they hit the EBITAD - but not my problem really. If Wasps, with two major sports teams there, cant make it work at the Ricoh could anyone else given current circumstances with only one sports team?

Ticket incomes. Undoubtedly there are free tickets, yes the rise in ticket income does not match the rise in numbers. However in 2015 accounts ticket income was £2,639,738 an increase of 19% takes that figure up to £3.14m in 2016 (CCFC 2015 matchday income was £1.797m). Per head it was 2015 approx. £15.40 in 2016 £12.40 (CCFC in 2015 £8.40)

Important year ahead for Wasps Group and they cant miss the targets. Personally not going to lose much sleep over it and wait to see what happens. In the mean time fingers crossed CCFC's fortunes improve during that time
 
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Nick

Administrator


It reads to me that further independent appraisals aren't the same as the original one?

Why set a deadline for one they had done already?

Can anybody clear that bit up?
 

chiefdave

Well-Known Member
Not sure how they hit the EBITAD - but not my problem really. If Wasps, with two major sports teams there, cant make it work at the Ricoh could anyone else given current circumstances with only one sports team?
Think the key to that would be debt. ACL starting from zero is an easier proposition to make work that loading huge debts against it, in part to pay Wasps owner back.
 

oldskyblue58

CCFC Finance Director
Why would it be zero, would the new owner not have to buy the assets? how would that be funded and where would the interest be charged?

If the new owner was CCFC or some SISU entity would they not have to start paying interest on new and existing debt ?

Would an entertainment venue not be of interest to other entities other than CCFC/SISU? Is it the Rugby wage bill that drags the Wasps Group results down as well as transition and interest costs?

Its not straight forward
 

Nick

Administrator
Why would it be zero, would the new owner not have to buy the assets? how would that be funded and where would the interest be charged?

If the new owner was CCFC or some SISU entity would they not have to start paying interest on new and existing debt ?

Would an entertainment venue not be of interest to other entities other than CCFC/SISU? Is it the Rugby wage bill that drags the Wasps Group results down as well as transition and interest costs?

Its not straight forward
What do you make of the valuation agreement date?
 

chiefdave

Well-Known Member
Why would it be zero, would the new owner not have to buy the assets? how would that be funded and where would the interest be charged?

If the new owner was CCFC or some SISU entity would they not have to start paying interest on new and existing debt ?

Would an entertainment venue not be of interest to other entities other than CCFC/SISU? Is it the Rugby wage bill that drags the Wasps Group results down as well as transition and interest costs?

Its not straight forward
Maybe I have misunderstood you. I thought you were saying if Wasps couldn't make it work with 2 teams playing there then nobody could but isn't the problem that as soon as Wasps got through the door they took out £35m of debt? Doesn't that mean they now need to generate much more in order to repay the debt and also have to meet certain targets to avoid defaulting?

Surely if Wasps fail, and the company goes bust, the new owner won't have to pay off their bonds?
 

Nick

Administrator
Maybe I have misunderstood you. I thought you were saying if Wasps couldn't make it work with 2 teams playing there then nobody could but isn't the problem that as soon as Wasps got through the door they took out £35m of debt? Doesn't that mean they now need to generate much more in order to repay the debt and also have to meet certain targets to avoid defaulting?

Surely if Wasps fail, and the company goes bust, the new owner won't have to pay off their bonds?

Isn't it secured on the least though? Or whatever it is secured on?
 

oldskyblue58

CCFC Finance Director
If Wasps went bust the administrators would have to sell the assets to repay the creditors. The lease reverts to the outstanding time on the original term. That means the lease has some value and could be sold to the highest bidder (not necessarily CCFC/SISU). That means financing a purchase of assets and that will surely lead to interest charges on loans which would become debt burden so ACL not starting from zero

Wasps didn't create 35m in debt when they came in £24m of debt already existed in either the Wasps figures or ACL's. They swapped £24m around. Of the 11m left that actually increased the debt burden they spent at least £6m on fixed assets that enhanced the lease

No the new owner wont have to pay the bonds unless they choose to in the deal with administrators
 

Nick

Administrator
If Wasps went bust the administrators would have to sell the assets to repay the creditors. The lease reverts to the outstanding time on the original term. That means the lease has some value and could be sold to the highest bidder (not necessarily CCFC/SISU). That means financing a purchase of assets and that will surely lead to interest charges on loans which would become debt burden so ACL not starting from zero

Wasps didn't create 35m in debt when they came in £24m of debt already existed in either the Wasps figures or ACL's. They swapped £24m around. Of the 11m left that actually increased the debt burden they spent at least £6m on fixed assets that enhanced the lease

No the new owner wont have to pay the bonds unless they choose to in the deal with administrators

Are there any risks in not doing the valuation? Or is just down to the bond owners to judge for themselves?
 

oldskyblue58

CCFC Finance Director
Just to muddy the waters a little more. Wasps Finance PLC accounts for 2016 are here

https://beta.companieshouse.gov.uk/company/09435073/filing-history

Wasps Finance are the company that issued the bonds then lent the proceeds to Wasps Holdings. Wasps Finance PLC are not part of Wasps Holdings, it is owned directly by Moonstone Holdings

The prospectus was issued by Wasps Finance PLC

From the directors report

upload_2016-11-9_13-49-8.png
 
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oldskyblue58

CCFC Finance Director
Failing to meet the covenants could be serious Nick.

The bondholders make their own individual minds up as to value of the bonds they hold and sell or retain accordingly

I expected a valuation 30-06-2016 it seems that from my last post it might not be the case
 

Captain Dart

Well-Known Member
And in English?
 

Nick

Administrator
Failing to meet the covenants could be serious Nick.

The bondholders make their own individual minds up as to value of the bonds they hold and sell or retain accordingly

I expected a valuation 30-06-2016 it seems that from my last post it might not be the case

Surely the one on the prospectus to the bond buyers would be the one needed? Unless there is a date mixup on one of them?

No use them putting it on a director's report it's 2017 if they have 2016 on the prospectus. That doesn't specifically mention valuations being done for that though, like the prospectus does? It just says it has to be at that value.

Whereas the other says a valuation would be done by a specific date.
 
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