Club aims to raise £35m from bond (14 Viewers)

[SkyBlue_Bear83]

Fantastic News - http://www.coventrytelegraph.net/news/coventry-news/wasps-rfc-looks-raise-35million-9121703

Copy and Paste Article.

No mention of it paying Richardson back too?

The Richardson bit is there hidden as 'refinancing shareholder loans' I believe

Sounds better than Richardsons back pocket I guess, wouldn't want to turn anyone against Wasps

 

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[torchomatic]

Ah, it's like one of those dodgy endowment mortgages from the 80's then?

I believe the idea is you get an annual return which is greater than you would get from any offering where you were guaranteed to not lose your money.

I assume they are actually offering ACL but making it sound like the Ricoh as bricks and mortar offer more security than a failed company would be. I'm sure the council would have taken steps to ensure finance couldn't be raised against the Ricoh itself or the lease :thinking about: Presumably if it goes tits up and you can't cash out your bond, or whatever it is you do to get your initial stake back then ownership would change hands or they'd have to raise further cash to pay back the initial bond.

 

[Sbarcher]

Hmmm - plenty of money in the kitty to buy CCFC!

 

[torchomatic]

They don't actually own the Ricoh, do they? So why can they use it as security?

 

[Moff]

Oooooo. Another smoking gun. I'm salivating.

Bloody hell Tony you use this tired old line more than Les Reid. Time to change you Crackers and get a new joke.

 

[Moff]

It amazes me the BBC have written such a gushing article, without really looking into the finer points of the deal.

They seem to ignore that the 35m is being used to service a lot of debt, and that it will have to be paid back with interest, but hey why let the facts get in the way of a story that wasps will be the richest clube in the world...well if you ignore there huge pile of debt.

 

[Noggin]

Ah, it's like one of those dodgy endowment mortgages from the 80's then?

It's a bond, a loan basically, if you buy £1000 worth of Wasps (or any other company or government bond) you will be lending the company £1000, in return you will receive interest at the rate they set out (in this case 6.5%) and you will get your £1000 back in 7 years time (in this case, bonds can be any specific length). If you want your money before then you would need to sell your bonds to someone else (which is easy to do at a stock broker), the value of these bonds will change based on how risky people think they are and the interest rate (of the country) and predicted interest rate (of the country) (because while the bank of interest rate is 0.5% a bond paying 6.5% sounds good, if the bank of england interest rate rose to say 7% then the bond would be worth less because it has risk and is generating income at a lower level than a safe bank account, it would still pay the holder £1000 at the end of the 7 years though).

There is nothing abnormal about this, this is how many companys raise capital, it's also how the government borrows money to run the country, government bonds though will pay a much much lower amount of interest because while there is a reasonable chance acl go bust, the chance of the country going bust is tiny.

for the most part bonds are often safer and less volatile than shares

I think this shows very strongly (especially if they actually manage to sell all the bonds) that the new council loan was an excellent deal for the council at 11% interest and is much better than commercial rates for the amount of risk. (just to be clear that is not the same as saying selling the ricoh was an excellent deal for the council, I believe wasps got it cheap)

I won't be investing though I'd want more interest than 6.5% to justify the risk.

 

[luwalla]

SISU should snap a load of these up.. it will be the best investment they have made since they came here, and surely the only way they are going to see any kind of return !

 

[Captain Dart]

Some interesting(?maybe?) figures in the prospectus, needs OSB to have a look at really, shows that ACL also made a loss for the six months to Nov 14. The money they raise from the bond will repay the Council, and up to £10m to repay loans given by Richardson, some other loans £4m, and then fund ACL running costs and wasps running costs.

Of course repaying the £14m council loan immediately reduces cash outflow, which is probably about half the money they need to generate at a stroke.

No guarantees they'll sell all these bonds, they are not Post Office shares you know!

* Not half, the £10M payback to Derek Richardson scuppers that!

 

[Noggin]

If you were a potential investor alarm bells would ring straight away. They say they will pay back the bond in 5 years but need the cash to cover the running of ACL and Wasps for the next few years. Unless I'm missing something obvious (which is quite possible!) doesn't that require them to average £5m profit a year for the next 5 years just to pay back the bonds?

7 years but no the plan certainly won't be to to save up 35 million to give back to people in 7 years time, it will be to lower running costs, and build the business, the plan being for it to be worth more in 7 years than now then they will refinance, ie borrow to pay back the original people.

This is how the country (the actual country) finances everything with bonds (called gilts) the country is in debt to the tune of over 1 trillion pounds and running at a massive loss (the deficit) but they will still easily be able to lend to people and pay back other lenders.

 

[duffer]

£35m at £2,000 each would require 17,500 investors. That's a bit of a stretch, I'd say. I know there are a fair number of people who are happy to go and watch Wasps for free, or even for £15 a ticket - but asking people to put their hands in their pockets for £2,000 might be going a bit far.

I think the claim that the investment is secured against the Ricoh arena is a bit weak too - Wasps don't own the Ricoh Arena, and presumably if ACL becomes insolvent the lease reverts to the Council (at least that's what's we'd expect the Council to have agreed). What kind of security is that?

At 6.5%, Wasps will have to service this debt to the tune of £2.3m per year - and this for a company that can't show an operating profit but is entirely reliant on handouts from the owner. I'm guessing the owner would like some of his money back now, which again runs counter to what many have purported here.

This, to me, shows that Wasps aren't that far removed from the wide boys that own CCFC.

Is anyone who supports Wasps here prepared to put their money where their mouth is, and buy one of these bonds?

 

[Captain Dart]

It amazes me the BBC have written such a gushing article, without really looking into the finer points of the deal.

They seem to ignore that the 35m is being used to service a lot of debt, and that it will have to be paid back with interest, but hey why let the facts get in the way of a story that wasps will be the richest clube in the world...well if you ignore there huge pile of debt.

A bit like Man Utd then

 

[ccfcway]

Advert in the telegraph telling everybody to invest?

is it on the back page like the ad for Crewe tickets for CCFC game ?

 

[torchomatic]

Duffer, yes that was a point I raised earlier in the thread; they don't own the Ricoh.

 

[Captain Dart]

£35m at £2,000 each would require 17,500 investors.

Or half a dozen crazy arse hedge funds at £6M each.

 

[duffer]

7 years but no the plan certainly won't be to to save up 35 million to give back to people in 7 years time, it will be to lower running costs, and build the business, the plan being for it to be worth more in 7 years than now then they will refinance, ie borrow to pay back the original people.

This is how the country (the actual country) finances everything with bonds (called gilts) the country is debt to the tune of over 1 trillion pounds and running at a massive loss (the deficit) but they will still easily be able to lend to people and pay back other lenders.

C'mon Noggin - there is absolutely no comparison here. The UK is a sovereign state capable of printing its own money, and borrowing further funds at very low rates. There's little to no risk in government backed Gilts, which is why pretty much every western economy runs this way. The complexities of public economies are also nothing like household budgets, before we get into perpetuating that lazy myth.

Wasps is a private company, making a public offering. As a private company, it has been running at a significant operating loss. Indeed without substantial investment from a single individual, it would be insolvent at this moment in time. The security it offers for the bond is not bricks and mortar in terms of a freehold, but a lease that would revert to a third-party in the case of insolvency.

The terms of the bonds are that they "pay a fixed gross rate of interest of 6.50% per year until 2022". There is no evidence that Wasps will be able to borrow elsewhere to service these ongoing debts, unlike the UK economy.

Since it's such a good deal, will you be buying one of these bonds?

 

[duffer]

Or half a dozen crazy arse hedge funds at £6M each.

Which is about as likely as 17,500 investors at £2,000.

 

[Noggin]

£35m at £2,000 each would require 17,500 investors. That's a bit of a stretch, I'd say. I know there are a fair number of people who are happy to go and watch Wasps for free, or even for £15 a ticket - but asking people to put their hands in their pockets for £2,000 might be going a bit far.

or one investor at £35million, they don't need 17k people, nore do people need to have any affiliation to wasps in the slightest, if the market thinks the bonds are fairly priced then they will sell them easily, if not then they won't. There might be a few people to take up this offer because they are wasps fans but that isn't sensible investing. You won't be owning any of wasps by doing this so it doesn't even have the emotional attraction of buying some of your own clubs shares and owning a peice of your club.

I think the claim that the investment is secured against the Ricoh arena is a bit weak too - Wasps don't own the Ricoh Arena, and presumably if ACL becomes insolvent the lease reverts to the Council (at least that's what's we'd expect the Council to have agreed). What kind of security is that?

ACL have the ricoh arena for 250 years which for the most part is as good as freehold (other than things like ground rents) and potentially needing permission for certain things. If ACL go bust today sure the council would likely get the leasehold (because they have a secured loan against it) once these bonds are issued that loan will be gone, the council would have no claim on the leasehold if ACL go bust, the ricoh would need to be sold to repay the bond holders.

At 6.5%, Wasps will have to service this debt to the tune of £2.3m per year - and this for a company that can't show an operating profit but is entirely reliant on handouts from the owner. I'm guessing the owner would like some of his money back now, which again runs counter to what many have purported here.

Yes they will (though half of that is already being paid with the loan to the council) and they quite possibly have other debts that are accruing interest. They obviously plan to build the buisness, doable? no idea, nore do I care honestly, I've not even read the prospectus.

Is anyone who supports Wasps here prepared to put their money where their mouth is, and buy one of these bonds?

You really shouldn't let your emotions run your investments. I won't be investing though I would have done at 11% like the council. (just to be clear I'm not a wasps fan, I don't care at all how they do, if anything a slight preference towards failure)

 

[Nick]

How can the ricoh be sold if they don't own it?

 

[chiefdave]

ACL have the ricoh arena for 250 years which for the most part is as good as freehold (other than things like ground rents) and potentially needing permission for certain things. If ACL go bust today sure the council would likely get the leasehold (because they have a secured loan against it) once these bonds are issued that loan will be gone, the council would have no claim on the leasehold if ACL go bust, the ricoh would need to be sold to repay the bond holders.

Surely even our council are not dumb enough to have forgotten to put a clause in the lease that should an insolvency event occur the lease reverts to the freeholder?

 

[duffer]

or one investor at £35million, they don't need 17k people, nore do people need to have any affiliation to wasps in the slightest, if the market thinks the bonds are fairly priced then they will sell them easily, if not then they won't. There might be a few people to take up this offer because they are wasps fans but that isn't sensible investing. You won't be owning any of wasps by doing this so it doesn't even have the emotional attraction of buying some of your own clubs shares and owning a peice of your club.



ACL have the ricoh arena for 250 years which for the most part is as good as freehold (other than things like ground rents) and potentially needing permission for certain things. If ACL go bust today sure the council would likely get the leasehold (because they have a secured loan against it) once these bonds are issued that loan will be gone, the council would have no claim on the leasehold if ACL go bust, the ricoh would need to be sold to repay the bond holders.



Yes they will (though half of that is already being paid with the loan to the council) and they quite possibly have other debts that are accruing interest. They obviously plan to build the buisness, doable? no idea, nore do I care honestly, I've not even read the prospectus.



You really shouldn't let your emotions run your investments. I won't be investing though I would have done at 11% like the council. (just to be clear I'm not a wasps fan, I don't care at all how they do, if anything a slight preference towards failure)

If ACL go bust, I would imagine the leasehold reverts to the Council whether or not the loan is paid. That's the standard process with commercial leases.

As you've said, the bond is a poor deal. If it doesn't come off you have to wonder how much of a risk Wasps are to the Council's £14.4m.

 

[Noggin]

C'mon Noggin
- there is absolutely no comparison here. The UK is a sovereign state capable of printing its own money, and borrowing further funds at very low rates. There's little to no risk in government backed Gilts, which is why pretty much every western economy runs this way.

you are trying to have an argument where none is needed, I had already said how lending to wasps is a massively higher risk than lending to the government, I was trying to explain his misconception that wasps were going to need a profit of 5mill a year in order to pay back these bonds which certainly won't be the plan, even if they did make that profit it's extremely unlikely they would just run up a bank account up to 35mill to pay people back. They will invest the money, build the business and then borrow again in 7 years at a lower rate if things go well and higher if they don't or they will go bust.

Since it's such a good deal, will you be buying one of these bonds?

I'd already said I wouldn't be and that I thought the risk was to great for the interest rate (which infers I don't think its a good deal)

as for your other point I answered that in my previous post but you won't have seen it before writing this one.

 

[Noggin]

Surely even our council are not dumb enough to have forgotten to put a clause in the lease that should an insolvency event occur the lease reverts to the freeholder?

If ACL go bust, I would imagine the leasehold reverts to the Council whether or not the loan is paid. That's the standard process with commercial leases.

As you've said, the bond is a poor deal. If it doesn't come off you have to wonder how much of a risk Wasps are to the Council's £14.4m.

Thats not standard process at all, the lease is an asset of acl (their primary asset) and would be sold if acl go bust. We own multiple flats long leasehold, if we went bankrupt they would be sold to repay the mortgages, they certainly wouldn't return to the freeholder, the freehold for the property our flats are in is worth about 10 grand, the flats are worth a couple of mill (not suggesting I have millions in flats if thats how it reads, thats the total value of the flats in the building)

I haven't actually said it's a poor deal, I'm not equipped to properly evaluate something like this, nore have I bothered to read the prospectus to even be fully informed.

 

[Ashdown]

I'm not but one of the recurring themes whenever SISU owning the Ricoh was ever mention was that there was no way it should be allowed as they'd go straight out and try and raise finance against it.

Wasps have had the Ricoh less than 12 months and they're trying to raise £35m against it. No doubt if it was SISU the forum would be in meltdown by now.

Can we just make one thing clear.............most people didn't want a Mayfair hedge fund owning the Ricoh anymore than they wanted A bloody Maltese based hedge fund owning it. Either way I can/could have seen the football club getting royally shafted by both. The only thing that should matter is how the football team comes out of it all and by that I generally mean, their ability to compete on the pitch !

 

[MusicDating]

Risks relating the head lease of the Arena granted to ACL2006

Under the terms of the head lease granted by Coventry City Council (“CCC”) to Arena Coventry (2006)Limited (“ACL2006”) in respect of the Arena (the “Head Lease”), CCC have reserved the right to forfeit theHead Lease if ACL2006 becomes insolvent. Insolvency in this scenario means a situation where ACL2006becomes unable to pay its debts, has a receiver/administrator/provisional liquidator appointed over its assets,has assets seized in order to pay debts of ACL2006 or has a winding-up order made against it. The effect offorfeiture would be that the 250 year Head Lease would fall away and that ACL would then become the tenantof CCC at the Arena for the remaining 38 years of its existing lease.

P22 http://www.wasps.co.uk/docs/default-source/default-document-library/wasps_prospectus2.pdf?sfvrsn=2

 

[chiefdave]

Thats not standard process at all, the lease is an asset of acl (their primary asset) and would be sold if acl go bust. We own multiple flats long leasehold, if we went bankrupt they would be sold to repay the mortgages, they certainly wouldn't return to the freeholder, the freehold for the property our flats are in is worth about 10 grand, the flats are worth a couple of mill (not suggesting I have millions in flats if thats how it reads, thats the total value of the flats in the building)

I don't think I've ever had a business lease that has allowed me to transfer ownership of the lease without the freeholders permission. When I've sold a business with a lease I've had to get it signed off by the freeholder and if any of my businesses had gone bust it wouldn't have ended up in the hands of the administrator. Don't think its that unusual and certainly something I would expect to be in place for an asset like the Ricoh lease.

 

[Grendel]

I don't think I've ever had a business lease that has allowed me to transfer ownership of the lease without the freeholders permission. When I've sold a business with a lease I've had to get it signed off by the freeholder and if any of my businesses had gone bust it wouldn't have ended up in the hands of the administrator. Don't think its that unusual and certainly something I would expect to be in place for an asset like the Ricoh lease.

Yes that's exactly the same experience I've had as well.

 

[torchomatic]

Seems Les was spot on then:

INDEBTED rugby club Wasps want to raise up to £30million including in loans from ordinary fans - partly to pay back a taxpayer loan from Coventry City Council, the Observer understands.
Our council sources say councillors have been briefed by senior council officers on Wasps' latest proposals to raise loans from a mixture of institutional investors, and fans - through a 'retail bond' scheme.
The 'retail bond' scheme would invite ordinary people, fans and possibly local companies to invest money as an "I owe you", with the expectation it would be returned by Wasps at some point in future.

 

[chiefdave]

So basically the security is about as useful as an IOU from Joy.

 

[Noggin]

Risks relating the head lease of the Arena granted to ACL2006

Under the terms of the head lease granted by Coventry City Council (“CCC”) to Arena Coventry (2006)Limited (“ACL2006”) in respect of the Arena (the “Head Lease”), CCC have reserved the right to forfeit theHead Lease if ACL2006 becomes insolvent. Insolvency in this scenario means a situation where ACL2006becomes unable to pay its debts, has a receiver/administrator/provisional liquidator appointed over its assets,has assets seized in order to pay debts of ACL2006 or has a winding-up order made against it. The effect offorfeiture would be that the 250 year Head Lease would fall away and that ACL would then become the tenantof CCC at the Arena for the remaining 38 years of its existing lease.

P22 http://www.wasps.co.uk/docs/default-source/default-document-library/wasps_prospectus2.pdf?sfvrsn=2

Thanks, that does change things and certainly makes the bonds look worse. A 38 year lease is certainly worth significantly less then a 250 year one and is alot harder to borrow against.

 

[Noggin]

Seems Les was spot on then:

INDEBTED rugby club Wasps want to raise up to £30million including in loans from ordinary fans - partly to pay back a taxpayer loan from Coventry City Council, the Observer understands.
Our council sources say councillors have been briefed by senior council officers on Wasps' latest proposals to raise loans from a mixture of institutional investors, and fans - through a 'retail bond' scheme.
The 'retail bond' scheme would invite ordinary people, fans and possibly local companies to invest money as an "I owe you", with the expectation it would be returned by Wasps at some point in future.

I don't think anyone disputed that he was right with that article did they? it's an article full of shocking bias again which spoiled what would otherwise been an interesting exclusive.

 

[torchomatic]

You're mistaken.

I don't think anyone disputed that he was right with that article did they? it's an article full of shocking bias again which spoiled what would otherwise been an interesting exclusive.

 

[Noggin]

So basically the security is about as useful as an IOU from Joy.

No, but it's definatly worse than the 250 lease, here is the full paragraph.

Under the terms of the head lease granted by Coventry City Council (“CCC”) to Arena Coventry (2006)Limited (“ACL2006”) in respect of the Arena (the “Head Lease”), CCC have reserved the right to forfeit theHead Lease if ACL2006 becomes insolvent. Insolvency in this scenario means a situation where ACL2006becomes unable to pay its debts, has a receiver/administrator/provisional liquidator appointed over its assets,has assets seized in order to pay debts of ACL2006 or has a winding-up order made against it. The effect offorfeiture would be that the 250 year Head Lease would fall away and that ACL would then become the tenantof CCC at the Arena for the remaining 38 years of its existing lease. However, the right of CCC to claimforfeiture of the Head Lease is not an automatic right. If CCC made a claim for such forfeiture, this could becontested by ACL2006, any third party that held security over ACL2006 and any subtenants of ACL2006 bymaking application to a court in England. Further, if an administrator was to be appointed over the assets ofACL2006, then CCC would not be able to forfeit the Head Lease without the consent of the appointedadministrator or with the leave of the courts.If forfeiture was to take place prior to maturity of the Bonds, then U.S. Bank Trustees Limited, the entity thatwill hold the security on behalf of Bondholders, may not be in a position to assign the Head Lease for value inthe event CCC forfeited the lease as described in the preceding paragraph. This may have an impact on theBondholders’ ability to receive full repayment of their investment in the Bonds on the occurrence of such aninsolvency event.

 

[Noggin]

You're mistaken.

Fair enough if people thought he was wrong that there was going to be a bond issue they were mistaken but I thought it was common knowledge since that article that this is what was happening? or do you mean I'm mistaken that its full of bias?

 

[torchomatic]

No, the former. And to be honest it no more biased that any of Simon's articles of Wasps, which are...well...incredibly biased.

Fair enough if people thought he was wrong that there was going to be a bond issue they were mistaken but I thought it was common knowledge since that article that this is what was happening? or do you mean I'm mistaken that its full of bias?