Financials 17/18

[hellava_tough]

As DM has constantly mentioned, there is also Phase 3 of the stadium project yet to be completed; the hotel and housing developments.

Presumably this will also give us a chunk of cash to pay off our debts with?

 

[worcestersauce]

Anyone know what this was for, was it the training centre hotel? Seems a lot if it was (Page 28)

In May 2017 the Group agreed a letter of credit facility of £50,000,000 with an ENIC Group company. Associated arrangement costs of £594,000 are being amortised over the availability period of the facility, which expires in August 2022.

Isn't a letter of credit facility of £50,000,000 different to loan of £50,000,000?

 

[Led's Zeppelin]

Isn't a letter of credit facility of £50,000,000 different to loan of £50,000,000?

It’s a guarantee that can be used to secure borrowing, so the end effect is the same.

 

[worcestersauce]

It’s a guarantee that can be used to secure borrowing, so the end effect is the same.

But until we borrow something it isn't a loan is it? More a line of credit that we can use if and when we need to? For example if we use £30,000,000 of it we just don't claim the £20,000,000 so we only incur a loan of £30,000,000 is that not the case?

 

[Led's Zeppelin]

But until we borrow something it isn't a loan is it? More a line of credit that we can use if and when we need to? For example if we use £30,000,000 of it we just don't claim the £20,000,000 so we only incur a loan of £30,000,000 is that not the case?

Yes, in terms of cash, that’s true.

In other ways there’s not much difference really. It’s still a liability (perhaps a contingent liability depending on the exact terms) and there will still be charges that reflect the value of the commitment.

Whether the differences between a loan and a letter of credit are material depends on the parties involved and how they use them. As far as THFC is concerned, I can’t imagine the differences are material. It was probably arranged that way for ENIC’s convenience, since they are good for credit but probably would rather use their cash for more lucrative purposes, because it’s not in their interest to charge Spurs as much as the returns they would expect to generate on cash elsewhere.

 

[topper]

It’s a bit more complicated than that though isn’t it?

For one thing, the investment would need to be allowable, and given the scale of expenditure already on the books, it may be that there isn’t much legitimate allowable investment left that Spurs actually want to do, and would rather have the cash for other purposes.

Operating profits aren’t calculated and reported just for the fun of it are they?

Hopefully it'll be investment in players!

 

[Led's Zeppelin]

Hopefully it'll be investment in players!

For what it's worth, I expect it will be.

 

[MR_BEN]

As at 30/6/18 we had loans outstanding of 460 million all repayable within 5 years . It also states that since then we have increased this by another 221 million. It doesnt say what period this additional is repayable over.
On the original 460 we will have to pay this at over 90 million a year plus interest as our operating profit was 113 million and will be significantly lower this year if any due to the additional costs of renting Wembley, and taking into account repayments on the 221 million, unless there is a significant cash injection from somewhere we will not have much left if any for significant purchases over and above funds received from player sale.

Whilst the loans are repayable over 5 years it doesn’t mean they will be repaid over 5 years. You simply refinance - either with the same provider(s) or a new one.

 

[CoopsieDeadpool]

So. Does anyone know what the deal is with the loan situation?

 

[Led's Zeppelin]

Whilst the loans are repayable over 5 years it doesn’t mean they will be repaid over 5 years. You simply refinance - either with the same provider(s) or a new one.

Whilst what you say is true, it’s not a great strategy.

Loans start getting more expensive and eventually unavailable if you don’t repay the majority of them as scheduled, and it negatively affects your credit rating with all the bad consequences that entails , including anything to do with equity, unless you can prove that you have the means to easily repay them.

Don’t you agree it’s generally a bad idea to take out a large loan that you intend to refinance rather than repay? This is especially true of large, high profile businesses.

 

[LeParisien]

Whilst what you say is true, it’s not a great strategy.

Loans start getting more expensive and eventually unavailable if you don’t repay the majority of them as scheduled, and it negatively affects your credit rating with all the bad consequences that entails , including anything to do with equity, unless you can prove that you have the means to easily repay them.

Don’t you agree it’s generally a bad idea to take out a large loan that you intend to refinance rather than repay? This is especially true of large, high profile businesses.

Hang on ... I thought the consensus in here was that the loans would be paid back over a longer time period ?

 

[skiba]

Whilst what you say is true, it’s not a great strategy.

Loans start getting more expensive and eventually unavailable if you don’t repay the majority of them as scheduled, and it negatively affects your credit rating with all the bad consequences that entails , including anything to do with equity, unless you can prove that you have the means to easily repay them.

Don’t you agree it’s generally a bad idea to take out a large loan that you intend to refinance rather than repay? This is especially true of large, high profile businesses.

It’s very much standard practice in the property development industry. Credit rating shouldn’t be affected as long as you keep up with the payment terms of the loan.

Banks would view us as a greater risk right now as they have limited financial data on the earnings the stadium will generate and on our and ability to repay the debt. Once we can provide proof of the stadiums ability to repay the loans we should in theory be able to negotiate a lower interest rate when refinancing.

 

[Led's Zeppelin]

It’s very much standard practice in the property development industry. Credit rating shouldn’t be affected as long as you keep up with the payment terms of the loan.

Banks would view us as a greater risk right now as they have limited financial data on the earnings the stadium will generate and on our and ability to repay the debt. Once we can provide proof of the stadiums ability to repay the loans we should in theory be able to negotiate a lower interest rate when refinancing.

I'm not talking about formal credit ratings but the esteem in which a borrower is held by professional lenders and investors.

I don’t like quoting credentials, but I've held several senior banking board memberships and been on advisory boards to the Bank of England as well as other senior positions in the City and other financial institutions, so I'm talking from a position of some considerable direct experience of how lenders and investors view the practice of taking our loans with the intention of medium-term refinancing. Some of my experience is in the top-tier football business too.

None of that means I can’t be wrong.

But in my view, whilst I agree that it isn't uncommon practice, it isn't ideal, and is usually perceived to be a sign of relative weakness unless there are specific and unusual reasons for it such as temporary adverse market conditions. It speaks of insufficient equity and a less reliable cash flow than the ideal. Planned serial refinancing is certainly a concern to potential investors, and that must be a consideration for the current owners.

That's not to say that as THFC's finances improve they won't be able to refinance on better terms than currently available, of course. But they'd be able to finance even more effectively and on even better terms if they had demonstrated not only the ability but the will to pay down their loans according to the original schedule from the start.

 

[Lee82]

https://cartilagefreecaptain.sbnati...ncial-report-matches-its-new-state-of-the-art

Really, really nice reading, easy to understand. Generally we are rich and yes, we can buy players.

Complete guess work and based on figures that are already 12 months out of date. My belief is that this profit has already gone as it’s been sunk into the stadium. But this is also guesswork.

 

[skiba]

I'm not talking about formal credit ratings but the esteem in which a borrower is held by professional lenders and investors.

I don’t like quoting credentials, but I've held several senior banking board memberships and been on advisory boards to the Bank of England as well as other senior positions in the City and other financial institutions, so I'm talking from a position of some considerable direct experience of how lenders and investors view the practice of taking our loans with the intention of medium-term refinancing. Some of my experience is in the top-tier football business too.

None of that means I can’t be wrong.

But in my view, whilst I agree that it isn't uncommon practice, it isn't ideal, and is usually perceived to be a sign of relative weakness unless there are specific and unusual reasons for it such as temporary adverse market conditions. It speaks of insufficient equity and a less reliable cash flow than the ideal. Planned serial refinancing is certainly a concern to potential investors, and that must be a consideration for the current owners.

That's not to say that as THFC's finances improve they won't be able to refinance on better terms than currently available, of course. But they'd be able to finance even more effectively and on even better terms if they had demonstrated not only the ability but the will to pay down their loans according to the original schedule from the start.

Those are some serious credentials mate and I'm aware of you as poster on this forum and you certianly know your onions .

Funnily enough I started working for a property developer a couple of years ago part of which has been on the financing side. What I have found is that most banks offer a 'development loan' for the construction phase which is generally short term with a higher interest rate and which is then refinanced to an 'investment loan' on completion. I would assume that the bank financing the development would not expect the club to repay the whole facility by 2022 through their own cash flows and would anticipate the club refinancing after the investment loan expires.

What I meant in my previous post is that by the point we will need to refinance the loans in 2022 we will have sufficient financial information to show the bank the income the stadium is generating and refinance at a lower rate. I agree that to carry on refinancing over the short to medium term with banks from this point would not be a good strategy to peruse.

Interesting to note that in one of the financial updates made by the club Levy talked about using debt instruments with a mixture of maturities to repay the facility. So we have a little clue there on how Levy intends to repay the debt.

 

[Palmer Stoat]

Enlightening discussion LZ and Skiba. Thanks for the expertise.

 

[LeParisien]

So my best attempt at summarising previous discussion....

We are likely, per @Led's Zeppelin , to pay back significant amounts of the loan between now and 2022. Once we have shown that the stadium brings in serious cash we are likely to want to refinance on a better long-term deal. This is consistent with @skiba who has referenced Levy as saying we will use « debt instruments with a mixture of maturities to repay the debt facility. »

The most informed people in this thread seem to believe that we will have some extra funds to spend eg on the playing squad, right away. In @Led's Zeppelin view this is despite the fact we will pay back relatively large sums in the coming years.

Tell me if if I’ve got this wrong ...

 

[Led's Zeppelin]

So my best attempt at summarising previous discussion....

We are likely, per @Led's Zeppelin , to pay back significant amounts of the loan between now and 2022. Once we have shown that the stadium brings in serious cash we are likely to want to refinance on a better long-term deal. This is consistent with @skiba who has referenced Levy as saying we will use « debt instruments with a mixture of maturities to repay the debt facility. »

The most informed people in this thread seem to believe that we will have some extra funds to spend eg on the playing squad, right away. In @Led's Zeppelin view this is despite the fact we will pay back relatively large sums in the coming years.

Tell me if if I’ve got this wrong ...

I think that’s about right.

But just to clarify, there will be some large cash inflows that will help repay debt, including naming rights. There may also be some capital restructuring. Not all loans repayments need come from the normal revenue streams, and there may indeed be some debt restructuring too; I don’t rule that out. it’s just that I very much doubt that the plan is to simply refinance all the debt with new debt at maturity. In my view that would be imprudent financial management and not how DL goes about things.

So that should leave plenty of scope for buying new players in addition to the cash generated by player sales while, still reducing the debt burden quite significantly.

I see the new stadium as being a very healthy boost for Tottenham both off the pitch and, more importantly for us, on it.

 

[spursfan77]

Lewis put in £50m the other year it might be that.

Would be nice if he could do it every year!

 

[Lo Amo Speroni]

Thanks to the guys with expertise in the financial sector for those of us with no idea on it. Much appreciated.