Burnley's MSD loan reduction essentially confirmed

[ClaretPete001]

I’m probably showing my financial naivety here, but will there come a point in time when ALK will have to pay BFC all of the money and debt back that they’ve saddled the club with?

No, because ALK haven't borrowed it the club has and it's secured against the clubs assets: Turf Moor, Gawthorpe etc.

[ClaretPete001]

True - the wage bill may have increased slightly with the additions of Cornet, Roberts and Hennessey. Wood left in Jan and was replaced by WW, probably on similar money. But aside from that, I don't think I'm too far away. Which bits would you disagree with?

Lets call it 30m instead of 28m that I said. Obviously now that figure would increase a fair bit as we'll expect 6 or more new incomings but it'll likely be on Championship wages, with the potential for promotion payouts / no promotion slight reduction - who knows.

Not worrying about 2nd and 3rd years yet as lets focus on the season at hand with promotion the target, and trust Pace and co have got their modelling and forecasting correct for how they will manage the further reduction in parachutes, should we not achieve it (further selling of top earners/sellable assets most likely).

It's still a nigh on 70 per cent cut in wages, which seems unlikely to me when considering the scale of the squad re-build

But, and I realise you didn't make this point - the main point I was making is that I don't think expertise includes ignoring Yrs 2 and 3 or trusting Pace's forecasts.

Burnley fan's can do that but that's the difference between expertise and being a fan.

[RVclaret]

No, because ALK haven't borrowed it the club has and it's secured against the clubs assets: Turf Moor, Gawthorpe etc.

Isn’t there some suggestion they may have borrowed some against their own assets in the US?

[RVclaret]

It's still a nigh on 70 per cent cut in wages, which seems unlikely to me when considering the scale of the squad re-build

But, and I realise you didn't make this point - the main point I was making is that I don't think expertise includes ignoring Yrs 2 and 3 or trusting Pace's forecasts.

Burnley fan's can do that but that's the difference between expertise and being a fan.

Those forecasts by Pace and co that are you dismissing will have been agreed upon by MSD, both prior to the initial loan and then in this loan reduction of 15m.

[NewClaret]

Is a deal not a deal ?

If I sell my house to you, and you change jobs resulting in a smaller income, do I agree to give you a reduction on the asking price on my house ?

Why would Garlick and John B accept a lower payout

Not at all. Most business sale transactions include a proportion paid up front and a proportion paid on future performance. I think it’s well understood that this did too, because of the precarious nature of the financial impacts of relegation. A house, is a very different type of asset with a more predictable value.

It’s been documented in the media that in certain scenarios MG would retake ownership. Whether that’s media nonsense, as per some of the other negative speculation, I don’t know.

So MG has wealth beyond the level of the debt and it’s understood he may retake control. In those circumstances I fail to see the concern unless he goes off buying a yacht in the meantime. Whether fans would want him back after the lack of investment/takeover is another question but I think most fans would prefer that to the alternative.

[dsr]

Isn’t there some suggestion they may have borrowed some against their own assets in the US?

I'd be surprised. ALK have bought the club on the basis that they have very little risk and if the club goes bust, they only lose £20m or so.

In theory they have to repay tha £112m+ they owe the club, but in practice, they don't have any assets to do it with and I strongly suspect they haven't risked any assets elsewhere in the group.

[Paul Waine]

Oh I completely agree with you. Maguire has been pretty poor in general on us, I’d say. Starting with an article he wrote on the finances of relegated clubs (think it was published in the daily mail) where he forgot to mention (or didn’t research, that’s kinda the job of an ‘analyst’) the fact our wage bill would be chopped in half + all the OOC players.

Peter Crouch is reported to have shown his last Stoke contract included 45% reduction in his wage if/when Stoke were relegated. PC says that these clauses are pretty standard: if you are in Premier League you get paid Premier League wages, if you are in Championship you are paid Championship wages. So, not quite 50% but close to and a lot better e
Indication of wage cut than many are suggesting.

Of course, it means that those that are in demand by other Premier League clubs have opportunities to not see their wages cut, if they get a move back to Premier League.

Source: Daily Star - popped up as a notification.

[Paul Waine]

I'd be surprised. ALK have bought the club on the basis that they have very little risk and if the club goes bust, they only lose £20m or so.

In theory they have to repay tha £112m+ they owe the club, but in practice, they don't have any assets to do it with and I strongly suspect they haven't risked any assets elsewhere in the group.

Hi dsr, where do you get the idea that ALK will only lose £20m or so? ALK's model is to attract several "smaller" investors to provide the equity investment they require to fund Burnley FC. That's the idea of ALK Capital and Velocity Sports. By "smaller" investors it wouldn't surprise me if it was $5 million a share, though without the details it could be less or it could be more. Maybe relegation will have reduced the price of a share, or maybe, at this stage, that won't be the case: parachute payments on one hand and wage cuts on the other providing a balance that enables the club to re-set and aim for return to Premier League. Vincent Kompany as manager is the first indication that these ambitions are there. The transfer window is the next opportunity to indicate something about future plans.

Alan Pace's and ALK's loss will be their whole project and not just the £20m or so you ascribe to their initial cash outlay.

There's got to be reason why MSD is agreeable to a loan reduction of £15 million, rather than any higher figure.

[dsr]

Hi dsr, where do you get the idea that ALK will only lose £20m or so? ALK's model is to attract several "smaller" investors to provide the equity investment they require to fund Burnley FC. That's the idea of ALK Capital and Velocity Sports. By "smaller" investors it wouldn't surprise me if it was $5 million a share, though without the details it could be less or it could be more. Maybe relegation will have reduced the price of a share, or maybe, at this stage, that won't be the case: parachute payments on one hand and wage cuts on the other providing a balance that enables the club to re-set and aim for return to Premier League. Vincent Kompany as manager is the first indication that these ambitions are there. The transfer window is the next opportunity to indicate something about future plans.

Alan Pace's and ALK's loss will be their whole project and not just the £20m or so you ascribe to their initial cash outlay.

There's got to be reason why MSD is agreeable to a loan reduction of £15 million, rather than any higher figure.

The reason MSD would agree to any loan reduction of whatever amount is because they are still confident that they will get their money back off Burnley FC who owes it to them. I have little doubt that the 2023-24 parachute money is mortgaged to them.

ALK is a limited liability company. All accounts say their capitalisation is no more than £20m and the rest of their purchase of BFC was funded by loans. If BFC becomes worthless (as it essentially has, as far as they're concerned) then the whole point of limited liability is that they can't lose any more. They won't be able to pay their debts (ie, the £112m+ they owe to BFC and whatever balance is left to Garlick and friends), but that isn't ALK's problem.

The whole point of a leveraged buyout is that they are risking a relatively small amount in hopes of making a large profit. If their investment goes down the tubes, it doesn't matter all that much because someone else was carrying the risk.

Relegation has certainly reduced the value of a share. It's cloud cuckoo land to think it might not have.

[Paul Waine]

The reason MSD would agree to any loan reduction of whatever amount is because they are still confident that they will get their money back off Burnley FC who owes it to them. I have little doubt that the 2023-24 parachute money is mortgaged to them.

ALK is a limited liability company. All accounts say their capitalisation is no more than £20m and the rest of their purchase of BFC was funded by loans. If BFC becomes worthless (as it essentially has, as far as they're concerned) then the whole point of limited liability is that they can't lose any more. They won't be able to pay their debts (ie, the £112m+ they owe to BFC and whatever balance is left to Garlick and friends), but that isn't ALK's problem.

The whole point of a leveraged buyout is that they are risking a relatively small amount in hopes of making a large profit. If their investment goes down the tubes, it doesn't matter all that much because someone else was carrying the risk.

Relegation has certainly reduced the value of a share. It's cloud cuckoo land to think it might not have.

Where are you seeing ALK's accounts, can you provide a link or post details on here? What about Velocity Sports? I'm referring to the respective US entities, which is where investors will invest in the partnership.

Yes, I get how leverage buyouts work. However, do you think anyone would invest anything in a leveraged buyout if, according to you, what they invested themselves can end up worth zero only 18 months from their initial investment? That would apply to any investment, nevermind investing in a Premier League football club with, at minimum, a 15% certainty of being relegated every season. 15% of course assumes every club starts each season equal, so maybe buying Burnley or another club has much higher risk of relegation.

[aggi]

I’m probably showing my financial naivety here, but will there come a point in time when ALK will have to pay BFC all of the money and debt back that they’ve saddled the club with?

My guess is it would be when they sell the club. Sell at a profit and use part of the proceeds to pay off. Obviously we need to be in the Premier League for that to work.

[aggi]

Hi TT, any borrowing by BFC will be shown by filings at Companies House. The MSD loan is shown by security charges. If this has been repaid the security charge would be updated to record this. If any new loans there will be new security charge(s). I'm not certain of timing for any updates. It will be quick.

Assuming it's only a partial repayment I imagine that MSD would be keeping their security in place.

[aggi]

I don’t think our players’ salaries will have been halved on relegation. I’d ‘guess’ they’ll have been reduced by a third.

e.g. £60k a week becomes £40k a week.

Does anyone have accurate information?

There's nothing definitive specific to Burnley (other than the players' contracts definitely have a relegation clause) but looking at other clubs that have gone down (often those who aren't as historically prudent as Burnley) and you can see wage bills dropping by 50 or so. There was a bit in the recent Peter Crouch podcast where he suggested that relegation clauses were very common and it was unusual for a player to refuse them, the figure he cited was 50%.

[dsr]

Where are you seeing ALK's accounts, can you provide a link or post details on here? What about Velocity Sports? I'm referring to the respective US entities, which is where investors will invest in the partnership.

Yes, I get how leverage buyouts work. However, do you think anyone would invest anything in a leveraged buyout if, according to you, what they invested themselves can end up worth zero only 18 months from their initial investment? That would apply to any investment, nevermind investing in a Premier League football club with, at minimum, a 15% certainty of being relegated every season. 15% of course assumes every club starts each season equal, so maybe buying Burnley or another club has much higher risk of relegation.

There is plenty of info in the public domain about the purchase of BFC to work out what the holding company balance sheet looks like in the roundest of numbers.

1. ASSET - Burnley Football Club, purchased for £170m
2. LIABILITY - money owed to Burnley FC, confirmed per accounts £100m
3. LIABILITY - money owed to Garlick and frinds, £50m
NET ASSETS £20m.

CAPITALISATION - £20m.

That was on purchase of the club. Several millions have been swilling about since.

I really don't get your suggestion that people would not invest in a leveraged buyout if there was any chance their investment would be worth zero. Have you never heard the phrase "investments can go down as well as up"? Leveraged buyouts are deliberately used for high risk assets because it limits the potential loss to the buyer, while not limiting the potential profits.

The point of this leveraged buyout is that if the asset (BFC) doubles in value, they gain £170m, but if it loses value their maximum loss is only £20m. If ALK had paid the full £170m, their losses could have been as high as £170m while their profit if the asset doubled would still only be £170m.

Whatever BFC was worth 18m ago as a PL club - presumably about £200m, since ALK paid £170m for 84% - it is worth less than that now. Remember that when BFC was worth £200m it was a Premier League club. Any suggestion that the club is still worth £200m is fatuous. BFC has lost value.

My point about ALK's asset being worthless is that if they sell their stake in BFC for anything less than £150m, they get nothing from it. Because they first have to repay their creditors and only then can they take profits. If BFC is worth the same as a Championship club as it was as a PL club, then ALK are still profitable. If BFC is worth less (and it is, for certain) then ALK have lost all their investment. If they get less than £150m, then everything they get has to go to Garlick and friends, and to BFC.

That IMO is why they are pushing the boat out with Kompany and with delaying loan repayments. Because as far as they are concerned, a semi-solvent club worth £20m or £50m or even £100m or £150m is still worthless to them; they would get nothing from selling it. As far as ALK is concerned, Burnley FC could cease to exist and they would be no worse off than they are now. So they might as well bet the ranch, go for broke, and if we don't get promotion and we lose the ranch and we go broke, then ALK are in the same position as they are now.

[Paul Waine]

Assuming it's only a partial repayment I imagine that MSD would be keeping their security in place.

Hi aggi, I was responding to a claim that MSD's £65 million had been repaid and replaced by new borrowing. I was making the point that this would be in public domain with changes to status of charges. There's no such information, thus we can be confident that MSD loan hasn't been repaid, only reduced.

[Paul Waine]

There's nothing definitive specific to Burnley (other than the players' contracts definitely have a relegation clause) but looking at other clubs that have gone down (often those who aren't as historically prudent as Burnley) and you can see wage bills dropping by 50 or so. There was a bit in the recent Peter Crouch podcast where he suggested that relegation clauses were very common and it was unusual for a player to refuse them, the figure he cited was 50%.

From report I saw yesterday, Peter Crouch said 45% was in his Stoke contract and this was the "standard."

[ClaretPete001]

Hi aggi, I was responding to a claim that MSD's £65 million had been repaid and replaced by new borrowing. I was making the point that this would be in public domain with changes to status of charges. There's no such information, thus we can be confident that MSD loan hasn't been repaid, only reduced.

Are you suggesting MSD has just reduced the loan?

[aggi]

Hi aggi, I was responding to a claim that MSD's £65 million had been repaid and replaced by new borrowing. I was making the point that this would be in public domain with changes to status of charges. There's no such information, thus we can be confident that MSD loan hasn't been repaid, only reduced.

I think the suggestion was that a new loan had been taken out to pay off £15m, not the full MSD amount.

Personally my gut is that if "only" £15m was repayable it won't have been refinanced.

[Paul Waine]

There is plenty of info in the public domain about the purchase of BFC to work out what the holding company balance sheet looks like in the roundest of numbers.

1. ASSET - Burnley Football Club, purchased for £170m
2. LIABILITY - money owed to Burnley FC, confirmed per accounts £100m
3. LIABILITY - money owed to Garlick and frinds, £50m
NET ASSETS £20m.

CAPITALISATION - £20m.

That was on purchase of the club. Several millions have been swilling about since.

I really don't get your suggestion that people would not invest in a leveraged buyout if there was any chance their investment would be worth zero. Have you never heard the phrase "investments can go down as well as up"? Leveraged buyouts are deliberately used for high risk assets because it limits the potential loss to the buyer, while not limiting the potential profits.

The point of this leveraged buyout is that if the asset (BFC) doubles in value, they gain £170m, but if it loses value their maximum loss is only £20m. If ALK had paid the full £170m, their losses could have been as high as £170m while their profit if the asset doubled would still only be £170m.

Whatever BFC was worth 18m ago as a PL club - presumably about £200m, since ALK paid £170m for 84% - it is worth less than that now. Remember that when BFC was worth £200m it was a Premier League club. Any suggestion that the club is still worth £200m is fatuous. BFC has lost value.

My point about ALK's asset being worthless is that if they sell their stake in BFC for anything less than £150m, they get nothing from it. Because they first have to repay their creditors and only then can they take profits. If BFC is worth the same as a Championship club as it was as a PL club, then ALK are still profitable. If BFC is worth less (and it is, for certain) then ALK have lost all their investment. If they get less than £150m, then everything they get has to go to Garlick and friends, and to BFC.

That IMO is why they are pushing the boat out with Kompany and with delaying loan repayments. Because as far as they are concerned, a semi-solvent club worth £20m or £50m or even £100m or £150m is still worthless to them; they would get nothing from selling it. As far as ALK is concerned, Burnley FC could cease to exist and they would be no worse off than they are now. So they might as well bet the ranch, go for broke, and if we don't get promotion and we lose the ranch and we go broke, then ALK are in the same position as they are now.

But, you were claiming you have seen ALK's accounts, not just doing a theoretical b/s as if nothing else has happened.

I'm taking it as a "no, you don't know what ALK's accounts or Velocuty Sports accounts will show.

However, don't you think MSD will have got "full disclosure" on those two sets of accounts? Don't you also think that Vincent Kompany will have had a conversation about BFC's financial resources before signing for the club?

I'm not sure where you get "delaying loan repayments" from. From what is indicated on public domain records it appears that £15m has been repaid. BFC's accounts explained the terms of the MSD loan.

Yes, there a number of unknowns. I don't think the club is "going for broke" based on where we are at this time.

[Paul Waine]

I think the suggestion was that a new loan had been taken out to pay off £15m, not the full MSD amount.

Personally my gut is that if "only" £15m was repayable it won't have been refinanced.

I think we probably know where £12.5 million of the £15 million came from.

[aggi]

I think we probably know where £12.5 million of the £15 million came from.

I pondered that but the timeline seemed off.

[Paul Waine]

Are you suggesting MSD has just reduced the loan?

It's in the Subject of this thread, Pete Alan Pace / BFC and MSD have agreed to repay £15 million of the loan. One party cannot do this without the agreement of the other, I wouldn't think.

[Paul Waine]

I pondered that but the timeline seemed off.

We've no indication of any new security charges. If there had been a new loan (or loans) from any source a new charge would be recorded for those loans. The only recent new charge is Macquarie for the NUFC £12.5m Wood balance of transfer fee. So far as I'm aware, the club hasn't sold any other players' registrations, so no new money incoming from that direction just yet.

[dsr]

But, you were claiming you have seen ALK's accounts, not just doing a theoretical b/s as if nothing else has happened.

I'm taking it as a "no, you don't know what ALK's accounts or Velocuty Sports accounts will show.

However, don't you think MSD will have got "full disclosure" on those two sets of accounts? Don't you also think that Vincent Kompany will have had a conversation about BFC's financial resources before signing for the club?

I'm not sure where you get "delaying loan repayments" from. From what is indicated on public domain records it appears that £15m has been repaid. BFC's accounts explained the terms of the MSD loan.

Yes, there a number of unknowns. I don't think the club is "going for broke" based on where we are at this time.

I think the words "all accounts say ..." are confusing you. "Accounts" has more than one meaning, and in that sentence I was referring to the general meaning of reports / news / what people are saying, not specifically the company accounts.

There may be a lot of unknowns, but this much is known.

1. Alan Pace and his group of companies owe Burnley FC £112m, interest free, and have no visible plans to pay it back.

2. Because Alan Pace and his companies wanted this interest free loan, Burnley FC had to take out a high interest loan to fund it. Since the loan was taken out, Burnley FC have had to pay something like £10m interest on the MSD loan.

Yes, there are unknowns, but they tend towards the unknown figures of how much more Pace has taken from the club and how much more the club has had to borrow to fund Pace's own personal expenditure.

Question for you. Do you think Burnley FC will ever see that £112m again?

[Vegas Claret]

are we
A: screwed
B: less screwed than we thought we were going to be
C: No idea

[Chester Perry]

So, I have been thinking about this

It will be very interesting to see how VSL have handled this in the club accounts

the last set of accounts suggested dividends...

...The idea was to have VSL's MSD related loan from Burnley FC Holdings Limited to have the same balance as the balance to MSD . There is the accumulated profit and cash generated this year to pay an interim dividend but there are a number of complications which makes me think it unlikely.

In the context of this

Burnley FC Holdings Limited Notes to the Financial Statements for the year ended July 31 2021
2. Judgements and key sources of estimation uncertainty
Recoverability of group balances

The group has an outstanding debtor balance of £102,000,000 due from an undertaking of Calder Vale Holdings Limited, which arose in relation to the acquisition of Burnley FC Holdings Limited during the year. Of this balance £65,000,000 is a payable to Burnley FC Holdings Limited, with £37,000,000 payable to Burnley Football & Athletic Company Limited. This balance is unsecured, and is by default, treated as being repayable on demand, although the directors do not anticipate recovery in the form of cash within twelve months of the balance sheet date.

The balance can potentially be settled by various means, and the group’s reserves are sufficient to enable a significant proportion of the balance to be settled by way of dividends if required. In such case, the financial performance of The Burnley Football & Athletic Company Limited may impact the extent to which, the timing in which, the balance is recoverable in this manner, as this could affect the likelihood of future dividends taking place. With this in mind the balance will be periodically reviewed for indicators of impairment going forward, with adjustments made in respect of any impairment indicators should they arise”

I have long ago resigned myself to the notion that the related company loan of £65m that is linked to the MSD loan was to be paid via club funds which would mean that the £65m sum would never be returned in anything other than an accounting exercise whereby a dividend payment was made and the sum returned as a loan repayment to Burnley FC Holdings Limited so it could then repay the capital it owes to MSD.

I have also long considered that the intention of VSL is for the balance in the related company loan from Burnley FC Holdings Limited to be equal to the balance that entity has with MSD

Given that a dividend payment (it would have to be an interim one) would be the unlikely route this summer to make such a balance adjustment (VSL may own almost 90% of shares but have actually only completed payment on just over 62% of them -you cannot receive dividends on shares that have not been paid for is my understanding), and there are over 10% they do not own - I assume that VSL would not want to waste precious funds on others.

That leaves an option for an impairment on the related company loan balance. Is that actually possible when VSL (via CVHL) still appear to be taking additional loans from the Burnley Football and Athletic Company Limited (we know of at least £10m from public record and I - this is speculation - believe that circa £37m further could be taken by accounting period end date to fund stage payments), which is a subsidiary of Burnley FC Holdings Ltd?

I have been trying to get my head around the rules for impairments, while I appreciate that all the loans to VSL have:
- 0% interest (so no amortisation can be applied on the capital balance);
- no known term of repayment;
- a theoretically be call in on demand.

I do not see how such a demand can be met without a corresponding dividend payment (unless someone is buying shares in VSL which feels very unlikely at this time). There are also likely to be questions from HMRC about the original loan agreement in terms of intention of and methods expected to pay the loan back at the time the agreement was made.

Basically is it possible for Burnley FC Holdings Limited to place a £15m impairment on it's related company loan in the next accounts to maintain the balance across the 3 entities and what would be the justification for it or would VSL not even bother?

- I am struggling to come to an answer from the reading and extremely tentative knowledge I have on the subject (no doubt the structure of this post is an illustrative example of that)

[Chester Perry]

I think we probably know where £12.5 million of the £15 million came from.

At least two other strong potentials for that

- a pay-off to Dyche and co if that is what their contracts entitled them too
- the overdue Q1 stage payment on which Garlick actioned a clause that required payment within 30days or sale contract default clauses would become active

and it is £12.5m less interest

[ClaretPete001]

It's in the Subject of this thread, Pete Alan Pace / BFC and MSD have agreed to repay £15 million of the loan. One party cannot do this without the agreement of the other, I wouldn't think.

It must be lost in translation because statement (1) seems to suggest that the "MSD loan hasn't been repaid" - whereas statement (2) seems to suggest that not only has it been re-paid but MSD have agreed to pay off some of their own loan.

1. There's no such information, thus we can be confident that MSD loan hasn't been repaid, only reduced.

2.Pete Alan Pace / BFC and MSD have agreed to repay £15 million of the loan

No wishes to be pedantic but I'm genuinely not sure what you mean.

[Paul Waine]

I think the words "all accounts say ..." are confusing you. "Accounts" has more than one meaning, and in that sentence I was referring to the general meaning of reports / news / what people are saying, not specifically the company accounts.

There may be a lot of unknowns, but this much is known.

1. Alan Pace and his group of companies owe Burnley FC £112m, interest free, and have no visible plans to pay it back.

2. Because Alan Pace and his companies wanted this interest free loan, Burnley FC had to take out a high interest loan to fund it. Since the loan was taken out, Burnley FC have had to pay something like £10m interest on the MSD loan.

Yes, there are unknowns, but they tend towards the unknown figures of how much more Pace has taken from the club and how much more the club has had to borrow to fund Pace's own personal expenditure.

Question for you. Do you think Burnley FC will ever see that £112m again?

Somewhere earlier in this thread you spoke of the "holding company's balance sheet." I don't think I was confused about your words. I sense that you also know what you meant by your words. Let's put that aside.

Yes, we agree that BFC's accounts for period to 31 July 2021 state that £65m plus£37m = £102m plus an additional £10m sometime after 31st July, so £112m.

We also know that the collectability of £102m of this BFC asset was reviewed in the "going concern" accounting basis and that there was sufficient information available to those who needed it to conclude "going concern" was appropriate. Those who needed to know include BFC's auditors, BFC's directors and, quite probably MSD as the lender of £65m loan. (I'd expect not to qualify as a going concern would trigger "material adverse change" clauses and may give MSD cause for recovery actions). Logic suggests a club that failed "going concern" would also be in breach of FFP regs...but let's not worry about FFP.

I believe you're got the timings of MSD £65m back to front. ALK borrowed from MSD and then moved the MSD loan to BFC. Don't forget to do this ALK had to be the own8and directors of BFC.

I'm taking it that by "Pace's own personal expenditure" you mean the money spent by ALK in acquiring BFC shares from the previous directors. We have clear insight into the club's borrowing because charges are filed at Companies House. We can also be confident that MSD will not give up the right for it's security and would not grant permission for any actions that may diminish that security.

Every year end when the accounts are prepared the question will be asked, has BFC an asset of £112m. In the first year the answer was "yes." I'm sure the plans will be to be able to say "yes" in future years.

[aggi]

So, I have been thinking about this



In the context of this

Burnley FC Holdings Limited Notes to the Financial Statements for the year ended July 31 2021
2. Judgements and key sources of estimation uncertainty
Recoverability of group balances

The group has an outstanding debtor balance of £102,000,000 due from an undertaking of Calder Vale Holdings Limited, which arose in relation to the acquisition of Burnley FC Holdings Limited during the year. Of this balance £65,000,000 is a payable to Burnley FC Holdings Limited, with £37,000,000 payable to Burnley Football & Athletic Company Limited. This balance is unsecured, and is by default, treated as being repayable on demand, although the directors do not anticipate recovery in the form of cash within twelve months of the balance sheet date.

The balance can potentially be settled by various means, and the group’s reserves are sufficient to enable a significant proportion of the balance to be settled by way of dividends if required. In such case, the financial performance of The Burnley Football & Athletic Company Limited may impact the extent to which, the timing in which, the balance is recoverable in this manner, as this could affect the likelihood of future dividends taking place. With this in mind the balance will be periodically reviewed for indicators of impairment going forward, with adjustments made in respect of any impairment indicators should they arise”

I have long ago resigned myself to the notion that the related company loan of £65m that is linked to the MSD loan was to be paid via club funds which would mean that the £65m sum would never be returned in anything other than an accounting exercise whereby a dividend payment was made and the sum returned as a loan repayment to Burnley FC Holdings Limited so it could then repay the capital it owes to MSD.

I have also long considered that the intention of VSL is for the balance in the related company loan from Burnley FC Holdings Limited to be equal to the balance that entity has with MSD

Given that a dividend payment (it would have to be an interim one) would be the unlikely route this summer to make such a balance adjustment (VSL may own almost 90% of shares but have actually only completed payment on just over 62% of them -you cannot receive dividends on shares that have not been paid for is my understanding), and there are over 10% they do not own - I assume that VSL would not want to waste precious funds on others.

That leaves an option for an impairment on the related company loan balance. Is that actually possible when VSL (via CVHL) still appear to be taking additional loans from the Burnley Football and Athletic Company Limited (we know of at least £10m from public record and I - this is speculation - believe that circa £37m further could be taken by accounting period end date to fund stage payments), which is a subsidiary of Burnley FC Holdings Ltd?

I have been trying to get my head around the rules for impairments, while I appreciate that all the loans to VSL have:
- 0% interest (so no amortisation can be applied on the capital balance);
- no known term of repayment;
- a theoretically be call in on demand.

I do not see how such a demand can be met without a corresponding dividend payment (unless someone is buying shares in VSL which feels very unlikely at this time). There are also likely to be questions from HMRC about the original loan agreement in terms of intention of and methods expected to pay the loan back at the time the agreement was made.

Basically is it possible for Burnley FC Holdings Limited to place a £15m impairment on it's related company loan in the next accounts to maintain the balance across the 3 entities and what would be the justification for it or would VSL not even bother?

- I am struggling to come to an answer from the reading and extremely tentative knowledge I have on the subject (no doubt the structure of this post is an illustrative example of that)

Balances should be assessed for impairment each year.

The £15m doesn't really have a place in this part of the discussion. It doesn't matter whether the debtor relates to cash or the MSD loan, it still totals up to £102m. The club paying back £15m of the loan (assuming from cash balances) just changes the makeup from £37m cash + £65m loan to £52m cash + £50m loan.

It would have to be written down at some point if the club doesn't have the assets to settle it by dividends and ALK don't have assets to pay it off.

In terms of HMRC, the dividend settlement doesn't hit to taxable profit but if it was just written off that would potentially be an issue (although we'd probably already be a loss making entity at that point).

On the shareholder/dividend point, I believe that's only the case if issued shares haven't been paid for (i.e. the money is still owed to the company), not share purchases from one individual to another.

[dsr]

Somewhere earlier in this thread you spoke of the "holding company's balance sheet." I don't think I was confused about your words. I sense that you also know what you meant by your words. Let's put that aside.

Yes, we agree that BFC's accounts for period to 31 July 2021 state that £65m plus£37m = £102m plus an additional £10m sometime after 31st July, so £112m.

We also know that the collectability of £102m of this BFC asset was reviewed in the "going concern" accounting basis and that there was sufficient information available to those who needed it to conclude "going concern" was appropriate. Those who needed to know include BFC's auditors, BFC's directors and, quite probably MSD as the lender of £65m loan. (I'd expect not to qualify as a going concern would trigger "material adverse change" clauses and may give MSD cause for recovery actions). Logic suggests a club that failed "going concern" would also be in breach of FFP regs...but let's not worry about FFP.

I believe you're got the timings of MSD £65m back to front. ALK borrowed from MSD and then moved the MSD loan to BFC. Don't forget to do this ALK had to be the own8and directors of BFC.

I'm taking it that by "Pace's own personal expenditure" you mean the money spent by ALK in acquiring BFC shares from the previous directors. We have clear insight into the club's borrowing because charges are filed at Companies House. We can also be confident that MSD will not give up the right for it's security and would not grant permission for any actions that may diminish that security.

Every year end when the accounts are prepared the question will be asked, has BFC an asset of £112m. In the first year the answer was "yes." I'm sure the plans will be to be able to say "yes" in future years.

"Going concern" means that the club has enough money to carry on paying its debts until a year after the date of signing the balance sheet. The balance sheet was signed on 28th April 2022, so that takes us to almost the end of the season. The £112m debt is scarcely relevant for this because it won't be paid before then.

The £112m debtor is a different issue. The auditors already consider it material enough, and controversial enough, that they put it in an "emphasis of matter" paragraph in the audit report. That was when we were still in the PL. Now that the company that owes BFC that money is pretty certainly technically insolvent (ie. has a negative balance sheet) they may decide to qualify the report or write down the balance. It would be disastrous PR for the owners if they did.

The timing of the loan re. MSD is irrelevant. BFC owe the money, BFC have to pay the interest (about £10m to date), BFC got absolutely no benefit from that loan. Pace said we would think it was a wonderful loan if he told us the details - well, if I was the one borrowing £65m while someone else was paying for it, I would think it wonderful too.

[dsr]

If the loan is settled by dividend, there's no benefit to BFC - quite the reverse. That would mean that the money which has already been taken from the club as a debtor, which we probably won't get back, becomes formalised as money that we can't even hope to get back.

Though to pay dividends, they need to make profits. The only way to do that in the Championship is to sell players.

[ClaretPete001]

"Going concern" means that the club has enough money to carry on paying its debts until a year after the date of signing the balance sheet. The balance sheet was signed on 28th April 2022, so that takes us to almost the end of the season. The £112m debt is scarcely relevant for this because it won't be paid before then.

The £112m debtor is a different issue. The auditors already consider it material enough, and controversial enough, that they put it in an "emphasis of matter" paragraph in the audit report. That was when we were still in the PL. Now that the company that owes BFC that money is pretty certainly technically insolvent (ie. has a negative balance sheet) they may decide to qualify the report or write down the balance. It would be disastrous PR for the owners if they did.

The timing of the loan re. MSD is irrelevant. BFC owe the money, BFC have to pay the interest (about £10m to date), BFC got absolutely no benefit from that loan. Pace said we would think it was a wonderful loan if he told us the details - well, if I was the one borrowing £65m while someone else was paying for it, I would think it wonderful too.

We have enough assets at this point in time to keep MSD and the auditors happy.

But I'm with you, I just don't get it.

We are blithely talking about £25 million disappearing from cash on top of the £30 million that disappeared in the last set of accounts. None of it spent on footballing product.

How much spare cash was the previous ownership carrying around for the current owners to be able to pay these sums out?

The players will be next....!

Where is the value or the business proposition here?

[NewClaret]

We have enough assets at this point in time to keep MSD and the auditors happy.

But I'm with you, I just don't get it.

We are blithely talking about £25 million disappearing from cash on top of the £30 million that disappeared in the last set of accounts. None of it spent on footballing product.

How much spare cash was the previous ownership carrying around for the current owners to be able to pay these sums out?

The players will be next....!

Where is the value or the business proposition here?

There were many who gave massive credit to how the club was being run despite the lack of investment in “footballing product”. Now we know that it had nothing to do with prudent ownership and all about lining their own pockets - from what we know about the deal to date anyway, I’m still hoping that there’s more to this elaborate structure/plan than meets the eye.

One point I would make is that the previous owners seemed to take very little risk - only buying older, British players. If ALK invest in young talent to sell on and pay down the debt over time I can’t say I’ll hold that against them because I’ll see it as no worse than hoarding cash and then taking a large chunk of it.

[taio]

There were many who gave massive credit to how the club was being run despite the lack of investment in “footballing product”. Now we know that it had nothing to do with prudent ownership and all about lining their own pockets - from what we know about the deal to date anyway, I’m still hoping that there’s more to this elaborate structure/plan than meets the eye.

One point I would make is that the previous owners seemed to take very little risk - only buying older, British players. If ALK invest in young talent to sell on and pay down the debt over time I can’t say I’ll hold that against them because I’ll see it as no worse than hoarding cash and then taking a large chunk of it.

This feels like rewriting history - our prudent financial strategy was pretty much on the mark as was signing older or experienced players. Led to an unbelievable successful period.

[NewClaret]

This feels like rewriting history - our prudent financial strategy was pretty much on the mark as was signing older or experienced players. Led to an unbelievable successful period.

It was great and worked to a point, but then it didn’t and we are where we are now - ex owners have walked away with a good chunk of the cash they built up, left us with a large debt and a squad that needs massive surgery (some discussing 10 incomings!!!!) in one summer.

That’s not rewriting history, just illustrating how the history led to the present.

[ClaretPete001]

There were many who gave massive credit to how the club was being run despite the lack of investment in “footballing product”. Now we know that it had nothing to do with prudent ownership and all about lining their own pockets - from what we know about the deal to date anyway, I’m still hoping that there’s more to this elaborate structure/plan than meets the eye.

One point I would make is that the previous owners seemed to take very little risk - only buying older, British players. If ALK invest in young talent to sell on and pay down the debt over time I can’t say I’ll hold that against them because I’ll see it as no worse than hoarding cash and then taking a large chunk of it.

I agree with the first paragraph - I think it's self-evident that there was a great deal of hubris about some of the pronouncements of the former owners.

And yes I hope there is more to the new structure than meets eye; however, where we seem to differ is that I see no evidence there is anything substantive and I'm not prepared to suggest there is until I see some.

With due respect you things like "If ALK invest in young talent to sell on and pay down the debt over time" as though it's easy and the norm. It's neither!

For me, these are fluff arguments that are said as though it is a meaningful strategy. Young talented British players are expensive, risky and we have a two year window before we won't be able to compete in the market.

[Spike]

still think its all dodgy

[Spijed]

It was great and worked to a point, but then it didn’t and we are where we are now.

Unfortunately unless you have an unlimited supply of money that scenario happens to almost every club in the country, bar a few.

[ClaretPete001]

Unfortunately unless you have an unlimited supply of money that scenario happens to almost every club in the country, bar a few.

I think it's important to point out that we had £80 million in the bank. It was NOT a case of small club syndrome.

[Mattster]

This feels like rewriting history - our prudent financial strategy was pretty much on the mark as was signing older or experienced players. Led to an unbelievable successful period.

That's rewriting history, though. Signing older players has rarely worked out. Looking at the key players over these successful years and how old they were when we signed them.

Trippier - 21
Mee - 22
Ings - 19
Vokes - 22
Shackell - 28
Barnes - 24
Jones - 28
Arfield - 24
Heaton - 27
Keane - 22
Boyd - 28
Ward - 28
Tarkowski - 23
Lowton - 26
Gray - 24
Westwood - 26
Pope - 24
Defour - 28
Wood - 25
Taylor - 23
Cork - 28

The only player over the age of 29 who has made a significant impact really is Barton (32 & 34). Arguments could be made for Pieters (30), Bardsley (32) & Jay (29) but none of them has really been a starter for more than half a season at a time.

(Matthew) Taylor, Reid, Gilks, Dyer, Walters, Lennon, Hart, Crouch, Drinkwater, Stephens, Weghorst all 29 or over and made very little impact.

I think people forget that the majority of players who have had a key role to play in this successful period were signed in their early to mid twenties. They're also the players we made big profits on.

[NewClaret]

Unfortunately unless you have an unlimited supply of money that scenario happens to almost every club in the country, bar a few.

Well at the time of the takeover we had £80m cash in the bank (yes, some of that was TV payment so committed to future expenses), but the owners walked away with £37m and so you could be safe to assume we could have spent at least £37m more on players, still had £50m in the bank (as per last accounts) and had no debt. Had we taken a different approach.

£37m is a lot for us to spend on players and I know I’d have preferred that to the owners walking off with it, even if the transfers didn’t work out.

All a bit immaterial now, really, but there’s no doubt in my mind that the stockpiling of cash & withdrawal of investment in players, then taking the cash & allowing a leveraged buy out is a very bad way to run the club and has contributed to our current position.

[NewClaret]

I agree with the first paragraph - I think it's self-evident that there was a great deal of hubris about some of the pronouncements of the former owners.

And yes I hope there is more to the new structure than meets eye; however, where we seem to differ is that I see no evidence there is anything substantive and I'm not prepared to suggest there is until I see some.

With due respect you things like "If ALK invest in young talent to sell on and pay down the debt over time" as though it's easy and the norm. It's neither!

For me, these are fluff arguments that are said as though it is a meaningful strategy. Young talented British players are expensive, risky and we have a two year window before we won't be able to compete in the market.

Yep, the fans that lauded the financial management under MG were plain wrong. Unless there’s more to the structure than meets the eye, in which case I’ll be happy to be wrong.

I agree, there isn’t much to substantiate hope. And what there is to give me hope is pretty fluffy:

- MG’s proclamations of being a custodian and operating in the best interests of the club.
- Pace’s proclamations of a “beautiful deal”, “one day I hope the fans will love what we do”, etc.
- Dyche speaking highly of Pace/ALK (saying he trusts them, etc).
- VK saying “I see a plan, after a difficult start will come an incredible future”. No idea what that means, and it could be PR bs, but it’s enough to give me hope.

There’s a lot of experienced and clever people that appear to have bought in to the plan. Whatever it is!

I sense whatever I say, you’re the type of personality that will fear the worst and I’m the type that will hope for the best (albeit possibly naïvely), so I’m not trying to convince you, just explain my perspective.

My point re: Pace is that he has unquestionably recruited a) younger, exciting players with potential, and/or b) International standard. Orsic would have ticked this box too. I personally think he needed one or two more signings in that category, earlier, and we might not be where we are.

But anyhow, my point being that IF he maintains this approach, signs good quality internationals (Cullen, etc) and we go up & he uses player purchases/sales to sustainably develop the club and pay off the debt he took on, I will accept that because in my mind it’s a better model than the previous one, he’ll have added the value (through his decision making) to create funds and pay the debt. It won’t be easy or of guaranteed outcome though.

Re: British players, I’m not sure of your point. I was being critical of the previous owners for never looking abroad and going for overpriced British players (accepting Dyche may have been responsible for that too). We needed modernising in the recruitment dept and Pace seems to be doing that.

[gawthorpe_view]

Selling our best (younger) players to pay off ALK's debts will not go down well with most supporters.

[NewClaret]

Selling our best (younger) players to pay off ALK's debts will not go down well with most supporters.

Pretty sure we’ll have to get used to it given VK’s recent comments:

“It starts like this and we have a structure behind it that allows us to keep hold of the players we think are good for the club, bring in better players that we think are going to be good for the club in the long term, sell for a profit so we can grow the club naturally, and fight for a place above the level where we’re at now with the means to grow again.”

I don’t think we can reasonably expect that all the proceeds from a sale will be reinvested, some will have to go towards financing (as I expect Wood’s was).

[GodIsADeeJay81]

Selling our best (younger) players to pay off ALK's debts will not go down well with most supporters.

Is it any different to the club having to sell Charlie Austin to pay the bills?

[KRBFC]

Is it any different to the club having to sell Charlie Austin to pay the bills?

Absolutely it is, ALK ran up £100m of debts to BUY their own shares in the club, morally it's wrong. Austin was sold to balance the books because we didn't have rich owners, we were used to it. You wont remember Blake leaving to Birmingham, Ade leaving to Sheff Utd, Chaplow to WBA, Andy Gray leaving to Charlton. Selling our best players to balance the books was a regular occurrence.

[aggi]

Yep, the fans that lauded the financial management under MG were plain wrong. Unless there’s more to the structure than meets the eye, in which case I’ll be happy to be wrong.

...

I wouldn't necessarily agree with this. My view was that something along the lines of what Garlick was doing was a sensible approach to build up a sufficient reserve for when we went down. We could maybe have relaxed it a little but not much.

[gawthorpe_view]

Is it any different to the club having to sell Charlie Austin to pay the bills?

Yes.

[NewClaret]

I wouldn't necessarily agree with this. My view was that something along the lines of what Garlick was doing was a sensible approach to build up a sufficient reserve for when we went down. We could maybe have relaxed it a little but not much.

By “a little bit”, I assume you mean relaxed it by £37m? Since that’s how much we could have spent and be no worse cash position than we are now.

Or £102m if you want to include the debt (£87m following recent deductions, which I assume was funded by the Wood sale that could have otherwise been put back in to the club)?

On the face of it, it was a prudent strategy aimed at protecting the best interests of the club & I can understand why some fans supported it, but I cannot fathom why anyone would have anything other than complete contempt for it after the takeover.