Burnley's MSD loan reduction essentially confirmed

[Paul Waine]

I do wonder whether this is actually the club credit. It needs to be accounted for somehow but I can't remember whether the amounts tie up.

Hi aggi, club credit is, of course, part of the purchase of the small shareholders shares. CP will recall the figures better than I do, I don't think the cash payment for the shares was as much as £10 million, so the club credit is very likely part of this figure also - though £10 million, I don't think covers both parts 100%.

[aggi]

Hi CP, firstly, a great result this afternoon. We can all enjoy that.

A couple of questions re your post, above.

1) Where are you getting all the stage payment information from? Is there anything in the public domain that suggests the amounts and the dates?

2) Why do you suggest that there will be impairment of the money owed to BFC by VSL? I get the "balancing" but, this doesn't make an argument that VSL won't be able to repay the money they owe BFC. I'm sure you are familiar with directors' legal duties to act in the fiduciary interests of the company that they are a director of. How does BFC directors deciding to reduce the amount owed to the club by VSL fit in with their fiduciary duties?

On the second point, I'm not really on with the "balancing" theory. I can't see an accounting reason for it.

However, the fiduciary duties of the directors need to be matched against the requirements of a statutory audit and assessing the recoverability of debtors.

I seem to remember the main expected mechanism for ALK to repay the loans was for the football club to pay dividends to ALK which ALK would then use to pay off the money that they owe to the football club.

If the club stays in the Championship for more than a couple of seasons it's going to impact on that mechanism. As an auditor I would be getting very concerned about signing off accounts where such a material balance was in doubt. You'd be getting a letter of support but I'm not convinced that would be sufficient by itself so you'd be wanting some evidence of ALK's funds and none of us know whether they exist.

[ClaretPete001]

Hi Pete, you've got some 'chutzpah," suggesting I'm "'gaslighting' when you are trying to gaslight the questions I've asked CP. I've asked CP is there is any public domain information that evidences the amount and dates of the instalment payments CP refers. I've also asked him why he believes the money owed by VSL will be reduced by 'impairment.' These are both factual questions. If CP wishes to respond by saying there is no public domain information that confirms these facts then that's fine. CP is usually very good about distinguishing between facts and his assumptions and personal opinions. 'Common sense' doesn't come into these questions.

I've noted the way you have responded to roperclaret. I think he's got the right idea. It progresses nothing if people continually state opinions when what we want is facts.

Roper Claret insinuated that those engaged in the debate are boring.

You said:

"Why do you suggest that there will be impairment of the money owed to BFC by VSL? I get the "balancing" but, this doesn't make an argument that VSL won't be able to repay the money they owe BFC. I'm sure you are familiar with directors' legal duties to act in the fiduciary interests of the company that they are a director of. How does BFC directors deciding to reduce the amount owed to the club by VSL fit in with their fiduciary duties?

Chester can respond, but in my opinion he is often at pains to make clear these are opinions based on best evidence, which he has to re-iterate over and over again: As do I.

As you say above VSL/ALK seem to have no external source of income and have been unable to secure meaningful investment so what do you think is going to happen to the £112 million?

Surely the integral argument is for you to admit you have no idea and let other debate the issue without asking for public domain information and facts.

Insisting on facts and public domain information and describing those who are engaged in debate as boring is gaslighting a debate.

[aggi]

Neither of these pieces of supporting evidence are really conclusive though. Good dots to join, I agree, but nevertheless inconclusive.

I personally would be amazed if a very astute businessman, which Pace undoubtedly is, agreed to buy a club without any future performance clauses. But even if he did and the amount is fixed, it doesn’t mean the timing is.

There’s two possibilities: your information is spot on, in which case someone has broken the confidentiality of private business agreement for you to be aware of the precise details (poor form on their behalf, if you don’t mind me saying it) or your information is incorrect - either partially, fully, knowing or unknowingly.

I don’t really know. I just think unless it’s fact it should be presented as opinion. There are things you know for certain and things you’ve concluded. I say this because your undoubtedly hugely better informed than the majority on here but that can sometimes mislead and cause miss information amongst supporters.

There's a third possibility, the information was disclosed due to a statutory requirement. The accounts for John B's company fall under such a requirement. This whole thread is based on market filings.

[NewClaret]

There's a third possibility, the information was disclosed due to a statutory requirement. The accounts for John B's company fall under such a requirement. This whole thread is based on market filings.

Aggi, which market fillings refer to the timing and amounts of the stage payments which CP is disclosing on here?

[ClaretPete001]

Hi Duffer_ no problems. I'm 'good' with opinions, though I'm also seeking facts that can help others share those opinions. I felt claretpete was out of order jumping on roperclaret. Roperclaret's opinion is just as worth expressing as all the others on this mb. He may be a new poster with just 24 posts to his name - or he may be an old poster re-engaging under a new user name. I don't think we are a closed group offering respect to the user names we've seen around for some time. We should also welcome new posters and give them our respect.

Millwall tonight. Looking forward to another great performance.

UTC

Claretroper said this...!

I’m sure I’m not they only one bored of the same few posters constantly banging on about the way the club was purchased. It’s not ideal , but it happened, just bloody get over it . You can’t change it.

Again I just see this as gaslighting.

Calling debates boring and suggesting posters are "banging" on about the way the club was purchased is designed to stop people discussing the issue.

I don't think this should be encouraged and I don't think such comments should be used to detract from what some of us feel is an important issue.

[Paul Waine]

On the second point, I'm not really on with the "balancing" theory. I can't see an accounting reason for it.

However, the fiduciary duties of the directors need to be matched against the requirements of a statutory audit and assessing the recoverability of debtors.

I seem to remember the main expected mechanism for ALK to repay the loans was for the football club to pay dividends to ALK which ALK would then use to pay off the money that they owe to the football club.

If the club stays in the Championship for more than a couple of seasons it's going to impact on that mechanism. As an auditor I would be getting very concerned about signing off accounts where such a material balance was in doubt. You'd be getting a letter of support but I'm not convinced that would be sufficient by itself so you'd be wanting some evidence of ALK's funds and none of us know whether they exist.

Agree with you on the directors' fiduciary duties - regardless of any other directorships they hold, every director has to make decisions based on what is best for the specific entity they are making those decisions for.

Agree also on the statutory audit and assessing the recoverability of debtors. I couldn't see how BFCHL had the dividend capacity to be able to cover all of the loans from BFCHL and BF&A to VSL entities, but obviously the auditors were able to sign off on that basis when the 31-July-2021 accounts were signed off by auditors and approved by directors on 28-April-2022.

It's too soon to be getting excited about the next set of accounts being published - due in another 8 months, assuming the same timetable is maintained.

UTC

[aggi]

Aggi, which market fillings refer to the timing and amounts of the stage payments which CP is disclosing on here?

They don't. I'm just making the point that a lot of information that people think is confidential will actually have to be disclosed somewhere for regulatory or statutory reasons. John B's accounts do reference the amounts due and there is no mention of it being contingent on staying up. Giving the chances of us being relegated you would definitely expect a disclosure in the accounts if that were the case.

[Paul Waine]

Claretroper said this...!

I’m sure I’m not they only one bored of the same few posters constantly banging on about the way the club was purchased. It’s not ideal , but it happened, just bloody get over it . You can’t change it.

Again I just see this as gaslighting.

Calling debates boring and suggesting posters are "banging" on about the way the club was purchased is designed to stop people discussing the issue.

I don't think this should be encouraged and I don't think such comments should be used to detract from what some of us feel is an important issue.

and yet you are quite content to 'gaslight' me.

I thought you post re roperclaret was uncalled for bullying.

[Raconteur]

I've studied your form Roper - 24 posts and tbh the only thing that is going to make our posts on this thread look less boring is you posting more on it.

What a weirdo!

[Chester Perry]

I do wonder whether this is actually the club credit. It needs to be accounted for somehow but I can't remember whether the amounts tie up.

the supporters held 7,578 shares

The offer of 50% cash, 50% club credit @ £1699.00 per share gives a maximum offer value of £12,875,022

I know some fans did not sell their shares including the supporters trust, however £10m appears somewhat low

so either VSL borrowed to cover expected club credit exercised in the financial year and will need to either stump up/borrow more to cover the remaining credit
OR
they have given themselves a discount on what they will pay on the club credit element spent,

[Chester Perry]

On the second point, I'm not really on with the "balancing" theory. I can't see an accounting reason for it.

However, the fiduciary duties of the directors need to be matched against the requirements of a statutory audit and assessing the recoverability of debtors.

I seem to remember the main expected mechanism for ALK to repay the loans was for the football club to pay dividends to ALK which ALK would then use to pay off the money that they owe to the football club.

If the club stays in the Championship for more than a couple of seasons it's going to impact on that mechanism. As an auditor I would be getting very concerned about signing off accounts where such a material balance was in doubt. You'd be getting a letter of support but I'm not convinced that would be sufficient by itself so you'd be wanting some evidence of ALK's funds and none of us know whether they exist.

Offer Letter to the small shareholders of October 2021:
“It is intended that this intercompany balance [the £65m loan from MSD forwarded to VSL] and the debt outstanding in respect of the BFC Funds will be cleared and settled in full through additional equity funding, or alternatively via funds from additional capital sources and/or other commercial activities.”

In the last accounts it became a bit more brutal

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
(Para 2.) 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.

It would be pointless for VSL to make dividend payments as over 10% of shares are not held by them - current shareholders have not received a dividend (I know some), Incidentally profits likely to be posted for the last financial year added to accumulated profits would allow for a dividend (full or interim) in excess of £65m, cashflow not so

The suggestion of impairment by myself was not for immediate application - I still suspect that if we are promoted this season we will look to borrow monies back from MSD - promotion will be expensive and new players will be needed.

However if we fail to get promoted there is a further payment due to MSD - that is when as aggi so clearly points out fiduciary responsibility will have to kick in

[dsr]

2) Why do you suggest that there will be impairment of the money owed to BFC by VSL? I get the "balancing" but, this doesn't make an argument that VSL won't be able to repay the money they owe BFC. I'm sure you are familiar with directors' legal duties to act in the fiduciary interests of the company that they are a director of. How does BFC directors deciding to reduce the amount owed to the club by VSL fit in with their fiduciary duties?

If the accounts show impairment of the loan, that isn't the same as the directors reducing the amount owed to the club. If, hypothetically, the £112m+ is written down in the next accounts to £50m, it doesn't mean that VSL owe the club only £50m. VSL would still owe the club £112m+ but the directors would be saying they think they will get only £50m back.

[ClaretPete001]

What a weirdo!

Again a poster with less than a 100 posts bandying around insults when it relates to clubs finances.

[dsr]

The thing about dividends is not just that the club has to have made sufficient profits in the past, but also that the directors must be able to show that the club can continue to repay its debts in the future. This might be tricky if we don't get back into the PL and the parachute payments stop.

[ClaretPete001]

and yet you are quite content to 'gaslight' me.

I thought you post re roperclaret was uncalled for bullying.

And to repeat what Roper said:

I’m sure I’m not they only one bored of the same few posters constantly banging on about the way the club was purchased. It’s not ideal , but it happened, just bloody get over it . You can’t change it.

This is just gaslighting and you are opportunistic in your use of my annoyance at it.

Again we are now talking about anything other than the club, which is what all these comments are designed to do.

[Raconteur]

Again a poster with less than a 100 posts bandying around insults when it relates to clubs finances.

Not at all. My bandying around of insults has nothing to do with the clubs finances and everything to do with your stalker behaviour. I stand by my insult, seeing as you seem to be continuing with that behaviour.

[ClaretPete001]

The thing about dividends is not just that the club has to have made sufficient profits in the past, but also that the directors must be able to show that the club can continue to repay its debts in the future. This might be tricky if we don't get back into the PL and the parachute payments stop.

If we don't get back in the PL everything will be tricky.

It also allows those who are of the mind to conflate the accounting concept of ALK repaying the loan with the reality that the club has to generate the dividends to facilitate ALK repaying the loan.

[NewClaret]

They don't. I'm just making the point that a lot of information that people think is confidential will actually have to be disclosed somewhere for regulatory or statutory reasons. John B's accounts do reference the amounts due and there is no mention of it being contingent on staying up. Giving the chances of us being relegated you would definitely expect a disclosure in the accounts if that were the case.

Understand that. My point was specifically in relation to the stage payment amounts and timing, which CP quoted, which are (to the best of my knowledge) speculation and confidential. I appreciate there are some knowns from the various accounts.

For example, one much-speculated point in the media was that Garlick may retake ownership if relegated. Whether that was true, based on the assumption the stage payments might not be met, or that the debt obligations would need to be funded from part of his receipts, I have no idea because details were scant. But I am pretty sure there would be some mechanisms/clauses in the deal that covered relegation that we’re not aware of from public information.

My point is just that we should be clear on what is certain and assumed, particularly when discussing a confidential business agreement.

Either way, amongst all the debate, we’ve got to a point where debt is halved and we have, in my opinion, a more balanced, sustainable and exciting squad. So long may both those two trends continue.

[claretonthecoast1882]

Again a poster with less than a 100 posts bandying around insults when it relates to clubs finances.

In fairness to raconteur he joined the forum 6 years before you did not sure why his posts should be dismissed based on his post total

[Chester Perry]

There's a third possibility, the information was disclosed due to a statutory requirement. The accounts for John B's company fall under such a requirement. This whole thread is based on market filings.

What we know from the Offer Letter to the small shareholders

1.2. Based on the terms of the Acquisition, the Sellers were to receive £1,652.86 per BHL Share, and more potentially subject to the Club achieving certain performance conditions in due course (the “Acquisition Price). The Acquisition Price reflects a substantial control premium in return for the sale of up to 94% of the issued share capital of BHL and board control.

of course Alan Pace famously declared that VSL had not paid £170m for their shares - in absolute terms that is true the 102,852 shares they acquired come to £169,999,956.72 but you have to see that he was wilfully misleading on the point

The FIH accounts ending December 31 2020, page 4, in the Business Review Section of that report had this to say on the transaction and nothing else

“The Company, as one of Burnley FC’s shareholders, participated in the sale of the club in 2020 to ALK Capital, …The payments to the Company are split into 5 future instalments to be received in 2021, 22 and 23”

It is clear from elsewhere in those accounts that the Upfront payment was not made in December 2020 but at a later date likely to be early January 2021 - there were then to be four stage payments is how I extrapolated it

[ClaretPete001]

Not at all. My bandying around of insults has nothing to do with the clubs finances and everything to do with your stalker behaviour. I stand by my insult, seeing as you seem to be continuing with that behaviour.

I don't mind you insulting me albeit I find it amusing that you think I read your or others posts other than those that address salient point on the thread.

The point I was making was how often you get people with less than a 100 posts insulting people, calling them boring and suggesting that they should stop talking about issues when the subject relates to the finances of the club.

[Raconteur]

I don't mind you insulting me albeit I find it amusing that you think I read your or others posts other than those that address salient point on the thread.

The point I was making was how often you get people with less than a 100 posts insulting people, calling them boring and suggesting that they should stop talking about issues when the subject relates to the finances of the club.

Fair do's. I just find it weird for someone to go and count somebodies post count and link that to the rate of insults thrown around. I don't think they are linked at all.

[ClaretPete001]

Fair do's. I just find it weird for someone to go and count somebodies post count and link that to the rate of insults thrown around. I don't think they are linked at all.

It was a fecking joke...!

The number of posts are next to his name on the right - I don't have to count or read them.

Clearly, I'm not only boring weird etc etc but my jokes are sh*t as well...

[Chester Perry]

As has been suggested above a lot of what I am being asked to clarify with documentary evidence I have answered a number of times previously - often to the same enquirers

In coming to the content of what I report there is a need to overlay evidence (factual and hearsay) to try and come to a reasonable position - thanks in no part to the approach taken by the ownership who are far from being open about their activities at the club

Sometimes when repeating myself I do not state whether what I am positing is supposition - In those instances where documentary evidence as previously been provided I say we know, In other cases I will reference comments made in the press or even by posters on this board

so for the very last time

We know that the initial sale was for £170m (102,852 shares @ £1652.86)

We know that on December 23 2020 Kettering Capital issued shares to a value of £98m, the pricing of those shares suggest that VSL put in £10m and a total of £88m was paid for by the MSD loan and money from the club - £65m + £23m)

This from the Offer Letter to the small shareholders supports the theory

1.3. The Acquisition has been funded from three sources:
a. equity investment from VS owners and investors;
b. a loan from MSD UK Holdings Limited a company incorporated in England and Wales with company number 12701276 and whose registered office address is at C/O Legalinx Limited Churchill House, Churchill Way, Cardiff, United Kingdom, CF10 2HH to CVHL (the “Third Party Loan”); and
c. cash from Burnley Football & Athletic Company Limited (“BFC”) (this cash being the “BFC Funds”).

It is reasonable to assume that and only that £98m constituted the upfront payment

£170m minus £98m leaves £72m for stage payments of which the FIH accounts lead us to believe there will be four to conclude in 2023

multiple posts on this board in August 2021 suggested there was a stage payment overdue and one even named their former director source - all were deleted by the mods, those stories appeared again on this around Christmas and were followed by the article in the mail. The recent accounts showed that £37m was loaned to VSL - by subtracting the £23m for the upfront payment contribution I came to a stage payment valuation of £14m. There is a quibble about the year end date and the alleged date of September on the stage payment, but I am comfortable with the value and the date

I was approached with information about March and June stage payments this year with valuations given to them, I know this individual has relationships with many at the club (including the boardroom) past and present, I approached others to see if he could offer any corroboration to the information. I got some so initially posted about dates and ball park ranges of monies involved, other posters came with their own validation and figures which aligned with what I was told and confirmed what I had posted about MG activating clauses in the sale contract to enforce the late March payment

Information in the last edition of the London Clarets Magazine (which is still read by former directors) stated that there was an overpayment of the March sum when it was eventually made, meaning the June payment was pushed out until September - CT has posted more than once that his information was the March and June payments has been paid in full. I accept CT's trust and understanding of what he was told but suspect there was flaw in the detail which means that the September payment remains as outlined above

[Chester Perry]

If the accounts show impairment of the loan, that isn't the same as the directors reducing the amount owed to the club. If, hypothetically, the £112m+ is written down in the next accounts to £50m, it doesn't mean that VSL owe the club only £50m. VSL would still owe the club £112m+ but the directors would be saying they think they will get only £50m back.

Thank you for the clarification - it is good to know

[Chester Perry]

So I have been thinking about the strange total of repayment to MSD

£33.3m is a weirdly precise sum - if indeed it is the final figure required by that relegation clause in the loan agreement which was outlined here

Burnley Football & Athletic Club Limited Notes to the Financial Statements for the year ended July 31 2021:
19 Financial commitments, guarantees, contingent assets and contingent liabilities
Group borrowings
(Para 4.) The capital element of the loan is due for repayment by Burnley FC Holdings Limited in December 2025 with interest only payments being required up to that point, providing the club remains in the Premier League. In the event of the club’s relegation from the Premier League, the repayments schedule for the capital element of the loan is brought forward, with a significant proportion falling due for repayment shortly after the end of the football season in which the relegation event takes place. This repayment would, therefore, be expected to fall due within less than one year from the balance sheet date in these circumstances. In a continuing relegation scenario, a further significant reduction of the loan balance would also take place in the following season. These amounts are subject to agreement between the parties.

by taking this statement into consideration

MSD UK Holdings Limited Notes to Financial Statements for the year ended December 31 2020
2 Significant Accounting Policies,
(d) Critical Accounting Judgements and Key Sources of Estimation Uncertainty,
Critical Judgements in Applying the Company’s Accounting Policies,
Business Model Assessment
Paragraph 3 “…Whilst there are early repayment penalties, the Directors consider the penalty to be materially equivalent to the lost interest that would have been received, but would highlight that this is an area of judgement.”

I have a suspicion the the total figure paid (allowing for 2.5 years lost interest on the sum repaid and discounting for advance payment on it with the penalty) to be much more like a round figure of £40m in total

[Paul Waine]

If the accounts show impairment of the loan, that isn't the same as the directors reducing the amount owed to the club. If, hypothetically, the £112m+ is written down in the next accounts to £50m, it doesn't mean that VSL owe the club only £50m. VSL would still owe the club £112m+ but the directors would be saying they think they will get only £50m back.

Fully agree, dsr.

[Paul Waine]

As has been suggested above a lot of what I am being asked to clarify with documentary evidence I have answered a number of times previously - often to the same enquirers

I was approached with information about March and June stage payments this year with valuations given to them, I know this individual has relationships with many at the club (including the boardroom) past and present, I approached others to see if he could offer any corroboration to the information. I got some so initially posted about dates and ball park ranges of monies involved, other posters came with their own validation and figures which aligned with what I was told and confirmed what I had posted about MG activating clauses in the sale contract to enforce the late March payment

Information in the last edition of the London Clarets Magazine (which is still read by former directors) stated that there was an overpayment of the March sum when it was eventually made, meaning the June payment was pushed out until September - CT has posted more than once that his information was the March and June payments has been paid in full. I accept CT's trust and understanding of what he was told but suspect there was flaw in the detail which means that the September payment remains as outlined above

Thanks, CP. I now understand where the instalment amounts and dates come from.

UTC

[Chester Perry]

So I have been thinking about the strange total of repayment to MSD

£33.3m is a weirdly precise sum - if indeed it is the final figure required by that relegation clause in the loan agreement which was outlined here

yes I know it is £32.3m - fat fingers

[Paul Waine]

yes I know it is £32.3m - fat fingers

I've been thinking about MSD charging a penalty on early repayment. English law doesn't allow penalties, all they allow is the loss suffered - which when it cannot easily be defined is pre-estimated as liquidated damages. If MSD are able to withdraw the TISE securities which were paying 8% interest, then MSD pay only be able to claim as their loss the Libor margin that BFCHL is paying over and above 8%. So, for every £10 million early repayment we can estimate the penalty at 2% (roughly where 3 months libor is at present) so, £200,000 per £10 million per number of years.

I wouldn't worry too much about "round numbers." When you are handling millions and it's an expense, anything you can reduce from expenses is worth saving.

This always assuming the early repayment penalty applies when the original term loan requires agreement on early repayment amount in the event of relegation. This being different than VSL voluntarily making an early repayment.

Just thoughts. Nothing to stand any of this up at this time.

[Bertie2015]

If we don't get back in the PL everything will be tricky.

It also allows those who are of the mind to conflate the accounting concept of ALK repaying the loan with the reality that the club has to generate the dividends to facilitate ALK repaying the loan.

Do you think BFC declares a dividend off the back of player registration profits and maybe trading profits (if the parachute payments and lower wage bill allows). Any such dividends are then used to reduce the amounts owed to BFC by VSL?

[roperclaret]

And to repeat what Roper said:

I’m sure I’m not they only one bored of the same few posters constantly banging on about the way the club was purchased. It’s not ideal , but it happened, just bloody get over it . You can’t change it.

This is just gaslighting and you are opportunistic in your use of my annoyance at it.

Again we are now talking about anything other than the club, which is what all these comments are designed to do.

I suggest you look up the meaning of the word Gaslighting. All I’m doing is letting you know how bored a lot of people are now, tbf it’s relevant to this thread I suppose, but the boring bit is when it gets brought up on every other non finance related thread.

[ClaretPete001]

I've been thinking about MSD charging a penalty on early repayment. English law doesn't allow penalties, all they allow is the loss suffered - which when it cannot easily be defined is pre-estimated as liquidated damages. If MSD are able to withdraw the TISE securities which were paying 8% interest, then MSD pay only be able to claim as their loss the Libor margin that BFCHL is paying over and above 8%. So, for every £10 million early repayment we can estimate the penalty at 2% (roughly where 3 months libor is at present) so, £200,000 per £10 million per number of years.

I wouldn't worry too much about "round numbers." When you are handling millions and it's an expense, anything you can reduce from expenses is worth saving.

This always assuming the early repayment penalty applies when the original term loan requires agreement on early repayment amount in the event of relegation. This being different than VSL voluntarily making an early repayment.

Just thoughts. Nothing to stand any of this up at this time.

As far as I understand it the Directors of MSD are suggesting that the penalties are in effect interest payments under SSPS 9 and the SPPI test.

It seems unlikely to me that MSD would allow themselves to be materially affected by an assets poor performance. And while I would ponder whether the Group directors would sign up to such harsh penalties I would think it is a reasonable assumption that some portion of the interest MSD lost as a consequence of relegation will be recouped by MSD.

[Chester Perry]

I've been thinking about MSD charging a penalty on early repayment. English law doesn't allow penalties, all they allow is the loss suffered - which when it cannot easily be defined is pre-estimated as liquidated damages. If MSD are able to withdraw the TISE securities which were paying 8% interest, then MSD pay only be able to claim as their loss the Libor margin that BFCHL is paying over and above 8%. So, for every £10 million early repayment we can estimate the penalty at 2% (roughly where 3 months libor is at present) so, £200,000 per £10 million per number of years.

I wouldn't worry too much about "round numbers." When you are handling millions and it's an expense, anything you can reduce from expenses is worth saving.

This always assuming the early repayment penalty applies when the original term loan requires agreement on early repayment amount in the event of relegation. This being different than VSL voluntarily making an early repayment.

Just thoughts. Nothing to stand any of this up at this time.

I have been wondering about that final point for a few days now (I am writing about the MSD relationship for the next edition of the London Clarets mag as we speak)

It may interest you to know that those same December 31 2020 accounts clearly state that the TISE listings are effectively a means of transferring interest payments to the parent company MSD UK Holdings Ltd in Grand Cayman in a tax efficient manner and specifically state that none of the loans they have made have been sold on the open market

The also mention the use of Libor in some of their agreements which we all appeared to miss previously

[dsr]

I've been thinking about MSD charging a penalty on early repayment. English law doesn't allow penalties, all they allow is the loss suffered - which when it cannot easily be defined is pre-estimated as liquidated damages. If MSD are able to withdraw the TISE securities which were paying 8% interest, then MSD pay only be able to claim as their loss the Libor margin that BFCHL is paying over and above 8%. So, for every £10 million early repayment we can estimate the penalty at 2% (roughly where 3 months libor is at present) so, £200,000 per £10 million per number of years.

I wouldn't worry too much about "round numbers." When you are handling millions and it's an expense, anything you can reduce from expenses is worth saving.

This always assuming the early repayment penalty applies when the original term loan requires agreement on early repayment amount in the event of relegation. This being different than VSL voluntarily making an early repayment.

Just thoughts. Nothing to stand any of this up at this time.

"Penalty" is a misleading word. In contracts, especially between relatively rich corporate entities who can be assumed to know what they are doing, can contain all sorts of clauses. This may be known as a penalty clause, but in effect it is just a term and condition that if BFC want to take a certain action, there will be a contracted cost which is xxxx. It's not a penalty like a car parking penalty or a speeding penalty, issued as a punishment; it's just a consequence of the contract.

[Chester Perry]

As far as I understand it the Directors of MSD are suggesting that the penalties are in effect interest payments under SSPS 9 and the SPPI test.

It seems unlikely to me that MSD would allow themselves to be materially affected by an assets poor performance. And while I would ponder whether the Group directors would sign up to such harsh penalties I would think it is a reasonable assumption that some portion of the interest MSD lost as a consequence of relegation will be recouped by MSD.

They are indeed very clear about that point

[Chester Perry]

On the second point, I'm not really on with the "balancing" theory. I can't see an accounting reason for it.

However, the fiduciary duties of the directors need to be matched against the requirements of a statutory audit and assessing the recoverability of debtors.

I seem to remember the main expected mechanism for ALK to repay the loans was for the football club to pay dividends to ALK which ALK would then use to pay off the money that they owe to the football club.

If the club stays in the Championship for more than a couple of seasons it's going to impact on that mechanism. As an auditor I would be getting very concerned about signing off accounts where such a material balance was in doubt. You'd be getting a letter of support but I'm not convinced that would be sufficient by itself so you'd be wanting some evidence of ALK's funds and none of us know whether they exist.

I know we are still awaiting reporting from Kettering Capital Limited and Calder Vale Holdings Limited (due in October) but could it be argued that they are technically insolvent.

I notice that the Charges from MSD still lie on them though we are told their responsibility has been assumed by Burnley FC Holdings Limited

[ClaretPete001]

They are indeed very clear about that point

You may have mentioned this before but in note 2 (e) (i) it talks about relegation and the need of clubs to sell collatoral at discounted prices should a club be unable to pay either loan or interest MSD would expect the club to sell assets at discounted prices.

More supposition and conjecture but this could explain the early sale of Pope at what many now consider a disappointing price.

[GodIsADeeJay81]

You may have mentioned this before but in note 2 (e) (i) it talks about relegation and the need of clubs to sell collatoral at discounted prices should a club be unable to pay either loan or interest MSD would expect the club to sell assets at discounted prices.

More supposition and conjecture but this could explain the early sale of Pope at what many now consider a disappointing price.

1yr left on contract
No other offers
Pope wanted PL football due to it being world cup season.

We can go with that or what you're thinking ...

[aggi]

I've been thinking about MSD charging a penalty on early repayment. English law doesn't allow penalties, all they allow is the loss suffered - which when it cannot easily be defined is pre-estimated as liquidated damages. If MSD are able to withdraw the TISE securities which were paying 8% interest, then MSD pay only be able to claim as their loss the Libor margin that BFCHL is paying over and above 8%. So, for every £10 million early repayment we can estimate the penalty at 2% (roughly where 3 months libor is at present) so, £200,000 per £10 million per number of years.

I wouldn't worry too much about "round numbers." When you are handling millions and it's an expense, anything you can reduce from expenses is worth saving.

This always assuming the early repayment penalty applies when the original term loan requires agreement on early repayment amount in the event of relegation. This being different than VSL voluntarily making an early repayment.

Just thoughts. Nothing to stand any of this up at this time.

As dsr says, this is easily circumvented by the penalty not being a penalty but part of the agreed terms. Look at mortgages and early repayment penalties, they are in no way indicative of the loss suffered on the basis of the above. You could also argue that the loss suffered is the interest that would have been received from Burnley over the life of the loan.

Personally I don't believe the penalties would have been that severe, it's also in MSD's interest to get some capital element of the loan repaid on relegation.

[Chester Perry]

1yr left on contract
No other offers
Pope wanted PL football due to it being world cup season.

We can go with that or what you're thinking ...

absolutely nothing to say that the one counts out the other on this - Likely the sale was needed in the a specific time frame and this was what could be obtained with the buyers position being as you say

[aggi]

I know we are still awaiting reporting from Kettering Capital Limited and Calder Vale Holdings Limited (due in October) but could it be argued that they are technically insolvent.

I notice that the Charges from MSD still lie on them though we are told their responsibility has been assumed by Burnley FC Holdings Limited

It could but that's not unusual for a group company. Once they're rolled up into the group those intercompany loans disappear.

[Chester Perry]

As dsr says, this is easily circumvented by the penalty not being a penalty but part of the agreed terms. Look at mortgages and early repayment penalties, they are in no way indicative of the loss suffered on the basis of the above. You could also argue that the loss suffered is the interest that would have been received from Burnley over the life of the loan.

Personally I don't believe the penalties would have been that severe, it's also in MSD's interest to get some capital element of the loan repaid on relegation.

all very reasonable and level headed from you as usual

I sill suspect sum fee was paid whether that rounds it up to £35m or £40m or somewhere inbetween, It is the fractional nature of a 49.69% repayment that makes me really think that

[ClaretPete001]

all very reasonable and level headed from you as usual

I sill suspect sum fee was paid whether that rounds it up to £35m or £40m or somewhere inbetween, It is the fractional nature of a 49.69% repayment that makes me really think that

I agree, the interest due is MSDs future revenue stream. I can't imagine them standing the full cost of ALKs failure.

But, of course, we don't know nor is it ever likely to be in the public domain until the accounts come out next July - if then...!

[ClaretPete001]

1yr left on contract
No other offers
Pope wanted PL football due to it being world cup season.

We can go with that or what you're thinking ...

That's the point - I'm not thinking anything.

The owners of the club have likely put it in a position where a finance company can sell players on the cheap if it suits them...!

It's quite possible it became a factor in the sale of Pope or it may not have been.

[Chester Perry]

You may have mentioned this before but in note 2 (e) (i) it talks about relegation and the need of clubs to sell collatoral at discounted prices should a club be unable to pay either loan or interest MSD would expect the club to sell assets at discounted prices.

More supposition and conjecture but this could explain the early sale of Pope at what many now consider a disappointing price.

Indeed I have mentioned it before

given this is a day for posting Factual evidence - This is what the MSD UK Holdings Limited, December 31 2020 accounts say

2. Significant Accounting Policies, (e) Financial Instruments,
(i) Classification,
Financial Assets and Financial Liabilities Measured at Amortised Cost

Paragraph 5 forward “…The company recognises ECL Impairments outlined by IFRS 9 in a ‘three-stage’ model to the changes in credit quality for credit counterparties since initial recognition. The Directors have classified all loans as stage 1 as there has been no significant increase in credit risk from the date of origination. In completing the ECL assessment, the Directors have performed a weighted scenario based assessment as discussed below.

• The first scenario is our base case scenario considers the current environment in which i) all investments were issued within a six month period ending 31 December 2020, ii) all UK football teams have confirmed solvency within the European governing body, UEFA, for an 18 month period, and iii) as of 31 December 2020, all investments are performing and cash paying

• The second scenario assumes the UK football teams cannot pay a portion of the balance due at maturity. Additionally, cash flows and the value of the investment s fluctuate depending on the investments’ current sporting performance and financial situation. In this scenario, the UK football club finishes the season in the bottom two/three spots of their national league and demoted to a lower division, which has implications on club revenues. The Company would require sale of the collateral in an orderly fashion and review comparable market transactions to support.

• The final scenario assumes the UK football teams cannot pay any portion of the loan (interest/principal)/ the UK football teams finishes the season in the bottom two/three spots of their national league and demoted to a lower division, which has implications on club revenues. The Company would require a sale of the collateral at discounted prices from current comparable transactions.”

and for the sake of completeness here is the full section addition made to the Burnley FC Holdings Limited articles of association that enshrines the capability for MSD on the club via the charge placed on it

Part 6 Secured Institution.
58 Secured Institution
58 1 Notwithstanding anything contained on these articles or otherwise:
(c) Any pre-emption rights conferred on existing members or any other person by these articles or other wise and any other restrictions on or conditions applicable to the transfer of shares contained in these articles or otherwise shall not apply to; and
(d) the directors shall not refuse to register, nor suspend registration of, any transfer of shares where such transfer is:
v. to a bank, lender, fund, financial institution or other person to which or to whom such shares are charged by way of security (whether as lender, agent, trustee or otherwise) (a “Secured Institution”), or to any nominee of such a secured Institution.
vi. Executed by a Secured Institution or its nominee, pursuant to a power of sale or other power under any security document;
vii. Executed by a receiver or manager appointed by a Secured Institution pursuant to any security document; and/or
viii. Delivered to the company for registration by a Secured Institution or its nominee or by a receiver or manager appointed by a Secured Institution.

58 2 Any present or future lien on shares howsoever arising which the company has shall not apply in respect of any shares which have been charged by way of security to, or otherwise secured in favour of a secured Institution or which are transferred in accordance with the provisions of this Article

58 3 A certificate executed by the Secured Institution to which or whom such security interest has been or is being granted, certifying that the aforementioned shares are subject to such security shall be conclusive evidence of such a fact.

58 4 A certificate executed by the Secured Institution or its nominee or by a receiver or manager appointed by the Secured Institution, certifying that the aforesaid transfer has been executed in accordance with the provisions of this Article, shall be conclusive evidence of such fact.

58 5 For the purposes of this Article, “person” includes any person, individual, firm, company, corporation, government, state or agency of state or any undertaking (within the meaning od section 1161(1) of the Companies Act 2006) or other association (whether or not having separate legal personality) or any two or more of the foregoing.”

Essentially MSD has primacy over all other interests in recovering its debt. It is worth noting that both Southampton and Derby have also made very similar changes to their own Articles of Association. It would seem to be a ‘standard’ approach for this type of credit and creditor, a point underlined by the fact West Ham did not have to make such a change to their articles prior to activation of their MSD loan. Such accommodations in their articles were already in place as they have entered into this type of agreement previously with other lenders.

[Paul Waine]

I have been wondering about that final point for a few days now (I am writing about the MSD relationship for the next edition of the London Clarets mag as we speak)

It may interest you to know that those same December 31 2020 accounts clearly state that the TISE listings are effectively a means of transferring interest payments to the parent company MSD UK Holdings Ltd in Grand Cayman in a tax efficient manner and specifically state that none of the loans they have made have been sold on the open market

The also mention the use of Libor in some of their agreements which we all appeared to miss previously

I'll look forward to reading the next edition of London Clarets mag.

I see the mention of Offshore Fund in MSD UK accounts. I also see where they discuss their business model and the classification of the loans as measured at amortised amounts rather than at fair value. I don't see a specific mention of "tax efficient manner..." - though there's a lot of details in the accounts. The loans would have to be measured at fair value if they were held to be sold (traded) on the loan market.

I'm not sure why you say we missed libor previously? The BFCHL accounts say the club pays libor + 8% - several on here have taken this into account in estimating the interest to be paid. I recall saying this would almost invariably be 3-month libor. I now see that MSD accounts confirms their use of 3-month Libor: Interest Rate Risk, page 28.

Transition away from libor and replacement by SONIA has been known about for a number of years. IFRS 16 Interest Rate Benchmark Reform - Phase 2 (effective 1 January 2022) is mentioned on page 18 of MSD accounts. I'm not up-to-speed on the details of the transition. (I'm retired, so don't feel the need to master the differences between 3-month Libor and SONIA).

[Chester Perry]

I'll look forward to reading the next edition of London Clarets mag.

I see the mention of Offshore Fund in MSD UK accounts. I also see where they discuss their business model and the classification of the loans as measured at amortised amounts rather than at fair value. I don't see a specific mention of "tax efficient manner..." - though there's a lot of details in the accounts. The loans would have to be measured at fair value if they were held to be sold (traded) on the loan market.

I'm not sure why you say we missed libor previously? The BFCHL accounts say the club pays libor + 8% - several on here have taken this into account in estimating the interest to be paid. I recall saying this would almost invariably be 3-month libor. I now see that MSD accounts confirms their use of 3-month Libor: Interest Rate Risk, page 28.

Transition away from libor and replacement by SONIA has been known about for a number of years. IFRS 16 Interest Rate Benchmark Reform - Phase 2 (effective 1 January 2022) is mentioned on page 18 of MSD accounts. I'm not up-to-speed on the details of the transition. (I'm retired, so don't feel the need to master the differences between 3-month Libor and SONIA).

In terms of missed I was thinking of the discussions on the Grim thread prior to the last accounts release

from the little I understand the Sonia rates are higher than the LIBOR rates and by quite a measure last time I looked in May

[Paul Waine]

"Penalty" is a misleading word. In contracts, especially between relatively rich corporate entities who can be assumed to know what they are doing, can contain all sorts of clauses. This may be known as a penalty clause, but in effect it is just a term and condition that if BFC want to take a certain action, there will be a contracted cost which is xxxx. It's not a penalty like a car parking penalty or a speeding penalty, issued as a punishment; it's just a consequence of the contract.

As dsr says, this is easily circumvented by the penalty not being a penalty but part of the agreed terms. Look at mortgages and early repayment penalties, they are in no way indicative of the loss suffered on the basis of the above. You could also argue that the loss suffered is the interest that would have been received from Burnley over the life of the loan.

Personally I don't believe the penalties would have been that severe, it's also in MSD's interest to get some capital element of the loan repaid on relegation.

Thanks, dsr and aggi. Some of the companies I worked with fit with the phrase "relatively rich corporate entities..." I don't recall how many large contracts I was involved in negotiating when I was working, easily several hundred over 30 years or so. All the major engineering contracts I handled included "liquidated damages" clauses. The commodity derivatives contracts (often ISDA based) contained provisions that estimated the mark-to-market fair value under those contracts, including the right to recover the full mark-to-market loss in the event of the other parties default. I've had occasions when I've successfully enforced those provisions.

If MSD were lending to BFCHL at Libor + 8% and funding those loans by borrowing from Offshore Fund at 8% I can easily agree that MSD's loss on early repayment is the Libor margin. We shouldn't overlook that MSD receives repayment of the principal and can, as we've seen on TISE, can withdraw these element of the funding when they require. Maybe there is an argument that they could have been earning Libor + 8% on the money, but it can also be argued that they (or Offshore Fund) have the opportunity to lend at Libor + 8% to another entity when they are repaid.