The Mail Bag
Finance/Loan Moan
Comments (25)
Just a lesson on company finance for those moaning about the rate we're paying for a loan. You're never going to get a loan for 25 years at the current base rate. The Bank of England publishes LIBOR cash rates upto a year. Beyond that, it's very difficult to predict future interest rates and that's when you get into the world of swaps and hedging fixed for float cashflow payments on a notional amount.
You would also tend to pay a higher rate for a period further into the future because who knows what could happen. In 20 years, the Polar Ice caps melt and the economy collapses. At that point, the current base rate would look extremely attractive!
I'm not too bothered about the rate to be honest but what worries me is that we keep taking out large loans which we could potentially default on if times fall hard.
I actually think Everton have a fairly decent finance guy somewhere as they keep using option products as part of players contracts. Signing a player for 3 years with a further option of 2 years at a rate agreed today. Quite clever because if Moyes's judgement is good (which generally it is), most players net worth will go up playing for Everton but exercising the option enables us to pay only the price we paid today (rather than the inflated price in the future). If it turns out he's crap, then we only lose the small premium paid up front for taking out the option. It's a snip compared to the millions saved when silly season comes around.
I completely agree when people are concerned when we take out whopping great loans but please don't try and perform a high-level analysis of the terms of any agreements Everton make with financial counterparties.
I don't mean to be a smart arse, just a general view that people make grand sweeping statements on here without really thinking about it.
Dan Parker, Posted 15/11/2007 at 04:29:09
Comments
Note: the following content is not moderated or vetted by the site owners at the time of submission. Comments are the responsibility of the poster. Disclaimer
Ant
2 Posted 15/11/2007 at 10:22:53
2 Posted 15/11/2007 at 10:22:53
Steve L,
Could you pls turn down the noise and try to be more polite.
Could you pls turn down the noise and try to be more polite.
Steve Lyth
3 Posted 15/11/2007 at 10:37:53
3 Posted 15/11/2007 at 10:37:53
Ant, when people are trying to rubbish your opinion/view,with rubbish, I find it difficult to accept.
However, point taken, I will tone down my responses should this subject go any further.
Apologies if my rant has caused anyone particular offence barring Dan of course.
However, point taken, I will tone down my responses should this subject go any further.
Apologies if my rant has caused anyone particular offence barring Dan of course.
Allan Hobbs
4 Posted 15/11/2007 at 11:21:48
4 Posted 15/11/2007 at 11:21:48
Its funny how people go on the attack on Internet message boards; especially when they’re probably pretty balanced individuals in their day to day lives.
Steve - your point gets totally lost in your rant mate. Dan makes some decent points to my mind but you just shot yourself down by being rude and abusive.
I’m sure you have plenty of business acumen, so if you can make a counter-case rather than attacking Dan, lets hear it?
Steve - your point gets totally lost in your rant mate. Dan makes some decent points to my mind but you just shot yourself down by being rude and abusive.
I’m sure you have plenty of business acumen, so if you can make a counter-case rather than attacking Dan, lets hear it?
John Lloyd
5 Posted 15/11/2007 at 11:48:50
5 Posted 15/11/2007 at 11:48:50
Its called passion, sometimes you read things and when it concerns Everton (for me) you tend to go off on one & rant then after about an hour you can come back on & post something more sensibly.
Nobodies Perfect though
Nobodies Perfect though
Steve Lyth
6 Posted 15/11/2007 at 12:15:30
6 Posted 15/11/2007 at 12:15:30
Alan I have made a counter case with a bit of passion thrown in.The guy apparently is teaching me a lesson in the art of corporate finance and has accused me of making generalist sweeping statements.
I have been specific in my original post ( question for the agm ) and in my reply to him. If you cant see that then thats fine.
I have, never the less, apologised prior to your comments to all those who might feel I have been rude. Apologies once again if I have not made myself clear or indeed upset anyone outside of Mr Parker over the pond.
I have been specific in my original post ( question for the agm ) and in my reply to him. If you cant see that then thats fine.
I have, never the less, apologised prior to your comments to all those who might feel I have been rude. Apologies once again if I have not made myself clear or indeed upset anyone outside of Mr Parker over the pond.
Jay Harris
7 Posted 15/11/2007 at 12:13:18
7 Posted 15/11/2007 at 12:13:18
Just to put a bit of balance here. Secured loans which this is are normally negotiated at between 1 and 2 % above base rate which is cureently 4% depending on how risky the lender thinks your securityy id.That would mean a loan at 6% would see EFC as reasonably risky and at 5% very secure.
Now as I understand it the Board have taken a fixed rate loan for 25 years at 7.5% which if the best Keith Wyness could negotiate puts serious doubts over his ability. The extra 1.5% is costing £390,000 per year about the cost of Wyness's salary or the extra cost of an addditional Vaughan and Anicheb.
IT DOES NOT MAKE SENSE.
Now as I understand it the Board have taken a fixed rate loan for 25 years at 7.5% which if the best Keith Wyness could negotiate puts serious doubts over his ability. The extra 1.5% is costing £390,000 per year about the cost of Wyness's salary or the extra cost of an addditional Vaughan and Anicheb.
IT DOES NOT MAKE SENSE.
Steve Lyth
8 Posted 15/11/2007 at 12:26:23
8 Posted 15/11/2007 at 12:26:23
Oh whilst I am on Alan, I am merely responding to Dans allegations which are or a personal nature.
My reply was also meant to be personal, call that an attack if you want but I do think you have got things a little out of proportion.
My reply was also meant to be personal, call that an attack if you want but I do think you have got things a little out of proportion.
Steve Lyth
9 Posted 15/11/2007 at 12:30:41
9 Posted 15/11/2007 at 12:30:41
7.79% actually Jay
Allan Hobbs
10 Posted 15/11/2007 at 12:34:39
10 Posted 15/11/2007 at 12:34:39
He didn’t refer to anyone in particular Steve; if you’ve posted on this subject then clearly I’ve not seen it - I was merely going by this thread which on the face of it, looks like you;ve just laid into him.
My mistake.
Oh and John, I agree that of course this issue invokes more passion than other subjects might, but there’s always an element of ’attack’ about alot of posting on message boards due to the anonymity factor.
My mistake.
Oh and John, I agree that of course this issue invokes more passion than other subjects might, but there’s always an element of ’attack’ about alot of posting on message boards due to the anonymity factor.
Mike Kost
11 Posted 15/11/2007 at 12:36:05
11 Posted 15/11/2007 at 12:36:05
Maybe he has hit a nerve here Steve L.
Yep, you talk crap..now get back to the wilmslow ale ouse
Yep, you talk crap..now get back to the wilmslow ale ouse
Steve Lyth
12 Posted 15/11/2007 at 12:34:03
12 Posted 15/11/2007 at 12:34:03
And Jay to clarify, the loan was taken out in 2002 when bank base was 4%, it is currently 5.75% as I write.
To the best of my knowledge Keith Wyness had no involvement in arranging it.
To the best of my knowledge Keith Wyness had no involvement in arranging it.
Steve Lyth
13 Posted 15/11/2007 at 12:39:21
13 Posted 15/11/2007 at 12:39:21
Hey Mike , do you feel better now ?
Your a real tough guy aintcha
Your a real tough guy aintcha
Paul Quinn
14 Posted 15/11/2007 at 12:27:00
14 Posted 15/11/2007 at 12:27:00
Just to clarify a few points and add a few observations
Base rate and LIBOR are not necessarily the same rates - for example current base rate is 5.75% but 12 month LIBOR is currently 6.04%.
LIBOR is the rate for non secured loans between banks.
Most peoples? mortgages are related to base rates and may be 2% above base rates. Fixed rates too have similar margins attached.
To fix a 25 year rate when base rates were 4% maybe seen as a good deal given that base rates are currently 5.75%.
The "secured" loans that Everton have taken out are secured against future income not assets, as is the case with our mortgages, so may attract higher risk margins by banks - afterall who knows what sky?s appetite for football maybe in 10 years time?
Finally, by way of comparison it is interesting to note the rates of interest that Manchester United pay on the debt transferred to them after the Glazer purchase - it is as follows:
There are five separate loans.
The first loan of £75m was borrowed over seven years at a current interest rate of 8.81 per cent ? producing annual interest bill of £6.61m.
The second of £150m, borrowed over eight years at a current interest rate of 9.31 per cent, produces interest of £13.97m.
The third, also of £150m, over nine years at 9.69 per cent, is running up an annual interest bill of £14.53m.
Another 10-year £150m loan at 12.19 per cent is producing £18.28m annual interest, while the final £135m "Payment in Kind" loan is costing £23.3m in interest,
Now given the relative paucity of Everton?s finances one might argue (and I am sure the club will) that the current financing deal is as good as they could hope to achieve.
Base rate and LIBOR are not necessarily the same rates - for example current base rate is 5.75% but 12 month LIBOR is currently 6.04%.
LIBOR is the rate for non secured loans between banks.
Most peoples? mortgages are related to base rates and may be 2% above base rates. Fixed rates too have similar margins attached.
To fix a 25 year rate when base rates were 4% maybe seen as a good deal given that base rates are currently 5.75%.
The "secured" loans that Everton have taken out are secured against future income not assets, as is the case with our mortgages, so may attract higher risk margins by banks - afterall who knows what sky?s appetite for football maybe in 10 years time?
Finally, by way of comparison it is interesting to note the rates of interest that Manchester United pay on the debt transferred to them after the Glazer purchase - it is as follows:
There are five separate loans.
The first loan of £75m was borrowed over seven years at a current interest rate of 8.81 per cent ? producing annual interest bill of £6.61m.
The second of £150m, borrowed over eight years at a current interest rate of 9.31 per cent, produces interest of £13.97m.
The third, also of £150m, over nine years at 9.69 per cent, is running up an annual interest bill of £14.53m.
Another 10-year £150m loan at 12.19 per cent is producing £18.28m annual interest, while the final £135m "Payment in Kind" loan is costing £23.3m in interest,
Now given the relative paucity of Everton?s finances one might argue (and I am sure the club will) that the current financing deal is as good as they could hope to achieve.
Steve Lyth
15 Posted 15/11/2007 at 13:01:58
15 Posted 15/11/2007 at 13:01:58
Paul thanks for you observations, you will know as well as I that most Commercial mortgages are indeed linked to bank base rate.
The loans you refer to with manchester United are interesting, it is my understanding that this money was raised by way of corporate bond issuance and not bank borrowing.There is of course a much higher risk premium to be paid for corporate bonds than bank borrowing.
If I am wrong on the United debt issuance, apologies in advance.
The loans you refer to with manchester United are interesting, it is my understanding that this money was raised by way of corporate bond issuance and not bank borrowing.There is of course a much higher risk premium to be paid for corporate bonds than bank borrowing.
If I am wrong on the United debt issuance, apologies in advance.
Allan Hobbs
16 Posted 15/11/2007 at 13:47:06
16 Posted 15/11/2007 at 13:47:06
I’m well out of my depth now!
Much like most football clubs I’d imagine..
Much like most football clubs I’d imagine..
Dan Parker
17 Posted 15/11/2007 at 14:01:10
17 Posted 15/11/2007 at 14:01:10
Don’t worry Steve, I’m not offended and knew my post would prompt the rath of Toffee. My only thinking is that whilst your average business or mortgage holder can get decent rates, when you’re talking 20 odd million exposure to one counterparty, it’s not a gamble a bank would be willing to take. With smaller businesses and mortgage holders, the bank can offer a better rate because the risk is spread out over a large number of people and the chance of complete default is less....
Dan Parker
18 Posted 15/11/2007 at 14:05:39
18 Posted 15/11/2007 at 14:05:39
And apologies Steve if it came over as a personal attack, I didn’t intend it to be. I was really looking at the post plus the complete set of responses (including the editors). Just wanted to a add a bit more meat to the argument.
Paul Quinn
19 Posted 15/11/2007 at 14:12:31
19 Posted 15/11/2007 at 14:12:31
Steve - you are correct in saying that the MU debt is mainly corporate bond rather than straight borrowings from a bank. However I guess the point here is the rate of interest that the debt attracts, and I used MU as a means of comparison purely based on interest costs.
I?ll try to do some further analysis if time permits and comment further.
I?ll try to do some further analysis if time permits and comment further.
Steve Lyth
20 Posted 15/11/2007 at 14:09:43
20 Posted 15/11/2007 at 14:09:43
Dan I totally agree with your last comments, I took exception to the "lesson,generalist and sweeping ones as I thought they were definately aimed at me. Anyway I think I have made my position perfectly clear under my question for the agm thread, feel free to bring yourself up to date if you so wish.
I apologise for my use of bad language in my reply to you sir.
I apologise for my use of bad language in my reply to you sir.
Steve Lyth
21 Posted 15/11/2007 at 14:21:05
21 Posted 15/11/2007 at 14:21:05
Dan, Paul, many thanks for your latest comments appreciated.
Dan Parker
22 Posted 15/11/2007 at 14:23:53
22 Posted 15/11/2007 at 14:23:53
No problem and apologies again. It does look kinda targetted but it was probably just the build-up of weeks of daily message-post reading!
It does raise a question for me now though. Football clubs pay for the best players of course but in salary terms, I wonder where they come in for CEOs, accountants, marketers and general finance experts. In these areas, they have to compete against other industries such as banks and if they pay fairly average salaries, they’re not going to get the best people. In turn, they won’t get a good deal for Everton which is essential when you’re talking such large sums. I’m hoping, and it really is just hope, that Kenwright/Wyness have overhauled this since the Johnson era and that in reality, they really do know what they’re doing ahem.
It does raise a question for me now though. Football clubs pay for the best players of course but in salary terms, I wonder where they come in for CEOs, accountants, marketers and general finance experts. In these areas, they have to compete against other industries such as banks and if they pay fairly average salaries, they’re not going to get the best people. In turn, they won’t get a good deal for Everton which is essential when you’re talking such large sums. I’m hoping, and it really is just hope, that Kenwright/Wyness have overhauled this since the Johnson era and that in reality, they really do know what they’re doing ahem.
Steve Lyth
23 Posted 15/11/2007 at 14:32:30
23 Posted 15/11/2007 at 14:32:30
Well Dan, as I write Wyness earnt $898,860 last year, he has outsourced the Catering and Merchandising and has lost the club $12,660,000 in revenue in the process. I would say he is doing a sterling job ahem indeed.
Dan Parker
24 Posted 15/11/2007 at 14:46:26
24 Posted 15/11/2007 at 14:46:26
But now you can drink Chang beer in the ground in nice plastic Chang glasses......
Steve Lyth
25 Posted 15/11/2007 at 14:55:53
25 Posted 15/11/2007 at 14:55:53
Its not nice when its served warm Dan, let me assure you.
Have a good day fella
Have a good day fella
© ToffeeWeb
-sm.jpg)
-sm.jpg)
-sm.jpg)
-sm.jpg)
1 Posted 15/11/2007 at 09:50:19
Dont be handing out lessons when you dont know what your talking about.
I never said we could have got a loan at base rate .As you say who knows whats going to happen 20 yrs from now, what I do know is that you dont sign up for a 25 yr fixed rate when you dont know whats coming.I run my own company and you can talk about Libor,Swaps and hedging all you like, no businessman with any savvy is going to sign up for a fixed rate loan for 25 yrs, if he does he is a moron. There was nothing to stop the club linking the loan to base, variable,capped, tracked or fuckin otherwise . A 25yr fixed rate secured loan when BOE was 4% is a shite deal however which way you want to cut it.