FSG PR plant
- Aug 13, 2008
There are probably ways of structuring the £220M - for example, first charge on gate receipts - that would make access to the concessionary rate for £280M feasible and worthwhile. However, the one constant in the Echo coverage is that 'people just don't understand the deal', yet no one ever puts forward net cash flow for the City. That simple fact, plus the numbers bandied about combined with the PWLB's rates really make me think that Everton have simply realized that the deal isn't going to pass the smell test.According to this article in the Echo, it is looking increasingly unlikely that everton will avail itself of the £280 million on offer via the council.
"The ECHO understands that such a deal is not dead in the water - but that everton are more likely to go with a private investment option - with a number of parties registering their interest."
The simple fact of the matter is that it would be nigh impossible to raise an additional £220 million from private investors, if the council had first charge on everton's assets (as security for the £280 million loan). There would be little or nothing left to offer the private investors, effectively making the £220 million an unsecured loan.
The alternative, that the private investors would have first charge, would leave Liverpool council hopelessly exposed in the event of everton defaulting. Even though "Generous Joe" Anderson might want to proceed, it's unlikely that the Public Works Loan Board would sanction the deal.
Irrespective of where the money comes from, the question, as to how everton could possibly fund a £500 million project, remains unanswered.
Interesting to note that Liverpool is considered upper mid-range among indebted councils, not the worst but not great either - and this deal at a stroke would add ~60% to existing long-term debt, likely putting it among the most indebted councils in the UK.
As a stadium finance proposition, this reminds me of one of those terrible deals US cities enter into, where a city is left owning a stadium they don't have any other use for and the team they built it for screws them when it is time to renegotiate. A typical characteristic is the city is paying the principal, and the team is paying the interest for the initial term at least. However, in those deals, the city at least owns the property.
The simple fact of the matter is that a 25 year loan of £280M at 2.2% requires combined principal and interest payments of about £14.6M per annum, and all of the numbers tossed about suggest that Everton will be paying about half that - essentially, something like Year 1 interest. No wonder people don't understand the deal.