Anfield Expansion - Main Stand and potential Anfield Road End

Arminius

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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.
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.

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.
 

Lowton_Red

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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.

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.
When generous Joe first proposed that the council should act as financial guarantor for everton's stadium project, the plan was to set up a Special Purpose Veheicle to help everton secure the funding it needed by acting as guarantor. In return the SPV would receive £4.4 million per year and have first call on Everton's income from season ticket sales, gate receipts, TV rights and so-called parachute payments for clubs relegated from the Premier League.

Subsequently Joe's plan has been modified to the effect that the SPV will now borrow the money from the PWLB, and loan it on to everton, charging a premium of £6.5 million per year. Clearly the SPV will require at least the same level of security (if not more), and consequently, as far as I can tell, that doesn't leave much (anything?) else to act as security for the private investment.

It is therefore very unlikely that everton could secure an additional £220 million from private sources at anything other than usurious rates of interest and with a relatively short term e.g. ten years.

As for the applicable interest rate for the PWLB loan, the project would not be eligible for access to the Local Infrastructure Rate (interest reduced by 40 basis points). Liverpool is eligible to apply for loans at the Certainty Rate (interest reduced by 20 basis points), consequently, the cheapest rate currently available would be 2.38% for a capital and interest loan (Equal Instalments of Principal (EIP): equal half-yearly instalments of principal together with interest on the balance outstanding at the time)

This equates to annual repayments to the PWLB starting at £17.9 million, and subsequently reducing over the years to £17.6 million year two, £17.3 million year three, £17.0 million year four, £16.8 million year five, and so on and so forth.

To enable Liverpool council to make an annual "profit" of £6.5 million on the deal, everton will have to pay the SPV the amount due to the PWLB plus £6.5 million each year.

Add in the likely repayments for the privately funded loan (c.a. £28 million p.a.), everton could be looking at annual repayments in excess of £50 million per year. Assuming that they could fill a 60,000 seat stadium (lol), their average ticket price would have to double just to cover costs, and that would still leave them £17 million a year worse off than if they stayed put.

Talk about the economics of the madhouse.
 

Lowton_Red

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Maybe an unnecessary question but are there some drawnings to see how the ARE stand maybe is gonna look like after expanding it??
These are the only drawings I can find, showing the projected side elevation:

There is also this wind tunnel model:
 

Arminius

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When generous Joe first proposed that the council should act as financial guarantor for everton's stadium project, the plan was to set up a Special Purpose Veheicle to help everton secure the funding it needed by acting as guarantor. In return the SPV would receive £4.4 million per year and have first call on Everton's income from season ticket sales, gate receipts, TV rights and so-called parachute payments for clubs relegated from the Premier League.

Subsequently Joe's plan has been modified to the effect that the SPV will now borrow the money from the PWLB, and loan it on to everton, charging a premium of £6.5 million per year. Clearly the SPV will require at least the same level of security (if not more), and consequently, as far as I can tell, that doesn't leave much (anything?) else to act as security for the private investment.

It is therefore very unlikely that everton could secure an additional £220 million from private sources at anything other than usurious rates of interest and with a relatively short term e.g. ten years.

As for the applicable interest rate for the PWLB loan, the project would not be eligible for access to the Local Infrastructure Rate (interest reduced by 40 basis points). Liverpool is eligible to apply for loans at the Certainty Rate (interest reduced by 20 basis points), consequently, the cheapest rate currently available would be 2.38% for a capital and interest loan (Equal Instalments of Principal (EIP): equal half-yearly instalments of principal together with interest on the balance outstanding at the time)

This equates to annual repayments to the PWLB starting at £17.9 million, and subsequently reducing over the years to £17.6 million year two, £17.3 million year three, £17.0 million year four, £16.8 million year five, and so on and so forth.

To enable Liverpool council to make an annual "profit" of £6.5 million on the deal, everton will have to pay the SPV the amount due to the PWLB plus £6.5 million each year.

Add in the likely repayments for the privately funded loan (c.a. £28 million p.a.), everton could be looking at annual repayments in excess of £50 million per year. Assuming that they could fill a 60,000 seat stadium (lol), their average ticket price would have to double just to cover costs, and that would still leave them £17 million a year worse off than if they stayed put.

Talk about the economics of the madhouse.
The only question I have there is that I have not actually seen that £6-7M payment described as a 'premium' elsewhere, over and above the payments of principal and interest. If that was actually what was going on, it would be a questionable deal nonetheless, because of the hit to Liverpool's capacity to borrow, but it would not be the massive transfer of wealth from public purse to private owner - as you say, the economics would simply be crap.
 

Lowton_Red

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The only question I have there is that I have not actually seen that £6-7M payment described as a 'premium' elsewhere, over and above the payments of principal and interest. If that was actually what was going on, it would be a questionable deal nonetheless, because of the hit to Liverpool's capacity to borrow, but it would not be the massive transfer of wealth from public purse to private owner - as you say, the economics would simply be crap.
It's the only way I can make anything approaching sense* out of the proposed deal.

When the deal was originally formulated, it was anticipated/stated that the SPV would earn £4.4 million per year, purely by acting as loan guarantor for everton. Now that the SPV's role has expanded into being the actual lender it must surely be earning more, not less. So the £6.5 million per year must be the premium it charges everton in addition to the moneys everton must pay to the SPV to reimburse the PWLB.

The morality of Liverpool council borrowing at preferential low rates from the Government, to lend at favourable rates to a private entity is questionable.

Questionable, but permissible if the council makes a reasonable return on the deal.

If the council knowingly makes a loss on the deal, it goes several steps beyond immoral.

*I'm using the word "sense" in its loosest possible meaning.
 

Arminius

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It's the only way I can make anything approaching sense* out of the proposed deal.

When the deal was originally formulated, it was anticipated/stated that the SPV would earn £4.4 million per year, purely by acting as loan guarantor for everton. Now that the SPV's role has expanded into being the actual lender it must surely be earning more, not less. So the £6.5 million per year must be the premium it charges everton in addition to the moneys everton must pay to the SPV to reimburse the PWLB.

The morality of Liverpool council borrowing at preferential low rates from the Government, to lend at favourable rates to a private entity is questionable.

Questionable, but permissible if the council makes a reasonable return on the deal.

If the council knowingly makes a loss on the deal, it goes several steps beyond immoral.

*I'm using the word "sense" in its loosest possible meaning.
One of the Echo pieces characterized that as Everton paying £6-7M of interest per year - which at the 2.38% you note is going to be very close to the Year 1 interest rate obligation. It was the line that made me curious as to whether or not it was concessionary or even 0%, because it implied the City could just keep that interest payment.

If your guess is correct, that Everton will be serving principal and interest of ~£15M per annum for 25 years, plus paying a fee of £6-7M to the City, that equates to borrowing at about 6.5%. For an infrastructure project like this, that is rather poor - especially if you have to pay a second tranche of lenders an additional premium for the mezzanine position of £220M.

That's some real financial wizardry right there, an at best mediocre interest rate for part of what you need, while compromising a city's credit rating. Maybe defensible from the city's point of view, as long as it all works out right.

It is sort of striking in all the sources I have read that it is utterly unclear on how the principal is getting paid back.
 

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Also since the first decision was made the council changed hands, still not sure what role Anderson plays in all this as he isn’t a councillor.

Suppose it’s Brownfield site without any use, the problem is the land Goodson stands on is useless, it’s not like Anfield that backs on to Stanley Park and has over the years wrongly or not used CPOs on housing around the ground. It’s bit like the vetch in Swansea which after several developers came and went ended up becoming a park and allotment. And that had a fair bit of space around. In fact that could have been housing, can’t really see that with Goodisons land.

Effectively it’s got to be more than just the stadium.
 

Arminius

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Also since the first decision was made the council changed hands, still not sure what role Anderson plays in all this as he isn’t a councillor.

Suppose it’s Brownfield site without any use, the problem is the land Goodson stands on is useless, it’s not like Anfield that backs on to Stanley Park and has over the years wrongly or not used CPOs on housing around the ground. It’s bit like the vetch in Swansea which after several developers came and went ended up becoming a park and allotment. And that had a fair bit of space around. In fact that could have been housing, can’t really see that with Goodisons land.

Effectively it’s got to be more than just the stadium.
Not having been there as an adult, I don't quite follow - isn't Goodison about the same distance from Stanley Park as Anfield, separated by not much more than their car park? Is the lesser value/flexibility a function of the fact that the area around the ground is even more built up than Anfield was?
 

Lowton_Red

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One of the Echo pieces characterized that as Everton paying £6-7M of interest per year - which at the 2.38% you note is going to be very close to the Year 1 interest rate obligation. It was the line that made me curious as to whether or not it was concessionary or even 0%, because it implied the City could just keep that interest payment.

If your guess is correct, that Everton will be serving principal and interest of ~£15M per annum for 25 years, plus paying a fee of £6-7M to the City, that equates to borrowing at about 6.5%. For an infrastructure project like this, that is rather poor - especially if you have to pay a second tranche of lenders an additional premium for the mezzanine position of £220M.

That's some real financial wizardry right there, an at best mediocre interest rate for part of what you need, while compromising a city's credit rating. Maybe defensible from the city's point of view, as long as it all works out right.

It is sort of striking in all the sources I have read that it is utterly unclear on how the principal is getting paid back.
In this article in the Echo, "financial guru" Joe sets out the basis of the deal:

"So what we are doing is looking at borrowing from the Public Works Loans Board, £280 million over 25 years and then we are going to loan it to Everton and that rate is cheaper than what they can get at a commercial level from a bank.

So we are going to be borrowing at about 1.2% and we will be charging Everton at about 3.4%, so it means that we will make £7m a year profit that comes into the council coffers every year and the loan will be repaid by Everton and not by us."


From this it is evident that Generous Joe is wildly inaccurate when it comes to his knowledge of the interest rates available from the PWLB, or the commercial rates currently available. So much for his grasp of financial matters.

However it does tend to conform to my understanding of the deal in that the £6.5 million to £7 million is the premium everton will pay over and above the repayments to the PWLB.
 

Arminius

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In this article in the Echo, "financial guru" Joe sets out the basis of the deal:

"So what we are doing is looking at borrowing from the Public Works Loans Board, £280 million over 25 years and then we are going to loan it to Everton and that rate is cheaper than what they can get at a commercial level from a bank.

So we are going to be borrowing at about 1.2% and we will be charging Everton at about 3.4%, so it means that we will make £7m a year profit that comes into the council coffers every year and the loan will be repaid by Everton and not by us."

From this it is evident that Generous Joe is wildly inaccurate when it comes to his knowledge of the interest rates available from the PWLB, or the commercial rates currently available. So much for his grasp of financial matters.

However it does tend to conform to my understanding of the deal in that the £6.5 million to £7 million is the premium everton will pay over and above the repayments to the PWLB.
Not sure that it does. though it does appear to confirm Anderson's understanding. If you are loaning £280M at 3.4% having borrowed at 2.2%, your spread on annual payments is £3.7M. For the first couple of years, there is a difference of the interest portion that actually falls in the £6-7M range, but you are still repaying principal so the spread is the net gain. I have not looked at the PWLB terms or found any sort of scheduling in the discussion of the Everton deal, so those are rough numbers using a single annual payment of the same size every year - but tweaking that is not going to change the fundamentals.

Honestly, that arrogant column in the Echo suggesting people were obtuse in not understanding this deserves a real beatdown.

That Simpsons monorail song is playing in my head.
 
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Echo has become more and more and more Everton supporting. Sometimes I even think they despise us fully and think that they are full anti- LFC.
 

Lowton_Red

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Not sure that it does. though it does appear to confirm Anderson's understanding. If you are loaning £280M at 3.4% having borrowed at 2.2%, your spread on annual payments is £3.7M. For the first couple of years, there is a difference of the interest portion that actually falls in the £6-7M range, but you are still repaying principal so the spread is the net gain. I have not looked at the PWLB terms or found any sort of scheduling in the discussion of the Everton deal, so those are rough numbers using a single annual payment of the same size every year - but tweaking that is not going to change the fundamentals.

Honestly, that arrogant column in the Echo suggesting people were obtuse in not understanding this deserves a real beatdown.

That Simpsons monorail song is playing in my head.
Perhaps I was being a tad naive, but I took the last part of "Would-I-Lie-To-You" Joe's statement, " the loan will be repaid by Everton and not by us" to mean that everton would repay all of the loan, i.e. the principal plus the interest that Liverpool Council would pay back to the PWLB, and, that in addition, everton would pay £7 million per year to the Council for its trouble.

Thinking about it, for the premium to be calculated as a percentage uplift on the PWLB terms, and for that premium to remain at a fixed amount of £7 million per year, the PWLB loan would have to be a "Maturity" loan : half-yearly payments of interest only with a single repayment of principal at the end of the term.

The best rate currently available to the council for a maturity loan (the Certainty rate) is 2.68% which translates as £7.53 million per year. So everton would pay the council £14.53 million per year for 25 years, after which the blueshite would have to stump up £280 million.

And pigs will fly.