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Updated thoughts on stadium financing, the ICBC deal and potential funders of Bramley Moore

July 15, 2017

the esk

Who will be financing the Bramley Moore Stadium development?

Bear with me on this article. It’s a little technical, but hopefully written in an understandable manner – it draws conclusions from what is in the public domain which may indicate the possible providers of the stadium finance.

Just over 3 months ago the Liverpool City Council released a relatively short paper outlining the proposed (but not agreed) “heads of terms” for providing financial guarantees to assist Everton in finding finance and most importantly lowering the cost of the financing through the provision of a guarantee. The City backed guarantee will be paid for by Everton in annual payments to the City providing the City with much needed income (around £4.5 million per annum)

As you would expect much of the detail in the paper outlined the various security measures required by the City Council in order to provide the guarantee. The main measure is what has been called a security package and comprises of two accounts:

The first is a “Cashflow account” from which on 31st August each year the annual rent will be paid to the SPV.* This is secured by Everton paying in all season ticket revenue, hospitality fees and naming rights income into this account. Only when the rent has been paid will Everton have access to the remaining funds in the account.  (Note this may be the reason for Everton selling the maximum number of season tickets it can whilst still at Goodison Park)

SPV  definition*: Often used in the commercial world. As a separate legal entity it allows businesses and public bodies to park particular projects or investments in a stand alone vehicle. In this case the SPV, owned by the Council collects the rent, pays the financing costs to the funder, and provides the Council with its guarantee fees. The SPV serves to protect the interests of all parties, largely separate from their other activities.

The second account is called the “Rent Deposit Account” and that provides security for the Council by requiring Everton to make payments for the first 5 years of the lease. If we happened to be relegated within that time we would use our parachute payments to meet our obligations.

How much is required to fund the “security package”?

In page 3 of the Council document there’s a line which describes the security package “as three times the level of rental payments”

Now the rental payments haven’t been agreed or disclosed as yet, but simple calculations of loan repayments over 40 years, and the inclusion of the guarantee fee suggest rental payments of £15-20 million a year initially.

Thus it’s reasonable to assume that the security package provided will be in the order of £45-60 million. This is the reason for my comments on twitter that the club had a significant cash call in the next year or so.

ICBC Credit Facility

At the end of June, Everton announced a ground-breaking deal with the Industrial and Commercial Bank of China. ICBC is recognised as the largest bank in the world by assets and tier-1 capital, and is owned by a company called Central Huijin Investment, which in turn is owned by the Chinese Government. Given the importance placed on football by the Chinese President, Xi Jinping – the importance of this deal should not be lost on anyone.

The deal is to provide £60 million of credit over a three year period “to support the club (Everton) in managing its working capital requirements throughout the season”. There is provision within the documents to increase the line of credit for any legitimate purpose.

As security for the deal ICBC have numerous charges including a fixed charge on our broadcasting revenues through the Premier League, charges over several bank accounts, security on land and a floating charge on all other assets.

So, on paper we have two different forms of credit and funding – the stadium secured by the Council guarantee and the security package (secured against season ticket and naming rights) plus a £60 million facility provided by ICBC secured against our Premier League payments plus other assets belonging to the club. All of that seems relatively simple and logical.

However, on the day of the City Council announcement the Mayor of Liverpool, Joe Anderson said “Liverpool Council will have first take on season tickets, on the players themselves, on the naming rights, on the ownership of the stadium and of the television rights.”

Now there’s no doubt that he’s correct over the season ticket funding, naming rights and ultimately the Bramley Moore stadium itself but he can’t be correct over the players (other assets) and the television rights (Premier League payments) as they’re charged in favour of ICBC.

The question I suppose is that is this just loose language by the Mayor or does it indicate closer relationships in the future?

The City Council provides the guarantee for the SPV to provide the finance for the stadium, that is clear. In the event of default the City Council guarantees payment to the SPV, and in doing so would take control and ultimately ownership of the stadium. In doing that the City Council would then seek to recover any of Everton’s remaining assets (of course, this is largely theoretical – I’m not suggesting it’s going to happen). I’m sure the guarantee would allow the City Council to recover what it could in the event of it being called upon.

That’s fine except the ICBC have a charge over Everton’s other income and assets, and I doubt they would cede their senior position in a fire sale.

In the press release issued in relation to the ICBC deal Sacha Ryazanstev was quoted as saying “The new relationship with ICBC also represents an important step for us in the Chinese capital market, and we hope to develop further commercial opportunities in China in the future”.

Thus, the question I am posing is this:

Is the ICBC credit facility a way of Everton funding their security package for the stadium financing without impacting on-field activities?

If it is, then the natural extension of this and other comments would be that the stadium financing may be being provided either by ICBC or through ICBC connecting with other Chinese investors. The nature of the investment would be extremely attractive – long term debt in a foreign currency (to them), a good credit grade with high security, and index linked throughout the 40 year period.

I’m aware the above is conjecture and I’m making assumptions, but there’s a logic to the final assumption for certain. I’m hoping the answer will be provided very soon, (rightly or wrongly) as we are already beyond the initial time frame set in the document by the City Council.

Just as matters have warmed up on the pitch in recent weeks, off the pitch is likely to get just as interesting and fast moving, what a time to be an Evertonian!

2 Comments

Post a comment
  1. Andy Francis #
    July 15, 2017

    A well researched article and written in a style that I, a financial layman, can comprehend. Thank for all your effort, here and on the Blue Room pods. Appreciate it.

    Like

  2. Andy Costigan #
    July 15, 2017

    Another useful article Esk on the financial structure, or st least aspects of it, of the ‘new’ Everton under Farhad Moshiri.

    I’m aware you’ve said previously that Mr Moshiri has given absolutely no indication whatsoever that he’s looking to bring in additional financial investment i.e. and in the process diluting his own power base-for want if a better term – however, doesn’t the arrangement with ICBC and massive interest in football from President Xi and China in general actually lend itself to further potential investment from China?

    I fully expect that you believe this will not happen but from a laymans perspective this might appear to be a somewhat insular outlook.

    Can you therefore offer an outline of how you see the mid to long range future of the club given that once Mr Moshiri concludes the agreement to buy out the existing board, it will to all intents and purposes be a one-man show.

    Let me stress, I have no reason to doubt the capabilities of Mr Moshiri, the way he has progressed the early stages of his Everton tenure is a much needed and appreciated breath of fresh air, it’s more the cautious side of my nature to consider spreading the risk.

    Liked by 1 person

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