Penned by the always-excellent David Conn. Spells it out in black & white really...
Tom Hicks and George Gillett take Liverpool further from new Anfield
Liverpool's new stadium prospects are now more remote than when Tom Hicks and George Gillett arrived
There are many bridges to cross before Liverpool's co-owners must decide whether to accept the Rhône Group's £110m offer for a 40% stake, but the bid lays bare the icy state the club are in.
The proposal's key detail is that not a penny of all those millions would go to Tom Hicks or George Gillett but, instead, would reduce Liverpool's £237m debts to Royal Bank of Scotland and the American bank Wachovia. Liverpool are only carrying that debt burden, or at least £185m of it, because the two Americans, who arrived as purported saviours in February 2007, borrowed the money to take over, then loaded the club with the responsibility to repay it.
Hicks and Gillett had said they would not "do a Glazer" and saddle the club with their own borrowings. But they did and now the new stadium they promised to build "as soon as reasonably practicable" cannot be contemplated until the debts they imposed are dramatically reduced.
Rhône's bid, the first firm investment offer the chief executive, Christian Purslow, is known to have received, would reduce Hicks and Gillett to a 30% stake each and pay nothing to them for the 20% they have ceded. Intimations from Hicks that the deal is not lucrative enough for him are unlikely to wash if no other firm bids are prompted by Rhône's offer. Hicks and Gillett are pinned to a deadline because RBS, which is 70% owned by the British public and last month announced a £6.2bn operating loss for the 2008-09 financial year, insists Liverpool must reduce their exposure to it by £100m by July.
Hicks and Gillett only ever came to Liverpool because of the unconvincing idea that to build the new stadium on Stanley Park, which has grown barnacles over a decade on the architect's drawing board, rich individuals were needed to stand behind the financing. Arsenal built the Emirates Stadium, a hugely more complex project in inner-city Islington than digging up a Victorian park will be in Liverpool, with no such personal funding or guarantees.
The Emirates was financed with £260m borrowed on the stadium's commercial merits, a genuine mortgage?style investment recognised as the stand-out sensible Premier League borrowing in a morass of "living the dream" and leveraged buyouts. Having reduced their net debt steadily to £190m, Arsenal are scampering to the end of their fourth season at the Emirates with a Premier League title in realistic sight, while Liverpool, whose takeover dragged them back far behind where they were in 2007, are scrapping earnestly for fourth place.
In their official offer document, Hicks and Gillett set out that they were paying £174.1m for Liverpool, plus £11m that the professionals, including NM Rothschild, the bank, were charging for their services. Hicks and Gillett borrowed all £185m from RBS and took on further borrowing facilities of £113m for investment in the club: £298m potentially borrowed in total. Before their takeover, Liverpool had net debts of £44.8m.
"The families are well aware of the importance of investment in new players to achieve on-pitch success," Gillett and Hicks said of their intentions, "and as such are prepared to commit resources to make appropriate investment in the playing squad."
Of the stadium they said: "Kop [the families' holding company] shares the wishes and ambitions of the fans for the club to be playing top-quality football in a new stadium … Kop recognises that the new stadium will be a catalyst for the regeneration of the local area … Kop has indicated its intention … to commence the process of building one of the leading stadia in Europe as soon as reasonably practicable. Both George Gillett and Thomas O Hicks have experience in developing and/or operating sports stadia."
Among those warm, woolly intentions was one firm commitment relating to the millions Hicks and Gillett had borrowed to buy Liverpool: "The payment of interest on, repayment of or security for any liability due under the [borrowing] facilities will not depend to any significant extent on the business of Liverpool."
That, we now know, did not turn out to be the case. The £237m still owed to RBS and Wachovia is, strictly, due from the holding company, but Kop owns no other business except Liverpool. The club are without question being made to pay the interest and service the debt. In the most recent accounts, for the year to 31 July 2008, interest of £36.5m was paid by Kop, and Kop's income was wholly derived from the club – from television, commercial activities, and enraged supporters.
At 31 January 2009, the total owed to the banks was £313m, which still included the £185m Hicks and Gillett borrowed to buy the club in the first place. Uncertainty over whether the pair would be able to extend their bank loans led to the auditors' famous warning of "a material uncertainty which may cast significant doubt" over whether Liverpool would even be able to "continue as a going concern".
That the club's debt is now stated to be £237m indicates that Hicks and Gillett have been forced to put solid money in to reduce it, including £60m as part of last summer's refinancing. Their cash investment is now understood to be £130m, much more than they must have hoped when they borrowed all that money in the sunny bubble of the borrowing boom. Now, in a credit crunch, RBS insists it must reduce the outstanding debts burdening its own hideous balance sheet.
Purslow, a former banker appointed last June to break the Anfield deadlock and find new investment, is understood to have five other parties from around the world who have inspected Liverpool's books, and he will hope Rhône's shrewdly calculated offer prompts others to bid.
Under their proposal, the New York-based Rhône Group would not receive interest payments on their £110m, because it is real investment, for shares, not more debt. Purslow's plan is that Liverpool, with the debt thereby reduced, may then be able to finance building the stadium, which Liverpool predict would have an Emirates-like effect on the club's earning power.
Hicks and Gillett were, in truth, only ever intending to borrow for the new stadium; there is no chance of that until the club's existing debts are reduced and, all the while, the cost has been rising, now to an estimated £450m.
First conceived more than a decade ago, woven into wider regeneration plans for the Anfield and Breckfield neighbourhoods, the new stadium is a more distant prospect for Liverpool now than it was when Hicks and Gillett arrived three years ago promising to build it. The debts with which their takeover saddled the club have to be reduced, to restore the club closer to where it was financially before they arrived, so that money can finally be borrowed to finance a new era.
Such are the charms of the leveraged buyout, at Anfield and Old Trafford, about which the Football Association and Premier League remain resoundingly silent.
