Leicester debt cleared

[Ninian1962]

Leicester Chair and owners` rep. has just announced that their current loans of £194m are being fully converted into equity making them debt free. The previous debt to equity conversion in 2013 was also over £100m

[The Hooded Claw]

Re: Leicester debt cleared

Dear Mr Tan. Here’s a nice idea…

[blue lewj]

Re: Leicester debt cleared

He said he would have done it by now previously.

He also can't if he wanted to as we took debt on from outside companies (with a 9% interest rate).

[A Quiet Monkfish]

Re: Leicester debt cleared

I'm a moron. Can someone - in very simple terms - explain what debt-to-equity is, in football club terms, because if Tan owns 90% or so of the club how can he 'buy' any more of it - and how does it benefit the club financially ?

[Ninian1962]

Re: Leicester debt cleared

I'm a moron. Can someone - in very simple terms - explain what debt-to-equity is, in football club terms, because if Tan owns 90% or so of the club how can he 'buy' any more of it - and how does it benefit the club financially ?

Debt to equity is when a creditor owed money by a company instead says he will cancel the debt and instead issue new shares to themselves for an equal value.

The benefit to the club is that debt is repayable but shares are not repayable so the debt goes away. In normal circumstances shares could attract a dividend payment for a shareholder but a dividend can only be paid if the club has built up positive reserves of profits.

In the case of CCFC Holdings , as at the last filed balance sheet as at 31 May 2021, there were negative reserves of just shy of £200m so the club would have to make profits of £200m+ before a shareholder could even think of paying himself a dividend. There is about as much chance of that as Vincent Tan discovering humility, accepting an opinion other than his own and becoming a football knowledge genius (all three).

[tforturton]

Re: Leicester debt cleared

The club issues a new block of shares. Technically, they should be available to purchase by any of the existing shareholders, but in this case, only Tan buys them, and he effectively swaps his debt for shares. If he was buying them, then he would hand over cash to the club, but in this case he's saying 'Give me those shares, and I'll wipe out x amount of debt'. He doesn't gain anything from it, but the club debt is reduced. The only downside of it, is that it reduces the value of all the other holders' shares. This is what caused the rift with Michael Isaac recently.

[Monster munch]

Re: Leicester debt cleared

So in a nutshell if he ever wants to sell the club in the future, someone will have to cough up £200mil to buy his shares?

[A Quiet Monkfish]

Re: Leicester debt cleared

The club issues a new block of shares. Technically, they should be available to purchase by any of the existing shareholders, but in this case, only Tan buys them, and he effectively swaps his debt for shares. If he was buying them, then he would hand over cash to the club, but in this case he's saying 'Give me those shares, and I'll wipe out x amount of debt'. He doesn't gain anything from it, but the club debt is reduced. The only downside of it, is that it reduces the value of all the other holders' shares. This is what caused the rift with Michael Isaac recently.

So,effectively he's personally taking on some/all of the club's debt . The club's total value share-wise is the same because he's created more shares for what is still the same entity [CCFC] so each share is worth less. So all the other minor shareholders are worse off because each 'share' has dropped in value and they own a smaller percentage of the club.

[tforturton]

Re: Leicester debt cleared

So in a nutshell if he ever wants to sell the club in the future, someone will have to cough up £200mil to buy his shares?

Not really. Shares are only worth what someone will pay for them. If the only offer is £50m, for example, then Tan could well accept that for all of his shares, especially if he wanted to get away.

[The Hooded Claw]

Re: Leicester debt cleared

The issue value of the shares will be equal to the value of the debt, so you’d expect the minimum price to buy these shares to be the same, unless the owner decides to sell at a discount.