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Bristol R*vers dustbin thread


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26 minutes ago, Red Right Hand said:

Most of this financial stuff is way over my head but would I be right in thinking they`re trying to finance the rebuild via some sort of PFI equivalent? Would that be a good analogy or not?

Essentially, as I understand it, Dwayne sports want to borrow a load of money, say £40M for redevelopment / rebuild. Given their crap financial performance currently and lack of assets, anyone who lends them that money will charge an interest rate of 8% due to that risk. This means they would have to find £3,200,000 a year to pay the interest alone. What happens if they don't pay it, gawd knows! The asset transfers to the lender I guess?

The lender would then ask for a slice of revenues for, say, 30 years as payback on the loan.

As the gas lose money now, they would have to make a shed load extra just to stay in the same financial position they are in now.

Imagine someone who's broke and massively in debt, asking the bank for money. They would be charged much more than someone more credible as they are a much higher risk.

That's how I think it works but stand to be corrected by those far more knowledgeable on these things.

Edited by Ska Junkie
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12 minutes ago, Red Right Hand said:

Most of this financial stuff is way over my head but would I be right in thinking they`re trying to finance the rebuild via some sort of PFI equivalent? Would that be a good analogy or not?

Sort of, but no haha.

PFI is peculiar to private investment (ie non-govt) into public sector offerings. Bristol Sport providing the finance for a new NHS hospital in Bristol could be an example of PFI. 

Because Rovers are a private company it's not PFI, but the problems are still the same - providing the financier with a return on their investment. 

A lot of the PFI controversy surrounds the cost of the financing, but that's not peculiar to PFI. So then bear in mind that's lending to the govt- a debtor you would probably consider quite secure... 

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13 minutes ago, Red Right Hand said:

Most of this financial stuff is way over my head but would I be right in thinking they`re trying to finance the rebuild via some sort of PFI equivalent? Would that be a good analogy or not?

Strangely that’s the sort of finance package that Islamic Banks often construct for large capital projects. They set up a special-purpose company that builds or buys the asset then rents it to the end-user for a period of time. The rent is distributed, after costs, to investors who buy shares in the SPC. The end-user pays for operations and maintenance and redeems the loan, buying the asset, at the end of the term. Simplistic overview but that’s my understanding - PFI for companies via a souped-up bond arrangement.

Sometimes it would be nice to be as academically and intellectually gifted as Stan Gasman eh?

In summary, not a snowball’s chance in hell of it happening without the vast majority coming from equity investment as with Steve L’s in us.

 

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33 minutes ago, Ska Junkie said:

Essentially, as I understand it, Dwayne sports want to borrow a load of money, say £40M for redevelopment / rebuild. Given their crap financial performance currently and lack of assets, anyone who lends them that money will charge an interest rate of 8% due to that risk. This means they would have to find £3,200,000 to pay the interest alone. What happens if they don't pay it, gawd knows! The asset transfers to the lender I guess?

The lender would then ask for a slice of revenues for, say, 30 years as payback on the loan.

As the gas lose money now, they would have to make a shed load extra just to stay in the same financial position they are now.

Imagine someone who's broke and massively in debt, asking the bank for money. They would be charged much more than someone more credible as they are a much higher risk.

That's how I think it works but stand to be corrected by those far more knowledgeable on these things.

 Not far off in my opinion but the affordability / stress test would be on revenues generating enough pre-tax profit to cover the interest and not the lender taking a share of the revenue to cover the interest. That sort of shared risk approach is quite possible but would probably drive the credit risk premium higher (in my opinion). EDIT - come to think of it this is basically taking equity in the company and getting rewards through dividends.

Interest is tax-deductible but you still need to make enough to cover it, no profit equals no tax due equals no deduction for interest payments.

The repayment of the principal at the end of the term is less of an issue as refinancing Is possible.

Edited by Bianconeri
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9 minutes ago, Bianconeri said:

 Not far off in my opinion but the affordability / stress test would be on revenues generating enough pre-tax profit to cover the interest and not the lender taking a share of the revenue to cover the interest. That sort of shared risk approach is quite possible but would probably drive the credit risk premium higher (in my opinion).

Interest is tax-deductible but you still need to make enough to cover it, no profit equals no tax due equals no deduction for interest payments.

The repayment of the principal at the end of the term is less of an issue as refinancing Is possible.

So we're talking an absolutely huge interest only mortgage then Bianconeri where the capital has to be settled at the end of the term or refinanced elsewhere?

Edited by Ska Junkie
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2 minutes ago, Ska Junkie said:

So we're talking an absolutely huge interest only mortgage then Bianconeri where the capital has to be settled at the end of the term or refinanced elsewhere?

Good analogy I think. Would the lenders be happy with this though? I guess if it’s secured on the asset and the asset can be repossessed and sold for enough to cover the loan they might be.

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8 minutes ago, Bianconeri said:

Good analogy I think. Would the lenders be happy with this though? I guess if it’s secured on the asset and the asset can be repossessed and sold for enough to cover the loan they might be.

Two more questions if you don't mind? Would the fact that r*vers are a 3rd party in this (I assume the deal would be between the lender and Dwayne sports rather than the football club) have any bearing?

What would stop Wael, winding up Dwayne sports, who would essentially have no assets, leaving the lender high and dry?

I find this stuff fascinating to be honest and appreciate your input and vastly superior knowledge of finances.

Edited by Ska Junkie
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8 minutes ago, Ska Junkie said:

One more question if you don't mind. Would the fact that r*vers are a 3rd party in this (I assume the deal would be between the lender and Dwayne sports rather than the football club) have any bearing?

What would stop Wael, winding up Dwayne sports, who would essentially have no assets, leaving the lender high and dry?

I find this stuff fascinating to be honest and appreciate your input and vastly superior knowledge of finances.

He wouldn't. He's a lovely guy.

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49 minutes ago, Ska Junkie said:

Essentially, as I understand it, Dwayne sports want to borrow a load of money, say £40M for redevelopment / rebuild. Given their crap financial performance currently and lack of assets, anyone who lends them that money will charge an interest rate of 8% due to that risk. This means they would have to find £3,200,000 a year to pay the interest alone. What happens if they don't pay it, gawd knows! The asset transfers to the lender I guess?

The lender would then ask for a slice of revenues for, say, 30 years as payback on the loan.

As the gas lose money now, they would have to make a shed load extra just to stay in the same financial position they are in now.

Imagine someone who's broke and massively in debt, asking the bank for money. They would be charged much more than someone more credible as they are a much higher risk.

That's how I think it works but stand to be corrected by those far more knowledgeable on these things.

If the 15ers did default and the asset transferred to the lender, what would the lender possibly do with a football ground and nobody to play in it? It's a structure which surely has limited use? The lender would need to be certain that the foot club will exist through the term of the deal otherwise the lender would be in the Brown stuff.

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5 minutes ago, Rudolf Hucker said:

If the 15ers did default and the asset transferred to the lender, what would the lender possibly do with a football ground and nobody to play in it? It's a structure which surely has limited use? The lender would need to be certain that the foot club will exist through the term of the deal otherwise the lender would be in the Brown stuff.

The value would be in the land. Demolition cost risks would be built in to the cost of financing. 

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36 minutes ago, Ska Junkie said:

What would stop Wael, winding up Dwayne sports, who would essentially have no assets, leaving the lender high and dry?

That's all regulated between between banking law, land law, contract law, company law etc.

One example is a mortgage. That's a loan secured against an asset and so in some scenarios a court could order the property is transferred to the lender, even if it was sold. Or you could have a term of the loan which prevents sell of assets, you might make a condition of finance that you have voting rights, or rights to appoint director. 

The reality is a lender can do a lot to protect their position. 

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28 minutes ago, Rudolf Hucker said:

The lender would need to be certain that the foot club will exist through the term of the deal otherwise the lender would be in the Brown stuff.

I work in commercial lending (in the USA), but we certainly look at the attractability of the collateral to help determine if we are going to do the loan and at what interest rate. It's one thing to end up repossessing a commercial building; we can sell it or keep it and rent it out for cash flow. It's another thing entirely to take specialized collateral that has no market. Not only do we end up charging off the loan balance and lose the income stream of interest payments, but now we own something with no value as we can't sell it. A triple loss, really. So, we charge a lot more interest and even a higher origination fee to help offset that, unless we decline the loan in the first place.

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27 minutes ago, New2City said:

I work in commercial lending (in the USA), but we certainly look at the attractability of the collateral to help determine if we are going to do the loan and at what interest rate. It's one thing to end up repossessing a commercial building; we can sell it or keep it and rent it out for cash flow. It's another thing entirely to take specialized collateral that has no market. Not only do we end up charging off the loan balance and lose the income stream of interest payments, but now we own something with no value as we can't sell it. A triple loss, really. So, we charge a lot more interest and even a higher origination fee to help offset that, unless we decline the loan in the first place.

Is your first name Donald?

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1 hour ago, New2City said:

I work in commercial lending (in the USA), but we certainly look at the attractability of the collateral to help determine if we are going to do the loan and at what interest rate. It's one thing to end up repossessing a commercial building; we can sell it or keep it and rent it out for cash flow. It's another thing entirely to take specialized collateral that has no market. Not only do we end up charging off the loan balance and lose the income stream of interest payments, but now we own something with no value as we can't sell it. A triple loss, really. So, we charge a lot more interest and even a higher origination fee to help offset that, unless we decline the loan in the first place.

Is the highlighted bit in our hypothetical scenario the land value? If not, what is the 'collateral' in our scenario?

Ok, you're definitely in the business, like Bianconeri by the sounds of it. In lay mans terms why on earth would any financial organisation, lend money to a company (Dwayne sports) who have zero assets, while incurring regular losses, to build something that has no collateral value to the lender and no guarantee of a return? As a second question, why would any lender be interested when the revenues are supposedly guaranteed by the performance of a 3rd party (Bristol bloody r*vers)?

It sounds utterly mad to even think about lending this scheme money? There are far too many risks aren't there?

Edited by Ska Junkie
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2 hours ago, Port Said Red said:

So here's a thought, would their best bet be a very large organisation who would use the losses on their balance sheet to reduce their tax burden? Or is that something that only happens in other countries?

Are they 'very large losses' though to a 'large organisation' ? There is little point spending a million quid on a club regularly losing a million quid a year with no prospect of that changing. The club or entity itself requires those losses if it is to avoid paying tax; if you were able to take those losses and offset them elsewhere the football club would effectivy be left to pay taxes because all of a sudden it has made a profit. 

And lets face it nobody looks to buy a business that has no prospect of making money in the medium term; if you are paying tax you are making money and that would be the only criteria attractive to a buyer.

The Wael's bought Rovers to make money through top flight football and/or to sell the Mem for development. It looks like a very long term strategy but until they spend big on a stadium like SL has done they will not be permitted entry into the top flight. Is it a case of biting off more than one can chew in this case? Is that what this discussion is all about?

Edited by havanatopia
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5 hours ago, Port Said Red said:

So here's a thought, would their best bet be a very large organisation who would use the losses on their balance sheet to reduce their tax burden? Or is that something that only happens in other countries?

It does happen here, I remember it happening for Lloyd's syndicates about 2005.

You can only however use these losses to offset profits in a similar business; so Steve Lansdown couldn't use Bristol Sport losses to offset Hargreaves Lansdown profits.

So that then restricts the buyer to being a profitable football club or maybe a profitable other sports club.

I can't really see that working so the accumulated losses have little value.

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9 hours ago, Ska Junkie said:

Two more questions if you don't mind? Would the fact that r*vers are a 3rd party in this (I assume the deal would be between the lender and Dwayne sports rather than the football club) have any bearing?

What would stop Wael, winding up Dwayne sports, who would essentially have no assets, leaving the lender high and dry?

I find this stuff fascinating to be honest and appreciate your input and vastly superior knowledge of finances.

The lender would view football as an income stream for whichever company took out the mortgage / owned the asset. So if the asset was repossessed or sold the rent for playing football there would be payable to the new owner (who might be the lender). As someone else said, the real value is in the land, the lender won’t want to end up owning a stadium - important point, you don’t structure these things hoping they’ll fail, lenders want their cash back / predictable income streams not an eclectic mix of assets.

So Sags would have a contract to use the stadium for ‘x’ years at ‘y’ rent to DS Offshore. If DS Offshore went pop this contract would have to be novated / renegotiated with the new owners. Since DS Offshore owns virtually all of SagFC if one goes the other does, however DS Offshore could sell off the ‘asset’ called SagFC and end up as landlords to a third party?

DS Offshore needs to have enough equity in the asset to make winding up a highly unattractive option. The lenders have first charge and may prevent any further charges in the asset. 

 

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11 hours ago, Red Right Hand said:

Most of this financial stuff is way over my head but would I be right in thinking they`re trying to finance the rebuild via some sort of PFI equivalent? Would that be a good analogy or not?

Bearing in mind how the 15ers have gone about their business in the past; it is more likely that they will go down the route of "P.P.I." investment, rather than P.F.I.

This finance route involves their 7-8,000 regular mugs making simultaneous P.P.I. claims, then hoping for the best !

Edited by The Gasbuster
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11 minutes ago, The Gasbuster said:

Bearing in mind how the 15ers have gone about their business in the past; it is more likely that they will go down the route of "P.P.I." investment, rather than P.F.I.

This finance route involves their 7-8,000 regular mugs making simultaneous P.P.I. claims, then hoping for the best !

I think that you mean MFI. Buy now, pay later.

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