Monday 8th June 2020

Why did Spurs borrow £175m from the Government and how does their debt position compare to Arsenal?

Last month the AST published a short analysis on Arsenal’s debt position and the likely effects of the lack of any gate receipts as a result of football being played behind closed doors (BCD) for a considerable period of time.

That update summarised Arsenal’s outstanding stadium debt of £160m (including the C and D debentures) that will be progressively paid off over the next 11 years, and thought it likely that Arsenal have now increased their borrowing in the form of an overdraft from Barclays Bank.

Last week it was announced that Tottenham Hotspur FC were one of 53 companies that had accessed short term funding from the UK Government’s Covid Corporate Financing Facility (CCFF).

Spurs have borrowed £175m from the Government at a very low interest rate, with the initial maturity of this loan being 12 months, repayable in April 2021.

With so much focus on the financial threat to football clubs at all levels we thought it would be interesting to set out the debt obligations undertaken by Spurs to build its new stadium and how this compares to Arsenal.

Following the opening of their stadium in 2019, Spurs took the opportunity to refinance the stadium construction debt, which at that time was £637m.

£525m of this £673m has been refinanced on a long-term fixed-interest basis with final repayment dates of between 15-30 years. The breakdown of these loans is:

  • £300m final maturity 2049 - average life 21 years - 2.79% annual interest
  • £50m - final maturity 2044 - single repayment at maturity - 2.89% annual interest
  • £125m - final maturity 2039 - single repayment at maturity - 2.76% annual interest
  • £50m - final maturity 2034 - single repayment at maturity - 2.59% annual interest

The average interest rate being paid across these loans is about 2.8% pa - this equates to £15m of annual interest alone.

In addition to these fixed-rate facilities Spurs also have a shorter-term loan of £112m from Bank of America Merrill Lynch (BAML) and what is believed to be a £25m loan from HSBC (overdraft). The BAML loan is thought to be on a 5-year maturity with annual interest repayments of about £3m.

With very real risks to future revenues as a result of COVID-19 Spurs moved quickly to access the CCFF, designed  for companies which could demonstrate a “significant” workforce in the UK and could demonstrate a “material” contribution to the UK economy. Whilst these criteria and Spurs meeting of them can be debated, one of the reasons they were able to access the CCFF was because the “loans and bonds” they issued in September 2019 had a credit rating that was sufficiently high to permit them access to the UK govt’s soft loan scheme.

The interest rate of this £175m is 0.5% pa, representing a cash saving to Spurs of £3.5m a year assuming the loan is fully drawn, when compared to the commercial loan facilities made available by HSBC and BAML.

The need to access the CCFF shows the possible consequences of a year or more of football BCD with Spurs predicting a loss of up to £200m of revenues. The new loan is very cheap and provides vital borrowing facilities exactly at a time when accessing “new debt” would be almost impossible following the stadium debt refinancing.

Spurs decision to furlough most of their 550 non-playing staff was reversed and the majority owner, Bahamas resident Joe Lewis (age 83), is said to be worth £4bn – Sunday Times Rich List 2020.

Could Arsenal access the CCFF?

We now understand that Arsenal Securities plc is an eligible borrower under the CCFF but as of 10th June has not accessed these funds. In addition to 55 companies currently borrowing under the scheme there are 110 companies who have been approved but have not drawn any funds and a further 88 companies that have applied and are waiting for their eligibility to be approved.

Arsenal Securities  plc is the wholly owned Arsenal company that was formed to be the debt issuer for the stadium bonds in 2006 and would be the Arsenal group company that could access the CCFF.

Arsenal will not confirm or deny if they are one of the approved companies or those awaiting approval but on the basis that any borrowing under this scheme is “very cheap” it would be a surprise if in the weeks ahead we do not see Arsenal on the list of  companies accessing debt from the UK Govt. The maximum amount we think Arsenal could access is very similar to the £175m Spurs got - this is related to 50% of average annual revenues over the last five years and could be £185-195m in total.

How do the debt costs of Spurs and Arsenal compare?

Setting aside issues arising from COVID-19 we provide a comparison of the stadium borrowing costs for Arsenal and Spurs.

Arsenal’s stadium debt at the time of the project completion was £270m. Annual capital and interest repayments presently amount to £20m.

Arsenal have to repay the outstanding capital on their loans in the following tranches:

  • £15.4m in 2028 (the C and D bonds)
  • £14.3m in 2029
  • £17.2m in 2030
  • £18.5m in September 2031

Spurs stadium debt at the time of the project completion was £673m. Annual capital and interest repayments presently amount to about £40m (and increase by about £5m per annum for each of the next five years).  

Spurs have to repay the capital on their short-term loan of £112m in 2025, and the capital on their larger loans of £525m between 2034 and 2049.

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