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Stadium build spurs Tottenham to consider private placements


Tottenham Hotspur, the north London football club, is considering selling US private placements to partly pay off bank loans generated by the construction of its new stadium, several market participants have said. Unlike their US equivalents in the NBA and NFL, professional clubs from the UK are a rarity in the market, as the threat of relegation makes them too perilous an investment to some investors. Silas Brown reports.

"My understanding is that Tottenham got banks to fund the stadium, but that when it was built the club would consider entering the US PP market to refinance part of that debt,” said one US PP participant in London, with no lending relationship to the club, which last weekend lost its first game and conceded its first goal at its new home since moving in on April 3, when the team capitulated to local rival West Ham United.

In May 2017, the football club signed a £400m five year loan with Bank of America, Goldman Sachs and HSBC to finance the new 62,000 seat stadium, which some have said resembles a toilet seat when viewed from above. 

The cov-lite loan pays a variable margin between 225bp and 300bp over Libor, dependent on the club's leverage ratio. It is secured on the new stadium. The loan replaced a £200m bridge loan signed in December 2015, £100m of which has been drawn to help fund the land and building costs of the stadium.

According to one PP source, some investors have already been soft-sounded in the market, to gauge appetite. “If Tottenham hasn’t launched yet, I think it may be imminent,” the source said. But another said that rumours of a deal are simply “high level speculation".

Sports teams, especially in the US, are popular in the US private placement market, with many teams in the National Basketball Association and the National Football League raising debt that way.

The NBA, both via its parent company and its subsidiary Hardwood Funding, has sold US private placements before, and so too has the NFL. In Europe, Reuters reported that Barcelona football club received €90m from Pricoa and €50m from Barings last year, to be paid back in five years.

“Sports franchises, in particular in America, are very well received as they are strong, consistent businesses,” said one PP investor. “But football teams in the UK run a relegation risk, which clubs in the US do not have.”

UK football clubs including Arsenal, Leeds United, Leicester City, Manchester United, Newcastle United and Norwich City have raised US private placements before, several PP participants said. According to one agent, the notes raised by Leeds, Leicester and Newcastle were secured on their stadiums, while the others were not.

However they did not all go smoothly. “Quite a few of the placements got into trouble going back a decade plus,” said one agent in London.

Leicester City Football Club sold £38m US private placements for a new stadium called Walkers in the early 2000s, to a North American academic retirement fund called TIAA-CREF in the early 2000s 

However before the club even began playing at the stadium, they were relegated from the UK's top division and, due to the vanishing TV money incurred, went into temporary administration. TIAA-CREF become the owners of the Midlands stadium as a result.

Leeds United, one of the England's finest football clubs in the 1970s to the 1990s, reached the semi-finals of Europe's premier club competition, the UEFA Champions League, in the 2000-01 season. But after spending heavily and failing to qualify for the Champions League in 2002-03, the club fell out of the Premier League in 2003-04. The club could not repay its debts, and entered administration in May 2007. It has not featured in the top division since, and US PP investors lost out.

However, other PP participants suggested that those arranging the financing at football clubs are savvier than they once were.

“Many of the clubs that have issued PPs have thrived, and Tottenham now I’m sure is better run than those teams that screwed up their finances in the early Noughties, and certainly investors are wise to the extent of relegation risk now,” one said.

One US PP investor, when asked about investor protection, said: "We've done a lot of sports franchises in the States, and we've looked at a number of UK ones, but the way they've been structured was not appropriate for us. In some in the UK, if a team is relegated then there are clauses that state that covenants are loosened, which is clearly not something for the PP community, and more suited for real estate investors. The deals we've done have clauses that in the event of relegation, the terms are tightened." 

Tottenham Hotspur did not respond to requests to comment.