Hicks wins finance battle, but the war goes on

The dirty deed is done. Liverpool’s owners, via their Kop Football holding companies, have finally convinced RBS and Wachovia to effectively mortgage the club to the hilt. The news came via an official statement on the club’s website, but like the latest stadium announcement this morning, the announcement was from Kop Football rather than the club.

Again there was no mention of George Gillett, the co-owner, in this statement, continuing his public silence since leaving these shores after the December meeting with Rafa Benitez. His son Foster Gillett disappeared two weeks ago, and is believed to have resigned from his position of company secretary at the holding company.

In the statement the figure of £350m is confirmed as was expected, and it also confirms that the previous credit agreement was due next month. They certainly cut it fine in agreeing the package – the previous deal was believed to be due at the end of next week, leaving them just seven days before hitting serious problems. It was back in October that Hicks insisted the debt package was just thirty days away from completion, at the same time as admitting that the new stadium was now going to cost £400m. In fact that was just the first in a number of hurdles the owners faced in trying to pile substantial debt onto the club. The thirty days came and went, and shortly afterwards came the admission that they couldn’t afford the stadium, which would now be “downgraded” according to Rick Parry.

It’s believed that former chairman David Moores and the chief executive Rick Parry were insistent that the £350m debt could not be secured in its entirety on the club. Even so, the banks were also unwilling to risk such a large amount without any kind of commitment from the owners. Rumours of raging disagreements between Hicks and Gillett were continually repeated, Gillett supposedly looking to see off Hicks by joining up with DIC to buy the Texan out. Gillett was reported more than once to be unhappy with the aims of Hicks in terms of this debt, but also to be finding it difficult to find the cash and guarantees required for his half of the deal.

Moores and Parry’s objections have seen the debt split in such a way that £105m of it is secured on the club, the holding company and the owners liable for the other £245m. Obviously this is better than the whole £350m being lumped onto the club, but the pair deserve little thanks for their efforts. Had they done their homework on Gillett and especially Hicks, they’d have seen that the pair weren’t even close to being compatible with their intentions for the club’s future, and we’d not find ourselves in this position.  The club may not be directly responsible for the £245m, but the owners won’t be paying the interest on that out of their own pockets. The club’s priorities will be to pay the interest each year, directly or indirectly, and then if it’s been a successful season we’ll see what’s left over for transfers.

Today’s statement refers to a nice round figure of “£60 million of debt that was on the Club’s books at the time of last year’s acquisition”. The figure given in the offer document was just under £45m, and it said this was as at December 31^st.  So a matter of weeks later that debt had grown by £15m, the price of a useful winger.

It says that the £105m is to get the stadium work underway, to fund future transfers and to provide working capital for the club. There’s no indication of how that is split, for how long that amount is meant to provide working capital and player transfers, or how much progress it will allow on the stadium.

The £245m debt not directly on the club has been backed up using “a combination of owner cash, letters of credit and personal guarantees totalling £225 million.” The owners were struggling to get this finance, and that part of the statement is akin to them putting their hands down the back of the sofa and checking the gutters for any loose bits of shrapnel they could find, after selling their old vinyl on eBay and raiding their children’s piggy banks. In fact Hicks is raiding his children’s piggy banks, given this statement last year: “Having three teams, I view that as something my children will manage for the next 25-30 years.” Source: Tom Hicks Interview, BBC.

Again like the day’s earlier statement relating to the downgraded stadium, Hicks was referred to by name only in the release. It’s standard practice in any press release of this nature, from any company in this country or the US, to specify the position of any individuals quoted in the release, whether they are the owner, area manager or janitor. Not in this release.

In fact the quotes from Hicks have clearly been passed through his PR company’s filters first, carefully worded to try and convey Hicks in a much better light than he really is held in. It would be funny, in parts, if the subject matter wasn’t so serious. The quote starts: “This new financing package is a strong vote of confidence in the Club’s financial strength and a recognition of the exceptional opportunity represented by the construction of the Club’s new state-of-the-art stadium at Stanley Park.” If the club’s financial strength was so great, the original plan to lump all £350m on the club would have been done last autumn, and the £400m stadium plans wouldn’t have needed downgrading. And then a little bit of ego massage: “The successful completion of this financing package is particularly significant in light of the currently challenging credit-market environment.” The speed with which Hicks, or Rick Parry on his behalf, denied any accusations that Hicks was suffering due to the “credit crunch” was unprecedented, well unprecedented where the lethargic Parry is concerned.

Then comes a plea to try and forget the past months of lies, spin, broken promises, embarrassment and incompetence: “With the refinancing process now done, Club supporters can look forward to the timely commencement of construction work on the new stadium and renew their focus on actions on the pitch.” A few impressive drawings of what may still remain an imaginary stadium and an admission that you’ve just more than doubled the club’s debt, with nothing to show for it, does not ease the serious concerns of the supporters. In fact with the overall debt that the club is going to have find a way of servicing standing at seven times what it was 13 months ago, and with £300m more still to find to build this stadium, supporters have every right to be concerned.

This stadium, if it overcomes any planning objections, will be able to hold around 26,000 more supporters than the current ground. But will a demoralised set of supporters be motivated to fill this ground often enough to justify the costs in building it? If the owners continue as they have done in their first eleven months, it’s highly unlikely. Never mind challenging for the title, any more interference and reneging on promises could see the club drop out of even the UEFA Cup places.

They took the club over making clear statements to show they were expected, as part of the agreement to sell by the previous regime, to improve the playing squad by investing extra funds into transfers. They held discussions with manager Rafa Benitez and agreed with him the plans for the summer’s transfer dealings. Then they stopped it all, in the end spending less on transfers than the club had earned from Champions League money alone. Throughout all this they were unwilling to discuss their reasons for the sudden change from their earlier promises. As most other Premier League clubs were spending more than they had ever spent before, Liverpool were spending pretty much the same as they had done in past seasons, £20m net. Yet the owners were telling anyone who would listen that they had been full of generosity, had invested heavily, and were expecting a serious league challenge. Unfortunately for them, Rafa Benitez had no intention of sitting in the background taking all the blame whilst the owners mislead fans over their investment in the squad.

With the truth starting to emerge, the owners were fighting a desperate battle to keep a lid on it. Rafa’s attempts to negotiate some incoming and outgoing winter transfers, which would overall result in no expenditure for the club, were blocked. They interviewed his replacement, and were going to sack him if he went out of the Champions League. They told him to shut up. Or to be more precise, Hicks did. Gillett was already beginning to shrink into the background.

The reports that Rafa was on the verge of being sacked were frequent and continuous. Liverpool fans are always wary of press speculation, but this speculation was coming from the handful of journalists who normally have the fans’ respect. The club and the owners were busily denying suggestions the credit crunch was hurting them, that the owners had fallen out, that Hicks was looking to sell, that Hicks was looking to buy Roma and more. But not one single denial that they were planning to sack Rafa, not one single sentence that showed the kind of support that could have ended those reports.

Now, after the damage has been done, Hicks has seen fit to try and show some support, verbally at least, towards the manager. He’s quoted as saying: “Since the meeting with Rafa on December 16th, at which some widely reported communications issues were discussed, Rafa has been assured that he has continuing and enthusiastic support as the Club’s Manager. Reflecting that support, Kop recently approved his transfer payment request to sign Martin Skrtel for £6.5 million and is in discussions with Rafa and Club management regarding additional player signings this summer. Rafa is under contract for two more seasons following this season. I am solidly behind Rafa and am confident of the team’s competitive prospects under his continuing leadership.” Note how Hicks says “I” rather than “we”, suggesting Gillett really is being pushed out.

With Momo Sissoko close to joining Juventus and John Arne Riise rumoured strongly to be on his way out, there’s every chance that this transfer window will close with the club having brought more in than they spent in transfers, meaning that the example given is hardly indicative of any extra investment in the squad.

The reason Momo is being allowed to go is because of a lack of opportunities in the first team. He’s not played to the best of his abilities when he’s had his chances, but with Javier Mascherano and Xabi Alonso in the squad, and Steven Gerrard playing all his games in the centre now, not to mention the easing in of Lucas, Momo’s just about surplus to requirements. But he’s only surplus to requirements because we’ve got the other four in the squad – for now. Javier Mascherano, currently on loan to the club and one of the top players in the world in his position has still no idea where his future lies. He can be bought for £17m under the terms of the loan agreement, and that amount would be paid over the five years, but despite Rafa’s clear desire to keep him the owners have so far refused.

Making Mascherano a permanent member of the squad is an absolute minimum requirement now for the owners if they do want to show they support Rafa. But only a minimum. A public, open and honest apology to Rafa wouldn’t go amiss, but Hicks hasn’t got the humility for that. Which is why Liverpool fans shouldn’t hold their breath waiting for the apology they deserve either.

It’s hard to imagine how Hicks could ever get back to the position he was in almost a year ago when we gave him our trust, and welcomed him to our club.

That trust has gone. This finance package is reportedly over 18 months – by which time it’s unlikely that Rick Parry will still be in a position to block any replacement finance package from being secured in full on the club. In fact by then the £350m will have increased to at the very least £650m to incorporate the stadium costs, and that kind of money will cost the club £45m a year in interest alone. They’ll need to find more than that if they want to start reducing the debt.

Expect more spin in the coming weeks and months as Hicks tries to convince supporters he cares about the club as much as we do. Be careful that you don’t fall for something that sounds good, but is really just a bunch of carefully-chosen words picked to distract.

Hicks won his battle for finance, and got quite wounded in the process by getting on the kinds of terms he didn’t want. But there will be more battles to come, and Liverpool fans will win this war.

The statement in full:

KOP COMPLETES FINANCING PACKAGE

Paul Eaton 25 January 2008

                Kop Football (Holdings) Limited (“Kop”), the owner of Liverpool Football Club (the “Club”), is pleased to announce the successful completion of a £350 million financing package.

In addition it is pleased to announce confirmation of the selection of the architectural firm HKS, Inc. as designer of the Club’s new stadium at Stanley Park.

 The Financing Package

 Kop has secured a £350 million financing package, led by The Royal Bank of Scotland and Wachovia Bank NA, which replaces previous financing that had been due in February 2008. The new financing will meet all of the Club’s current financial needs and includes facilities to support the commencement of construction for the new stadium at Stanley Park and to provide working capital for the Club and future player transfers. Of the £350 million financing, £105 million is Club-level debt that will be used to fund commencement of construction of the new stadium at Stanley Park, for future player transfers, and to meet the Club’s working capital needs.

 The other £245 million will be at the holding company level and was used to refinance the £60 million of debt that was on the Club’s books at the time of last year’s acquisition as well as the loan related to the share purchase at that time. The overall financing is being supported by a combination of owner cash, letters of credit and personal guarantees totaling £225 million, ensuring that the Club remains on a sound financial footing.

 Tom Hicks said: “This new financing package is a strong vote of confidence in the Club’s financial strength and a recognition of the exceptional opportunity represented by the construction of the Club’s new state-of-the-art stadium at Stanley Park. The successful completion of this financing package is particularly significant in light of the currently challenging credit-market environment. With the refinancing process now done, Club supporters can look forward to the timely commencement of construction work on the new stadium and renew their focus on actions on the pitch.”

 The New Stadium:

 Confirmation of the selection of HKS was based on the firm’s successful development of an improved stadium design that meets the objective of a cost-effective, supporter-friendly design. The new stadium, scheduled to open in August 2011, will ensure that Liverpool Football Club and its supporters get the much-anticipated groundbreaking iconic design at a capacity of approximately 71,000 seats, significantly more than is currently available at Anfield.

 The new stadium will feature enhanced amenities for the Club’s supporters while preserving the history and traditions of Anfield and the Club itself. It will be anchored by an expanded 18,500-seat standalone KOP, an increase of more than 5,000 seats.

 Kop also announces the appointment of KUD International as project manager for the stadium. KUD, which will establish a Liverpool office to oversee the project, has developed projects globally, including Silvertown Quays, a large-scale mixed use scheme in London, as well as collegiate and professional stadiums in the United States including the Philadelphia Eagles’ Lincoln Financial Field and the San Francisco Giants’ AT&T Park.

 Laing O’Rourke, the largest privately owned construction firm in the UK, has also joined, and provides further depth of experience to, the project team. Laing O’Rourke is currently working with developer Grosvenor on The Paradise Project in Liverpool – Europe’s largest city-centre regeneration scheme.

 Tom Hicks said: “HKS has developed a more efficient design that, at the same time, is just as stunning as its original design. Liverpool supporters should have high expectations for the future: a premier sporting experience at their new stadium at Stanley Park and a winning Club on the pitch for years to come.”

Football Operations:

In response to questions recently raised about owner support of Rafa Benitez as Manager, Tom Hicks today commented: “Since the meeting with Rafa on December 16th, at which some widely reported communications issues were discussed, Rafa has been assured that he has continuing and enthusiastic support as the Club’s Manager.

“Reflecting that support, Kop recently approved his transfer payment request to sign Martin Skrtel for £6.5 million and is in discussions with Rafa and Club management regarding additional player signings this summer.

“Rafa is under contract for two more seasons following this season. I am solidly behind Rafa and am confident of the team’s competitive prospects under his continuing leadership.”