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https://theesk.org/2024/07/19/major-unresolved-uncertainties-make-evertons-sale-to-new-owners-a-real-problem/
Major, unresolved uncertainties make Everton’s sale to new owners a real problem
BY PAUL QUINN ON JULY 19, 2024 • ( 15 COMMENTS )
It’s been a common theme for many months on these pages and elsewhere, the total unsuitability of 777 Partners as funders of Everton and Moshiri’s chosen original suitors.
Yet again, the actions of Moshiri and his choice of 777 Partners has caused the club huge and significant problems. For the 10 months going back to 15 September 2023 when the club first announced 777 Partners as Moshiri’s chosen future owners, their failure and now the Friedkin’s failure to complete, has left in the club in limbo and what is more, as I will explain, is, in my opinion, now completely unsellable with its current creditors.
Why is that?
The original working capital loans provided by 777 Partners have been consumed by A-Cap as a result of 777’s collapse – again, as described previously in detail on these pages. So we have Kenneth King, the CEO and principal of A-Cap in a position where he is the party (in his opinion at least) a prospective owner has to negotiate with. His stance is that the A-Cap loans, his money, as he sees it, is worth as much as anyone else’s – therefore he’s not prepared to take a haircut or negotiated a reduced price for his debt – some £200 million. Debt that is attracting interest at the same cost as the Rights and Media Funding loans. Thus we have more than £420 million lent to us at 500 basis points above the base rate – in simple terms currently 10.25%. The A-Cap/777 element is capitalised and will remain so until the stadium is completed – then the cost hits the profit and loss account. However, that debt is accumulating at over £800k a week.
Prospective purchasers see the 777/A-Cap debt as the least secure and therefore most vulnerable of Everton’s creditors. As explained in my most recent article the cost of acquiring Everton, providing working capital and assuming responsibility for all of Everton’s debt is over £800 million and rising. It is reasonable therefore for Everton’s potential purchasers to seek a reduction in the debt burden.
If that (negotiating settlement in the complex King/A-Cap/777 Partners relationship) was not difficult enough, then there is a further complexity in the US Courts. There is a civil case case being heard in the Southern District, New York District Court where Leadenhall claim that their loans of $609 million are secured against the assets of amongst others, A-Cap. The original case papers can be read Leadenhall Capital Partners LLP v Wander, Pasko, 777 Partners etc. This is disputed of course, by A-Cap but whilst Leadenhall have such a claim, currently unresolved – it’s almost impossible for a new owner or potential new owner of Everton to settle the A-Cap/777 loan – certainly not at a discount. A preliminary injunction granted by the Court forbids King or A-Cap from disposing of assets – the Everton loan is such an asset. A settlement below par could be seen as a dissipation of assets, something forbidden (unless viewed as in the normal course of business) by the preliminary injunction. If Leadenhall win their case, they want control of that loan and any settlement – not King or A-Cap. Similarly, the Court may take the view that a court appointed administrator is the most appropriate body or person to take control of such negotiations.
Therefore it is impossible (or seems impossible) for a new owner or prospective owner to complete the deal of buying Everton without settlement of the above. There was a Settlement Conference convened for July 10th. There has been no word from the Court or documents placed in the public domain as to what the final decision should be.
The only possible solution for a prospective owner, prior to a decision by the Court, might be to place the outstanding loan figure in escrow to be dissipated in due course. This would require the approval of the Court. However this seems like an unnecessary burden and leap of faith by any prospective owner and with all the other costs associated with acquiring Everton is probably more than one step too far, and is likely to be the primary reason for Friedkin’s withdrawal.
It should be noted that the Friedkin Group has acted properly and in good faith throughout this process.
Where does this leave Everton?
Well, to put it mildly, a very difficult position. Firstly the positives, such as they are.. The Friedkin debt does not require immediate repayment, and has a maturity date of nearly 12 months. It is also more attractively priced than the Rights and Media Funding and A-Cap/777 loans. It is secured against the stadium and the equity of Blue Heaven Holdings.
Everton’s other debts, the Rights and Media Funding plus the A-Cap/777 loans have no immediate need for repayment – Rights and Media is a revolving credit facility , and the A-Cap/777 loan has a repayment date sometime in 2026 (details not in the public domain).
However Everton continue to need funding beyond the usual cash flows generated by the business. We remain loss making and we have further payments to be made regarding the stadium. We have external debt well in excess of £600 million and a heavy interest burden as a result.
Additional debt seems an unlikely nor sensible source of funding, and it is unlikely that Moshiri will provide additional capital, although it should be noted he was in receipt of £22 million when the Friedkin Group repaid the MSP and others loan administered by Blythe Capital.
Regrettably, the only viable source of funding over and above the income we generate is player sales. It was likely that we faced losing a number of players including DCL, Onana and Branthwaite – not just for financial reasons. It was anticipated that much of those funds would be reinvested in the squad. Not only has Everton’s negotiating position weakened regarding the sale of players, but the prospects of significant reinvestment in the squad has reduced enormously. That is the harsh reality of where we find ourselves.
Board membership and governance
Since the summer of 2023 we have had an interim board comprising Moshiri, our CEO, Colin Chong and a non-executive no one has ever heard of, has no experience in football and is completely anonymous. The handling of the sale of the club has been largely outsourced with Deloitte playing a significant role.
Given the uncertainties surrounding the club it is not an easy environment in which to attract new directors. However, we must bring in independent directors who can assist in the sale process going forwards, bring some credibility to the company that is Everton, and govern the club in a more befitting manner. If as is reported, Moshiri recuses himself from areas of potential conflict of interests, just who exactly has the experience and wherewithal to negotiate and provide a suitable sales proposition for a new owner.
We enter our final year at Goodison, in a distressed state once more, with unresolved creditor issues, unresolved future funding issues and obvious legal issues regarding the sale of the club.
On the one hand the prospect of a new stadium will attract buyers, but the unmitigated mess that the club finds itself in makes it difficult to agree valuations, give prospective owners legal surety in which to negotiate and as time continues, our competitive position deteriorates. Add into that the fact that there are several Premier League clubs openly for sale and current owner valuations are not being met, then it is a hugely difficult environment in which to sell Everton. Moshiri’s continued tenure and two failed sales hardly add to the attractiveness of the club’s current position despite the potential ahead. The material uncertainties need to be resolved or mitigated to the satisfaction of would-be buyers.
It’s difficult to conclude that Moshiri and his current board/advisors are in a position to effect a ready and necessary sale of Everton in the near term. Alternatives, and the use of alternative parties have to be sought and sought quickly. Time, although not immediately critical is against us – a sense of realism and a change of approach and personnel to effect a sale have to be sought immediately.
Debt increasing at £800K a week/£3.2M+ a month/£41.6M a year!
