Arsenal has had a giant axe hanging them in the form of a loan in the region of £130million. This loan needs to be repaid by April 2010. The loan relates to the development of Highbury Square.
Unless anyone has been living in a cave for the last 18 months, the property market has collapsed, leaving the club with over 600 flats to sell. The idea was that the flats will be sold by summer 2009, the loan would be repaid this summer and either Wenger would be given the surplus, £100million, to spend on the team or it would be used to reduce the debt generated by the building of the Emirates.
That was the plan, and all was going well with over 90% of the flats “pre-sold” with people leaving a deposit of £1,000 to secure their dream home.
Reality set in and last October the club had completed the sale of 90 flats, generating £39million (this money was used to pay of part of the loan and monies owed to the contractors). Since October the cub have been silent on the number of flats sold, though The Guardian claims that we have managed to sell a further two flats since then.
The club insists that the development is ring-fenced from the footballing side of the business, so in theory if the building part of the company went into liquidation it would not affect Arsenal FC, in reality that parent company would have had to give assurances to the banks in obtaining the initial loan which would have an ultimate impact on the football club.
The club has been desperate to re-negotiate the loan repayment, probably pushing the repayment date from April 2010 to April 2012. The extra two years should see the housing market improve and the club would then realise the income it had anticipated.
It has been reported over the week-end that the banks are prepared to extend the loan repayment period. This would be great news for the club. It would show confidence in the club having the ability to sell the flats albeit over a longer period and it would ease the financial constraints that Wenger has been working within over the last couple of seasons.
The club was right in developing Highbury and keeping the project in-house, the development will show a big profit. Unfortunately the directors were caught out like everyone else when the “credit crunch” hit. Obtaining an extension on the loan is another indication that Ivan Gazidis is a man who gets things done; it shows he is the ideal CEO for Arsenal.
The unnamed Singaporean property developer has committed to the purchase of more than 100 flats at the site of the club’s old stadium for a total of £50m or just under 40% of the total loan of £135M. The property developer has already put down a non-refundable deposit of 10%. Furthermore, he has made clear to Arsenal that he is willing to make a further large down payment on the balance of his investment. He is not however, prepared to pay the £45m up-front..
The consortium of banks involved in the Highbury Square loan is, RBS and the Bank of Ireland. The Irish bank objected to the proposed deal forcing the club to reject the proposals. It is understood that the “substantial” down payment and initial deposit would have been in the region of £30m.
It is absolutely crazy for the banks to object to this deal. This would have enabled the club to repay £30m of the £135m loan, instead we are left with 100 flats unsold and the banks have no money. Where is the logic in that?
Arsenal today announced a very strong set of financial results for the 6 months ended 30 November 2008. Arsenal made £24.5m profit after tax and interest of £12m for the period. Arsenal’s cash balance was £75m, down from £93m as at 1 June 2008, what is crucial is that £22m of this money has to remain in special accounts as security against Arsenal’s debt. Arsenal’s debt stood at £409m, of which £25m relates to former North Bank debentures.
The Arsenal results show a good steady financial progress, the interest payments and capital repayment are all under control and easily serviced by the clubs revenue.
The only blot on the landscape is the sale of flats at Highbury Square. The flats were going to be masterstroke that once sold would cut our debt to under £100m, which was before the worldwide economic crisis. The club has a loan that is repayable in April 2010; the value of the loan is £135m. Under normal circumstances that would not have been a problem, but things are no longer normal. The club is renegotiating an extension to this deadline; this is a necessity for the short-term liquidity of the club.
The club has sold 186 flats for £76.7m that is over £400K per flat, this money will start to reduce the loan on Highbury Square. The first tranche of this money has been used to pay the development and construction costs, then the loan will be repaid. Thankfully, we have paid all the costs and now any future sales will reduce the loan.
The total development will be for over 700 flats, at £400K per flat the club will expect to receive around £280m. Of this amount, £75m relates to the construction costs and £135m the loan for Highbury Square, leaving £70m to reduce the Emirates Stadium loan from £240m to £170m.
The money is there for future transfers, but it will require the board to renegotiate the Highbury Square loan and hopefully not too many people will pull out buying the flats at Highbury Square.