Charles Green, Lenders’ Options, Craig Whyte and Lessons For Rangers From Sheffield United

One of the issues which has exercised minds regarding the Rangers asset purchase by the consortium of millionaires led by Mr Green (at least that was what the media would have us believe existed) was where the purchase price of £5.5 million came from.

It seems ever more likely that that, together with funds to allow Sevco Scotland Ltd to run the club from a standing start, most, if not all, of these funds came initially in the form of loans.

I understand that these loans were structured in such a way as to be due for repayment with a short term, rather than a long term. By the nature of such loan funding, akin to a “pay day loan”, the loan was high interest.

Therefore the departure of players under TUPE who refused to join newco was almost certainly a serious problem as Mr Green was undoubtedly banking on something coming from a sale of some of the stars of the last season.

Such loans are regularly provided with an option for the lender – either repayment can be taken in cash, or half in cash and half in shares (by way of a conversion from cash to equity). It is thought likely that such an arrangement would have been used here.

The advantage of this is that it gives a lender who provides a “high risk/high reward” loan with the chance to benefit from shares and increasing value, if circumstances suggest that is the better option.

As well as the loan funds used to get the project off the ground, institutional investors were attracted by the possibility of using the Enterprise Investment Scheme, which provides tax breaks for those investing in what HMRC describes as “smaller higher-risk trading companies”.

This seems to tie in with the speculation about the Orlit Enterprises dispute with Rangers.

I make this point as it seems, from reviewing the information publicly available, that Orlit is also a two stage debt.

If we think back to May 2012, readers will recall that “to protect the history” a CVA was Mr Green’s preferred route, suggesting that failure of a CVA would “end” the history. I will return to the history debate in a later post.

Mr Green told the world that he had reached an agreement with Mr Whyte for his shares. He needed those shares in a CVA deal where there was not to be an asset purchase by a newco.

The point is that at the time of this transaction Mr Green was trying for the CVA route. To achieve that goal he needed the 85% of the shares held by Mr Whyte’s company.

In light of what we know about Mr Whyte and his business dealings, is it likely that he agreed, when on the point of being sued by various parties, including Ticketus for £25 million, he would have handed over shares for only £1 (or as Mr Green said, having told the press he gave Mr Whyte a 100% profit) £2?

There is speculation that, in fact, to avoid Mr Green having to find more money, over and above the £8.5 million to be lent by his consortium to oldco to pay for the CVA, the deal with Mr Whyte would have involved Mr Whyte selling his shares for equity in either form of the “new” Rangers.

This understandable and prudent desire not to have to spend too much over the £8.5 million to fund the CVA suggests why, at that stage, debt might well have been incurred on the “two stage basis”. If funding was secured on that basis, then surely it would be reasonable to pay the people who were finding the funders on that basis too?

Mr Green’s comments about Mr Whyte on his recent Australia visit serve as circumstantial evidence that Mr Whyte still thinks he is due something. Mr Green was vigorous when Down Under in denying any possibility of him being paid, but, unless based on some agreement, or else what Mr Whyte thought was an agreement, how can he think he is entitled to anything from newco Rangers? Maybe he thinks he is due something from Mr Green?

(I should say that, despite what some critics have said on here and elsewhere, it is not a matter of believing Mr Whyte 100% when it suits. His history, as noted in various places, including Glasgow Sheriff Court and indeed in this blog, shows that he has not been 100% truthful on every single occasion he has made public statements. I think however that, as a major player in the story, even though from a chapter or two back, there is some value in CONSIDERING what he has to say.)

Rangers’ interim results will be very interesting when revealed to the City. Will they show the “cash burn rate” as being consistent with the listings projections the listing figures (as the listing contained no “projections”)?

We have heard about the money to be spent on players and capital projects and building works. Can all this be funded?

Mr Green’s time at Sheffield United was long ago. I have no doubt that Mr Green learned many lessons from his previous involvement in lower league football. You can read about some of them here.

Whilst at Sheffield, players were signed and paid uneconomic wages. The football team (or the company which owned the collection of rights and assets which made up the football team) effectively ran out of cash. This led to player sales, against the wishes allegedly of the manager, and most definitely of the fans.

As I say, I am sure that Mr Green has taken all of the lessons from his adverse experiences at Sheffield, and combined them with his successes there, to enable him to continue his plan to win Rangers the Champions League.

And clearly, having paid £5.5 million for the assets in June 2012, and having told the Aussie fans recently that the company is now worth £60m million, and will be worth £500 million in five years, Mr Green remains my choice for Businessman of the Year – not just for 2012, but for the next five years as well!

 

Posted by Paul “Barnum” McConville