Wednesday, 4 April 2012

Rangers FC - The issues facing the administrators as the closing date for bids looms

Today is the closing date for offers for Rangers FC plc. Duff and Phelps say they expect to have 4 or possibly 5 bids which they will consider before announcing their preferred candidate and entering a more intensive period of negotiation. So how will they choose between the bidders?

They have said their preferred exit route from administration would be via a CVA but they must ensure that a company voluntary arrangement will deliver a better outcome for creditors than they might expect if the company were to go into liquidation.

So how can they assess this?Press reports suggest that the bids on the table range from around £25m to around £8m.The largest bidder seems to favour a ‘newco’ scenario in which the business and assets of Rangers FC will be sold to a new company, the administration will come to an end and Rangers FC will go into liquidation.Other bidders prefer the survival of the original football club and an exit from administration via CVA.One of the bidders is reported to have secured a deal whereby one of the largest creditors, Ticketus, would be taken out of the picture and form part of the group which would acquire the majority shareholding in the club.

On the face of it, that seems to be an attractive proposition but a very rough draft of the numbers gives an indication of the difficulties the administrators might face if they were to accept it.  

However, there are significant variables which could switch the outcome in this very complex case.  

The calculation shown takes no account of potential liabilities following the outcome of the tax case.  If the decision were to go against Rangers,that would not bode well for a CVA as the sums owed by the club would increase substantially, even taking into account the deal with Ticketus which would take them out of the picture.  

Current estimates suggest that losing the tax case could increase the club’s liabilities by around £50m. Reports suggest that the level of bids which support an exit by CVA stand somewhere around the £8m level. Distributing almost £7m among creditors of £25m provides a decent outcome as the statement above shows.However, if the same amount has to be shared among £75m of creditors, they will get less than 10p in £.

In a newco scenario, with £25m on the table and with Ticketus claiming £25m, creditors would still get around 29p in £.  

And then there’s the issue of whether Rangers Group Limited will either sell its shareholding for a nominal sum or not. A liquidator need not concern himself with a shareholder but if Rangers FC is to survive in its current form, Craig Whyte needs to agree.

Finally, there’s the question of what value the securities held by the holding company actually has. If they have value, then they need to be dealt with before the interests of ordinary creditors (including Ticketus and HMRC) can be acknowledged.The securities confer a priority to Group over ordinary creditors.Technically, Group might insist they are worth £18m, which is the sum Group paid to the bank and in return for which Group received an assignation of the securities held by the bank.However, that could be challengeable.  

Today the administrators have to weigh up the bids on the table and they have to give notice of their proposals by next Wednesday.Their proposals must deliver the best outcome for creditors generally.Given the huge uncertainties still surrounding the club, they have an unenviable task.  And as we speak, Club 9 Sports seem to be putting themselves out of the running.The roller coaster for fans continues.  

(Please note – the figures we have used are for illustrative purposes only.We have no inside knowledge on the state of Rangers’ finances and no indication of how much the club actually owes.We have only used the known liabilities to HMRC and to Ticketus to provide an example of how bids could be assessed.Equally, we have no knowledge of how the bids are framed nor of what they actually contain.We have used publically available information for the purpose of putting clarity around the decision making process.)

Maureen Leslie from MLM Solutions will be appearing on Newsnight Scotland this evening at 11pm to discuss all of today's events. 

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  1. Hugely interesting. Thanks!

    With Club 9 out of the picture, what happens if none of the bids seem acceptable to the administrators? Do they have to go to a vote of creditors anyway?

    Also, if Ticketus are not a creditor (as some claim for TBK bid), does that not mean the HMRC will likely be the sole vote as whether to accept a CVA?

    I can see an argument for HMRC waiving penalties, but that would still leave around £30 million or so in tax due, if the BTC goes against Rangers as people appear to accept.

    What I really don't understand is how any CVA can be arranged, or liquidation ruled out, without knowing where Rangers will be playing football for the next 3 years. SPL? SFL3? Europe in 2013 or not? There could be £100 million or more potential income riding on this issue...

  2. Very interesting questions. We think the administrators will run with one of the bids. They have given it their best shot by inviting offers in a very public way. What's on the table is as good as its going to get, subject to some further negotiation. The administrators will publish their proposals today but these are likely to be very general at this stage.Yesterday's press release suggested they would be more technical than commercial.

    Interesting they have avoided a public meeting of creditors. If Ticketus is not a creditor, you're right. HMRC will likely have the largest vote and will therefore be able to determine whether a CVA should be approved. As far as future revenues are concerned, there's substantial uncertainty there.

    Liabilities are also unclear and some difficult decisions about the underling cost base seem to have been sidestepped. These factors are probably reflected in the relatively modest sums which seem to be on the table.