FPP to take full control

[FulwellBri]

As I explained, I genuinely don't understand how it really works but was under the impression that the prospective presidents were elected following their promises of how much cash they were prepared to 'pump in', if they were to be elected, and which players they intended to spend it on.

Despite all the champions league finals appearances by German and Spanish teams it really is baffling that it works and worse all those exceptional players who are happy to leave the likes of city, united, spurs et al when barca and reL come calling.

 

[flandersmackem]

I've been away for a few days so have to trawl through all these posts, any chance someone could summaries please..... Just a quick look suggests that despite rumours that FPP had gone way, they are very much in the frame to take over...is that a fair summary?

 

[Bob Cheval]

Excellent post and exactly as I see it, including the amount of profit. The cost was £37m, that is a fact in the Madrox accounts. It doesn't matter how much of that the shareholders have actually paid. If they sell for £35m, the shareholders will receive back £2m less than what they have paid in (SD will get back 74% of £2m less than what he's put in to be precise).

Exactly correct. This nonsense about him buying it for £15m and selling it for £40m is completely wrong. He makes no money on a sale price of £37m, loses money below that.

 

[Bob Cheval]

The imponderable is the loan or 'rope with which to hang himself' as it's know in the Smug household.

How much has been spent and on what, if it's an asset that's one thing as it can be included in the sale ...
... but if, as @Bob Cheval believes, it's like sand running through Donald's fingers it's lost in running costs and gone forever.

I don't believe the theory that FPP would loan money with minimal interest/charges, what would be the point?

I don't understand this ' it keeps them at the table' routine either ...

... what does that even mean?

The loan is not really a loan, it is was is known as a convertible, ie debt that can be converted into equity (under certain conditions). The reason that the interest rate on the loan would be lower than typical is because that option to convert to equity has a value - and that value is reflected in the lower interest rate.

The point is that the convertible part has a positive value to FPP, ie the conditions under which it happens are favourable to them. So they get that benefit whilst SD gets the benefit of the lower interest rate costs.

Let’s say that FPP valued the equity of Madrox at £10m when they did their DD (which would be a £35m bid). SD as we know loses money at that price. But maybe they both agree that the equity of Madrox is worth £25m (ie bid of £50m) with SAFC in the Championship.

So you do a deal whereby you ‘loan’ £9m to Madrox in the form of a convertible. Let’s say that the conversion price of that debt is fixed on the division that SAFC are in. So if they are still in Div 1 then the debt converts into equity (presumably the majority stake) which effectively means they get it at the price they want. If SAFC get promoted, it converts into equity at a higher price (say £20m total but they value it at £25m so a good deal still) but one they think is a good deal. So in either scenario, they are getting it at a price they like.

For SD, he is getting a cheap loan which gives him a good chance of getting promotion without taking on more personal risk. If he gets promotion, he gets a price which nets him a profit. If he doesn’t get promotion, he has to take the pride which crystallises his loss.

So the deal is actually good for both sides. But there is no prospect of FPP walking away. If SD can persuade someone to pay more for the club than FPP will, that is a different story. But that is not walking away - that is someone repaying the loan.

 

[Smug in Boots]

The loan is not really a loan, it is was is known as a convertible, ie debt that can be converted into equity (under certain conditions). The reason that the interest rate on the loan would be lower than typical is because that option to convert to equity has a value - and that value is reflected in the lower interest rate.

The point is that the convertible part has a positive value to FPP, ie the conditions under which it happens are favourable to them. So they get that benefit whilst SD gets the benefit of the lower interest rate costs.

Let’s say that FPP valued the equity of Madrox at £10m when they did their DD (which would be a £35m bid). SD as we know loses money at that price. But maybe they both agree that the equity of Madrox is worth £25m (ie bid of £50m) with SAFC in the Championship.

So you do a deal whereby you ‘loan’ £9m to Madrox in the form of a convertible. Let’s say that the conversion price of that debt is fixed on the division that SAFC are in. So if they are still in Div 1 then the debt converts into equity (presumably the majority stake) which effectively means they get it at the price they want. If SAFC get promoted, it converts into equity at a higher price (say £20m total but they value it at £25m so a good deal still) but one they think is a good deal. So in either scenario, they are getting it at a price they like.

For SD, he is getting a cheap loan which gives him a good chance of getting promotion without taking on more personal risk. If he gets promotion, he gets a price which nets him a profit. If he doesn’t get promotion, he has to take the pride which crystallises his loss.

So the deal is actually good for both sides. But there is no prospect of FPP walking away. If SD can persuade someone to pay more for the club than FPP will, that is a different story. But that is not walking away - that is someone repaying the loan.

Thanks Bob, that's all very clear.

I wasn't sure what the loan meant and what the benefit would be for Donald and FPP.

I can now see the reason it's a good deal for FPP as it's put them in pole position.

I can't really see how it benefits Donald to be perfectly honest. If it's for running costs it's a massive amount between now and May, £2 million a month? If he doesn't already have enough to fund the club it means he's getting deeper into debt every day. Which means failure to go up will kill him and FPP can send their people in to dispose of the body. (Pulp Fiction was on last night if you were wondering.)

 

[Kittenmittons]

The loan is not really a loan, it is was is known as a convertible, ie debt that can be converted into equity (under certain conditions). The reason that the interest rate on the loan would be lower than typical is because that option to convert to equity has a value - and that value is reflected in the lower interest rate.

The point is that the convertible part has a positive value to FPP, ie the conditions under which it happens are favourable to them. So they get that benefit whilst SD gets the benefit of the lower interest rate costs.

Let’s say that FPP valued the equity of Madrox at £10m when they did their DD (which would be a £35m bid). SD as we know loses money at that price. But maybe they both agree that the equity of Madrox is worth £25m (ie bid of £50m) with SAFC in the Championship.

So you do a deal whereby you ‘loan’ £9m to Madrox in the form of a convertible. Let’s say that the conversion price of that debt is fixed on the division that SAFC are in. So if they are still in Div 1 then the debt converts into equity (presumably the majority stake) which effectively means they get it at the price they want. If SAFC get promoted, it converts into equity at a higher price (say £20m total but they value it at £25m so a good deal still) but one they think is a good deal. So in either scenario, they are getting it at a price they like.

For SD, he is getting a cheap loan which gives him a good chance of getting promotion without taking on more personal risk. If he gets promotion, he gets a price which nets him a profit. If he doesn’t get promotion, he has to take the pride which crystallises his loss.

So the deal is actually good for both sides. But there is no prospect of FPP walking away. If SD can persuade someone to pay more for the club than FPP will, that is a different story. But that is not walking away - that is someone repaying the loan.

Exactly this. It's a loan, but in spirit both parties would like it to be more in future if all goes well. They can also both void it if they don't want to proceed. Hence why there's not going to be charges.

It's also why I think Donald wont pay anything back until he has a signature from someone else committing to buying the club. He's got a great deal from FPP that works for him, them and us, and the only complication is that the fan groups made the last one a question mark.

 

[DH4]

The loan is not really a loan, it is was is known as a convertible, ie debt that can be converted into equity (under certain conditions). The reason that the interest rate on the loan would be lower than typical is because that option to convert to equity has a value - and that value is reflected in the lower interest rate.

The point is that the convertible part has a positive value to FPP, ie the conditions under which it happens are favourable to them. So they get that benefit whilst SD gets the benefit of the lower interest rate costs.

Let’s say that FPP valued the equity of Madrox at £10m when they did their DD (which would be a £35m bid). SD as we know loses money at that price. But maybe they both agree that the equity of Madrox is worth £25m (ie bid of £50m) with SAFC in the Championship.

So you do a deal whereby you ‘loan’ £9m to Madrox in the form of a convertible. Let’s say that the conversion price of that debt is fixed on the division that SAFC are in. So if they are still in Div 1 then the debt converts into equity (presumably the majority stake) which effectively means they get it at the price they want. If SAFC get promoted, it converts into equity at a higher price (say £20m total but they value it at £25m so a good deal still) but one they think is a good deal. So in either scenario, they are getting it at a price they like.

For SD, he is getting a cheap loan which gives him a good chance of getting promotion without taking on more personal risk. If he gets promotion, he gets a price which nets him a profit. If he doesn’t get promotion, he has to take the pride which crystallises his loss.

So the deal is actually good for both sides. But there is no prospect of FPP walking away. If SD can persuade someone to pay more for the club than FPP will, that is a different story. But that is not walking away - that is someone repaying the loan.

Do you think that Donald would pay the loan back himself rather than add it on top of his value of the club to facilitate a sale or is that a non starter? If not it looks like Stewie is Donald Ducked and FPP will decide the price.

 

[Kittenmittons]

I can't really see how it benefits Donald to be perfectly honest. If it's for running costs it's a massive amount between now and May, £2 million a month? If he doesn't already have enough to fund the club it means he's getting deeper into debt every day. Which means failure to go up will kill him and FPP can send their people in to dispose of the body. (Pulp Fiction was on last night if you were wondering.)

It's a good deal because he doesn't need it, but like most owners, having access to capital is a good thing. It means that he can do things without as much risk, add value to the club by getting us promoted, and if he's successful, the loan will likely convert to equity rather than him pay it back.

His worst case is to spend all of it and not get promoted next season, at which point he has to find 9.3m (or start to make the payments required by the loan agreement) and he's made a gamble that doesn't pay off.

But the club will likely break even over this season and next (combined) This just gives him the wiggle room to push forward rather than work on a shoestring.

It also keeps FPP inextricably linked to our fortunes, finances and ownership until its paid off or resolved.

 

[Kittenmittons]

A good way of thinking about it is that the best case scenario for everyone is that Donald never pays it back and they get to convert it to equity. It means we're doing well on the pitch, Donald has been vindicated in his strategy, and they're more certain of their valuation and intent to do more with us.

 

[Brainman]

The loan is not really a loan, it is was is known as a convertible, ie debt that can be converted into equity (under certain conditions). The reason that the interest rate on the loan would be lower than typical is because that option to convert to equity has a value - and that value is reflected in the lower interest rate.

The point is that the convertible part has a positive value to FPP, ie the conditions under which it happens are favourable to them. So they get that benefit whilst SD gets the benefit of the lower interest rate costs.

Let’s say that FPP valued the equity of Madrox at £10m when they did their DD (which would be a £35m bid). SD as we know loses money at that price. But maybe they both agree that the equity of Madrox is worth £25m (ie bid of £50m) with SAFC in the Championship.

So you do a deal whereby you ‘loan’ £9m to Madrox in the form of a convertible. Let’s say that the conversion price of that debt is fixed on the division that SAFC are in. So if they are still in Div 1 then the debt converts into equity (presumably the majority stake) which effectively means they get it at the price they want. If SAFC get promoted, it converts into equity at a higher price (say £20m total but they value it at £25m so a good deal still) but one they think is a good deal. So in either scenario, they are getting it at a price they like.

For SD, he is getting a cheap loan which gives him a good chance of getting promotion without taking on more personal risk. If he gets promotion, he gets a price which nets him a profit. If he doesn’t get promotion, he has to take the pride which crystallises his loss.

So the deal is actually good for both sides. But there is no prospect of FPP walking away. If SD can persuade someone to pay more for the club than FPP will, that is a different story. But that is not walking away - that is someone repaying the loan.

Cheers. That makes some sense.
All we need now is to get promoted and it's smiles all round.

 

[Smug in Boots]

It's a good deal because he doesn't need it, but like most owners, having access to capital is a good thing. It means that he can do things without as much risk, add value to the club by getting us promoted, and if he's successful, the loan will likely convert to equity rather than him pay it back.

His worst case is to spend all of it and not get promoted next season, at which point he has to find 9.3m (or start to make the payments required by the loan agreement) and he's made a gamble that doesn't pay off.

But the club will likely break even over this season and next (combined) This just gives him the wiggle room to push forward rather than work on a shoestring.

It also keeps FPP inextricably linked to our fortunes, finances and ownership until its paid off or resolved.

This is what I don't get, what can he do with that money?

 

[Kittenmittons]

This is what I don't get, what can he do with that money?

Buy players, invest on and off the pitch. The situation is that in theory we lose £5m a season (albeit that is probably a pessimistic view), but this season because we make £5m as long as we don't spend much, we'd break even over the 2 year period, so he can exist as owner but not do anything bold off the pitch or purchase players.

The loan allows him to do anything he is comfortable will lead to more growth in both areas, and if it comes off, FPP likely get firmly in as investors rather than kist loaning money to us.

 

[Iansun]

Do you think that Donald would pay the loan back himself rather than add it on top of his value of the club to facilitate a sale or is that a non starter? If not it looks like Stewie is Donald Ducked and FPP will decide the price.

Didn't he say sartori would pay it off

 

[Kittenmittons]

Didn't he say sartori would pay it off

He did yeah. I think it would depend how much it was realistically worth and how much he was on the hook for in future whether he did or not.

 

[Smug in Boots]

Buy players, invest on and off the pitch. The situation is that in theory we lose £5m a season (albeit that is probably a pessimistic view), but this season because we make £5m as long as we don't spend much, we'd break even over the 2 year period, so he can exist as owner but not do anything bold off the pitch or purchase players.

The loan allows him to do anything he is comfortable will lead to more growth in both areas, and if it comes off, FPP likely get firmly in as investors rather than kist loaning money to us.

Now I'm even more confused.

If this loan is based on a two season deal, not one as I thought, how does that tie in with Donald wanting out asap?

And, if he fails to get us up does that mean he'll use this loan to buy more players and have another go?

It just seems to be yet another complication if he's trying to find an alternative buyer to FPP.

There surely has to be a point when he's no longer able to pay the loan back and will have to ask a prospective buyer to stump up the money ...

... and if FPP feel so inclined they can veto the buyer leaving Donald in trouble.

 

[Smug in Boots]

Didn't he say sartori would pay it off

If Sartori can simply pay it off why didn't he loan Donald the money in the first place?

 

[Evil Jimmy Krankie]

This is what I don't get, what can he do with that money?

Get the elevator fixed iirc.

 

[Smug in Boots]

Get the elevator fixed iirc.

If it was to buy players why didn't he do that when he had the chance?

 

[DH4]

If Sartoria can simply pay it off why didn't he loan Donald the money in the first place?

He said he himself or Sartori could have put it in instead of taking the loan as well.

 

[DH4]

Get the elevator fixed iirc.

Should have been used to elevate us to a higher division via better players than free transfers and loans.