Most traditional high-yield investors "won't touch" £500m worth of junk bonds set to be issued by Manchester United Plc because they are unrated and there are plenty of alternatives, an analyst says.
Earlier this week, Manchester United announced it is to raise £500m through a bond issue in a bid to pay off its debts. The bonds are set to mature in 2017 and will be issued by MU Finance.
But Jonathan Moore, high-yield analyst at Evolution Securities, says many investors will be looking elsewhere.
"Most traditional high-yield investors won't touch this," London-based Moore told Bloomberg.
"It's unrated, so some investors can't take it, and there's a very busy new-issue calendar so there are plenty of alternatives. Most people just won't focus on something with far too much leverage, limited free cash flow and lumpy earnings."
According to Moore, the club "seems to assume" it will pay about 9.25% interest on its new bonds, based on figures in its offer document outlining what its finances would look like if it currently had the bonds.
These show gross indebtedness of £512m and an interest bill of £46.3m a year, or 9.04%.
European borrowers with comparable debt profiles are in the B category, according to Moore. Investors currently demand yields of more than 9.5% to buy their debt, Merrill Lynch's Euro High Yield, B Rated Index shows.
On 11 January, Manchester United Plc announced pre-tax profits of £48.2m for the year to 30 June 2009, compared with a loss of £21.4m a year ago.
Group turnover rose to £278.5m from £256.2m the previous year, with £80m coming from the sale of Cristiano Ronaldo to Real Madrid last summer.
Three examples of compensation rule issues
Buying in baskets
Scam victims lost average £91,000
Stepped down following MBO
Helped by rising oil price