Liverpool FC owners lose £42.6m

[Mike]

Sack Parry

[kris90210]

As I see it Parry should be given credit for forcing the debt on the holding co and not LFC.

If they are forced into selling LFC it would be sold without the debt following LFC. The debt would be left in the holding co - offset by any income from funds from the sale of LFC.

Parry needs to take a lot of the responsibility for letting these two ****ers in the door in the first place... Any credit he is due pales into insignificance when you bear that in mind

[James P]

Hi James, great post. Could you give a quick explanation of gearing and why a certain amount of debt can be desirable?

In simple terms, gearing is borrowing money to invest where the rate of return on the investment is greater than the cost of the borrowing. In other words, you can finance something that you don't have the cash for, and still make a return.

The most obvious day-to-day example of gearing is (or was!) the buy-to-let market. You borrow money to buy a property on the basis that the returns exceed the cost of borrowing. It is, of course, possible to have negative gearing (where the returns are less than the cost), but this can be mitigated if the value of the underlying asset increases at a rate in excess of the cost (as did buy-to-let properties until circa spring 2008).

The Scum are, unfortunately, a great example of the benefits of gearing. They have a huge amount of debt, but the return on that money exceeds the debt cost, despite the fact that their loans are at pretty high rates.

In our case, if the borrowing was used to invest in a new stadium and players, then the intention would be that the returns on those in terms of increased gate receipts, prize money and merchandising would more than offset the debt cost. I'm sure that that was always the owners' plan, but economic circumstances seem to have intervened.

[James P]

If they are forced into selling LFC it would be sold without the debt following LFC. The debt would be left in the holding co - offset by any income from funds from the sale of LFC.

Absolutely - any new investor will buy the club, not the holding company.

[James P]

these kind of qualifications based on ongoing negotiations over bank facilities are increasingly common, and don't mean that the sky is falling in. It's as much an arse-covering exercise as anything else.

I'll amend my earlier comment - having read a few of the newspaper reports, it actually appears that what KPMG have included is what is known as an 'Emphasis Of Matter' paragraph, which brings something to the attention of the shareholders, but isn't actually a qualification of the accounts (which is worse, and is used when the auditors cannot conclude that the accounts show a true a fair view of the state of the company).

You may remember that Tiscali were in the news recently when E&Y apparently refused to sign the accounts at all as they believed that the company was no longer a going concern - LFC are nowhere near that position, from the sound of it.

[BFG]

I'll amend my earlier comment - having read a few of the newspaper reports, it actually appears that what KPMG have included is what is known as an 'Emphasis Of Matter' paragraph, which brings something to the attention of the shareholders, but isn't actually a qualification of the accounts (which is worse, and is used when the auditors cannot conclude that the accounts show a true a fair view of the state of the company).

You may remember that Tiscali were in the news recently when E&Y apparently refused to sign the accounts at all as they believed that the company was no longer a going concern - LFC are nowhere near that position, from the sound of it.

Does this mean we can't panic?

Good posts mate.

[Slinky Skills]

There will be no new ground for a at least 8-10 years.

Do you ever write more than one line?

[Roboklopp]

James P, I knew all that stuff, but you're very good at explaining it succinctly.

[Kenneth]

I knew it all as well, and more, but thanks

[BG1973]

Our situation was always going to get worse before it got better.

What we want is new owners and if that's going to happen things are going to have to go tits up for Bill and Ben. If things are going to go tits up then obviously we're going to have to read some pretty unappealing stories in the press.

It was always going to be like this. Time for a thick skin chaps.

[James P]

I knew it all as well

and more

For the avoidance of doubt, the content of those posts wasn't the sum total of my knowledge!

[Nicey]

Guys, as a partner in a large firm of chartered accountants, let me add a bit of perspective here.

KPMG's comments on going concern are no surprise at all - in the current economic environment, the pressure on us as a profession has increased dramatically, and so these kind of qualifications based on ongoing negotiations over bank facilities are increasingly common, and don't mean that the sky is falling in. It's as much an arse-covering exercise as anything else.

Also, comparing us to Southampton is a irrelevant - we have just finished second in the Premiership, have a huge fanbase and top players, and are in next year's Champions League. If the owners are unable to refinance, then they will be forced to sell the club, and there are simply too many parties who have already expressed an interest for the club not to be bought. If their hand is forced, they simply won't get the price they want, but they will still sell because they will get a lot more than if it did go into administration.

Also, suggesting that we need £1bn of cash is a nonsense. Having a certain level of debt can actually be desirable (if you understand gearing then you will understand why), and the notion of building the stadium without some degree of financing would be unusual to say the least.

Shows over, nothing to see here, move along

[Liverta 78]

http://link.brightcove.com/services/...id=25395460001

[cream]

Do you ever write more than one line?

Maybe.

[Will]

http://www.spiritofshankly.com/news/SOS-and-LFC-Accounts.html