What is the source of Milan's money?

gnrfan wrote:Pretty clear that there is some kind of consortium backing them, as the purchase price of Milan alone is more than Li's net worth on paper. Just curious to see what kind of money there could potentially be? Potentially PSG/city levels?

American hedge fund Elliott Capital, supported by London-based private equity fund Blue Skye, financed €180 of this final payment through another Luxembourg-based ad hoc vehicle called RedBlack Sarl. Calcioefinanza.it reported that Huarong International Financial Holdings has financed about €140m of the remaining €190m, along with Mr. Li’s offshore funds, worth about €50m.

Elliott Capital is going to be a very important actor in the immediate future of AC Milan. The American hedge fund has in fact financed Rossoneri Sport Investment Lux in two tranches. The aforementioned one, worth about €180m, financed the final payment to Fininvest on the closing day. The second part, worth about €123m, is instead issued directly by AC Milan. In particular, €73 of these will pay back some bank loans, while the other €50m will be a capital contribution to strengthen the club. Milannews.it and Gazzetta dello Sport reported that the applied interest rates are 11.5% on the first €180m issued by Rossoneri Sport Investment Lux, and 7.7% on the other €123m. Overall, Elliott Capital will get roughly €30.2m in annual interests, about €20.7m of which from the loan issued by Mr. Li’s Luxembourgian vehicle, and the remaining part, about €9.5m, from AC Milan’s loan. According to website Goal.com, Mr. Li has also been charged an arrangement fee worth about €15m.

The maturity of the loans is unclear. The initial indiscretion reported an 18-month maturity. However, Italian journalist Pasquale Campopiano revealed that the term should be actually 5 years, at least for the €123m issued by AC Milan. Anyway, Gazzetta dello Sport reported that in case of default on the reimbursement of these loans, Elliott would be able to get the money back forcing Rossoneri Sport Investment Lux to sell its AC Milan’s shares. Meanwhile, Elliott is going to control strictly AC Milan’s financial accounts every two months. In fact, through managerial reports and meetings with the management, Elliott will be able to get information about variances between budgeted and actual accounts. The hedge fund has also created an ad hoc committee to control the financial results. Furthermore, Mr. Salvatore Cerchione will be in AC Milan’s Board of Directors with the role of observer in the interests of Elliott. Another trusted figure, Mr. Paolo Scaroni, former CEO of ENI and currently Deputy Chairman of Rothschild, will also be part of the board.

Elliott Management Corporation, the U.S. private hedge fund that provided a financing lifeline to rescue the deal to sell Milan to Yonghong Li, has secured ironclad guarantees to protect its investment.

Details within the documentation consulted by Calcio e Finanza have emerged since the reporting of Milan’s €74.9 million loss that ended Berlusconi’s era.

In the event the new owners are unable to repay their debt and fulfill their obligations, Elliott will become the de facto owner of Milan by repossessing all of the shares. This was a known fact.

What was unknown is the particulars of other guarantees Elliott has secured, ensuring an ironclad protection in the event of default.
Here are some examples of liens that have been reported:

Lien on all assets on all AC Milan trademarks
Lien on all intellectual property
Lien on the revenue account of the Banca Popolare di Milano
Lien on credits from various commercial contracts and sponsorships
Lien on credits from media contracts

In addition to the liens, there are other guarantees stipulated such as:

Acquisition of Milan’s archive of data, images, videos, etc
Acquisition of 100% of Milan Entertainment Srl
Acquisition of Milan Entertainment commercial and sponsorship contracts

Interestingly, the widely reported terms of the financing (interest rate of 11%, 18 month duration) was not mentioned on the financial statements. Yonghong Li has to figure out how to repay approximately €350M (capital plus interest) by October 2018.

If he does not repay his debt, Elliott will acquire Milan and execute all its guarantees like a regular bank would when someone defaults on their mortgage. The difference however is Elliott will not only take the house (Milan) but also the car, the furniture, and everything else it can get its hands on that has commercial value.

During the lengthy saga of the closing of the sale of Milan, Yonghong Li found a way to circumvent the Chinese government’s capital export restrictions by borrowing €303 million from hedge fund Elliott Management Corporation. Given the risk of the financing, Elliott Management secured ironclad guarantees from Milan in case of default.

This debt (interest rate of 11%, 18 month duration) must be paid by October 2018 or Elliott Management will become the de facto owners of Milan.

There are several options available to pay off this debt, the two most probable are the sale of equity to new investors or the refinancing of the debt.

The first option is viable if the Chinese government eases its capital export restrictions. This would allow Yonghong Li to sell shares to new investors (including investors who were part of the initial Sino Europe Sports consortium).

Should those restrictions remain in effect 16 months from now, the other option is to refinance the debt.
Goldman Sachs Debt Refinancing

This type of refinancing goes in line with the objectives of Goldman Sachs. The Wall Street bank’s goal of strengthening its position in debt underwriting as it looks for new avenues of growth will help it compete with JP Morgan Chase.

Just a few days ago, Goldman Sachs collected more than $7 billion for a fund which purchases secondhand stakes in private equity funds, according to Reuters. The fund focuses on buyout and distressed strategies in developed markets.

Milan’s debt refinancing is like shopping for a mortgage when it’s up for renewal. Milan can seek alternative financing with better interest rates and less restrictive guarantees. They can achieve significant savings if they manage to grow revenues (player transfers, ticket sales, merchandising, sponsorships) and reduce costs (personnel, player wages). A stronger financial statement in 2017 will do wonders for attaining debt financing in more favourable terms.

Milan has been in the red for several years, including a loss of 74.9M in 2016. A quick turnaround in their financial situation will be beneficial for many years to come.

Therefore it is imperative Milan finish in the top 4 next season, both for maintaining the goodwill obtained with the fans and for the financial health of the club. UEFA’s CFCB (Club Financial Control Body) will be monitoring their progress in light of Milan’s participation in Europa League and financial fair play (FFP) implications.

breva wrote:Elliott Management Corporation is an American vulture fund. They are like a Mafia money lender, but this time they may have bitten off more than they can chew. Li, the guy that bought Milan has very close connections to the Chinese government, the fund won't be able to bully Li. In fact, if they get uppity, Li has the ability to make them irrelevant. I am actually surprised they decided to become involved. China is not like Argentina, China can drive the U.S, to bankruptcy if they want.

Warrior wrote:

breva wrote:Elliott Management Corporation is an American vulture fund. They are like a Mafia money lender, but this time they may have bitten off more than they can chew. Li, the guy that bought Milan has very close connections to the Chinese government, the fund won't be able to bully Li. In fact, if they get uppity, Li has the ability to make them irrelevant. I am actually surprised they decided to become involved. China is not like Argentina, China can drive the U.S, to bankruptcy if they want.

breva wrote:Those types of funds generally limit their exposure to debtors from countries that do not have the geopolitical power of China. I don't know if you remember when Argentinian financial institution owed a hedge fund a bunch of money backed by the Argentinian government, the hedge fund was able to have an Argentine warship seized in an African port as collateral. I doubt any country would risk seizing a Chinese warship to extract payment, do you?

Warrior wrote:I don't remember that, never was aware of it. I only read the sports section.

That being said, 2 completely different situations here. We're talking about a businessman buying a football club, and borrowing ~300 millions in the process to an american-based hedge fund. The deadline is autmun 2018 if Li is unable to pay the debt EMC will become de facto owners of AC Milan and everything they possess.

Now what's the point of turning this into State affair where warships are being seized, i wonder what kind of herb you smoke. Must be the magic kind

Hapless_Hans wrote:

breva wrote:Those types of funds generally limit their exposure to debtors from countries that do not have the geopolitical power of China. I don't know if you remember when Argentinian financial institution owed a hedge fund a bunch of money backed by the Argentinian government, the hedge fund was able to have an Argentine warship seized in an African port as collateral. I doubt any country would risk seizing a Chinese warship to extract payment, do you?

The hedge fund that you're talking of, that had the Argentine naval ship seized by an African state, was Elliot

But on topic, how do we know Li has the support of the Chinese government?
If I understood correctly, the whole trouble about getting the deal done, and the reason why the Elliott fund had to be resorted to as money givers, was that Li had to circumvent some Chinese laws, no?