After months of waiting, the era of joint majority shareholders is about to be superseded by a period of joint minority shareholders, at least for the best part of another three years – maybe longer.
So, does a single word change – from majority to minority – make any difference?
The thing about change is that it’s supposed to come in a flurry of excitement with grandiose announcements.
If it doesn’t, fans either don’t notice or harbour a degree of suspicion about whether it really changes anything at all. And that might explain, in part, the feeling of anti-climax among many City fans following the recent shareholders’ approval to allot 195,012 new shares to Mark Attanasio.
Of course, matters aren’t assisted by the requirements for final approvals from both the Takeover Panel and the EFL, given their need for a further sign-off in relation to their Owners and Directors Test. Both are, apparently, a formality, but still likely to take several weeks.
So, while we await further announcements, one of the frequently made observations across social media and also within the MFW comments is that when the confirmation finally arrives there’s likely to be little difference – we’re just entering an American version of self-funding.
So, is that observation fair?
Time will be the ultimate arbiter but the initial evidence suggests maybe not, as a deep dive into the recent waiver circular and supporting documentation is actually quite revealing.
Aside from the initial £3.3m purchase of shares from existing shareholders (which is of no direct benefit to the Club) Attanasio also acquired C-preference shares costing £10m back in September 2022. The latter has been known about for some time – as has the option to convert the C-preference shares into a 10 per cent stake of new ordinary shares – but the disclosure that it is considered highly unlikely that a ‘trigger event’ will ever occur, was new.
Why is that important?
Well, without going into too much detail on the actual trigger events, they are a mechanism to facilitate the conversion of the C-preference shares into ordinary shares and, effectively, are change of control clauses – something to protect the owner of the C-preference shares in the event that Delia and Michael decided to sell their shares (hence the unlikely event reference) to someone else other than Mark Attanasio.
It might be oversimplistic but think of the trigger events as the equivalent of an insurance policy in his favour.
Nevertheless, the C-preference shares also represented a significant and up-front long-term loan commitment to the Club, not repayable until September 2029.
But, before anyone gets too dismissive of an initial £10m loan, there’s more – in fact, a lot more.
Further debt financing in excess of £33m, which included the relevant loan of approximately £4.8m, is to be converted into new ordinary shares. But it’s still a significant up-front commitment, totalling the best part of £30m additional debt financing, and, in my opinion, quite a sea-change from the historic approach of being debt-free.
The attitude towards debt will vary from person to person but from a corporate perspective, the critical factor is the ability to repay or, more frequently, the ability to refinance loans when they become due for repayment.
If a significant proportion of the outstanding debt is due to a director of the Club, in theory, those pressures should be reduced, certainly in comparison to debt previously obtained from external sources, as long as the appetite, or ability, to keep financing the business remains.
In the absence of any subsequent dialogue from Attanasio, that’s one to keep an eye on.
One question still to be answered, which will probably have to wait until the Club’s annual accounts are published in the next couple of weeks, is how much of the debt financing is additional debt and how much, if any, is simply the refinancing of previous debt (on hopefully more favourable terms)?
It seems highly likely that the accounts will reveal a further trading loss, which is hardly surprising given they will cover City’s first season back in the Championship following relegation the previous summer in 2022. Irrespective of the financial model operating at the time, relegated clubs – even with the benefit of parachute payments – always see their media revenues fall at a faster rate than wages.
But City’s position was also influenced by having just two senior players, Lukas Rupp and Josip Drmic, out-of-contract, back in 2022, with Pierre Lees-Melou being the only significant player sale that summer.
The subsequent January departures of Todd Cantwell, Jordan Hugill and Danel Sinani all would have helped reduce the wage bill further, but the latest summer sales all occurred after the financial year-end.
All of these factors combined would have contributed a a significant cash burn and would not have eased the financial position. And all would have probably contributed to the need for additional debt financing.
The forthcoming accounts should provide a greater degree of clarity. However, only time will tell what view City fans will take on this position.
I’d hazard a guess that if your glass is half empty, the increased debt will be a cause for concern as the Club’s level of indebtedness will have increased. If your glass is half full, however, maybe we are now entering a period of increased owner investment.
Personally, I’m drifting towards the latter but, as always in football, it’s not about how much you spend that’s critical but how you spend it. That impacts directly where it matters most – on the pitch.