The loan: in 5 minutes

Just a quick post – and a massive over-simplification – about a letter sent to shareholders regarding the non-repayment of a £10m loan to Amulya.

Here’s the broad thrust of what it’s all about…

Most QPR fans are aware of the infamous ABC loan. This was a £10m loan which enabled the club to come out of administration in 2002, paying Chris Wright some of the money he was owed as a result of his time as chairman and owner.

This loan was bad news, and the interest repayments alone were a noose around the club’s neck. It meant that ABC Corporation, in loaning QPR that money, had the right to acquire Loftus Road should that loan not be repaid at the due date. In short, Loftus Road was used as collateral to secure that loan.

What’s never said about the ABC loan is that a large chunk of it was also used to fund QPR’s promotion by making the club the biggest spenders in Division Two. Without that additional capital, it’s doubtful Rangers would have gone up. Most wrongly believe that promotion was achieved on a shoestring.

Before and after the 2007 takeover, the ABC loan was a big issue facing the club, and by definition the new owners.

In order for QPR to repay ABC, the club was loaned £10m by Amulya – a company the club say Flavio Briatore and Amit Bhatia have an interest in.

This did NOT mean that the issue of the £10m loan had gone away. It meant that the loan had been transferred from ABC to Amulya, who then had the option to acquire Loftus Road just as ABC did previously.

The loan to Amulya was due to be repaid by QPR by the end of July 2010, at which time the likes of Briatore expected to be owning a Premier League club, with all the financial rewards that brings.

When the loan was not repaid by QPR to Amulya, that option to acquire – the ‘deadline’ for the club – was extended to the end of October 2010 and then to the end of January 2011.

With the second date now passed, the directors are looking to move it to May 2011 – by which time they really do expect QPR to be in the Premier League.

In the meantime, Loftus Road will remain as their collateral, or to put it another way, their insurance, should that not happen and the loan remain unpaid.

Like ABC, Amulya have the option to effectively acquire the stadium for the £10m they loaned to QPR (even though the stadium was last valued at more than £21m).

This can seem confusing, and I’ve been asked how the directors can “default on their own loan”. The answer is to stop seeing QPR and the owners as one and the same. They’re not.

The loan isn’t “theirs” and neither is the default on the repayment. It’s QPR’s alone.

The club was given that £10m by Amulya to repay the ABC loan. And like that previous loan, QPR must repay it or face the prospect of losing Loftus Road.

The bottom line is that the ‘sorting’ of the ABC loan was no more intended to be a gift to QPR on the part of the current owners than Wright’s investment back in the mid-90s. Both were directors’ loans – a fact that in both cases was overlooked because of the hype surrounding the respective regimes and their willingness to spend money on players.

And in an important sense, those two eras are linked by this £10m loan. The Amulya loan was used to pay off the ABC loan, which was arranged in response to the troublesome directors’ loans that QPR were not in a position to repay in 2001, when Wright quit.

Got that? It’s a loan to repay the loan that settled the other loan.

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13 Responses to The loan: in 5 minutes

  1. daveB says:

    so basically if we don’t go up this year then we are in a whole world of trouble

  2. lee wiffen says:

    Most companies exist with an amount of directors loans plus working capital. I’m pleased we have a number of directors who are currently, and I stress currently, prepared to support the club on the promise of greater revenue should we achieve promotion. This of course will in turn result in increased income mainly from Sky and TV revenue along with some increase in sales of season tickets along with increased ticket prices. However, the bigger question which I hope is being addressed by the current board, given our current league position, is how do we see the progress of the club given the increased expectations that will come with promotion and the lack of ground capacity afforded by Loftus Rd. Is the BBC / White City move inevitable or can our directors come up with an alternative model whilst retaining Loftus Rd and the paltry 18,000 capacity currently enjoyed by us fortunate few ? How do the directors who have secured the £10 million loan get there money back, or even should they ? Of course they could sell the stadium……improbable and complicated given the part the club plays in the local community and planning issues for any buyer unless there was a complimentary build to replace the loss of the facility. Of course they could pay themselves increased dividends, extreme wages once the increased revenue stream is implemented upon promotion….again difficult as the furore and ire of the fans of ” non investment” would be rife. Study Mike Ashley at Newcastle. Answers on a postcard please !

  3. Possibly daveB, but as Lee says there are other factors to consider too.

    Thanks Lee for such a great response. It’s hard to tell what will happen in the future not just with Rangers, but football in general. If the global appeal of the Premier League continues, then with TV money and growing support for matches to be played away from these shores, having a small stadium may well not be as relevant in future years as it has been.

  4. Finney says:

    Do not forget also Dave the fact that the old board and i can still hear the broken record from David Davies on that loan was they had no choice on taking out that loan and also they say a letter from the FL made them do something in fear of not being placed fixtures.
    I think that is tosh and that we did not play hard ball with the FL and also at the last minute the loan rate was changed from 8% and hiked up to 10% and they still went with it.
    How on earth they felt we could re pay that kind of money on that interest rate is shocking even more shocking the reasons they gave for the loan.

  5. Richard says:

    What this blog doesn’t talk about is the debt service on the £10m loan. Is the club repaying interest? or interest and capital? Or is the interest capitalised (that is, rolled up and added to the loan debt)? What sort of rate of interest is being charged? This is all relevant because of the exposure of Amulya and its expectations for repayment and options should the club default. If the club is able to service the debt, why would they pull the funding? Don’t forget that healthy loans make their creditors money. It’s only if QPR can’t afford to pay Amulya that things get dicey – obviously this is where the club’s footballing fortunes come in. In the main, the club is much better off if it is in the Premiership but, a marginally less successful Championship season that sees them miss out on promotion by a whisker would still, presumably, enable the club to continue to operate as a going concern – particularly so long as the £10m loan is not prohibitively expensive to service. Options for Amulya should QPR default are not all domesday scenarios. If the loan is secured on Loftus Road (especially if it is value >20m), the ground could be subject to a sale and leaseback. Effectively Amulya have their asset (paying down the loan) and they get they charge QPR rent in replacement of debt service. It is not in Amulya’s interest to see the club go out of business and nor does it need to boot Rangers out and sell to West London property developers to recover its losses. £10m aint that much. The club was in a much worse position before and still found buyers, I can’t see Mittal et al pulling the plug now when they are on the cusp of making a serious return. The business of football has become a short-term game but I honestly don’t think Rangers are anywhere near as close to the precipice as they were 2 years ago.

  6. Mike says:

    Stop looking for excuses not to support QPR and go to the games and support our club. These blogs only support the newspapers who like putting our club down and enjoy making promotion to the EPL seem painful.

  7. [...] also want to clarify something about my post on the Amulya loan, which attracted some not-so-nice comments! That’s fine.  I’m always hearing from and meeting [...]

  8. [...] they exited Administration through the most mysteriously shady deal in recent QPR supporter lore, the ABC loan, in which QPR were loaned £10m at outrageous interest from parties still unknown to this [...]

  9. uplift…

    The loan: in 5 minutes « David McIntyre…

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