2nd May

You want it back when......? Wasps likely to refinance 6.5% bond due 2022

Wasps Rugby Football Club’s chief executive David Armstrong is to step down this summer after playing a key role in the club’s relocation to Coventry’s Ricoh Arena; he will be replaced by the club’s deputy chairman Nick Eastwood.   

Previously CFO of African investment conglomerate Lonhro, finance expert Mr Armstrong oversaw the ground-breaking retail bond scheme which saw the club raise £35million from investors and pay off its debt to Coventry City Council.   

However, Wasps has confirmed it might have to refinance the scheme after financial experts cast doubt on the club’s ability to repay its debt. In April 2015 Wasps issued a retail bond on the London Stock Exchange’s Order Book for Retail Bonds (ORB) exchange which allowed investors to purchase bonds with a minimum investment of £2,000 in return for coupon payments equivalent to 6.5% p.a. paid semi-annually until receiving their investment back as a lump sum in 2022. 

Following the publication of Wasps’ half year accounts the Daily Telegraph sought expert analysis of the figures from accountants and an academic, concluding that the club is unlikely to be able to meet its financial commitment to bondholders of repaying them in full by 2022, making it likely that the club will seek to refinance the debt.   

Overall, it concluded that the club is ‘heading in the right direction’; it posted record revenues of £17m, but still recorded a loss of £1.1m making it unlikely that its turnaround will be rapid enough for the 2022 deadline to be achievable. 

 However, bond holders will be heartened that the value of its stadium, against which their investment is secured, is greater than the sum of its debts, although it has said that selling its core asset is not considered a possibility.

 Securing a headline sponsor is expected to improve the situation considerably and the fact that Wasps are flying high in rugby’s Aviva Premiership and on course for a place in the final on 27th May will do them no harm at all.

In assessing Wasps’ situation for the Telegraph, Paul Carvell, managing partner at Stuart Fletcher and Barrett, said: ‘The biggest loan they have is through Wasps Finance PLC (the bond - RBE) which now stands at £33.9m. That loan is repayable in a lump sum repayment in 2022. ‘There is no way the company is generating the money to repay that. My only conclusion is that they are going to have to re-finance, unless there’s a massive turnaround. ‘All I know is that it’s not generating enough money at the moment to pay that off from its own trade.  

Sean Farnell, partner at Burgis and Bullock, said: ‘There’s no way at current activity/income levels that the club can repay the bondholders out of operating cashflow (in fact they have negative annual cash flows so the situation is actually getting worse annually)’. 

However, Mr Farnell noted that many sports businesses are run on debt and that the club should not have any difficulty in refinancing.  

Sports finance expert Dr John Beech said: ‘The bond scheme was a bold and imaginative way of raising capital, but has always carried with it the risk of whether Wasps will be in a position to repay in 2022. ‘On present figures, the repayment looks as if will be problematic; it seems likely that some refinancing will be required. ‘There is of course plenty of time for either revenues to be significantly improved or an alternative source of financing to be found; currently the latter course seems more likely, if carrying with it further risk.’ 

In response to the Telegraph, a spokesperson for the Wasps Group said: ‘As we have always said since launching the retail bond in May 2015, one of our options would be to re-finance the bond, which we are entitled to do any time between May 2019 and May 2022.

‘Anyone working in business in general or in the financial industry will understand re-financing is a very common step in many financial situations and particularly for long-term asset backed bond finance. 

‘We would like to underline that selling the Ricoh Arena has never been part of our plan. We have said from the outset that Wasps’ long-term future is at the Ricoh Arena and this remains true.’ 

Wasps’ owner Derek Richardson paid fulsome tribute to Mr Armstrong who becomes a non-executive director: ‘David’s impact on Wasps has been huge, from leading the original purchase of the Ricoh Arena and the club’s relocation to Coventry, to the launch of our retail bond, the redevelopment of our hotel, developing our new fan base at the Ricoh and the launch of Wasps Netball.  

‘On behalf of the board, I would like to thank him for the tremendous impact he has had on the club. 

‘He leaves the business and management team well positioned to continue its growth and we will continue to benefit from his expertise as he continues to serve on the Board’.   

David Armstrong, said: ‘It has been a tremendous privilege to work with Wasps for the past three years during a period of dramatic change and growth. 

‘There is no doubt that Derek Richardson and the Board are building a powerful long-term platform to take the Club to great heights in the years to come. 

‘Wasps will always have a very special place in my heart and I would especially like to thank the Wasps and Ricoh Arena staff for all their tremendous hard work and support.  

‘I look forward to continuing to work with the Club in my capacity as board member, while still enjoying trips to the Ricoh to support the teams.’ 

With demand for retail bonds remaining high from investors starved on income, Wasps bond closed the day at 105.4, very much in positive territory, although some way below the peak of 111.7 it achieved in September 2016.  

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