PIK bonds.
It's real easy for everyone to rant and hit out at the glazers but what grounds do we have? Do we have any hard evidence of them failing as owners.
Yes. We haven't been big spenders on world class talent since we bought Berbatov for over 30m.
That's the only hard evidence we have. People are ranting about the debt and especially the PIK bonds. Let me try to elaborate on this.
Facts:
We know the face/principal value, the min price for the sold bonds.
We know the coupon rate, the interest rate
We know the maturity, the date when its time for, in a easy word, payback
The fact is we don't see the full picture...This are the facts the media an a lot of fans are ranting about. But there is one key factor missing.
What did the investors buying the bonds really pay.
Bonds:
A bond is easiest explain by calling it a loan. UTD needed money. And buy selling bonds they took up a "loan" but actually how much they got is unknown.
This because we only know the principal value not what was actually paid.
So the glazers probably got a pretty decent price for the bonds. And that in fact might have put quite a bit of cash into the transfer funds...
To put it as easy as possible:
UTD have to pay the principal value + the coupon rate in 2017(i think) this is causing a lot of fuss.
But we have to look at the net present value of this investment to see the full picture.
Matematically:
Price(what the club got paid) - (coupon rate * principal value) * ((1+IRR)^number of years until down payment - 1)/(IRR*(1+IRR)^number of years until down payment) + principal value / (1 + IRR)^number of years until down payment = 0
The clue her is to find IRR. this gives us the information we need to start ranting or stop ranting....
We know the coupon rate, number of years until down payment and principal value. As I said earlier, the clue is what the club got paid. Without that
it's both hopeless and stupid to just take a stand and hate the glazers. It actually just says that your knowledge of economy isn't all that much.
How many of you guys can solve this equation, how many of you event understand half of it. I just wrote this but still have trouble understanding.