US hedge fund Elliott Management took control of AC Milan this week from Li Yonghong after he failed to keep up with debt repayments. Elliott said that it will inject €50m, of equity capital into the club. It is thought unlikely to sell the club in the short term, but will probably exit in 18 months.
It has pledged to get the club back on a stable financial position and into Uefa's good books, possibly even overturning the ban on European football. Elliott is in talks to bring in Riccardo Silva, owner of Miami FC, in to the club to help improve operations.
Elliott's loan to Mr Li's Luxembourg holding company carried annual interest of more than 11 per cent. The debt was a so-called 'payment in kind' loan, a high risk structure that allowed Mr Li to pay interest with further debt rather than cash, meaning the debt would keep on rising the longer it remained unpaid.
He tried to refinance the debt in London to no avail. Hedge funds were willing to take on the debt of the club itself, but not the ballooning loan at the holding company. The limited information about Mr Li himself caused concern. He was not able to show that he has the resources to support the club and people suspected that his investment was highly leveraged in China. He came to typify the fast and loose spending of new money from China.
A spending spree on player transfers and wages led to a sharp deterioration in the club's financial position which put the loan in breach of covenants. AC Milan spent €200m on players last summer, but still finished sixth in Serie A. Now the task is to restore the club to the top tier of world football.
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