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Man. U bonds fall, Europe investors fret

Marketplace Staff Jan 28, 2010

Man. U bonds fall, Europe investors fret

Marketplace Staff Jan 28, 2010


Kai Ryssdal: We are joined now in the studio by Marketplace Senior Editor Paddy Hirsch, as we are from time to time. This time, though, it’s something a bit closer to your heart than usual, Paddy — English football, the real football. And Manchester United, the New York Yankees, if you will, of the English premiere league, they are in something of a bind, yes?

PADDY HIRSCH: Well, something of a bind. Last night, they managed to beat Manchester City, and they’re nine in the final of the Carling Cup, which is great news. But financially, not in such good shape. They’re a billion dollars in debt at least. The last couple of days, the Glazers who own Manchester United, issued 500 million pounds in bonds, and those bonds are not doing particularly well in the market today.

Ryssdal: The Glazers, it’s an American family first of all, they own the Tampa Bay Buccaneers. They are not loved by Manchester United fans. But here’s the question about the bond: People bought it, I mean it was oversubscribed, so what’s the big deal?

HIRSCH: Yeah, the bond was very generously priced, I mean one of the tranches was priced at 8.75 percent, which is very nice. But they had to issue that bond at a discount, they had to sell it at a discount to get it done. And today people in the market are backing away from this thing, they think it’s way too risky. And it’s been bid down to 94.5, so like way, way down on the 100 cents on the dollar that it sold for.

Ryssdal: Back up for just a second, 8.75 percent, as you mentioned, I mean that’s unbelievably high.

HIRSCH: Well, it needs to be. Firstly, the club is deeply in debt, it’s a billion dollars in debt. Second of all, if hadn’t been for the sale of their superstar player Cristiano Ronaldo earlier this year for 80 million pounds, they would have made a loss last year as opposed to a profit.

Ryssdal: What do we learn, though, about the larger bond market. I mean debt is immensely important in financing and economic recovery. What does this bond deal tell you about that market?

HIRSCH: Well, it’s very interesting to look at the Manchester United deal as a kind of example of what’s happening in the wider market in Europe. Because European investors have been jumping all over high yield bonds this year, anything with a big price tag on it that they’re going to make a lot of interest on it. They’ve been all over that stuff. But now they’ve backing right back out of the market. And the reason for this is because they’re looking at America, and they’re seeing over here that the chairman of the Fed is talking about maybe pulling back from the market, reducing some of its stimulus programs, not helping out the market as much as it has in the past, and investors are worried that that’s going to pull the rug out from underneath all of the growth that we’ve seen so far. And so anything that looks risky right now they are steering very clear of.

Ryssdal: OK, steering clear, that’s fine. But why is that bad news, then, for companies?

HIRSCH: Well, because a lot of companies are regarded as being pretty risky right now because of the state of the economy, so if they tried to go into the market and borrow, maybe they wouldn’t be able to get the money that they were able to get sort of three or two months ago. So it is actually going to inhibit growth, or has the potential to inhibit growth in Europe.

Ryssdal: English football and the global economy. Paddy Hirsch, our senior editor here at Marketplace. Thanks, Paddy.

HIRSCH: Always a pleasure.

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