It is not simply on the pitch that Inter Milan has the upper hand over its longstanding rival AC Milan. The shifting fortunes of two of Italy’s best-known football clubs extends into the debt markets.
While Inter enjoyed strong demand last week for a debut bond, AC Milan is struggling to find investors willing to refinance more than €300m in high-interest loans it has from US hedge fund Elliott Management, best known for its 15-year battle with Argentina over its default.
The stakes are high for the Northern Italian city’s oldest football club. If it is not able to refinance its debt by October, the US hedge fund will seize control of AC Milan. A person close to the efforts to refinance AC Milan’s debt said he thought it was “50-50” whether the deal would succeed. Uefa, European football’s governing body, last week voiced its concerns over the club’s financial situation.
Football may be the most popular sport in the world but asset managers have typically been reluctant to lend to clubs due to the unpredictability of cash flows that can swing wildly based on their team’s performance. As such, Inter’s €300m deal was the first public bond sale from a European football club since Manchester United tapped the debt markets in 2010. The contrasting financial fortunes of the clubs also underline both the perils and opportunities of selling to overseas owners.
AC Milan took out the loan from Elliott this year, when little-known Chinese investor Li Yonghong bought the club for €740m from Silvio Berlusconi, the media mogul and former Italian prime minister. The limited information around Mr Li’s wealth is proving a barrier to AC Milan’s efforts to refinance its debt, according to people close to the deal. The New York Times reported last month that corporate records show that, on paper, someone else owns his mining empire — though the club said his control of the mining interests had been verified by lawyers and banks.
Elliott declined to comment.
Inter Milan is also now majority-owned by a Chinese investor, but in contrast its owner Suning is large publicly listed retail conglomerate.
The club was top of the table when it sold the bond last week, although it has since slipped to third place. One investor who bought the bond said that it was hard to see Inter defaulting on its debt if it remained in Italy’s top league. “The big doomsday scenario of relegation is just not credible,” he said, noting that the club had never been demoted to Italy’s second-tier Serie B.
The bond was issued out of a “MediaCo”, a separate entity that holds Inter’s media and sponsorship rights. The debt uses a “waterfall” payment structure that ensures money is used to service debt before it can be spent at the club.
As a result, Inter’s bond was in demand, pricing at 4.875 per cent yield and trading up in the secondary market.
“We’ve developed a structure that provides a very sound financial base for making sure debtholders are paid, while instilling discipline on the clubs,” said Greg Carey, head of sports finance at Goldman Sachs, which led the bond deal.
As well as repaying existing debts, Inter’s bond is providing the club with an €82m cash infusion.
“This transaction provides significant additional cash to Inter Milan’s balance sheet, allowing Inter to run a stable business without relying on owner support,” Mr Carey said.
AC Milan meanwhile is languishing at eighth place in Serie A, 16 points behind Inter, putting the club’s qualification for next year’s lucrative Champions League tournament in doubt.
That prospect is unlikely to help the club in its quest to refinance the loan. Mr Li’s Rossoneri Sport Lux investment vehicle carries €180m of the loan, which carries an interest rate north of 11 per cent, according to a person close to the deal. A further €128m sits at the club itself and has a 7.7 per cent interest rate, according to AC Milan’s most recent public accounts.
Mr Li has never missed an interest payment, however, and the loan is not in breach of any covenants, the person added. Marco Fassone, AC Milan’s managing director, last month said “I’m very optimistic about any potential refinancing of the club’s debt. We have a lot of time ahead ourselves.”
Whether AC Milan can claw back the gap to Inter in Serie A will absorb the club’s fans for the rest of the season. Narrowing the financial gap to its bitter rival is ultimately the bigger challenge.
Additional reporting by Rachel Sanderson
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