According to Corriere Della Sera, Goldman Sachs has shown interest in refinancing Milan’s debt.
During the lengthy saga of the closing of the sale of Milan, Yonghong Li found a way to circumvent the Chinese government’s capital export restrictions by borrowing €303 million from hedge fund Elliott Management Corporation. Given the risk of the financing, Elliott Management secured ironclad guarantees from Milan in case of default.
This debt (interest rate of 11%, 18 month duration) must be paid by October 2018 or Elliott Management will become the de facto owners of Milan.
There are several options available to pay off this debt, the two most probable are the sale of equity to new investors or the refinancing of the debt.
The first option is viable if the Chinese government eases its capital export restrictions. This would allow Yonghong Li to sell shares to new investors (including investors who were part of the initial Sino Europe Sports consortium).
Should those restrictions remain in effect 16 months from now, the other option is to refinance the debt.
Goldman Sachs Debt Refinancing
This type of refinancing goes in line with the objectives of Goldman Sachs. The Wall Street bank’s goal of strengthening its position in debt underwriting as it looks for new avenues of growth will help it compete with JP Morgan Chase.
Just a few days ago, Goldman Sachs collected more than $7 billion for a fund which purchases secondhand stakes in private equity funds, according to Reuters. The fund focuses on buyout and distressed strategies in developed markets.
Milan’s debt refinancing is like shopping for a mortgage when it’s up for renewal. Milan can seek alternative financing with better interest rates and less restrictive guarantees. They can achieve significant savings if they manage to grow revenues (player transfers, ticket sales, merchandising, sponsorships) and reduce costs (personnel, player wages). A stronger financial statement in 2017 will do wonders for attaining debt financing in more favourable terms.
Milan has been in the red for several years, including a loss of 74.9M in 2016. A quick turnaround in their financial situation will be beneficial for many years to come.
Therefore it is imperative Milan finish in the top 4 next season, both for maintaining the goodwill obtained with the fans and for the financial health of the club. UEFA’s CFCB (Club Financial Control Body) will be monitoring their progress in light of Milan’s participation in Europa League and financial fair play (FFP) implications.