Laxey Loan Alternatives Ignored
- 03 March 2014
Businessmen, fund managers and investment professionals have come together to criticise the recent loan taken by the Rangers board from Laxey, and to reveal that they approached the NOMAD, Daniel Stewart, in an attempt to provide alternatives which were never progressed.
John McClure, the head of Unicorn Asset Management, a well-respected small cap manager in the City of London, and a lifelong Rangers fan with 4 season tickets, has detailed how he approached Daniel Stewart on Thursday 20th February on behalf of a group of shareholders, before the loan was signed off by the Rangers board.
“We approached the NOMAD, Daniel Stewart on 20th February to discuss reports that a loan was being considered. At the time we didn’t know the exact terms but we wanted to make it clear that there were alternatives. The next thing we knew, the loan had been announced.”
“We were never given the opportunity to offer formal terms because we didn’t hear anything back. Daniel Stewart asked if we could provide the money that day but obviously that wasn’t possible. We told them we would need a few days, which is perfectly reasonable in a transaction of that size, but they seem to have pressed ahead regardless.”
“We’d be concerned if the money was needed so urgently by the board that they could not at least have discussed it properly with us. It certainly wouldn’t suggest it was part of the plan, as they are indicating. Surely they could have waited a few days? We could have provided immediate proof of funds with a view to agreeing terms.”
"We also made it clear to Daniel Stewart that we believe a new share issue is urgently required and a much better option than taking short term finance at outrageous rates."
“We just want the fans to know that there were alternatives out there that we feel were never explored properly. In our opinion the board and the NOMAD did not open this up to other shareholders as they should have. Our motivation was and is to help the club so we could have provided any required funds at much more favourable terms than those they accepted.”
George Letham, a lifelong Rangers fan and wealthy businessman, backed up McClure’s version of events and revealed he would even have been prepared to offer the full amount of the Laxey loan.
“When the loan was first mooted, I was approached by a fellow fan asking if I was prepared to contribute a substantial slice of an interest free, secured loan along with a few other fans. I agreed that they could approach the NOMAD on this basis.”
“When the terms of the Laxey loan were announced I was horrified.”
“If I had been offered even half of Laxey's interest rate with the security being given, I would have provided the whole loan myself in a heartbeat. I communicated this to a couple of the fans reps who had recently met with Graham Wallace in the hope they could convey this but they were unable to speak to him.”
The Rangers Standard has also spoken to the MD of a multi-national investment bank who did not wish to be named due to what he called “the tactics employed by various parties linked to the board”.
“I was astounded at the terms that Laxey managed to achieve on this loan, especially as a related party with a representative on the Rangers board in the form of Mr Crichton. In such circumstances, you would expect terms to be at least comparable with prevailing market rates, and more likely on better terms, given the prospect of a conflict of interest. They certainly do not appear to represent value for the club, or its shareholders.”
“Firstly, the loan is secured against property, although there is nothing untoward about this on the face of it, you would expect a secured loan to reduce the borrower’s costs. However, to achieve 30% pa, on a secured loan, is to the best of my knowledge unprecedented.”
“Having negotiated such attractive interest rates on their loan, Laxey also have an option, to convert their premium into shares, at either the lower of 26.5p or the prevailing price of any future share issue price, at Laxey’s discretion. Effectively they have the option to buy shares, and potentially strengthen their position as Rangers largest shareholder. If the share price rises, they can redeem the option at a potential profit. If the share price remains below 26.5p, and in the absence of a further share issue below the 26.5p level, they may take the cash and have their 15% return in 6 months. As a gauge, with the share price, currently hovering around the 30p mark, their potential return over 6 months has already risen significantly to around 17%. Any further rise in the share price only serves to further enhance the potential return Laxey can achieve. The convertible element of the loan, benefits only Laxey, to the potential detriment of all other shareholders, who could see their shareholdings diluted, as more shares are potentially created.”
“On seeing the terms of the Laxey loan, I took it upon myself to test the market, to establish the type of cost and terms that a corporate could achieve for a similar secured loan. I should stress that I am not privy to the specifics of the security and value of Edmiston House and the Albion, so there is a modest amount of guesswork involved. However, I was generally quoted, dependant on loan to value, a range of between 3 and 5% pa. There was also the provision of a front end fee of c1% to 1.5%. I was also quoted a flat 8.5%, with no redemption clauses, or fees. This was the most expensive quote I received, and none of the quotes had the clause of a discretionary share conversion, which you would expect to potentially curtail interest costs further. When I showed the Laxey terms to a well-connected property finance broker, he was astounded at the favourable rates and equity conversion achieved, even more so when I relayed that the terms were achieved by a related party.”
It is clear that the board, and the NOMAD, Daniel Stewart, have some uncomfortable questions to answer on why they took this loan from Laxey on such onerous terms, did not progress the other options available and have made claims that the loans were commercially acceptable despite clear evidence to the contrary. Perhaps instead of bland statements asking fans to be patient, they can address the very real concerns raised by Dave King, the Union of Fans and the highly experienced and credible businessmen who were willing and able to provide the club with much more favourable terms on any required finance.