What new NSWE financial move could mean for Aston Villa as transfer market addressed
On Thursday, a Companies House update showed that Aston Villa had taken out a loan from a London-based lender.
Publicly available documents showed that the club had borrowed from Kroll Trustee Services, a firm which also has offices at One World Trade, New York, with the loan secured against the properties owned by the football club as well as its commercial contracts.
Such developments can be a cause for concern for fans, especially when the loan is secured against club assets. However, Villa would not be the first, nor the last, and the fact that it is a secured loan against club assets and not junior debt likely means that it is for a sizeable sum.
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The question will be what has been the motivation for securing a loan facility having pumped in £50m of fresh equity into the club back in October when NSWE, the club’s owners, created 50 million extra shares with a value of £1 each. Premier League rules allow for club owners to inject on average £35m per season in fresh equity for PSR purposes over a three-year period.
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With the addition of US investment firm Atairos as part-owners of the football club, another equity play could have risked diluting the balance of ownership, and with the club seeking more access to cash for liquidity and working capital, a loan looks like a more sensible bet.
There is often the tendency to look at these kinds of developments through the prism of the transfer market and plans to add to the squad. While some funds may be used to meet some instalments due for the signing of players, the money is likely to be used for working capital purposes, which could be meeting a number of creditors that may be due to mature over the next 12 to 18 months.
Cash flowing a football club can be a challenge, and the Christmas and New Year period can be a period of low cash reserves for clubs having long since received their major tranche of season ticket sale money and central funding from the Premier League, which includes the very valuable broadcast rights.
What that means is that matchday revenue tends to become the staple, and given the enormous amount of money required to keep the wheels turning, ensuring there is liquidity in the business is essential.
PSR (profit and sustainability rules) could also be a consideration. As loans count as liabilities on a balance sheet, and with calculations for PSR focusing on profit and loss and not on cashflow, the club can ease some of the pressure.
It could be that NSWE have plans to invest in an area of redevelopment or land acquisition, or that they are simply trying to stave off any requirement to sell key assets in order to meet financial objectives. Clubs such as Villa in particular have momentum at present, with the UEFA Champions League back as part of the club’s diary and the Villans aiming to claim another spot in the top four in the Premier League this season.
That means that regression really isn’t an option, and that often comes round when it involves cost-cutting or selling players. The club may have contract situations that they want to address and it is an element of future planning.
Securing any debt against assets is laden with risk, but only if there is the potential to default on the repayments. That seems highly unlikely in Villa’s case. From the outside looking in, it seems the ownership are aiming to make the path as smooth as possible in the face of some stringent Premier League rules, low cash flow, and some creditors on the horizon.
