Rangers' debt is only a fraction of their turnover so why is there all this fuss?

[ian1964 10,418]

MY inbox has been filling up with concerned Rangers fans asking what letting Lloyds into the boardroom means for the club.

 

Fans are concerned, but Rangers letting the banks in doesn't mean they're dangling above the fire.

 

Whenever a company does business with another, they often insure the credit they offer to the other business as part of their risk management strategy.

 

This credit limit is the amount of money a major credit insurer thinks the business is good for in its day-to-day business. I've just credit-checked Rangers PLC and trust me, it's OK!

 

In the run-up to Woolworths going belly-up their rating was nil. Rangers' credit rating, out of 100, is 98. To put Celtic fans at ease, your club's credit rating is also 98 out of 100.

 

It's Lloyds who should be worried here, with a paltry credit rating of 95 out of 100!

 

But why has the bank become such an important player in the future of Rangers?

 

In business, when a company borrows money from the bank they need to be able to repay the debt, which for a football club is secured against assets and cashflow.

 

Rangers' assets can be broadly broken down into two types.

 

Property assets, namely Ibrox stadium and Murray Park, and the squad, including top players like Kris Boyd, right.

 

When assets decrease in value or cashflow declines, the bank's exposure increases.

 

In the current economic climate, banks are scrutinising their loan books, looking to reduce exposure like never before. As Rangers' debt has risen to �£30million, the bank is perhaps their most important stakeholder.

 

Today's debt is a side-effect of their spending spree during the 90s and early 00s when money was cheap. At the peak of the spree, manager Dick Advocaat shelled out �£36m including �£12m on striker Tore Andre Flo.

 

But as I see it, the bank would never pull the plug on Rangers for a number of reasons.

 

The taxpayer saved Lloyds from going bust because they were too important as an institution and for the British economy.

 

Lloyds must then realise that many Scots feel the same about the Old Firm.

 

Let's be honest, the end of Rangers is the end of the Old Firm and perhaps even Scottish football. The bad publicity Lloyds risk from scrapping Rangers would spell the end for the bank's presence in Scotland.

 

The appointment of turnaround specialist Donald Muir makes sense.

 

One of the most respected business gurus in the world, Muir previously worked to save the Department for Work and Pensions, ailing NHS trusts and Northern Rock.

 

He is in the premier league of big-hitters.

 

Specialists such as Muir are charged with ironing out immediate problems and sorting finances no matter what the industry. Much was made of Donald Muir saying there are no sacred cows in a business but Muir knows "sacred cows" can only be removed if they're superfluous.

 

The crucial word here is superfluous. In a case such as Rangers, prized assets are top players. If you sell the best - generally the most expensive - players it is difficult to enact a recovery plan, making the problem worse.

 

Rangers' prized assets are not superfluous so Donald Muir's remit will be to closely monitor Rangers' business plan, and protect the bank's interests.

 

This may mean reducing costs elsewhere whilst seeking new investment, or even an outright sale of the club.

 

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If the business is sold, Muir's job will be to ensure that the bank's position is protected as part of the deal.

 

He is not there, as fans have been asking me over the last week, as a hatchet man.

 

Do we honestly think Lloyds the bank want to obliterate Scottish football or that Donald Muir wants that as his legacy? Aye right!

 

As a businessman I will offer a summary, a purely business perspective on the situation...

 

Even in this financial turmoil Rangers still maintain an excellent credit rating.

 

Their debt to the bank is less than 50 per cent of annual revenue and this, coupled with their esteemed history in Scotland, means Rangers FC looks to be safe.

 

Their position is not enviable at the moment, but as one of the biggest clubs in the world they, and their fans, have enough clout to get through this sticky time.

 

http://www.thescottishsun.co.uk/scotsol/homepage/news/papercolumnists/shafrasul/2708925/Shaf-Rasul-column.html

[Frankie 8,151]

I don't like that Sun article - absolutely no mention of the issues at MIH which are probably pretty relevant to what is happening at Ibrox.

[andrew_2010 0]

I really hate the one line paragraphs. This is not the first article to be like this, but it really annoys me and find it harder to read. grrrr.