Two football finance experts analyse Chesterfield's new shares proposal

Spireites shareholders have until Friday to have their say on a proposal to convert £10m of debt into more shares.
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The club issued a statement on Tuesday morning outling the plans.

Many fans have been asking what it all means so we approached football finance experts Kieran Maguire and Dan Plumley to give us their views.

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Maguire is a football finance lecturer and author of the well-known The Price of Football book and podcast.

Spireites shareholders have until Friday to cast their vote.Spireites shareholders have until Friday to cast their vote.
Spireites shareholders have until Friday to cast their vote.

Plumley is a sports finance expert at Sheffield Hallam University.

So let’s dive in and see what they have to say...

First of all, what did Chesterfield’s statement say?

"As is shown in the annual accounts for the football club and now confirmed in the consolidated accounts for Chesterfield FC Community Trust, the football club owes the trust more than £10m. This sum comes from the debt owed to Mr Allen that he donated to the trust as part of the purchase in 2020.

“The trust has made it clear that it did not intend to call in the loan; effectively it is money owed from a subsidiary company to the parent company. The debt does not reflect the accepted value of the football club and means the trust accounts have been skewed this year.

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“As part of the recent investment in the club, it is intended to capitalise this debt by turning it into shares. It has been proposed that the trust treat the obligation to repay the loan as released and discharged in full in consideration of the issue of five million Ordinary Shares. This effectively means that the number of shares in CFC 2001 Ltd will double and the trust’s holding will go from 84% to 92% of the company.

“While all other shareholders will see their share of the club halve, that club will be worth significantly more without the debt that is to be cancelled. Despite the trust having an overwhelming majority of shares, the decision to increase the share capital is one for all members. This means a copy of the resolutions to issue the shares, with the appropriate right to cast a vote, is being sent to all shareholders’ addresses.

"As the timescale is short, any votes not returned will be deemed to oppose the resolutions. Returns can be done by email, but the closing date is Friday. Using email will also allow the capture of that information for further communications.”

So, what does it actually mean?

Plumley: “The trust want to convert the debt into shares (equity). They do not wish to call in the loan (makes sense given they own the club and calling it in would hurt club finances). In doing this, they will remove the debt from the club (which makes it look in better financial health) and increase their shareholding in the club (further protecting their investment and power in the decision making of the club).”

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Maguire: “Football clubs are funded from two areas, borrowings, which have to be repaid, and shareholder investments, which do not. The resolution to convert debt into shares means that the legacy debt that the club owed to the trust that was transferred from Dave Allen has effectively evaporated.”

Is there anything for Spireites fans to be concerned about?

Plumley: “Nothing of real concern here, in my opinion based on what I can see. The removal of the debt is a positive really and obviously the trust already have majority control so it won’t change things too much. It could free them up to invest and borrow more to fund growth as well if they want to.”

Maguire: “No, this looks like a positive step, it removes any future obligation, that was however remote, in terms of having to find the cash to repay the debt.”

Is it a reasonable idea?

Plumley: “Yes. Debt to equity swaps are fairly common business practice especially in uncertain times (which we are definitely in at the minute!). A key concern for all clubs at the minute, especially at that level is the availability of cash, both to support existing operations, whilst the economic effects of the pandemic are still being felt, and also to be in a strong position to return to business as usual and recover some of the lost ground as we move forward. It’s fairly standard in truth and is seen as a viable business strategy.”

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Maguire: “In my opinion, yes. It tidies up the balance sheet, in theory makes the club more able to borrow in the future should the need arise as there is no outstanding debt that may take precedence.”

What are the benefits of it?

Plumley: “It can improve a company’s balance sheet by reducing its debts and increasing its shareholder funds.

"By converting existing debt to equity, the company may free itself up to take on more borrowing, on different and maybe more beneficial terms. This will increase the cash available to the company.

“There may also be strategic reasons to capitalise debt. Doing so may give the lender a controlling shareholding in the company (e.g. the total shares owned goes up to 92% in this instance).”

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Maguire: “Benefits are it reduces interest costs (but only if interest is being charged in the first place,) reduces financial leverage (debt as a proportion of total funding for a club) and makes the balance sheet appear stronger and therefore more attractive to fresh loans or shareholders.”

How do you think shareholders will view this?

Plumley: “Individual shareholders will have their own view on it of course but again some general considerations below. Whether or not the shareholders consent to the deal will likely depend on a number of factors, including:

- The amount by which their shareholdings are to be diluted (which we already know in this case)

- The identity of the new shareholder and the control they will have over the company on conversion of their debt (again this is known as it is the trust)

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- The trading prospects of the company if the deal is not accepted (one for thought)

- How the deal is communicated by the board (statement seems clear but there may have been other comms that have gone to shareholders as well."

Maguire: “I suspect they will take a pragmatic viewpoint, whilst the value of their shares will potentially decrease because the trust now has a greater overall proportion of CFC, the shares had very little value to begin with and were mainly held for emotional and historic reasons rather than as financial investments.”