Gunners need on-pitch success to pay off bond

The link between financial security and performance on the pitch has become
even more important than normal for Arsenal after the announcement that it would
be refinancing its new 60,000 capacity stadium at Ashburton Grove.

The refinancing has been secured against future ticket sales, which will make
it essential for the club to succeed on the field to maintain robust attendance
at matches.

Arsenal is refinancing its stadium with a £200m bond issue, accompanied by a
£60m loan note, in order to retire bank loans that funded the construction of
the new ground. The bond issue will be managed by Royal Bank of Scotland and
Barclays.

Harvey Hoogakker, assistant director of debt advisory services at Ernst
& Young, said securing a bond against ticket receivables was a common
practice in the UK and Europe, but warned that it was important for any club
doing so to succeed and keep fans coming through the turnstiles.

‘Lazio, Real Madrid, Leeds United and Leicester City have all used this type
of asset-backed bond. It is not an unusual practice, but if a club does not
perform well and attendances drop, it will battle to repay debts,’ Hoogakker
said.

The bond issue will provide Arsenal with more flexibility in how it manages
its debt, providing the FA Cup holders with a longer tenor to repay arrears.
Bank loans typically have a life of three to five years, but bond issues can
last in excess of 10 years, which reduces the pressure to make repayments.

Hoogakker said bank loans were usually used as a ‘bridge’ to bond issues,
which typically take longer to put in place.

COMPANY REPORTS

FTSE100
Private equity firm 3i will be implementing the IAS27 despite
reports to the contrary. It had been suggested that 3i would not consolidate its
accounts because it was a private equity firm. A spokesman confirmed that the
group was applying the standard to its accounts for wholly owned group
companies. But 3i will not be consolidating the accounts of companies in its
investment portfolio, as it does not own more than 49% of these businesses.

FTSE250
Reporting a drop in pre-tax profits from €23.8m (£16.2m) to €7.9m, car rental
group Avis Europe revealed that it had been adversely affected by its capital
restructuring exercise. Avis Europe booked a €5.8m
restructuring charge into its accounts because of the costs incurred in
addressing a distributable reserves deficit.

AIM
The owner of the Elle fashion line, Actif Group is planning to
slice its overheads by 20% and cut its head office workforce because of tough
retail trading conditions. The fashion company said retail sales for the six
months to 30 July were 14% down on 2004 figures. As a result, Actif is expecting
to record a pre-tax loss of £450,000. Mark Evans, the group’s CEO, said: ‘We
will seek further opportunities to reduce our cost base without compromising our
core strengths.’

Sierra Leone Diamond Company has revealed its interim
accounts have not been audited, and that the company’s management was
responsible for the financial statements. The group, which raised $34.4m
(£18.8m) when listing on AIM, reported a net loss of $1.8m for the six months to
the end of June 2005.

FTSE ALL-SHARE
Aerospace and defence company Chemring has increased
its short-term gearing to approximately 85% in order to fund its £22m
acquisition of Troon Investments. The group funded the acquisition utilising new
loan facilities with the Bank of Scotland. Chemring finance director Paul Rayner
said that, although debt would increase in the short term, the cash generated by
the enlarged group would reduce gearing levels by 2006.