Originally Posted by
Smidge
There's a fair bit of confusion about the positioning of Hearts' debt vis a vis the bank that are taking on the "good" part of Ukio Bankas, apparently on Friday. For the avoidance of doubt, this is how I see it...
...As many Yams have been quick to point out, their debt is to UBIG, a totally separate company for legal purposes, though there was undoubtedly a close commercial relationship.
...It would appear that a significant reason for Ukio's extraordinarily bad financial position was the over-extension of debt facilities, and the lax treatment of those facilities subsequently, to entities related to Vlad. One of these entities is, of course, UBIG, though there could be others.
...The implication is that there are likely to be a substantial shortfall in the potential recovery to cover UBIG's debt to Ukio, which means that it will be treated as part of "bad" bank and will be subject to the liquidation process that the Lithuanian authorities will instigate shortly. It would appear inevitable that UBIG will face an insolvency process of some sort.
...Hearts' debt to UBIG is one of UBIG's assets and, therefore, realisation of that debt will be required in order to obtain the maximum recovery possible of UBIG's debt to Ukio. Their debt will be part of the "bad" bank unless by some miracle the new bank take an assignment of the debt, but this is unlikely given the asset shortfall evident.
...There are three possible outcomes to the realisation process: (1) someone buys the debt from UBIG at a substantial discount, so Hearts will still owe the full amount to a new creditor; (2) Hearts make an offer to repay the debt at a discount - in reality, this would only be through the introduction of fresh capital - either shares or new debt; or (3) the debt cannot be sold or repaid.
...In the first scenario, there is no certainty that Hearts' new creditor will be friendly - in fact, this might be an easy way for a developer to get hold of the land without having to pay stamp duty. There would be a substantial risk of separation of the ground and the football club in this outcome.
...The outcome of the second scenario is undoubtedly the best for the continuation of the club, playing at the ground, but requires a new investor to have sufficient funds to fully satisfy the liquidator of both Ukio and UBIG (which I'm guessing could be one and the same) and provide enough working capital to see them through at least until the end of season 2013/2014, as the current owners will be seeking to repatriate as much cash as possible to Lithuania at present, PLUS the upgrading in short over of the main stand. Incidentally, I've been told by a Jambo that there are already concerns about the lifespan of other three bus shelters.
...The third scenario would almost certainly lead to the ground being sold independently of the club. The assignation of the security from UBIG to Ukio provides the means for the liquidators of the latter to go straight to this option if Hearts default on their debt. That default could be triggered by either a failure to repay as at 30th June, which we have been told is the debt review date, or through a technical trigger in the debt documentation, probably concerning a material change in their ability to satisfy the bet in full. This situation would provide the liquidators of Ukio a far cleaner sale of the property, without concerning themselves with the messy business of a football club.
...If this latter scenario plays out, the liquidator of Hearts - with substantial debts that cannot be refinanced and no major asset, the directors would almost certainly be obliged to bypass administration and go straight to liquidation, though I'm a little fuzzy on the relevant company law - would be looking to sell the intellectual property of the football club: it's name and memberships of various sporting bodies. This would be similar to Sevco and could lead to it being acquired by FoH or similar and restarting at the bottom of the pile.
If I was a Yam, and thank the Good Lord that I'm not, I would be worried. The most likely scenario is surely that there is no repayment or refinance of the debt, as no one is likely to have the sufficient resources or stupidity to meet the Lithuanian authorities' asking price, and the ground is sold from under them. Restarting in D3, at best and in whatever form, is a highly likely outcome.
