Money men use Chelsea model

Jason Nisse says the Warburg plan has worked in sport before

Warburg Dillon Read, the investment bankers, have assured the four unions that they will be able to raise at least £250m in a bond issue. Indeed the total could be £400m or more, if rugby needs it.

Warburg Dillon Read, the investment bankers, have assured the four unions that they will be able to raise at least £250m in a bond issue. Indeed the total could be £400m or more, if rugby needs it.

The bonds are expected to be issued in the spring once all the legal and commercial niceties are sorted out.

The structure is similar to recent fund raisings by the football clubs Chelsea, Newcastle United and Lazio and, more controversially, the $1.4bn (£870m) bond issued by Bernie Ecclestone, the impresario behind Formula One motor racing, earlier this year.

Essentially it will be a 10-year mortgage, secured on the income from TV deals, sponsorship and advertising for the English, Scottish, Welsh and Irish unions. This revenue is expected to exceed £60m next year, and will increase as current deals run out and are renegotiated. That income will more than cover the interest bill. At an expected interest rate of around seven per cent on a £250m bond, the annual cost to rugby of the bond will be less than £20m. Like a conventional house mortgage, the only danger to rugby is if it cannot pay the interest bill. And barring an absolute commercial disaster, this is no danger at all.

Warburg Dillon Read have experience in this area having raised £75m for Chelsea through a similar bond secured on Chelsea's gate receipts and TV income. That bond was well received by the market despite a general wariness about how the football club is managed.

Warburg feel that investors will be queuing up to buy rugby bonds, not least because of the popularity of the sport among fund managers in the City. The merchant bankers should know fairly soon how much they will be able to raise. A great deal depends on the structure agreed for Four Unions Management, the company being set up to be the fulcrum for the bond issue.

Once it is created, FUM will need to obtain a credit rating from one or both of the two main agencies, Moody's and Standard & Poors. The strength of the rating they give will determine how much FUM can raise and what interest rate they will have to pay.

Warburg reckons they will be able to raise much more than £250m - maybe as much as £400m. However they prefer to be cautious at the moment for fear of repeating the mistakes made by their rival bankers Morgan Stanley with the Ecclestone bond. Morgan Stanley initially said they could raise $2bn for Ecclestone. However, investors became worried about the structure of Ecclestone's businesses, which are owned by offshore trusts, and a European Commission investigation into the running of the sport. In the end they could only raise two-thirds of that, and then only with the support of WestLB, the German bank who agreed to buy a large proportion of the shares.

It is understood Warburg have said that rugby should only raise the money it needs at the moment. But once the bonds are trading, investors may be happy to buy more if rugby wants to raise more money.