PIK a number

Like spades, or as George Gillett certainly said back in February 2007, shovels in the ground within 60 days there was an awful lot of hyperbole when two Americans pitched up and took “custodianship” of Liverpool Football Club.

At that same time their compatriots the Glazer family were held up as an example of how not to do things when arriving in a Premiership boardroom.

Yet it seems every note and move dreamed up by the Old Trafford hierarchy has been followed.

Well there is of course one possible exception. Sir Alex Ferguson has been relatively unhindered in the transfer market even if the fans have seen increases in their ticket prices and other methods of squeezing the pennies out of pockets from Stretford to Singapore.

At the same time that details of 8% ticket prices rises were leaked the world was also informed that Rafael Benitez could possibly, for the next five years at least, receive less than his current annual net spend of £20 million. This sum would include not only transfer fees but wage increases.

A little deeper in the reports our dysfunctional duo had drawn up separately by investment bankers Merrill Lynch and Rothschilds during the spring was something a little harder to explain within newspaper columns and broadcasts - payment in kind loans. PIKs for short.

If no extension of their borrowings could be negotiated a further debt of £50 million would be placed not on each owner or the Kop Football Holdings company they set up to purchase the club. They would like much of the £350 million debt they used to leverage the purchase be placed squarely and firmly on the shoulders of the club.

Manchester United’s £680 million worth when they were taken out of Plc status attracted a massive interest or service charge. It is now even higher than initially projected and PIKs were largely responsible.

They also meant that even when the Champions League and Premiership trophies were secured in 2008 and all the riches those two competitions bestow upon the winners were tallied up the Red Devils reported huge losses.

A PIK arranged in the summer of 2006 - two years earlier - totalling £138 million with annual interest of 14.25% was responsible. And it has kept on running as the loan needs to be either repaid or the debt it relates to - that original purchase cost - refinanced.

Liverpool’s £50 million over its projected five years course would have seen the debt double and then some as interest is charged on a compound basis.

Imagine a sum running on a mortgage or credit card debt which if you structure a plan to pay nothing in return for higher rates of interest over half a decade and there is a practical idea of how it would constrict finances.

Hicks and Gillett who have a lesser burden than their fellow countrymen were able to extend their arrangement with Royal Bank of Scotland and Wachovia so the PIK road was never travelled down.

However, if city sources are to be believed there is no chance of a further refinancing unless additional funds from whatever source are injected. But with the level of debt scaring off potential investors it’s a vicious circle.

Despite reporting a record turnover for the year up to 31 July 2008 of £159.1 million and a pre-tax profits of £30.2 million there simply is not enough money coming into the club to cover the interest already accruing.

Hikes in admission prices, further constraint of transfer and other budgets plus PIKs could be the tip of a very big iceberg.