Chairman of the Welsh Rugby Union is confident that a new funding deal with the regions will be reached with the alternative reverting back to the existing less advantageous professional rugby agreement (PRA), while a possible sale of its profitable hotel could be explored.
Richard Collier-Keywood said as well as seeking to refinance the governing body’s debt - which is being seen as inextricably linked to funding the new PRA - on more favourable terms, he has also identified addressing the under performing Scale roof walk and zip wire attraction at the Principality Stadium as a priority.
With the WRU acquiring Cardiff Rugby out of administration in a pre-pack deal earlier this month, he said he understood why the remaining three independent regions are seeking clarification on what support the union will provide the Arms Park club going forward, before signing off on a new PRA.
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The union acquired Cardiff Rugby in a £780,000 deal, of which £480,000, was for the assets of the club as well as taking on a £300,000 debt liability, which had a floating charge, for a loan provided by Cardiff former board member Paul Bailey to finance the club’s artificial pitch.
Under insolvency legislation as there wasn’t enough time to market the assets of the club before the pre-pack deal, there is now a 13-week window where the joint administrators from PwC could unwind the deal if a new offer emerges that betters the one, in the interest of creditors, struck with the union.
If no deal emerges in that time the union has committed to holding ownership of Cardiff for the next year, with the aim of then seeking a new private sector owner (s).
Cardiff Rugby collapsed after its majority owner, in Jersey-based Helford Capital, failed to provide the required benefactor support to plug trading losses, which at the time of administration had spiralled to around £2m. With the club insolvent the board of the club had no alternative, under their fiduciary duties, but to put the business into voluntary administration.
Before Easter Mr Collier-Keywood wrote to the Dragons, Ospreys and Scarlets, pressing them to sign off on the in principle agreed new PRA. This would also see the union agreeing to take on around £12m of the regions’ combined Covid related debts - first arranged by the WRU through NatWest and later refinanced with the Welsh Government -in return for a preference or equity position.
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The new PRA would see WRU funding for their playing squads increasing annually from next season before reaching £6.9m in 2029.
Asked what would happen if a new PRA deal isn’t concluded Mr Collier-Keywood said: “If they don’t sign we are back under PRA mark one with a sharing in the upside and downside of the trading performance of the WRU. In the last couple of years there has been quite a bit of downside, so it is a much worse financial deal for them.
“It also puts the risk back on them as businesses. The new deal is fixed for them for a period of three years and then it rolls, so they know with absolute certainty what they are going to get from the WRU and that is hugely different to what we have seen in the past and the picking up as owners (private clubs) of the delta on whatever happens, and that was often negative and having to put their hands in their pockets. That is why we have fixed it. And we are having the same philosophy on the debt by trying to fix it for them over the medium-term, so that we are better able to take the up and downside in the market and making it relatively stable for them.”
On a leaked copy of an email he sent the three regions pressing for sign off before Easter, he said: “All I was saying was that Cardiff is an interruption to where we are going, but I am confident that we will get there. They are asking totally fair questions. We now sit as the owner of Cardiff and they want to know from that perspective what we are going to contribute. And we are saying we are going to deliver what we should do in Cardiff, as opposed to the previous owners (Helford).
“We are in the middle of talks with people about refinancing our debt and these numbers have been given, so if ‘one of you is going to blow up’ this deal because of Cardiff, and we get why you want to understand what we have done, then I really do need to know that sooner rather than later because I we don’t want to waste anyone’s time around the refinancing. The whole basis of the new PRA is fixing things for the clubs as much as possible and we are effectively taking the equity risk on Welsh rugby.
" That makes sense to us and the clubs as we are the bigger entity and the ones generating the revenues for the most part in Welsh rugby. And we are looking to pass the benefits of any refinancing onto the clubs. We have made an offer to the regions to swap approximately £3m of debt each into equity or a preference position. On the balance (lent by the WRU) refinancing helps them repay it over a longer period of time.”
The debt team of PwC, acting on behalf of the union, are appraising a number of refinancing options, which could see one or more lenders with debt repayable over a ten to 20-year horizon. Separately the union would look to arrange a relatively small revolving credit or overdraft facility to cover any irregular cashflows.
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Mr Collier-Keywood said: “What we actually need to do is refinance as the current arrangements are costing us money (compared to current debt terms with NatWest and the Welsh Government. We are a £100m business and banking arrangements we have are just not appropriate. One of our main goals, and we have said this constantly, is to deliver the refinancing ideally before June 30th (end of 2024-25 financial year), or if not as close as we possibly can. We are in conversations with people to be able to do that. And one of the things to be able to achieve that is having a five year forecast, so it was critical for us to understand where the minds of the clubs were in relation to that.”
Debt refinancing
The union is looking to take on around £35m of new debt which would refinance its existing NatWest and Welsh Government facilities of £30m. The Welsh Government debt of £12.5m from the WRU, which was passed through to the clubs, would be reorganised into equity. The acquisition of Cardiff has seen £3.1m of what was the club’s £9m debt to the WRU taken on by the union - leaving around £6m liable to its new Cardiff subsidiary company. If the PRA is signed the union would take on around £3m of debt at each of the three other regions. That would leave the four regions collectively liable for the capital and interest on £17.5m of passed through debt from the WRU, but on better refinanced terms.
He said the refinancing of the WRU’s debt, as well as the obvious benefit of more favourable interest and length of repayment, is also designed to give the union greater flexibility on how it utilises it.
Nottingham-born Mr Collier-Keywood, whose mother hailed from Maesteg, said; “Everyone goes to the fact about a better interest rate and a longer term of payment, Yes that is one aspect, but the most important quite frankly is getting appropriate banking support. We are currently locked into a deal with NatWest and the Welsh Government which is not very advantageous for us.“
The real point to this is, if we want to invest money for things like capital improvements at the stadium or putting in technology for pre-ordering etc, we basically have to seek the consent of our lenders. Given we are a £100m turnover business there are no carve outs, so it literally ties our hands. It is a product of history when the WRU was close to trading to its overdraft limits.
" We are not there now and quite frankly we just need a different and what I would say is a much more normal and commercial environment for our banking facilities. That is no disrespect to NatWest or the Welsh Government as they came from an emergency position. We are grateful that the Welsh Government came in, but at the end of the day we need to put ourselves onto a more commercial footing with our lenders.”
At one stage the Welsh Government was charging an eye-watering 9% interest rate on its debt.
Parkgate Hotel
The chairman said that its Parkgate Hotel next to the Principality Stadium, in which the union has a 75% equity stake with the remainder held by Cardiff-based property development firm Rightacres Property, is performing strongly.
In its last audited accounts to the end of June, 2024, the hotel saw its revenues climb by around 10% to £12.35m on a year earlier. The average occupancy was 85% (81% in the previous year) with revenue per available room up from £111 to £116. It has just over £43m remaining on a lease financing deal with L&G, which was struck on a 45-year term. It posted an operating profit of £1.45m with cash in hand, which is accruing interest, of £1.47m. Since last June the hotel’s cash positive position has increased significantly. Subject to approval from minority shareholder Rightacres, the WRU could benefit from a transfer of cash from the hotel via an intercompany transaction.
Mr Collier-Keywood said: “I am reasonably confident that we can do that shortly, but we are locked in that together (with Rightacres).”
In theory the hotel asset could be sold onto an investor, who would then take on the remaining lease finance (mortgage) agreement with L&G with the Celtic Collection, whose other interests include the Celtic Manor Resort and ICC Wales in Newport, remaining as the hotel’s operator.
While speculative, with a strong cash flow a sale of the hotel could generate a significant eight figure sum. Any sale would need approval from L&G and Rightacres.
Asked if a potential sale of the hotel could be considered Mr Collier-Keywood said it couldn’t be ruled out. He added: “We want to make our balance sheet work for us and we will look at the hotel over the next six to 12 months so we can make a call on that (selling option). However, there are quite a few things broken, but the hotel is not one of them.”
As the hotel is cash positive, the union could decide to maintain its majority ownership for the long-term.
Scale
Last spring, at a cost of around £5m, the WRU launched its Principality Stadium roof walk and zip wire attraction Scale.
The attraction is operated on its behalf by Wire & Sky which runs similar attractions at the home of Liverpool FC, Anfield, and the Tottenham Hotspur Stadium.
The investment was signed off after the departure of former chief executive Steve Phillips - who as finance director under former CEO Martyn Phillips and then CEO worked with Rightacres on the hotel project.
While explored at an early stage Sky & Wire weren’t asked to make an equity investment, which would have reduced the union’s capital expenditure on Scale.
Mr Collier-Keywood said:“We working with Sky & Wire very closely to try and improve it. That is pretty much close to the top of the list for me. It is nowhere near the projections we had hoped for, so we are looking at this very closely with Wire & Sky. We are also entering into a better period with more people in the summer when it is sunny. So, I think it is reasonable to see what happens over the summer period, but we are working with Wire & Sky to see how we can do this better.”
Asked if it could be sold with Sky & Wire potentially taking on ownership the chairman said: “We are open to doing any sort of deal that improves the current position and for me nothing is off the table.”
Cost savings and procurement
In its current financial year the union says it has made cost and efficiency savings of £5m and it is confident of delivering a similar figure for its 2025/26 financial year. Savings has also been achieved by the non replacement of roles, not renewing fixed term contracts, with the union also confirming earlier this month that up to 20 school related hub officer roles are at risk of redundancy.
The chairman said: “We have already taken out £5m of the cost base from last year to this year. And we think we will take a further £5m out of the cost base (coming financial year).I don’t think we have yet seen the benefits of working jointly with the regions on some of this stuff either.”
One of the examples of a saving line cited by WRU chief executive Abi Tierney in the current financial year related to £50,000 spent on flowers, including in hospitality boxes at the Principality Stadium.
As flowers are a cost borne by box holders, the chairman was asked if savings should have been passed back to customers and whether with prices up to £1,200 per head in boxes having flowers should be seen as a minimum expectation? In the last financial year the union’s stadium company generated an Ebitda of £10m. The savings on flowers represents around 0.5% of that figure.
He responded: “You are probably not buying our boxes for the flowers, but for the rugby. However, the flowers weren’t just in the boxes, but just around the place when you walk in. My sense when I arrived 21 months ago was there were a lot of very nice things around that were not required if you were running a commercial operation.
“Some of the better examples are that we are procuring cheaper as we are actually doing it under proper procurement contracts. Our big food and beverage contract is out (for tender) at the moment and that is a huge contract for somebody and we want to do a better deal on that than we have done in the past.”
But how certain is he that additional savings of £5m can be generated over the next year? Mr Collier-Keywood said: “There are no guarantees , but I have done this often enough in my career to know you have got a very good chance of getting this money out and we have not been aggressive on quoting numbers. Of the £5m there is nothing there on the catering contract and we think that could be millions on top of what we have quoted.”
The stadium catering contract is via a joint venture company with Compass. However, the union has no plans on investing to acquire a 100% interest.
The chairman said: “My experience of those things is that they are always expensive equity. Why would I want to do it? If I can go out and get more cash from a good banking transaction, why would I ever want to take somebody else’s cash at a higher interest rate? We have not only got a really good board, but a strong advisory board around us too. I have gone out and got people like Simon Davies (ex senior partner with Linklaters) who are Welsh and committed to Welsh rugby and helping us on a pro bono basis. This sort of experience goes a long way in terms of managing ourselves through to getting much better deals for the WRU and that is what we are trying to do.”
CVC monies
The WRU will receive its final tranche of £8.5m from private equity firm CVC this summer. The union secured around £42m from the sale of a 14% stake in the tournament back in 2019 with the other home unions.
With its CVC stake from the United Rugby Championship also drawn down, the WRU, along with the other unions, will soon be into a straight dilution with CVC taking around one seventh of the WRU’s Six Nations commercial income with no further payments to soften it. This will have a net negative impact of several million pounds a year.
In hindsight selling equity in the Six Nations to CVC was not the smartest move by the home unions. They could have sought to have driven commercial revenues without having to give equity away.
Mr Collier-Keywood said: “It is quite a lot of money (dilution) and over the last few years Welsh rugby has had the benefit of receiving CVC monies (instalments), but the last payment of £8.5m will be in July.”
The union this year is also faced with having to repay more than £6m on the redemption of debentures. Debentures were issued by the union to help fund the construction of the Principality Stadium, as it had also done with the old National Stadium.
The savings and efficiencies identified will effectively fund the debenture liability. Longer-term the WRU has debenture liabilities of around £50m, with nearly £30m due to be repaid in 2050.
Mr Collier-Keywood said that the union is benefiting financially from a significant increase in non-rugby events at the stadium, with around nine alone this summer.
He added: “We have significantly improved the finances of the WRU going forward and if we have not done so we could not have done the Cardiff rescue. We have improved the finances because our role is to invest more in Welsh rugby be it community clubs or the regions and frankly both. That’s our job and we are getting on with it.”