The Welsh Rugby Union (WRU) incurred a cost of £780,000 in acquiring Cardiff Rugby out of administration as well as taking on the financing of £9m of debt it had provided the club.
The governing body took over the business and assets of the club out of administration on Tuesday in a pre-pack deal. This has seen players, the coaching staff and the administrative team, transferring over to a new subsidiary business of the union. It has also taken on sponsorship deals and membership fees paid for next season.
The business ceased to be a going concern after the failure of its majority owners in Helford Capital to adhere to a legal obligation, under the funding agreement between the WRU and the four regions, to plug any incurred trading losses.
Helford took over the club in January last year and what had been the benefactor liability position of the club’s late president and former chairman Peter Thomas. However, despite assurances, their promised investment - apart from a relatively small amount - failed to materialise. It left the board with no alternative, with fiduciary and legal duties, but to put the business into administration.
The deal with joint administrators of Cardiff Rugby, Rob Lewis and Ross Connock of PwC, saw the union acquiring the business and assets for £480,000 and £300,000 in debt linked to the plastic pitch at the Arms Park and the release of a charge over it.
The £9m in loans it has provided the club, including around £5m it received as part of the £18m Covid loan the union had originally secured at the start of the pandemic from NatWest, which was roughly then equally split between the four regions. The union subsequently refinanced the Covid loan with the Welsh Government, with at one stage was incurring an eye-watering interest rate of more than 8%, with the four regions were liable as well as capital payments.
The WRU has appointed PwC’s debt team to refinance its current debt liabilities with the aim of the capital being repaid or a much longer- time period- so reducing annual capital payments compared to current loan terms.
The WRU, has assigned £1m over the next year for the cost of running Cardiff Rugby on top on an increase in player budgets as part of a new five year funding deal with the regions starting from next season.
The union’s intention is for Cardiff Rugby to be sold at some future stage to new investors, so becoming privately-owned again. Subject to a more favourable debt refinancing deal, and in line with debt relief for the other three regions, that would take Cardiff’s current debt position of £9m with the WRU to around £6m. However, any investor (s) looking to take Cardiff private, would likely only pay a nominal fee due to debt liabilities that would come with it.
WRU chair Richard Collier-Keywood said:“Despite being owned by the WRU, our intention is to treat Cardiff as an independent rugby club, similar to the other regional sides and the WRU will assume the role of “owner”. We wanted to provide a safe harbour whilst we draw breath and look at what’s right in the longer term.
“The immediate cost of the acquisition amounted to around £780,000, which paid for the assets and funded the costs of the administration and includes the assumption of £300,000 debt.
“Various key supplier contracts were transferred to the WRU subsidiary to enable the Cardiff Rugby business to continue to trade.”
The WRU’s chief operating officer Leighton Davies and chief data and digital officer Steve King, have been appointed to the board as the two directors of new Cardiff Rugby company. The union is looking to appoint a new independent chair.
Mr Collier-Keywood said: “At the time of the transaction, Cardiff Rugby Limited owed the WRU around £9.1m.
“As part of its commitments in the new draft Professional Rugby Agreement (PRA25) the WRU has committed to reduce the debt generated during the Covid-19 pandemic by replacing it with longer term capital.
“This amounts to around £3m for Cardiff and this transaction gave us the opportunity to do this at the same time by using £3m of the money we were owed and converting this into an investment into Cardiff.
“Leaving our new subsidiary owing the remaining £6m to the WRU. As part of the new PRA25, it is our intention to provide the other three professional clubs with similar debt relief.”
WRU chief executive Abi Tierney added:“Our team worked hard to minimise the disruption to the players, employees and stakeholders of Cardiff Rugby and we welcome our colleagues at Cardiff Rugby into the WRU family.”
Helford Capital was established as a special purpose vehicle solely to acquire the club. It is based in Jersey with no assets. It will have to be determined whether the directors, Phil Kempe and Neal Griffith, had given personal guarantees to finance Cardiff losses, which were running at around £2m a year.
If this legal obligation is a matter only for Helford Capital it would significantly hinder the prospect for any return to creditors. The first creditor in line would be HMRC, which has preferential status.
The former board members of Cardiff are confident they acted in an appropriate manner on the timing of the voluntary liquidation and that no creditors would have any viable claim for them not taking action sooner, so reducing the total amount creditors are owed. However, even in the last days before it was put into administration, there was still a possibility of Helford delivering on its required financial commitment.
It is understood that Cardiff Athletic Club is looking to work positively with the WRU to ensure Cardiff continues to play long-term at its ground. Assigning a new lease to the WRU would be an administrative exercise.
