Posted on October 14, 2009
Last roll of the dice as Donington offers the City a high risk bond | James Allen on F1 – The official James Allen website on F1

Simon Gillett’s Donington Ventures group has gone on a last chance dash to the City to try to raise £135 million to save its British Grand Prix deal.

The company is basically looking for a 7 year loan of £135 million and is offering to pay 15% interest on investors’ capital, plus a 5% bonus. The offer document says that the money is “to fund redevelopment, repay existing debt, fund working capital, prefund interest on the notes and pay amounts due to the landlord under the lease.”

The interest payments Donington would be liable for would be £20 million per year. A bond is an alternative way for a company to raise money, by going to institutions, rather than going to a bank.

Bond experts I have spoken to this morning say that the offer of 15% interest indicates that this is a high risk investment. One trader said, “It’s priced at the higher end of the risk spectrum. It looks a bit last minute and challenging to get done in two weeks unless they have done pre-marketing. Donington must be desperate to do this. The first thing I would want to know as an investor is, what are the cash flows, can the company comfortably afford 20% interest payments to make sure that I get my money each year?”

High yield bonds of this kind have been quite rare in recent times and where they are raised for a quality business the interest offered tends to be 10% or lower. Offering a much higher rate of interest to tempt investors is an indication that the bond issuer knows that this is high risk.

Gillett has made himself available to meet potential investors tomorrow morning. He has missed several deadlines recently to present a bank guarantee to Bernie Ecclestones Formula One Management company. Ecclestone said on Monday, “Donington are in breach of contract and they have 14 days to remedy that breach. We have an agreement with Silverstone that in the event of a breach we will talk to them and we will be discussing this.”

At the end of last week the indications were that Gillett’s advisers, Citigroup, had raised £120 million but a line of credit from a third party fell through on Friday. However this bond offer today seems to indicate that the company is still looking for the vast majority of the £145 million funding Gillett needs for the project.

The Grand Prix is set for July 11th next year.

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Last roll of the dice as Donington offers the City a high risk bond
58 Responses

  1.   1. Posted By: Martin Collyer
        Date: October 14th, 2009 @ 2:19 pm 

    Does this mean that Citigroup and their partners that you referred to in an earlier post, “Has-donington-had-its-last-chance”, have now pulled out too James? It certainly sounds that way.

    [Reply]


  2.   2. Posted By: rpaco
        Date: October 14th, 2009 @ 2:19 pm 

    Not an AAA rated bond, but a DDDD or junk bond.
    Only those who need to create massive trading losses to write off to tax need apply.
    You can also get high returns on Bradford and Bingley, Northern Rock and other defunct building soc bonds, the chances of the coupon being paid are in inverse proportion to the coupon. I bet these are discounted by 20% by Monday. (interest is paid on face value not on bond price thus the 15% coupon may yield much higher if the price falls)

    [Reply]

    F1 Kitteh Reply:

    I don’t even know if he can get these rated at all as it is all a story on a piece of paper backed by nothing but a dream… you’re right that they will probably dive as soon as they find enough ‘investors’ and open the issue for trading..

    [Reply]

    rpaco Reply:

    I believe they will be initially offered at up to 20% discount before being opened. This makes the yield 18.25%, very worthwhile if you can risk the cash. However a further 20% fall is possible when they appear on the Corp bonds listing on the market.

    [Reply]

    F1 Kitteh Reply:

    Yup, its juicy. But without seeing what assets, if any, are backing it, and what else is secured ahead of these etc.. then just by looking at the EBITDA figures that James gave I don’t think I would bite. I also don’t think taking the other side of Bernie’s trades is a good idea =) .. Now maybe if these become really distressed and they are backed by the Donington Collection….LOL


  3.   3. Posted By: Worzel Gummage
        Date: October 14th, 2009 @ 2:20 pm 

    I’ll have £1,000 of that bond. Just another £134,999,000 to go.

    [Reply]

    James Allen Reply:

    Sorry minimum spend is £100k !!

    [Reply]

    James Reply:

    Who has that sort of money to splash… Even the fat cats and big earners are tightening their wallets following the economic crisis…

    [Reply]

    Worzel Gummage Reply:

    Wonder if the missus will let me mortgage the house to buy £100K worth then?

    I loved the Donnington GP in 93 and want the British GP to move there. I personally find silverstone boring and have only watched a couple of the races over the last 10 years that have been there.

    [Reply]

    Leigh O'Gorman Reply:

    In all fairness, if Donnington ’93 had been a dry race, it may well have been a bore.


  4.   4. Posted By: SplinterBoy
        Date: October 14th, 2009 @ 2:22 pm 

    What a shambolic joke of a venture this is (and sorry to say…always was) turning out to be. I personally love Donington as it is. I live only 5 miles down the road and have been to many a good event there (F3, BTCC, DTM, F2, Moto GP) in the recent past but the one thing as an avid F1 fan i’ve always said is it’s just not big enough to host F1 in this modern era. If I was a potential investor this would stand off the page like the girls on page 3! We’ve got a fantastic circuit & more importantly the room for expansion a mere 50 miles down the road at Silverstone, everyone loves it, and if truth be told (James, yourself included) nobody has ever wanted to move. I feel somewhat disillusioned as it appears Donington has been pawned in order to force Silverstones hand and that muppet Gillet has fallen for a classic Bernie track Hook-Line & Sinker. Now Donno is left a building site with no GP, no Moto GP, a scorned reputation and alot of miffed fans/competitors/marshalls etc etc to boot

    [Reply]

    monktonnik Reply:

    Well said!

    To be honest I can’t see why Bernie gave them all these extensions. Once the initial money fell through, credit crunch or not, it didn’t seem like a sound investment.

    Actually have they asked Bernie for the money?

    [Reply]

    rpaco Reply:

    I’m pretty sure that it was because Bernie stood to make a lot of dosh out of the deal.

    Bernie did not put up the money because of both the risk and the commitment for him. eg it’s better to take $25M in fees from someone who may go bust on someone else’s money than to be tied into possibly loosing a large chunk of capital yourself, basically it would prevent him pulling the plug on Donington if he owned a big part of it himself, this would not be in his best interest.

    [Reply]

    Martin P Reply:

    I agree that this is becoming a shambles, but I don’t agree that everyone loves Silverstone.

    Personally I’l love to see the grand prix move to Donington (or even better Brands). Silverstone has long been one of the weekends to miss for me. I’d be very disappointed if they got a deal running well into the next decade.

    But this current Donington deal is dead in the water. The capital raising offers an attractive return, but it assumes that they can actually complete the renovations in time. That’s the piece of the jigsaw that won’t fall into place. Time to give up.

    [Reply]


  5.   5. Posted By: **Paul**
        Date: October 14th, 2009 @ 2:29 pm 

    Praying it falls through. Yes Silverstone is further to travel but Donington doesn’t have the infastructure to support a GP. I’m not sitting in 5 hours+ worth of traffic just to travel 2miles. Frankly they should never have had the opportunity to run a GP without promising a re-developed track and vitally a redeveloped transport infastructure.

    I’ll take an extra 2 hours on the Motorway to Silverstone thanks.

    [Reply]

    Anthony Reply:

    Dont forget Gillett was supposedly planning for there to be almost no parking at the circuit anyway – everyone was expected to either use park and ride or public transport!

    [Reply]


  6.   6. Posted By: Robert
        Date: October 14th, 2009 @ 3:05 pm 

    This never looked like a goer from day one. I sit here in San Diego and shake my head. What was Bernie trying to do to force Silverstone’s hand. Donnington is a nice circuit but it was never going to add up to a F1 venue. Silverstone is a GREAT circuit that could do with a bit of tarting up to suit the big nobs. I have to say that I have sen some fantastic racing at Silverstone and it should stay on the calender.

    Anyone offering me 15% return on my money today is going to get a very severe sideways glance. I have seen many business deals go down over the years and it is always the case that if it seems too good to be true it is. You are going to be in need of a huge tax write off to indulge in this gamble.

    Stop the bickering and settle with Silverstone. It beats me why the home of motorsport is given such a hard time. I visited Silverstone last year and loved it. Everyone just needs to settle down and play nice.

    [Reply]

    " for sure " Reply:

    Simple, Bernie doesn’t like, can’t deal with, won’t suffer, men in blazers with BRDC badges on the pocket!

    [Reply]


  7.   7. Posted By: Alistair Blevins
        Date: October 14th, 2009 @ 3:08 pm 

    What state is the circuit currently in, and if this all collapses what happens to the circuit?

    I’m assuming that Mr Gillett will remain in breach of his FOM contract, as well as that of the lease from Tom Wheatcroft, and no doubt have a line of contractors and advisers lining up for what they’re owed?

    In short, is Donnington Circuit safe as a venue?

    [Reply]

    rpaco Reply:

    Presumably Tom will sell the lease to someone else. (maybe a retired FIA official)

    [Reply]


  8.   8. Posted By: F1: Check here for latest news on the British Grand Prix | Brits on Pole
        Date: October 14th, 2009 @ 4:05 pm 

    [...] opinion about what weight should be given to the various figures involved. Recommended reading: Last roll of the dice as Donington offers the City a high risk bond Key sentence is this: “One trader said, ‘It’s priced at the higher end of the risk [...]


  9.   9. Posted By: John
        Date: October 14th, 2009 @ 4:07 pm 

    Interesting reading, I have been waiting for an article that explains how the money is going to be raised of not as i think the case maybe.
    I dont think i’ll be investing

    [Reply]


  10.   10. Posted By: F1: Check here for latest news on the British Grand Prix « Brits On Pole
        Date: October 14th, 2009 @ 4:09 pm 

    [...] 16:00: James Allen’s written a nice, clear explanation of what is going on for his blog and gets some expert opinion about what weight should be given to the various figures involved. This is recommended reading: Last roll of the dice as Donington offers the City a high risk bond. [...]


  11.   11. Posted By: Richard Thurbin
        Date: October 14th, 2009 @ 4:15 pm 

    I hope he gets the money. His spirit of entrepreneurship should be supported and encouraged, not derided.

    [Reply]


  12.   12. Posted By: John
        Date: October 14th, 2009 @ 4:21 pm 

    would it be possible to use this article on a website of which i am a member of the admin team please james?

    [Reply]

    James Allen Reply:

    Please send me an email on this.

    [Reply]

    John Reply:

    I have tried sending an email usings the addresss that is under your contact details and the mail keeps on getting bounced back

    [Reply]

    Aaron James Reply:

    Ive found the same problem James- was going to email you about some ideas ive had (i remember Luca saying a while back about alternative ideas for the site, new features etc)

    James Allen Reply:

    Sorry to hear that, emails are getting through to me


  13.   13. Posted By: Nika Wattinen
        Date: October 14th, 2009 @ 4:28 pm 

    Quite right, SplinterBoy… Being from Derbyshire, I too have great memories childhood trips to racing at Donington. But I’ve also experienced the M1 on MotoGP race day!! To get Donington up to F1 standards needs substantially greater investment that this!

    Just wanted to give a credit trader’s perspective on the bond issue… Hopefully you get what I’m trying to say…

    There is no market for ‘High Yield’ issues beyond 7-10 year term. Gillett can only hope to borrow for 5-7 years, and pray to all that is holy that at the end of that, he can refinance at a lower rate.

    For context, ITV issued a £135m 7-year bond yesterday, which will cost £5.4m per year in interest.

    Donington Ventures would have to find £27m per year to pay the interest!

    Granted, ITV made a loss last year, but last year was not an ordinary year, and profits are generally in the £300m range (even with having to pay you, James)… How many Grands Prix make a profit?

    So they’d have to find £135m in the next 5 years, in a loss makeing business, and still have to pay back the £135m they borrowed (the ‘principal’).

    The odds of an investor getting their principal back??? Again, some context…

    Delta Airlines have a 12.25% bond which is trading at $93.75, which means pay £135m for £144m worth of bonds that pays 12.25%, giving you 20% return on investment. And in 6 years you’ll get £144m back. And the principal is secured on real assets, aircraft.

    What assets do Donington Ventures have? None. They don’t even own the circuit. Anybody buying this bond is doing so solely on the word of Simon Gillett.

    Make of that what you will.

    [Reply]


  14.   14. Posted By: Ben G
        Date: October 14th, 2009 @ 4:43 pm 

    Offering a 15% bond means it’s dead in the water.

    [Reply]


  15.   15. Posted By: Rob
        Date: October 14th, 2009 @ 4:43 pm 

    Enough is enough now,it`s just turning into a bloody farce,game over.Come on Bernie pull the plug now and let Silverstone get the wheels rolling for 2010 onwards.

    [Reply]


  16.   16. Posted By: sam_t
        Date: October 14th, 2009 @ 4:57 pm 

    why would anyone invest when ecclestone has already said they don’t have enough time. this is just so he (gillet) can save being sued by FOM so theres no poit in investing

    [Reply]


  17.   17. Posted By: F1 Kitteh
        Date: October 14th, 2009 @ 5:19 pm 

    Not sure how the company is structured, does he actually own the track? If not, and its just an operating company with no assets then good luck to him. The business plan must be phenonmenal to be able to earn that kind of return on capital .. but he seems to be floating around a different idea every other month so it looks very scary to me.

    [Reply]

    James Allen Reply:

    I think the EBITDA projection is £25 million for 2010 and £34 million in 2011.

    [Reply]

    F1 Kitteh Reply:

    Would love to take a look at the offering memorandm to see how the whole structure is like but on the face of the leverage numbers i’d stay very far away.

    I think this highlights a huge issue for all promoters though, i don’t understand how they are able to project perpetually rising revenues, and CVC and everyone else involved doing the same. Did they ask the fans if they are projecting 10% higher ticket prices every year? I think the whole F1 business plan might be due for a shakeup very soon when the power of deleveraging takes hold.

    [Reply]

    Jameson Reply:

    James,

    I’m guessing that you’ve seen a prospectus or an offering to know those two numbers. Do you have any insight as to what the projected gross revenue is, and how the figures compare to other Grand Prix?

    [Reply]


  18.   18. Posted By: Blanchimont
        Date: October 14th, 2009 @ 5:37 pm 

    £100,000 denomination indicates that the bonds are aimed solely at sophisticated investors and funds. There was once talk of a fan debenture scheme similar to Club Wembley so that fans could get involved but I guess this has fallen away.

    I desperately hope they pull it off (although the access roads were always a bigger concern than the track itself), it has saddened me to see some of the sniping over this affair and I think some have wanted Donington to fail from the outset, but issuing bonds with a coupon of 15% at a discount to principal (so the investor only pays, say, £95,000 for £100,000 worth of bonds) doesn’t fill me with confidence.

    James – on the assumption you’ve seen the offer document itself is there any discussion of whether the bonds will be rated?

    [Reply]


  19.   19. Posted By: kristian
        Date: October 14th, 2009 @ 6:07 pm 

    It was always going to be a high risk venture so I’m not surprised at the offered rate. What is significant in their statement is the phrase “repay existing debt”. That tells us that Donington has been operating off of debt (instead of cash from events) and investors should scour Donington’s balance sheet. When corporations are buried under debt they face a condition where long term, profitable projects, whose cash flow starts small but ends large are shelved for a short term project that raises money quickly to pay off current debt obligations. Even if the total payout of the short term project is less it is chosen because the priority becomes solvency. It’s called debt overhang and is a problem symptomatic of an over-leveraged business culture. Many governments and corporations are facing the same decision today. I’d love to give Donington benefit of the doubt but with Bernie’s 10% rate hikes and weak consumer spending, unless the track development plan creates many (LARGE) cash flow positive project outside of F1 the chance of them paying 15% per year is minimal.

    [Reply]


  20.   20. Posted By: rpaco
        Date: October 14th, 2009 @ 6:15 pm 

    Even if he raised all the money he has got to pay out £45M per year in interest and fees. Thats a minimum, without “cost of sales” added in.
    (Lots of staff to pay, utilities, fire and medical-helicopter on standby, equipment to hire, buses-coaches, traffic police, council tax etc).

    [Reply]


  21.   21. Posted By: Alex Yarnell
        Date: October 14th, 2009 @ 6:48 pm 

    It is worrying that Bernie does not seem keen to draw an absolute line. Surely the longer the Donington issue is dragged out the less like we are to have a British GP at all?

    [Reply]


  22.   22. Posted By: Werewolf
        Date: October 14th, 2009 @ 7:11 pm 

    Rolling dice is probably a better bet.

    [Reply]


  23.   23. Posted By: Paige Michael-Shetley
        Date: October 14th, 2009 @ 9:44 pm 

    15%? James, that’s not just “High Risk;” that’s certifiably Junk.

    [Reply]


  24.   24. Posted By: Steven
        Date: October 14th, 2009 @ 10:35 pm 

    Hope Bernie rejects this and the GP goes to Silverstone. I do feel sorry for Donington though if they lose the GP. They’ve ruined the track, dug it all up, lost the Moto GP and it could all be for nothing.

    [Reply]


  25.   25. Posted By: David Smith
        Date: October 14th, 2009 @ 10:46 pm 

    Well its a mess – just another scandal that is the F1 world of today..Who suffers? us the real fans..need I say more!!! Anyone for Spa 2010??

    [Reply]


  26.   26. Posted By: mark turner
        Date: October 15th, 2009 @ 12:12 pm 

    Whilst I don’t pretend to understand the high finance of this (I’m an optician, not a financial expert) I am more convinced than ever that Gillett should give in gracefully.

    He may just salvage some dignity.

    [Reply]


  27.   27. Posted By: John
        Date: October 15th, 2009 @ 12:49 pm 

    Hi James, I have tried to contact you using your email address editor@jamesallenonf1.com to see if we can use this article on our website but the email keeps on getting bounced back undelivered

    [Reply]

    James Allen Reply:

    Sorry about that. Will get it looked into. You can quote from it, if you want.

    [Reply]


  28.   28. Posted By: Brits on Pole
        Date: October 15th, 2009 @ 8:05 pm 

    James – you’re well-connected at the FT. Can you shed any light on their mention of McLaren (the race team, as they are careful to specify) being one of the organisations due to get shares from the Donington holding company following the bond issue?

    This is a bit jaw-dropping in the light of Dennis’ early public scepticism, and Whitmarsh’s protestations that the race must stay at Silverstone.

    What have we missed that would make sense of this?

    Link here: http://www.ft.com/cms/s/0/e7e8e36a-b8f2-11de-98ee-00144feab49a.html

    [Reply]

    James Allen Reply:

    I have to say, that’s news to me. Will find out.

    [Reply]

    rpaco Reply:

    Two points here:

    The convertable warrants will only serve to lay a base of ordinary shares, (if taken up) the holders of which will undoubtedly be tapped for a rights issue.

    They may “Issue” £25M of shares, that does not mean that they are “selling” £25M worth and getting £25M for them. They will actually be worth a few pence in view og the massive debt load.

    Even Gillets projected EBITDA figures are not sufficient to pay both the interest on the bonds and the F1 fee. Debenture holders will need dividends too.

    What will be the NAV?(Net Asset Value) per share Not a lot! I would say a huge minus figure. Mind you Bernie’s companies operate with gigantic debts and make him a fortune, but Gillett aint Bernie

    [Reply]

    Brits on Pole Reply:

    Which still doesn’t offer any insight into why McLaren should be one of the entities getting preferred stock, alongside Kevin Wheatcroft and the debenture operator SSG.

    It would appear to suggest the company has some kind of economic interest in the project and it would be informative to know what.

    [Reply]

    James Allen Reply:

    I checked with McLaren and they are not involved. It is another entity called McLaren

    Brits on Pole Reply:

    Thanks James! Presumably that means the FT was wrong to specify the racing team, which it does do quite specifically…

    James Allen Reply:

    Looks like it..


  29.   29. Posted By: rpaco
        Date: October 16th, 2009 @ 11:11 am 

    Just noticed that Silverstone made £3.1M profit last year and that was with a total capacity sellout crowd. That was on a revenue (turnover) of less than the total that Mr Gillet will have to pay out each year in interest plus Bernie fees.
    Dead duck!

    [Reply]


  30.   30. Posted By: Improved Silverstone for 2010 | My Digital Life
        Date: October 22nd, 2009 @ 10:21 pm 

    [...] all of the bad news coming out of Donington and it’s plans to host the 2010 British Grand Prix, it’s nice to see that Silverstone has some [...]


  31.   31. Posted By: F1: British Grand Prix developments liveblog October 12-19 | Brits on Pole
        Date: October 24th, 2009 @ 2:17 pm 

    [...] about what weight should be given to the various figures involved. This is recommended reading: Last roll of the dice as Donington offers the City a high risk bond. The key sentence is this: “One trader said, ‘It’s priced at the higher end of [...]

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