Financial Doings by our Judges

[Neils]

Worth reading and trying to understand - Posted on DW by Jojo (thanks) (a leicester fan)


Not just wealthy benefactors cloaking their in mega complexity. Take a look at the PRL history as posted on a Tigers board -


You start having a little dig around (got some time to kill!!!) and you find that "English First Division Rugby Limited" changed it's name on 22 May 2001 to Premier Rugby Limited.

Look at the Directors here and you find a couple of guys from CVC.

On the documents page, 5th item down the list is the accounts to 30 June 2021 as a 36 page PDF. But it is the accounts to 31 October 2020 further down the list which reveal under item 22 on page 31 that on 29th March 2019 the entire share capital (ownership) of Premier Rugby was transferred to Premier Rugby Holdco Limited.

Still with me?!!

Now this holding company has the CVC guys listed as Directors again (along with some Prem club owners/representatives) and shows in its accounts, under Fixed Assets, investments valued at £200m!

But Premier Rugby Holdco Limited is wholly owned by Premier Rugby Holdings LLP. Now this company is owned on a 50:50 basis by PRL Investor Limited (see my previous post) and a company called Cobalto UK Bidco Limited who are also the only directors listed. The details of Incorporation don't reveal a lot and there are some big numbers in the 2 sets of accounts listed but it'll need an Accountant to explain what's going on. What's a loss of £724m for Negative Goodwill all about, especially as balanced by £725m for Intangible assets in Accounts to March 2020?! Note 9 on page 29 explains it a little (talk of arrangements with RFU and RPA) but note 22 on page 36 explains that an independent party valued the brand of Premier Rugby at £805,210,000. Wow!!

Still with me? Even I'm starting to lose track but it would seem that the Prem is half owned by the clubs (A shares, B shares and P shares) and half by these Cobalto folk.

So who are they? Am bored now but a quick look at Cobalto Uk Bidco Limited shows that they are controlled by Cobalto Holdings 6 Limited who are in turn controlled by Cobalto Holdings 5 Limited who were once controlled by Jersey based Cobalto Holding 4 Limited but they are no more and no-one has a controlling interest. [Definite lack of imagination when it comes to company naming!!] In its accounts it talks about its indirect parent, Cobalto Holdings 2 Limited, giving it cash if needed to support it.

I've come to the conclusion that we know Cobalto better as CVC.

In Cobalto Holdings 5 Limited's accounts to 30th June 2021 on page 23 note 4 it states that they "own 27% of the economic interest in Premier Rugby Holdings LLP, a private limited liability partnership incorporated in England and Wales. Premier Rugby Holdings LLP acts as an investment holding company which indirectly invests into Premier Rugby Limited through its investment in Premier Rugby Holdco Limited.

As at 30 June 2021, the Group {Cobalto} held 100% of the £82,911,547 (2020: £94,494,618) Fixed Rate Unsecured Loan Notes (the "Loans Notes") issued by Premier Rugby Holdco Limited. The Loan Notes mature in March 2031 and bear interest at 12% per annum. Interest is payable in arrears and compounds annually on 29 March."

The same accounts note seems to suggest the initial investment was £100m. But then note 5 starts talking about £200m in Loan Notes issued by Cobalt Holdings 6 Limited.

Now get your grey cells around that and try to work out what's going on.


Comment from Grendel - Cabolto holdings is the guarantor of the CVC loan

2nd post by Jojo -

Question from this "under item 22 on page 31 that on 29th March 2019 the entire share capital (ownership) of Premier Rugby was transferred to Premier Rugby Holdco Limited.

Still with me?!!

Now this holding company has the CVC guys listed as Directors again (along with some Prem club owners/representatives)"

Names please for these guys from CVC and who the hell are these guys from the Premiership clubs. To be fair as a Tigers supporter I wouldn't be over happy if it included our majority shareholders but wouldn't be surprised.

[Bloke in North Dorset]

O, what a tangled mess we weave .....

[Rossm]

MY BRAIN HURTS

[NellyWellyWaspy]

MY BRAIN HURTS

Me too.

[BarossaD]

As an accounting geek, I feel the urge to grab these and see what's going on...

[Neils]

As an accounting geek, I feel the urge to grab these and see what's going on...

Please do!

[jamestaylor002]

As an accounting geek, I feel the urge to grab these and see what's going on...

If you do start digging into it, I'd love to hear what you get out of it

[BarossaD]

Perhaps unsurprisingly it's not 100% clear, but a few comments - excuse me if I lapse into accounting speak:

• Corporate structure is Prem Rugby Holdings LLP owns Prem Rugby Holdings Limited, which owns Prem Rugby Limited (all 100% owners)
  The most meaningful numbers are probably the LLP ones as they are consolidated (include the assets and liabilities of all the above)
  Partners in LLP are PRL Investor Limited (owned by clubs) and Cobalto (a CVC entity I thinkk but a bit opaque in terms of owners IMO). I can't tell their respective interest - 27% was the interest quoted at the time but I am not sure how that was calculated and whether it included the debt (see below)
  CVC put £200m into the Prem - 100 in equity into the LLP and 100 into the the holding company in the form of a loan (12% interest!) - not sure of the reasons for this - suspect a mix of tax and security on underlying assets
  The bank loan of 17m is at LIBOR plus 2.25%. That cost will up with recent base rate increases
  The accounting for in LLP for the investment is quite unusual in my experience. What they have effectively done is said that the assets acquired were worth lots but were acquired for peanuts (£100) and deferred the 'gain' on sale. That makes the balance sheet smaller (less assets) and will give profits a boost over the next 10 years - albeit not in cash. I have seem similar transactions accounted for quite differently but admittedly am not an expert on the accounting framework being used here
  The valuation of the Prem brand at 850m is interesting. I await the 2022 accounts with interest given that it's lost money hand over fist since acquisition (abeit COVID) *and* Cobalto has written its investment down in 2022
  Preparing accounts on a going concern basis given that it has pretty marginal assets and a thumping loss is also interesting without some more explanation why
  There is some comment in the trading company's accounts about the losses it started to incur beginning in 2019 being just down to accounting trickery. It's hard to tell tbh and that sort of comment is usually frowned on (at least by accountants...) An operating cash outflow is rarely a good sign

Overall, a moderately complex structure and IMO not the most transparent accounts I have seen, albeit I usually deal with public companies. COVID will have hit results badly but there looks to be a significant debt burden to service with a shrinking club base! 2022 accounts aren't due until March but I'll read them with interest when they get filed.

I didn't do any digging on the directors but was interested to see that Jason Whittingham (he of Wuss (in)fame) was a director of PRL.

And lastly, I hate the list formatting on this site

[Shugs]

Interesting Barossa! How on earth have the auditors passed this as a going concern?

[BarossaD]

Interesting Barossa! How on earth have the auditors passed this as a going concern?

A good question - there isn’t a huge amount of explanation in the accounts nor is it called out for attention in the audit report, so hard to tell on what basis. While that isn’t massively unusual - it’s a sensitive topic - I would expect a firm with marginal net assets, big losses and no obvious source of further funding to provide some explanation.

One other thought occurred to me - 13 P shares at around £10m each compared to a valuation on the brand of £850m sounds like a bit of a disconnect.

To be clear, there isn’t a clear sign of anything wrong in there, but I did have a number of questions.

[NellyWellyWaspy]

Interesting Barossa! How on earth have the auditors passed this as a going concern?

A good question - there isn’t a huge amount of explanation in the accounts nor is it called out for attention in the audit report, so hard to tell on what basis. While that isn’t massively unusual - it’s a sensitive topic - I would expect a firm with marginal net assets, big losses and no obvious source of further funding to provide some explanation.

One other thought occurred to me - 13 P shares at around £10m each compared to a valuation on the brand of £850m sounds like a bit of a disconnect.

To be clear, there isn’t a clear sign of anything wrong in there, but I did have a number of questions.

The quicker way to the truth is via the auditors. Wherever they are based, they are regulated, and their regulators, when what appears to be omissions, errors or wrong doing, are required to investigate.

Where an organisation is clearly insolvent (in this case assets being less than liabilities), and going the wrong way year to year, there has to be an auditors statement to that effect, and also confirmation where funding is coming from to cover the gap. This was clearly also the case with the auditors for Wasps and ACL, because whatever they were told would cover that gap, they were told lies. The question falls to what diligence they undertake to establish claims that the gap is and can be covered. That diligence should be rigorous, but often investigations after the even show it to be anything but.

One suspects that the RFU are, except for scale, in as much a similar deep, deep hole as Wasps were, with absolutely no prospect of getting out of said hole.

That their auditors have not had the fortitude of character to say so in their annual report is a lamentable commentary on said 'profession'. Hence, putting pressure on the auditors, holding their round bits in front of the fire of regulation, is a more effective method of getting to the truth.

[Lwasp]

One suspects that the RFU are, except for scale, in as much a similar deep, deep hole as Wasps were, with absolutely no prospect of getting out of said hole.

That their auditors have not had the fortitude of character to say so in their annual report is a lamentable commentary on said 'profession'. Hence, putting pressure on the auditors, holding their round bits in front of the fire of regulation, is a more effective method of getting to the truth.

Not sure that's the case anymore. The RFU got themselves in to a mess with the cost overruns on the HQ redevelopment project, but now that expense is finished they should be back to printing more money than they know how spend. This was the position they were in pre-2015 RWC.

Obviously the CoVid years losses will take a while longer to flush out, but they laid a lot of people off and cancelled major expenditures. 4 home Autumn fixtures and next year is a Blue Home 6 Nations, I'm sure the RFU will be fine again.

[Shugs]

Maybe so. Maybe not. Irrespective of that they would have had to prove liquidity for 12 months post the date of accounts being signed. There’s no mention of this or what checks/assurances/underwriting is in place to give the auditors that comfort. They can’t just ignore it.

[Brown Bottle]

I think there may be some confusion here. BarossaD looked into the structure and financials of PRL. NellyWellyWaspy mentioned the RFU out of the blue. I'm not even sure the RFU are in debt, let alone going down hill. They just haven't got the huge amount of money they used to have.

[NellyWellyWaspy]

I think there may be some confusion here. BarossaD looked into the structure and financials of PRL. NellyWellyWaspy mentioned the RFU out of the blue. I'm not even sure the RFU are in debt, let alone going down hill. They just haven't got the huge amount of money they used to have.

My bad.