Before I start, a little disclaimer. I am not a financial expert. I studied law at university, but then now feels a life time ago. I now work in recruitment.

I enjoy the finances behind football. Reading on it, learning about it, gets the brain cogs going. I would like to think over the years I have learnt and understood a lot; and shared that knowledge through my blogs and on Twitter.

If you want to follow someone who actually knows his stuff, there is only one person on Twitter worth spending your time on. Swiss Ramble.

So it was announced on Thursday evening that Arsenal will redeem their fixed rate bonds. In layman’s term, this is basically the club paying off some of its bank loan.

Now the bonds we have redeemed is not all of the debt still owed from the building of the Emirates Stadium, but is the majority.

In the past, it has been deemed not worthwhile enough to make early repayments in debt.

Like a mortgage on your house, you have to pay Early Repayment Charges to clear the debt early. This is the creditor (ie the bank or mortgage lender) applying penalties for you clearing debt early, and therefore paying less interest over the long run.

The saving over a long period in interest would not have really justified a £200m+ pay out by the time the early repayment charge would have been applied.

So what has changed now?

The decision made by KSE to redeem the bonds seems to be driven by cash flow.

As most will know, Arsenal have to keep a certain figure in reserve within the club accounts as part of the lending agreement. This is money that can not be used to pay for new players, for wages. It just has to sit there.

That pot is around £37million, according to latest accounts.

By redeeming the bonds, Arsenal will be able to free up the majority of that debt reserve.

Taking into account what is happening in football due to Covid19, cash flow has become very important to the club.

Arsenal have missed out on the yearly windfall from season ticket holders. That money would usually now be in the clubs coffers, and be used to make payments on new transfers.

By freeing up money from the debt reserve, it should allow Arsenal to continue more “normal” operations over the summer period.

So who has paid the debt?

Arsenal have been loaned money by Kroenke Sports & Entertainment (KSE). The company owned by Stan Kroenke. In turn it seems KSE have taken out a loan enabling them to loan money to Arsenal.

Whilst Kroenke is a very rich man, that does not mean he has millions sitting in the bank ready to be spent. Much of his wealth is tied up in assets, such as Arsenal, the LA Rams, various ranches and other businesses.

KSE had to take out a loan when buying out Alisher Usmanov.

So KSE have taken out a loan, to loan Arsenal money, allowing Arsenal to pay off a loan.

What we do not know is what the terms of that loan are.

The bonds Arsenal have redeemed were at 5.14% interest. In comparison Tottenham’s are paying a little over 2.6%.

This is because since 2006 (when Arsenal were issued with the bond) money was a lot more expensive to borrow than it is now.

Since 2006, we have lived through a global recession and are now in the midst of the Covid19 pandemic.

The Bank of England rate is currently 0.10%. Back in 2006 it was 5%, with it being as high as 5.75% in 2007.

A high rate is good for savers, poor for borrows. A low rate good for borrowers, poor for savers. The current Bank of England is the lowest in history.

There has never been a better time to borrow money.

So what KSE have done is borrow money, at likely a lower rate than Arsenal’s 5.14%, loaned that money to Arsenal, likely at a slightly higher rate than what they have borrowed at, enabling Arsenal to pay off debt owed at a much higher interest rate.

It would be like you or me owing a chunk of cash to a pay day loan company at 1333% APR. Then a friend or family member  getting out a loan with Natwest at 2.9%, and loaning that cash to me or you enabling us to pay off the debt at the higher rate.

What we do not fully know is the terms of the loan agreements between KSE and Arsenal.

Chances are KSE will be loaning Arsenal the money at around 0.5% higher than what they have taken the loan out on. This is usual in business.

So lets say KSE took the loan out on similar terms as Spurs – 2.6%. KSE are then charging Arsenal 0.5% more – which equates to 3.1%. Arsenal would still make a big saving on the 5.14% they were paying on the bonds.

And what saves Arsenal money, makes KSE money as the clubs owners.

Payment terms of the deal will be interesting.

Arsenal were due to have paid off their debt by 2031. It wouldn’t be a surprise if KSE have extended this date – how long would depend on what the early repayment charge was.

The ERC would have had to have been paid by Arsenal. KSE would likely have loaned Arsenal this money, therefore increasing Arsenal’s overall debt, but reducing the total we have to pay off once interest is included.

Rather than an agreed repayment date, KSE might have decided to just leave the debt within the club, slowly accruing interest. And then if they ever sell the club, the debt would be repaid then. Chances are, however, is that we will be making yearly repayments.

The key for this deal is that is has freed up the money held for the debt service.

This money will be used in the coming months to pay the bills, pay the wages, buy new players.

So in the long term, Arsenal will not save too much; but in the short term the £37million will be very useful.

As time goes on we will probably learn more about all the loan agreements. But what it does is reiterate KSE’s commitment to Arsenal.

Keenos

Follow @KeenosAFC

Regardless of the situation, Arsenal’s next game is always the biggest of their season. It’s the fixture fans look ahead to with a perfectly terrifying mixture of dread and delirium. A game that, if won, sends your spirit soaring for days on end but if lost, hits you harder than an angry Roy Keane. That game is, of course, the north London derby.

Growing up as an Arsenal fan in the middle of the 2000s, Chelsea were the new kids on the block, threatening to upset the Gunners’ status as the Pride of London. As a result, I didn’t particularly understand the rivalry between the red and white side of north London, separated by the Seven Sisters Road and the Tottenham High Road over 4.5 miles. Throughout Chelsea’s emergence under José Mourinho, Spurs were still a long way off being considered among the best teams in London. Their league position of fifth in 2005-06 was their best for 16 years.

During this period, the north London rivalry was ignited by Sol Campbell’s infamous switch from the High Road to Highbury in 2001, yet Spurs still struggled to lay down a marker on the pitch, failing to beat Arsenal for seven years between 1999 and 2008. I truly felt the sting of a north London derby defeat in 2008, when a sorry Arsenal side were thumped out of the League Cup after a 5-1 humbling in the second leg of the semi-final. Juande Ramos’ men went on to win the competition, beating Chelsea in the final for their first trophy since 1999.

This is when it all changed. My father, who is a Tottenham fan, actually had a legitimate case to say that, for the first time in my life, Spurs had enjoyed a more successful season than Arsenal. It hurt. The hurt has been compounded each season since 2016/17, when Mauricio Pochettino guided Tottenham to their first league finish above Arsenal in 22 years, has been a painful one for the sole reason that Arsenal haven’t finished above Tottenham.

In the present, both sides are ironically, almost identical. Both have had new managers, Mourinho and Mikel Arteta replacing Pochettino and Unai Emery respectively. Both are out of Europe, having lost games against RB Leipzig and Olympiacos they should have won. Most revealing of the two clubs’ current situations is the fact that they both sit outside of where they should be, the top six. They are almost neck and neck in the table and if Tottenham beat Bournemouth on Thursday evening, they will move above Arsenal into 7^th.

Arsenal and Tottenham are at a crossroads and Sunday’s clash could be the catalyst for change. A win for either side will not only give them much-needed momentum to finish the season strongly but, crucially, a better chance to secure a place above the auld enemy. A draw will suit neither side, with both teams desperately attempting to make up ground in the race for Europe having been mired in mid-table mediocrity for much of the season. Therein lies the story of the north London derby: a great game for the neutral but a stomach-churning, suffocating spectacle for Arsenal and Spurs fans.

Zac Campbell

Follow @zprcampbell99