Bryan Glazer (L), Avram Glazer and Joel Glazer (R). Photograph: Martin Rickett/PA

Wed. 25 Aug 2010

Manchester United's owners, the Glazer family, have suffered further embarrassing financial difficulties after four more of its US shopping malls recently fell into default on their mortgages.

 With the interest rate charged on United's enormous "payment-in-kind debts" rising from 14.25% to 16.25% this month, the news could hardly come at a worse time.

An investigation by the Guardian in conjunction with the BBC's Panorama programme and the investment analyst Andy Green in June found that of the 68 shopping malls owned by the Glazers' US-based First Allied Corporation, four had gone bust and one more had defaulted on its mortgage. An analysis of the malls' most recent financial disclosures has revealed that four more have since failed to pay their mortgages and become classified as "delinquent", with two falling into default this month.

The four malls are in Houston, Texas; Denver, Colorado and two in Ohio. That means nine, or 13%, of the Glazers' malls are now "delinquent" or insolvent, and a further 29 centres, 43%, have so many units empty the rental income does not cover the mortgage payments. First Allied is the only significant business the Florida-based family runs besides Manchester United and the Tampa Bay Buccaneers NFL franchise, and the bank disclosures show it making income above the malls' running costs of only US$9m a year.

These disclosures come at a particularly sensitive time considering United's own debts. The interest rate increase took effect this month, according to the most recent accounts filed by one of the Glazers' United companies.

According to Red Football Joint Venture Limited, the accounts for the year to 30 June 2009 recorded that United's total bank and other borrowings had swollen to £716m, all of it derived from the Glazers' original personal borrowings to buy the club in the first place in 2005. Of that, around £500m was owed to banks and refinanced in January with the issue of bonds at an average around 8.5% interest "yield" annually – £42.5m this year.

The payments in kind, originally owed to three hedge funds, had risen to £202m by 30 June last year, so at 14.25% have accrued a further £34m interest since. That interest is not paid but accumulates, so the Glazers' United companies now owe £236m to the hedge funds. The increased interest rate to 16.25% means that over the next year a further £38m will be added, swelling the total to £274m, unless a proportion of the hedge fund debt is paid off.

No public United documents explain why the interest rate has increased, but it has been reported that United were hit with it as a penalty clause because their debts have risen to more than five times the basic profit they make.

The club's chief executive, David Gill, has maintained that the payment-in-kind debts at these credit-card rates of interest are not the club's responsibility, but fall on the family to repay. However, it is not at all clear the Glazers have the resources from First Allied or elsewhere to meet these liabilities, and the bond document issued by United provides the right to take almost £130m out of the club. That can be used to pay towards the payment-in-kind debt if necessary.

Gill and the Glazers argue the club is unaffected by these debts, by far the largest external borrowings ever owed by an English football club, and that funds are available for the manager Sir Alex Ferguson to spend. The manager has said the transfer market is over-priced and it is his own choice this summer to have signed only Chris Smalling from Fulham, Javier Hernández from Guadalajara and the deal which has stunned football, the 20 year old Portuguese striker, Bébé, for £7.4m.

Yet Green – an investment analyst and United supporter who writes about the club's finances in his blog www.andersred.blogspot.com – said the latest disclosures from First Allied were a cause for further concern. "They show that the Glazer family's only significant other business is making almost no money, and certainly not generating the cash to reduce United's massive debts," he said. "The family's shopping malls are afflicted by low occupancy rates, more have fallen into default, and whatever David Gill says, there appears no doubt that Manchester United itself will be made to service these useless debts and pay huge interest payments, all money which could have been spent signing players."

Neither the spokesman for Manchester United nor the Glazer family were available for comment yesterday.

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