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

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Last roll of the dice as Donington offers the City a high risk bond
Oct 14, 2009, 1:32 PM

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 de...

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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