This afternoon saw us all learn that Fulham’s parent company, Cougar HoldCo, had written off £151 million of loans to the club by converting them into share capital. So, why has Shahid Khan capitalised Cougar HoldCo in this way, where have these loans come from and what does it mean for Fulham?
Firstly, who is Cougar HoldCo? Put simply, as the name suggests, this is the holding company set up in July 2013 through which Shahid Khan owns his shares in Fulham Football Club Limited. However, under the surface, Fulham’s ownership structure is much more complicated, with Cougar HoldCo London Limited instead its ‘ultimate parent company‘.
This is because CougarHoldCo indirectly owns Fulham Football Club Limited through Fulham Football Leisure Limited, a holding company incorporated in May 1997. This was presumably originally created by Mohamed Al-Fayed as he took over the club from Jimmy Hill and Bill Muddyman. Fulham Football Leisure Limited owns the majority of the club’s tangible fixed assets, which are defined as physical asset(s) which have a quantifiable monetary value and which is not expected to be liquidated into cash within the next 12 months. In the case of Fulham, this is likely Craven Cottage and Motspur Park, as well as any other property or equipment the club possesses.
Therefore, this limits the club’s liability should they forced to enter into receivership, safeguarding the existence of Craven Cottage and Motspur Park for the club and preventing a scenario similar to what befell Bury and Gigg Lane. This leaves Fulham Football Leisure Ltd with around £160.4 million in tangible fixed assets, whilst Fulham Football Club Ltd possesses just £1.985 million, which is the main difference between the two corporation’s balance sheets in 2019/20.
Fulham Football Leisure Ltd has therefore received the £151 million of share capital from Cougar HoldCo Ltd, keeping £54,604,676 which will presumably be invested into the ongoing Riverside redevelopment as well as the redevelopment of the old BBC Sports Complex at Motspur Park – for which further details are expected to be announced by the end of this year. The remaining £96,394,324 has therefore been injected into Fulham Football Club Ltd via share capital offset against debt.
Whilst it is unclear what this money will be used for, it means that Fulham Football Club Ltd will no longer have to make interest payments to Cougar HoldCo for the money borrowed as it has been written off into shares. It also has no change in Fulham’s ownership structure, as Shahid Khan already owns 100% of the club. In fact, loans being written off into shares is nothing new to Fulham, who have experienced this before multiple times under Shahid Khan and Mohamed Al-Fayed.
The transition of loans into shares simply means that Khan has taken more risk on the club as Cougar HoldCo no longer receives preferential lender status under the football creditor rule, should the club enter administration. However, the benefit to Khan is that the club looks more attractive to lenders and potential buyers as its gearing ratio is lower, meaning that the club’s activities are funded by shareholder’s funds rather than creditors’ funds – which is why Al-Fayed wrote off Fulham’s loans prior to selling the club to the Khans in 2013.
The input of share capital set off against related debt via deed also has no impact on Fulham’s financial fair play (FFP) status, unless Shahid Khan doesn’t provide a letter detailing his ongoing financial commitment to the support of the club – something which is required by the EFL from the owners of all loss making clubs.