F1 lenders worried F1 will not be able to meet payments

Lenders to Formula One and Manchester United, two of the biggest names in British sport, have been selling on loans taken out by the two businesses at deeply distressed prices as they grow concerned about the ability of heavily indebted companies to meet interest payments through a recession.

Despite enjoying one of its best seasons on the pitch, with five trophy wins still a prospect, Manchester United's financial future looks far from rosy. Huge amounts of debt were heaped on the club's books as part of a private equity-style buyout led by US entrepreneur Malcolm Glazer in 2005. The senior (high priority) debt is now being traded at 70p in the pound.

Discussions about refinancing loans through a securitization of future gate receipts have been shelved, as the market for such products has in effect closed. Meanwhile, two months ago AIG – itself rescued from collapse by the US taxpayer – confirmed it would end a shirt sponsorship deal at the end of next season. The club is unlikely to match the record four-year contract with AIG, worth £56.5m.

At Formula One, debt investors have even deeper concerns. Senior debt issued to fund private equity firm CVC Capital's 2006 takeover of the sport's commercial rights is trading at 51p in the pound.

The company, run by Bernie Ecclestone, was shaken by the shock exit of the Honda team three months ago. The move has led to speculation that others could also drop out and investor concerns that a greater share of earnings from the sport may have to be passed on to struggling teams.

"Sport will undoubtedly be affected by the downturn in the economy as discretionary spending becomes more problematical," said Philip Long, partner at PKF accountants and business advisors. The Observer