Last year, when the economic crisis was in full swing banks refused to lend to each other in case the bank which was being lent the money went bust.
The inter bank lending rate does what it says on the tin: it is an independently-set rate of interest which applies to transactions between banks. In a move which almost indicates that Bernie and CVC had a crystal ball looking into the world’s financial future, the interest rate on the debt was set at a rate of between 2% and 3.5% on top of the inter bank lending rate. However, instead of being put under pressure, the debt repayment accelerated.
The increased prize money payments began in 2008 and the accounts show that these increased from $342m in 2007 to $521m last year sending Delta 3’s operating profit plummeting 58% to $86.4m. Remarkably, in fact, the opposite is true. The widely-held theory was that the increase in prize money paid to the teams to stop them leaving the sport could put F1’s debt repayment under pressure. In a nutshell, the higher the direct costs of running F1, the less money it has to repay debt. If F1 fails to make these repayments then the sport could end up in the hands of the lenders since the loan was secured on its rights. To recap, CVC borrowed $2.8bn from Lehman Brothers and the Royal Bank of Scotland and in 2007 it made annual interest payments of $238.4m on this. Leon, you might find this worth a read…”As any seasoned Pitpass readers will know, the key to F1’s future is the huge debt which CVC borrowed when it bought the sport in 2006. You can follow us on Twitter, subscribe to our RSS feed or get the latest updates by email. Stay up-to-date on the 2010 F1 calendar with F1 Fanatic.
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