This remarkable article from last week's Private Eye demonstrates why it's futile us ordinary people every trying to understand why our savings and the value of our houses have fallen through the floor …
"A big drop in revenues for Paris's luxury hotels in October could not have come at a worse time for the phoney pharaoh, Mohamed Fayed, or for his favourite bankers, the part-nationalised Royal Bank of Scotland.
His Paris Ritz has still to conclude an agreement with RBS over the refinancing of the near €105m final loan repayment due next May. The Ritz says it has "commenced preliminary discussions" but expects the load to be rolled over by RBS, which holds the prime Paris property as security, into a new and hopefully bigger loan - the normal Fayed plan for dealing with bank loans. But that was before the credit crunch.
But with £650m already owed by Fayed, secured on Harrods and its associated properties, RBS may be forgiven in present conditions for not rushing to be as generous as it has been in the past to one of its biggest borrowers.
In December RBS loaned £650m to a new company, Harrods Property, which had acquired the store freehold and associated properties from a company of the same name, which had been part of Harrods. The purpose of this in-house transaction was to raise a further £300m on the properties valued at £750m for the deal - whether they would be valued so highly now is open to question. The new loan was serviced by jacking up the rents paid by the Harrods companies to more than £41m a year.
That was not the only price of persuading RBS almost to double its exposure on Harrods. This new loan involved an effective early repayment penalty of £54m regarding the remaining £348m loan from RBS, which was not due for repayment until 2020 - the new loan is due in 2016. However, Fayed clearly felt this swingeing payment was worth it as it produced some £300m of new money which then went winging round the empire.
The new loan appears to have helped the purchase of a 27.5% stake in the Harrods store parent company, Harrods Holdings, for £290m by one Fayed family company, AIT Partners, from another, Mohafa. This transaction valued Holdings at just over £1bn! But the value to the Fayeds is reduced by the RBS borrowings. Mohafa and other Fayed companies were liquidated last months and their assets - mainly inter-company loans - distributed to other Fayed companies.
The new RBS loan also perhaps helped resolve a looming problem with the main Harrods pension fund, where the trustees wanted action to deal with a growing deficit that was approaching £100m. As part of an agreement to fully fund the pension fund by 2014, Harrods had to pump in £50.5m in two payments during 2007 and 2008, as well as increase its contributions and give the pension fund a second charge over the properties and a lien over Harrods' goods for sale. The recent fall in share prices will have done nothing to help fill that pension gap.
No doubt questions over the refinancing of the other RBS loans had nothing to do with the late filing of the Ritz's accounts earlier this month - more than a month after the statutory deadline. The accounts to December 2007 were only signed on 1 December this year. However, the issue of whether RBS will refinance the 2001 loan, and on what terms, has had an impact on auditors KPMG.
The "going concern" section of the accounting policies note for the Ritz is almost a whole page - five paragraphs compared with only two last year, when the accounts were signed off in October.
Once again, but in more direct wording, KPMG - while not qualifying their opinion - conclude their report by adding an "emphasis of matter" paragraph which draws attention to the "key assumptions made by directors related to the repayment obligation of the current loan facilities" in adopting the crucial "going concern" basis relating to the company's ability to continue in business for the next 12 months.
The "going concern" note states that the company is looking both to refinance the old loan and to obtain new facilities to finance a planned "major refurbishment programme". This may need to be put on hold. RBS is said to have indicated a position that "at least" it will refinance the existing loan on terms and conditions acceptable to the company. Meanwhile, the Fayed family has confirmed that financial support will be made available if the RBS loan has to be repaid. How that would be done is not made clear.
Despite the gloomy visitor numbers for September and October, the Ritz directors are confident that their cash flow predictions for 2009 will hold up. The hotel made a small profit for 2007 after a previous loss, and revenues had been up this year. However, the note concludes by warning that "all projections are inherently subject to uncertainty and there can be no guarantee that all the key assumptions made by the directors will be achieved". No doubt the RBS will be looking closely at the real figures over the next six months.
Meanwhile Fayed, who will be 80 next month, appears to be engaged in a restructuring of his Harrods empire, with the creation of new key companies in Bermuda and Luxembourg. A reshuffle of the Harrods Holdings shareholders has seen the emergence of a new Bermuda-based parent company, Mafco Holdings, which was registered in February this year. This puts the Knightsbridge store at the end of a chain of AIT (as in Al Fayed investment trust) companies. Mafco is also the parent of the parallel structure which now owns the Harrods properties via a new Luxembourg entity, Harrods Property Investments, formed in March.
This reorganisation may suggest that ownership of the Fayed empire and its family trusts is being restructured to take account of not just the ageing pharaoh and his brothers but the interests of their children. Nobody lives for ever - a thought that must be exercising RBS minds as it contemplates the grim prospects for retailing and hotels in 2009."
See what we mean? Ritz crackers, the lot of it.
And though this may be a whole world away from the lives real people lead, how can it fail to have a profound effect on every one of us? Don't forget, we all of us own a slice of RBS now - whether we wanted to or not. Trouble is, we'll be powerless to prevent our share from dribbling away to Luxembourg or Bermuda and never be seen again. At least we'll know who's got it. Not that that'll be much consolation.
The GOS is currently hoping to negotiate a refinancing deal on a little semi in Rochdale. Ownership was recently transferred to Grumpy Holdings, a wholly-owned subsidiary of FLAY ("F*ck the Lot av Yer") which is based in Canvey Island for tax reasons, and the refinanced loan will be serviced by tripling the rent on Mrs.GOS's caravan at Whitley Bay which is owned by an entirely different company with the same name. The fact that this was blown away during the North Sea gales last Spring shouldn't be a problem, as The GOS has included an "emphasis of matter" clause in the agreement which states "all projections are inherently subject to uncertainty and there can be no guarantee that all the key assumptions made by the directors will make any sense whatever". The only other directors are the conductor of a number 38 bus he rode on in 1952 and a couple of blokes he met in the pub three years ago, so this statement seems entirely justified and he anticipates a bumper year in 2009. If he turns out to be mistaken, no doubt Gordon Brown will step in and support the venture with a massive injection.
Or with some money (not his own, obviously - that would be silly).
either on this site or on the World Wide Web.
Copyright © 2008 The GOS
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