Caught Offside, an Inter-Oaktree Loan Case Study

Welcome to the 138th Pari Passu Newsletter, 

This week, we are publishing a day early ahead of July 4th. Since the Americans are already in a good mood ahead of the holiday, today we have something for our European readers! If you enjoy this piece, forward the email to a friend who loves soccer.

In this article, we are diving into the world of sport with an in-depth case study on the unique nature of distress within European soccer clubs, focusing on Inter Milan. Oaktree’s 2024 takeover of Inter Milan stands apart for its scale, visibility, and timing. The €275mm loan extended to the soccer club in 2021 was never intended to result in a hostile loan-to-own takeover, but after failed refinancing efforts and plummeting equity value, Oaktree enforced on its collateral and assumed full control in May 2024.

This edition examines the Oaktree–Inter Milan transaction through a credit lens. We begin with an overview of the structural fragilities in the European soccer business model, discussing its volatile revenues, high wage costs, and the absence of protective league structures. We then walk through Inter Milan’s financial decline from 2016 to 2021, followed by an analysis of Oaktree’s rescue loan to Inter Milan and the factors relevant to its eventual takeover of the club in 2024. Finally, as an additional bonus, we will provide our insights on the viral Manchester United covenants that have seemingly punished the club for winning.

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The European Soccer Club Business Model

The business model of a European soccer club is deceptively complex. At first glance, it appears that the income streams closely resemble those of NFL or NBA franchises, generating revenue from ticket sales, TV broadcasts, merchandise, and other sources. However, upon closer examination, European soccer operates within a radically different financial and competitive ecosystem, where market forces are less regulated, revenue streams are generally more volatile, and the stakes of poor performance are dramatically higher. 

Revenue

There are three primary revenue streams for a European club that we need to look at closely: (1) matchday income, (2) broadcasting rights, and (3) commercial activities.

1) Matchday income encompasses the revenue generated from ticket sales, stadium hospitality, concessions (food, beverage, and convenience items), and on-site merchandise sales. This is the most straightforward source of revenue for a professional sports club, that being the income generated from customers attending the physical event. After stagnating during the COVID-19 pandemic, matchday revenue surged to record heights in the 2023/24 season, reaching €2.1bn ($2.4bn) across the world’s top 20 revenue-generating clubs, accounting for 18% of total revenue amongst them. We will refer to this group of teams as the“Money League” clubs [1].

2) Broadcasting revenue is the second major pillar, accounting for over 38% of total revenue [1]. Here, we begin to see a significant divergence from American norms. In leagues like the NFL, broadcasting rights are centrally negotiated, and income is evenly distributed. Therefore, even small-market teams like the Green Bay Packers receive the same $400mm in media-related income as the Dallas Cowboys [3]. In Europe, television money is not as equitably distributed, as a significant amount of league-wide broadcasting revenue will be awarded on the basis of sporting success as prize money. Generally, across the Big Five domestic leagues (England, Germany, Spain, Italy, and France), teams that finish higher in the table and/or qualify for European competition receive a disproportionate share of the broadcasting revenue in prize money. For example, in the English Premier League (one of the more equitable domestic leagues in Europe), there are massive merit-based prizes, where finishing in the top three of the league is worth an extra £55mm+ in broadcasting revenue through prize money [2].  

3) Commercial revenue encompasses monetising assets, such as brands and stadiums, through sponsorships, merchandising, and licensing. At €4.9bn ($5.6bn), commercial activities remain the largest revenue source for the Money League clubs, accounting for 44% of total revenue [1]. Sponsorships, particularly kit sponsorships, play a key role. For example, in 2023, Manchester United renewed its shirt sponsorship deal, worth almost $1.2bn over ten years, with Adidas [4]. The club also signed a new shirt sponsorship deal with Snapdragon, a brand of mobile technology firm Qualcomm, which is currently paying $76.2mm a year [5]. Compare this with American franchises, where the NBA introduced small jersey patch sponsorships in 2017/18, netting teams $10.6mm a year on average, and the NFL, where kit sponsorships are still prohibited; this is a significant source of income [6]. 

Another key difference revolves around asset control. In the US, franchises like the Dallas Cowboys or the Golden State Warriors also generate revenue by utilising their proprietary venues (the stadiums) as commercial real estate assets. For example, concerts, naming rights, and retail operations help ensure year-round revenue for the sports teams. In contrast, only 18% of European clubs own facilities as property or have them on long-term leases [7]. Most arenas are owned by public authorities, like Inter Milan’s home ground, the San Siro Stadium, which is owned by the Municipality of Milan. This can not only hamper the creation of stable year-round revenues but can also lead to conflicts of interest over the modernisation, expansion, and responsibility for the venue. 

Before we turn to expenses, it’s worth noting a structural shift in how Europe’s top clubs make money. Back in 2010, the financial profiles of the richest clubs were largely similar: broadcast rights were the main revenue driver for all [1]. Today, however, that’s changed. The top 10 Money League clubs now rely much more on commercial income, while the bottom 10 Money League clubs, including Inter Milan, remain heavily dependent on broadcast revenues. For example, in 2023/24, 48% of total revenue for the top 10 clubs came from commercial income streams, followed by 34% from broadcast [1]. Contrast this with the bottom 10 clubs, where only 34% of total revenue came from commercial sources and 47% came from broadcast [1], we can see how the lower-ranked Money Leagues clubs are far more reliant on on-pitch success than the high-ranked clubs.

Expenses

On the expenses side, European soccer clubs operate with significantly higher structural costs than their American counterparts. This becomes very evident when we examine the nature of (i) uncapped player wages, and (ii) player transfer / acquisition fees.

Player wages represent the most significant cost for most clubs, regularly consuming over 60% of revenue. In the Italian and French leagues, this figure has exceeded 80% [1] [13]. The critical difference between American sports and European soccer is that European soccer clubs do not have salary caps. While the NFL and NBA impose limits on the total amount a team can spend on player wages, European clubs operate under UEFA's Financial Fair Play regulations. While these regulations are aimed at preventing reckless leverage spending, by aligning spending with revenue in the long run, they still permit significant short-term losses. It is not to say that soccer clubs should not be run as for-profit businesses; in fact UEFA would find this desirable. The goal is to allow soccer clubs to invest in players to remain competitive, but not perennially loss-making businesses in doing so. Hence, the Financial Fair Play regulations provide enough flexibility for high short-term spending, which explains how wages can consume 60% to 80% of turnover for European soccer clubs, significantly higher than their American counterparts.

Another major cost is transfer fees. Transfer fees are paid by clubs that wish to buy out a player who is under contract at another soccer club. In the English Premier League, the clubs spent on average £140mm ($190mm) on player transfers during the 2022/23 season, a record high which equates to around £6.5mm per player. Considering that the average Premier League club’s revenue was £313mm in 2022/23, transfer fees would’ve been 45% of average total revenue if they were not amortised [8] [12]. Amortisation is an accounting process that spreads the cost of purchasing a player across the length of their contract. For example, a €70mm player on a five-year deal adds €14mm per year to the club's books, regardless of cash flow. This amortisation leeches profitability, as the multi-million-euro signing costs for players count against the books annually. 

In addition to the two drivers of spending, we should highlight how central debt financing is to European soccer clubs. Top clubs have identified the impact of infrastructure investments as a key driver of revenue. For example, Liverpool and Olympique Lyonnais enjoyed the benefits of upgrading their stadiums, which have increased their attendances and number of non-matchday events, boosting matchday and commercial revenue, respectively [1]. Since these projects are financed with a considerable amount of debt, having access to capital markets is important for boosting key sources of revenue. 

However, and more importantly, debt financing is also crucial for sporting competitiveness, as acquisition fees to bolster a team’s roster rely on a considerable amount of debt. Thus, where a club's wage-to-revenue ratios are particularly high, like commonly seen in the Italian (66%) and French (77%) leagues, the squeeze on profitability would reduce a lender's confidence in the club's ability to sustainably service debt [1]. Thus, larger clubs that can leverage their global brand and diversified revenue streams to manage liabilities effectively have an immense sporting competitive advantage over smaller clubs, which may face heightened financial vulnerability.

All in all, this section aims to demonstrate the ruthlessly competitive nature of the financial environment in European soccer. While there has been a shift among European clubs towards increasing commercial revenues to diversify and protect against poor sporting performance, this has only really been successfully achieved in the top 10 Money League teams, and most of European soccer is dependent on sporting results to drive financial performance.  

Inter Milan Overview 

Inter Milan, officially Soccer Club Internazionale Milano, is one of Europe’s most historic and successful soccer clubs. Founded in 1908, the club has amassed an impressive trophy cabinet, including 20 domestic league titles, nine domestic cups, and three Champions League titles in 1964, 1965, and most recently in 2010. In recent seasons, Inter Milan has returned to competitive prominence, winning the Italian domestic league, Serie A, in 2020/21 and 2023/24, alongside two Champions League finals appearances in the last five years (with a somewhat anti-climactic 5-0 defeat to PSG this year). Today, Oaktree holds 99.6% of its equity after exercising its share enforcement following a default on the firm’s loan last year, allowing it to take control of Inter Milan. Let’s break down and explain how the club got itself into that position.

Suning Ownership Ambitions

We should begin the story in June 2016, when Chinese electronics retailer Suning Commerce Group purchased a 68.55% stake in Inter Milan for €270mm ($307mm) [10]. Suning was part-owned by e-commerce giant Alibaba, and Suning owned domestic club Jiangsu Suning, but this was its first major overseas European purchase. It had intended to “inject a steady stream of capital investment in Inter Milan, which will help attract more talented players”, as was necessary for the Italian club to compete [10]. In the season before Suning’s acquisition (2015/16), Inter Milan posted €183mm in revenue, recorded a net loss of €60mm, and its wages-to-revenue ratio stood at 68%. Much of this could be attributed to:

• Relatively poor on-pitch performance, which meant is missed on Champions League soccer, suppressing matchday and broadcast revenues significantly

• Dwindling match attendances, compounded by stadiums which had not been upgraded since Italy hosted the 1990 World Cup. Inter Milan’s home, the San Siro, was not even filling half of its 80,000 seats each week [13]

• All other revenue sources had remained stagnant while players’ wages were rising, which saw Italian teams running massive operating losses

In light of this, a core aim of Suning was to diversify the club’s revenue by increasing exposure to Asian markets, leveraging its extensive retail footprint of 1,600 chain stores covering 600 cities in China, Hong Kong, and Japan to boost commercial revenues [16]. In this regard, Suning was very successful. From 2015/16 to 2016/17, revenues surged by 33%, and by the 2018/19 season, revenue was up almost 75%. This exponential growth was largely fuelled by six new Asian sponsorships linked to the Suning Group (worth €97mm) and the club’s return to the Champions League [14].

However, when we examine the net financial debt over the same period, we can see that the progress in increasing Inter Milan’s revenue did not keep pace with the financial costs the club was incurring. While Suning resulted in lower Net Debt / EBITDA from 10.3x to 4.2x through boosting commercial income in 2016/17, the ratio grew steadily for the next four seasons, reaching 5.1x in 2019/2020, just around when COVID-19 restrictions would have begun in Italy.

Do note that the pre-existing financial debt in 2015/16 mostly comprises a €230mm ($270mm) Goldman Sachs loan that was taken out by the former majority shareholder that was set to mature in 2019 [17]. This pre-existing debt will be relevant later in “The December 2017 Bond Issuance” section.

While there are many reasons to explain this situation, ultimately, there were three interrelated reasons for Inter Milan’s precarious financial position that had set it up to struggle during the COVID-19 pandemic:

• Player and Squad investment

• Chinese Government Capital Controls

• The December 2017 Bond Issuance

Player and Roster/Squad investment 

As has been covered extensively, sporting success drives financial performance for most soccer clubs. Unlocking the tens of millions in broadcasting and UEFA prize money would require substantial spending to build a competitive squad capable of challenging in both domestic and European competitions. 

Between 2016 and 2020, Inter committed nearly €600mm in gross transfer fees for new players. In the 2016/17 season alone, the club spent over €160mm [18]. These acquisitions continued in the seasons that followed, culminating in blockbuster deals like Romelu Lukaku for €74mm. Much of these purchases relied on debt to finance this level of investment, given Inter Milan’s limited cash and Suning’s capital restrictions (covered below). Furthermore, these players also demanded high wages, which saw Inter Milan’s wage bill swell from around €145mm in 2016 to €262mm by 2020/21, one of the highest wage bills in Serie A history [19]. This set up Inter Milan with high expenses that would be very difficult to offload once the COVID-19 Pandemic had struck.

Chinese Government Capital Controls

One of the most consequential constraints on Suning’s financial strategy for Inter Milan actually came from China. Suning acquired Inter Milan in 2016, which was a period of relative openness in China’s capital markets. There was encouragement from the Chinese government to increase outbound investment in “soft power” assets, aiming to enhance Chinese influence abroad [21]. Hence, Inter Milan was one of many targets for Chinese investment across the sports and entertainment sectors. However, by late 2017, there has been a dramatic shift in Chinese openness to outbound foreign investments. The Xi administration had deemed that Chinese investments in international soccer had become “irrational” and that the domestic, grassroots levels of soccer had not been benefiting enough [20]. Government agencies were granted the authority to assess all outbound deals exceeding $5mm, and such investments would require the approval of the relevant agency [21]. 

This was a massive structural blow just a year after Suning had arrived. These capital controls severely constrained Inter Milan’s flexibility, as Suning could no longer act as a backstop for financial and operational losses at Inter Milan, unlike its competitors’ owners. The club had to operate as a self-sustaining entity, reliant on its own revenue generation, external financing, and player sales. This brings us to our next point, as the club became very dependent upon short-term debt finance to achieve Suning’s goals

The December 2017 Bond issuance

As Inter Milan could not rely on shareholder support to fund its losses, the club turned to the capital markets. In December 2017, Inter Media and Communication S.p.A, the club’s media and sponsorship subsidiary (MediaCo), issued a €300mm bond, maturing in 2022 and carrying a fixed 4.875% coupon [22]. The bond was used primarily to refinance the €230mm loan from Goldman Sachs, which was due in 2019, alongside ‘general corporate purposes’, which would include player signings and wages. 

After all these issues, Inter Milan still remained heavily indebted with net debt at €407mm by the end of the 2018/19 season, and Net Debt / EBITDA stood at 4.7x. It became very evident that Inter Milan had locked itself into a high-cost structure that was dependent on uninterpreted revenue growth, European qualification, and continued refinancing.

COVID-19 and the 2021 Oaktree Loan

COVID-19

The COVID-19 pandemic struck at the very core of Inter Milan’s business model, simultaneously disrupting all three of the club’s primary revenue streams: matchday income, broadcasting rights, and commercial income. The resulting revenue collapse during the 2019/20 and especially the 2020/21 season left the club financially exposed.

• Matchday income was most visibly affected. Revenues from match attendance dropped from €45mm in 2018/19 all the way to zero in the 2020/21 season due to stadium closures. This wiped out an important and predictable income stream.

• Broadcasting income also faltered, falling from €139mm in 2018/19 to €115mm in 2019/20. Though it recovered to €190mm in 2020/21, the timing of payments was uncertain and subject to league-wide deferrals and renegotiations, hence still putting a strain on the club’s short-term liquidity.

• Commercial income saw a similar dip, from €178mm in 2018/19 to €128mm in 2019/20, reflecting the global pullback in sponsorship and advertising during the height of the pandemic. Although it remained resilient at €149mm in 2020/21, it was still below pre-COVID highs.

Alongside this sharp revenue contraction, Inter Milan’s cost base remained structurally high. Total operating expenses slightly increased from €428mm in 2018/19 to €444mm in 2019/20 before ballooning to €569mm in 2020/21. This was driven by high personnel costs, which surged to €262mm, and amortisation charges on player acquisitions, which rose to €151mm. Combined, wages and player amortisation consumed over 70% of revenue in 2020/21. These obligations were largely fixed and could not be adjusted in line with the revenue shock.

The result was a severe erosion in liquidity and profitability. In 2020/21, the club posted an EBITDA loss of €52mm and a negative free cash flow of €123mm, Inter Milan was burning cash to maintain day-to-day operations. 

By the end of the 2019/20 season, Inter Milan’s inability to generate liquidity was a pressing concern as the club was unable to cover operating costs. Free cash flow was only marginally positive at €15mm, and cash and cash equivalents, though improved to €89mm, remained modest relative to the scale of the club’s liabilities. This was largely because operating costs remained stubbornly high despite a collapse in revenues, as highlighted above. The mismatch between cash inflows and outflows forced the club to raise debt simply to maintain liquidity.

In July 2020, MediaCo, Inter Milan’s subsidiary that is responsible for the club’s media and sponsorship revenues, which issued the €300mm bond in 2017, raised a further €75mm in additional senior secured notes, maturing in 2022 with a 4.875% coupon. These were added to the €300mm 2017 MediaCo bond, also due in 2022. The consequence was to create an even larger maturity wall in 2022, with at least €375mm in bond obligations and a fully drawn €50mm revolving credit facility. With limited revenue and no equity injections from Suning due to Chinese capital controls, the club increasingly relied on debt layering to fund operations, exacerbating long-term solvency risk.

Oaktree Loan

Given that this is the key loan of this week’s write-up, we’re going to open up the corporate structure to examine this emergency facility. 

Oaktree provided a €275mm loan to Grand Tower S.a.r.l, a Luxembourg-based holding company that Suning controlled. This was a three-year loan set to mature in May 2024, with an annual interest rate of 12% and a payment-in-kind (PIK) feature [25].  A critical point to note is that the loan was structured in a way that allowed Oaktree to share in the profits from a successful sale of the club [26]. In fact, Oaktree sought to ensure it could participate in the potential upside of a club sale, which was at the forefront of the distressed investor’s mind given Inter Milan’s ongoing structural and financial challenges under Suning’s ownership. For Inter Milan, the primary purpose of the loan was to cover the club's day-to-day obligations, such as player salaries and amortised transfer fees, which its collapsed matchday and commercial revenues could no longer cover [25]. Suning was confident it would be able to repay the loan in three years for three reasons: competitive success yielding sustained presence in the UEFA Champions League, the return of fans to the stadium, and a cost-cutting plan [25].

This Luxembourg HoldCo sat above Inter Milan (TeamCo) in the ownership chain and was the legal holder of Suning's 68.55% equity stake in the club.  Basically, all the rest of the equity was owned by LionRock Zuqiu Limited through a HoldCo entity called International SportsCapital S.p.A [24]. LionRock Capital was a Hong Kong-based private equity firm that acquired its stake in TeamCo in 2019.

The Oaktree loan was secured by the equity in Grand Tower S.a.r.l., the Luxembourg HoldCo that held the 68.55% stake in the TeamCo, thus effectively creating a "loan-to-own" option for Oaktree. A loan-to-own is a financial strategy where a lender issues a loan to a struggling company with the strategic intent of taking control of that company if it defaults. Here, if Inter Milan failed to meet its loan obligations, Oaktree would possess the right to commence a "share enforcement", which is simply Oaktree enforcing its security over Grand Tower shares to seize them, either to sell them to recover outstanding debt or to take control of the company (assuming a sufficient majority stake). 

Below is an estimate of Inter Milan's financial liabilities around the time of the Oaktree loan. The table does not include the 2021 loan as it sits above and outside of the core Inter Milan operating companies.

The January 2022 Refinancing 

The 2020/21 and 2021/22 seasons marked a period of extreme financial distress for Inter Milan. In 2020/21, a full season of COVID-19 restrictions, the club posted a catastrophic -€123mm in free cash flow, driven by an EBITDA loss of negative €52mm. Notably, despite winning the Serie A title, Inter Milan was structurally incapable of generating cash.

What made this especially alarming was the looming 2022 maturity wall. The €345mm MediaCo bonds and the RCF were set to mature in just a year’s time. Yet instead of building liquidity to meet these obligations, Inter Milan burned through it. By the end of 2020/21, the club had only €98mm in cash, down from €139mm a year earlier. Meanwhile, net debt had climbed to €374mm.

The following season, 2021/22, brought modest improvement. EBITDA recovered to €38mm, and free cash flow rebounded to €38mm as well. However, this was far from enough to repair the damage. Net debt remained elevated at €350mm, and cash on hand sat at €139mm—still insufficient to cover the €395mm+ in bullet repayments due in December 2022. Thus, Inter Milan was forced to amend and extend the MediaCo bonds and accept a higher interest rate.

In January 2022, MediaCo issued €415mm of new 6.75% Senior Secured Notes due 2027, using the proceeds to redeem the old 4.875% 2022 bonds and repay the €50mm RCF in full. This extended the maturity profile of the group’s debt, but at the cost of a significantly higher interest burden.

The Oaktree Loan Default

Despite a clear recovery in operating performance between 2020/21 and 2023/24, Inter Milan ultimately defaulted on the Oaktree facility in May 2024. This was not due to a lack of profitability on paper, as by 2023/24, the club had achieved €107mm in EBITDA, but because the club simply never generated enough cash to meet its overwhelming debt obligations.

From 2020/21 through 2023/24, Inter Milan cumulatively burned through €157mm in free cash flow. This erosion of liquidity coincided with the buildup to one of the most precarious maturity walls in European soccer: over €500mm in gross debt obligations due across MediaCo, TeamCo, and the HoldCo in 2024. Hence, although Net Debt / EBITDA improved to 2.9x by 2023/24, €115mm in cash and low cash generation could never have been enough.

The Oaktree facility at the HoldCo level would prove to be too exorbitant. The €275mm rescue loan, issued in 2021 with a 12% PIK interest rate, had accreted to €395mm by its maturity in May 2024. To avoid default, Suning had entered into conversations with PIMCO to refinance the Oaktree Loan, however, as we will cover below, Oaktree blocked the transaction. With TeamCo and MediaCo cash flows entirely consumed by operating losses and steep interest payments, the club’s liquidity was insufficient to service the HoldCo obligation.

The 2024 Oaktree takeover

Oaktree’s Options 

It became clear that Inter Milan would not be able to pay off the €395mm loan. Oaktree had a few options in the run-up to the club’s default. Examining these options will help us understand why Oaktree ultimately decided to own the club.

1) Allow PIMCO Refinancing: Suning made a strong effort to retain ownership as it attempted to negotiate a refinancing of the Oaktree loan with PIMCO, but this required Oaktree’s consent [26]. It is not uncommon for loan agreements, especially where the security involves shares, to have clauses which prohibit prepayment or refinancing without the lender’s consent. While Oaktree would have enjoyed full repayment of its €275mm loan + €120mm in accrued interest, the real upside was linked not just to debt repayment but to the sale of Inter Milan. Recall that the 2021 loan was structured in a way to include an ‘equity upside’, which guaranteed Oaktree some economic participation in a future equity event, i.e., a sale or an IPO. Hence, during the refinancing negotiations with PIMCO, Oaktree believed it was also entitled to value beyond the €395mm—mainly if a refinancing paved the way to a higher-value sale that Oaktree would no longer be party to. Even if it were possible to reach an arrangement that would entitle Oaktree to participate in a future equity sale, the investor was concerned that new debt raised from PIMCO would have been even more expensive, reducing the attractiveness and chances of a clean equity sale [26].

2) Sale of the business:  Once Oaktree enforced the pledge and took control, it could have sold the club to recoup its investment. In fact, this was thought to be the most likely option for Oaktree in the run-up to the default. But we now know that the math didn’t favour an immediate exit. Financials from 2022 show that Suning had written down the value of their 68.55% equity stake from €586mm to €148mm, implying a valuation drop from €864mm to €216mm at 100%. In total, this wrote off about 75% of the equity [28]. Given that Oaktree was owed at least €395mm, a quick sale in such conditions would have meant locking in a substantial loss. The value of Oaktree’s 99.6% equity stake (68.55% + LionRock’s shares, explained in the next sub-section) was worth about €215mm [28], much less than €395mm. 

3) Loan-to-Own: Ultimately, taking control became the best option. Even though Oaktree "had no intention of seizing control of the club" and is not a traditional sports investor, the alternatives of accepting PIMCO's refinancing or forcing a fire sale offered lower recovery potential [26]. Furthermore, the club's underlying performance and financials were improving. As depicted in Figure 4, Net Debt / EBITDA was falling, EBITDA was improving, and the club posted an operating profit in 2023/24 after reducing operating losses in the three previous seasons. With strong on-pitch performance as well, with Inter Milan having dominated domestic competition to win the Serie A in 2023/24 and reaching the Champions League a year prior, there was reason to be optimistic about Inter Milan's financial prospects.

The LionRock Shares

At the time of the takeover in May 2024, much of the press had announced that Oaktree went on to control 99.6% of Inter Milan (TeamCo). Recall that only 68.55% of shares were held by Suning through the Grand Tower HoldCo and that LionRock indirectly held 31.05% of shares. So, how did Oaktree obtain almost all the share capital? In the case of the Suning-held shares, it was pretty straightforward, as Oaktree was guaranteed those shares under the loan documents. 

As for the shares held by LionRock, this was somewhat controversial. Oaktree’s legal advisor, in a press release, stated that the takeover included “a receiver sale of the shares of the Cayman holding company LionRock Zuqiu Limited, which indirectly holds 30.01% of the Inter Milan shares.” [29] The mechanics behind the transfer of the LionRock shares were not publicly disclosed, but the statement would suggest that there must have been some kind of contractual or security arrangement between Oaktree and LionRock over the LionRock’s holding company shares, even if not publicly disclosed. Generally, a receiver cannot be appointed over shares unless the shares (or the holding company) were pledged under a security agreement [30]. However, LionRock or the HoldCo was never formally a borrower in the Oaktree loan, begging the question as to why LionRock would have signed this agreement. This led sports media to speculate that Suning may have put a behind-the-scenes agreement in place to LionRock’s stake on its behalf [31]. Despite the controversy, the Italian soccer Federation (FIGC) reviewed the transaction and confirmed that it did not violate domestic ownership or registration rules [32].

Inter Milan today

Since taking control of Inter Milan, Oaktree has overseen a strategic shift toward financial stability. The club adopted a restrained approach in the 2024 summer transfer window, which prioritised free agents, lower-cost acquisitions, and the renewal of key players already within the system [33]. This was paired with an ongoing effort to control wages, achieved in part through the departure of several high-salary players [33]. These measures have supported a more sustainable cost base and, crucially, have not come at the expense of performance on the pitch. Inter Milan 2024/25 finished second in Serie A by only a point and reached the Champions League for the second time in three years. 

Oaktree has also revived Inter Milan's long-stalled stadium ambitions. The firm is actively exploring options to replace the ageing San Siro, long seen as a drag on matchday revenues and commercial potential. Inter Milan and rival club AC Milan are now re-engaging in discussions about a joint redevelopment of the San Siro [35]. Finally, in June 2025, Inter Milan announced a strategic refinancing of its €415mm bond issued in 2022 with a 6.75% coupon. The club planned and should have redeemed it early on the 26th of June, replacing it with a lower-cost (4.52% coupon) €350mm bond arranged by Oaktree and Goldman Sachs, and Bank of America [36]. The outstanding amount was to be paid off by the club's media and sponsorship revenues [37] [47]. The early redemption reflects Oaktree's strategy to reduce annual interest expense, enhance cash flow predictability, and clean up the balance sheet to set Inter Milan up for an eventual sale.

Manchester United Covenants

Before we sign off on the newsletter, we thought it would be fun to briefly cover Manchester United’s appearing awkward (but equally amusing) unconventional covenants that were catching headlines ahead of its Europa League final against Tottenham Hotspur. For context, Manchester United’s recent financial performance has been relatively poor. Over the past five years, Manchester United has posted cumulative losses of over £370mm, according to the Financial Times and their most recent fiscal year closed with a £113mm loss [38].

It hasn’t been much better on the pitch either. The 2024/25 season has proven to be a disaster for the club, finishing the season 15th in the Premier League, which is their lowest league finish in over half a century. Hence, while Manchester United is not as reliant as Inter Milan on sporting performance to generate revenue, winning the Europa League final against Tottenham Hotspur surely was a must-win game. Including the prize money for winning a European competition, winning the Europa League guarantees a spot in the Champions League for the following season, which can be worth over £100mm in revenue for a club of Manchester United’s stature [40]. 

But there was a catch: the covenants in Manchester United’s debt. Some bonds required the club to maintain a rolling 12-month EBITDA of at least £65mm to avoid triggering an event of default. If triggered, the lenders had the right to force the repayment for up to £725.7mm in borrowings [38]. This alone is a standard financial covenant to find in a credit document. However, the oddity is that where Manchester United fails to qualify for the Champions League, (in short) the lenders will not possess the right to force repayment even if the rolling 12-month EBITDA falls below £65mm [38]. 

Hence, a funny way of interpreting this arrangement is that Manchester United,  by qualifying to compete in the highest level of club soccer in the world, would not be able to adjust its EBITDA definition and may be forced to repay £725.7mm to its lenders. Fans and sports media found amusement in that, after one of the club’s worst seasons in its history, it would be better for it to lose to Tottenham Hotspur in the Europa League final to avoid nearly ¾ of a billion pounds of debt being accelerated. As if things could not get any worse!

Let’s not get ahead of ourselves, though. Winning the Europa League final would have likely not forced the club to repay £725.7mm in borrowings. Manchester United’s annual EBITDA is very healthy relative to the £65mm covenant threshold, having been steady at around £150mm since the 2022/23 campaign [38]. It was still in the club’s best interest to qualify for the Champions League and enjoy a significant boost in revenue.

But what is the rationale for having a financial covenant that only allows an adjustment when the soccer club is losing? The covenant structure is really just accounting for the volatility in soccer revenues. From a lender’s perspective, a club participating in the Champions League should theoretically have the financial capacity to meet a minimum EBITDA threshold. Conversely, if the club does not qualify, lenders recognise that operating income will fall materially. Rather than force a default triggered by reduced earnings in a lower-revenue year, the covenant includes a conditional waiver tied to sporting performance.

This structure acts like a counter-cyclical cushion. It gives the club room to manage through downturns in performance without triggering immediate financial penalties. It reflects the reality that soccer is inherently volatile and that imposing rigid financial thresholds without accounting for competition outcomes would raise the risk of premature enforcement or refinancing pressure. Thus, the covenant does not reward underperformance, but it aims to ensure that financial discipline scales with income.

However, all this is a fairly frivolous discussion as Manchester United would go on to lose 1-0 to Tottenham Hotspur that day in a not-so-elegant display of soccer, to say the least.

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