CVC repays part of the debt incurred for the purchase of F1

The financial crisis does not only affect the unfortunate: CVC, the investment fund that took control of F1 in 2006, took advantage of the decline in interest rates to repay a large part of its debt, estimated at $2.8 billion.

Thus, the Sunday Telegraph announces, via Christian Sylt and Caroline Reid (the two journalists who authored the reference book Formula Money), that Bernie Ecclestone has confirmed to them that the majority of the debt incurred for the purchase of Delta Topco, the Jersey-based company holding the commercial rights to Formula One, has been repaid.

It should be noted that CVC used the so-called “leveraged buyout” technique to become the owner of the company, then owned by the Bavarian bank BayernLB. This means that the debt incurred would be repaid with the cash flow generated by Formula 1 after the acquisition. The structure of this debt included $550 million from Lehman Brothers and $2.3 billion from the Royal Bank of Scotland (also prominently present in Formula 1 as a major sponsor of Williams).

However, this debt was contracted in 2006 when interest rates were at their highest. There were strong concerns at the time that the economic model of Formula 1 would be challenged since the interest to be paid was significant while revenues dwindled with the departure of manufacturers Honda, Toyota, and BMW in 2008 and 2009. Thus, the price of Formula One’s debt experienced very strong fluctuations between March 2009 (50 pence) and August 2009 (82.5 pence).

But while some of the revenue related to teams has eroded in recent seasons, Bernie Ecclestone has increased the number of races. Last year, a new record of 19 events was reached with the addition of South Korea. With many contracts also being renewed at higher rates, this has led to a 20% increase in race-related revenue, reaching 535 million dollars.

A new record of races was supposed to be set with the addition of India, which would have brought the number of events to 20. However, the political events in Bahrain have forced a postponement of the event to a date that has not yet been set. The record might not be broken this season, even though it’s unlikely that Bernie Ecclestone will easily forgo 40 million dollars…

With the participation of RacingBusiness.fr