Why Williams’ loan doesn’t signal the beginning of the end

Reports emerged last week that the Williams Formula One team had re-financed their company, sparking suggestions that they were struggling to stay afloat.

The re-financing was a loan for an undisclosed amount, although some have reported it to be in the region of £50million, and the Grove factory, other land and all of the heritage cars were secured against it.

It has been known for sometime that Williams aren’t in the greatest shape financially, having had a huge downturn in performance, and the team has spent the last few seasons stuck at the back of the grid.

As a result, the prize money Williams has received from F1 has been much lower than was awarded in the past, and the Grove team needed to plug the gap, but have failed to do so.

Williams lost major backer Martini at the end of the 2018 season and struggled to replace them with an adequate sponsor.

Whilst ROKiT are now the title sponsor, they don’t provide the same amount of sponsorship revenue when compared to Martini and Williams haven’t added any other major labels to their sponsorship portfolio since.

With finances not where Williams would want them to be, it should be no surprise that the team have obtained a loan, but what shocked many was the fact that this loan was secured against all buildings as well as the heritage cars.

It gave a hint of desperation from Williams, that they were doing all they could to stay afloat, and the timing of it, when racing is on hold due to COVID-19 made matters worse.

But whilst it appears from the outside that this has all been done in a hurry, there are signs that this was part of a long term plan all along.

Williams Grand Prix Engineering Ltd is the limited company for the F1 team trading in the UK. Each year, accounts are published for the previous trading year, detailing the companies financial position.

Although company accounts are yet to be made available for the 2019 season, the 2018 accounts give some insight into Williams’s long term planning.

At the end of 2018, the former world champions had loans amounting to the tune of £20m and part of this was a £1.8m loan that was due to be satisfied in June this year.

The £20m figure also incorporates a £9m loan that is due to end in 2021.

This might not make for easy reading for any Williams fan looking at these figures and questioning the need for an additional loan, but there are positives to take.

Firstly, despite these outstanding loans, Williams still made a profit for the 2018 year, meaning they could cope with the repayments.

Secondly, it is not unusual for a company of this nature to have outstanding loans, especially when the income received is not frequent.

F1 teams generate a lot of their income at the start of the year, when sponsors are obtained and also at the end of the year when they receive their prize money from Formula 1.

Whilst income is still being generated throughout the year, it won’t be in the same fashion as the start or end of it’s season, and so it may need to make up some of the shortfall to see them through whilst waiting for additional money to be received later on.

Furthermore, in their 2018 accounts, Williams hints at the fact that they were considering additional finance measures.

In the company accounts Williams state: “These cash flows have been prepared on a prudent basis, however, do assume the business will continue to be able to replace any sponsorship deals that are up for renewal in the next twelve months”.

“Cash flows have been sensitised to take into account sponsorship deals not being replaced or not replaced to the same level owing to their unpredictability.

“The Company has considerable other assets, including currently unused land, which could be sold or used as security for other fundraising should these cash flow needs arise.”

From this it is clear that plan A has always been to obtain additional sponsors to increase their budget. Unfortunately, last year’s performances won’t have helped the team, especially as they failed to make the start of testing before finding themselves a long way off the rest of the pack.

But, with Williams being acutely aware of the difficulties in obtaining sponsorship in F1, especially given the current climate, they ensured they had a back-up plan in place.

Having had a tough 2019, conditions became worse this season with the start of the season canned due to the coronavirus pandemic.

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Being that the team hugely relies on races taking place, this would have been a huge blow, but Williams have acted quickly by reverting to Plan B.

Although it won’t be their favoured approach, by re-financing and consolidating their loans, whilst increasing their bank balance, Williams can ensure that all of their bills are paid and that they can continue to exist for the foreseeable.

Ordinarily this wouldn’t have been highlighted as a major talking point, as the team would have known they could re-pay the debt with races going ahead, however, the pandemic situation does make matters tricky.

The one advantage (at the moment) is that the people financing the loan are Williams’ long-standing financial partner, HSBC and the father of Williams’s rookie Nicholas Latifi, Michael Latifi.

With his son at the team, Michael Latifi will not want to see Williams come to financial breaking point, so no doubt there will be clauses in place to make sure all parties are protected during these unprecendented times.

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And although the timing of the loan doesn’t look great, it should be remembered that this package won’t have been done at a moment’s notice.

Whilst the paperwork for the finance arrangement was submitted to Companies House on April 3, talks would have been ongoing for some time prior to that, especially given the amount of properties involved that would require securing against the loan.

If Williams had just secured their buildings, then it wouldn’t have hit the headlines in such a big way, but the part that got a lot of people talking was the fact that the loan included the security of all the heritage cars.

To fans and spectators, these cars are like living beings. We dream about them, we drool over them when we see them on track, and of course if we owned them we wouldn’t dream of selling them.

Whilst many individuals within the company, including Team Principal Sir Frank Williams, will have a special personal connection to each car, the fact is that from a company’s perspective, these are just assets, and assets that are worth a lot of money.

The future of the company will always be far superior to nostalgia, and so they would never refuse to secure the cars against a loan if it wasn’t required.

And what’s not to say that Williams won’t be able to settle these debts in the long-term? It might sound like a financial nightmare, and of course it is not what Williams would have wanted to do, but there is nothing to say they can’t pay back the loan and the loan would not have gone through if the banks thought it was unlikely that Williams would pay the money back.

You have to treat the deal with caution, of course. Williams wouldn’t need a loan of this size if it was in a healthy position, but it doesn’t necessarily mean this is the beginning of the end for this legendary team, and they could emerge from this all the stronger for it.