Ares Management has granted a reprieve to John Textor's Eagle Football group after one of global football's most prolific investors violated the terms of more than $450mn of debt carrying interest rates as high as 22 per cent.
Multi-club group Eagle Football triggered a technical default in June 2023 by failing to provide Ares with adequate financial information "on a timely basis", according to long delayed accounts filed last weekend at UK Companies House.
Despite the breach, Ares has decided against exercising its right to seize Eagle Football's assets and take control of the clubs it owns, which includes France's Olympique Lyonnais.
Instead, the private capital group last week provided Textor's group with a letter of forbearance stating that it would not seek repayment for a further 12 months.
Ares, which is also a minority shareholder in Eagle Football, became its largest creditor after lending the group roughly $400mn to fund the takeover of Lyon in 2022.
Eagle Football also bought controlling stakes in Brazilian club Botafogo and RWD Molenbeek in Belgium, as well as a large minority stake in Premier League club Crystal Palace.
But the burgeoning football empire built by Textor, a former professional skateboarder who subsequently went into tech investing, has run into financial difficulty after its buying spree.
In July Eagle Football sold its 45 per cent stake in Crystal Palace to New York Jets owner Robert "Woody" Johnson, with Ares pocketing the vast majority of the £190mn proceeds from the sale, according to people familiar with the matter.
Eagle Football owes Ares around $300mn of 'payment in kind' debt with annual interest rates of 16 per cent, another $135mn at a rate of 18 per cent and a $27mn facility that costs Eagle Football 22 per cent annually, according to the company's accounts.
PIK financing allows borrowers to avoid paying interest in the short-term by rolling up the interest into the principal amount to be repaid upon maturity. This means the quantum of borrowing can escalate quickly and leave lenders with steep losses if the underlying company is not able to handle the growing burden.
Ares is one of several US private capital groups to have extended high-interest loans to cash-strapped European football clubs. The firm has also invested in Atlético Madrid and held a stake in F1 team McClaren Racing.
High-risk lending has resulted in creditors assuming ownership of major clubs, such as AC Milan and Inter Milan, after they defaulted on their debts.
Ares' pledge not to demand repayment from Eagle Football is "subject to certain caveats and details", according to its accounts. Ares' debt is secured by "substantially all the Group's assets".
The accounts filed last week, covering the year to June 2023, were the first Textor's group has published in the UK since its incorporation in September 2022.
Textor's problems have not been confined to the UK. France's football regulator barred Lyon from signing players and provisionally relegated the club in June due to its financial difficulties, including the club's high levels of debt. Lyon subsequently overturned the relegation decision on appeal and Textor resigned from the club's board in June.
Textor's ownership of multiple clubs has worked to their disadvantage on the pitch, too.
Crystal Palace and Lyon both qualified for this season's Europa League, putting them in breach of UEFA's multi-club ownership regulations and resulting in Palace being demoted to the European Conference League.
Ares and Eagle Football Group declined to comment.