Senior council officers hope to save £18m but politicians have expressed concerns
The council’s cabinet recently approved a proposal to swap a £65m loan for £107m of debt in order to save money.
The proposal concerns a Lender’s Option Borrower’s Option (LOBO) loan with Commerzbank worth £65m.
LOBOs give the lender the freedom to increase the rate on the loan at regular intervals and if the lender exercises this option, it triggers an option for the borrower to repay the loan.
Senior council officers have now decided to replace the £65m loan over 45 years with a Public Works Loan Board (PWLB) loan, and pay an early repayment premium of around £42m.
The cabinet report reads: “This will extinguish £65M of long-term LOBO loans at 4.37%, replacing with £107M of funding at an expected initial average interest rate of 1.06%.”
And the report explains why the council decided to take on the larger debt.
It reads: “Whilst it may seem counter-intuitive to replace £65M with £107M of debt, the prevailing low interest rates mean the saving on the interest costs is more than the premium charged to repay the debt.”
The report explains that the council hopes to save £18m by pursuing this option.
However the same report reveals that the potential savings are subject to negotiations.
It reads: “Subject to a satisfactory outcome to negotiations with Commerzbank we anticipate a saving of £37.4M against the premium which might ordinarily be in the region of £80M in this case. “Lower premiums increase the likelihood that prepayment will generate full life interest savings.”
Like the discredited PFI system brought in by the Neo Liberal Blair Government this will kill local Democracy and lead to cuts in services for generations to come. Tory Governments taking money from the poorest councils has meant Labour councillors have the choice of standing up for the people or thinking about their careers. Which will the Sir Keir Starmer QC Labour party do?
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