Northants exits LOBOs as October PWLB borrowing hits £850m
0Northamptonshire County Council has joined the growing number of local authorities exiting Lender Option Borrower Option (LOBO) loans, repaying a £20m loan during October.
In September, Room151 revealed that councils could be set to rid themselves of the majority of their LOBOs in the next 18 months, due to a number of lenders looking to dump their LOBO loan books.
Northamptonshire’s loan will repay the first £20m chunk of its £130m LOBO portfolio.
A spokesperson for Northamptonshire County Council said: “In October, the council repaid a series of LOBO loans and replaced them with Public Works Loan Board finance at a much-discounted interest rate.
“This has resulted in significant projected savings on interest repayments and further achieves best-value for Northamptonshire taxpayers.”
The council said that the repaid LOBO loan was held by Royal Bank of Scotland, and that it is also considering a proposal to pay a remaining £10m LOBO loan with the bank – which is arranged under the more complex “inverse” interest rate structure.
The council loan from the PWLB is fixed at 2.67% for 50 years.
However, with some lenders under less pressure to divest themselves of their LOBO portfolios, the county may be stuck with other LOBOs for some time to come.
Northamptonshire’s spokesperson said: “The council would consider other refinancing opportunities if and when they arise.
“Exit costs would prove prohibitive at this time unless market lenders are open to negotiation.”
Another authority, Kent County Council, also took out a loan of £40m during October, which will help it repay three LOBOs totalling £60m.
The LOBOs were incurring interest payments of 3.83% and 3.95% and would have matured between 2057 and 2069.
The PWLB loan used to repay two thirds of the debt has been taken for 15 years at 2.21%.
The remaining £20m will come from cash surpluses and short term borrowing, with a council spokesman saying: “This offered a reasonable combination of balancing financial rewards and risks.”
David Blake, strategic director at treasury adviser Arlingclose, said: “At least two major lenders have written to authorities, either offering redemption terms or inviting bids for locals to buyback their own debt. Many are now taking the opportunity to exit loans.”
He said that Arlingclose has advised on LOBO refinancing transactions of almost £750m over the past year.
But he warned: “The clock is ticking, the bank will sell LOBO assets to pension and insurance funds; these have an appetite for long dated fixed rate investments at a decent spread over gilts. Institutional investors will buy at price well above par, given the coupons, so purchases will be operating a ‘buy and hold’ strategy.
“It will be very difficult to negotiate repayment terms once these assets are sold to new investors.”
Local authority borrowing in October through the PWLB reached reached a dizzying £854.2m, the highest level since March, when more than £1bn was borrowed.
During the month, the largest borrower was Transport for London, which took £250m towards capital projects including capacity and station upgrades on the Underground and rail networks and other schemes.
A TfL spokesman said: “This substantially completes our £800m incremental borrowing requirement for the year and is within our authorised limit for external debt.”
Barnsley Metropolitan Borough Council borrowed £80m during the month, towards its capital borrowing requirement, including the regeneration of the town centre.
London Borough of Barking and Dagenham took £60m, which a spokesperson said was to help fund its programme of regeneration and growth, with 50,000 new homes planned to be built in the next 20 years.
London Borough of Haringey also took £50m, understood to be earmarked for capital expenditure.
