Purpose

Some amendments are required to the
Council’s Development Facility Loan Agreement for the
Council’s wholly owned housing company:
• to update the market rate of interest rate to take into
account the UK subsidy control framework
• to update the total loan commitment amount to align to the
recently approved Aequus Strategic Business Plan 2024-30 and the
associated provision for loans included in the Council’s 5
Year Capital Programme
• to reaffirm the delegation of future decisions on the loan
agreements and the granting of specific loans to Aequus to the S151
Officer and CX in consultation with the Cabinet Member for
Resources and the Cabinet Member for Built Environment, Housing and
Sustainable Development

Decision

The Cabinet Member agrees that:
 
(1) 
The change to the
market rate of interest used in the Development Facility Loan
Agreement, taking into account the UK
subsidy control framework, is approved.
 
(2) 
The total loan
commitment amount reflected in the loan agreement is updated to
align to the recently approved Aequus
Strategic Business Plan 2024-30 and the associated provision for
loans included in the Council’s 5 Year Capital Programme in line with the February 2025 Council
Budget Report.
 
(3) 
The delegation of
future decisions on the loan agreements and the granting of
specific loans to Aequus is updated to
the S151 Officer in consultation with the Cabinet Member for
Resources.

Reasons for the decision

The original loan facility was set up in 2017 shortly after
Aequus was formed. The interest rate
included in the agreement was based on the EU framework for
assessing a market rate for State Aid purposes. This used a UK
specific reference rate to which a margin was added based on an
assessment of the rating category of the company and the assets
linked to the loan (collateralisation).
 
This framework has since been replaced by the UK Subsidy
Control Act 2022 after Brexit and following a review of the loan
agreement alongside this Act, it is proposed to update the market
interest rate as well as including a fixed rate option in addition
to the current floating rate.
 
The Development Facility Agreement currently
includes a “total commitment” limit on loan funding of
£33.2m. The Council’s currently approved &
provisional capital budgets for Property Company Investment is
£82.8m, this follows approval of the capital programme at the
2025/26 Council’s budget setting meeting and the approval of
the Aequus Strategic Business Plan
(2024-2030), so the agreement needs to be updated to align with these figures. Actual
loan utilisation will still be subject
to the normal governance and decision making arrangements and this
figure represents funding availability subject to those decision
making arrangements.
 
Following changes in the role of the Strategic Director of
Resources and the designation of the S151 Chief Financial Officer,
it is proposed that the delegations in respect of future decisions
on the loan agreements and the granting of specific loans to
Aequus are updated to the Section 151
Chief Financial Officer, in consultation with the Cabinet Member
for Resources.
 

Alternative options considered

None. The Council needed to re-set the loan
arrangement as a result of the new regulatory regime post Brexit as
detailed in the report.