Purpose

Restructure a £10m market loan with an average maturity of 41 years for another £10m market loan with a different lender with an average maturity of 12 years in return for a lower rate of interest. Interest savings for the first 3 years being £111k per annum.

Decision

Restructure a £10m maturity loan with a fixed interest rate of 3.85% with an average life of 41 years and restructure with a different lender for the same principal sum of £10m with a 20 year Equal Instalments of Principal (EIP) loan. The first 3 years being interest only and then interest and principal repayments for the remainder of the duration. This new structure has an average maturity of 12 years compared to the original loan of 41 years the basis for the reduced interest rate, with a new interest rate of 2.74%. The restructure will generate annual interest savings, the first 3 years generating £111k pa, future interest savings reducing as principal is repaid and or refinanced. As set out in the capital strategy the Council is planning to reduce its borrowings and this structure facilitates this. Should the Council need to borrow for the principal repayments this does create a treasury refinancing risk that is considered low as part of the review.

Alternative options considered

In accordance with the Treasury Management Strategy and Capital Strategy, a review of this loan was undertaken that determined positive cash benefits and repayment flexibilities from restructuring the loan compared to maintaining the existing loan. No other options were available as the proposal originated from the current lender.