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.

Content

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.