The transaction, concluded in November 2021, involved replacing existing LOBO loans, running at an average rate of 4.4% over 44 years, with a package of new debt.
£65m of replacement funding was borrowed at an average rate of 1.73% from the Public Works Loan Board, amortising over 18 years. This was accompanied by a portfolio of shorter-term loans to cover premium costs.
Cumulative interest savings are projected to be £15.8m. The removal of the lender’s options provides certainty of cost for LCC, reducing future refinancing and interest rate risk.
An added benefit was the ability to shorten the repayment profile of debt, sculpting loan maturities to match the Council’s projected underlying borrowing requirement (liability benchmark).
Arlingclose produced analysis for the Council, covering the risks and rewards of various restructuring options in different interest rate scenarios. Arlingclose also negotiated the prepayment terms and supported LCC through all stages of the transaction.
Mel Creighton Director of Finance & Resources LCC said “We are pleased to have arranged this refinancing working closely with Arlingclose that will provide the LCC with projected cumulative savings of £15.8M and improve the loan maturities profile. The savings will help support the council’s financial sustainability going forward, ensuring the team continue to deliver savings to support council’s frontline services.”
David Blake, Director at Arlingclose said “Where we find banks willing to negotiate on prepayment terms local authorities can unlock significant value, removing lender’s options is a sensible way to reduce risk”.
If you have any questions or would like to learn more about LOBO refinancing, please contact treasury@arlingclose.com.