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1. 6 BUSINESSWEEKLY March 31-April 7, 2011
NEWS www.businessweekly.co.uk
New five year £400m credit Eastern councils among
facility for Greene King LA’s forced to seek £13bn
Suffolk brewer and pub retailer Greene King drawings, the new facility will increase the
has entered into a new, five-year £400m
revolving credit facility with its banking
partners.
group’s annual interest costs by circa £2.5m
and will give the group an expected blended
average interest rate of around 6.1 per cent.
from bond markets
This replaces an existing £400m facility, But Greene King says the new facility The Government’s Decentralisation and
which was due to expire in April 2012, and gives it continued financial flexibility and Localism Bill could see local authorities
the full £400m is available for five-years. helps underpin the ongoing delivery of its approach the bond markets to raise more than
Compared to the existing facility, which retail expansion and overall growth strategy. £13 billion by April next year.
was arranged at the attractive margins Greene King recently announced strong The Bill, unveiled in December, laid out far-
available in early 2007, and based on current trading for the 38 weeks to January 23. reaching proposals designed to emancipate
It reported that all businesses continued councils from the constraints of central
to trade well with similar or slightly stronger government by shifting power back to them and
Autonomy Corporation has entered into
growth trends than those reported at the the communities they serve.
agreements for the use of its ‘promote’
interim results. One of the legislative changes to be
technologies with a global computer
The board said it remained confident that introduced is self-financing and the abolition of
hardware, software and services
the company would “continue to deliver the Housing Revenue Account subsidy system.
provider. The agreements are valued in
profitable growth over the rest of the This means better off local authority landlords
excess of $9 million.
financial year.” will no longer receive subsidies from a central
Government pot, but will be required to support
local authority housing stock from their own
rental incomes.
These authorities will also be required to
Accountants have
buy-out their subsidy by April next year. In some
cases this could cost up to £400 million.
There are approximately 136 local
authorities up and down the country which will
bright ideas too... find themselves with repayments to make next
spring. Of these, 47 will be facing repayments of
£100 million plus with several facing bills in
excess of £300 million. Conservatively, the total
figure of debt to be repaid by local authorities is
likely to exceed £13 billion.
Peter Abel, corporate director, Barclays
Corporate Eastern said: “There is no doubt that
many local authorities will be looking closely at
their options in terms of meeting these large one
time payments to HM Treasury. With the
pressures on their finances increasing, we could
Peter Abel, corporate director, Barclays
now see a return to the bond market activity last Corporate Eastern
seen in mid-90s.”
Local authorities have three broad options investor appetite for bonds, means that local
in relation to funding this payment. They can authorities are expected to be able to issue long-
use current cash balances, borrow from the term debt at a lower cost than the newly
Government in the form of the Public Works increased PWLB rate. Accessing the capital
Loan Board (PWLB), or approach external markets would therefore diversify the local
investors via the bond market – either on their authorities’ funding base away from the PWLB.
own or potentially in combination with other Abel added: “Local Authorities will have
authorities in similar positions. plenty to consider before heading into the bond
The PWLB lent more than £50 billion last markets. The timing of any fundraising,
year for capital projects and as a lender of last appropriate size, target investors, potential cost
Chartered Accountants... Tax Advisors... resort would appear to be the most obvious of carry issues and the pros and cons of
Business Recovery... Corporate Finance... option for local authorities with a large payment approaching the credit rating agencies will all be
to make. on the immediate agenda. At the appropriate
However, as part of the coalition’s spending time, the all important debate around the price
Ensors expertise, excellent friendly service review last year, the cost of using this part of the for any bond will come more sharply into focus.
and regional knowledge offer the perfect solution. Government balance sheet has dramatically “No doubt there will be some healthy
increased to one per cent more than the competition between Local Authority borrowers
Over 100 years of practice can't be wrong.
Government’s cost of borrowing, making it five as to who can achieve the cheapest cost of
times more expensive. funding, but in accessing the capital markets,
Approaching the bond markets for capital local authorities will be diversifying their
therefore looks like a very credible alternative. funding base - a move that should be applauded
Ensors Chartered Accountants
For many local authorities, this would be the in the current environment.”
Making you more than just a number
first time they would be taking on large amounts • Examples of LAs affected and their
of external debt and the implications, costs and projected self financing settlement payment in
www.ensors.co.uk benefits will need to be carefully considered. millions are as follows: Cambridge £219.6m;
CAMBRIDGE HUNTINGDON SAXMUNDHAM BURY ST. EDMUNDS IPSWICH However, the strong credit profile of the broad Ipswich £101.6m; Mid Suffolk £57.5m; Norwich
local authority sector, together with current £144.4m; South Cambridge £205.6m.