Braintree District Council (BDC) has recently completed prepayment of its LOBO loans. The existing debt, running at an average interest rate of 4.7% over 40 years, was replaced using a combination of new funding and existing cash resources.
Replacement funding of £6m was borrowed at an average rate of 2.59% from the Public Works Loan Board, amortising over 15 years. This was accompanied by a portfolio of shorter-term loans to cover premium costs.
Cumulative interest savings are projected to be £890k. The removal of the lender’s options provides certainty of cost for BDC, reducing future refinancing and interest rate risk. The recent increase in gilt yields positively impacted savings, as the higher discount rates applied significantly reduced premium costs.
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 BDC through the transaction.
Councillor John McKee, Cabinet Member for Finance and Corporate Transformation at Braintree, said “I am pleased that the authority has been able to repay our LOBO debt and regain more control over our borrowing, whilst at the same time generate savings. This achievement is the result of the close partnership working we have with Arlingclose.”
Amar Jandoo, Client Director at Arlingclose said “This exercise has enabled Braintree District to reduce its debt costs, whilst also removing the embedded lender’s options and exposure, a great outcome for the authority”
If you have any questions or would like to learn more about LOBO refinancing, please contact treasury@arlingclose.com.
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