CIPFA - North West Region

1. CIPFA - North West Region Cecilie Booth, CPFA, Director Warrington, 28th June 2013

2. CIPFA - North West Region - Warrington, 28th June 2013 Loans to RSLs – Key initial issues for consideration • Relatively new area for most Local Authorities, so the facility needs to be based on a robust business case • Assess the appropriate legal powers • Counsel’s opinion • Risk assessment • Financial impact • Member involvement – are members fully behind the legal / financial / risk parameters? • Regulated / non-regulated activity

3. CIPFA - North West Region - Warrington, 28th June 2013 Pre-lending considerations • The structure of the RSL, arrangements can be very different • Consider the debt liability / borrowing relationship • Consider the role of the RSL Board and the reporting arrangements • Subsidiary companies – how are these structured? • How robust is the RSL Business Plan? • How robust are assumptions in the RSL Business Plan? • Existing track record of delivering the Business Plan • Asset Management Plan / Stock Condition Survey

4. CIPFA - North West Region - Warrington, 28th June 2013 Pre-lending considerations • Secured or un-secured lending? • Secured lending and first charge is ok, but what happens in the event of default? • Level of asset cover required • Rate of interest to be charged • Market rates – how are these assessed and compared? • Soft Loan implications?

5. CIPFA - North West Region - Warrington, 28th June 2013 Pre-lending considerations - Risk Management issues • What happens if there is a default? • Would the Local Authority want to manage the stock directly in the event of default? • Strategic fit / local context • Financial impact • Impact on Local tax payers Good Due Diligence will address all the above issues – and the issues will be different for each business case

6. CIPFA - North West Region - Warrington, 28th June 2013 Due Diligence – issues identified in current Business Cases • Borrowing nearly equal to debt liability • Limited levels of reserves • 47% of borrowing at short term variable rates • Interest swaps included in other borrowing • Failure to obtain desired level of credit rating • Impact on market lenders • Risk to profit levels if interest rates increase – could turn profits into losses • HCA’s position – looking at self regulation • RSL Business plan covers 5 years only

7. CIPFA - North West Region - Warrington, 28th June 2013 Due Diligence – issues identified in current Business Cases • Subsidiary – decrease in asset value to £8m, but interest bearing loans over £17m (all at variable rates) • Main group contribution of a further £5m • Building properties for sale, but no (or weak) risk assessment • Lack of risk awareness and general risk management and mitigating controls, the Board may not fully understand the current risk.

8. CIPFA - North West Region - Warrington, 28th June 2013 Disclaimer Sector Treasury Services Limited (“Sector”) does not warrant, either expressly or impliedly, the accuracy, timeliness, or appropriateness of the information contained in this document. Sector disclaims any responsibility for content errors, omissions, or infringing material and disclaims any responsibility associated with relying on the information provided in this document. All materials, content and forms contained in this document are the intellectual property of Sector and may not be copied, reproduced, distributed or displayed without Sector’s express written permission. If you have not received this document from Sector you must not disseminate, copy or take any action in reliance on it and should notify Sector immediately.