London Borough of Croydon has repaid £100m of Lender Option Borrower Option (LOBO) loans using money from the Public Works Loan Board (PWLB).
The deal is understood to be the largest transaction completed so far in a process dubbed “The Bonfire of the LOBOs”, where a slew of councils are repaying large chunks of their LOBO portfolios.
The council’s £100m borrowing came during another bumper month of lending to local authorities from the PWLB, reaching £824.6m during November.
A report which is set to go to Croydon’s general purposes and audit committee next week said: “… in October 2018 an opportunity arose to repay £100m of the Council’s Lender Option Borrower Option (LOBO) loans held with Natwest Bank and refinance the debt by borrowing more cheaply from the PWLB.
“The council took this opportunity which will lead to savings in excess of £21m (£8m when discounted using the Green Book rate of 3.5%) over the life of the remaining loans.”
According to council documents, before the deal, Croydon held £79.5m of fixed rate LOBOs at an average interest rate of 3.76%, and £60m of variable rate LOBOs at an average rate of 4.23%.
Following the repayment of the Natwest LOBOs, the council still holds £20m of LOBOs with Dexia Credit Local and £19.5m with Siemens Financial Services.
Next week’s report says: “Further debt repayment / restructuring will only be done following external advice and only if it was proved beneficial for the council.
“The council’s debt profile is structured so that loans mature over a spread of future dates.”
However, the refinancing deal means that LOBOs now make up 4% of Croydon’s debt as it stood at 31 December last year, compared to 14% previously.
Another authority, Newcastle City Council, also borrowed £50m from the PWLB in November.
It will use £30m of the cash to repay inverse floating LOBOs previously held by NatWest, in a move it said would achieve “significant savings” over the next 40 years.
Neighbouring Gateshead Council also used some of the £70m it borrowed during the month to refinance borrowing at preferential rates.
In November, Room151 revealed that Northamptonshire County Council had joined the growing number of local authorities exiting their LOBO loans, repaying a £20m loan during October.
Another authority, Kent County Council, also took out a loan of £40m during October, which will help it repay three LOBOs totalling £60m.
Croydon’s PWLB borrowing in November was outstripped only by South Lanarkshire Council, which took £106m during the month.
A spokesperson for South Lanarkshire Council said: “Since 2014/15, the council’s capital programme has included borrowing to fund investment in schools, roads, street lighting, City Deal projects and social housing.
“The council last borrowed in 2014/15, and has temporarily used cash balances instead of borrowing, which now has to be taken.”
Warrington Borough Council borrowed £50m to finance its existing approved capital programme.
Danny Mather, head of corporate finance at Warrington, told Room151: “PWLB rates have fallen at the bottom end of the yield curve and we are taking advantage of the situation to minimise our future borrowing costs.”
