North Lanarkshire Properties- Re-Financing October 2023
North Lanarkshire Council · 1 March 2023
Back to Finance and Resources Committee — 1 March 2023 and its agenda
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North Lanarkshire Council Report Finance and Resources Committee Does this report require to be approved? ☒ Yes ☐ No Ref: EK/NL Date: 01 March 2023 North Lanarkshire Properties: Re-Financing October 2023 From Elaine Kemp, Chief Officer (Finance) E-mail kempe@northlan.gov.uk Telephone 01698 302408 Executive Summary North Lanarkshire Properties LLP (NLP) current financial borrowing agreement with its current lender, Barclays Bank plc, ceases in October 2023 and a new funding arrangement requires to be put in place to fund the remaining balance of £33m. NLP appointed external financial advisers to support the internal project team and Azets were awarded the contract in December 2022. Documents are currently being prepared by the team at Azets to issue to lenders outlining the borrowing requirement and requesting terms for this. As part of the existing loan arrangement North Lanarkshire Council (NLC) provide an 80% guarantee. As part of the scoping documents being issued to lenders it would be beneficial to include confirmation of this guarantee going forward as this is anticipated to attract more lenders and potentially provide enhanced beneficial rates. Recommendations It is recommended that Finance and Resources Committee: 1. Acknowledge the requirement for NLP to progress a re-financing arrangement with an external lender in the region of £33m; 2. Acknowledge the current financial trading position of NLP; 3. Approve the continuation of the 80% guarantee from North Lanarkshire Council to North Lanarkshire Properties. The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base Ambition Statement (3) Maximise the use of our marketable land and assets through improved development in business and industrial infrastructure
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1. Background 1.1. Following the decision by NLC in June 2012 to externalise its commercial property portfolio, North Lanarkshire Properties (NLP) LLP became operational from October 2013 with responsibility for marketing, leasing and managing the council’s commercial properties. 1.2. NLP acquired the council’s commercial properties in October 2013 by entering into a £45m loan agreement with Barclays Bank plc to finance the property transfer. The loan facility agreement was agreed for an initial 10-year period and is subject to an 80% guarantee being provided by the council. The loan agreement generated a capital receipt for the council and 968 properties transferred from the council’s commercial property portfolio to the new company. 1.3. This initial 10-year loan facility agreement between NLP and the current lender will terminate on 31 October 2023 and as such the company must now refinance its remaining borrowing requirements. 1.4. To support this re-financing project, NLP undertook a procurement exercise to engage financial advisers who specialise in this type of transaction. Azets submitted the most economically advantageous tender and have therefore been awarded the contract. Their role will be to assist the project team in preparing the scoping documents to be issued to prospective lenders, to review offers provided by lenders and ultimately assist with brokering the new loan arrangements. 1.5. On completion of this exercise a report will be presented to the NLP Management Committee and Finance and Resources Committee for consideration outlining the proposed terms of the future financial agreement from 1 November 2023 onwards. 2. Report 2.1. The Loan facility agreed with Barclays Bank plc in 2013 will end on 31st October 2023, at that point the outstanding balance will be approximately £33m. 2.2. A condition of the current loan agreement with Barclays Bank is an 80% guarantee provided by NLC. As part of their preliminary work the team at Azets have been reviewing the current loan agreement and have spoken to NLP’s Relationship Manager at Barclays Bank who advised that this 80% guarantee was considered the main collateral for the loan arrangement as opposed to the value of NLP’s estate. 2.3. The scoping documents for the initial approach to lenders are currently being prepared and Azets have advised that it would be beneficial to have confirmation of the Council guarantee within these. This guarantee is anticipated to realise more beneficial rates than could be expected without it and, similar to Barclays Bank’s position, lenders may use this as the loan collateral which could avoid a lengthy valuation process. 2.4. NLP has maintained a strong trading position over the last 10 years; Covid-19 had an impact on tenancy levels leading to a downturn in income and the use of reserves of £0.591m to fund a deficit in 2021/22. To reflect this position in 2022/23 the approved budget was set at deficit of £0.340m with this to be funded from reserves however due to improving income levels and effective cost management the projected outturn position is a surplus of £0.115m. 2.5. The company also has a strong balance sheet with net assets of £42.637m and an acid test ratio of 2.62:1 showing a positive liquidity position. There are useable reserves of over £3m and in addition there is a further £2.7m reserve which represents the working capital provided to NLP by NLC in 2013 which has never had to be utilised by the company. As part of the agreement with Barclays Bank a suite of financial reports are submitted to them quarterly, within this is a 12-month rolling cashflow statement which projects cash balances to range from £7.254m to £8.621m during the next 12 months.
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2.6. The team at Azets are confident that this trading position, along with a continuation of the 80% guarantee from North Lanarkshire Council will be sufficient to attract lenders to submit proposals for the required loan arrangement. 2.7. This risk to the Council in approving this 80% guarantee is reduced based on the outlined trading position and level of reserves held by the company. 2.8. Further information will be submitted to the Finance and Resources Committee in early course if there is a risk of this guarantee requirement materialising at any point during the remaining and future loan period. 3. Measures of success 3.1 Sourcing the required funds to finance North Lanarkshire Properties LLP for the remainder of the loan requirement. 4. Supporting documents N/A Elaine Kemp Chief Officer (Finance)
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5. Impacts ( http://connect/report-template-guidance ) 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality- and-fairer-scotland-duty-impact-assessments Yes ☐ No ☐ 5.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Finance? Yes ☒ No ☐ If Yes, please provide a brief summary of the impact? The Financial Guarantee of 80% would represent a risk to the Council of £26.4m over the remainder of the loan agreement. However based on the forecast trading position of the company and the reserves position it is unlikely that this guarantee would have to be utilised. 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People Resources? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐
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5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for significant technology change, has an assessment been carried out (or is scheduled to be carried out) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.9 Risk impact Is there a risk impact? Yes ☒ No ☐ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed? All financial transactions have an element of risk however these are mitigated by the financial position outlined within the report along with the level of reserves held by North Lanarkshire Council. 5.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒ If Yes, please provide a brief summary of the provision which has been made to ensure there has been appropriate consideration of the particular needs of the Armed Forces community to make sure that they do not face disadvantage compared to other citizens in the provision of public services.