Details of LOBO loan borrowing and brokerage arrangements

Joel M Benjamin made this Freedom of Information request to Aberdeen City Council

This request has been closed to new correspondence from the public body. Contact us if you think it ought be re-opened.

The request was refused by Aberdeen City Council.

Dear Aberdeen City Council,

For each of the Lender Option, Borrower Option (LOBO) loans to which Council is currently party, and for any historical LOBO loans, please provide in Microsoft Excel format:

1) Loan principal
2) Maturity date
3) Trade date when the loan was signed
4) Initial interest rate
5) Current stepped-up interest rate and step-up date, where applicable
6) Any formula or structure determining the interest rate, where applicable
7) The first LOBO option call date
8) The LOBO option call frequency
9) Day count convention used for calculation of interest payments
10) The relevant bank or financial institution(s) which issued the loan
11) The dates on which the lender exercised their option and the proposed interest rate, where applicable
12) The Treasury Management Advisers employed by Council at the time the loan was agreed
13) The broker who arranged the loan (and the brokers involved in any subsequent restructure of the loan)
14) The brokerage fee paid by Council for arranging the loan (and for any subsequent restructure of the loan)
15) Where available, the original, unredacted LOBO loan contracts.

I would very much appreciate it if the answers to parts 1) to 14) were provided in the form of an Excel spreadsheet or CSV file.

The Council has previously refused to disclose some of the above information in response to FOIA requests - see https://www.whatdotheyknow.com/request/l...

Please note that since then several complaints against the use of S43(2) to exempt from disclosure the details of LOBO loan borrowing by local authorities, as well as the contracts themselves, have been upheld by the Information Commissioner's Office.

See, for example:
ICO Decision Notice, Swansea https://ico.org.uk/media/action-weve-tak...
ICO Decision Notice, Cornwall https://ico.org.uk/media/action-weve-tak...
ICO Decision Notice, Kingston Upon Thames https://ico.org.uk/media/action-weve-tak...

In particular I would like to draw Council's attention to the following excerpt from the ICO Decision Notice relating to Cornwall Council's use of S43(2):

"Balance of the public interest
31. The Commissioner has given due weighting to the commercial interests which the exemption is designed to protect. He acknowledges that, particularly at a time where there is significant public spending constraints, authorities should be able to engage in activities which promote the best use of limited monies without this being prejudiced by disclosure.

32. However, by the same token, the Commissioner is mindful that the agreements in question relate to long term loans (40 years plus) for sums which exceed hundreds of million pounds and which bind the council to make substantial repayments. It is not the Commissioner’s role to determine whether the council has acted appropriately in its pursuance of LOBO loans but the need for the public to be reassured by being able
to scrutinise relevant information, particularly when such large sums are involved, is a strong public interest factor.

33. In relation to the proposed likely damage to the council’s commercial interests, the Commissioner considers that, whilst this is a genuine concern and carries some weight, it is too vaguely formulated in the face of the more concrete public interest in holding decision-making about vast public expenditure to account. He also considers that disclosure of the information when set against the difficulties envisaged by the council, would be more likely to improve competition amongst lenders and assist public authorities in securing more favourable borrowing rates.

34. In relation to the potential damage to the commercial interests of the lenders, the Commissioner is mindful that, beyond the somewhat generic arguments provided in support of the engagement of the exemption, no specific public interest arguments have been submitted.

35. In terms of the relationship with the council, the Commissioner considers it very unlikely that lenders would wish to deny themselves access to potentially lucrative public sector lending agreements or, in the specific case of the council, would want to withdraw from a long term agreement.

36. In relation to the benefits of disclosure to the lenders’ competitors and the resulting damage to the lenders’ ability to negotiate favourable rates, the Commissioner has not been provided with public interest arguments which specifically identify the severity of or extent of such prejudice. The Commissioner notes the complainant’s argument that negotiations and agreements would be predicated on existing market conditions and the specific state of the council’s accounts and requirements. The Commissioner is not persuaded that there is a significant public interest in maintaining the exemption to avert the disclosure of information which is unlikely to have significant or well defined ill-effects.

37. In light of the above and, having weighed the relevant factors, the Commissioner considers that the public interest balance in this case is weighted towards disclosing the withheld information."

Yours faithfully,

Joel M Benjamin

Foi Enquiries, Aberdeen City Council

2 Attachments

Dear Mr Benjamin,

 

Information enquiry reference FOI-19-0004.

 

Thank you for your recent request for information, which we received on 3
January 2019.

 

The scheduled date for our response to your request for information is on
or before 31 January 2019.

 

Please do not hesitate to contact us should you have any queries in the
meantime.

 

Yours sincerely,

 

Grant Webster

Access to Information Officer

 

 

[1]ACC_Crest_for Grant Webster | Access to Information Officer
mac email
Aberdeen City Council | Access to Information Team |
Customer Feedback |Customer

Marischal College | 3^rd Floor | Broad Street | Aberdeen
| AB10 1AQ

 

Dial: 01224 522166

[2]www.aberdeencity.gov.uk | Twitter: @AberdeenCC |
Facebook.com/AberdeenCC

 

 

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References

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Foi Enquiries, Aberdeen City Council

1 Attachment

Dear Mr Benjamin,

 

Thank you for your information request of 3 January 2019.  Aberdeen City
Council (ACC) has completed the necessary search for the information
requested. Our response is now detailed below.

 

For each of the Lender Option, Borrower Option (LOBO) loans to which
Council is currently party, and for any historical LOBO loans, please
provide:

The publication of details of each Market Loan, lender, interest rate and
sum

outstanding, in the requested form, would put the Council at a
‘competitive disadvantage’.

Lenders could use this information to assist them to exercise their option
to increase interest

rates. Such an increase in costs to the Council would not be in the public
interest. As far as possible, the requested information is listed below.

 

1) Loan principal

£3m, £15m, £15m, £10.9m, £10m, £10m, £10m, £10m, £10m

 

2) Maturity date

1) 15.05.2066

2), 3) & 4) 18.01.2049

5) & 6) 29.03.2055

7) 23.07.2077

8) 30.07.2077

9) 28.01.2078

 

3) Trade date when the loan was signed

1) 15.05.2006

2), 3) & 4) 16.01.2004

5) & 6) 29.03.2005

7) 23.07.2007

8) 30.07.2007

9) 28.01.2008

 

4) Initial interest rate

5) Current stepped-up interest rate and step-up date, where applicable

6) Any formula or structure determining the interest rate, where
applicable

The publication of details of the interest rates of the LOBO loans would
put the Council at a competitive disadvantage to other lenders, which
could result in higher interest rates and increased costs to the Council,
which would not be in the public interest.

 

Therefore, ACC is unable to provide you with information relating to the
initial interest rate and Stepped-up interest rate and step-up date where
applicable as it is exempt from

disclosure. In order to comply with its obligations under the terms of
Section 16 of the

FOISA, ACC hereby gives notice that we are refusing your request under the
terms of Section 33(1)(b) – Commercial Interests - of the FOISA.

 

In making this decision ACC considered the following points:

 

The initial interest rate and any stepped-up interest rates are exempt
from release in terms of Section 33(1)(b) of the Freedom of Information
(Scotland) Act 2002 in that disclosure of the information would, or would
be likely to, prejudice substantially the commercial interests of any
person including a Scottish public authority. The agreements are on-going
contracts and, as such, disclosure of this information is likely to
substantially prejudice the interests of the Council.

 

Due to the tradable nature of these loans, it would not be in the
interests of ACC to make

this information publicly available. The loans are tradable by the lenders
on the open market and contain an option for the lender to increase the
interest rate of the loan. The interest rates are commercially sensitive
due to the very nature of these loans. Publication of them would put the
Council at a ‘competitive disadvantage’ to other lenders which could
result in higher interest rates and increased costs to the Council, and
subsequently to public funds, which would not be in the public interest.

 

Revealing the rates would put ACC in a position of unnecessary, additional
risk. The risk

would stem from requests for increases to the rates of these LOBO loans
following the

publication of this information. Financial institutions would be able to
identify how much

interest rate a local authority is willing to agree to and adjust their
rates accordingly.

They may also take the opportunity to ‘buy up’ the other loans and issue a
blanket request of increase. ACC’s position on these loans has always been
to repay if a request for rate increase was received. If this information
were to be released, this would clearly have significant financial risk to
ACC.

 

ACC also considers that the commercial interests of third parties, namely
the institutions

providing the LOBO contracts would also be substantially harmed by
disclosure. Disclosure of interest rates in relation to certain loans may
prejudice the future position of the relevant organisations, particularly
when negotiating loans with other public sector authorities. ACC took out
these loans in the years leading up to the ‘credit crunch’, at a time when
other interest rates were relatively high. In all cases, these loans
represent a considerable saving over the comparable PWLB rates. A number
of these loans were initiated during a large debt restructuring exercise,
at a substantial saving to the Council, whereas the rest were offered at a
substantial discount over the government (PWLB) borrowing rates at that
time, thus also at a substantial saving to the Council.

 

Initially, these loans were approved by Head of Finance and reported to
full Council. They are regularly monitored by the Treasury Officer and
reported to full Council. ACC take a very serious approach to ensuring
that appropriate scrutiny mechanisms are fully implemented into all
aspects of financial management.

 

In conclusion, ACC considers that the necessity of protecting the
Council’s interests in

retaining the agreement at its current state outweighs the public interest
in the requested

information being disclosed. ACC considers that disclosure would not
contribute to either

ensuring effective oversight of the expenditure of public funds or
ensuring that the public

obtain value for money for public funds. The information already published
in relation to

these contracts, along with the monitoring mechanisms in place, as
detailed above, satisfies the public interest in ensuring value for money
and the mitigation of foreseeable financial risk.

 

7) The first LOBO option call date

1) 15.05.2008

2) 16.01.2007

3) & 4) 16.01.2008

5) & 6) 29.03.2008

7) 23.07.2008

8) 30.07.2008

9) 28.01.2013

 

8) The LOBO option call frequency

1) & 2) Every 2 years

3), 4), 5) & 6) Six monthly

7) Every 4 years

8) & 9) Every 5 years

 

9) Day count convention used for calculation of interest payments

Actual/365

 

10) The relevant bank or financial institution(s) which issued the loan

ACC’s Market loans were issued by the following lenders:-

Barclays Bank plc, Dexia Public Finance Bank, Depfa Bank plc & Dresdner
Bank AG

 

11) The dates on which the lender exercised their option and the proposed
interest rate, where applicable

No options have ever been exercised with any of ACC’s Market Loans.

 

12) The Treasury Management Advisers employed by Council at the time the
loan was agreed

Link Asset Services (formerly Capita Asset Services) are the Council’s
appointed Treasury Advisers.

 

13) The broker who arranged the loan (and the brokers involved in any
subsequent restructure of the loan)

ACC have previously used the following brokers to arrange Market Loans:-

Martin Brokers, Tullet Prebon, Tradition, Sterling International Brokers.

 

14) The brokerage fee paid by Council for arranging the loan (and for any
subsequent restructure of the loan)

We are unable to release the exact figures as this is commercially
sensitive information.

Please see response below. For your guide, the broker fees paid are
negotiable, based on a structure of £0.06% for the first 4 years only, as
a maximum.

 

15) Where available, the original, unredacted LOBO loan contracts.

ACC is unable to provide you with copies of the original loan contracts,
broker fees

and their terms and conditions as they are considered exempt from
disclosure. In order to comply with its obligations under the terms of
Section 16 of the FOISA, ACC hereby gives notice that we are refusing your
request under the terms of Section 33(1)(b) – Commercial Interests - of
the FOISA.

 

In making this decision ACC considered the following points:

 

FOISA legislation entitles persons to request information not
documentation and as such, requests for copies of documentation fall
out-with the scope of the Act.

 

The information contained within these documents is exempt from release in
terms of

Section 33(1)(b) of the Freedom of Information (Scotland) Act 2002 in that
disclosure of the information would, or would be likely to, prejudice
substantially the commercial interests of any person including a Scottish
public authority. The agreements are on-going contracts and, as such,
disclosure of the information contained within is likely to substantially
prejudice the interests of the Council.

 

The Office of the Scottish Information Commissioner defines ‘public
interest’ as that which is in the interest of the public not of interest
to the public and that is the definition of public interest which ACC has
followed when applying the public interest test to this exemption. As
such, it may be of interest to the public to know which financial
institutions ACC has borrowed from and when they were taken out. ACC has
provided this information above and in our previous response.

 

It may also be of interest to the public to know that sufficient
monitoring of the contracts, initially and on-going, is in place to
mitigate any financial risk as much as possible. This is outlined below.

 

Due to the tradable nature of these loans, it would not be in the
interests of ACC to make detailed information publicly available. The
loans are tradable by the lenders on the open market and contain an option
for the lender to increase the interest rate of the loan. The loan
agreement documents are drawn up by the financial institutions concerned
and the terms and conditions contained within these are commercially
sensitive due to the very nature of these loans. Publication of the
details of the terms and conditions of the LOBO loans would put the
Council at a ‘competitive disadvantage’ to other lenders which could
result in higher interest rates and increased costs to the Council, and
subsequently to public funds, which would not be in the public interest.

 

Revealing the fine print of these agreements, including the terms and the
interest rates

would put ACC in a position of unnecessary, additional risk. The risk
would stem from

requests for increases to the rates of these LOBO loans following the
publication of this

information. Financial institutions would be able to identify how much
interest rate a local authority is willing to agree to and adjust their
rates accordingly. They may also take the opportunity to ‘buy up’ the
other loans and issue a blanket request of increase. ACC’s position on
these loans has always been to repay if a request for rate increase was
received. If this information were to be released, this would clearly have
significant financial risk to ACC.

 

ACC also considers that the commercial interests of third parties, namely
the institutions

providing the LOBO contracts would also be substantially harmed by
disclosure. Disclosure of terms and conditions in relation to certain
contracts may prejudice the future position of the relevant organisations,
particularly when negotiating contracts with other public sector
authorities.

 

ACC took out these loans in the years leading up to the ‘credit crunch’,
at a time when other interest rates were relatively high. In all cases,
these loans represent a considerable saving over the comparable PWLB
rates. A number of these loans were initiated during a large debt
restructuring exercise, at a substantial saving to the Council, whereas
the rest were offered at a substantial discount over the government (PWLB)
borrowing rates at that time, thus also at a substantial saving to the
Council.

 

Initially, these loans were approved by Head of Finance and reported to
full Council. They are regularly monitored by the Treasury Officer and
reported to full Council. ACC take a very serious approach to ensuring
that appropriate scrutiny mechanisms are fully implemented into all
aspects of financial management. In conclusion, ACC considers that the
necessity of protecting the Council’s interests in retaining the agreement
at its current state outweighs the public interest in the requested
information being disclosed. ACC considers that disclosure would not
contribute to either ensuring effective oversight of the expenditure of
public funds or ensuring that the public obtain value for money for public
funds. The information already published in relation to these contracts,
along with the monitoring mechanisms in place, as detailed above,
satisfies the public interest in ensuring value for money and the
mitigation of foreseeable financial risk.

 

We hope this helps with your request.

 

Yours sincerely,

 

Grant Webster

Access to Information Officer

 

INFORMATION ABOUT THE HANDLING OF YOUR REQUEST

 

ACC handled your request for information in accordance with the provisions
of the Freedom of Information (Scotland) Act 2002. Please refer to the
attached PDF for more information about your rights under FOISA.

 

 

Grant Webster |Access to Information Officer

Aberdeen City Council | Access to Information Team | Customer Feedback
|Customer

Marischal College |Business Hub 17,  3^rd Floor | Broad Street | Aberdeen
| AB10 1AQ

 

Dial: 01224 522166

[1]www.aberdeencity.gov.uk | Twitter: @AberdeenCC |
Facebook.com/AberdeenCC

 

IMPORTANT NOTICE: This e-mail (including any attachment to it) is
confidential, protected by copyright and may be privileged. The
information contained in it should be used for its intended purposes only.
If you receive this email in error, notify the sender by reply email,
delete the received email and do not make use of, disclose or copy it.
Whilst we take reasonable precautions to ensure that our emails are free
from viruses, we cannot be responsible for any viruses transmitted with
this email and recommend that you subject any incoming email to your own
virus checking procedures. Unless related to Council business, the
opinions expressed in this email are those of the sender and they do not
necessarily constitute those of Aberdeen City Council. Unless we expressly
say otherwise in this email or its attachments, neither this email nor its
attachments create, form part of or vary any contractual or unilateral
obligation. Aberdeen City Council's incoming and outgoing email is subject
to regular monitoring.

References

Visible links
1. http://www.aberdeencity.gov.uk/