Agenda item

Coventry Street Lighting PFI Debt Re-Financing

Report of the Deputy Chief Executive (Place)

Minutes:

The Cabinet considered a report of the Deputy Chief Executive (Place) that sought approval for refinancing the Council’s Street Lighting PFI Contract to deliver lower costs than under the existing contract. Due to the need to achieve financial close before the end of September 2019, Cabinet was being requested to approve delegation to the Director of Finance and Corporate Services, following consultation with the Cabinet Member for Strategic Finance and Resources, to agree the final legal and financial details with an intention to achieve the most favourably beneficial outcome for the Council.

 

A corresponding private report was also submitted to the meeting setting out the commercially confidential matters of the proposals. (Minute 27 below refers.)

 

There was a contractual obligation for PFI agreements to be analysed on a regular basis to identify any potential benefits from debt re-financing. However, all parties needed to be in agreement for a re-financing to occur. The opportunity to refinance the PFI at this point reflected current lower interest rates (this project reached financial close when the funding market was still being negatively impacted by the banking crash and as such affected funding terms), changes in the financial markets in recent years and the position of lenders and their preference for continuing to participate in the PFI market or redirect their attention into other financial instruments. These circumstances coincided at this point, providing an opportunity to reduce the cost to the PFI scheme, thereby providing savings to both the PFI provider and the City Council under the contract. Several other local authorities had undertaken debt restructuring of this nature in recent years. The PFI scheme was part funded by government grant. As a consequence, the Department for Transport (DfT) was a key stakeholder and must agree to any refinancing arrangement as must HM Treasury who provided pan Government oversight of all PFI projects.

 

The Council’s financial advisors advised that renegotiation with one or both existing funders was the only realistic option. In this case one of the funders agreed to buy out the other funder’s share of the debt and refinance at significantly lower rates, and on other more preferable funding terms. In order to avoid swap breakage costs, the existing interest rate swap agreement would remain in place. On this basis, it was proposed that the existing funder renegotiation option be pursued as the method of re-financing the Council’s Street Lighting PFI contract because this presented the best opportunity for the Council to maximise savings under the PFI Contract.

 

RESOLVED that the Cabinet:

 

1)  Approves in principle the proposals for re-financing the City Council’s Street Lighting Private Finance Initiative debt in line with the financial proposals set out in the private version of the report.

 

2)  Delegates authority to the Director of Finance and Corporate Services, following consultation with the Cabinet Member for Strategic Finance and Resources, to: 

 

a.  Agree the final proposal for re-financing on the basis that a financial benefit is provided to the Council over the term of the PFI contract and subject to the Director of Finance and Corporate Services seeking such legal and financial advice as he deems necessary.

 

b.  Negotiate, agree and enter into any and all documents; issue any notices or certificates; and/or take any decisions; that the Director of Finance and Corporate Services deems necessary to document and implement the agreed proposal for re-financing.

Supporting documents: