EXCLUSIVE by DOUG COLLIE
A collection of eleven so-called LOBO loans totalling £43 million which were taken out by Scottish Borders Council between 2002 and 2006 are now valued at £71 million, a research project by an independent organisation has revealed.
Figures obtained under Freedom of Information also show that the interest rates paid by SBC on the bank loans during 2016 exceeded the percentage charged by the Public Works Loans Board [PWLB] in every case.
And an attempt by Ludovica Rogers, a member of Debt Resistance UK [DRUK], to obtain copies of invoices for brokers' fees charged when the loans were arranged for SBC proved unsuccessful after the local authority told her the information was "no longer held".
The same reason was given for not supplying the requester with copies of contracts, invoices and tender documents for Treasury Management Advisers used to facilitate the eleven loans from Belgian, Irish and German banks and from Barclays. Again, the paperwork was said to be no longer retained on council files.
LOBO (Lender Option Borrower Option) loans are held by over 60% of UK local councils and housing associations who turned to them around the time of the global financial crash. But experts say LOBOs are "risky and toxic" with variable interest rates which increase repayments as time goes by.
Servicing loans is already a significant drain on resources at SBC, as it is on every public authority in the country. According to their latest audited accounts the Borders council forked out £12.32 million on "interest payable and similar charges" in 2015/16. The equivalent sum for 2014/15 was £11.806 million. These amounts far exceed the £8.9 million in savings which the council has been forced to make in its 2017/18 budget.
Total liabilities at SBC at fair value are quoted at £359.322 in 2015/16, up from £337.273 million in the previous financial year. This includes the portfolio of loans drawn down over many years from the PWLB, an executive arm of The Treasury which lends money to local authorities.
In 2016 the average interest rate charged by PWLB was 2.55% on the loans it issued. Interest paid by SBC on the eleven LOBO loans in its collection ranged from 2.87% to 4.2%.
Borders taxpayers will have to continue funding repayment of the LOBOS until 2065. Copies of the loan agreements supplied to Ms Rogers show they varied in length from 45 to 60 years.
DRUK claims on its website: "Debt affects all of us, whether it's personal, local council or national, we are implicated in the system which makes the majority poor and powerless and keeps the one per cent in power.
"Bankers, brokers and advisers have tricked councils into taking out expensive, risky loans, endangering our essential services. Taxpayers' money is being unnecessarily wasted while the private sector is making huge profits".
SBC has arranged two recent loans from the PWLB totalling £12 million.
Details published by the agency show that on February 24th 2017 the council was advanced £8 million over 10 years at 2.05%. And on September 29th 2016 a loan of £4 million was agreed, again over 10 years at 1.49%. The reasons for the loans being taken are not specified.
The LOBO portfolio obtained by Ms Rogers is published below.
BANK SUM BORROWED CURRENT RATE FAIR VALUE YEAR
BARCLAYS £6,000,000 2.87% £10,644,275 2005
DEXIA £3,000,000 3.70% £4,923,092 2004
DEXIA £3,000,000 4.03% £4,923,092 2004
DEXIA £3,000,000 4.20% £4,923,095 2004
DEXIA £5,000,000 3.82% £7,925,583 2005
DEXIA £5,000,000 3.75% £7,805,971 2005
DEXIA £5,000,000 3.80% £7,885,250 2005
DRESDNER £4,000,000 2.95% £6,552,578 2004
DRESDNER £4,000,000 3.50% £6,552,578 2004
WEST LB £3,000,000 4.10% £5,866,924 2006
EUROHYPO £2,000,000 2.95% £3,013,545 2006
TOTALS £43,000,000 £71,015,983
Dexia Bank, a Belgian-based institution, which had to be bailed out in 2011. It is now known as Belfius Bank.
Dresdner Bank, a German fiunance house, was acquired by its rival Commerzbank in 2009. Commerzbank also owns Eurohypo. West LB is based in Dublin.