Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Council borrows £18m to pay 'toxic' £10m loan

Northamptonshire County Council took out the loan with The Royal Bank of Scotland in 2010.

A cash-strapped council borrowed £18m to exit a "toxic" £10m loan deal.

Northamptonshire County Council took out the Lender Option Borrower Option (LOBO) loan with The Royal Bank of Scotland in 2010.

Earlier this month the authority's draft budget for 2020-21 contained £23.2m of cuts.

The cost of ending the deal early is being kept confidential but the council said it provided it "the opportunity to 'lock in' interest cost savings".

Many councils took out LOBO loans due to their starting interest rate being lower than those offered by the government backed Public Works Loan Board (PWLB).

But lenders are able to increase future rates of interest at a pre-determined date.

These loans have been described by the campaign group Debt Resistance UK as "toxic" and "risky".


What is a LOBO Loan?

Lobo loans are typically long-term loans ranging in length from 40 to 70 years.

The lender has the option to increase the rates at fixed points in the loan term (lender option dates).

The borrower must then either repay the loan plus a penalty fee, or move on to the higher rate of interest.

Lobos typically offer the borrower a low "teaser" interest rate for the first few years of the loan, to attract custom.

Source: House of Commons Library

The interest rate of Northamptonshire's LOBO loan with RBS, which was due to mature in 2060, rose to 7.72%.

The terms of RBS's contract with the council state that under certain market conditions the exit costs could have exceeded the loan amount.

According to cabinet papers, the council decided to re-finance by borrowing £18m off the PWLB at a significantly lower rate to achieve a better deal in the long term.

Nicholas Dunbar, senior consultant at corporate treasury advisers Vedanta Hedging, said "Northamptonshire was paying 7.72% in interest on the LOBO which it was legally obliged to pay for the next 40 years.

"Over that timescale, paying 2% on £18m is preferable to paying 7.72% on £10m."

A spokesman for Northamptonshire County Council said: "The £18m borrowed included the replacement of the £10m LOBO loan finance and its associated premium cost, as well as an additional provision to meet the council's overall borrowing requirements.

"The decision to borrow, including the timing and amount, was based on our overall cash flows and investment balances at the time, the current and forecast outlook for borrowing rates and the opportunity to 'lock in' the interest cost savings from a lower fixed-rate loan against the higher variable-rate loan that was settled early."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Russia’s A7 Builds a State-Linked Payments Network Beyond Western Sanctions
AI’s Next Bottleneck Is Power, Not Just Nvidia Chips
Meta Raises AI Spending Target to as Much as $145bn Despite Pressure Over Returns
Danube Drought Exposes Nazi Wrecks and Pushes Central Europe’s Power System to the Brink
Joe Biden’s Cancer Has Spread Beyond His Bones, Hunter Biden Says
Why 2027 Could Be a Strong Year for Stocks—and Why the Forecast Is Fragile
Why Markets May Look Quiet in August After Big Tech Earnings
UK Drought Cuts Harvests and Raises Food-Security Fears
UFO: Pentagon Releases Video of Unidentified Object Tracked Over Middle East
Ukraine Tells Senate Republicans Its Drone War Offers a Blueprint for America
Weight-Loss Drug Boom Tests the Limits of Prescription Advertising Rules
Senate Scrutinises AI-Driven Personalised Pricing
Spain Seeks Mainland Transfers for 1,100 Children Stranded in Ceuta
Spain and Morocco Trade Blame After 72,000 Migrants Enter Ceuta
AI Is Remaking the US Economy, From GDP Growth to iPhone Prices
Europe’s Heat and Drought Are Now Disrupting Power, Shipping and Tourism
Europe’s Drying Rivers Trigger Power Cuts, Factory Shutdowns and Wildfire Emergencies
Record-Low Danube Forces Nuclear Cuts and Emergency Power Curbs
Danube Drought Forces Hungary’s Paks Nuclear Plant Into Full Shutdown
Ceuta Death Toll Rises as Spain and Europe Clash Over Border Response
Valued at $109 Million: F-35B Fighter Jet Crashes in Southern California
Record-Low Danube Exposes Probable Mammoth Remains in Bulgaria
US Says It Has Carried Out Heavy Strikes on Iran After Attempted Attacks on Its Forces
The AI User Nightmare: Private Claude Conversations Leaked to the Internet
Over 24 Hours in the Air: Qantas Airbus Completes Record-Breaking Test Flight
Massive Wildfires Ravage Southern Europe: Fatalities in Greece and Evacuations Across France, Spain, and Turkey
Nvidia Reportedly Takes Vast Texas Data-Centre Lease to Underwrite AI Expansion
FIFA’s Private-Investment Plan for World Cup Rights Draws European Revolt
Apple Briefly Crosses Five Trillion Dollar Valuation as Investors Retreat From AI Bets
Fresh Heatwave Threatens to Rekindle France’s Historic Wildfire Crisis
Following OpenAI's Cyberattack: 'Most Companies Still Do Not Understand What Is Coming'
OpenAI Sued After ChatGPT Allegedly Discouraged Emergency Care Before Near-Fatal Embolism
Miliband Sets Climate and International Law at Centre of UK Diplomacy
Czech Central Bank Governor Rejects Early Euro Entry and Rate-Cut Pressure
Trump Readies New Tariffs as Temporary Global Levy Nears Expiry
Vivienne Westwood Casts Cicciolina, 74, in Its New Autumn Campaign
Dejavu: Germany’s Military Expansion Reshapes Europe’s Strategic Balance With France
Morgan Stanley Builds a Wall Street Lead in AI Infrastructure Finance
High Prices Push Coffee Drinkers Toward Whole Beans and Home Brewing
Trump Draws Boos and Podium Scrutiny at Spain’s World Cup Triumph
Brilliant move: Péter Magyar Moves to Nominate Chess Grandmaster Judit Polgár as Hungary’s President
Spain Defeats Argentina in Extra Time to Win Second World Cup
Current AI Seeks to Build an Open Global AI Infrastructure Outside Big Tech Control
Germany’s Economic Malaise Reopens the Sunday Shopping Debate
Proposed U.S.-Saudi Nuclear Pact Could Permit Limited Uranium Enrichment Under International Safeguards
Netherlands Declares Water Shortage Emergency After Drought Pushes Rivers to Historic Lows
Why Kentucky Fried Chicken Became KFC—and Why the False Explanations Persist
Ukrainian Drones Strike Wildberries Warehouses Deep Inside Russia
Reported CIA Mission Helped Clear the UAE’s Path to Advanced US AI Chips
Artificial Intelligence Capital Fuels Markets While Governments and Regulators Face Mounting Strategic Tests
×