Decision details

8.1

The Executive Director, Place and Interim Executive Director, Resources, submitted a joint report seeking approval to the Council pursuing a contract refinance in relation to the Streets Ahead contract and to progress some minor operational contract changes.

8.2

RESOLVED: That:-

(a)

option 1 be rejected – Do Nothing as it has been determined by the Council and Amey that there is an opportunity during the Core Investment Period (CIP) to make savings from refinancing the Contract;

(b)

exploring options 2 and 3 to refinancing with existing and potential new funders be continued, in order to determine the optimal route in terms of maximising savings and mitigating risks and subsequently take forward the preferred option;

(c)

the ongoing dialogue with the Department for Transport (DfT) throughout the refinance process be continued and a business case be submitted seeking DfT/HM Treasury (HMT) approval to complete the refinance which includes agreeing the optimal process for funding the DfT’s share of the refinance savings.

(d)

the additional budget from the Private Finance Initiative (PFI) Reserves be provided to fund the conclusion of the refinance and the processing of the contract changes;

(e)

any abortive project costs of the Refinance from the Streets Ahead contingency be funded;

(f)

staged payments be made to  Amey in relation to the Refinance and Contract change due diligence costs subject to such costs being auditable; and in accordance with agreed estimates;

(g)

officers explore the option of the Council providing up front capital in place of more expensive private finance and, if this results in increased levels of saving, that approval is delegated to the Interim Executive Director, Resources, to borrow the requisite sums;

(h)

authority be delegated to the Interim Executive Director, Resources to:-

(i)

monitor the progress made by Council officers in determining the optimal refinancing option and approve (if appropriate) the recommended option; and

(ii)

complete the refinance of the Contract subject to the approval of commercially acceptable terms by the Director of Legal and Governance; and

(i)

authority be delegated to the Director of Legal and Governance to process the High Value Changes under a Deed of Variation.

8.3

Reasons for Decision

8.3.1

As outlined in the report, there is a clear strategic and economic case to justify the Council concluding the refinance in order to realise saving of circa £0.3m to £0.6m p.a. This saving can be achieved with low risk to the Council and without impacting on the delivery of the highway maintenance service and the ongoing improvements in the infrastructure asset.

8.3.2

Failure to progress the refinancing of the Contract will result in more pressure on achieving the Council’s current and future budget pressures. 

8.4

Alternatives Considered and Rejected

8.4.1

Option 1 - Do Nothing – Wait Until Completion of CIP in 2017

Under this option no further action would be taken now and any consideration of the other options set out below would be deferred until the CIP is complete.

8.4.2

Owing to the disadvantages for Option 1 detailed in Appendix A, it is not recommended that this option is progressed. However, if a refinance is secured now it would still be possible to carry out a further refinance after the completion of the CIP if the prevailing conditions are favourable and the savings outweigh the further transaction costs.

8.4.3

Option 2 – Existing Funders Margin Reduction

Under this option the Council and Amey would negotiate with the existing funders to reach agreement on a reduction in their funding margins.

8.4.4

All of the current funders are still actively lending in the infrastructure market and in recent discussions, they all have expressed a desire to retain their investment in the Contract. The level of saving they are prepared to offer differs between each funder with some having more flexibility to reduce margins than others.

8.4.5

On the basis of the estimate of bank margins and fees for Option 2 as set out in Appendix A being achieved then the net saving to the Council after transaction costs and arrangement fees is £0.3m p.a.

8.4.6

Option 3 – Full Open Market Funding Competition

Under this option the Council would go the banking market to seek a new set of funders on revised terms. All of the existing funding agreements would be cancelled and new agreements put in place. This could result in more or less funders than the current four banks.

8.4.7

There have been some initial informal discussions with a small number of potential new lenders and all have expressed an interest and indicated that they would be able to offer more competitive terms than initially proposed by the existing funders.   

8.4.8

On the basis of the assumed bank margins being achieved then the net saving to the Council after transaction costs and arrangement fees is £0.4m p.a. The detailed terms and basis of the saving for Option 3 are again set out in Appendix A of the report.

8.4.9

As detailed in the options set out above, there is not a significant difference between the levels of saving achievable at the two modelled margins. However, it is possible that lower margins than the ones assumed in the scenarios could be achieved from new funders and from further negotiation with some of the existing funders. Therefore a more likely refinance scenario is securing a margin reduction from a combination of existing funders and new funders with the savings potentially being in the region of £0.4m to £0.6m p.a. Some examples of alternative potential refinance scenarios are also set out in Appendix A of the report.

8.4.10

There is a low-medium risk that if the Council approach the market for replacement funders and preferential terms cannot be achieved, then the existing funders may withdraw their offer of reduced margins resulting in the Council having to fund the abortive transaction costs.

8.5

Any Interest Declared or Dispensation Granted

None

8.6

Reason for Exemption if Public/Press Excluded During Consideration

None

8.7

Respective Director Responsible for Implementation

Simon Green, Executive Director, Place and Eugene Walker, Interim Executive Director, Resources.

8.8

Relevant Scrutiny and Policy Development Committee If Decision Called In

Economic and Environmental Wellbeing