Brent's LOBO loans at 68% premium merit deeper scrutiny

In April I published some information from Cllr Michael Pavey on the complex issue of LOBO (Lender Option, Borrower Option) loans. At the time Pavey was deputy leader of the Labour Group and lead member for finance. He confirmed that Brent Council had £95.5m in LOBO borrowing. LINK

In June 2014 journalist Ian Fraser published an article entitled 'How City banks and brokers stitched up local authorities with LOBO loans' and gave this Brent example.

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In 2015 a Channel 4 Dispatches programme 'How Councils Blow Your Millions' revealed how banks had exploited local councils through LOBO loans and as a result a Communities and Local Government Committee inquiry was set up to examine the issue.  Bob Blackman MP was a member of the Committee.  He was leader of the Brent Conservative group on Brent Council and deputy leader of the Council when it was in coalition with Brent Liberal Democrats prior to the local elections in May 2010. The LOBOS borrowing  was arranged between November 2002 and April 2010.  Minutes of the Communities and Local Government Committee oral evidence can be found HERE

Department of Local Communities and Local Government statistics for 2015-16 showed Brent Council had total long-term borrowings of £423.7m of which £328.2m was Public Works Loan Board and £95.5m LOBOs.

The campaign Debt Resistance in covering Newham Council's massive exposure to LOBOS mentioned Brent LINK:

  At Brent Council where a similar £10m LOBO loan from RBS was analysed, it was found the council was paying £1.2m more for the loan from RBS, than if it had borrowed via the UK Treasury Public Works Loan Board (PWLB) – standard practice for councils. To exit the loan would cost Brent a further £3-4m in “break penalties  

Brent Cabinet will be receiving the 2015-16 Treasury Management Outturn Report at its meeting on Monday August 15th.  The report acknowledges the high cost of redemption of LOBOS loans:

No debt was restructured during the year and no lenders exercised options to vary the terms of loans on LOBO (Lender Option, Borrower Option) terms. The Council has borrowed £95.5m under LOBO transactions, all of which were entered into in the period November 2002 to April 2010. Unlike PWLB loans, there is no formula for the cost of redemption of LOBOs, and the price quoted would depend on any bank’s view on its commercial advantage. The banks’ positions have been insured through the derivatives markets and to renegotiate these arrangements would be very expensive. The average premium on our LOBO portfolio is about 68%: this would mean that it would cost £8.4m to redeem a LOBO with a nominal value of £5m. However, there is no established formula for the redemption price and the actual cost be higher.

The 68% average premium applied to total LOBO borrowings of £95.5m would give additional redemption costs of £65m with the possibility, as in the last sentence above, that it could be higher. It would be worthwhile for the Cabinet (or perhaps Scrutiny) to go into the issue a little deeper and particularly to explore what appears to be some complacency about the situation:

There are complex arguments made about LOBOs, by their supporters and by their detractors. The Council's position is simply that the LOBOs are part of its portfolio, and must therefore be managed as effectively as possible. There are no plans to enter into further LOBO contracts. However, it should be noted that the average rate of interest being paid on LOBOs is little different to that on PWLB debt (4.75% compared to 4.71% at 31 March) and the range of rates lower. The most expensive LOBO was at 6.234% on 31 March, compared with the most expensive PWLB at 8.875%.

Since, the end of 2015/16, Barclay’s Bank decided to give up its lender option to £15m of LOBOs. There were three loans of £5 million each, with interest rates of 3.95%, 4.35% and 4.5%, with maturities between 2048 and 2076. Barclays did this to ensure it could meet Basle III Capital Requirements that banks need to comply with by 2019. As these changes are to the borrowers’ advantages, it merely needed to notify us and provide us with the signed declaration of its change. It is likely, according to Arlingclose, our Treasury advisers, that other lenders will soon follow suit. 


These are Brent Council's LOBO loans according to Debt Resistance. The tables on its website are interactive providing more information LINK:

Ibrahim Taguri confirms he will not stand as an Independent in Brent Central

As Brent Green Party was meeting across the road, the signage at Ibrahim Taguri's temporary campaign office in Walm Lane was being taken down last night. Earlier Ibrahim had confirmed to me that he would not be standing as an Independent in the General Election. He had anticipated a quick resolution of the allegations about donations made in the Daily Telegraph but this has not happened.

Lauren Keith was last week selected as the Liberal Democrat candidiate for Brent Central.

On March 26th the Electoral Commission made the following statement:

The Electoral Commission has today (26 March 2015) provided an update on its consideration of two separate allegations regarding donations to the Liberal Democrat Party.

Daily Telegraph allegations

Following the allegations that appeared recently on The Telegraph online (11 March) and subsequently in the newspaper regarding Ibrahim Taguri and donations to the Liberal Democrats, the Electoral Commission requested information from the newspaper, the party and Mr Taguri to help it establish the facts in the case.

Based on the information that the Commission has seen, one alleged offence centres on the potential evasion of restrictions on donations in contravention of section 61 of the Political Parties, Elections and Referendums Act 2000 (PPERA). Offences under this part of PPERA are ultimately a criminal matter and fall outside of the Commission’s civil sanctioning powers.

The Electoral Commission has therefore passed the information that it has received to the Metropolitan Police Service (MPS). The MPS have confirmed to the Commission that they are also aware of the allegations and that they are considering them.

Channel 4’s ‘Dispatches’ 

Following the allegations that appeared as part of Channel 4’s Dispatches programme (23 March), the Electoral Commission requested further information from the programme to help it establish the facts in the case.

Based on the information that the Commission has seen, the alleged offence in this case centres on the potential evasion of restrictions on donations in contravention of section 61 of PPERA and is ultimately a criminal matter. As a result, the Commission has also passed the information that it has received to MPS who are aware of the allegations and are considering them.

Donations received in the course of both cases

In both of these cases, the Liberal Democrat Party received a number of donations.

One donation in the Telegraph case, a cheque for £7,650 was delivered to the party. However, it had not been banked and the funds had not cleared and as a result no offence was committed under the donation rules set out in PPERA.

The other donations included one of £1,450 made by the undercover reporter in the Telegraph case that was received and accepted by the party; and another of £10,000 received from the ‘step father’ of the undercover donor in the Dispatches case, Mr Paul Wilmott. The Commission is in contact with the Liberal Democrats about the actual source of these donations and will provide a separate statement about this matter once these further facts have been established.

Next steps

Any decisions about what further steps to take at this stage in relation to potential evasion of restrictions on donations in either case rest with the Metropolitan Police Service.

Should further facts emerge in relation to The Telegraph allegations or Channel 4’s Dispatches, which could lead the Electoral Commission to consider any other potential breaches of PPERA, the Commission will do so in line with its enforcement policy.