Purpose

The purpose of this decision is to advise of debt
rescheduling undertaken in accordance with paragraph 6.7.2 of the
Treasury Management Strategy: Any rescheduling will be reported to
the Cabinet.
As debt rescheduling transactions are sensitive to interest rate
fluctuation, these transactions are undertaken and reported
retrospectively to Members in order to secure the best financial
outcome for the Council.
Treasury management transactions are subject to a number of
external factors and often have to be undertaken swiftly. This
require significant calculations to ensure the best outcome for the
Council and Cabinet are informed retrospectively.
The Council’s Financial & Budget Procedure Rules govern
the financial administration of the Council. Paragraph E.5 states:
The Full Council delegates responsibility for the implementation
and regular monitoring of its treasury management policies and
practices to the Cabinet, and for the execution and administration
of treasury management decisions to the Chief Finance Officer, who
will act in accordance with the Council’s Treasury Management
Strategy and, if they are a CIPFA member, CIPFA’s Standard of
Professional Practice on Treasury Management.
In ensuring compliance with this, the Council has appointed
Arlingclose Ltd as its Treasury Management advisor. As part of this
service, Arlingclose recommend actions and policies to Finance
Staff that can realise savings or other efficiencies to the Council
from treasury matters.
Advice was received from Arlingclose that it would be beneficial to
reschedule three of the Council’s Public Works Loan Board
(PWLB) loans.
At the start of 2025/26, the Council had 13 outstanding loans from
PWLB, these loans relate solely to the Housing Revenue Account and
were taken out under the self-financing regime in 2011-2012. One
loan is due to be repaid in March every year until all are repaid
or refinanced. The next scheduled loan repayment is March 2026
which will leave 12 loans outstanding. These loans all have fixed
interest rates at circa. 3% with no interest rate risk.
Restructuring a quarter of the portfolio to short and medium term
interest rate risk gives the opportunity to make cashable
savings.
The early repayment of loans attracts a discount as the PWLB are
keen to have the cash back to enable them to lend out at more
favourable terms. The discounts given by the PWLB on early
repayment of loans is greater the longer the term is left on the
loan being redeemed. Loans with maturities closer have lower
savings but increased interest rate risk, making them less
appetising and costly in terms of officer time to manage going
forward. Therefore, the loans chosen are those furthest off for
repayment.
Three loans were identified as generating cashable savings if
redeemed and refinanced. The total amount outstanding on these
loans was £51.325m.
Financing the redemptions requires further borrowing.

Content

Advice was received from Arlingclose that it would
be beneficial to reschedule three of the Council’s Public
Works Loan Board (PWLB) loans. This was investigated, the decision
has been taken in accordance with the Head of Corporate Finance sub
delegation scheme and the actions below undertaken.
Two of the loans have been refinanced with PWLB loans and one
through short term borrowing from a Local Authority and internal
borrowing against investment balances. Internal borrowing allows
interest to be charged to the Housing Revenue Account, so the
General Fund does not lose any interest it would have received had
no internal borrowing occurred.
This strategy also allows the Council to try to lock in lower rate
loans in future on the expectation that the Bank of England base
rate will decrease further in 2026.
The two new PWLB loans will be Equal Instalment of Principal loans
over five years. These terms offer the most advantageous rates. A
longer loan would provide more certainty but would lose most of the
benefit of resheduling.
Annual checks are required to determine if borrowing is necessary
to cover the repayments or whether the Housing Revenue Account can
bear the charges. In the short term, borrowing is required to cover
but again this should be at lower interest rates than currently in
place.
The transaction took place on the 19 December 2025. Two loans were
redeemed and new borrowing arranged simultaneously ensuring the
Council undertook the rescheduling gaining the maximum financial
benefit available. This was done on 19 December due to the forecast
base rate change on the 20 December which could affect markets but
is unlikely as the rate cut appears to already been priced in by
the market.
The timing of the transaction was crucial and extremely time
sensitive. Firstly interest rates are updated twice a day, so all
requests and subsequent approval need to be completed before the
next interest rate update. Cut-offs are 12.30pm and 4:15pm.
Repayments are done on T+2 (T = Trade date) days and new loans are
given on T+5 day. To mitigate against interest rate risk it was
important to arrange the repayment and replacement PWLB loans at
the same time, so the interest rate for the new loans was the same
used to calculate the discount on the repayment loans. The T+2
repayment meant the loans were repaid three days before the funds
from the new loans were received (T+5). It is important that
repayment and refinancing does not happen on the same day to comply
with the technical ‘modification’ ruling that says when
replacing a loan if the replacement loan is deemed to be the same
as the repaid loan, then the discount cannot be recognised as a
saving.
Short term borrowing was secured to cover the period between
repayment and replacement loan funds received and to cover the
final loan repayment still to take place.
The third final loan transaction took place on the 23 December 2025
to be redeemed on 29 December 2025.
The early redemption discount of £4.915m secured combined
with the revenue savings shown in the financial implications below
support the actions taken and recommendations.
Financial Implications
The financial implications of the rescheduling are shown
below:
Savings for next 3 years £1,187,979
Savings over 10 years £2,251,165
Whole life saving £1,252,541
The discount amount saved is equally apportioned over 10 years,
more than offsetting the interest on the replacement loans over the
remaining life of the original loan. The whole life saving reduces
on the assumption that the new borrowing is refinanced after the 5
year term completes.
Excluding time apportionment, a saving circa £396,000 is
realised for each of the first 3 years. There is no impact on
Minimum Revenue Provision payments and interest paid will increase
due to a higher interest rate which is offset by the early
redemption discount.

Alternative options considered

Option 1 - Do nothing, thereby producing no
savings and keeping our portfolia locked in at the original
rates
Option 2 - Refinance the three loans and replace them with new
loans from the PWLB
Option 3 - Refinance the three loans and replace them with new
loans with a mixture from the PWLB and Local Authority
Under either option 2 or option 3, the new PWLB loans need to have
consideration to term, three options were explored, and type.
The loan type options are:
Annuity - Loan is repayed in annual installments alongside interest
accrued
EIP (Equal Instalment of Principal) - Loan is repayed by bi annual
installments alongside interest accrued
Maturity - Loan is repaid at the end of the loan term with interest
being paid bi-annually
EIP produces the lowest interest payable.
For the term of the loans, three options were considered:
Option 1 - Borrow the new loan on the same basis of the original
loan, costs more so provides no benefit
Option 2 - Borrow over 10 years, offers some savings (ranging from
£45k - £123k on the three loans) but with minimal
interest rate risk
Option 3 - Borrow over 5 years, offers the best savings (ranging
from £259k - £379k on the three loans) but with medium
term interest rate risk