Council “to save £143m” after agreeing deal with bank to terminate LOBO loans, settle litigation
Newham Council has agreed a deal with NatWest to terminate its Lender Option Borrower Option (LOBO) loans in a move that the London borough believes should save up to £143m.
The local authority had filed a claim against the bank in the High Court in February.
Newham said the agreement would allow it to pay off the loans at a considerably lower rate of interest, saving the equivalent of £3.5m per year over 41 years, which was the length of time the loans still had to run.
It will enter into agreement with the Public Works Loan Board (PWLB) to pay off the loans at much lower rates of interest.
The deal, agreed following lengthy negotiations with the bank, will put the council in a better position to take advantage of current low borrowing rates, Newham said.
The local authority took out six LOBO loans, each worth £25m, with NatWest in 2009.
The Mayor of Newham, Rokhsana Fiaz, said: “I made a promise to Newham residents in my election manifesto last year that I would clean up the council’s budget. A key element of that was to address the scourge of risky LOBO loans taken out under the previous administration.
“After just a year in office I have made an important step towards achieving this and it will save us significant amounts of money every year.”
Fiaz added: “Over the past ten years that the loans have been in place, it’s cost us an extra £31m in interest payments compared to borrowing from the PWLB. That’s money that should have been spent on Newham residents.
“Earlier this year, I made a promise to Newham residents that I’d make every penny count and that’s why this council filed a claim against the bank in the High Court in February. The deal that we’ve successfully nailed down today means that we’ll be saving up to £143m for Newham residents, which is a successful resolution of this litigation."
