Saracens - alternatives to the reckless loan

When the proposal to lend £23.9m to Saracens Ltd (later changed to Saracens Copthall LLP) was considered in July 2018 'alternative options' was a section in the committee papers, as it always is.

The meeting was given a shockingly short set of options by the Deputy Chief Executive, Cath Shaw, either yes or no to making the loan. According to Mr Reasonable she is paid £151,433 a year. You would think that someone paid that much would be able to find some other intelligent or creative alternatives. Of course the leader of the council wants this loan to go through, as he cast his deciding vote in favour of the loan when the committee vote was tied 5-5 in October 2018 and so if she wants to progress in her career, maybe to CEO one day, it is best not to rock the boat. Mr Mustard, or you, will have to come up with some alternatives.

1. Let multi-millionaires fund the loan.

The joke is that the two main men behind Saracens are both fabulously wealthy (which is fine by Mr Mustard who is happy with his lot) and could find this sort of money down the back of the sofa in order to fund their sporting plaything if they so chose. A quick trawl of the internet finds these sort of numbers to give you a scale of their wealth which puts them into the Sunday Times top 1000 rich list.




This is how Mr Mustard thinks the stadium should be funded.

2. Lend just a small portion of the money, say £1m

A 100% loan is risky for one lender to provide & so a consortium of lenders should be found. Other parties who will benefit could provide part of the loan. The Saracens Sports Foundation is active across North London (a dozen more local authorities to ask there) in Hertfordshire (approach St Albans City Council, Hertfordshire County Council etc) in Luton (who have a town council). The club itself has at least 10,000 fans as the average attendance is 9,400 and they don't all go to every game. Why aren't they being offered the chance to invest? Mr Mustard knows two keen fans. Both of them could easily stump £2,290 each and get a seat named after them & some other benefits.

Middlesex University could jointly procure the stand and stump up a capital sum which reflects its percentage share of the usage and then pay zero rent.

3. Pay for the social benefits

The following social benefits are what we are going to get from lending to Saracens Copthall LLP to build a new stand apparently.



A new community garden will be lovely but could be built regardless of a new stand.

What is the cost of the educational opportunities which are being sought? as the council could simply pay for them. They should also be putting the requirement out to tender (it seems to be taken for granted that Saracens alone can provide these). Providing these new social offerings doesn't need a new stand, there is a perfectly good East stand there already. There is plenty of green space around for exercise programmes which again the new stand isn't needed for. There are also plenty of other sports grounds within the borough which could be used and the council itself is building two brand new leisure centres. Can you guess where one of them is?
 

yes, it's at Copthall!

It looks to have all the facilities you could desire to help improve people's fitness and wellbeing.

Thus we see that the council plan to lend out £22.9m without the public knowing the value of social benefits they will garner as a result (cue frantic work by some poor employee of Barnet Council who now has to go and try and put a figure to this).

4. Charge a decent interest rate

Mr Mustard thinks that given the risk the loan rate of 6% is too generous. He did the collect out on a finance company in the City of London which made loans to customers who normal banks wouldn't touch. They charged 10% interest. They went bust and it was one of Mr Mustard's toughest ever assignments to get all the money back, which he didn't manage as it wasn't possible.

You may have others alternative ideas which Mr Mustard may not have thought of. Do enter them in the comment box below.

Yours frugally

Mr Mustard 

More questions than answers - Saracens Copthall LLP

Having read the entire committee paper which was introduced by the above recommendations, Mr Mustard had a few questions to ask of the committee. He will now set out the words which caused him to ask questions and the responses, such as they were.

As you see the answer is top secret, so presumed to be inadequate. What Mr Mustard wanted to know was how admission fees & other income paid to Saracens Ltd were going to be ring-fenced so that they weren't used to pay any other costs. A simple statement that the answer is in the exempt report isn't an answer at all.

Mr Mustard wanted to know who was providing a loan guarantee so he could assess if they were good for £22.9m or not. We don't know.

In the absence of an answer there is no public evidence that the loan guarantees are satisfactory.

This answer tells us that the combined rents paid by Saracens Ltd and Middlesex University are sufficient to repay the loan. That of Middlesex University alone is not enough. Should anything happen to the fortunes of Saracens Rugby, such as the premier league collapsing, there will be repayment problems.

Given the scale of the transaction it isn't unreasonable for the public to be told who is guaranteeing 44% of the loan. Who cares about the other 56%? not the council. None of the questions look like they should have exempt answers, having been carefully worded so as not to ask for specific numbers.

It is of no comfort to be told nothing at all.

Without knowing if the estimated (synthetic) credit rating is on, say £1,000 or £1,000,000 it isn't of any value. Assessments were not sought from the three credit rating providers who are specified in the Treasury Management Strategy. Clearly the council have cast about for some crumb of good news they could put in the report.

It concerns Mr Mustard that the shareholders are not legally obliged to make good any losses of Saracens Ltd. This makes the assurances almost worthless and the moving around of debits and credits doesn't really matter as losses will still be incurred. What matters more are the accounts of Saracens Copthall LLP (SCLLP).

Mr Mustard had seen recommendation 3 but the meeting could have amended it. The Audits may get brought forward this year by Saracens.

Of course Saracens have got a costed build plan in place otherwise they wouldn't know the cost of the stadium or the expected completion date. This information should not have been exempt.

It looks to Mr Mustard that instead of matching the borrowing and the loan for the entire 30 year term the council are going to juggle their needs in the hope of saving a few quid. There is the risk that rates will rise, or that public borrowing will become harder to obtain, and then extra costs could be incurred. If they were to nail the PWLB loan in place at the same time as they lend out they would eliminate any timing and capacity risks.

Even the council, before they have lent Saracens a single penny, have doubts about the repayments starting on time. Mr Mustard worries that this loan might be made on an interest only basis.

The July report was wholly inadequate to identify just four risks. The council were not at all forthcoming and Mr Mustard doubts that they have thought this through at all. They aren't however, gambling with their own money but yours and mine, the council tax payer.

If this was a bank doing the due diligence and taking the proposed loan to the credit committee, it would be much more thoroughly researched, every possible negative item would have been documented and stress tested and in all probability the loan would have been refused. Oh wait;

Despite the minimal facts in the answers Mr Mustard will keep on asking the difficult questions because unless he and other members of the public do so even more doubtful ventures will come into being.

Yours frugally

Mr Mustard

Saracens - loan repayment costs

All the facts about this loan are top secret with Mr Mustard not even being trusted, as a member of the public, to be told the planned drawdown dates (as it will be in staged payments as the build progresses) or the frequency of the repayments or even the type of loan i.e. is the capital going to be repaid as we go along or will it be left to the end to repay in one lump sum (Mr Mustard is currently managing a multi-million euro portfolio of Spanish mortgages which have loan terms of up to 30 years on an interest only basis. Some were made to people as old as him so when they hit the ripe old age of 91 they will suddenly have to find £100,000 out of nowhere, their only 'asset' being a Spanish villa worth half what they paid for it and on which they borrowed 70%).

The repayment figures therefore are only indicative of likely repayments if you were to borrow £22.9m in one lump sum and then start repaying even instalments, including the capital, from month 1 all the way through to month 360.

Saracens will have to find £137,297 every month, even when there aren't any matches.

They will repay £49.4m in total (if they manage to) as interest comes to more than the loan. Given that Barnet Council were the lender of last resort, the only body foolish enough to put our (borrowed) money where their mouth is, they should have been charging at least 10% as this loan is, on Mr Mustard's risk rating index, somewhere between reckless Richard and crazy Cornelius.

Yours frugally

Mr Mustard

aka Dismal Derek (copyright Richard, allegedly cautious, Cornelius)

Comment to Policy & Resources Committee 23 October

Here are the words that Mr Mustard will utter this evening shortly after 7pm

Reckless, Richard, is what this loan would be.

For 31 years I have collected debts and provided credit consultancy. I regularly deal in millions. I didn't know when I started in 1987 that I would still be in business today.

Saracens Copthall LLP has accumulated massive losses.

Saracens Ltd has accumulated massive losses.

Ironically, the latest Saracens Sports Foundation accounts show reserves of a quarter million pounds. I admire their good works which take place in Chorleywood, Harrow, Harpenden, Feltham Young Offenders Institute, Hertford, Welwyn and loads of other locations. Those works will continue whether Barnet Council makes this reckless loan or not.

It is reckless Richard to lower the prudency requirements in the Treasury management strategy.

It is reckless Richard to lend for 30 years, a distance into the future that you cannot foretell.

It is reckless Richard to borrow in order to lend.

It is reckless Richard to fail to consult the public about this radical plan.

It is reckless Richard to borrow such a vast sum other than for the provision of local services.

It is reckless Richard to think that Barnet Council know better than commercial banks. The council's history with banks isn't a good one. The Icelandic bank investments didn't turn the expected profit.

It is reckless Richard not to have due regard for the sage advice of CIPFA to 'avoid exposing public funds to unnecessary risk'.

It is reckless Richard not to think of good value viable alternatives, why not just pay Saracens to provide the community benefits you desire rather than this huge risky loan?

There is little doubt in my mind but that my words will be futile and the loan may well get repaid at the start but I seriously doubt that it will endure for 30 years. I will be berating you later if it doesn't.

As I think you should be asking yourself the questions and not me, I will return to my seat.

Please don't be reckless Richard.