Agenda item

CAB 72/16

Friar’s Walk

Options Considered/Reasons for Decision

The Leader stated that the Cabinet wanted to be as open and transparent as possible but needed to respect the commercial confidentiality of the proposed deal between two private organisations.

The Leader referred to recent press reports and comments and welcomed a balanced contribution from the Editor of the South Wales Argus. Some comments in the original article were unhelpful. The article mentioned the Cabinet had agreed to ‘buy’ the centre if the deal falls through. The default position always had been that the Council could re-finance the existing funding.

The Head of Law and Regulation stated that the Cabinet had never agreed that the Council should ‘buy’ the asset itself if the sale to Talisker did not go ahead. If the sale did not proceed, then there would be a default in the repayment of the loan and the Council would have to take steps to enforce its security over the asset. There were a number of options that Council would need to consider but they would all involve using the rental income to finance the outstanding debt charges until the scheme could be sold. The Chief Executive stated that there was no reason at this stage to consider the deal would fall through.

The article also says a plan was agreed at a confidential meeting. It was explained that the report to the previous meeting was confidential only because of the commercial confidentiality for two private firms. The report today informed people of the default position which had not changed since the funding agreement was agreed by Council in 2013.

Members received a report referring to options for the sale or re-financing of Friars Walk. Having considered the detailed legal and financial implications of the various proposals, Cabinet agreed that there were only two viable options at the present time – a sale to the Talisker Corporation, a Canadian equity investment company, or a re-financing of the loan by the Council.

Cabinet agreed that the preferred option was a sale to Talisker, on commercial terms, which represented the best market price obtainable for the scheme at the present time. This was clearly demonstrated by the market testing carried out by QRE and comparability with proposed sale terms offered by other potential investment purchasers. The Talisker proposals would enable the Council to discharge the primary loan debt and interest charges.  Therefore, officers were instructed and authorised to agree the detailed terms and finalise the necessary documentation for the delivery of the proposed sale to Talisker, with a target completion date early in the New Year.

However, Cabinet recognised that, if the Talisker deal did not complete, for whatever reason, then the fallback position for the Council would be to take control of the asset itself, re-finance the debt and utilise the net operating income from the scheme to service that debt until such time as a new buyer could be found.

Such a decision to re-finance the Council debt and take control of the property would be a decision for full Council, not Cabinet, because it would fall outside the terms of the original funding approved for this scheme, which was to secure the completion of the development.  Therefore a report would need to be taken to Council in due course, should it be necessary, to consider the default position.

Decision:

To endorse the default position of reporting back to full Council with a recommendation that the Council takes control of the asset and re-finances the loan itself, in the event that the preferred sale does not proceed.

Consultation

Directors, Monitoring Officer, Head of Finance, and Head of People & Business Change

Implemented By:  Head of Law and Regulation

Implementation Timetable:  As set out in the report

The Leader stated that the Cabinet wanted to be as open and transparent as possible but needed to respect the commercial confidentiality of the proposed deal between two private organisations.

The Leader referred to recent press reports and comments and welcomed a balanced contribution from the Editor of the South Wales Argus. Some comments in the original article were unhelpful. The article mentioned the Cabinet had agreed to ‘buy’ the centre if the deal falls through. The default position always had been that the Council could re-finance the existing funding.

The Head of Law and Regulation stated that the Cabinet had never agreed that the Council should ‘buy’ the asset itself if the sale to Talisker did not go ahead. If the sale did not proceed, then there would be a default in the repayment of the loan and the Council would have to take steps to enforce its security over the asset. There were a number of options that Council would need to consider but they would all involve using the rental income to finance the outstanding debt charges until the scheme could be sold. The Chief Executive stated that there was no reason at this stage to consider the deal would fall through.

The article also says a plan was agreed at a confidential meeting. It was explained that the report to the previous meeting was confidential only because of the commercial confidentiality for two private firms. The report today informed people of the default position which had not changed since the funding agreement was agreed by Council in 2013.

Members received a report referring to options for the sale or re-financing of Friars Walk. Having considered the detailed legal and financial implications of the various proposals, Cabinet agreed that there were only two viable options at the present time – a sale to the Talisker Corporation, a Canadian equity investment company, or a re-financing of the loan by the Council.

Cabinet agreed that the preferred option was a sale to Talisker, on commercial terms, which represented the best market price obtainable for the scheme at the present time. This was clearly demonstrated by the market testing carried out by QRE and comparability with proposed sale terms offered by other potential investment purchasers. The Talisker proposals would enable the Council to discharge the primary loan debt and interest charges.  Therefore, officers were instructed and authorised to agree the detailed terms and finalise the necessary documentation for the delivery of the proposed sale to Talisker, with a target completion date early in the New Year.

However, Cabinet recognised that, if the Talisker deal did not complete, for whatever reason, then the fallback position for the Council would be to take control of the asset itself, re-finance the debt and utilise the net operating income from the scheme to service that debt until such time as a new buyer could be found.

Such a decision to re-finance the Council debt and take control of the property would be a decision for full Council, not Cabinet, because it would fall outside the terms of the original funding approved for this scheme, which was to secure the completion of the development.  Therefore a report would need to be taken to Council in due course, should it be necessary, to consider the default position.

Decision:

To endorse the default position of reporting back to full Council with a recommendation that the Council takes control of the asset and re-finances the loan itself, in the event that the preferred sale does not proceed.