Council to act as guarantor under plan by a private-sector consortium to make up £35m funding gap
One of Britain’s largest pension funds is set to be asked to help fund the construction of Glasgow’s 2014 Commonwealth Games Village after the city council approved the plan.
As Building reported on Wednesday, the private sector consortium involved in the development has raised only £5m of its expected £40m contribution to the development after failing to agree loan terms with the Royal Bank of Scotland (RBS).
At a meeting yesterday morning, the council’s executive committee agreed to act as guarantor for the application by the City Legacy Limited (CL) consortium for £35m from Strathclyde Pension Fund, which is administered by the council.
A spokesman for the council told Building: “The council will support City Legacy’s application to Strathclyde Pension Fund for cash flow funding, an option the consortium is considering.
“The council views the provision of the guarantee as a minimal risk. The Athletes’ Village will provide a fantastic home for athletes and officials during the Glasgow 2014 Commonwealth Games, and then become a new neighbourhood for the city.”
Council papers seen by Building showed that CL – which is made up of MacTaggart & Mickel Homes, Cruden Investments, CCG and WH Malcolm – was unable to reach agreement with RBS for the loan.
“CL and RBS have been unable to reach agreement to date on the detailed terms of the loan, in particular with regard to the level and type of corporate guarantees that RBS is asking each individual consortium member to provide,” the document said.
“The type of guarantee being sought by the bank is a ‘cash-call’ guarantee which can be triggered by a number of unrelated default events within the individual members of the consortium not specific to the games development.
“This type of guarantee…places a level of financial risk on the individual partners within the consortium that they cannot accept.”
The document also pointed to the “tightening” of bank lending terms and availability since the development agreement was signed between the council and CL in April 2010.
Under the terms of the proposed deal with the pension fund, CL would be required to pay all costs of arranging it and would also pay the council around £2m for a refinancing charge.