Private-sector consortium calls on Glasgow council to back pension fund deal to help make up shortfall on Commonwealth Games village
The private sector consortium behind the 2014 Commonwealth Games village is planning to turn to one of Britain’s biggest pension funds for financial assistance after raising only £5m of its expected £40m contribution to the development.
Glasgow council’s executive committee will tomorrow morning (2 February), be called upon to support the local authority acting as guarantor for the application by the City Legacy Limited (CL) consortium for £35m from Strathclyde Pension Fund (SPF), which is administered by the council.
Council papers seen by Building show that CL – which is made up of MacTaggart & Mickel Homes, Cruden Investments, CCG and WH Malcolm – has been unable to reach agreement with Royal Bank of Scotland (RBS) for the loan.
The required level of private sector funding is £40m compared with £140m from the public sector.
“There is a cash flow funding requirement of up to £35m and CL has been in detailed negotiation with RBS for the provision of this funding,” the document states.
“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 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 points to the “tightening” of bank lending terms and availability since the development agreement was signed between the council and CL in April 2010.
The new funding proposal asks the council to support CL’s application to the pension fund’s ‘new opportunities portfolio’ by providing a guarantee to the fund.
“If the provision of a guarantee is approved, the council will require a back to back guarantee from each of the companies that make up the consortium,” the document continues.
Under the terms of the proposed deal, CL would be required to pay all costs of arranging it and would also pay the council around £2m refinancing charge.
The local authority argues that the financial risk it faces would not exceed £1m because of factors including the one-off payment of £2m and the ring-fencing of public sector funding.
SNP council leader Allison Hunter told Building that her party would support the motion but accepted there was a risk.
“There is a slight risk but it has been qualified by the [council’s] financial director and I think it is bearable,” she said.