£300k to set up facility for £225m. pandemic loan
SET-UP fees of about £300,000 were incurred in establishing a £225m. credit facility for the States to draw on as part of its Covid-19 response.
The fees covered advisory and legal costs for all parties while an annual agency fee of £30,000 is also payable to the bank which is acting as agent, according to information released about the terms of the revolving credit facility.
Over a two-year period, total fixed fees – arrangement, advisory, legal and agency – are expected to total in the region of £925,000, which is 0.2% per annum of the total facility amount.
The release of the information follows discussions with the five local banks providing the facility after Policy & Resources announced earlier this month that it had secured it.
While the States agreed short-term borrowing of up to £250m. to meet short-term cash requirements as a result of the pandemic’s potential impact on public finances, P&R reviewed the situation and was confident that a £225m. facility would be sufficient while allowing sufficient ‘headroom’.
‘The terms of this facility are very favourable for the States of Guernsey.
‘Our track record of fiscal discipline together with our clear intentions, subject of course to future States approval and strong reserves, are the reason we’ve been able to secure terms of this nature,’ said P&R vice-president Deputy Lyndon Trott.
‘Again, I’d like to thank the five local banks who have worked with us to ensure this liquidity is available to our community.
‘It will be essential in meeting the financial challenges we face as a result of the Covid-19 pandemic and enable us to continue to support the individuals and businesses most affected by it.’
A revolving credit facility provides committed funds, so that the lender is under an obligation to advance money when requested, as opposed to an uncommitted facility where the lender has discretion, as is often the case with an overdraft.
An RCF is typically used where the amount of funding required will fluctuate over the period. There is a maximum amount under the facility which the lender has committed to make available on demand.
Interest is paid on the amount drawn down and a smaller non-utilisation fee is paid on the amount not drawn down.
This was considered to be the most appropriate and cost-effective mechanism for the States’ requirements as revenues fluctuate during the year – for example, they are higher in the months in which quarterly income tax contributions are received. The RCF is unsecured and the States did not have to provide any assets as security.
A syndicate of five banks is providing the RCF made up of Barclays Bank PLC; Butterfield Bank (Guernsey) Ltd; HSBC Bank PLC, Guernsey branch; Lloyds Bank Corporate Markets plc, Guernsey branch; and The Royal Bank of Scotland International Ltd. Each bank has an equal pro rata commitment.
The States may cancel the whole or part of the total undrawn facility at any time with no fees.
The facility agreement has an initial termination date of two years and contains an option for the States, which it is not obliged to exercise, to extend the termination date by two one-year periods.
The second extension would require further approval of the States.