REPORT OF THE DIRECTOR OF RESOURCES

EXECUTIVE BOARD

14 OCTOBER 2013

PARC Y SCARLETS AGREEMENTS

HEAD OF SERVICE AND DESIGNATION

R JONES - Director of Resources

DIRECTORATE

RESOURCES

TEL NO

01267 224120

1. BACKGROUND

1.1 Following County Council approval in November 2007, a Development Agreement between the Council and the Scarlets Regional Limited (formerly Llanelli Rugby Football Club Ltd and hereinafter called the “club”) was entered into which culminated in the opening of the stadium and surrounding sports facilities at Parc y Scarlets in November 2008.

1.2 Ownership of the freehold of the property resides with the County Council and the facilities are occupied and managed under a leasehold agreement by the Club. Overall funding arrangements for the development were set out in the 2007 report, but for the purposes of this report the following undertakings are relevant.

2. CHANGES IN 2010

2.1 In October 2010, following a proposal submitted by the Club the following amendments were agreed:

3. CURRENT POSITION

3.1 The changes agreed in 2010 having expired we now revert to the original agreement. The club however, have indicated that they continue to face challenging financial pressures and despite a significant reduction in their cost base, any significant increase in interest payments at this juncture would be problematic to them. They also draw attention to the fact that whilst 7% was a commercial rate of interest back in 2008, since the economic downturn interest rates have reduced significantly .They have therefore requested a renegotiation/review of the terms of the original agreement.

3.2 The interest due on the loan must reflect a commercial rate. A comparison of interest rates over the last 5 years show the following:

Feb 2008 Sept 2010 July 2013

Bank Base Rate 5.25% 0.5% 0.5%

PWLB 15yr 4.68% 3.9% 4.0%

3.3 The inclusion of the sinking fund into the Agreement was a “belt and braces” option introduced by Council officers to provide funds for the ongoing maintenance of the facility in the event that the club defaulted on its obligations under the lease. Specifically the fund was to provide funding for the replacement of the athletics track, replacement of the artificial surface in the training barn as well as general repair and maintenance of the whole facility. In 2010, the Council was satisfied that the club was meeting its obligations under the lease and this allowed for a deferment in the required payments .The following points should also be noted;

3.4 Given that the club continue to meet its lease obligations and in view of the current economic climate they have submitted a request that the requirement to contribute into the sinking fund be reviewed once again and in support of the request they have set out the following

3.5 In return for the Council agreeing to this request the club would offer the following:

4. CONCLUSION

4.1 The financial plight of the club is well documented and reflects the wider economy as a whole. Whilst a review of historic funding arrangements is something many businesses may be looking at currently with the financial institutions that support them as regards the club’s request utmost in the mind of members must be the interest of the taxpayer.

4.2 With regards to the sinking fund given the arbitrary nature of setting the original funding contributions within the Lease Agreement and taking account of the evidence presented by the club both in terms of their record of meeting their obligations to date and the likely costs to be faced in the next 10 years or so, a review of the payment profile would appear to be justified.

4.3 This could be achieved in a variety of ways. For example a further deferment (say 3 years) could be agreed for payments due into the fund, which would ensure that by January 2018 sufficient funds should be available to replace/repair both track and indoor barn surface. Payments due would then be as follows:

4.4 Turning to the loan interest, whilst the points made by the club as regards the current financial climate are valid there is no requirement for the Authority to review the terms unless they choose to do so. However members need to balance the interest of the taxpayer with that of the club and to also ensure continued occupation of the stadium. It should also be borne in mind that the current economic conditions will not last forever and it is hoped that sometime between now and 2023 , the financial climate will improve

4.5 One option which may satisfy both parties would be to convert the loan from a fixed to a variable rate linked to the bank base rate. If the loan was set at base rate plus a premium of 3.5%, this would give a current rate of 4% and slightly improve the level of income currently received by the Authority. As interest rates are at historically low levels it is also likely that interest payments will increase in future thus increasing investment income to the Authority. However longer term, if interest rates were to increase significantly it could place an unaffordable burden on the club. This could be avoided by introducing a maximum cap on the interest rate of (say) 10%

5. RECOMMENDATION

5.1 That the Executive Board amend the terms of its agreements with the club as follows: