The new EFC stadium is not a done deal while major questions such as those I have asked below remain unanswered
As readers of my blog will know I have asked a series of questions about the proposed move of EFC to the North Docks. As I put in the article I am in favour of this proposals providing the finances really do stack up. To my mind the figures do not yet convince me of this.
I am not the only one. Former Labour MP and Minister, Peter Kilfoyle, is rasing very sinmiular questions in his own blog. The inability of EFC and Liverpool Council to answere basic questiosn sucha s these is worrying even the most ardent Blues supporter.
I append below the full answers that I have got from the Council. They leave four big gaps in our public understanding of the deal. I say public because it is always possible that the Council know more than they are telling me as a mere elected representative of the people!
The four gaps in the evidence are these:
- Why does a company controlled by a billionaire need an external guarantee for its finances? If, for example, Marks and Spencer wanted to build the stadium they would guarantee it against their own assets. There would be no expectation of the council or any part of the public sector being needed to supply a guarantee. According to the reply from the Council they do not know the answer to this question and have suggested that I ask EFC. But they should know the answer if they are adequately assessing the risk of this way forward.
- What is the difference between what the council can borrow for and what EFC can borrow for. It is true that councils can borrow at an all-time low and lower than anyone else. But it is also true that every credit-worthy organisation can borrow relatively cheaply as well. The cost of the insurance cover for the loan to develop the stadium plus the anticipated profit being made by the council implies a minimum of 1.66% difference between our borrowing charges and EFCs. Again to use the M & S analogy the spread between the two levels of interest would be nowhere near as high the maximum would be a difference of about half a percentage point.
- What will the public sector costs be for the infrastructure around the Stadium and where will it come from? The answer from the council does not quantify the costs but suggests that one route for financing them would be the Section 106 planning agreement. The suggestions that I have heard is that the external costs will be in the order of £100 million and that no-one has yet begun to either firmly quantify the work that will be needed or say where the money will come from. The S106 agreement, if indeed it has been included in the stadium’s costs, are unlikely to come to more than £3 million. With no money available from the EU and funds from the UK Government restricted where will the remaining £97 million come from? The only way that I can see is by the bending of already strained budgets for roads and infrastructure throughout the rest of the city.
- What will happen to the existing ground and the area surrounding it? Given that the stadium will have a net negative asset value considering the need to demolish and remediate the land who will pay for that given the shortage of funds as identified above? What will happen to the County Road area and the businesses that in part depend on the stadium? It is clear from the answer from the council below that no thoughts have been given to this so there is no understanding of the financial implications either.
It is vital that these questions are answered if these proposals are to be seen through successfully as we would all like to see. Answering them half way through a building and development programme provides a greater element of risk that the council should be prepared to take for a proposals which is mostly about a private sector company no matter how beloved the Blues are to a certain part of the City.
Either the Council does not know the answers to these vital questions OR it is not telling me them. That is not good enough in a democracy that Liverpool City Council is supposed to be. Am I being too hard on the council? Well I append the replies I received in full and wholly unaltered to see what you think about them and so that you can judge for yourself. Let me know what you think. In the meantime I will carry on with the job that I have at present – scrutinising what the council is doing on behalf of the people of our City.
The questions and answers:
- Why is a ‘Special Purpose Vehicle’ needed for a transaction that should be relatively simple? Club builds stadium, club uses stadium!
The funder will grant a 40 year lease to the LCC SPV and the LCC SPV will grant a 40 year (less one day) occupational lease to EFC. The rent paid by EFC to the LCC SPV will be greater than the rent paid by LCC SPV to the funder. LCC SPV will retain the difference between the rents, which is the security fee. The SPV sits in the middle of the leasing transaction between the funder and the Club and the funds provided by the funder are repaid by the rent.
- Why do the billionaires who own EFC need a guarantee from a third party? In fact why do they need a loan at all? Surely they should be able to fund the development either from their own resources or by giving ‘mortgages’ against their own existing assets.
This is a question for EFC.
2a. You suggested that Liverpool will make a profit of about £4/5 million by providing the guarantee. This implies a very large difference between the interest rate with a guarantee and without. What interest rates has this been based on without and with a guarantee?
LCC will receive a security fee. LCC is securing not financing the lease obligations of LCC SPV, which will be paid the security fee and rent by EFC. The security fee is anticipated to be in the order of £4-5M based on a projected new Stadium cost (estimated to be just in excess of £300M). The security fee will be determined by professional advisors.
2b. Will an insurance based vehicle system be provided to ensure that we do not in fact lose out over this. Is this a lump sum or an annual payment? Has this been allowed for in the £4/5 million profit figure for the Council.
What is meant by an insurance based vehicle system?
The security fee will be paid annually, in one lump sum.
- What assets are available to the council to use against a guarantee if, for any reason, work stopped on the development before the stadium was completed.
The funds for the full amount of the Stadium cost would be made available by the funder simultaneously with the parties entering into the leasing structure.
All necessary due diligence will be carried out by the Council in relation to the funder and the full funding required to complete the stadium construction. Any cost overruns would be the responsibility of EFC.
- What will happen to EFC’s current ground? I understand that it will have a negative value when the club and its revenue stream move out. It will cost more to develop and remediate the land than the land will be sold for.
Considerable consideration is currently being given by EFC to Goodison Park. The Council understands no firm decision has been made yet, but EFC intend to use the Stadium move to facilitate a vital Legacy Project at Goodison Park, delivering health, education, affordable housing and public spaces for the local community which is likely to stimulate further investment in the L4 area. EFC will enter into detailed community engagement before finalising the plans for Goodison Park.
- What will happen to those pubs, snack bars etc. who currently make a considerable part of their income from the EFC presence? Will they be given preference for the new facilities around the new ground and will they be able to afford it?
The Council understands ideas for the new Stadium and Goodison Park are at initial stages. No detailed consideration has been given to the new stadium potential occupiers but ideas and a vision will form part of the planning/consultation process at a future date.
- How much will the public sector need to put in to make this work? The report makes clear that the Club needs no finance from the Council for the stadium but who is going to pay for everything else? There will need to be a huge investment in roads; transport; a new station; new services and general infrastructure to mean that the stadium is accessible and useable.
This deal involves no capital outlay by the Council. The Council’s Cabinet report details the plans that are already underway including complementary regeneration schemes and highways investment for the area. As part of a new Stadium development, the Club would also be obliged to make s106 and s278 contributions which will support their development proposal in planning terms.
- What will the costs be to the public sector for this external activity? Given that a large amount of the money for L1 public works came from the EU, a source no longer available to us, will the money have to come from other road etc? Programmes for which there is already little cash in the pot?
The Council has already identified funding and reported to Cabinet on plans to significantly upgrade the A565 to provide a dual carriageway road. This will create a robust corridor and an important link for freight traffic to the Port of Liverpool new Liverpool2 deep water container terminal and businesses along the route, including Liverpool Waters and Bramley-Moore Dock and in the north of the City.
Regent Road which separates the 10 Streets District from Liverpool Waters will also benefit from upgrades to public realm to create a more pedestrian friendly environment for visitors to the area.
Both projects are funded through LRGF (Liverpool Regional Growth Fund) and DfT (Department for Transport) funding.
The City Council is also progressing wider Highway Infrastructure Proposals which will provide new east-west links which will form a gateway to Liverpool Waters and to the new Cruise Liner Terminal and Isle of Man Ferry Terminal in the future.
Consideration will be given to any other highway upgrades and links required as a result of the new Stadium.
- Why is there no consideration being given to the vital infrastructure questions in this report. Do we know what is needed? Have we any idea of the costs of the programme of action which will ensue?
At the appropriate time, full consideration will be given to any other necessary infrastructure to overcome any challenges and address what is needed, and costs, as a result of the new Stadium.
EFC will also participate with LCC and other parties as appropriate in the master-planning and development of the wider regeneration of the area, therefore maximising the opportunities to create synergies between individual developments and therefore benefits.