C&RT Borrowing £150 million Due To Declining Income

[Alan de Enfield]

From 'the other place' but news worthy none the less :

If they are suffering from such low incomes then surely the problems of repaying interest, plus the continuing 'ongoing' costs are going to be unmanageable ?

Its like these 'payday' loans it doesn't actually give you anything additional apart from more debt.

Is the plan to go bankrupt and hand it all back to Government control (or the EA ?)

 

WITH funds at an exceeding low level Canal & River Trust has resorted to borrowing £100 millions in the form of bonds.

Issuing bonds is a form of borrowing money to give medium or long-term security, but at a cost as it commits to specific repayment dates, at fixed or variable interest.

Borrowed this month

The Trust borrowed £100 millions this month (January) and it is understood it intends to borrow a further £50 millions later in the year by a further issue of bonds.  It blames the reduction of income from its assets coupled with a rise in pension deficit.

There was no Press Release of this move to secure funds, that took place at a Defra Grant Review Meeting with the decision made by the Trust's hierarchy.

The repayment dates or rates of interest were not released, but can only be seen as an expensive stop-gap to its ever declining funds

[Horace42]

Follow the money...!

Where is it going ?

My guess it is to pay the 'Forpies' of the management.

[Arthur Marshall]

Rises in pension deficit usually occur because back in the 90s the pension funds were doing so well that the employers stopped putting money into them and took the money that should have gone there out in the form of dividends, bonuses or just whopping up their salaries.  I somehow doubt they spent it on maintaining the system.

As a consequence, the only people, to suffer in the end would be the lower paid pensioners - after all, you can't expect the Chairman to take a reduced salary because of something his predecessor did, now can you?  Even though he probably did exactly the same in his previous job etc etc...

[BruceinSanity]

1 hour ago, Alan de Enfield said:

From 'the other place' but news worthy none the less :

If they are suffering from such low incomes then surely the problems of repaying interest, plus the continuing 'ongoing' costs are going to be unmanageable ?

Its like these 'payday' loans it doesn't actually give you anything additional apart from more debt.

Is the plan to go bankrupt and hand it all back to Government control (or the EA ?)

 

WITH funds at an exceeding low level Canal & River Trust has resorted to borrowing £100 millions in the form of bonds.

Issuing bonds is a form of borrowing money to give medium or long-term security, but at a cost as it commits to specific repayment dates, at fixed or variable interest.

Borrowed this month

The Trust borrowed £100 millions this month (January) and it is understood it intends to borrow a further £50 millions later in the year by a further issue of bonds.  It blames the reduction of income from its assets coupled with a rise in pension deficit.

There was no Press Release of this move to secure funds, that took place at a Defra Grant Review Meeting with the decision made by the Trust's hierarchy.

The repayment dates or rates of interest were not released, but can only be seen as an expensive stop-gap to its ever declining funds

First question: is it true? I'll withhold judgement until I see the story in one of the real publications like TT or CB.

Issuing bonds is a bog standard way of raising funds and interest rates are still at rock bottom levels.

[Mike Todd]

4 hours ago, BruceinSanity said:

First question: is it true? I'll withhold judgement until I see the story in one of the real publications like TT or CB.

Issuing bonds is a bog standard way of raising funds and interest rates are still at rock bottom levels.

Like you, I'd like to see more detail before rushing to ill-advised judgement. Clearly, borrowing to fill a sustained current funding hole is just daft, unless there is good reason to believe that a permanent 'solution' is about to arrive like a white knight). However, it may be more in the nature of working capital. Every business needs to have a measure of working capital in order to cover the variations between income and expenditure and many start up business, otherwise trading profitably, fail through just this factor. I know it sound counter-intuitive but it is possible for a 'profitable' company to go bust.

If the income from assets has reduced, that sound a bit odd if it is a recent occurrence - if not then it should have been predicted. Interest rates and investment returns have been quite stable for some time, even if not that attractive. For the most part, property has held up although there are some exceptional sectors. It could just be a sign of poor management of that part of the business, in which case borrowing is only sensible if there is a recovery plan in place (eg a new manager!)

Pension deficit was one of the factors in Carrillion (in that case they selfishly ignored the problem, with the consent (?) of the Regulator) and continued to pay dividends and top level salaries and bonuses. Borrowing to cover it only makes sense if there is reason to believe it is short term - for example if there are to be significant savings in the near term, which probably means non-trivial redundancies or that a defined benefit scheme has been withdrawn and replaced with a defined contribution scheme at a level that will see the legacy costs met within a short period.

But the plain fact is that the quoted non-press statement clearly hides more than it reveals - so what's new? It has taken a disaster with Carrillion for us to find out what really went wrong with the pensions a good few years after it was first identified. (2008? I think I heard)

Perhaps our reps on the various committees can winkle out a better explanation  - and those more able to ferret around in the annual accounts and interim statements able to suss out the main implications.

[Alan de Enfield]

I know "The Floater" is not held in high esteem but it does contain further information and photographs of the CRT delegates (allegedly) making their presentations to DEFRA

C&RT stated that they were able to do this 'at attractive rates' (no actual figure was given) after securing a private credit rating. The meeting was attended by C&RT chair Allan Leighton, who was accompanied by chief executive, Richard Parry, and Finance Director, Sandra Kelly.

Bizarrely, C&RT provided this information to Defra as an efficiency saving!

 

[MtB]

31 minutes ago, Alan de Enfield said:

I know "The Floater" is not held in high esteem but it does contain further information and photographs of the CRT delegates (allegedly) making their presentations to DEFRA

C&RT stated that they were able to do this 'at attractive rates' (no actual figure was given) after securing a private credit rating. The meeting was attended by C&RT chair Allan Leighton, who was accompanied by chief executive, Richard Parry, and Finance Director, Sandra Kelly.

Bizarrely, C&RT provided this information to Defra as an efficiency saving!

 

 

The thing I find most curious is that CRT is deliberately planned to do a Carillion in about ten years, when the money runs out once govt funding is withdrawn (AIUI) in a few years time.

How can they honestly sell such long bonds when the medium term survival of CRT is so uncertain?

[Alan de Enfield]

A little bit of inconsistency over the causes of the shortfall :

 

Source : Third Sector Financing (24th August 2017)

C&RT had pension losses of £66.8m in 2016/17, causing its pension fund liability to more than double over the course of the year, its latest accounts show.

The charity’s accounts for the year to 31 March 2017, filed with Companies House this week, show a significant change from the pension valuation in 2015/16 when there was a gain of £36.8m.

This left the charity’s pension fund liability at £116.1m compared with £51.4m the previous year, the accounts show.

The accounts say that the pension loss is mainly due to "adverse changes to discount rate and inflation assumptions".

A spokeswoman for the charity said that lower investment returns and higher inflation were factors in the increased amount of future pension liabilities.

The charity, which was formed when British Waterways was spun out from the public sector in 2012 is part of the Waterways Pension Fund. The government promised at the time to provide the charity with more than £800m of funding over 15 years, including a one-off payment of £25m to compensate the pension deficit.  

As of 30 September 2016, the defined-benefit scheme was closed to future benefit accrual.

The pension losses meant that the net movement in funds at the Canal & River Trust show a loss of £12.9m in 2016/17 compared with a £77.3m gain the previous year.

But income has increased at the charity over the past year, rising from £189.7m to £202.9m in 2016/17.

The charity made a £48.4m gain on investments compared with £37.8m the previous year, which amounts to a 28 per cent increase, according to the accounts.

The accounts also say that the charity’s pension accumulation designated reserve – which is reserved for repaying any pension fund deficit that exists when a government guarantee expires in 2031 – had risen to £18.6m from £8.4m the previous year.

Stuart Mills, property director, was the highest earner at the charity, and received a total salary of £207,887, while the charity’s chief executive, Richard Parry, earned £194,405, the accounts show.

There was also a 12 per cent increase in volunteering with more than 540,000 hours given over the course of the year, the accounts say.

[Horace42]

1 hour ago, Alan de Enfield said:

Stuart Mills, property director, was the highest earner at the charity, and received a total salary of £207,887, while the charity’s chief executive, Richard Parry, earned £194,405, the accounts show.

There was also a 12 per cent increase in volunteering with more than 540,000 hours given over the course of the year, the accounts say.

The amount pocketed by the 'management' compared to my meagre pension is colossal - and my pension comes from my own self administered scheme - that supposedly is secured by the Govt. Pension Protection Fund -  where in reality the money to pay out for the collapse of a fund will not come from the Govt, but instead will come from raiding the reserves of all successful funds - mine! (and successful because I only draw the minimum) - thus the raid leaving me with even less. 

They are all at it (Govt, banks, insurance companies, fund managers) drooling round the pension pots ready to pounce.

In the meantime. I will not be volunteering my free services for anything at CRT whilst the bosses pocket so much money.

 

[fanshaft]

On 1/29/2018 at 18:30, Mike the Boilerman said:

 

The thing I find most curious is that CRT is deliberately planned to do a Carillion in about ten years, when the money runs out once govt funding is withdrawn (AIUI) in a few years time.

How can they honestly sell such long bonds when the medium term survival of CRT is so uncertain?

I've read this with interest  asked an accountant friend of mine (who has an interest in waterways) to see what he could find out  about CRT borrowing £150m. He explained that it is not unusual with big charities etc with large assets to borrow at current low interest rates.  For example, he said the Welcome Foundation, one of the UK's largest charities, have just raised £750m, repayable in 100 years' time, with the interest rate fixed at 2.517% pa. (To put this in perspective, they have a £23bn investment portfolio. Last December Oxford University borrowed money for 100 years.)

CRT are apparently borrowing £150m. My accountant friend says he would expect repayment to be on a staggered basis, not all at once. (30-40 years is more usual than 100 years.)

Only charities with large investments can do this as there is a need to comfort the people providing the loan. He had a look at CRT's 2017 accounts which show investments of £787m. Charities without large investments can't do this.  Under the 2012 Government deal, apparently these can only be sold if the proceeds are re-invested; they can't be used (without Government approval) to prop up maintenance spending - this is something  that many don't appreciate!  If all the property were sold there would be a bonanaza and lots of money to spend on maintenance, but once it was gone there would be no income from it.  The income (£37m last year) is for spending on looking after the waterways; CRTs total income last year was £185m.The loan of £150m is only 19% of the investments - he said this is very low by property company standards.

The money borrowed is invested to yield more than the interest cost. In the CRT case, they can get over 5% p from investing in good quality buildings ( a very good retrun) which are let to good quality companies. The interest rate CRT are paying is not given but let's assume it is 3% p.a. - more than Welcome. So CRT will make a profit of 2% pa - that's £3m extra income a year for spending on the waterways.

The  original comment claimed CRT had "ever declining funds". Had the author looked at the accounts, he would have seen total funds (including the property endowment fund) of 2014 £596m; 2015 £660m; 2016 £734m;  2017 £721m. After ignoring the growing endowment fund, the general fund shows 2014 £17m; 2015 £25m; 2016 £19m; 2017 £24m.

There's also been comment about the pension fund. He said this is now closed. The 2017 CRT accounts showed the deficit for funding purposes was £4.78m and thus £5m was paid into into the pension fund. To put that into perspective, the pension fund had assets last March of £448m".

Not my field, but I hope that helps.

Regards

David

 

[fanshaft]

On 1/29/2018 at 18:30, Mike the Boilerman said:

 

The thing I find most curious is that CRT is deliberately planned to do a Carillion in about ten years, when the money runs out once govt funding is withdrawn (AIUI) in a few years time.

How can they honestly sell such long bonds when the medium term survival of CRT is so uncertain?

Why would the government withdraw funding?  The Trust needs to show (and I am sure it can) that it is delivering on its objectives in terms of the standard of its assets and other bench marks.  What is the alternative for the government?  Closures would be unthinkable politically and a return to public operation would be less cost effective as the advantages of being a charity would be lost.

 

David L

[Allan(nb Albert)]

1 hour ago, fanshaft said:

Why would the government withdraw funding?  The Trust needs to show (and I am sure it can) that it is delivering on its objectives in terms of the standard of its assets and other bench marks.  What is the alternative for the government?  Closures would be unthinkable politically and a return to public operation would be less cost effective as the advantages of being a charity would be lost.

 

David L

It is not a case of government withdrawing funding. Rather, it is a case of government not having any obligation to continue funding at the end of the grant review period. This is made quite clear in the grant agreement.

With regard to the financial advantages of being a charity, whilst C&RT seems to be taking advantage of its various businesses returning money to it via gift aid rather than by dividends (much more tax efficient), it has not managed to deliver on its charitable giving income stream. Neither have Waterway Partnerships delivered financially
 

[fanshaft]

2 hours ago, Allan(nb Albert) said:

It is not a case of government withdrawing funding. Rather, it is a case of government not having any obligation to continue funding at the end of the grant review period. This is made quite clear in the grant agreement.

With regard to the financial advantages of being a charity, whilst C&RT seems to be taking advantage of its various businesses returning money to it via gift aid rather than by dividends (much more tax efficient), it has not managed to deliver on its charitable giving income stream. Neither have Waterway Partnerships delivered financially
 

I agree that the government is not obliged to continue funding - but why would it not do so?   I don't see it has any alternative as public opinion would not let the waterways be closed down.   The fact that the Trust has not (as yet) delivered fully on its charitable giving income (a small part of the whole)  is probably less important than that most of the other objectives have been met, especially asset condition.  Similarly the early aspiration for the Partnerships to raise money was only one of their many activities - and some income raised by Partnerships is probably not seen in the accounts anyway as it goes directly to third parties for waterway improvements such as towpaths, or community projects etc.  I'm not sure how you measure success in this regard as the Partnerships were not to my knowledge ( as a Partnership member) given fund raising  targets.

 

David L 

 

[Allan(nb Albert)]

8 hours ago, fanshaft said:

I agree that the government is not obliged to continue funding - but why would it not do so?   I don't see it has any alternative as public opinion would not let the waterways be closed down.   The fact that the Trust has not (as yet) delivered fully on its charitable giving income (a small part of the whole)  is probably less important than that most of the other objectives have been met, especially asset condition.  Similarly the early aspiration for the Partnerships to raise money was only one of their many activities - and some income raised by Partnerships is probably not seen in the accounts anyway as it goes directly to third parties for waterway improvements such as towpaths, or community projects etc.  I'm not sure how you measure success in this regard as the Partnerships were not to my knowledge ( as a Partnership member) given fund raising  targets.

 

David L 

 

I was just making the point that government are under no obligation to fund C&RT after the current agreement runs out. My guess is that they will fund but at a much reduced level.

With charitable giving, the intention was to have to an income stream delivering £10m a year after 10 years. I would not call that insignificant. 

With Partnerships, I am surprised by your lack of knowledge regarding fundraising. I suggest you reread the email I sent to your chair which is posted elsewhere on this forum. The fact is that that WP chairs were told in 2013 that they needed to identify sources of funding and raise the money for projects undertaken. C&RT would optionally match fund.

 

[jds_1981]

I guess they need to consider ways they can raise more money. They seem to be spending money to make more permanent moorings (which I kind of disagree with in London at least) which makes sense money wise. Perhaps they'll need to increase general cruising license costs too?