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Phill Grover
#1 Posted : 30/11/2018
Joined: 24/02/2018(UTC)
Posts: 7
Organisation: Devon and Somerset Fire and Rescue Service

The loans we have taken out to fund our capital spend aren't due repayment until the end of the term. Each year we set aside MRP which reduces our Capital Financing Requirement. But our debt level doesn't change which leaves us over borrowed (debt greater than CFR). My understanding of the guidance is that we can't be over borrowed.

To counter this we "internally borrow" each year, despite having sufficient reserve/revenue funds for our capital programme, to bring the CFR back up to debt levels. This has the joyous impact of increasing our MRP in future years. Over the life of our loans we are going to set aside about £30m more MRP than our debt!

What are we doing wrong?!

If we could compare our CFR with our "net" debt (loans less previous MRP) we'd be fine but the guidance says gross debt.

I've asked our TM advisers and cannot get a satisfactory response. Can anyone shed any light for me please?

Many thanks,
#2 Posted : 03/12/2018
Joined: 24/02/2018(UTC)
Posts: 77

Was thanked: 4 time(s) in 3 post(s)
The Prudential Code allows you to explain this : para 62 "Where the gross debt is greater than the capital financing requirement the reasons for this should be clearly stated in the annual treasury management strategy."
I suppose what you have to explain is why you borrowed for a longer period for the capex when you had surplus revenue / reserve resources coming in future years? (you're very fortunate by the way!)
You won't be charging more MRP than capex. Most authorities will be charging more MRP over time than actual debt taken out, as they don't necessarily borrow cash equal to the capex when financing schemes through "borrowing".

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