Wales’ rugby regions pay eye-watering interest rate on loan to the Welsh Government

The refinanced Covid loan the WRU struck with the Welsh Government has an interest rate of more than 8% while English clubs are paying the UK Government just 2%

Compared to English Premiership clubs paying the UK Government, the four Welsh rugby regions are paying four times the interest rate on Covid recovery loan funding from the Welsh Government. Furthermore, this is true even if the Cardiff Bay administration is using a no-interest loan facility it has with the UK Government’s Treasury to finance the loan.

The first £18 million Coronavirus Large Business Interruption Loans Scheme (CLBILS) package from NatWest, which was approved in 2020, was refinanced by the Welsh Rugby Union last year with the government of Wales.

But now the Welsh Government is slugging the regions with an almost unconscionable 8% yearly interest rate.

The reason for the current high interest rate is that a margin of 3% above the Bank of England’s (BoE) base rate was agreed upon when the agreement was made between the union, which has transferred the lending to the regions, and the Cardiff Bay administration.

With the additional 3% margin and the then-current base rate of 0.75%, the debt was initially just marginally more expensive to finance than the original CLBILS loan from NatWest.

Since then, the BoE has raised the base rate to its present level of 5.25% in an effort to combat inflation. This indicates that the areas pay about 8.25% in interest annually.

In comparison English Premiership clubs secured Covid support loans from the UK Government with a fixed interest rate of just 2%. The English clubs’ debt, through the Department for Culture Media and Sport (DCMS), has the 2% fixed until the end of the repayment term in March, 2031.

Collectively the four regions, based on the current BoE interest rate plus the 3% margin, are paying interest to Welsh the Government of circa £1.5m a year – or an average of around £375,000 each. To put into context if the interest was just at 2% it could have kept a player like George North at the Ospreys and not moving to France from next season.

In contrast, while not all Premiership clubs in England drew down the same level of funding from the DCMS, Bath Rugby – according to its financial year to June, 2022, is in receipt of a DCMS loan of £5.3m, which incurred an interest payment of just over £105,000 in that year.

With other WRU lending, some of the regions have an interest and capital repayment liability of around £1.2m per annum.

From next season, under the a new six-year funding deal with the WRU, their squad player budgets, outside of two marquee players, will fall to around £4.5m. Based on their current financial positions, when factoring in debt liabilities, it could be a challenge to even get to the reduced £4.5m player squad level.

Around 58% of the DCMS’ £279m sports survival funding went to rugby union in England with 626 clubs benefitting. The funding to the Premiership clubs varied with some receiving around £10m.

The original NatWest deal, alongside a £2m loan that the WRU secured from World Rugby, saw the Scarlets receiving £5.5m, Cardiff Rugby and the Ospreys £5m and the Dragons £4.5m.

It made sense for the WRU to arrange the funding as companies receiving backing from the CLBILS needed annual revenues of at least £45m.

Therefore, even though each region could have theoretically attempted to obtain a Covid loan from the Coronavirus Business Interruption Loan Scheme (CBILS), which offered loans for SMEs ranging from £1 million to £5 million, it was more effective to combine funding into a single agreement negotiated through the WRU.

The Welsh Government did not use money from tight departmental budgets; rather, it used a capital financing facility it receives from the UK Government to give the £18 million needed to refinance the three-year NatWest Covid loan.

This is where things start to become a little more annoying for the regions because there is no interest associated with the Financial Transactions Capital (FTC) facility that the Treasury provides to the Cardiff Bay administration.

All the Welsh Government has to do is repay the capital over the long-term.

To put into simple terms it’s like having a mortgage where there is no annual interest payment, but just a commitment to pay off the amount borrowed. The Welsh Government uses the facility to then provide loans and equity to non-government organisations. One of the biggest recipients is the Development Bank of Wales.

The Welsh Government wouldn’t for commercial reasons confirm the interest rate it agreed with the WRU. However, it said “whilst confidential it had to comply with subsidy control regulations and have full consideration for the financial market and not distort the market conditions.”

Okay, that sounds all reasonable and the Welsh Government would need to be cognizant of a potential legal challenge if say it charged 1% or no interest at all on the loan.

However, that doesn’t justify the current rate of 8.25% – regardless of the fact that financial markets are expecting the BoE to cut the base rate next year. If the UK Government is charging just 2% to English clubs then surely that would give the Welsh Government a sound legal basis to at least charge the same.

When the deal was struck on behalf of the regions by the WRU it was heralded as benefitting from a long-term repayment schedule. Despite the risk of the base rate increasing, its attraction was that the capital didn’t have to be repaid in full until 2040 – nine years after the expiry of the DCMS loans to the Premiership clubs.

However, it has been confirmed that the Welsh Government has reduced the term by 11 years to 2029. At that point, assuming the regions can maintain annual capital payments, the collective debt will be around £10m. This will mean the WRU will have to refinance it with another lender.

But why has the WRU decided to reduce the term by 11 years?

When asked they just said: “The change in date (from 2040 to 2029) was agreed as part of the renegotiation of the loan to reflect business need and to align the Welsh Government more closely with term of the agreement between the WRU and its primary lender, as is normal practice in the financial sector.”

Yes, the WRU’s current lending facility deal with NatWest does expire in 2029, but that shouldn’t have any bearing on the terms of its deal with the Welsh Government. It would seem that the union didn’t have much of a choice and as a result the recipients of the lending in the regions.

Chairman of the Dragons David Buttress said the current terms of the loan need to be addressed as a matter of urgency.

He added: “I think it is morally wrong and it does look like profiteering. You have to remember the funding was originally provided because of a once in a century event, a pandemic. Clubs were facing going out of business and these were loans to keep rugby clubs alive.

“If you, like me, fervently think that rugby is a valuable strategic resource for Wales, how come the regions are paying so much more in interest on government loans than English clubs?”

He is optimistic that the Welsh Government and the WRU can reach a less burdensome financial agreement.

The conditions of the loans to the regions must be reviewed by the Welsh Government. An interest rate of 2%, in line with the English clubs, should be the starting point. Based on legal advice, it should then be investigated whether it may be lowered even more, in addition to extending the repayment period to 2040.

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