The four Welsh rugby regions are paying four times the rate of interest on Covid recovery loan funding from the Welsh Government than English Premiership clubs are paying the 海角视频 Government.
The Welsh Rugby Union refinanced the initial Coronavirus Large Business Interruption Loans Scheme (CLBILS) package from NatWest, amounting to £18m and agreed in 2020, with the Welsh Government last year.
However, the regions are now being charged an eye-watering annual interest rate of more than 8% by the Welsh Government - which is financing the loan from a lending facility it has with the 海角视频 Government’s Treasury for which there is no interest.
The current high interest rate is because when the deal was struck between the Cardiff Bay administration and the union - which has passed the lending through to the regions - a margin of 3% over the Bank of England’s (BoE) base rate was agreed.
At the time the base rate was just 0.75%, so with the 3% margin on top it meant the debt was initially only a little more expensive to finance than the original CLBILS loan with NatWest.
The BoE, in its fight to curb inflation, has since increased the base rate to the current level of 5.25%. That means the regions are paying interest of around 8.25% per annum.
In comparison English Premiership clubs secured Covid support loans from the 海角视频 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.
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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.
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It made sense for the WRU to arrange the funding as companies receiving backing from the CLBILS needed annual revenues of at least £45m.
So, while the regions in theory could have potentially individually tried to secure their own Covid loans from the Coronavirus Business Interruption Loan Scheme (CBILS), which provided loans for SMEs ranging from £1m to £5m, it was more efficient to wrap funding up under one single deal negotiated via the WRU.
The £18m finance provided by the Welsh Government, to refinance the three year NatWest Covid loan, is from a capital lending facility it receives from the 海角视频 Government and not funding from hard-pressed departmental budgets.
And this is where it gets a little more galling for the regions, in that the called Financial Transactions Capital (FTC) facility from the Treasury to the Cardiff Bay administration doesn’t incur any interest. 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 海角视频 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 believe, as I passionately do, that rugby is a great strategic asset for Wales, then how can the regions be paying such a high level of interest on government lending compared to English clubs?”
He is confident that a less financially onerous deal can be struck between the WRU and the Welsh Government.
The Welsh Government needs to revisit the terms of the lending to the regions. A starting point should be an interest rate of 2% in line with the English clubs, and then seeing if it could go even lower, based on legal advice, alongside reinstating the repayment term back to 2040.
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