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%

The interest rate on Covid recovery loan money from the Welsh Government is four times higher for the four Welsh rugby regions than it is for English Premiership clubs paying the UK Government.

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 Welsh Rugby Union and the Welsh Government refinanced the £18 million first Coronavirus Large Business Interruption Loans Scheme (CLBILS) package from NatWest that was agreed upon in 2020.

However, the regions are now being charged an eye-watering annual interest rate of more than 8% by the Welsh Government.

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 Cardiff Bay administration and the union, which is responsible for transferring the lending to the regions.

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 contrast, English Premier League teams were able to obtain Covid assistance loans with a fixed interest rate of under 2% from the UK Government.

Up until March 2031, when the payback period expires, the English clubs’ debt is fixed at 2% by the Department for Culture, Media, and Sport (DCMS).

Based on the current BoE interest rate plus the 3% margin, the four regions together pay the Welsh government interest totaling around £1.5 million annually, or about £375,000 each area.

To put that in perspective, a player like George North could have remained with the Ospreys and avoided transferring to France starting with the upcoming season if the interest had just been at 2%.

While not all English Premiership teams received the same amount of financing from the DCMS, Bath Rugby, as of its financial year ending in June 2022, is in receipt of a £5.3 million loan from the DCMS, with an interest payment of slightly over £105,000 that year.

Certain regions have an annual interest and capital repayment obligation of around £1.2 million due to previous WRU loans.

A new six-year financing agreement with the WRU will see their squad player budgets, excluding two star players, drop to about £4.5 million starting next season.

When debt obligations are taken into account, their current financial situations may make it difficult for them to even reach the lower £4.5 million 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.

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 UK 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 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.

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