FOI request detail

Earls Court Partnership Ltd Loan Notes

Request ID: FOI-0749-1718
Date published: 25 July 2017

You asked
I draw your attention to the TfL Annual Report and Statement of Accounts 2015/2016, attached. Note 15 on page 2017 states: "In early 2015, ECP commenced trading and, on 2 April 2015, the Group granted a 999 year lease over land at Earl’s Court into ECP. Simultaneously, the Group also contributed funds totalling £44.4m to ECP. In consideration ECP issued share capital to a value of £44.4m to the Group, and non-interest bearing equity loans totalling £375.6m. The loan notes are non-interest bearing and have no fixed repayment date. They have therefore been treated in these financial statements as an investment in the equity of ECP." I attach the loan note certificates provided to me by TfL under FoI. The document “ECPL loan notes 3 – part 1” contains the following certificates: Certificate 2, Certificate 4, Certificate 6, Certificate 8, all of which have condition 3.1, in the Schedules, which provides: “Unless previously redeemed or purchased and subject to any extension to be determined by the Board at its sole and absolute discretion, the Company shall redeem the Notes on 31 December 2064 if it is a Working Day or, if it is not, on the immediately succeeding Working Day at par.” The sum total face value of these loan note certificates are £57,303,742. The document “ECPL loan notes 3 – part 2” contains the following certificates: Certificate 10, Certificate 12, Certificate 14, Certificate 16, Certificate 18. Certificates 10, 12,14, 16, 18 do not contain 3. 1, as above, but merely the place marker under 3.1 “NOT USED”. The sum total face value of these loan note certificates are £13,506,254. The sum total of Loan notes for which I have received certificates are £70,809,996. The TfL Accounts of 2015/2016 reveal total loans of £375.6m. Please provide me, under FOI, with all the remaining loan notes issued to TfL, which I have not yet received, to the approximate face value of £305 million. I attach the latest accounts of Earls Court Partnership Ltd, just filed, attached, for the year ended 31 December 2016 which shows in the balance sheet at page 8 under other reserves / profit and loss account a diminution of shareholders funds of £213,107,000 and all the loan notes reclassified as share premium reserve (other reserves) of £1,088,250,000. The Loan note Certificates 10, 12, 14, 16, 18 are not share premium reserve but creditors falling due after one year since they have a fixed repayment date. The balance sheet of Earls Court Partnership Ltd misrepresents the financial strength of the Company, especially worrying as the Company is making substantial losses. The TfL Annual Report and Statement of Accounts 2015/2016 are also incorrect for similar reasons and unless TfL pays attention to this email the TfL Accounts for 2016/2017 will be also. Apart from the accounting issues, I am concerned that TfL have not acted commercially in the corporate finance structuring of the partnership in that as a 37 per cent shareholder they have no power to control the absolute discretion of the Earls Court Partnership Ltd Board with regard to extending redemption. Unlike ordinary shares, where all shares rank pari passu, the loan notes, where extension of redemption applies, are controlled by the Board and extension could be applied differently to different Certificates, to TfL’s disadvantage. TfL could be left with extended loan notes while the majority shareholder empties the company of value by early repayment. We have already seen differential terms by omission of condition 3.1 from some of TfL’s loan notes. I am suspicious that the Loan note Certificates issued to Capco may have differential terms, favouring the majority shareholder. I request under FOI a copy of the Earls Court Partnership Ltd Loan notes which you should have on file, so that I can check there are no differential terns favouring Capco. As you know Paragraph 29 of Schedule 11 of the GLA Act 1999 provides: "If Transport for London engages, either directly or through a subsidiary, in any activities authorised by paragraph 11 or 15(2) or (3) above, it shall in carrying on those activities act as if it were a company engaged in a commercial enterprise or (as the case may be) shall exercise its control over that subsidiary so as to ensure that the subsidiary in carrying on those activities acts as a company so engaged." The asymmetrical capitalisation of Earls Court Partnership Ltd, seemingly favouring Capco, would not be TfL, carrying on those activities, in this case sale of Land under paragraph 15(2) or (3), acting as if it were a company engaged in a commercial enterprise. Please comply with my FOI request for complete disclosure of all Earls Court Partnership Ltd Loan Note Certificates held on file.

We answered

TfL Ref: FOI-0749-1718

 

Thank you for your request received by Transport for London (TfL) on 24 June 2017 asking for information about Earls Court Partnership Ltd Loan Notes.

 

Your request has been considered in accordance with the requirements of the Freedom of Information Act and our information access policy. I can confirm we do hold the information you require.

 

In relation to your FOI request in respect of Earls Court Partnership Limited Notes, loan notes in issue to TfL as at 31 March 2016 totalled £402.7m, being the £375.6m of notes issued on the transfer in of the Earl’s Court property from TfL into the partnership, plus the £27.1m additional loans issued between 2 April 2015 and March 2016 ( referenced on p207 of the TfL Annual Report and Statement of Accounts 2015/2016). In terms of loan note certificates issued, this is broken down as per the table below:

 

Loan note certificates

Amount

2 - loan instrument dated 2/04/2015

331,039,000

2 - loan instrument dated 13/11/2014

44,562,585

4 - loan instrument dated 13/11/2014

1,944,670

6 - loan instrument dated 13/11/2014

6,992,492

8 - loan instrument dated 13/11/2014

3,803,995

10 - loan instrument dated 13/11/2014

2,423,978

12 - loan instrument dated 13/11/2014

3,262,161

14 - loan instrument dated 13/11/2014

2,171,714

16 - loan instrument dated 13/11/2014

1,283,189

18 - loan instrument dated 13/11/2014

4,365,212

401,848,996

Loan note to be issued (as agreed per Board minutes March 2017)

803,687

Total loan notes per statutory financial statements

402,652,683

 

 

The certificates you have already received copies of, totalling £70,809,994 are those highlighted in blue above. I attach the remaining certificate (entitled Certificate 2), for £331,039,000.

 

Although the original loan agreements stated that, unless previously redeemed, they would be redeemed by a long stop date of 31 December 2064, these agreements have since been amended by both parties’ agreement to remove the long stop redemption date of 31 December 2064 (please see ECPL Loan Note holders Written Resolution attached). The removal of the long-stop repayment date applies equally to notes issued to both TfL and Capco entities. As such, for accounting purposes, all  loan notes in issue, being non interest bearing and having no redemption date, are classified within other reserves as “loan notes classified in equity” in the financial statements of Earls Court Partnership Limited for the year ended 31 December 2016 (see page 9 of their financial statements (Statement of Changes in Equity)). The TfL Group’s investment in loan notes has accordingly also been correctly classified as an investment in equity in both the 2015/16 Statement of Accounts, and also the draft 2016/17 Statement of Accounts recently published on https://tfl.gov.uk/corporate/publications-and-reports/annual-report.

 

The treatment and classification of loan notes issued to TfL and Capco entities are identical, and the terms of the transaction on both sides are therefore considered purely commercial. 

 

Please note that in accordance with TfL’s obligations under the Data Protection Act 1998 (DPA) some personal data has been removed, as required by section 40(2) of the FOI Act. This is because disclosure of this personal data would be a breach of the DPA, specifically the first principle of the DPA which requires all processing of personal data to be fair and lawful. It would not be fair to disclose this personal information when the individuals have no expectation it would be disclosed and TfL has not satisfied one of the conditions of Schedule 2 of the Data Protection Act which would make the processing ‘fair’.

 

If this is not the information you are looking for, or if you are unable to access it for some reason, please do not hesitate to contact me.

 

Please see the attached information sheet for details of your right to appeal as well as information on copyright and what to do if you would like to re-use any of the information we have disclosed.

 

Yours sincerely

 

Lee Hill

Senior FOI Case Officer

 

FOI Case Management Team

General Counsel

Transport for London

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