Add Sector – Arial 20pt bold Types of equity participation in JVs Rob Hann and Martin Forbes, Local Partnerships London 3 rd March 2010

© Local Partnerships LLP 2010 Local authority JVs 1997 cf °Recession/General Election year! °LACAP published °Powers issues, Audit Commission, Hammersmith and Fulham swaps etc °Allerdale DC, swimming pools and time share- risk transfer but not replicable! °Waltham Forest, Sutton, etc °PFI, Local Government (Contracts) Act °Accounting and balance sheet issues °Part V of the LG and Housing Act 1989 °LG Minority interests encouraged – (less than 20% equity due to capital finance and other consequences) °Some controlled companies eg LAWDCs °Other equity structures? 2010 °Recession/General Election year °LACAP updated! °Powers issues °Brent and Laml case °Procurement issues and remedies regs – much more complexity °Teckal re public sector inter-authority? ; °Accounting and balance sheet issues – what standards, what rules to apply, what consequences follow? °Part V – much less of an issue but less than 20% remains the norm e.g LIFT/BSF/other °Some experimentation with new structures LLPs, LABVs

© Local Partnerships LLP 2010 Allerdale – Keswick Leisure Centre and Pool

© Local Partnerships LLP 2010 Equity participation in JVs Minority interest (less than 20%) Substantial minority interest (20-49%) Deadlock (50-50) Control (or substantive control)? °Risk and reward implications for different levels of share holdings °Administrative implications for different levels of share holdings °Golden shares and reserved rights? °Different classes and voting rights °Local government scratching the surface of what’s possible

© Local Partnerships LLP 2010 Equity – financial perspective

© Local Partnerships LLP 2010 Equity – accounting treatment 5.19 The relationship between the ONS statistical classification, financial accounts and the Treasury budget setting process is not straightforward. HM Treasury 2010 Joint Ventures: a guidance note for public sector bodies forming joint ventures with the private sector

© Local Partnerships LLP 2010 Role of equity A mechanism for exerting Control A source of Funding Represents an Investment Demonstration of Commitment

© Local Partnerships LLP 2010 Funding What is it being used for? - nature of capital expenditure - benefit profile of expenditure - non-equity alternatives How much is required? - consumption - lenders covenants When is it required? - opportunity cost Cost of Capital

© Local Partnerships LLP 2010 Investment Different investment motives – different views, appetites & requirements for risk and return Finding equilibrium – role of business plan & shareholder agreement Capacity – how much funding can be supported? Dealing with change – dilution and disposal

© Local Partnerships LLP 2010 Local partnerships role? °Soon to be owned by HMT and the LGA °Unique position to work with Local authorities (and other public bodies) to pilot new projects, new JVs and find what works best; °To lobby for changes to legislation where necessary; °To provide clarification where necessary; °To develop templates and model constitutions, shareholders agreements bespoke to sector and project; °To use multi-disciplinary approach, public/private experience to deliver answers to some of the tricky issues which have helped to restrict innovation and limit equity participation to minority interests.

© Local Partnerships LLP 2010 Contact details Rob Hann Director Legal Services Martin Forbes Senior Executive, Housing & Property Layden House Turnmill Street London EC1M 5LG