LOAN CONVERSION

Taranaki Daily News, 13 November 1934, Page 8

LOAN CONVERSION

BOROUGH COUNCIL DEBTS SCHEME NEARING COMPLETION. BIG STRATFORD TRANSACTION. The largest financial transaction that has ever been promoted at Stratford is being brought to fruition at the present time and should be completed in two to three weeks’ time, when the Stratford Borough Council will have converted its loans to an interest rate of 41 per cent, instead of rates ranging from 5J per cent, to 6 per cent. Nineteen loans, apart from those from the State Advances Department, are being consolidated into one loan which will be completely paid off by 1958 at an annual fixed charge that will be £327 less than under the old system, which provided for repayment by 1966. It was considered unlikely, however, that the sinking funds would have enabled repayment by 1966, thus making a fresh loan necessary. Loans from the State Advances Department are being treated similarly and will be repaid in 1959. The annual saving of £327 is no small item, but over the period till the loans are redeemed a further substantial reduction in costs will occur. An explanation of the scheme under which conversion is being effected was given to a News reporter yesterday by Mr. N. H. Moss, borough solicitor. Apart from loans froni'the State Advances Department, the Stratford borough had 19 different loans to a total of £135,486 at rates of interest varying from 5i per cent, to 6 per cent., and with varying maturing dates from 1935 to 1966, he said. Practically all these loans were raised under a system that has obtained for many years —that of a sinking fund to which annual contributions were made, the sinking fund being invested and the interest compounded. The rate of interest that the sinking fund earned varied, and in very few cases did the fund earn sufficient to redeem the loan at the end of the term, which meant raising a fresh loan to cover the deficiency. Under the conversion scheme adopted by the council all the loans are being merged into one consolidated conversion loan of £119,970. The existing sinking fund held by the Public Trustee at October 1 is being used to reduce the total amount of the loans, which accounts for the difference between £135,486 and £119,970. TERM OF NEW LOAN. The new consolidated loan has a term of 24 years, and by October 1, 1958, the whole loan of £119,970 will have been repaid by the adoption of a system of reducing a stated amount of the loan every six months. This is another way of using sinking fund money. .Instead of investing annual sums the sinking fund contributions are used to redeem so many debentures every six months. Moreover, the yield on the sinking fund is constant at the full rate that is paid on the loan itself. This system must mean a big saving to any local body for a period of years. Under the old system the nominal date on which the loans would have been paid would have been December 1, 1966, but as a sinking fund in the ordinary cc arse very seldom yields enough to repay loans, the chances were that the old loans would not have been paid off by 1966. The same principle is being applied to State Advances Department loans, which are being consolidated into one loan that will be repaid by 1959. Before the introduction of the 20 per cent, statutory reduction of interest, the total annual charges for interest and sinking fund on the 19 loans was £9451. The reduced interest rate brought the charge down to £BOO3, a saving of £1448. The present conversion plan will result in a further annual saving of £327, giving a total annual saving of £1775 on fixed charges. There will be a greater saving than that, however, but it is difficult to estimate, beyond the fact that over a period of years it must be considerable, because although the council will pay £327 less a year in annual fixed charges the whole indebtedness will be liquidated at least eight years sooner than before. A premium is paid to compensate the holders of the old securities for a reduction in interest to 4| per cent, in cases where 4| per cent, is less than the original rate minus the 20 per cent, statutory reduction in the rate. The total premium payable by the council to the holders is £4llO. To pay the premium authority was obtained from the Loans Board to issue debentures for sale, and £4OOO worth have been subscribed for at 3J per cent., so that the council will effect another saving on that item. GENERAL ITEMS. Eltham Tennis Ladder Games. In ladder matches played on the Eltham tennis courts W. 0. Hill beat H. Gover 9—5, E. Phillips beat F. Sexton 9—4, J. P. Valentine beat N. Stewart 9—5, T. Bluett beat N. Stewart 9—l. Wilson Trophy Won. Though the section winners in the Wilson trophy competition for members of the Stratford Bowling Club were found last year, the final was not played till last week-end, when C. Higgs beat N. P. Green by 21 to 18. It was a particularly close game and the changing fortunes of the players attracted other bowlers on the green who left their own games to watch the two contestants. Swimming Season Arrived. Warm weather has encouraged swimming enthusiasts at Stratford, who have made an earlier start than usual this season. The Patea River's numerous attractive pools within the borough were patronised by a fair number of bathers at the week-end and yesterday, and work is being done to ensure that the baths in Cloton Road will be ready for opening to-morrow. They are already filled, and a working bee during the week-end did good work in clearing up the surroundings and painting dulled ironwork. ADVERTISERS’ ANNOUNCEMENTS. Attention is called to the public meeting to be held in the Parish hall, Stratford, as advertised. British Israel teaching contends that the only way out of the present economic trouble is by returning to the code of laws laid down by God in His word, and it defines Britain’s part as God’s servant nation in the matter. Patrons are assured of an interesting evening. British Israel is a new sect and is strictly undenominational.