February 27 2010

Half truths . . .


I put down a series of questions to last Thursday's meeting of full council regarding the authority's decision to swap its £1.75 million secured loan portfolio in Bluestone for a 3% stake in the restructured company.
I hope to deal with this matter more thoroughly once I have the written answers to hand.
In the meantime, I will briefly give my take on what transpired.

Q1. Once the major creditors of the Bluestone companies had agreed to a prepack administration, what options other than a debt for equity swap were open to the council?"
According to my notes, the Leader initially said this was the "only option" on the table, but when I pressed him further he admitted that the council could have demanded its money back.
He went on to say that Bluestone was an significant contributor to the local economy and the Cabinet had concluded that it should support the restructuring plans.
Being a charitable sort I will assume that when Cllr Davies said it was the "only option" he meant the only acceptable option, though I thought I had phrased my question in such a way as to exclude that interpretation.
I would have thought there was even less room for confusion over the wording of one of my other questions which asked: "What was the net worth of Bluestone Leisure Ltd on the vesting day?"
Vesting day refers to the day the council actually took up its share holding, the subject of one of my earlier questions (18 Feb 2010, if you are interested).
The Leader replied that, as part of the restructuring deal, the new company paid £36 million for the former company's assets.
I already knew that, but that was not the question I asked.
And, after I pointed out that "net worth" was the value of the assets minus the liabilities, I understood the leader to say that the council's shareholding was worth nothing.
I also asked: "What steps did the Council's negotiators take to protect its equity stake in the newly formed company by means of a charge on on the company's assets?".
To which the reply was that the charges in respect of the previous loans "continue to subsist".
I would have thought that a security for a loan that, having been exchanged for shares, no longer exists, is in the same category of usefulness as a chocolate ashtray on a motorbike.

... and statistics


First the good news: the Office of National Statistics (ONS) has increased its estimate for economic growth during the final quarter of 2010 from 0.1% to 0.3%.
The bad news is that this upward revision is more to do with the quirkiness of statistics than any real growth in output.
In fact, the official estimate of the level of economic output in the fourth quarter was actually £133m lower than the ONS's previous estimate, at £315,712m.
So how come it came up with a figure showing increased, if still rather anaemic, growth.
The answer is the figures for the previous quarters were also revised downwards.
Suppose your house was valued at £200,000 on 1 September 2009.
Three months later; at the beginning of December, it was valued at £202,000 an increase of 1%.
However your valuer has now decided that his previous estimates were wrong and it was only worth £199,000 on 1 September 2009 and £201,500 on 1 December.
You are £500 worse of, on paper at least, but the growth rate of your house's worth over the three month period has increased from 1% to 1.25%
It is always wise when confronted by the % sign to ask yourself: percentage of what?
The currency markets were quick to realise that these figures owed more to the methodology than increased output and the pound was severely marked down against both the dollar and the euro.
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