PFI/PPP/GTF

Here's something that grabbed me by the sniffly nose today. Shanks, a company I always associate with the manufacturing of toilet bowls in Barrhead, have sold on their 'subordinated debt' and 80% of their equity in two of their contracts to former builders, now global investors, John Laing Investments PLC.

Before I go off on one about what exactly 'subordinated debt' is, let me reflect on the company John Laing PLC first. Founded near Carlisle in the early19th century they pootered about in Cumbria as successful builders until the arrival of John Laing Jnr, grandson of the founder. He built the company up to such a grandiose state that they had to flee Cumbria to ThatLondon. A deeply religious man, John Laing took business decisions based on his Evangelical beliefs, he introduced such pioneering ideas as paid holidays and annual staff outings, he nurtured staff and became that rare beast, a humane capitalist. In 1909 the company was on the slide, bankruptcy was inevitable. John Laing made a pledge to God, if his company survived and his employees saved from unemployment, he vowed for every pound he earned, to donate a significant percentage to charity. By 1978, the company was worth several hundreds of millions of pounds, Sir John (he'd been ennobled by this time) left a personal estate of £371. From being a small housebuilder Laing became the countries biggest construction firm, motorways, airports, reservoirs, hospitals, nuclear power station bridges...the very infrastructure of the UK. 

Fast forward a couple of decades, stock exchange flotation, FTSE 250 throw in a few mergers and acquisitions and we now discover that the company has divested itself of its construction wing and moved full on into the murky world of über-profitable PFI/PPP. In 2006 they were bought over by Henderson Group, who naturally kept the name, due to the kudos of tradition it brings. Not surprisingly Henderson Group are incorporated in the tax free Channel Isles, I suppose there's a connection to the building trade as their chief executive is called Andrew Formica...

So back to 'subordinated debt', now according to a chum who lives and breathes this nonsense on a daily basis, let me get this right, it works like this. In the case of a default, creditors with subordinated debt would not get paid until after the bigger debtholders are paid in full. Which means that subordinated debt carries more risk than unsobordinated debt...So far so confusing, in essence, due to the risk involved, the holder of the subordinated debt is entitled to charge higher interest rates.

Now as I'm a fan of The Sopranos and only the finest of gangster movies, you'll understand this resonates with me as a scene I've seen many time, where our poor anti-hero, degenerate, drunk, lost gambler takes out a loan with a low level loan shark, after missing a few payments, pliers are applied to teeth and a baseball bat to knee caps. Only when our poor hero finds his true love, sobers up, starts to get back on his feet, does he find that his debt has been sold onto an ever bigger more vicious gangster, ohh and as always there's an increase in the vig, aka the interest on the loan. 

Which brings us back to Shanks selling their PFI/PPP subordinated debts to Laing PLC. I'll ignore the East London Waste Authority and focus instead on Dumfries and Galloway Council. Simply because I was in the room some ten years ago when a senior council officer announced to the councillors and assembled guests, who were there trying to stop a tourist orientated incinerator, that he and a colleague had saved the council a fortune on consultants fees and had cobbled together an agreement with Shanks to deal with the councils waste problem. In short, for a substantial amount of money paid every year, for the next twenty-five years, Shanks would build an eco-deco plant which would negate the need for land fill. It wouldn't be a recycling plant but instead a plant that creates fuel blocks out of paper, plastic, wood etcetera. I asked at the time, what happens at the end of the 25 year PFI contract when the council doesn't own the plant and has no facilities to deal with the wasted. The then deputy council leader joked, that he, the officer, 'didn't care because he'd be dead in 25 years'. My retort of,  'Yes but what about my kids, how will they cope with the waste?' Was met with some embarrassed coughs and close up shoe inspection by the council officers and councillors.

So now we know that, the council tax we pay every month so that the council can collect our household waste gets taken to the eco deco plant. We no longer do genuine recycling, no blue boxes or bottle banks in D&G, everything to the eco-deco, where Shanks have just sold their subordinated debt and equity in the contract on to the City of London equivalent of the Sopranos.

I suspect that rumbling noise I hear every time I drive by the eco-deco plant to Carlisle, might just be Sir John Laing gyrating in his grave...


Here's an addendum to this fascinating tale (to me anyway) of high finance and rubbish. It's now rumoured that Shanks have divested themselves of this subordinated debt to tidy up the shop in the hope that the profoundly evil Carlyle Group come back sniffing for a buyout. Carlyle infamously count President Bush and his idiot son President Bush junior among their employees ooh and former PM John Major. The Carlyle group  really made a shitload of money when they bought up the former military and airforce bases which had been re-branded by the Labour Government as QiNetic. Carlyle made a 780% profit on what had been a taxpayer owned entity...

You just know PPP/PFI is wrong when vultures like this lot come sniffing around....