I Confidential I

..I Northwest

Rl6l0NAl OlVElOPMlNf A6lNCY

Northwest Development Agency Assets andLiabilities Plan

January 2011

:';';;;'8THE NORTH WEST " ,"

FUNDIIII..~Jt~~~L

INVESTING IN

englandsnorthwest

"

,'"

Ir\.

"

.,

\,l

~.,

;,,

1

~

\

..

NWDA ASSETS AND LIABILITIES PLAN

CONTENTS

Executive Summary

Chapter 1 Introduction

1.1 Principles, objectives and assumptions

1 .2 Partner engagement

1.3 Disposal strategy

1 .4 Layout of the plan

1.5 Exclusions

Chapter 2 Land and Property

2.1 Summary

2.2 Directly owned land and propert

2.3 Contingent assets

2.4 Property Joint Venture

2.5 JESSICA Investment Fund

2.6 Daresbury

2.7 Associated contingent liabilties

2.8 Ongoing management obligations

2.9 Financial model

2.10 Next steps and engagement

Chapter 3 Financial and Company Interests

3.1 Venture capital loan funds

3.2 Corporate interests

2

Chapter 4 Operational Estate

4.1. Freehold and leasehold properties

4.2 Offce furniture

4.3 ICT equipment

4.4 Vehicle leases

4.5 Softare licence agreements

Chapter 5 Programme Liabilties and Post NWDA Activity

5.1 Project expenditure beyond March 2012

5.2 Compulsory Purchase Orders

5.3 Clawback Liabilties

5.4 Business Link NW Liabilties

5.5 Expired Contracts

5.6 Post NWDA programme activity

Chapter 6 Key Milestones and Activities

Chapter 7 Financial Summary

Chapter 8 Risk Management

Annexes

1. Asset and liabilty schedulesA. Land and PropertiesB. Contingent Assets

C. Loans

D. Venture Capital and Loan FundsE. RDA Section 5 CompaniesF. Estate and Offce EquipmentG. Current LiabiltiesH. Long Term Liabiltiesi. Contingent Liabilties

2. Projected statements of financial position

3. Portolio approach - Land & Property interests

3

Executive Summary

NWDA has a large, varied and complex portolio of assets and liabilties. The broadthrust of our proposed approach, articulated in this Plan, is to divest ourselves ofassets and liabilties prior to closure in a way which meets the National TransitionBoard's (NTB) assets and liabilties principles and contributes to an effective andeffcient closure. Our key objective is to minimise the number of assets, liabilties orongoing activities which default to successor organisations. In many cases we haveidentified clear exit solutions. In other cases we have sought to assess a range ofpossible options and consider where clear choices lie as a basis for furtherdiscussion with the NTB and stakeholders in the Northwest.

Land and Propert

NWDA's directly owned Land and Propert portolio contains individual sites andproperties which display some of the following characteristics:

. Subject to existing development activity and therefore potentially requiringbespoke transfer solutions

. Income generating

. High value without significant re-investment

. Require new investment to extract value

. Carr holding and management costs

. Have associated liabilties such as project costs, CPO claims, potential ERDFclawback etc

Many NWDA assets were transferred into a1Public Private Partnership (PPP) in 2006which provides for annual income until 2016. NWDA is also entitled to repayment ofits cash investment and a proportion of returns from the JESSICA Investment Fund in2020.

NWDA has also grant aided a large number of land and property projects undertakenby third parties and enjoys clawback and overage rights. These can be categorisedas: .

. Local Authority owned sites with a high likelihood of future repayment when

the sites are ~old on I developed.. Private sector developments where overage may be payable dependent on

the profiabilty of those developments.. Grants where clawback is payable only in the cases of default e.g. non

penormance or change of use.

There are many variables regarding the way in which the overall portolio of Land andProperties, and parts thereof, might be best managed in the future. However, webelieve that the fundamental choices to be made are as follows:

. Apart from sites which can be readily disposed of or transferred on an

individual basis prior to closure, NWDA's own sites and properties should bemanaged as a single portolio in order that income can be used to off-setcosts. The question is, at what level and by whom and to what end?

4

. Current PPP and future JESSICA income could be used to support the landand property portolio, especially as a means of reinvestment to ensure therealisation of full asset value.

. The same choices exist in respect of clawback and overage, where theexpectation of a return is suffciently high to justify the resource investment inmonitoring activity.

Financial and Company Interests

NWDA's interest in North West Business,Finance should transfer to Capital for Enterprise Limited in accordance with theexisting agreement between BIS and the RDAs. "

. ~

~

NWDA wil exit from its other company iriterests on a phased basis up to March2012. Our place in Joint Ventures wil be taken bý whichever successor body takes

responsibility for the NWDA assets in those JVs.. .Operational Estate

The Plan recommends the immediate marketing and disposal of two of NWDA'sthree freehold interests~which form part of the operational estate and which can bereleased now witho,ut operational impact. The third freehold, a unit which serves asour archived records store, would be retained unti closure and added into the Landand Propert portolio.

1

The Plan a"lso recommends that action be taken now to seek to assign the residue ofour offce leases which run beyond closure and also to withdraw forthwith from shortleases on ove'rseas offces used for inward investment activity.

BIS have cónfirmed to NWDA that all offce fumiture and equipment should bedisposed of prior to or upon closure. We therefore propose to undertake this disposalby sellng to partner bodies and on the open market using the OGC framework, on aphased basis as items become surplus to requirements. Some ICT equipment wil beoffered to staff at market value and all remaining items, including those with no valuewil be gifted to charities.

Vehicle leases and softare licence agreements wil be managed out prior to closure.

5

Programme Uabilities

It is assumed that any project expenditure liabilties wil fall to our statutory successor(BIS or Residuary Body) although there may be exceptions if this liabilty can betransferred with an asset. A specific question presents itself regarding actual andcontingent CPO liabilities at two sites and where these liabilties might fall. NWDA istaking concerted action to ensure that such liabilties are dealt with prior to closureand any "over hang" is minimised.

Some ERDF c1awback liabilties (and any arising from other Government funding),which exist where NWDA has received funding as applicant, may be capable oftransfer to whoever receives the corresponding asset. Others are IikelyJo pass to ourstatutory successor. ,f! 'I:,.:¡

Upon its closure in November 2011, NWDA wil inherit from Busines~t Link NWcontingent liabilties concerning indemnities provided uR,on the creation"' of theBusiness Link company and ERDF grants it has s,ecured or inherited frompredecessor Business Link bodies. Upon RDA closure"these wil need to transfer toour statutory successor. ""!Summary of Exit Strategies

i" ;:.:¥ü,~~¡jr:'-:¡WfW.J ::it~'U:.;ri,..

A summary of the exit strategies proposed in this"Plan for different asset and liabiltytypes is presented in the table below.,)" ."",~

¡:~~rir.\rf! ii;

Asset/Liabilty Type Value£0005

Propoed exit routeAssets (Sites to be sold in 2011/12 ", "t;Sites to be transferred in 2011/12

'fiT

Remainin ortolio of sitesPPP/JESSICA income - post March2012 '~L&P c1awback income''':' post '-NIa,rch2012 "j, "'" ,-VCLF returns - to date 1 futureo erational Estate freeholds

Ofce FurnitureICnE ui ment

~i!..'of

LiabilitiesOperational Estate leaseholds -

ost March 2012Vehicle Leases - ost March 2012

Softare licences - post March2012Pro"ect a ents - ost March 2012

CPO contingent liabilty

ERDF clawback

6

Key Risks

A full Risk Register is included in the Plan. Risks are scored from a combination oflikelihood and impact. On this basis, two red risks are identified.

· Abilty to dispose of freehold land and property and operational leases givencurrent market conditions - The mitigation is to commence marketing as soonas this Plan is approved.

· Delay in decision on successor arrangements (e.g. Residuary Body) for

managing ongoing project activities which could be highly detrimental to anumber of important projects - The mitigation is for the NTB to make earlydecisions on a Residuary Body and for NWDA to work closely with grantrecipients to keep projects on track and ensure a smooth handover.

Financial Impact of Implementation

Financial schedules have been prepared and are attached as Annex 2. Theseprovide projections of the Statement of Financial Position for the years ended 31March 2011 and 31 March 2012.

Detailed financial modellng has been undertaken on the Land and Property assets.This indicates that the suggested asset portolio which requires management postNWDA closure can generate an NPV of_.

A key financial risk to BIS is the leases on the operational estate which extend

beyond 31 March 2012. The total liability ,(Le. value up to expiry date) is _.

Any which cannot be arranged prior to plosure wil revert to BIS.

'\'"

7

Chapter 1 Introduction

1.1 Principles, Objectives and Assumptions

Since the announcement of RDA abolition, NWDA has reviewed all of its assetsand liabilties to ensure that they are comprehensively and accurately recordedand that all supporting data is centralised and held on a consistent basis.Separate closure activity on knowledge management has prioritised assets andliabiliies in terms of ensuring that all files and records are collated. thoroughlyreviewed and ready for transfer. NWDA was therefore very well placed torespond comprehensively to Transition Guidance Note 6 through the compilationand submission of this Assets and Liabilties Plan.

Our approach to the disposal and transfer of assets and liabilties, as articulatedin this Plan, is governed by the asset and liabilty principles adopted by the NTB,namely (para-phrased):

. Decisions on disposals are made based on the principles of the RDA Act -

to further the economic development and regeneration of its area.

. Any authority disposing of land, property or other assets must comply with

EC state aid rules.

. Wherever possible assets and liabilties should be disposed of togetherwith consideration given to what, if any, other assets and liabilties aregoing to the receiving body. When packaging assets and liabilties togetherthe aim should always be to achieve the best possible economic outcomefor the region.

. Wherever possible, assets should be disposed of before the end of March2012.

. The disposal of an asset and any associated costs should be affordable in

the current fiscal climate.

. Consideration should be given to whether the asset wil prosper with the

planned new owner - this means the original strategic intention for aquiringthe asset must be considered before making a decision on disposal and aview taken as to whether this wil be achieved and built on with the newowner. Consideration should also be given to:

o Achieving best value

o Meeting local demands and ambitions

o Reaching a reasonable balance between national deficit reduction,national policy aims and local ambitions/opportunity

o Striking a balance between the original purpose behind the asset's

purchase and the views of localities on best useo Ensuring an appropriate balance between capacity, risk and the

Government's commitment to localism.

Our objectives in producing this Plan have been as follows:

8

. To prepare the plan in accordance with RDA Transition Guidance Note 6

and to present proposals which accord with the above principles and meetNWDA's key objective of disposing of as many assets and liabilties tosuitable bodies as possible by 31 March 2012, thus minimising any"overhang" in terms of default transfer to a statutory successor uponNWDA closure.

. To present to the NTB a coherent description and analysis of all of ourassets and liabilties with relevant supporting detailed information.

. To set out a range of potential options for disposing or transferring

different types of asset and liability and to convey the potential

permutations available to packaging those different types.

. To put forward clear preferred options where we believe that a single

option presents itself as the best way forward.

. To narrow down the options in areas where there is not necessarily asingle preferred solution and to articulate the types of choices that need tobe considered, and further work that may need to be done, before arrivingat a decision. This is especially true of Land and Property assets where alarge number of options exist and where a number of potentiallycompeting policy and financial issues need to be considered.

. To present the information in a way which has the greatest prospect of

securing early decisions on the future of NWDA assets and liabilitieswhich is key to ensuring an effective and effcient closure of theorganisation. ·

The Plan is based on a number of key assumptions as follows:

. This is a plan which paves the way for decisions on asset and liabilty

transfer; it is not a detailed implementation strategy which can only be putin place when transfer decisions have been made.

. the plan is based on the best possible information at the current time but

is subject to a range of dependencies outside of the Agency's control suchas market conditions, the willngness of potential recipients of assets toaccept transfer etc.

. All financial information is based on best current estimates but subject to

change.

. The plan is based on the premise of timely transfer of assets and liabiltiesto nominated successors with minimal residual transfer to a ResiduaryBody or other statutory successor. However, this approach is highlydependent on early decisions from Government on transfer solutions.

. It is assumed that the Government wil cover the transaction costs of asset

and liabilty transfer I disposal by amending our resource allocation orproviding access to the Transition Fund.

9

1.2 Partner Engagement

In the Autumn of 2010 the NW Leaders Board initiated a review of various NWDAfunctions and activities in order to determine its own preferences in terms oftransition. Ten workstreams were established, covering the following areas:

. Inward investment

. Business support

. Europe

. Research and intellgence

. Assets and liabilties

. Planning

. Tourism and the visitor economy

. Atlantic Gateway (a specific regional spatial initiative)

. Civil contingencies

. Sectoral development

The assets and liabilties workstream focussed on NWDA Land and Propertyassets and liabilties and involved Local Authority representatives from across theregion, shadow LEPs and HCA. NWDA contributed to this review by presentinginformation on our assets and liabilties but was not part of the consensus thatemerged. Our role was to inform and assist this working group.

The scope of the review covered the following:

. NWDA owned sites and properties

. Income from the Property PPP

. Future income from JESSICA

. Potential income from Local Authority owned sites which had been funded

by NWDA. Potential overage fropi NWDA funded private sector developments

10

1.3 Disposal Strategy

The over-arching asset and liabilty disposal strategy articulated in this Plan canbe summarised as follows:

· To analyse and narrow down the options for the majority of the Land andProperty asset portolio and articulate the key choices as a basis forfurther discussion and detailed development. This is a deliberateapproach which recognises the need for the NTB to reconcile potentiallycompeting policy imperatives befo.re making final decisions and it isconsidered that the analysis presented in the Plan provides the basis forthat to now happen.

. To review, action and then close those contingent assets which are so

remote that there is litte value in contirruing to manage and monitor thembeyond NWDA's life.

. To complete the market disposal of assets where possible and inaccordance with the NTB's asset and liabilty principles.

... 1~9 take àii n~cessary action to dispose of all leases connected with the

òperationái estate in order to minimise the residual liabilty post closure.

· To take all necessary action to reduce the extent of programme relatedfinancial liabilties post closure but at the same time alert the NTB to theinevitable liabilties that wil remain following closure.

NWDA is mindful of its obligations under State Aid law and wil ensure fullcompliance with State Aid law when transferring assets and liabilties. Wheredisposals take place outside of a statutory transfer scheme, they wil be made at agenuine market rate as determined by an independent expert and purchasers wilbe selected through a genuinely open and competitive process.

11

1.4 Layout of Plan

The Plan narrative is organised to deal with assets and liabilties in four chapters:Land and Property, Financial and Company Interests, Operational Estate, andProgramme Liabilties. This is to avoid repetition and to ensure that related issuesare considered together. Clearly this does not wholly reflect the structure of thestandard schedule templates and the narrative therefore takes care to crossreference to the schedules as appropriate.

We have included, at Chapter 6, a table setting out key milestones and activitiesto ilustrate the timelines involved in implementing the Plan. Clearly at this stagesome of this can only be indicative until the Plan is approved and all selectedoptions are known. Even then, processes and timelines wil need to be agreedwith selected recipients of assets and liabilties in order to establish the detailedimplementation plan.

We have also referenced at Chapter 7 headline financial data to support theinformation contained in the previous chapters which is drawn from the detailedfinancial analysis contained in the asset and liabilty schedules at Annex 1.

Finally, Chapter 8 provides an assessment of the key risks associated with thePlan and the groups of assets and liabiliies.

1.5 Exclusions

. We have not included details of Intellectual Property within this Plan. We donot believe that NWDA owns or has' rights to any items of IP with a value ofmore than £150K. Consequently.we believe that our IP is a knowledge assetrather than a financial asset and we have therefore dealt with the detail of IPin our Knowledge Management Inventory which has been submitted to BIS inresponse to TGN9.

. We have provided NPV calculations in respect of land and property assets, asrequested b the uidance. We have not done this for venture capital assetsas there is

a recent Government decision that NWDA'sinterests in NWBF wil transfer to Capital for Enterprise. NPVs have not beencalculated for operational furniture and equipment assets due to the very lowvalues involved which are not material to this Plan.

12

Chapter 2 Land and Property

2.1 Summary

NWDA has a range of Land and Property interests which have been acquiredand held for a variety of specific objectives, with the overriding goal of pursuingthe long term economic development of key priority areas.

The NWDA's interests comprise its own directly owned land and buildings (themajority of which are focussed in Merseyside and Cumbria) which includes awide range of holdings, ranging from large employment sites to small standaloneoffce buildings and has a book value of £56.8m.1 As detailed later on in thisChapter, it is estimated that further capital expenditure _ wil,l benecessary in some of these properties, to realise best value and overarchingobjectives. 'v.)~'I:),,, ,.

, "\,":'~i)Yi!t,~" ",.

As a result of its substantial investment programmeS' NWD~ also has 203property interests through private sector c1awback~ arid tHird pcl'y land assets.

This Plan has quantified and appraised those'" interests and "recommends aforward strategy for each project.",¡

''';~ti~i1f''

The NWDA PPP - Property Joint Ve.ritûre;~ Darespury "and JESSICA HoldingFund interests have also been asse~sê(j'and'future strategies identified.

J¿:~é¡' .iD

The portolio of activity is large and cóiñip¡~X as summarised below:_,,:;F - :;¡l:\';'~~¥k i/:'

'lp, ,1'-

Reference Interest Nature Value RealisationTimetable0-10 Years0-10 Years5 Years +10 Years +20 Years +

2.22.32.42.52.6

:.;:;,- .:,,~,

;'tlA ~Wjk.,,';~

.é.i:i;!i:Pt~:~:l¥I~;t._._, .:..

NW~1' com~~~ce~ a r~view of its direct Land and Pr?perty holdi~gs andcO'1tlng~nt assets dUring the summer of 2010 in preparation for

~l~r.i,_ ,ùi:i ~iI

JransitioQ,l~,losure. The analysis of each holding reflects NTB principles and"includes thê~extent to which a proposed solution for a holding wil:

'~

.;;'''fyrthef the economic development of an area· mêet local demands and ambitions· reflect where possible the original purpose behind the acquisition· be compliant with state aid· the packaging of assets and liabilties

i King Sturge Annual Valuation March 20102 NWDA has developed the cost of investment required based upon 7 sites, including car parks,

development land, buildings portolios, income producing assets and potentialrefurbishmenUdevelopment projects. These 'Invest to Divest' figures have been collated using acombination of existing data and broad brush estimates. As such the figures may changedependent upon market conditions, proposed uses, scheme costs etc, which can only beconfirmed following detailed appraisaL.

13

· ensure disposal prior to March 2012

· secure best value for the exchequer· be affordable in the current fiscal climate· reflect capacity, risk and localism issues

This process has effectively created a two tiered approach to optionsassessment for each directly owned site and contingent asset; Tier One hasdetermined whether the disposal or transfer of a site prior to closure is viableand compliant with the principles above, or alternatively whether the interestshould be transferred for realisation post the lifetime of NWDA. The Tier Twoassessment considers principal options for the subsequent receiving body.

The table below summaries the outcome of the Tier One options analysis.

Outcome of Tier One Strategic Options Analysis,. .p,

Asset Dispose Pre Transfer Pre Close Post ClosureClose Resolution

Land and Prooert 8 12 253Third Part Sites N/A 36,., ;- 53Clawback N/A 45

,:, 69PPP N/A iliMN/A

1;t..~

",

JESSICA N/A '!' N/A ~ .n""'i'¡,'e ":0 :i:;.:i~

Daresburv N/A .'¡" ..,'., N/A¡,r "

"

. "&~t!,li "',"

'¡~J":. iJ¡." \, i'

Each of the six asset groups could be managed independently post the closureof NWDA. However, it is importanf"to" nõ'te'that the NWDA Land and Propertyinterests represent a mix of both 'åsséts and liabilties and as such, the

.~lTí_itr. " rto ;ù;continuation of the managèrnent of each category as an overall portolio enablesa financially balanced 'and s'irstainablé approach to be adopted. The continuationof a portolio approach_hcls thet~fore been identified as a viable solution.'.i -¡:e.l' lfT- ;'Î;:'!. r

¡~~. ¡Ii~Ìf~I. .l

Key! Points

NWDA land and propert interests are large, varied and complex

Feedback from the market indicates that it wil not support the disposalof all interests pnor to 2012 and such an approach is not considered tomeet the wider NTB Asset and Liabilty principles, including localambition, or the views as expressed by the Regional Leaders Board.

3 i Wirral International Business Park is a large site and plots are included in both the pre closure

disposal and post closure resolution categories.

14

Following the NWDA analysis, land and property interests haveeffectively been divided into two segments - pre and post 2012.

For the remaining post 2012 interests, the continuation of managementas a portolio of activity is seen as key to achieving the NTB Asset andLiabilty principles.

The components of the portolio effectively net out each other, creatingno additional call on Government resource, whilst ensuring that longterm economic development objectives are achieved as set out in theNTB Asset and Liabilty principles.

2.2 Directly Owned Land and Property

The table below sets out key details of the directly owned..S;LWDA land and property

assets. Please see Annex 1 A for full details. ," ol\¡,.",., i..Site Name

'I.'.:

Site Area (ha) BIS/CLG Book Value Pre/PostAsset 3113/10 Closure

£000Lillyhall East Ind.Estate, WorkingtonDevonshire Road Ind.Estate, MillomLillyhall West Estate, WorkingtonLillyhall Business Park, WorkingtonLand at Mercury Court, Liverpool )'

Lea Green Ind.Estate, St. Helens,

Croft Business Park, Brombor9ughWavertree Technology Park; Liverpool

Rossmore Road, Ellesmêre;Port å,': 'H!- _';r

Hooton Business Park, Ellesmèfre Port~', ,. jo.Whitehaven Commerce"garkt't )?'Estuary Commerce Park, LiverpoolEstuary - Nat Bio Msnufacti:ring CentreEstuary ,;;,Ae:rçidrome 'Çomplex

Central Parkc"=(North Manchester BusinessPa rk""":''''''i1i#"

Ancoa!s Urban Vilage, ManchesterBoulevard I

n,9 ustry Park, Liverpool

Kingsway Business Park, RochdaleBroadshaw Farm, RochdaleBorders Business Park, LongtownStation Road, SilothVenture Point, Speke, MerseysideHarbord Street Ind.Estate, LiverpoolDaresbury Science & Innovation CampusWirral International Bus.Park,Bromborou hFormer Michelin Plant, Burnley

".,;r!' '.1,,

7.791.9810.62

17.8"~1.16"

0,39,.~"" 2t11

, "3.87

1.059.3212.9531.552.59.0227.18

3.326.63164.71

0.852.540.128.090.68

12.38

16.97

15

Liverpool Digital 24,384buildin0.04510.620.11

2.3217.8621.9942.215.81

1.590.750.1854.10.240.270.16

Stonebridge Business Park, Gilmoss, 30.44Merse side73-81 & 353-353 Edge Lane, Liverpool 0.97 (73 - 81) I

0.15 (353 - 355)

Cross Keys House, Moorfields, LiverpoolLillyhall North Ind.Estate, WorkingtonKingston House, LiverpoolFormer Littlewoods Site, LiverpoolBickershaw Collery, LeighAgecroft Collery, SalfordCronton Collery, MerseysideAshton Field, WalkdenMann Island, LiverpoolJordan Street, LiverpoolTGWU BuildingSpeke FreeholdsVictoria Way, Rawtenstall, LancashireNew Chester Road, TranmereWindy Arbour Road, Huyton

2.2.1 Tier One Options Analysis - Directly owned Land and Propert

For each of the directly owned sites a detailed review of each asset/liabilty hasbeen undertaken. This analysis has been developed to identify timelines forrealistic sale or transfer to the private sector/other public sector bodies, so as todetermine what activity can be realistically completed prior to closure, whilstcomplying with NTB's Asset and Liabilty principles. Individual proformas foreach of the sites have been completed, which include details of; issues on title;any existing agreements; asset book valuation; strengths and weaknesses;income; planning; holding costs; timescales and risks. Each of the sites hasbeen reviewed against four possible options as follows:

· Dispose prior to closure· Transfer prior to closurei .· Transfer upon closure and pursue med/long term managed disposal

· Transfer upon closure and pursue an 'Invest to Divest' approach

Where transfers have been identified post closure, sites in this category havethen been tested against second tier of options, which represent differentmanagement solutions, as set out later in this Chapter on page 19.

Following the review process, there is a clear division between sites which canbe disposed/transferred pre-c1osure and sites that wil need to be transferred to areceiving body. The table below summarises the outcome of the analysis:

16

T e NoCat 1 Dispose prior 8

to CloseCat 2 Transfer prior 12

to close

Cat 3 Transfer 18upon closure andpursue a mediumto long termmana ed dis osalCat 4 Transferupon closure andpursue an invest todivest a roach

Pre/Post 2012Prior

Prior

Post

F.~

Further optionsdevelopment and"

due diligençe:'l; li::.

'l¡;

j',/ :;

Post., :i.'

i: 'j,

ii '-

Category 1 - As detailed in the table above, 8 sites,Would'ap,peaf to merit disposingof in the near future, in particular these sites. are those which are of less strategicnature to the NWDA and local partners. Thesg"#$ìtes:,have been identified for planneddisposal prior to the closure of NWDA. Further immedia1ê term disposals have beendismissed, as a lack of a phased process ,wil lead tó,significant value loss, as well asnot being compliant with the remaining NTB, Asset ánd Liabilty principles, including

,""""," "i! "local demands and ambitions.",,;

,~

""it \~Category 2 -12 of the sites have'bèen idèntified for transfer prior to closure. Thisincludes 4 coalfield sites, .,which',are lôgicá'iiy best vested in the HCA as these sitesif" ,~,:/are already covered byAhe CQalfields Programme under a Service Level Agreementwith HCA. HCA havet~plclyect¡â' key rôle in funding the investment to date on thesesites and are assumed"to hãte,.a future role in this type of activity. A number of sites

":" '''/.l;.:It,.."

within this categóryÒ\are",,eJ§.Q freehold reversionary interests with very little value and

no associated,Jia.bilties. IfiS'recommended that discussions with HCA (which may beimpacted by thêlr"pôtential role regarding residual assets and liabilties) and therelevant LoGal Aut~'aritie'š are progressed immediately to enable transfer.

;iJ"it. ,l.

This~ cate o ",,'alsó includes Daresbu~~r .Dares'b"'uryjsèonsidered to fall within the definition of a 'National Asset' as set out inTransition'¡'FGuidance Note 1 (the NW Leaders Board would, however, wish tounderstand their potential to influence the further development of Daresbury). It isproposed that all sites within this Category 2 are dealt with and transferred prior tothe closure of NWDA.

Category 3 - The 18 sites which have been categorised as Managed Disposal are

sites where it is considered there are no abnormal barriers to development. As suchthe sites have been serviced and, subject to end user demand, can be broughtforward and hence a receipt generated. A staged disposal strategy for these sites,

4 Ancoats is included in both Category 3 and 4, given it is a mixture of Managed Disposal and Invest to

Divest

17

post NWDA closure, is recommended due to the nature of the sites and externalfactors, such as take up rates. If land supply is not controlled, it is our view that thelocal market could become distorted and best value wil not be obtained. This is

particularly the case given the pattern of NWDA ownership, which is heavilyconcentrated on gateway sites into Liverpool. Phased disposal is also necessary toensure any control over proposed development and the abilty to secure strategiceconomic development objectives is maintained. As such, controlled andmedium/long term disposals are deemed to be the most appropriate way to achievebest value for the sites in this category. The role of the receiving body therefore is tocontinue to market and manage the land/interest unti such time that the site issold/development complete

Three key interests, Ancoats, Central Park and Kingsway are also included withinthis category. It should be noted that the specific nature and complexities of theseinterests, mean that it may prove necessary to follow a bespoke solution in theseinstances.

Category 4 . The 8 sites that have been classified as 'Invest to Divest' are siteswhere it is considered either require or wil benefi from further investment. Some ofthe NWDA's directly owned assets are a liabilty in that significant abnormal barrersto development remain. These barriers need to be removed in order to make themviable for private sector development. Examples of such up front investmentactivity could be provision of infrastructure and / or demoliion of obsoletebuildings. De-risking these sites wil enable them to be put to the market and marketvalues achieved (estimated cost of investment required is circa ~).

An estimate of the value of the sites in the 'Invest to Divest' category post theinvestment identified has not been possible to provide, given the current uncertaintiesover the eventual end uses for these sites and market conditions at the time ofdisposaL. However, in the majority of cases, the investment that has been identified isregarded as necessary, so as to support the achievement of overarchingregeneration objectives and underpin the existing value, rather than deliver any realstep change in the current book value.

2.2.2 Tier Two Options Analysis- Directly Owned Sites

As outlined above, it is not desirable to seek to dispose of all the NWDA land andproperty interests prior to NWDA closure whilst also presenting a solution which iscompliant with NTB's Asset and Liabilty Principles. In particular, such an approach islikely to result in a significant loss of value and an inabilty to achieve the originalpurpose behind the acquisition. In most instances, this would also not support thefurther economic development of an area or indeed meet local demands.

Given the obvious exit routes identifed for sites in categories 1 and 2 prior to closure,only sites which fall into categories 3 and 4 (for transfer/disposal post 2012), have

5 NWDA has estimated the cost of investment required based upon 7 sites, including car parks,

development land, buildings portolios, income producing assets and potentialrefurbishmenVredevelopment projects. These Invest figures have been collated using a combinationof existing data and broad brush estimates. As such the figures may change dependant upon marketconditions, proposed uses, scheme costs etc, which can only be confirmed following a detailedappraisaL.

18

been subjected to the second tier options assessment to identify the most viablereceiving body/management solution. For categories 3 and 4 (24) there are threesecond tier strategic options detailed in the table below.

o tion1. NationalResiduaryBody

Advanta es· Avoids fragmentation -ensuring assets and liabilitiesbalanced· Provides Govt withgreater flexibility and a directsource of income and control· Achieves nationaleconomies of scale and co-ordination

Disadvanta es· Could be contrary to LocalGrowth White Paper· Maybe unacceptable toNW Partners· Additional managementresource required· National body may be tooremote to manage day to dayissues

ViabiltPracticallyviable,howeverlimitedpolicy fitwithlocalismagenda.

'iii';1'

!i.

2. Sub-national

ï'

3.1 Disposal toLAs

· Avoids fragmentation -ensuring assets and liabilitiesbalanced· Independentlyfinancially sustainable solution· Longer term approachadopted to secure best value· Governancearrangements could complywith LGWP· Strong support withNorthwest Regional LeadersBoard

· Delegates control tolocal authorities - in line withLGWP Ai ",· LA's hav~'existingestate manage'menf&Kpertise

,f:""t tr..

,,~

,.ig, W,

'1'

-".";:!:" on.

/" ;~;,i,'f

,,1N:,I.~ ~¡~: ~-~'\

· Recipient body to beconfirmed \!i"",· Governance arrangementsto be developed'· Not ful,ly'compliant withLGWP principles, given sub"* ilnational tier,

't"

(,Considered, ~tX,iable

9ption,(further

optionsanalysisrequired todetermineoptimumsolution.

Notconsideredviable dueto LAinabilty topay bookvalue/affordabilty offragmentedestate Le.

assets andliabilities notbalancing

3.2 Disposal tot,LEPS,1l sub-

regions'r'l;'#r,;~.

WHiif :~;

ii'~', "Appropriate'gQ'vernance level- compliant

with LGWP

¡:','!

\ i!.~" Portolio is very

", imbalåiiced - emphasis onMerseyside and Cumbria· Some LA's would need totake major liabilities withinsufficient balancing income -dowry funds would be necessary· LA's don't always haverequired capacity and expertise -

could prove an additional burden· LA's unable to pay bookvalue for sites.

· Broad variance instructure, scope, size andoperation perceived in respectiveLEPS

· LEPs unwiling to pay bookvalue for sites

Notconsideredviable dueto LAinability topay bookvalue/affordability offragmentedestate Le.

assets andliabilities notbalancing

19

2.2.3 Key Points

Phased approach to the realisation of the assets to secure best value andoverarching economic development objectives is essential

High level options assessment support the retention of a portolio approach

Further work needed to determine optimum solution for portolio approach

2.3 Contingent Assets

Please see Annex 1 B for full details.

NWDA's contingent assets can be broken down into three categories:

o Third Party Sites

o Clawback (e.g. gap funding)o Non Penormance Clawback

';1 .~

;.r.:J

For the purposes of this Plan, non penormance c1awb,ack has been dismissed. Thisis because non penormance clawback could l~ï'pply .to)h,e majority of NWDA capitalinvestments and NWDA has historically secured'a~ verYífmited amount of income asa result of such instances. 'The majority of the _ in clawba'c'k,NWDA has received during its lifetime has

come from third party sites and píivClte sect~r gap funding c1awbackloverage.1'1: ~.;,J¡flb~, !

NatureThird Part Sites

Clawback

Number89 '¡':".,-if~ ~~: \"). ',;." "

Value:"

1'14"'l.~'.'

2.3.1 Third PartSitesn" ;~,ì~

Third partY,sites"are thoße sites which have been acquired by Local Authorities usingNWDA Sin?gle PotiNith income / c1awback rights, to further development objectives inpriority areas;, ,NWDl\ commenced a review of these interests during the summer of2010 in preparatiori for transition/closure. The purpse of the review was to assessthe sites within this category and identify where significant influence or potentialvalue could be extracted in the future and the interest therefore transferred postNWDA closure. Where the interest was small and of low value and there was nomerit envisaged in transferring the interest to a receiving body, the NWDA interest isrecommended to be terminated prior to closure (this involves 36 sites).

The total potential value of the third party asset portolio is estimated at up to _.This estimate was arrived by following a representative sampling approach againstland and property values in each sub-region. This allows for an informed estimationof recoverable grant extrapolated across the NWDA's investment in third partyassets. It should be noted that there is potential for a considerable margin of errr atarriving at the individual figures, but by averaging across the entire third party assetportolio the aggregated total will be more accurate. Caution therefore should be

20

taken in reading individual site values6 and the overall forecast value from thisinterest.

There is a potential upside for the future receiving body of these interests. Not onlywil the future body, be able to ensure the delivery of the original economic

development objectives, the receiving body will also have the ability to receive theNWDA financial share from completed schemes.

2.3.2 Clawback

There are two types of c1awback which have been analysed for the purpose of thisPlan:

· Private Sector Gap Funding clawback - where the NWDA receives a share

of potential increased final values achieved in excess of assumed BaseEnd Values undertaken at appraisal of developments, calculated either at aspecific date in time after completion of the development or on disposal asan investment sale.

. Other - where the NWDA has invested in Programmes delivered by, forinstance, SRB Partnerships, Rural Partnerships and the like which involvea combination of the above.

114 sites have been identified with possible c1awback implications. In assessing thelikely value of c1awback, NWDA has reviewed the Base Value of the Asset in theFunding Agreement against which the level of potential c1awback is calculated. TheAgency shares generally 50% of any uplift. The figure therefore included in theschedule has been calculated by applying first a % likely level of increased BaseValue (taking into account the nature of the project and its "market location factor'~and then applying to this a further % "possibility of recovery factor" (which

accounts for the age of the project since completion, financial standing of the grantapplicant, and legal risk). '

The ability to recover c1awback is not certain nor is the potential income known inadvance in most cases. Therefore valuing the rights to c1awback is particularlydifficult. Given the low level of certainty around level of clawback and when it mightbe realised, an estimate of _ has been calculated.

It is worth noting the following points, in reviewing the forecast clawback value:

· Until NWDA has obtained responses from applicants at the appropriatedates, it is difficult to ascertain potential values of clawback, but we haveattempted to provide an indicative value based on probability.

· The values should not be viewed as specific to each project or necessarilyachievable but represent a likelihood of the level of recovery - some wil beless and some wil exceed these values.

6 NWDA has adopted a RICS Market Value approach in defining the value, Le. the Market Value is the greater of

the Existing Use Value or Development Value. However in some instances there has not been suffcientinformation to determine the Development Value.The Assets and Liabilties Plan guidance requested a value as at 31/03/10, this is an assumed Book Value. TheNWDA would note that as the assets are not in our direct ownership this information was unavailable frm theasset owners in the current time frame.

21

. The value takes into account where recovery is "highly unlikely" (due to

long passage of time and where applicants may be in receivership) andwhere recovery is "probable" and "highly likely" given our knowledge of theproject's level of success.

. Projects in the "highly unlikely" category are likely to have a final brief

review with a recommendation they can be removed and written off.

Of the number of sites and values estimated above, it is en~d that. c1awbackswil be realised pre 2012, securing a potential value of _. The remaining .c1awbacks wil fall beyond the closure of NWDA and wil need to be transferred to areceiving body. It is estimated that these c1awbacks could raise_.

Tier Two Options Analysis- Contingent Assets

For these interests, where it has been identified, that value or strategic influence canbe achieved post closure of NWDA. The strategic options for these interests, are setout in the table below:

Option AdvantaQes DisadvantaQes Viabilitv1. Transfer . Provides a direct source . Additional managementto of income and control resòurce required Considered areceiving . Achieves national · i"'cRec!piènt body to be viable option,

body economies of scale and confirmed.. further optionsco-ordination . Governance analysis

. Could utilise same staff , arrangements to be required toresource base as direct "(\1: de~,eloped determineland and property .,;'4 Not fully compliant with optimumassets

":,., . i¡"'LGWP principles, given management. Longer term approach sub national tier solution.

adopted to sècLlre' '"

c1awbackJreceipts ,

. Governance .¡qfr ~!,

arrangements could Ïicomp,!y with LGWP ¡.

. Strong ~egional support:lni'i":lfif

'\.~

;,;.~!Ì;:l¡1,:i

:.k'l!

2. Gift to · ,,, Delegates control to . Portolio is very Not consideredLAs \' local authorities - in line ¡nbalanced -not all LA's viable due to

",with LGWP would receive interests. LA role as

"0, . Rèduces complexity of . LA's the beneficiary of beneficiary of

'transfer of NWDA a significant number of number of; legacy activity investments, therefore investments:9" no incentive to secure,."1

!z' clawback. LA's don't always have

required capacity andexpertise - could provean additional burden

3. Close . Reduces complexity of . Significant reduction in Not compliantprojects transfer of NWDA potential income with BIS Asset

legacy activity generated and Liabilty. Abilty to influence and Principles

control developments tosecure economicdevelooment removed

22

2.4 Property Joint Venture

Please see Annex 1 C for full details.

2.4.1 Summary

In 2006 NWDA vested its prime income generating land and property assets into aJoint Venture vehicle with Aviva Investors (PPP). The private sector partner isAshtenne Industrial Fund (AIF), now controlled by Aviva, and the properties aremanaged by Ashtenne Asset Management Ltd (AAM). The company name for thePPP is NorwePP (General Partner) Ltd, but the portolio trades under the name ofSpace Northwest. The PPP is a fixed life vehicle (until 2016), and the NWDA benefitsfrom three financial streams:

- An annual fixed Loan Note (Loan Note B) repayment of £10m per annum

(£2.5m per quarter) until April 2015 variable by 20% per annum byagreement.

- A fixed rate interest payment (received quarterly) on the outstanding value of

Loan Note B.- A final payment (Loan Note A) based on any overage achieved on the final

value of the portolio at the end of the life of the PPP (2016).

2.4.2 Considerations

The PPP should continue to generate a fixed income return on a quarterly basis untilDecember 2016. There are, however, two particular value considerations to factor in.

Firstly, the potential value of the PPP if there was a direct sale of the NWDA interestin return for a single receipt prior to NWDA closure. The NWDA has previouslysought advice on this point and were informed that this option would lead to a receiptsignificantly below the future cash value of the partnership.

Secondly, the value of Loan Note A is variable, based upon the actual sale prices ofassets achieved by the PPP Property Manager. The abilty to maximise this potentialreceipt can be directly influenced by NWDA or its successots action. For example,notifying potential tenants of the space available in the portolio, or advising theProperty Manager on how to obtain ERDF to contribute to refurbishment works.

In order to ensure that Best Value can be secured there is a natural incentive tomaintain a long term role in the PPP. If it were agreed that the PPP could be retainedwithin the portolio it would provide a source of direct finance which can be utilsedto ensure a positive legacy from the NWDA. It could be used to manage off liabilties,to provide funding under the 'invest to divest' option, and to provide capital to helpunlock receipts from the third party assets. Without this important income stream itwould be difficult to achieve the key objectives of managing off liabilties whilstproviding investment finance to maximising of sale price of assets whilst meeting

local objectives.

Assuming that the argument to maintain a long term portolio role is accepted, thereare a number of different receiving body options that could be considered andoverarching principles to factor in. Firstly, the significant value of the PPP means that

23

no one Local Authority or LEP is in a position to purchase this interest from NWDA.Secondly, the very nature of the PPP means it is impossible to fragment itsownership below its current single body basis. In our opinion, this makes the optionsof disposal to Local Authorities or LEPS unviable.

The options of a sub national or national receiving body solution are thereforeconsidered most appropriate. Both these options would enable the income generatedby this interest to be used to offset the liabilties elsewhere in the portolio, creating abalanced solution post closure of NWDA.

The PPP is a significant source of future income for the region, which can be used tooffset the costs of managing other elements of the portolio, to enable no netadditional call on Government resource as part of NWDA closure.

2.5 JESSICA Investment Fund

Please see annex 1 C for full details.

2.5.1 Summary

Joint European Support for Sustainable Investment in City Areas ("JESSICA") is apolicy initiative of the European Commission, supported by the EIB. It is a financialengineering mechanism which enables repayable public investment by way of loans,equity and guarantees in urban development projects.

NWDA created a JESSICA Holding Fund in November 2009 and EIB have beenappointed as Fund Manager. NWDA manages the Investment Board whichcomprises a mix of independent experts and sub regional representatives andoversees and manages the Fund. NWDA also holds the Funding Agreement with theEuropean Investment Bank, which governs EIB's Fund Management services.

Two Urban Development Funds, one for Merseyside and one for the Rest of theNorthwest are currently being procured by EIB. NWDA via EIB is investing £72mERDF/Single Programme into these Funds and has also placed a temporaryrestriction on title over NWDA sites and buildings of £28m as ERDF match funding, asituation we understand to be unique in respect of RDA sponsored JESSICAinitiatives. (It should be noted that NWDA has recently consulted with BIS, CLG andEIB and is progressing a £10m land for cash swap. This entails adding a minimum of£10m of land assets, some of which are specifically discussed in this Plan, into theJESSICA Holding Fund in exchange for £10M of cash.)

NWDA also acted as applicant for £50m of ERDF funds to support the creation of theHolding Fund and therefore has entered into a Funding Agreement with the

Managing Authority, which includes a number of ERDF obligations. Post closure ofNWDA, there wil be an ongoing need to manage the Holding Fund, penormancemanage both the Holding Fund Manager and UDFs and ensure compliance withERDF regulations so as to realise the ultimate receipt.

2.5.2 Considerations

JESSICA is a long term investment tool and given its recyclable nature, JESSICAhas the potential to be an important source of finance for the NW in the future. Underthe terms of the Agreement for the Fund, NWDA, as the owner of the Holding Fund,

24.

is entitled to receive its cash investment plus its proportionate share of any returns in2020.

Assuming that the argument to maintain a long term portolio role is accepted, thereare a number of different receiving body options that could be considered andoverarching principles to factor in. Firstly, the significant value of the Holding Fundmeans that no one Local Authority or LEP is in a position to purchase this interestfrom NWDA or indeed inherit NWDA's ERDF liabilties. Equally, the very nature ofthe Holding Fund means it is impossible to fragment its ownership below its currentsingle body basis. Further, a number of Local Authorities are also now part of theunderlying Urban Development Funds, which would create an obvious conflct ofinterest. In our opinion, this makes the options of disposal to Local Authorities orLEPs unviable.

The options of a sub national or national receiving body solution are thereforeconsidered most appropriate, at least until the ERDF obligations have been satisfiedat programme closure. Both the sub national and national options would enable thecontinuing penormance management of the UDFs and ensure compliance withERDF obligations, with the overriding objective of benefitting from the incomegenerated by the UDF investments in 2020.

The JESSICA Holding Fund is an important funding mechanism for commercialdevelopment in the NW. It is also a considerable source of future income for theproposed development within the NW. There are however, significant ERDFassociated liabilties, which wil need to be transferred to the receiving body.

2.6 Daresbury

Please see Annex 1 C for full details.

This can be considered to fall within the definition of a National Asset as set out inTransition Guidance Note 1. Following BIS approval, a Joint Venture has beenformed with a private sector partner to take on the ownership of the asset and deliverfurther development over the next twenty years.

NWDA has two Loan Notes linked to the scheme (see Annex 1C) and this interest,as well as a stake in the Joint Venture via a Public Partnership, wil need to bedisposed of prior to close. The third building on the site is currently being constructedby NWDA and wil be placed into the Joint Venture soon after completion (estimatedmid 2011). There are therefore some residual legal arrangements to be undertakenprior to disposaL. In addition there is a residual ERDF c1awback liabilty to coverinvestment made in the development of the NWDA estate on the site. There is aback-to-back agreement with the private sector partner to cover this liabilty in someevents. This needs ongoing monitoring.

Loan Note A has a value of _ and is an equity stake repayable from any surpluswhen the partnership is wound up in 2030. The value of this Loan Note has beenassigned from NWDA to the Daresbury public sector LLP (the group formed by theNWDA, STFC and Halton BC).

25

The primary interest of value is Loan Note B. Once the complete NWDA estate isinvested into the JV, it will have a value of_. After a three year holiday, NWDAwil receive interest on the outstanding value of LNB at a rate of 3%.

After a five year holiday the NWDA wil receive capital repayments subject to certainagreed criteria being met. These criteria include the JV's abilty to pay and the needfor it to avoid insolvency. Therefore it is not possible to forecast future income withany certainty.

If, at the winding up of the JV, the asset sales produce a surplus it wil be used tofinance the repayment of any outstanding LNB value to NWDA and then the value ofLNA to the public sector LLP.

Considerations

The NW LeadersBoard would, however, wish to understand their potential to influence the furtherdevelopment of Daresbury.

2.7 Associated Contingent Liabilties

Please see Annex 11 for full details.

The question of contingent liabilties is also summarised in Chapter 5 but it is worthnoting here that two of those liabilties relate to Compulsory Purchase Orders whichwere used to assemble NWDA's land assets at Ancoats and Rochdale Kingsway andwil therefore need to be considered as part of the transfer of these two major assets.

There remain some compensation claims that are yet to be agreed and paid. Whilstevery effort is being made to settle all outstanding claims prior to closure, NWDA isunable to guarantee that this wil happen as it is in the hands of the claimants. UnderCPO legislation, the former owners submit claims for the compensation they believeis due within a timescale determined by statute. A period of negotiation then follows.If a valuation cannot be agreed through negotiation, the final settlement is ultimatelyresolved through a reference to a Lands Tribunal which can, in itself, be a lengthyprocedure.

(a) Ancoats

The project includes a programme of purchases under a CPO. Over the last fiveyears the NWDA has acquired nearly 200 plots of land and repackaged these into asmaller number of plots more suitable for redevelopment. The CPO process enablesthese acquisitions to take place without the price of each purchase needing to havebeen agreed with or paid to the former landowners.

Over 95% of compensation due has already been paid.

26

(b) Rochdale Kingsway

In this case, 97 plots have been acquired and incorporated into a single developmentsite which forms the Kingsway Business Park and is being developed by the NWDA'sJoint Venture partner, Wilson Bowden Developments.

81 % of compensation due has already been paid.

..

..

2.8 Ongoing Management Obligations

Whichever option is selected for the NWDA land and property interests post April2012, there wil be a cost associated with holding and managing these assets.

The key tasks associated with this function have been identified as;

27

Property Portolio Management- Asset Recovery Management

Management of the Investment Vehicles

Initial estimates have identified a team in the range of . staff would be requiredto manage these functions. Assuming an average of per post (incorporatingon-costs) and adding administration, legal, accommodation, IT and equipment costs,a working assumption of .. per annum is made for the purposes of this report. Anincrease of. in running costs per annum is assumed for each year thereafter.

A detailed business plan around administration and management overheads wil becompleted once both a preferred option is agreed and the scope of activity requiringmanagement is clearly defined. This wil include the estimated costs of transfer anddisposal of the activity that has been identified as possible to implement pre close. Itwill also assess the likely staff adjustments necessary as the remaining sites aredisposed of over time.

2.9 Financial Model

The outcome of the Tier One Options analysis for the directly owned property, thirdpart owned sites and c1awback have been reflected in the supporting financialmodel at Annexes 1 A and B.

The consistent conclusion throughout the chapter, is the need to maintain a portoliobased approach to ensure a financially balanced solution for Government. Financialforecasts for this activity post NWDA closure, together with the forecast incomestreams from both the PPP and the JES~ICA Holding Fund, have therefore beencompiled. iThe model clearly demonstrates that an approach can be developed based upon theportolio approach which balances the assets and liabilties such that no further netcall on Government expenditure is estimated to be required to meet the NTB assetand liabilty principles, in particular, the achievement of best value and local ambition.

A key potential variant, in the model, is the extent to which the current book value forthe directly owned land and properties can be achieved in the future. Whilst the bookvalue figures have been included within the model, these must therefore be treatedwith a degree of caution.

It should also be stressed that there is a high element of risk involved in securing theincome forecast due from the c1awback and third party sites. This risk relates to thevery broad basis applied to calculate/quantify this income and the risk in actuallysecuring/realising income within the timeframe estimated. Given these uncertainties,for the purposes of the financial model and the NPV calculation, this income hastherefore been removed from the forecast.

Equally, caution should also be applied to the projected JESSICA return, whilstNWDA is currently entitled to receive its cash investment back from this initiative.JESSICA is a loan fund and there is the potential therefore for a degree of right off.For the NPV calculation, a more pessimistic right off rate of 50% has been applied.

28

Given these areas of risk, inclusion of the PPP with a portolio is key to theachievement of the balanced solution.

The financial model for the portolio approach for activity identified post closure, hasbeen discounted at a rate of 2.2% over a ten year period and this generates an NPVof _. See Annex 3.

2.10 Next steps and engagement

The North West has benefitted from a strong history of partnership working andengagement. Preceding the requirement to produce an assets and liabilties plan, aRegional Transition Team7 group dedicated to assets and liabilities was establishedunder the new Leaders Group as discussed earlier.

7 Whch consists of LA representation from each North West LEP area, the HCA and also NWA, althoughNWA did not advocate any paricular conclusion as we awaited guidance from Governent.

29

Chapter 3 Financial and Company Interests

3.1 Venture Capital Loan Funds

Please see Annex 1 D for full details.

The NWDA, through single programme funds and/or ERDF programmes, hassupported the creation of a number of Venture Capital Loan Funds (VCLFs).

Capital for Enterprise Limited (CfEL) has undertaken a mapping and review of RDAoperations in VCLFs which has informed the RDA VCLF Transition Proposals. Thishas concluded that function of responsibilty for VCLF activities wil reside with CfELunder a framework of national oversight. The VCLF function wil reside with theSecretary of State, with powers delegated to CfEL, while VCLF assets (and anypotential liabilties) which are otherwise not committed wil either be contractuallynovated or pass through the statutory transfer scheme to a separate regional body.

The proposed separate body for the North West is the JEREMIE holding fund, NorthWest Business Finance Limited (NWBF). NWBF has been established as a rivatesector compan , limited b uarantee. NWBF manages a fund of funds

The transfer of VCLF assets (and any potential liabilties) to NWBF to manageprovides CfEL with close oversight and governance of SME finance provision as itwill replace the NWDA interests as member and on the Board of NWBF. This wilensure the continued effective delivery of the large North West portolio of SMEinvestment funds and the funding conditions attached to legacy returns.

For clarity, the transfer of NWDA's interests in NWBF to CfEL would entail thefollowing transfer of functions and roles to CfEL:

· Monitor NWDA's Single Programme grant of £8.6M to NWBF (coveringoperational costs) to ensure compliance with the grant agreement.

· Replace NWDA as Company Member and Board Director.

NWBF is the ERDF applicant for the VCLF and so wil retain re ortinand ERDF c1awback liabilties.

would impact on CfEL.

The funds the NWDA has established are:

The North West Fund

The North West Fund is a new £185m evergreen fund for Northwest businesses(previously known as the Venture Capital and Loan Fund). The Fund is funded by a£92.4m European Regional Development Fund (ERDF) grant under the 2007-13programme and is matched equally by private sector loan funding from the European

30

Investment Bank (EIB) under the Joint European Resources for Micro to MediumEnterprises (JEREMIE) initiative.

The JEREMIE fund wil run up to December 2022 with an initial investment period upto the end of December 2015.

The North West Fund is the umbrella name for the 6 funds that are now available toNorthwest businesses in the form of debt, equity and quasi-equity. These funds aremanaged by 6 fund managers under contract with NWBF.

Interim funds

The NWDA established two interim funds in November 2009 for investment prior tothe establishment of The North West Fund:

(a) Interim Loan Fund (ILF)Provided debt finance to SMEs seeking development capital between £50,000 and£250,000 and invested £1.92m.

(b) Interim Venture Capital (lVC)Provided equity and quasi-equity based co-investment fund, providing growth capitalbetween £250,000 and £1 millon, with total fund value of £3m.

These funds are currently controlled by the public sector holding fund, NW VCLF HFLLP. The funding provided was 50% single programme and 50% ERDF with returnsgoing back to NW VCLF HF LLP for re-investment through the Northwest Fund. Theassets held by these funds wil be transferred to NWBF who wil appoint fundmanagers to manage the investment portolio.

Rising Stars Growth Fund (RSGF)

Early stage technology fund, established in 2002 with NWDA holding a 47% stakealongside institutional investors, managing £19m which was invested by March 2007.The fund invested in seed and start-up companies with unique and protectabletechnology, and an exceptional commercial market opportunity.

Northwest Business Investment Scheme (NWBIS)

This was established in 2003 to provide seed and venture capital investment toSMEs, using fLlnds allocated by ERDF for use in the Northwest areas designated as"Objective 2" or "Transitional", investing until December 2008 and to produce returnsby 2015. NWDA is the only investor; with £22.2m ERDF funding invested.

Northwest Seed Fund (NWSF)

This fund, which was established in September 2003, provided £4.5m of seed capitalfor investment by December 2008. The fund invested in innovative businessesneeding to prove concepts before commercialisation. It provided initial investment upto £100k and further investment up to maximum of £350K per investment. Eachbusiness raised investment from other sources to at least match the fund investment.

31

Transitional Loan Fund (TLF)

This transitional fund provided loans to businesses from £50,000 to £250,000,targeted at established and viable SMEs facing a temporary shortall in their workingcapital due to unprecedented combination of credit crunch and global economicdownturn. The fund invested a total of £5.6m.

Small Loans for Business (SUB)

SUB was established to provide loan finance from £3,000 to £50,000 to SMEsunable to secure debt finance from conventional or alternative sources. This loanscheme is managed by NWDA and delivered by five Community DevelopmentFinance Institutions (CDFls). The overall fund size is circa £20m made up from singleprogramme and ERDF grants.

Summary

The table sets out the estimated future returns from the legacy schemes which wouldflow into NWBF.

¡;.

Interim Venture CapitalFund

3:0

CommentsVCLFAll figures £m

Invested Received

to date

Risin Stars Growth Fund 8.9North West Seed Fund 4.5Transitional Loan Fund 5.6

;('iJ;¡,

Interim Loan Fund 1.92

"'I' ~\~

Small Loans for Business'1i- 'í 9.4"

t,- t"iii

Total £m :i1ì.:. 33.32" \k

It is a requirement that the Legacy Funds which have been funded with ERDF must,ultimately, be re-invested into SMEs in the region. The NWBIS ERDF returns havealready been legally transferred from the NWDA to the NWBF.

The different funds have restrictions placed aroundtimeframe a Iicable to the s ecific re-investment.

There is a need for the JEREMIE holding fund, NWBF, to remain constituted asprivate sector company with the associated EIB loans staying off the public sector

32

balance sheet. The company structure is the ideal asset-holding mechanism that wilprovide CfEL with the national oversight function and a delivery structure retained inthe region.

In working with CfEL and BIS on VCLF Transition Proposals we considered thefollowing options:

Option 1 - Novate funds to a separate bodyNWBF is the separate body that enables the transfer of function and assets of theNWDA interests in these legacy funds.

Option 2 - Wholesale centralisationBIS/CfEL take over the management all of the funds on an individual basis.

'l,':i~:L

Option 3 - Sale of government interestsDisposal of assets - investments sold on open market.

Key PointsL,

:¡ ,ilP

;wr,:".,;,:

I Iib.

3.2 Corporate Interests "\,ii/j;:' /'~t~(~~,!. -, _ i-

The NWDA currently has an owriership i rit,e rest in 17 companies, as set out in Annex1 E. The NWDA is also represented on 24'~;company Boards as Director. As part ofthe NWDA's transition & closure proçiramrr'e, a review has been undertaken of when

,l;I-''lU. il, ..:~,ilfL, ....;ff

it would be appropriate .fo'r the NWDAtö withdraw from these companies. All of theNWDA's ownership intetèsts;"have" a statutory basis (through section 5 RDA Actapproval) and many'¡'o.f tlî directorships have strategic importance. As such the

NWDA's Board has appfuve the timing of withdrawaL.,,1¡~I"ilè\~'!' C!'J:'¥!/WiIi'::~( i., ""

For 14 of ",,,the°,'!,,2~ ""cpmpanies, the NWDA Board has decided to take actionimmediatel.y to wittïgraWtour interest by 31 March 2011. This includes 9 of the section5 c0!.pariie~ detailèd 'at Annex 1 E. The withdrawal includes all of the region'sURGs/EDCs"for which capacity funding wil cease on that date. Whilst we wil stil!o:) "".vi :'"'.'"hav~~,.a contractual relationship on funded projects, there wil no longer be a case for

reterïtian of company ownership or Board representation.'i.i~;!''1-.:;:.~tl~#rn~.qrß':i:

For the other 10, the NWDA Board has agreed that the NWDA continues itsinvolvement unti the transfer of associated asset, company closure or the end of ourlegitimate involvement in the company's activities. This includes the Joint Ventures ofwhich we are part (PPP, Rochdale Kingsway, Daresbury etc) which have been

referred to earlier.

It should be noted that in addition to corporate interests, NWDA staff are alsoengaged with a large number of other bodies (204) in the region on a more informalbasis, including attendance at organisational committee and steering group meetingsetc. The timing of withdrawal in these cases is another aspect of the transition andclosure programme and has been considered in relation to ongoing stakeholder

33

relationships, legacy, succession and our ever reducing resource capacity. Themajority of these withdrawals wil also take place by 31 March 2011 and have beenagreed by the NWDA's Executive Management Board.

It is emphasised that withdrawal from corporate interests is purely a question of exitprior to closure and does not impact on the question of transfer of assets andliabilties, other than in one particular case which is set out below.

The NWDA needs BIS consent to dispose of its interest in Maryport DevelopmentsLtd (MDL). The NWDA "inherited" its interest in MDL. This was part of the transfer ofassets and liabilties from English Partnerships (EP). The Company was set up in1987 with the principal objective of regenerating Maryport Harbour. Other

shareholders comprise Cumbria County Council; Allerdale Borough Councilpredecessor to; West Cumbria Development Fund. In 1993 English Estates (EE)(formerly ~ribed for 101 redeemable preference shares for a subscriptionprice of _ to enable MDL to continue harbour regeneration works. Theshares are currently valued at The original agreement givesNWDA the right to receive the original subscription price but the company's accountsdemonstrate that if this clause was invoked, the company would have to sell all itsassets and the harbour would close.

In 2001 EP obtained DTII HM Treasury approval to create an endowment fund of_ to provide an income stream in perpetuity for MDL to maintain the harbour as

a key component of the regenerated marina and surroundings. The endowmentprovides funding for periodic dredging works and certain capital projects that are setwithin the 30 year business plan, whilst preserving the capital value of theendowment for future years income. The NWDA's shareholding and the endowment(current estimated value of _) need to be transferred to another body to securethe future management and operation of the harbour.

34

Chapter 4 Operational Estate

4.1 Freehold and leasehold properties

Please see Annexes 1 F, 1 G and 1 H for full details.

NWDA owns three freehold sites and occupies 15 leased properties. Theseleasehold properties capture:

. 8 properties in strategic locations across the NW England.

. the RDA National Secretariat offce in London.

. 6 overseas offces (held on short term leases/licences) used for inward

investment activity.

NWDA has taken out leases of varying length. All of the buildings are ,used for staffaccommodation. The types of lease agreement vary, ranging from hot desk facilitiesin our overseas offces to head office accommodation (39k sq.ft) in \larrington. Someof the existing leases will expire before 31st March 2012, but the ma.orit will runbe ond. B far the bi est lease commitment is for the Head Office.

In addition tolease costs there are associated running costs to consider, such as Service charge,Rates, Security and Maintenance. Some of the associated costs would be incurredeven if the buildings are left unoccupied.

Type of Premises

Freehold Properties (car park/offce space/industrial)The NWDA has 3 freehold/250yr leasehold properties, all of which incur costs inrelation to rates, service charge and maintenance.

Long leasehold Properties (offces):- than 5 years remaining on leaseThe NWDA holds leases on three properties which extend beyond the NWDA closuredate. These also incur costs in relation to rent, rates, service charge andmaintenance.

Short leasehold Properties (offces) c: than 5 years remaining on leaseThe NWDA holds leases or licences on 12 properties of which four extend beyondthe NWDA closure date.

Business Link NW premisesBusiness Link have 3 leasehold premises, all of which have less than 5 yearsremaining on their leases and wil expire prior to the NWDA closure date. BLNWhave made provision in their exit strategy to cover the cost implications of closureand termination of its leases.

Strategic Options

One property is used as the NWDA's records archive store and this may be requiredfor the storage of records post closure pending transfer to the national archive. Inview of this ongoing operational requirement, immediate disposal is not an option and

35

it is proposed to include this in the broader Land and Property asset portoliodescribed earlier in this Plan.

Options for the remaining two Freehold premises are as follows:

1. Continue to utilse the premises/land up to NWDA closure whereupon they wiltransfer to successors.

2. Market the premises/land with immediate effect with a view to disposing assoon as possible.

The preferred option is Option 2. The premises/land are no longer essential toongoing operations, given reductions in staff numbers, and early disposal wil reducethe NWDA's ongoing administrative operational costs as well as yield a capitalreceipt.

Options for the Long & Short term leasehold premises are as follows:

1. Let all leases run their course and, with the exception of the leases whichexpire prior to NWDA closure, be transferred to successor bodies. This meansthat successors would need to pick up ongoing costs and take their owndecisions on whether to use the buildings for their own purposes, meet leasesurrender costs or seek assignment.

2. With the exception of buildings which are required up to NWDA closure,negotiate surrenders with Landlords with a view to leases being surrenderedprior to the lease termination date. However we would not be in a strongnegotiating position. We have no break clause or other right of exit. The costof an early settlement agreement would likely be punitive. It would be difficultto quantify the cost of this option at this stage but the maximum would be thevalue of the outstanding lease periods at 31 March 2012 which totals _.

3. Market forthwith all premises with a view to assigning the remaining interest inleases thereby mitigating ongoing costs in respect of rent, service charge,rates, maintenance and dilapidations. Any leases remaining with the NWDAupon closure will revert to BIS (as confirmed on 28 January by the BISCommercial Directorate).

Options for NWDA Overseas Offces are as follows:

1. Let all leases run their course2. Serve notice to terminate at pre-determined time and then withdraw3. Serve notice immediately and withdraw

36

A summary of the NWDA's freehold and leasehold estate and the proposed exitsolutions described above is set out in the following table.

Item CurrentNo.

Exit strategy

Freeholds

- Record archive 1

- Office 1- Car park 1Long Leaseholds ;:5 yrs 3

Short Leaseholds c: 5 yrs- Expire pre closure 8- Expire post closure 4

Business Link NWleaseholds

3i:¡fgy(.. ''h

w;',"

--i 'JI l.

Key Points, ~%),

:(:::;..?oP

,¡t'

,'!,,; tI4.2 Offce Furniture~~,\Pleasé''see.Annex 1 F for full details. .,--

The NWDA has in the region of 4,000 items of equipment/furniture, most of which arelocated in its operational accommodation but with some held in storage as offces areclosed. The equipment is generally in good condition and consists of the usualfurniture associated with office use, Le. desks & associated fittings/chairs/ storagecupboards and meeting room furniture.

In addition the NWDA's subsidiary company, Business Link NW, has in the region of700 items of equipment/furniture located in its operational accommodation (Liverpooland Preston). The equipment is generally in good condition and consists of the usual

37

furniture associated with offce use, i.e. desks & associated fittings/chairs/ storagecupboards and meeting room furniture.

Options for retention/disposal are as follows:

1. Furniture in offces which are transferred to a successor body remain in situand other furniture in storage (or to be placed in storage as offces aredisposed of prior to closure) be disposed of

2. Gift furniture to successor/partner organisations, e.g. LEPs, local authorities3. Sell furniture to successor/partner organisations, e.g. LEPs, local authorities4. Dispose of furniture through OGC framework5. Donate furniture to charities6. Gift (where no book value) or sell furniture at market value to NWDAlBLNW

employees and dispose of remaining items as detailed in above options

We have consulted with the Head of Infrastructure in the BIS Commercial Directorateduring the production of this Plan and received clear advice that we should disposeof all furniture and equipment prior to, or upon, closure. Therefore the preferredoptions are 3 and 4 and any items not sold wil then be gifted or sent for re-cycling.

4.3 ICT Equipment

Please see Annex 1 F for full details.

ICT assets includes desktops, laptops, monitors, printers, photocopiers, servers,network switches, routers and other associated equipment. No individual item isvalued at more than £150k.

The current arrangement is for laptops, desktops, monitors and printers that are nolonger suitable for business purposes and have no "book value" to be providedwithout softare to North West charities upon request. It is proposed to continuewith this provision.

In addition, it is proposed, subject to NWDA Audit Committee approval, to implementa scheme to allow employees to purchase a maximum of one each of laptops,desktops, monitors and printers at a market rate valuation. Again no softare wil beprovided and the equipment wil be provided on an "as seen" basis.

It is considered highly likely that there wil stil be a significant number of residuallaptops, desktops, monitors and printers once the demand from of charities andemployees have been satisfied. In addition, the more bulky equipment (e.g.photocopiers) and specialist equipment (servers, routers and switches) wil stil beavailable.

The potential options for disposal of the residual equipment are to either transfer it toa successor body or sell it through an appropriate third party broker.

4.4 Vehicle Leases

Please see Annex 1 G for full details.

38

All Vehicles leases are for vehicles used by NWDA staff. There are currently 46agreements in existence. There are nine individual existing agreements which arescheduled to run beyond 31st March 2012. The latest expiry date is 30 April 2013.

The average annual cost per agreement is £5k. We have a single provider, which isLex Leasing.

The only practical option is to manage the vehicle fleet to lowest cost option Le. swapout vehicles based on leavers and lease expiry dates with any outstanding leases at31 March 2012 to be surrendered.

4.5 Softare Licence Agreements

Please see Annex 1 G for full details.

There are a number of contracted Softare Licence Agreements in existence whichrun beyond 31st March 2012. There are two significant agreements:

Wide Area Network - expiry date April 2013, annual cost £160kMicrosoft Enterprise agreement - expiry date December 2012, annual cost £90k

The only realistic option available to the NWDA is to attempt to negotiate an earlysettlement with the respective suppliers.

39

Chapter 5 Programme Liabilties and Post NWDA Activity

This chapter describes current estimates of programme liabilties that wil exist on 1April 2012 (which BIS need to be aware of but may not need to take action on) andoutstanding activities and actions in relation to projects (which wil require action postNWDA closure, subject to decisions BIS need to take on the value of certainmonitoring activities).

Liabilties are:

. Programme expenditure beyond March 2012 - also an ongoing activity whichwil definitiely require action post NWDA closure (section 5.1)

. CPO actual and contingent liabiliies (section 5.2)

. ERDF and other funding contingent clawback liabilties (section 5.3)

. Business Link contingent liabilties (section 5.4)

. Any obligations from expired contracts (section 5.5)

Post NWDA programme activities are (section 5.6):. Management of projects stil in delivery, including payments and monitoring.. For completed projects:

o Outstanding payments

o Output monitoring

o Clawback monitoring

5.1 Programme expenditure beyond March 2012

The NWDA's December 2010 commitments return identifies budgeted expenditure ofi

circa £79M on existing programme commitments which is scheduled to occur afterclosure. As part of our closure plan we are currently determining the extent to whichthese can be reduced by accelerated project completion and payment. Howeverthere wil inevitably be a number of projects which, due to their nature, cannot becompleted early and where it is not in the interests of safeguarding public funds forpayments to be accelerated. The task of managing out those projects and meetingexpenditure liabilities wil therefore fall to successor bodies.

From a legal perspective, the options for outstanding projects are as follows:

o Statutory Transfer to a single successor body e.g. BIS or Residuary Body.

o Novation/Assignment to a third part by agreement.o Payment in advance, thus requiring no actions by successors.

NWDA has not formed a view on who the successor bodies might be and awaits theNTB's own proposals on a RDA Residuary Body which might penorm this function.Other viable options are diffcult to identify. For example, the role cannot be easilydevolved to Local Authorities as these are, in many cases, the recipients of the grantfunding in question. The same applies to LEPs in the sense that they are largelycontrolled by the same Local Authorities. HCA may be an option in respect ofphysical development activity but are unlikely to have the required knowledge toadminister funding for business development activity.

40

At this point it is worth noting that the task of managing out uncompleted projects wilnot just be one of paying expenditure claims but will also involve a range of otherproject management and monitoring actions which might include output monitoring,project audits, clawback reviews etc. One project is subject to payments up to 2014from funds paid into escrow by NWDA to meet the demands of the project partnersand this requires monitoring to ensure the funding is used for its intended purpose.

In some cases, the expenditure "tail" is associated with ongoing payments on sitemanagement and maintenance under contracted land regeneration programmes andin one case NWDA is contracted to make such annual payments until 2029. An exitsolution in such cases is to pay endowments prior to closure, based on robustassessment, in order to remove the ongoing liabiliy. In the past, NWDA has beenprohibited from entering into such arrangements as this is deemed to representpayment in advance of need but it is suggested that Treasury's policy position on thisshould be reviewed in the light of RDA closure.

5.2 Compulsory Purchase Orders

The NWDA has two CPOs (Ancoats andcompensation claims have not et been settled

5.3 Clawback Liabilties

(a) ERDF

There is a large number of NWDA led projects which have been part funded byERDF i.e. NWDA has received ERDF grant as applicant. These include grants underthe current 2007-13 programme, the previous 2000-06 programme and grants fromthe programme before that which were obtained by English Partnerships and forwhich liability transferred to NWDA upon our establishment. The potential provisionsrelating to ERDF claw back represent an onerous monitoring requirement andpotentially significant claw back liabilty to any successor body. Projects can beaudited by the European Court of Auditors up to 20 years after completion.

(b) Other income

As with ERDF, we would not normally recognise 'Other Income' as a ContingentLiabilty (i.e. too remote). However we have identified certain categories of 'othergovernment grants' received by NWDA that could possibly be subject to clawback ifcertain conditions are no longer met (e.g. Department of Trade of Industry grants,

41

Department of Work and pensions (DWP), Heritage Lottery Fund (HLF) andDepartment of Environment, Food and Rural Affairs. These wil also require ongoingmonitoring.

Some of our clawback liabilities are against grants which were used to develop landand property assets and in such cases, we wil seek to transfer the clawback liabiltywith the corresponding asset. The extent to which this is possible may depend onwho the assets transfer to.

Our options for the balance of clawback liabilties are limited. As stated, clawback is aliability which could possibly be triggered at some point in the future, if a project is inbreach of a grant funding covenant. It would be a futile exercise to try to quantify anyfuture claw back potential liabilty.

We are itemising all projects with ERDF and other government grant contributions,and providing as much relevant project data as possible in order that the appropriateresidual or successor bodies are aware of the scale of ongoing monitoring

requirements.

We can only highlight the potential risks of future liabilties to bodies taking over theresponsibilty for managing I monitoring the relevant projects.

5.4 Business Link NW Liabilties

Business Link Northwest operates as a Company Limited by Guarantee with NWDAas the sole member and the service went live on 2 April 2007, integrating theprevious sub-regional bodies into a single entity. The organisation is due to close inNovember 2011 and though the details around this closure are still to be resolved,the likely route wil be via a members solvent voluntary liquidation which has theadvantage no scope for the company to be restored to the register, and so theliability of directors and members comes to an end immediately on winding-up.

At the formation of the Company and the wind up of the operations of the previoussub -regional bodies the NWDA was required to ~emnities in respect of the

~n Merseyside Cumbria _ and Lancashire_ These are indemnities against future claims that are made to theliquidators of the previous Business Link organisations and will remain a contingentliabilty post abolition of Business Link NW and the NWDA. The last indemnity period(Lancashire) expires in 2012.

In addition, Business Link NW has a number projects that have received ERDFfunding. These are either inherited projects novated at the time of its establishmentrelating to the 2000 - 2006 programme or new projects which Business Link nWreceived funding for from the 2007 - 2013 programme. Attempts wil be made tonovate the latter to relevant bodies in the region as these are live projects which

others may wish to continue. Other clawback liabilties wil transfer to our statutorysuccessors.

There are also a number of intangible assets that will have limited commercial valuebut may be of some use post closure to successor bodies and this wil be dealt withas part of the Agency Knowledge Management Inventory .

42

5.5 Expired Contracts

The NWDA has set up a Review Team to review those contracts which have expiredor have been terminated but which place on-going obligations onto NWDA which willneed to transfer upon closure. This work is expected to be completed by September2011.

5.6 Post NWDA Programme Activity

Chapter 2 (Land and Property) discusses the different types of clawback which applyto physical development projects and the different options for future "monitoring. Inaddition, grants awarded under the national GBI/SFI and GRAND programmeshavea specific requirement to monitor projects for a period of 5 years fror; the 'firstpayment to review whether targets have been met. If targets 'are", not "'met thenc1awback of grant can be requested. 600 grants fall into this monitoring"category postMarch 2012 (see table below). In addition, NWDA has3 GBI cases that have arepayable element which, if the triggers for repaymenf"àre met, wil be subject torepayment post March 2012. '"

The table below provides a comprehensive analysis of the vòlume of projects which,at the current time, have activities fallng due after NWDA's closure, either in respectof outstanding delivery (Le. they wil not be"physically completed at 31 March 2012),outstanding payments, require ongoing monitoririg of outputs or require ongoingc1awback monitoring. It is emphasised th'âti¡this data is provisional pending detailedproject reviews which are currently UhderwaYiand"decisions yet to be taken on earlycompletion of projects. The numbers of projeèts" represented in the table are acrossthe Single Programme as a ,,'Nhole and include the clawback cases referred to inChapter 2. It should be noteditthat the categories under "completed projects" are

over-lapping Le. if a project is sUnject to outstanding payments and outstandingoutputs it is recorded ~icéin the tab'lé.

Clearly, projects \',n,!çtiare nòt physically complete and fully paid for at NWDA'sclosure wil need tô'bê' h'änded over to successors. A choice exists regarding whetherresources stloûld'¡:be'inyested in ongoing outputs monitoring and ongoing monitoringof performance related clawback.

f:-l.ni~ff-Y:l"l ";'2 ;I"i! '"i",

Category No. of oroiectsNU"1,~er of projects still in delivery - Single Programme 54

- -GBI/GRAND 17

Completed Projects

Outstanding payments 23Outstanding outputs 49Clawback monitoring. Third part assets/overage (as listed in Annex 1 B) 197. Default/non-performance 106. GBI/GRAND non-performance (10% sample)* 60

, , .* National scheme requires 10% of grants to be monitored, post completion, 600 grants will be in .Conditions Monitoring , hence60 wil require monitoring activity.

43

We estimate that the managing out of p~cts stil in delivery wil initially require.

FTE staff although this could reduce to . FTEs at the end of 2012/13 on the basisof current estimated project completion dates. It is possible that the work involved indealing with outstanding paì:ents on the 23 completed projects could beaccommodated by the same _ FTEs. Therefore, based on an assumed cost of.. per post (including on-costs), a provision of _ in 2012/13 would berequired to manage this ongoing work with the potential to reduce to _ at the

end of that year.

Staffng projections in Chapter 2 (land and property) cover third party assets andoverage clawback. Therefore the only additional resource required relates to ongoingmonitoring of project outputs and default 1 no~enormance clawback on ~projects. This could probably be managed by. FTE but the cost of this _would need to be compared against the value of the activity and likely minimalfinancial returns.

44

Chapter 6 Key Milestones and Activities

An outline implementation plan is set out in this chapter which contains the keyactivities that wil need to be undertaken to secure the disposal or transfer of assetsand liabilities by 31 March 2012. Clearly, this cannot be developed in detail until thekey decisions are taken regarding transfer solutions and successor bodies andimplementation plans are agreed with those bodies.

Furthermore the timelines set out here make a number of key assumptions, asfollows:

. NWDA wil present its plan to the National Transition Board in time to receivethe NTB's response and approval to the Plan by the end of March.

. Apart from key questions over the Land and Property portolio, approval at the

end of April will allow NWDA to:o implement the disposal and transfer of stand alone assetso review and then close out low value c1awback

o transfer legacy venture capital loan funds and NWDA's interests inNorthwest Business Finance

o take action to dispose of operational assets and leases/licences

. Decisions on national or regional control and management of the Land andProperty portolio, and its precise content, wil take a little longer to bereached as they require further detailed modellng and consultation, and maynot be known until the end of June (the timelines indicate a single portoliotransfer but it is acknowledged that more than one transfer wil be required ifthere is a decision to, say, separate out sites from other income streams).

. Notwithstanding the process for receiving, reviewing and approving this Plan,

NWDA is free to continue to implement certain closure activities Le:o normal asset disposal and income generation to achieve assumed

income levels in the 2011/12 budget, subject to compliance with anyrequirements for approval

o exit from company interests subject to any required approvals from BISo return of vehicles as leases expire

. In relation to programme liabilties which cannot be passed to an alternative

successor, Ministers wil have made final decisions on a RDA Residuary Bodyby end June and RDAs wil be able to start discussing handoverarrangements with that body in the summer with a view to handovers takingplace in the last two quarters of 2011/12.

45

TASK 2011 (Jan to Decl 2012Q1 Q2 Q3 Q4 Q1

General

Submit Assets and Liabilities ~Plan

Present Assets and Liabilities .Plan to NTB

NTB Response to Plan .Land and Property

,-

Agreement on portolio transfer -solutions I

Implement portolio transfer(s).:r~!

Transfer of stand alone assets -

Review and close out lowvalue clawback

.'l

Business as usual asset'I.

disposal/Income generation,; ~2'

':!.

Venture Capital Loan Funds .:'

:;.. -W'"

Transfer NWDA interest in .'

NWBF toCFEL~1

Corporate Interests ifi..li1i

First phase exit from 14"' '(;; :.

Companies :1, -Ongoing exit from 10c,\Companies

Operational Estate

Dispose of freehold records ..archive store as part of LandP Portolio

MarkeUdispose of tworemainingfreeholds

MarkeUassignment of all ~Leases

Serve notice and terminate ~leases/licences for overseasoffces

Disposal of offce furniture

Disposal of ICT equipmentI

-rExpiry of vehicle leases

Negotiation/Early settlement of ~softare leases

46

TASK 2011 2012Q1 Q2 Q3 Q4 Q1

Programme Liabilties

NWDA identify scope for early ..

project closure -BIS decisions on succession -.arrangements for ongoing -projects and related liabilities(e.g. Residuary Body)

Discussion and agreement on ..~hand over arrangements ~Project handover

Key task must complete to trigger activityi!.

;:i.

'1.:.::: '~,.

Vl:~::1'1ft

le:

'-~' i~t'2' 'i:,jß

"

;,;

E

~ù~.1,:1

47

Chapter 7 Financial Summary

7.1 General

This Plan provides a comprehensive review and analysis of the options andpreferred exit strategy and rationale for each category of assets and liabiltiesheld by NWDA, both real and contingent. In this chapter we have sought toshow the impact on the Financial Statement of Position (Balance Sheet) ofthose assets and liabilties where we can recognise a financial value. It istherefore naturally narrower in focus than the preceding chapters.

7.2 Financial Information supporting the Plan

NWDA has prepared a number of schedules to support the Plan narrative and isattached at Annex 2. The financial information included is as follows:

. Projected Statement of Financial Position for the years ended 31 March2011 and 31 March 2012

. Journal adjustments arising from the movement of assets and liabilties inaccordance with the Plan

. Supporting detailed schedule of treatment of Financial Investments during

the financial year 2011/12. Supporting schedule of Development Asset forecast valuation as at 31

March 2012. Supporting schedule of treatment of Operating Asset

. Calculation of net present value (NPV) of long term liabilities (primarilybuilding leases and ongoing Programme commitments)

7.3 Reflection of Planned Closure Strategy

The exit strategies we have reflected from the Plan in respect of each categoryof assets and liabilties are as follows:

. With the exception of NWDA's c1awback liabilties as applicant, all assetsand liabilties related to the ERDF Programme 2001-13 are to transfer toDCLG in July 2011

. All investments in Venture Capital funds are to transfer to Capital forEnterprise during 2011 at the prevailng market value.

. Development assets shown on the Financial Statement of Position at closureare those which we expect to transfer to a Residuary Body.

. Liabilty provisions for compulsory purchase orders wil follow the

development property asset.. The share of the PPP assets and loan notes shown on the Financial

Statement of Position at closure are those which we expect to transfer to asuccessor body.

48

7.4 Presentation of the Financial Statement of Position

The major assumptions we have used in compilng and presenting the financialstatements are as follows:

. The financial statement as at 31 March 2011 is prepared on a going concern

basis.

We assume that the Public Bodies Bill will not have been fully passed by thetime our 2010/11 Financial Statements are signed off, and therefore this isconsistent with the format we expect to present for this yeats Accounts.

. The financial statement as at 31 March 2012 is produced on a non going

concern basis, with the attendant assumptions of:

o Redundancy costs settled on or before closure, and funded from aseparate closure budget

o Building leases are assigned to a third party and therefore there wil beno ongoing liabilty and are not shown in the financial statement onclosure. We have included the impact of the lease obligations at NPVin Annex 2 for information.

. In accordance with standard accounting practice (IFRS) we have not

included contingent assets, such as overage or clawback, or contingentliabilities which are considered remote, such as ERDF liabilties, in theStatement of Financial Position.

. For accounts prepared on a non going concern basis, all assets and liabiltieswould normally be classified as short term, but for clarity and to aidunderstanding we have kept the standard short and long term classifications.

49

Chapter 8 - Risk Management

8.1 Introduction

The management and delivery of the Assets and Liabilties Plan is a core activitywithin the closure programme of the NWDA and the management of its risks is whollyaligned to the corporate processes adopted to enable the successful delivery of thisprogramme in order to meet the Government's objectives to close the NWDA by 31March 2012. The key principles of this are set out below.

o There wil be a rigorous approach to the management of risk with regular riskreviews and clearly defined escalation routes.

o Day to day management of the risks within the plan wil be undertaken withinthe work stream assigned responsibilty for its delivery. ;,,'

o Corporate reporting and escalation routes for significant risks via the NWDA's,Executive Management Board, Audit Committee and main 'Boård as requiredand defined by NWDA process.

An initial review and consideration of the key risks associated with the delivery of theplan are set out below but clearly as and when approval to the principles and optionsset out within this plan are received, more detailed and "solution specific riskidentification, assessment and management wil be required from both a strategicand operational perspective.

8.2 Assets and Liabilties Plan Risk Register,.' ~i:, m ri:~\

Ref Risk Summary Potential Consequences Likelihood Impact Owner Mitigation

1. There is a need to Inabilty to deliver to BIS and Agency's Resource Planensure that Govemmênt targets resulting provides for delivery ofappropriate and in significant unresolved required activity with on-adequate staff and matters by'March 2012 going monitoring required infinancial resource "11:;;';

relation to staff remaining in¡¡,

is applied to 2 5 CEX post to deliver that activityenable delivery of i;,; 'O~':'''.d,li/_:i' but abilty to deliver the

the Assets and Assets and Liabilities Plan isLiabilties ~Ian dependent upon timelygiven the

"; decisions from Government::1complexity of its \1

compositi~,n, Commitment to additional:':;!~ funding of asset and liability

disposal of trnsfer costs,

as assumed in this plan

2. Market conditions On going responsibilty for Early, active and on-goingdo not permit residuary body or successor engagement with identifieddisposal of sites partners (including HCA,and propertes 4 3 DLPRP LA's LEP's and privateidentified for sale sector developers) toup to and ensure maximising ofincluding 31st opportunity to dispose of theMarc 2012 identified sites,

3. The willngness Significant operational and Maintain Parter dialogue

and abilty of day to day management while awaiting BIS Approvalproposed required following Agency and assess requirements inrecipients to closure with transfer of relation to proposedaccpt the trnsfer responsibility to a potential transfers including anyof stand alone residuary body or succssor consideration for dealingsites/assets with associated liabilities

Potential for inertia in relation 3 4 DLPRPto significant land holdingsand developments with lostdevelo ment 0 ortunities.

50

. .

MitigationRef Risk Summary Potential Consequences Likelihoo Impact

4.

5. The ability to Results in outstanding leases Commence marketing asdispose of having to be transferred with soon as BIS approval isoperational leases their associated un-budgeted received and activelyis affected by liabilties to BIS. 4 4 market all leasehold

current and future properties in an effort to limitmarket conditions future liabilties,

6. Delay or deferral Wil create uncertainty with Work with BIS to definein decision on grant recipient bodies and optimum .solution to meetsuccessor result in project not delivering bottGovemment andarrangements for specified outputs and Portolio solution

ongoing outcomes particularly if;it

reqúirementsmonitoring and decision is taken not tomanagement of engage in fuure monitoring, Work with grant recipients toProgramme ensure that projectsLiabilties post Abilty to monitor potential 4 4 progress smoothly and thatclosure. clawback and overage income handover arrangements to a

important to the portolio successor are effective andsolution may also be impaired well managed.

, ~l

7.

. '.

;i;

.~~,; ..

.'.~

8. Potential Liabilties Unquantifi€lble potential' Review records andas a result of unkñown ''\~". documents associated withprojects where Iiabilty,both in terms of timing historic and inheritedNWDAis the and amount and dependent projects to ensureERDF Applicant ,'uponERDF"Audit completeness of records(and those t:.,~¡tí:f¡'Ji~1¡i~i~l~l_; and obtain missinginherited from 'l,_ documents where possible.'11.'""

predecessor \",bodies) where the :i~it Review those contractsEC may seek

J'2 3 where back to back

clawI~ck as a arrangements are in place

.result of any with Developers to seedefaults whether Companies are stil:irl' trading and therefore if

Clawback occrs there is,7 ir:f:'' potential stil to recver.

Maintain level of projectmanagement andmonitoring on on-goingprojects to ensure ERDFrequirements are met andthat successor bodiesaware of thesere uirements

51

Key

Likelihood ImDact5. Almost Certain 5. Catastrophic4 Highlv Probable 4, Substantial3. Probable 3. Significant2. Unlikely 2. Moderate1. Almost Impossible 1. Minor

Risk Owners

CEX - Chief ExecutiveDLPRP - Director of Land and PropertyHBF - Head of Business FinanceDLE - Director of Legal and EstatesDPRO - Director of Programme

,';,

Overall Risk Rating = Likelihood x Impact:

52

15-25 = High _6-14 = Medium _1-5= Low _