A special report - by John Miller

Last week in a little known announcement, Moody’s, the agency that stripped the UK of its AAA credit rating, cut the ratings of three property companies that lease buildings to the BBC in London and Glasgow.

The three companies which were downgraded were Juturna PLC, Pacific Quay Finance and White City Property Finance, which all went down from Aa3 to A1.  The companies finance buildings for which the BBC is the sole occupier and Moody’s believes there is now doubt over whether the BBC can meet future financial obligations.

The news prompted Newsnet Scotland to look into who owns the property occupied by BBC Scotland at Pacific Quay.  The result of our research is that quite frankly we don’t know.  Information to hand indicates that it is not the BBC, but this will not stop the licence payers paying dearly for it over a period of thirty years.

The report by Moody’s Investor Services on February 27th said that they had downgraded the credit ratings of notes issued by three commercial mortgage-backed security (CMBS) transactions.  The transactions relate to three BBC properties including Pacific Quay in Glasgow.

Our investigation took us into that nether world of PFI and complex financial instruments similar to those that brought the global financial system crashing down about our ears in 2008.  It would take a book to explain everything in detail but given the constraints of an online article we will simply give you an overview.

Moody’s has cited several reasons for the downgrade:

  • The downgrade of the UK’s sovereign debt rating and the impact on a number of structured finance transactions given their financial linkages.
  • A degree of strategic uncertainty for the BBC following rapid management changes in the wake of the Jimmy Savile affair.
  • The BBC’s ongoing challenge to balance its obligation to provide high quality programming while achieving the cost savings necessary to manage its financials within the envelope provided by the 2010 funding settlement.
  • A stubbornly high pension deficit.  According to reports, the BBC’s pension scheme deficit has increased from £1.4 billion to £2.6 billion over the past year.

For some of the background to the structured finance vehicles used by the BBC we can turn to the National Audit Office report dated November 30th, 2009 entitled “the BBC’s management of three major estate projects”.

The report is highly critical of the BBC’s management of the projects and concludes, amongst other things, that “The BBC is not well placed to demonstrate value for money from the £2,000 million it has committed to spending on the three projects over their life”.  That £2 billion commitment has to be looked at in the context of the fact that the BBC has a borrowing limit of £200 million set by the Secretary of State for Culture, Media and Sport.

Here we have the magic of Private Finance Initiative (PFI) in action.

PFI was the Brown/Darling conjuring trick that swept vast amounts of public sector debt under the carpet where it could be hidden until it eventually emerged to grab us by the throat.  The same PFI debt that extracts hundreds of millions of pounds annually out of Scotland’s health and education budgets, before a single nurse or teacher has been paid.

If we look now at what the report has to say about Pacific Quay.  The project was originally conceived in 2002 at a cost of £126 million.  The scope was revised in 2005 and the eventual cost was £188 million.  This was made up of £100.1 million for the actual construction, £9.9 million for the cost of the bond to finance the project, £19.3 million for the cost of moving staff and £58.8 million for technology.

The report gives an indication of the structuring of arrangements for Broadcasting House, the London HQ of the BBC, which appears to be a lease-hold rather than a freehold property.   It simply states that the Pacific Quay arrangements are similar.

From this we learn that it raised a bond of £110 million secured on the building and pays an annual rent (£7.4 million 2008-9) over 30 years to the investment vehicle that owns the building.

Fitch’s, one of the rating agencies, indicated in one of its rating reports, that the lease is a “fully repairing and insuring lease” i.e. the BBC is responsible for meeting all of the costs of the building in addition to paying the rent.

The BBC financed the £59 million in technology through a mix of its own capital funds and leasing.  If the arrangements for Pacific Quay are similar to Broadcasting House then we can deduce that at the end of thirty years the BBC would have the options of, extending the lease, sharing in the sale of the property or buying the remaining term on the lease.

The financing arrangements are not in fact as straightforward as the summary in the Fitch report would suggest.  For more information on this we have to turn to the annual report and financial statements for Pacific Quay Finance PLC for the fiscal year ended April 30th, 2012 filed at Companies House.  From the report we learn that.

• The company was established as a special purpose company to raise funding by the issue of mortgage backed fixed rate notes due in 2034 and to apply the proceeds of such issue to advance a mortgage loan.  On 14 July 2004 the company advanced the loan to Pacific Quay Trustees No 1 Ltd to purchase a head lease and finance the construction of a property within the Pacific Quay development.

So it would appear that the BBC Scotland HQ is owned by Pacific Quay Trustees No 1 Ltd.

So who are they?

They are a non-trading company wholly owned by Capita Trust Company Ltd, which is in the business of being corporate trustees and the provision of trust and administration services.  This is where we hit a dead end in our search for the owner of BBC Pacific Quay.

• The company’s notes are listed on the Global Exchange Market (GEM) on the Irish Stock Exchange. GEM is aimed at investors who are particularly knowledgeable in investment matters.  Regulatory requirements are therefore less onerous than EU regulated market requirements.  Importantly, securities listed on GEM are considered to be listed on a recognised stock exchange.

So who has invested in Pacific Quay?  We certainly don’t know from GEM since the information is simply not available.  So we don’t know who owns the property and we don’t know who has invested in the notes used to fund the purchase and construction.

• The company uses an indexation rate swap contract to minimise its exposure to indexation risk between its index linked assets and its fixed rate liabilities.

Read behind that little bit of financial mumbo jumbo and you will find that the BBC isn’t simply paying rent for Pacific Quay.  The payment may increase, or more unlikely, decrease, in accordance with movement in the Retail Price Index with a minimum of 0% and a maximum of 5%.  What this means is that the principal and consequently the interest on the loan is, to use their phrase “uplifted” in accordance with the capped RPI.  Can you imagine the amount of the mortgage on your house increasing in line with the RPI?

• The company’s financials show that it has a shareholders’ deficit of £15.8 million, that is, it owes £15.8 million more than it has in assets.  Would you invest in a company that had more liabilities than assets?  Perhaps you are, through your pension fund investing on GEM on the Irish Stock Exchange.

• Now the interesting part.

The company’s estimate of the gross contractual cash flows, adjusted for indexation, on its financial assets is £275.8 million pounds.  Put another way, this is what they expect the BBC to pay them over 30 years for the use of Pacific Quay.

When Barclays Capital announced the details of the CMBS transaction in 2004 the Treasurer of the BBC, Stephen Wheatcroft said; “This is another fantastic deal for the BBC as it enables us to provide a great new building for the BBC Scotland HQ at Pacific Quay”.

I leave it to you to decide if you agree with him.

• Finally Pacific Quay Finance PLC is owned by Pacific Quay Holdings which peters out in the hands of yet another management company;  Another dead end trail.

It is ironic that BBC Pacific Quay was formally opened by Gordon Brown on 20 September 2007, the architect of the PFI scandal.  Currently there is a dispute and threats of repeated strike action hanging over BBC Scotland as a result of job losses due to funding cuts.

Two weeks ago the BBC Trust announced that it has has commissioned a review to examine whether the way the BBC distributes its content provides good value for money for licence fee payers.  It could do worse than look at the financing of the Pacific Quay building in Glasgow and other properties leased by the corporation.

Every BBC employee who enters Pacific Quay should pause and reflect that their jobs are in jeopardy today due in no small measure to an ever more costly PFI contract, much beloved of Gordon Brown and his Chancellor Alistair Darling.



# Leswil 2013-03-03 01:24
An excellent example of excellent journalism.
# Old Smokey 2013-03-03 02:23
I see the one named director of Pacific Quay Finance PLC is Jonathan Eden Keighley, who has a string of directorships all finance companies. He is also excutive chairman of SFM Europe, who themselves are listed as directors
# KOF 2013-03-03 12:09
Here's some more info on Pacific Quay Trustees No 1.

Also, Pacific Quay Nominees No 1.
# clootie 2013-03-03 07:41
my head hurts - I'll have to read this a couple of times!

What is obvious is that when you set up such a complex chain you are trying to hide something. Is it political or financial?

Perhaps the BBC is a " Fox News" after all.

Well done Newsnet and keep up the good work.
# UpSpake 2013-03-03 08:26
Superb, and a stunning example of planned obfuscation. In a nutshell, the license payers, the gullible amongst us, fund this nonsense. Clearly the BBC are not for the people, they are for themselves and complexity. Why hide the financing of this building in such a complex web unless of-course it is insidious and you do have something to hide.
The very fact that this investigation ended at brick walls shows that the spiders web has worked.
Innocent people who believe in the BBC are being hoodwinked. The rot that permeates this organisation will never be exposed until it is starved of its lifeblood. No lifeblood and the edifice will implode. Then, and only then, will the reality filter out.
Meanwhile and if it does ew can rely on say 100 other channels all trying to survive in a competitive world, not sugar spun in a coccoon of fluff paid for by the hapless.
# Leader of the Pack 2013-03-03 09:09
Is this not the level of investigative journalism we should be demanding from our MSM and the BBC itself?
The entire UK establishment order is being run like an organised crime syndicate with even less morales and less consideration. I feel like Im being forced to fund the Mafia!
# alexb 2013-03-03 09:31
Superb piece of investigative journalism. However, I'm sure we won't be seeing Mark Daly reporting on this any time soon.
# cokynutjoe 2013-03-03 09:41
Last time I looked the old abandoned former BBC Scotland HQ at QMD looked as if it had been subject to a terrorist attack. Who owns that, how much did they pay, and why has such a fine building been left in this shocking state.
# Union City Blues 2013-03-03 09:48
I assume that, before any contracts were signed, the BBC carried out due diligence on who they would be signing such a long term contract with. I would bet a years salary, if someone was able to dig deeper, someone has their hand in the till.
# gregalach 2013-03-03 10:46
Fascinating article which raises so many questions as to who really owns and runs the bbc and what they are gaining, in financial and/or political terms. Makes me so glad I gave up contributing to such a blatantly opaque and 'probably' corrupt entity as the bbc. I fully support the commenter on a previous thread about stv shares, that seems to me to be the only way forward towards a YES vote. NNS,so gald the appeal is going so well, I will try to make a tiny contribution asap -only the price of a coffee, some people say, but after 2 years unemplyed, coffee is an unaffordable luxury.NNS is no luxury, it is a necessity.
# clootie 2013-03-03 11:38

Never feel that way regarding the value of your donation!

Each by his ability is the Scotland we desire. Your donation will far outweigh mine as a percentage of funds available.

Westminster is creating a wider and wider gap in society - it is their fault and we need to remember that.

Middle Englnd has lost it's soul - let's not join them.
# X_Sticks 2013-03-03 12:06
"Each by his ability is the Scotland we desire"

Here, here, Clootie!
# Breeks 2013-03-03 11:02
PFI seems to be a time bomb.

It strikes me as an issue which should have a running timer which keeps ticking over and adding up how much PFI contracts are costing our economy, with similar explanations about where the money is coming from and where the cash is actually going.

Bear in mind, modern buildings do not have the same longevity as older traditional buildings, so they don't represent the same investment in an asset which traditional buildings once did. These are buildings which will expire and might well be worthless when they do, and yet they might not even be paid for.

PFI should be ringing a lot more alarm bells than it is. We should all appreciate what the SNP government has done here, because they have steered us away from PFI and saved us from potential catastrophe.
# ScotInNotts 2013-03-03 12:02
O/T but with regards to the debate had on the "BBC Scotland edit out controversial UK EU claim from national news programme" article.

I'm not sure if all or none of this has been suggested before but I was thinking:

1. Some were considering contacting the OSCE at the EU. If someone were to collate all the instances of BBC bias/manipulation of news stories and then submit a public petition alongside that evidence it would make a stronger case for some form of monitoring/intervention/scrutiny etc. of the BBC's reporting on independence related stories.

2. The Westminster e-petition system where 100,000 signatures allows MP's to "consider" debating that subject. Would someone be willing to formulate an appropriate phrase calling on MP's to debate the quality and impartiality of the BBC coverage on independence? Is there a similar mechanism for Holyrood?

As I say, just some thoughts.
# Jonny 2013-03-03 12:03
O.T. David Malone just posted an article about the art of listening on his blog. Worth reading if you are committed to achieving a YES vote.
# govanite 2013-03-03 13:22
Good article, too often people like myself speak with the zeal of the convert that I am. What is needed is a more subtle approach, we do have time to make that work but it must be constant & alluring rather than strident and frightening. We need to do some handholding along the way rather than trying to regiment a bold march.

Back to the BBC, someone mentioned Fox above, I bet they'd just love to hear about scandal at the beeb.
# tartanfever 2013-03-03 12:06
Maybe NNS would like to do a FOI request to the BBC on the funding of the building at Pacific Quay ?

The BBC usually wriggle out of FOI requests by claiming that information does not have to be revealed if it is of journalistic, artistic or literary origin.

It would be hard to see them wriggle out of answering such questions under those terms.
# mountain man 2013-03-03 12:13
I think someone from the snp shoould raise this matter in parliament,we as licence payers have a right to know where and how our moneyis spent.
# tartanfever 2013-03-03 12:26
On FOI requests, I've just been having a quick peek at the 'What do they know' website.

The BBC section is available here:

Many BBC requests are being refused, delayed and are long overdue - maybe someone should 'out' the BBC for their 'waiting lists' ?

Here's an interesting one, someone named Alexander Phillip asked about regional funding, and the BBC have made some pretty impressive claims regarding BBC Scotland, and 'Waterloo Road' in particular. You can read it here. (personally I'd be very sceptical about those claims)
# UpSpake 2013-03-03 12:29
ScotinNotts. The OSCE have already been alerted back in February 2012 by the SDA as to the insidious nature of braodcasting in Scotland and the likelyhood that the SNP would acqiesce to the establishments demands that they accept the oversight of the Electoral Commission despite serious concerns of many.
The office of the OSCE ha long experience of monitoring elections and if the establishment have nothing to hide and practices throughout the referendum will in no way, be corrupt then, the whole political establishment in Scotland and the UK can have no objections to the involvement in such an august European body overseeing the lot.
Such a request must come from the Scots govenment themselves, no-one else.
# cuckooshoe 2013-03-03 13:33
Found this article from 19/08/2004

Pension funds buy BBC Scotland HQ for £129m
# Grenscot 2013-03-03 13:58
Thank you Ed for putting up the source documents for the article. On page 5 of the NAO audit report it states "The focus of our review is on the BBC’s overall project management rather than the detailed procurement and financing arrangements" In other words the auditors brief was restricted and they were not permitted to inquire into the financial arrangements. I believe that the BBC managers were hauled in front of a Commons Committee and grilled on this report.
Could we be looking at a classic Sir Humphrey plot here? Distract the braying hyenas(MPs)by throwing them a bone which they can snarl at an gnaw over. In the meantime you quietly make off with the real meat and hide it deep in your lair. But like all good Sir Humphrey plots it ends in consternation when the NNS ferret sniffs out where the meat has been hidden. Just a thought!
# Hillside 2013-03-03 14:25
Is it just me, or does the BBC headline of today: 'SNP makes MOD backtrack claim' seem an odd way of presenting the story? By including the words SNP, backtrack, and claim in the same sentence it almost reads as a criticism of the SNP on first scan. Just wondering, because whenever a Labour spokesman makes a claim it is never presented as 'Labour claim' but rather 'SNP accused'.
# cjmasta 2013-03-03 16:55
Welcome to Scotland 2013!
# Fungus 2013-03-03 21:39
When we talk of obfuscation perhaps we should remember who else has buildings at Pacific Quay.
# Grenscot 2013-03-04 12:32
Any tax gurus out there? When I pay my mortgage the payment is split between the principal payment and the interest payment. The principal payment goes to reduce the balance of the loan and the interest payment provides taxable income to the lender. If I am reading the BBC's arrangement correctly it appears that the principal owed can actually increase by the amount of the Retail Price Index.How is that increase in the loan treated by the taxman? Does the lender have to include the amount of the increase in its taxable revenue or is it simply treated as a principal payment which is not taxable?
# Grenscot 2013-03-04 12:48
Thought of the day. I just looked at the photograph of Pacific Quay accompanying this article. It occurs to me that people who occupy such a large glass building may deem it prudent to avoid casting any stones in the direction of the people who build and finance such large glass buildings!
# Coinneach 2013-03-04 20:23
I'm surprised no one has mentioned Capita Financial Group.
A trans-national funding company funding company. I would hazard a guess that the BBC funding company is one of their offshoots.
Does this mean that in 2016 we could tell the BBC to do what they wish with the building. We, the nation, do not wish to finance it any longer.
Incidentally, am I not right to recall it was supposed to have cost 6000 million.
# Grenscot 2013-03-04 21:40
"Coinneach 2013-03-04 20:23
I'm surprised no one has mentioned Capita Financial Group".

Capita Trust is mentioned in the article as the parent company of Pacific Quay Nominees No 1 Ltd., the apparent owners of the BBC Scotland HQ. Capita Trust's ultimate parent is Capita Group PLC which is also the ultimate parent of Capita Business Services who collect your television licence under the TV Licensing brand. Curiouser and curiouser!

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