Peterborough council's £15m hotel loan classified as 'emerging risk' to authority

Peterborough City Council’s (PCC) £15m investment in a new hotel is now classified as an ‘emerging risk’ by the authority.

The council's loan to developers to build the Hilton Garden Inn in Fletton Quays has been added to its risk register for the first time, a document tracking potential financial and reputational problems.

The move follows PCC's decision to take developers Fletton Quays Hotel into administration last year.

“Matters arising since October means that this will be added to our strategic risk register going forward,” PCC documents say, “but [it’s] prudent to log [it] as an emerging risk now”.

The council maintains, though, that its investment in the unfinished hotel is safe, particularly as it’s a secured creditor – meaning it’s at the the top of the list for repayment of its loan plus the interest added since it was agreed with Propiteer Hotels Ltd in 2017.

PCC’s executive director of corporate services Cecilie Booth said that, “hand on heart, the governance arrangements around the loan facility were very, very good” when it was established, “which is why we’re in a strong position now as preferential creditor”.

“Of the decisions that have been made in the past, the Hilton loan is a pretty good one and we’re in a strong position there,” she continued at a PCC meeting this week.

Ms Booth added that she doesn’t want to try to cash in on the council’s investment until it’s worth more than its loan, but stressed that supporting the hotel project was always part of a wider initiative to regenerate Fletton Quays rather than a money-making endeavour.

Auditors say council should 'maintain vigilant oversight' of loan

PCC’s external auditors, Ernst & Young, have also taken an interest in the loan since Fletton Quays Hotel’s bankruptcy, telling the council to “maintain vigilant oversight of the financial implications arising from the Hilton Hotel loan” in a report on its finances.

“In the event a potential financial loss to the Council becomes apparent, please notify us immediately,” the company added.

In order to ensure this doesn’t happen, completion of the project is vital, PCC says, and it has added a £10m “placeholder fund” to its books to ensure it can support this if necessary.

Leader Cllr Mohammed Farooq (Peterborough First, Hargate and Hempsted) said that opening the hotel is the “only option” from the council’s point of view, as walking away would mean losing money and “frankly, I don’t think our books are strong enough to absorb that”.

“If we now do it up, not only will this generate a large income for our revenue budget, but then we will be in a position to sell it on,” he said.

“We would recoup the money we need to get it going and also the money that was loaned out.”

PCC says that the Hilton chain, whose branding is currently emblazoned on the side of the empty hotel, is also still committed to running it once it’s finally accepting guests.

At present, no work on the nine-storey hotel, which sits on the bank of the River Nene, is ongoing and there’s no opening date in sight.

Other parties, including secured creditor Propiteer Collateral Manager Ltd, and more than 80 unsecured creditors, will also be affected by decisions made around the £40m project.

The setbacks it’s faced have variously been attributed to the effects of Brexit, the Covid pandemic and the war in Ukraine impacting on workers and materials.