Council's 'briefing' on LOBO loans (£400m of 'toxic debt')

I have received a copy of a note from the Portfolio Holder together with a briefing on LOBOs.

There are two errors:
1. The best way to minimise your borrowing costs is to borrow only what you need for the period you need it and, if it is important to have certainty, fix the rate.
 It is a mistake for the Council to enter into a cocktail of complex financial  instruments which the Council thinks will minimise its risks but in fact carry different risks which the Council is not well placed to evaluate.
The way of calculating the price to exit an 'inverse floater' is an example. 
Banks would not ordinarily run the risks that the Council is running on these deals. They swap out their risk.
2. The Council has a good credit rating. It is better than the banks it is borrowing from. So the banks should ordinarily have to pay higher rates of interest than the Council.
This should put us on red alert to start with that the deals might be too good to be true. It also means that we should be aware that the terms of these deals would look jaw droppingly attractive  to the banks.
If the banks lent to central Government, they would get peanuts in comparison. Can anyone imagine the Government offering  National Savings Bonds where the rate is fixed except that if rates go up the investor can raise the rate and the Government has to redeem  the bond early if it does not like the new rate ?

Comparing fixed PWLB loans with LOBOs is like comparing apples and oranges. On the PWLB loans the rate is fixed.  So the Council takes a view that it is comfortable to pay the fixed rate on a PWLB loan for the designated period - like a fixed rate mortgage.

The LOBOs are not fixed as the lender can ratchet up the rate on the option dates.

If the Council has to carry liquidity (which pays derisory interest rates - on average, 1.17%) to hedge against suddenly needing to repay the LOBOs then that is another cost that the LOBOs are causing the Council.

I did not raise this issue until 1 December last year because the Council does not disclose in any of its documents details of these deals. Other Councils do.