LG stung by rates on £8m bank loan

LG is locked into paying 6.27 per cent interest on an £8.2m loan for the next nine years at a time when the UK base rate has dropped to 0.5 per cent.

The firm agreed to the terms on the Barclays Bank loan last April, when Libor stood at around 5.8 per cent. The interbank lending rate now stands at 2.4 per cent.

In total the firm borrowed £11m from the bank. The firm took out a hedging contract that fixed the interest rate on £8.2m of the loan with the remainder attracting a rate of 0.85 per cent over Libor.

LG managing partner Hugh Maule (pictured) said: "Libor unusually moved well away from base in 2007. We took a view in 2007 that we would hedge part of the loan because the rate that we got at the time was going to save us quite a considerable amount of interest."

Maule admitted that as things stand the interbank rate is not favourable but added that LG was currently still "quids in" thanks to the hedging contract.

"We may break even [on the contract] or be down or slightly up, but we're certainly pleased with what we did," he said.

LG originally took out a £15.8m loan to finance the fit-out of its offices in More London, where it relocated to in May 2007 after taking possession of the building three years ago.

The firm's 2007-08 LLP accounts, published last week, show that of this loan £14.8m was still payable as at 30 April 2008.

In that financial year the firm also increased partners' capital by £1.2m to £10.5m. This equates to around £15,000 per partner if spread evenly between 80 partners.