Council bonds company set to launch

9 Sep 14

The Local Government Association has announced the creation of a new company to issue municipal bonds, as the long-running plan for councils to borrow from the capital market nears fruition.

By Richard Johnstone | 9 September 2014

The Local Government Association has announced the creation of a new company to issue municipal bonds, as the long-running plan for councils to borrow from the capital market nears fruition.

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The umbrella group of councils announced today that the fundraising needed to establish the municipal bond agency had been successful, with more than £4.5m raised so far from 38 councils and the LGA. This takes the agency over half way to the £8m capital required for operation.

As a result, the first issue by the agency, which would issue bonds and then lend the money to councils as a rival to the Public Works Loans Board, is now planned for next April.

Town halls can continue to invest in the agency throughout the rest of this year to complete the raising of capital, while an inaugural meeting of future shareholders in the agency – which will trade under the name Local Capital Finance Company (LCFC) Limited – will be held on September 17.

 

Proposals for the agency have been developed for more than three years, with an analysis by the LGA concluding that it could lead to cheaper borrowing than from the PWLB, saving as much as £1.45bn over 30 years.

 

 

Michael Lockwood, executive director of the LGA and director of the LCFC, said all types of councils across England had thrown their support behind the bonds agency.

 

There was now an opportunity for councils to make significant savings by directly raising the money needed for infrastructure such as new homes and roads.

 

‘There is a genuine sense of excitement about the progress made so far and the momentum is building up as we prepare for the agency’s official launch,’ he said.

 

‘The amount invested in the agency so far has exceeded the initial targets required to make it a feasible proposition. We’re now in the crucial final phase where we start the process of turning these ambitious plans into a reality.’

 

An interim team of capital market professionals has been appointed to take the agency through its next phase of development, which include the LGA’s lead advisor on the project, Aidan Brady.

Earlier this year, Brady told Public Finance that councils would have to pass a credit test and cross-guarantee loans made to other authorities if they want to access the agency.

 

Responding to the announcement, Simon Bond, manager of the UK Social Bond Fund at asset management firm Threadneedle. said: ‘We know that many local authorities would like to return to the fixed income market place.

‘A municipal bonds agency could help facilitate this and at the same time benefit the wider economy and society by encouraging additional funding sources for social outcomes. Examples exist both in the US and in some French regions. The recent launch of the UK Retail Charity Bonds platform also illustrates how a new sector can be successfully established within the bond market.’

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