First local government bond agency issue set for autumn

25 May 16

The first bond issue from the UK Municipal Bonds Agency is set to take place this autumn, chair Sir Merrick Cockell has confirmed.

Speaking at a conference in London yesterday, Cockell urged local authorities to approve the UKBA’s framework document if they wanted to borrow in the initial issue, with work already underway to match borrowing needs to money raised.

Cockell, former chair of the Local Government Association, confirmed at the conference that 57 local authorities has signed up as shareholders for the agency, with the latest being East Sussex, while eight authorities have approved the framework, which was distributed to local authorities in January.

“The LGA on behalf of the sector created the UKMBA for two main reasons,” he told delegates.

“To develop cheaper sources of capital finance for local authorities by using the collective strength of local government itself, and as a clear signal to the wider world about UK local government ambitions and ability to find its own long-term solutions rather than being subservient to national government telling us what to do.”

The shareholders in the agency, which will issue bonds to then on-lend funding to councils, were balanced across England across tiers and political control.

“We spent the last year getting ready for our first bonds issue,” Cockell added.

“Councils starting with Cambridgeshire have taken the framework through their constitutional process and are now adopted within their treasury policies. We know at least another seven or eight going through the May-June committee cycle.

“The platform has been prepared, the groundwork has been done, we are set to go. Our focus is getting a bond issued in the autumn of this year. If you could be in the market for cheaper borrowing in the second half of this year, please get the framework through your council processes and have the UKMBA listed as potential lender.”

Cockell said the agency would only issue if it could get local authorities interest rates that were lower than the Public Works Loan Board, which lends to most authorities at 80 basis points over government gilts.

At the conference, Cockell acknowledged that some councils were concerned about being party to the joint and several guarantee that would operate if a local authority defaulted on borrowing.

The power to do so came from council’s power of general competence, he stated, and no council in this country has ever reneged on a liability since the City of London was formed over 1,000 years ago.

“But we have to have processes in place should one do so, and we have. We have always been clear – a joint and several guarantee is exactly what it says and you need to consider that carefully.”

The UKMBA has a “full and thorough assessment process”, which would not be automatic for all councils, he added.

“Not every council’s finances make them eligible to be part of a bond issue, and that should give those that are comfort that they are working together in a bond issue with other first class, highly-rated councils. It is a relatively light touch process but it is there.”

The conference also heard from UKMBA chief executive Aidan Brady, who set out plans for the agency to develop a platform for inter-authority borrowing between councils.

“Lending to each other benefits all of us,” he added. “This is an area where we think something needs to be done, and is probably the area which when I go round and talk has generated the most discussion.

“We are working hard to develop a platform that will change the way you lend to each other. More work needs to be done but I think we are getting there. Can you imagine a platform that is more controlled, more transparent and cheaper than the PWLB. This is the simple aim that we have in this respect, and we think it is deliverable.”

UKMBA is also in discussions to act as a clearing house of European Investment Bank funds, he added.

“The EIB can only finance on a large scale, £160m is their minimum project size. We do plan to be an aggregator for the EIB and we are in discussions with them to deliver their lending into smaller projects as well as continuing to help those larger projects access the EIB directly.”

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