Westminster City Council and Barnsley Metropolitan Borough Council have confirmed they will participate in one of the first pooled bond issues announced by the UK Municipal Bonds Agency (“UKMBA”).
The UKMBA is offering three separate maturities: 10-years, 20-25 years and 40-45 years. The final maturity of the two longer-dated bonds will be set in consultation with those local authorities participating on those bond issues.
The three bond issues follow the UKMBA’s first standalone issuance in February - a £350m, 5-year SONIA linked Floating Rate Note (FRN) on behalf of Lancashire County Council.
The Agency said the bonds would be the first to fall under the UKMBA’s new proportional guarantee.
“The new guarantee structure ensures that no council can be held liable for all the debts of other local authorities nor be singled out to cover a default by another council. Councils’ liability under the proportional guarantee cease once any debts to the UKMBA have been repaid,” it added.
The UKMBA said councils would still be able to benefit from the pooled structure, “offering highly competitive pricing relative to current PWLB rates, minimal cost, transparency, flexibility and speed”.
Each bond will be issued once sufficient demand to support a benchmark issue has been reached. Once demand is sufficient, a bond will be issued within 6-8 weeks from start to finish.
The UKMBA claimed this was significantly quicker than a council was likely to achieve alone and far below the estimates voiced by the private sector.
The Agency’s standalone issuance with Lancashire County Council priced at 80 basis points over SONIA and over 100 bps less than the equivalent 5-year PWLB fixed rate.
“The bond was offered, priced and the book closed within 3 hours 15 minutes and was offered to the market for less than 45 minutes after pricing,” the UKMBA said.
It added that the bond was 2x over-subscribed and supported by over 20 different investors. “It was also the only paper to trade at a premium on the secondary market in the two weeks following its issue.”
The UKMBA said its role in providing vital funding options for the sector was now underscored by widespread financial pressure brought on by the ongoing COVID-19 pandemic.
The Agency has also announced plans for a short-term lending option for councils. The programme offers short term loans of up to12 months to meet cash flow needs or to provide interim financing between Agency bond issues.
Sir Merrick Cockell, Chairman of the UKMBA, said: “We’re thrilled to be working with Westminster and Barnsley – both are longstanding supporters of the Agency and understand the importance of flexible, sustainable and accessible financing options for the sector. The UKMBA is owned by local government for local government, giving us a genuine and deep understanding of the sector and the challenges councils face.
“In these uncertain times, it is vital that local authorities have access to diverse funding options. Only through a collective effort can local government stand on its own two feet and the UKMBA is part of that process. We look forward to issuing these bonds and our continued work with the sector in the months and years to come.”