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Four to kick off bond agency borrowing

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Four councils are ready to become the first to borrow from the Municipal Bonds Agency.

The agency this week secured an Aa3 rating from credit rating agency Moody’s – the final step it needed before lending.

It was created in 2015 to provide a source of cheap finance for local authority projects as an alternative to borrowing from the government’s Public Works Loan Board, but has had a low profile while securing the rating and seeking to convince councils that the requirement for borrowers to be ’joint and severally’ liable if another defaults need not be a barrier to participation.

Agency chair Sir Merrick Cockell, former chair of the Local Government Association, told LGC: “We have 57 shareholders - 56 councils plus the LGA – and of those 20-30 have adopted the framework that would allow them to borrow and four have gone beyond that and accepted the joint and several liabilities will be the first to borrow.” He declined to name them.

Sir Merrick said the four would participate in the first bond issue and “we hope there would then be a larger second issue.

“We need to prove the concept and having the rating and then the four borrowing will help the sector to accept it. The rating of Aa3 is as good as anyone will get.”

He dismissed the idea that taking on joint and several liability would deter councils from borrowing, noting: “Councils assess risk all the time and are very experienced at it, so they can assess the risk of accepting joint and several liabilities, and the four have done so. In over 900 years, no local authority has defaulted on its debt obligations.”

Moody’s said the Aa3 rating “mainly reflects the strong credit quality of the underlying pool participants in the [agency]: four UK local authorities”.

It added: “The credit quality is supported by the high level of control and monitoring of local authorities by the central government, strong institutional framework, and statutory codes of practice covering local authority capital expenditure, investments, treasury management and borrowing.”

 

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