Birmingham “very likely” to use bond agency

Birmingham City Council says that it is “very likely” to borrow from the municipal bonds agency – the first council to publicly state its interest in doing so.

Last week, Room151 reported that the launch date for the agency’s first bond issue – which had been pencilled in for April or May – has been delayed.

Questions had been raised about the level of appetite for the new bond, with a number of councils scaling back their borrowing.

But this week, Martin Easton, head of capital and treasury at Birmingham City Council, told Room151: “Birmingham’s position is that the council is very likely to take part.

“The council has some borrowing requirements so if the rate looks good then we are likely to be in there.”

Easton said that the council was attracted to the model not just because of the prospect of cheaper interest rates than those charged by the Public Works Loan Board, but because it would enable further spreading of borrowing risk.

He said: “It is good to have diverse sources, so we are less reliant on any single counterparty.”

And he said that he was not worried by the “joint and several” guarantees which would mean that participating councils would be responsible for covering any defaults by another borrower.

He said: “We take the view that no council has ever defaulted and it is hard to see the government letting us get into a position where that was a risk.”

He said that he believed other councils were also very interested in borrowing from the agency, but would not reveal any names.

A spokesman for the Local Capital Finance Company, which is running the bond issue, told Room151, that it is still on track for the first bond launch.

He said: “Progress to date has been very positive. Ratings agencies’ reviews are currently underway, councils are looking at the paperwork and we are confident that we will shortly begin to start savings councils money.

“We expect further interest from councils as they become aware of the issuance discounts available to shareholders.”

The proposed size of the first issue is still unclear, although one source said that he had heard the agency is considering a £250m issue, with individual councils restricted to a maximum of £35m borrowing. The bond could have a maturity of 25 years, the source added.

Photo (cropped): Elliott Brown, Flickr