Bond agency chief: ‘Right volumes’ and ‘optimum pricing’ needed before launch

Preparing properly for the first bond issue is more important than rushing to meet artificial deadlines, according to the boss of the nascent municipal bonds agency.

Aidan Brady (pictured), chief executive of the Local Capital Finance Company (LCFC), told Room151 this week he was not worried that the agency had missed its original ambition of launching the first bond by May.

An issue valued at between £250m and £300m is now expected later this year, with ratings agencies currently examining proposals submitted to it by LCFC.

Brady said: “It is more important to go at the right time with the right volumes to get the optimum pricing for the first bond, rather than keeping to a timetable we set up more than a year ago. We don’t want to rush this – it has to be done properly.”

Brady is currently embarked on a tour of 56 authorities around England which have invested – or are poised to invest – in the agency, to explain how plans are progressing. He is also visiting councils which have expressed an interest in borrowing from the agency on the back of the first bond issue.

He said: “When I speak to shareholders I am not getting overburdened with people saying ‘you haven’t got it done yet. You are late.’

“When we are explaining it to people, the feedback is very positive.”

A small group of local authorities which have invested are currently compiling a legal opinion on the “joint and several” guarantees which would make shareholders collectively liable if any of the borrowers default, Brady said.

“These are legal agreements that will still be live long after you and I are around,” he said.

He said that he wanted as many borrowers as possible to take advantage of the bond issue, adding that “our challenge here is more on diversification than volume”

“There are some authorities that have refinancing needs and could do fairly substantial amounts. If I needed just three or four it would be easy but we want to get as many as possible to make it as powerful as possible. In addition, getting the right mix of large authorities and small authorities will help us optimise our ratings.”

The agency will be unable to publish any ratings until it becomes a public limited company later this year, he said.

Brady also said that he has been approached by institutions interested in using the agency as a conduit to lend into the local authority market, along with some councils with excess liquidity which were keen to use it to on-lend.

“I think we have made progress on several fronts that actually has left me feeling extremely pleased and stunned – we are seeing how they can be brought to fruition,” he added.