Bond agency issue delayed but appetite remains high

Appetite among councils looking to subscribe to the first issue by the municipal bonds agency remains high, according to the body’s deputy chairman, despite a delay in the timetable for launch.

The business case documents for the agency, released in March last year, said a launch of the bond was targeted for March or April this year.

However, the agency has yet to receive a rating by any of the ratings agencies, a move seen as crucial to the launch.

Speaking to Room151 this week, Adrian Bell, deputy chairman of the Local Capital Finance Company, the body overseeing the bond’s launch, said: “I don’t think we would want to tie ourselves to an exact timetable for the launch at this stage. There are a lot of steps to go through before we are in a position to launch an inaugural issue.

“Finding the borrowers is only one part of that – though there does not appear to be any shortage of candidates given the potential savings on offer.”

He said that it may have been difficult for some councils to make a public commitment during the run-up to council elections due for May, but that this factor “has only played a peripheral part” in the delay.

He said: “There are always more things to be done than people assume when they first set off down a road like this, particularly when it involves a degree of innovation.”

Discussions have started with ratings agencies, he confirmed, with a formal rating seen as crucial to underpinning the issue of the bond.

Despite the shifting timetable, Bell added that the agency was unlikely to run out of funds any time soon.

“We have raised more than sufficient funds from local authority shareholders to move forward, with more than 60 councils having committed funds to become founder shareholders of the agency,” he said. “That is a stunning achievement.”

With the original deadline set to be missed, it is unclear whether subscribers will have to wait another six months before the agency’s inaugural bond is launched.

According to the original business case documents: “Timing peaks in March / April, so the agency should target a first bond in March / April 2015. The next peak occurs in September / October, which, accordingly, should be the anticipate timing of the next bond.”

A statement released on behalf of the agency to Room151 said: “This is an agency owned by the local authorities and it is up to them as to when they are ready to go.”

A number of council treasury managers who spoke to Room151 on condition of anonymity said that they had concerns that the bond mechanism might be inflexible compared to other forms of borrowing.

One said: “Because of the timings, you may be forced to take on the funds when it is not the most opportune time in terms of cash flow and rates available.”

Another said: “I am not getting a feeling that there is a huge appetite for borrowing among councils at the moment. A lot of banks are pulling away from the sector and I just wonder whether the demand is really there.”