EXCLUSIVE: Bonds agency goes to market with £350m inaugural bond

The UK Municipal Bonds Agency (UKMBA) today launched its long-awaited first bond into the market, ending a six-year wait.

In January, Room 151 broke the news that the UKMBA was on the verge of bringing to an end its long struggle to get its first issue off the ground.

Sources today confirmed that HSBC has been appointed as global coordinator for the launch and has gone to market on behalf of the agency.

It is seeking investors for the £350m five-year floating rate, SONIA-linked bond on behalf of Lancashire County Council.

BofA Securities, Barclays and HSBC will be joint book runners on the bond, and will hold investor meetings in London and Edinburgh next week.

It is understood the bond will be on offer to institutional investors in denominations of £100,000 and upwards.

The book runners will announce indicative pricing for the bond in the near future, according to a source.

The ratings process has been carried out outside of the UKMBA’s own credit rating processes, relying on the fact that Lancashire already possesses an AA3 (negative) rating, issued by Moody’s last year.

A statement from Moody’s released today said: “These guaranteed floating rate notes are unconditionally and irrevocably guaranteed by the guarantor, Lancashire County Council.

“Moody’s is comfortable with the substitution of Lancashire County Council’s rating to UK Municipal Bonds Agency Finance Company’s debt and payment obligations related to these standalone guaranteed floating rate notes based on its assessment of the guarantee…”

The announcement of UKMBA’s first launch ends a choppy six years during which the agency failed achieve its aim of issuing a bond.

In 2014, the Local Government Association approved the business plan for the UKMBA, with the aim of providing cheaper borrowing for local authorities.

By December that year, 48 councils had signed up to become shareholders in the agency, a number that has since grown to 56.

However, finding councils willing to commit to borrow money from the agency proved more difficult, with many citing worries about the “joint and several guarantee” that could have left councils responsible for repayment defaults by other borrowers.

However, the agency’s fortunes were transformed by two separate developments which occured almost simultaneously in October last year.

Firstly, the agency appointed financial adviser PFM to administer the agency on an outsourced basis, which announced that it had replaced the joint and several guarantee with less onerous terms.

Then, the Treasury decided to add one percentage point to the interest rate on borrowing from its Public Works Loan Board facility, a move that left councils seeking cheaper sources of borrowing.

In January, the UKMBA said that it hoped a second bond, on behalf of a group of local authorities, will follow before the end of the financial year.