• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • John Turnbull elected president of the SLT

    May 12, 2022

  • Pension pool identifies biodiversity as a priority

    May 11, 2022

  • TfL latest to face credit-rating downgrade by Moody’s

    May 10, 2022

  • Government proposes ‘fairer, more accurate’ business rates system

    May 10, 2022

  • Queen’s Speech confirms planning reforms

    May 10, 2022

  • 18,000 affordable houses lost through ‘permitted development’

    May 9, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

Moody’s: PWLB rate rise ‘credit negative’ for local authorities

0
  • by Colin Marrs
  • in 151 News · Treasury
  • — 16 Oct, 2019

Last week’s shock increase in the Public Works Loan Board (PWLB) lending rate could make it harder for councils to achieve strong credit ratings after ratings agency Moody’s dubbed the move “credit negative” for the sector.

In a surprise move last week, the Treasury announced a whole percentage point increase in the rate of borrowing from the Public Works Loan Board (PWLB).

Responding to the move this week, Moody’s said the short-term impact would affect the operating performance of councils due to increased interest costs.

SAVE THE DATE – LATIF NORTH
March 25th, 2020, Manchester
Council treasury investment & borrowing

It said: “We consider this to be credit negative for the UK local authority sector, as it will increase local authorities’ cost of capital on new borrowing in the short term.”

However, the ratings agency’s note said that in the longer term, the rate hike might reduce debt accumulation by local authorities, “particularly for speculative commercial projects with marginal returns”.

Moody’s said that although councils are likely to seek financing from other sources, it expects the PWLB to remain the sector’s main source of finance.

The latest government figures show that, at the end of 2018/19, PWLB loans made up 76% of council borrowing.

Last week, Room 151 reported that private sector and institutional lenders are set to take advantage of the increase in the PWLB rate by offering lower-priced options.

Fears were also raised about the future of regeneration and housing projects following the hike in the PWLB rate.

But Moody’s said it believes councils are likely to continue with planned projects and swallow the higher borrowing costs.

It said: “The majority of capital expenditure in the sector is on infrastructure which fulfils traditional statutory service requirements, such as housing, highways, street lighting and waste facilities.

“We do not expect the sector to cancel or postpone the majority of these projects as they fulfil important statutory duties.

“The rate hike will therefore negatively affect the operating performance of local authorities, as interest costs will increase. “

But the agency said that in the longer-term, higher interest costs could have a positive impact by making borrowing to invest in commercial property less attractive.

It said: “We consider commercial property projects to be risky for local authorities, since they are predominantly 100% debt funded and increase their exposure to economic volatility.

“However, the increase in the cost of capital may deter the rapid take-up of commercial risk in the sector by reducing their financial viability.”

The credit negative warning will not necessarily reduce the ratings of local authorities, but will be one factor the agency takes into consideration in future.

Last month, Moody’s issued long-term (stable) Aa2 ratings for Cornwall Council and Guildford Borough Council.

Commentary included in the Cornwall rating said that “a material increase in the debt burden or a weakening link between Cornwall Council and UK government, including its funding agency, the Public Works Loan Board (PWLB) could lead to a downgrade”.

However, both councils received a strong rating because of “a high likelihood that the government of United Kingdom would intervene in the event that it was to face acute liquidity stress”.

The Room151 Weekly Newsletter covers local government treasury and pension investment, funding, development, resources and technical finance. Register here. 

The LGPS Quarterly Briefing focuses purely on pension fund investment. Register here.

Share

You may also like...

  • Prudential code: “Not perfect, but its heart is in the right place” 23rd Feb, 2021
  • Investors ‘potentially damaging housing business models’, MOTB attendees told 28th Mar, 2022
  • Thriving in the pandemic: Avoiding the stragglers 12th Jan, 2021
  • ‘100 greener days in office’ 19th May, 2021

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 2 days ago

    ‘Urgent consultation’ issued in response to continuing audit delays: CIPFA and the Local Authority Scotland Accounts Advisory Committee (LASAAC) have announced another “urgent consultation” to consider proposals to address the latest issue that has led… dlvr.it/SQJ0kV pic.twitter.com/s6vw0bnGXO

    Room151 3 days ago

    Bags of capacity – now to housing delivery: HRAs have been freed up and councils are starting to invest, but some remain cautious, writes Steve Partridge. He suggests that a minimum of £10bn of additional borrowing could be[...] dlvr.it/SQDvxk pic.twitter.com/yZmoWzHv6U

    Room151 3 days ago

    Bags of capacity – now to housing delivery room151.co.uk/treasury/bags-…

    Room151 4 days ago

    To Michael Gove: a modest proposal: Conrad Hall has written an open letter to the levelling up secretary suggesting an unusual (and tongue-in-cheek) proposal to help councils predict next year’s government grant. Dear Secretary of State,[...] dlvr.it/SQ9GpX pic.twitter.com/mSX1xgeL8a

    Room151 4 days ago

    Queen’s Speech: an ambitious plan hampered by omissions: Richard Harbord examines the impact of the government’s legislative proposals on councils, and concludes that local authorities expect and need more from central government. However you view the… dlvr.it/SQ8hmP pic.twitter.com/BsnziyNPIO

    Room151 5 days ago

    Insights and inspiration from LGPS leaders past and present: Four current and former LGPS leaders have recently given powerful and insightful interviews as part of the Fiftyfaces podcast, which showcases inspiring investors and their stories. Hosted by… dlvr.it/SQ53lC pic.twitter.com/IRYMFPxdA2

    Room151 5 days ago

    Rate rise represents ‘fastest increase in borrowing costs in 25 years’: Partner Content: CCLA Investment Management’s Robert Evans analyses the rationale for the Bank of England’s latest rise in the Official Bank Rate and assesses the likely outcome of… dlvr.it/SQ33k3 pic.twitter.com/A81yiS1UgN

    Room151 5 days ago

    The Liability Benchmark, very much unloved at the recent Room151 treasury briefing, receives a much more positive assessment from Jackie Shute. There’s ‘no better tool for treasury portfolio management’, she says. #localgov #finance room151.co.uk/treasury/in-pr…

    Room151 6 days ago

    In praise of the Liability Benchmark: Jackie Shute responds to recent criticisms of the framework used to plan the future borrowing requirements of a local authority. I’m not suggesting that this debate will have the same[...] dlvr.it/SQ2cGf pic.twitter.com/4rqXTpHC9A

  • Categories

    • 151 News
    • Agent 151
    • Audit
    • Blogs
    • Business rates
    • Chris Buss
    • Cllr John Clancy
    • Council tax
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Education
    • Forum
    • Funding
    • Governance
    • Graham Liddell
    • Housing
    • Ian O'Donnell
    • Infrastructure
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • Levelling up
    • LGPS
    • Mark Finnegan
    • Net Zero
    • Private markets
    • Recent Posts
    • Regulation
    • Resources
    • Responsible investing
    • Richard Harbord
    • Risk management
    • Social care
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Transport
    • Treasury
    • Uncategorized
    • William Bourne
  • Archives

    • 2022
    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Queen’s Speech trails legislation on social care and devolution
  • Next story ALMO funding issues prompt move to insource housing services

© Copyright 2022 Room 151. Typegrid Theme by WPBandit.

0 shares