Scale of investment unclear as LGA announces bond agency ‘launch phase’
0
A total of 48 councils have now signed up to become investors in the agency, up from 38 who had signed up in September when it was also announced that £4.5m had been pledged to the project. Despite that announcement and the news this week of the launch phase, no further update has been issued on the amount of investment raised or what implications that may have for the start-up model.
Michael Lockwood, executive director of the LGA, and director at the LCFC, said: “The decision to move into the launch phase is a significant and important step. It reflects the overwhelming appetite among local authorities for us to make this happen.
“The response from councils has been hugely positive, and the momentum behind this exciting venture continues to build.”
It is understood that the amount raised so far is some way short of the £8m-10m which the LGA originally estimated would be necessary for operational capital.
However, sources say that those original estimates were very conservative, and after some revision of the numbers, there is confidence that the project remains on track to fully launch in March or April.
LCFC is already drawing down money – on a staged basis – from some of the councils who have signed up in order to fund its operations.
Other prospective shareholders have until the end of February 2015 to finalise their equity investments.
It is understood that a number of councils which have indicated a willingness to contribute are tying their commitments to their own budgetary approval processes.
Work undertaken during the mobilisation phase included identifying potential future council borrowing requirements and putting initial outsourcing requirements in place for finance and IT systems.
Lockwood added: “There is no doubt about the support for a local government owned bonds agency that saves taxpayers money by making borrowing cheaper.”
The LGA estimates that if half of the outstanding debt with the Public Works Loan Board was transferred to LCFC, the saving to local government could be between £1.2 billion and £1.45 billion over 30 years.
Addendum
Following the publication of this article, Aidan Brady, LCFC director who has been leading the project spoke to Room151.
He confirmed that the agency’s original business plan indicated that the agency would need commitments of between £3.5m and £4.0m to break even – a figure already exceeded.
The agency doubled that number and added a margin, to arrive at its original target of between £8m and £10m.
Recent revisions to those figures have now brought the break-even figure down to between £3 and £3.5m and the target figure down to £6m.
Brady said that the figures had been revised in the light of savings made in procurement over original estimates.
He said: “Our original estimates were very conservative and have been revised in the light of how we have been operating so far. For instance we had a budget for consultants but in the event have only used them selectively – so that amount is materially lower than budgeted for. We are running significantly below the cost levels we anticipated.”
Of the original 38 councils, 37 are now shareholders, having bought shares in LCFC. Those making subsequent provisional commitments are mainly tying up their formal commitments with internal budget approval processes, he said.
A number of other councils have indicated interest but are yet to sign letters of intent.
Brady said: “The message we are pumping out is that the agency will be stronger the more councils we get on board. It makes a huge difference to the ratings agencies we are dealing with.”
He also said that plans for the size of the agency had not been scaled down. LCFC is currently operating with four staff and a PA, which he said was always envisaged in the plan.
Photo (cropped) by Simon Cunningham
