• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • 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

The Municipal Bonds Agency offers ‘certainty’ and a chance for councils to ‘control their own debt’

0
  • by Guest
  • in Blogs · Treasury
  • — 21 May, 2020
Photo: Bank of England, Flickr

Barnsley is among the first three councils to raise debt through the Municipal Bonds Agency. Ian Rooth explains the reasoning.

Barnsley has committed to the first pooled bond by the Municipal Bonds Agency for two main reasons. Firstly, we want to demonstrate our support for establishing an alternative financing source for local authorities, which we think is very important, and secondly, because it fits in with our borrowing requirements.

The sudden and artificial 1% PWLB hike caused general consternation, and probably some panic, for authorities when it was announced back in October 2019. It was apparently imposed because of concerns over borrowing levels for purely commercial ventures. Unfortunately, all authorities suffered as a result—especially those that were in the middle of large regeneration projects like Barnsley.

Whilst it was unwelcome news, Barnsley had fixed a large part of its borrowing in the months preceding the announcement so did not require any kneejerk decisions.

Other authorities may have been less fortunate. For example, there were reports of some councils entering into more complex and colourful market loans to get equivalent pre-hike rates. These may cause issues further down the line in the way LOBO’s did in recent years.

For other cash-strapped authorities, the 1% increase may have had an even bigger impact requiring more savings from key services or even putting their planned developments at risk. In short, the hike has resulted in uncertainty, severely hindered financial planning and led to riskier options that may come back to bite some authorities. Of course, Covid 19 has emerged in the interim and in terms of impact, has put the PWLB hike in the shade. Nevertheless, we shouldn’t forget the major upheaval that it caused at the time.

Destiny and certainty

Moreover, whilst it was a surprising move, it was not the first time. Barnsley was in the middle of finalising Phase 3 of its £1bn Building Schools for the Future programme in October 2010 when news of a similar 1% rise was announced, again sparking consternation.

Significant shifts in interest rates are the main reason why Barnsley supports the MBA proposal. We want the local government sector to take control of its own destiny and not be subject to the whims of policy decisions like these.

Whilst I appreciate there are more urgent issues happening now, equally there has never been a better opportunity to establish the bond agency than at this moment. The pooled interest rate is likely to be well below the PWLB equivalent and therefore any savings will be significant.

Lancashire County Council proved this when they used the MBA to launch a single authority bond and secured a rate around 1% below equivalent PWLB rates – saving in excess of £3m per annum in the process.

The MBA approach is also similar to our own in that it’s primary focus is on certainty whilst still seeking to be sufficiently flexible to generate interest rate savings. Therefore, unlike previously, the MBA is providing options for authorities around different term periods as well as looking to offer up forward dated loans in future.

This is a type of loan that Barnsley has already carried out as it complements our treasury management strategy by creating a more certain backdrop, avoids the cost of carry and allows us to access cheaper short-term loans in the interim. In the current period of volatility, certainty and savings seem an ideal mix.

Joint and several

The MBA is also seeking to iron out some of the issues that beset earlier launches. The biggest prior issue was the “joint and several” guarantee to cover potential default. Although no local authority has ever defaulted on a loan, the “joint and several” guarantee did appear to be a frightening prospect as there didn’t seem to be any limit to the scale of underwriting that individual authorities could be subject to.

This has now been replaced by a proportional guarantee that seeks to cap the amount authorities are expected to underwrite and which ceases altogether as soon as an individual authority repays its loan (unlike previous arrangements).

For the reasons outlined above, Barnsley has already taken the move to commit to the first launch of MBA’s pooled bond. It does, however, need many more authorities to commit to the MBA to demonstrate to the market that there is both sufficient value and interest from the local government sector.

I know some authorities are waiting to see whether PWLB rates reduce as a result of the government’s current consultation. This is understandable but, as mentioned earlier, it is also the ideal time for authorities, as a collective, to identify their own alternative funding sources via the MBA platform.

Amidst all the issues that Covid-19 is causing to authority budgets and the prevailing uncertainty, isn’t it at least time to take control over the financing of our own debt?

Ian Rooth is head of financial services at Barnsley Metropolitan Borough Council.

Share

You may also like...

  • Local government reorganisation: The debate is intense but is the case for reform proven? 24 Sep, 2020
  • Finnegan’s Take: Co-op alarm bells sound all too familiar Finnegan’s Take: Co-op alarm bells sound all too familiar 31 Jul, 2013
  • Chris Buss: Councils need a ‘realistic’ increase in the HRA borrowing cap, not an ’empty gesture’ Chris Buss: Councils need a ‘realistic’ increase in the HRA borrowing cap, not an ’empty gesture’ 6 Dec, 2017
  • Fitch downgrades UK banks as treasurers look to spread risk Fitch downgrades UK banks as treasurers look to spread risk 3 Apr, 2014

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 16 hours ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 16 hours ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 2 days ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 2 days ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 2 days ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 3 days ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 3 days ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 3 days ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 4 days ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 4 days ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 4 days ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 4 weeks ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 4 weeks ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

    Room151 4 weeks ago

    Tracy Bingham: 2020, a year best forgotten but also one of learning: Many will rush to erase 2020 from their memories but, writes Tracy Bingham, there were also many lessons about finance teams, strategic planning and leadership. 2020: A year we’d… dlvr.it/RnlpY2 pic.twitter.com/m7G1krrtCu

    Room151 1 month ago

    Settlement must address ‘precarious’ local government finances: Dan Bates crosses his fingers for “no nasty surprises” in this week’s funding settlement but argues the “bigger prize” is post-Covid financial certainty. Thursday (17 December) should be the… dlvr.it/Rnj9dG pic.twitter.com/KLKjjuBqJE

    Room151 1 month ago

    PWLB consultation: Big change on the way but there are ‘grey areas’ and opportunities: The consultation on PWLB borrowing has concluded creating a new landscape for funding property acquisition. Our experts look at the implications. Tracie Langley The… dlvr.it/RndRvJ pic.twitter.com/KEqXEBmEfq

    Room151 1 month ago

    2021: Better income outcomes?: Sponsored article: Investors should be mindful of structural challenges posed to income generation as a result of rapid thematic change. Jon Bell looks at the prospects for the coming year.[...] dlvr.it/RndRsw pic.twitter.com/TxVk8aXkMq

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Without ‘confidence’ in local government funding s114 notices remain a risk
  • Next story Covid-19 risks ‘massive cuts’ in the most deprived areas unless Whitehall steps in

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK