Waste authority to issue green bond through UKMBA
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The UK Municipal Bonds Agency (UKMBA) has announced the issue of its first green bond – believed to be in the region of £250m to £400m – in what could be one of the largest municipal bond issues for many years.
The 45-year weighted average-life bond will be issued on behalf of the North London Waste Authority (NLWA) to help rebuild a waste-to-energy plant in Edmonton. It is part of a wider £1.2bn renewable energy programme – the North London Heat and Power Project – and follows a £280m loan from the PWLB in December 2021.
A source close to the latest deal told Room151 that the issue would go ahead if investor feedback suggests suitable pricing can be agreed the week beginning 7 February. Three banks are acting as joint lead managers – HSBC, Barclays and Bank of America.
The source said that the bond complies with the requirements of the Climate Bond Initiative’s criteria for waste-to-energy plants. “It will have an efficiency rating of 25% or more and will be supplying electricity and heat to the surrounding area using cutting-edge technology for a waste-to-energy plant.”
Separately, the UKMBA has published its Sustainable Finance Framework, which sets out its criteria for green, social and sustainable bonds.
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PFM, the managed service provider to UKMBA, will oversee the bond issue, which could be of equivalent value to the bonds issued by Lancashire County Council in February 2020 and Aberdeen City Council in October 2016 (see table below).
On 31 January, Moody’s assigned an A1 issuer rating and an a3 baseline credit assessment to NLWA. Moody’s said this reflected NLWA’s “strong and supportive institutional framework” and “the economic and fiscal strength of the constituent LAs”.
Jon Rowney, the London Borough of Camden’s s151 officer and financial adviser to the NLWA, set out the rationale for a municipal bond issuance in a December 2021 report. The report said that subject to a favourable credit rating, working with the UKMBA offered three distinct advantages over borrowing from the PWLB. These were the ability to “sculpt the repayments” in line with the project’s needs, the ability to “defer part of the finance” and reduce the cost of carry, and, lastly, the potential advantages of price.
NLWA manages waste transportation and disposal on behalf of seven London boroughs – Barnet, Camden, Enfield, Hackney, Haringey, Islington and Waltham Forest. In total, the boroughs collect nearly 820,000 tonnes of waste and recycling each year, of which 675,000 tonnes come from households.
A brief history of local government and transport authority bond issuance since 2000
| Issuer | Issuance | Rating at the time of issuance (unless otherwise stated) | Date of issue | Background |
|---|---|---|---|---|
| Birmingham City Council | £215m bond issued on the Eurobonds markets maturing between 2030 and 2035. The council's 2005/6 budget report said the aim was to borrow at an 'interest rate of around 9.5%'. | N/A | 2005 | As part of the NEC refinancing, the council offered to buy out NEC Finance plc stockholders in exchange for the high-yielding bond. |
| Transport for London | TfL's bond programme started in earnest in 2005 with several £200m issuances designed to help build a credit rating and to gain experience. The programme has been a great success and the transport authority has since continued to tap the bond markets regularly. | As at 01/02/2020 (Long-term rating) S&P: A+; Moody's: A3; Fitch: A+ | 2005-present | In a very cap-ex heavy business, with a need to borrow every year, funding diversity is all important. TfL's recognition of the financial rigour and discipline that comes with running a long-term bond programme has helped establish it as a highly credible player in the debt capital markets and has funded major extensions and upgrades of the rail network. |
| Greater London Authority | £600m secured bond, amortising 2030-2034. Coupon 5.017%. | S&P AA+ | July, 2011 | The GLA raised £600m via a bond issuance, as part of its £6.328bn contribution towards construction costs for Crossrail. |
| Greater London Authority | £200m CPI-linked bond, amortising 2036-40. Coupon 0.33929% multiplied annually by the Index Ratio. The first ever sterling-denominated bond linked to CPI and, indeed, the first inflation-linked bond issued by a local authority. | S&P AA+ | May, 2015 | The GLA raised £200m via a bond issuance, as part of its £1bn contribution towards construction costs for the Northern Line Extension. |
| Warrington Borough Council | £150m CPI-linked bond with a starting rate of 0.846%, increasing annually with CPI subject to a maximum increase of 3% per annum. | Aa2 (Moody's) | August, 2015 | At the time of issuance the council sold £50m to a UK insurer and retained £100m to fund future infrastructure development. |
| Aberdeen City Council | £370m unsecured bond had a margin of 1.25% above the relevant Gilt rate and matures in 2054. It launched with a 0.1% coupon and is inflation-linked with a floor of zero and no cap. | Aa2 (Moody's) | October, 2016 | Aberdeen's capital programme of c£850m in the mid 2000s, driven by an economic diversification strategy away from oil and gas, was underpinned by a city centre masterplan that would deliver the new Aberdeen Exhibition and Conference Centre (AECC). |
| Lancashire County Council | £350m five-year floating rate, SONIA-linked bond. | Aa3 (Moody's) | Feb, 2020 | Demand was reported at the time to have topped £700m for LCC's bond issued through the UK Municipal Bonds Agency, the agency's first issuance. The paper has consistently traded below the cost of PWLB debt since issuance and was considered a major coup for UK council finance. |
| Lancashire County Council | £250m 40-year, fixed-rate bond, guaranteed at a spread of 107bps above the PWLB rate. | Aa3 (Moody's) | August, 2020 | Fresh from the success in the short end of the market, the partnership of LCC and the UKMBA, led by PFM, went back to the markets for ultra-long money. |
| London Borough of Sutton | £250 million bond with a 35-year final maturity and a coupon of 1.732%. An initial £100m was issued with £150m retained for future sale. | Aa3 (Moody's) | November, 2020 | Sutton used the funds partly to refinance short-term debt and partly to finance projects within its capital programme. |
| North London Waste Authority | First local authority 'Green Bond' believed to be in the region of £250m-£400m | A1 (Moody's) | February, 2022 | Funding for the North London Heat and Power Project. A £1.2 billion programme to replace the NLWA’s existing waste-to-energy plant and recycling facilities. |
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