20141215 municipal bonds agency set for launch _ news _ local government chronicle
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Municipal bonds agency set for launch15 December, 2014 | By David Paine
The creation of the UK’s first municipal bonds agency has taken another step towards becoming a reality, following avote of confidence in the level of financial support for the project.
The LGA said 48 local authorities had signed up to become investors in the bond agency, which it claims could savelocal government more than £1bn in borrowing fees over the course of three decades.
LGC reported in September that 38 councils had invested more than £4.5m towards the figure of £8m to £10m thatwould be needed in capital funding to issue the first bond. The LGA hopes to do this in April 2015.
When LGC asked how much the 48 councils had collectively invested in the agency so far, a spokesman said thatinformation was “commercially sensitive” and could not yet be made public.
However, he said: “The deadline for councils to finalise their equity investments is the end of February. Based on theassurances we have had so far we are confident that the agency will have the capitalisation needed for the launch.”
The LGA said local authorities that had invested or expressed an interest in investing the in the agency “span allparts of the country and include Labour, Conservative and Liberal Democrat led areas”.
The LGA’s executive board has given the green light to establish the agency, which will trade under the name LocalCapital Finance Company (LCFC), as an independent body with its own governance structure. The body will beaccountable to its council shareholders and the LGA.
Michael Lockwood, executive director of the LGA, and director of the LCFC, said: “The decision to move into thelaunch phase is a significant and important step. It reflects the overwhelming appetite among local authorities for usto make this happen.
“The response from councils has been hugely positive, and the momentum behind this exciting venture continues tobuild.
“There is no doubt about the support for a local governmentowned bonds agency that saves taxpayers money bymaking borrowing cheaper. We’re now entering the crucial final leg where we will be looking for councils to finalisetheir equity investment.”
Threequarters of council borrowing is currently done through the Public Works Loan Board and councils hope thenew lending body will give borrowers more generous lending terms while offering investors a better rate of returnthan gilts.
Mr Lockwood said: “This company will be owned by local government and will have the single purpose of reducingcouncils’ longterm capital financing costs. The introduction of a councilowned competitor into the lending marketcan be a great showcase for local government’s strength and ambition while demonstrating the very real benefits oflocal independence.”
The LGA said an interim executive team, which is made up of “capital market professionals” who helped the agencyto get to this point, “will now oversee” the project until the agency is launched.
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