Local authorities in the UK are preparing to launch their first municipal bond, or "munibond", before Christmas. The £100 million bond is backed by 56 local councils and will be issued by a new entity called the UK Municipal Bonds Agency. The munibonds will allow councils to invest in improved transport, housing, and shopping centers as they look for alternative sources of funding after large central government cuts. Officials expect the munibonds to be cheaper than the current primary lender to local authorities and hope the small initial bond issuance will gain councils' confidence for larger launches in the future.

1. 10/11/2016 UK councils set for launch of munibonds after cuts
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UK Local Government Finance
UK councils set for launch of munibonds after cuts
Local authorities look to invest in transport, housing and shopping centres
'Munibonds' will allow local authorities to iinvest in improved transport and housing © PA
10 HOURS AGO by: Gill Plimmer
Britain’s local authorities are completing preparations for their first municipal bond as
they look for funds for transport, housing and other investments in the wake of sharp
central government funding cuts.
An initial £100m bond is expected before Christmas, followed by larger issuances next
year, according to people close to the project.
The new “munibonds” are backed jointly the Local Government Association and by 56
local councils across the UK. They will be issued by a new entity, the UK Municipal
Bonds Agency, with maturities of between 10 and 20 years.
Sir Merrick Cockell, who chairs the UK Municipal Bonds Agency, said the munibonds
would allow local authorities to “buy shares in shopping centres, invest in improved
housing or transport, all in a more commercial way”.
Local authorities are under increased pressure (http://next.ft.com/content/5652c79c­cc
ae­11e4­b94f­00144feab7de) in the wake of the government’s austerity plans, which have

2. 10/11/2016 UK councils set for launch of munibonds after cuts
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cut funding by 40 per cent since 2010 and put pressure on local services (http://next.ft.c
om/content/c71f9f82­150e­11e6­b197­a4af20d5575e).
The belt­tightening has also prompted local authorities to look for a cheaper alternative
to the Public Works Loans Board, an arm of the Treasury that typically lends to local
authorities at 80 basis points over government gilts.
Mr Cockell said that the new bonds will “only work if the price was cheaper than the
Public Works Loans Board”.
“It is their [local authorities’] agency. We are not venture capitalists who have set
something up so the price is important,” he said.
The small size of the bond is aimed at winning local authorities’ confidence, with further
launches expected next year. “We are in the final stages and are going through the final
processes and things are on track,” Mr Cockell said.
The UKMBA has also been in discussions with the European Infrastructure Bank, (htt
p://next.ft.com/content/5494d5ea­8e0d­11e6­8df8­d3778b55a923)which provides
cheap loans to infrastructure projects worth more than £150m.
It hopes to secure a credit line from the EIB so that it could lend to smaller local
authorities or projects via the UKMBA, though the future of the bank’s relationship with
the UK is uncertain in the wake of Brexit.
Local authorities have struggled to find suitable ways to invest taxpayers’ money. Several
councils had a total of £1bn tied up in Icelandic banks when that country’s financial
system collapsed in 2008, although most of the money was eventually returned. This
year it emerged that Newham Council (http://next.ft.com/content/3228336c­e6bf­11e5­
a09b­1f8b0d268c39)was exposed to rising costs on complex loan instruments, which
defy convention by becoming more expensive as interest rates fall, dating from 2009.
The UKMBA says it applies stringent credit rating­style checks to all its loans.
Authorities signing up to a bond will also guarantee that investors will be paid back if
councils that have borrowed from the agency default on their payments. The UKMBA
said that is unlikely, however.
If the UK develops a successful market in municipal bonds it will be joining established
markets in China, Australia, Europe and the US. The UKMBA is most closely modelled
on the New Zealand Local Government Funding Agency, which started issuing bonds in
2011. It is headed by Aidan Brady, a former Deutsche Bank executive, and has a seven­
member board.
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