14 International Financing Review March 7 2020UK MBA finally makes
much-delayed bond debut
Bonds Lancashire County Council raises £350m, after six years of delaysBY GARETH GORE!FTERûSIXûYEARSûOFûFALSEûSTARTSû
ANDûDELAYS ûTHEûUK MUNICIPAL
BONDS AGENCYûlNALLYûMADEûITSû
DEBUTûONû4HURSDAY ûRAISINGû
£350m on behalf of Lancashire
#OUNTYû#OUNCILûINûAûlVE
YEARû
deal that found broad appeal
FROMûAûWIDEûVARIETYûOFû
investors.
"UTûITûISûUNLIKELYûTOûPROVIDEû
a blueprint for future deals
FROMûTHEûAGENCY ûWHICHûWASû
set up in 2014 as a vehicle for
COUNCILSûnûMOSTûOFûWHICHûTENDû
TOûBORROWûINûSMALLûAMOUNTSûnû
to come together to sell bonds
in benchmark size through a
SYSTEMûOFûCROSSûGUARANTEESThe UK MBA opted against
such a format for its debut,
WHICHûWASûGUARANTEEDûBYû
,ANCASHIREû#OUNTYû#OUNCILû
alone. In what was a clear
CHANGEûOFûTACK ûTHEûAGENCYûHADû
to revise its framework
AGREEMENT ûWHICHûPREVIOUSLYû
had no provision for
standalone issues, ahead of the
deal.
Still, the UK MBA has
INDICATEDûTHATûAûPROPORTIONALLYû
guaranteed deal will come and
could follow in the weeks
AHEADû)TûISûCURRENTLYûlNALISINGû
the details of an expected
aMû
YEARûDEAL ûALTHOUGHû
ITûHASûAûLONGûHISTORYûOFû
indicating a deal might be
imminent and going on to
disappoint.
h7EVEûBEENûWORKINGûONû
THISûISSUEûFORûSOûMANYûYEARS ûSOû
to see it out is quite a relief,”
said one banker on the deal.
h)TSûANûIMPORTANTûTRANSACTIONûFORûTHEû-"!ûINûLAYINGûDOWNû
the route to market, and the
plan is that it will become a
FREQUENTûnûORûSEMI
FREQUENTûnû
ISSUERûEVENTUALLYvCORONAVIRUS DELAYS
The deal was marketed on
4HURSDAYûMORNINGûATûTHEû
3ONIAûPLUSûBPûAREA
HSBC was global co-
ordinator, with Bank of America
and Barclays joint bookrunners.
It had been expected to
emerge earlier following a
successful roadshow in
&EBRUARYûBUTûWASûDELAYEDûDUEû
to the coronavirus-linked
VOLATILITYûINûMARKETS
0RICINGûWASûEVENTUALLYû
ratcheted in and the deal
PRICEDûATû3ONIAûPLUSûBPû
$EMANDûTOPPEDûaM
h&ORûACCOUNTSûTHATûNEEDû
HIGH
QUALITYûNAMES ûTHEûSPREADû
OFFEREDûOVERû3ONIAûBYûTHEûTRADEû
was quite attractive versus
similar transactions,” said
Paola Binns, senior credit fund
MANAGERûATû2OYALû,ONDONû
Asset Management.
h7EVEûHADûAûLOTûOFûINmOWSû
into our cash funds and the
SPECIlCûSTRUCTUREûOFûTHISûBONDû
TAPPEDûINTOûTHISûSPECIlCû
demand.”
4HEûDEALûWASûMANAGEDûBYû
the corporate team at HSBC,
and the public sector teams at
"ARCLAYSûANDû"OF! ûWITHû
BANKERSûSAYINGûTHEûINVESTORû
base crossed asset classes.
h4HEûNATUREûOFûTHEûRISKûISû
different from a corporate,”
said Eric Holt, fund manager
ATû2OYALû,ONDON
h9OUûHAVEûTHEûRESILIENCEûOFû
ANûINDIVIDUALûLOCALûAUTHORITYSû
lNANCES ûYOUûALSOûHAVEûTHEû
political aspect of interaction
WITHûGOVERNMENTû4HERESûANû
assessment to be made on that,
INûAûSIMILARûWAYûASûYOUûWOULDû
do for housing associations, a
SECTORûTHATSûGROWNûRAPIDLYû
OVERûTHEûLASTûûYEARSvInvestors will have taken
some comfort from the fact
THATûNOû5+ûLOCALûAUTHORITYûHASû
EVERûDEFAULTEDûSINCEûTHEûlRSTû
WASûSETûUPûBYû7ILLIAMûTHEû
#ONQUERORûûYEARSûAGOû
3OMEûHAVEûCOMEûNEAR ûONLYûTOû
BEûBAILEDûOUTûBYûCENTRALû
GOVERNMENTûnû
.ORTHAMPTONSHIREû#OUNTYû
Council was placed into
ADMINISTRATIONûINû ûFORû
instance.
Lancashire is one of the
most indebted councils in the
UK, with almost £1.2bn of
debt, much of it borrowed
from other councils. The bond
ISûAûWAYûTOûDIVERSIFYûITSû
funding.
According to bankers on
the deal, the council chose
to do the deal through the
UK MBA rather than go it
ALONEûnûASûOTHERSûHAVEûnû
because it offered certain
ADVANTAGESûh)NûTERMSûOFû
cost, of legals, the UK MBA
were just able to offer a
much better route to
market for them,” said one.GOVERNMENT HIKE
The debut deal comes after
THEû5+ûGOVERNMENTûLASTûYEARû
increased the cost of
borrowing from the Public
7ORKSû,OANû"OARD ûTHEû
YEAR
OLDûPUBLICûBODYûTHATû
is the main lender to
COUNCILS ûHIKINGûRATESûBYû
100bp in a bid to rein in
councils following an
explosion in borrowing over
RECENTûYEARS
Central government has
long been keen to wean local
AUTHORITIESûOFFûTHEû07," û
which lends councils whatever
THEYûASKûFORûWITHOUTûASKINGû
ANYTHINGûABOUTûHOWûTHEYûPLANû
TOûSPENDûTHEûMONEYûORûTHEû
STATEûOFûTHEIRûlNANCES ûANDû
push them towards more
disciplined borrowing in the
market.The UK MBA, which was
SETûUPûBYûûLOCALûAUTHORITIES û
was mandated with helping
with that transition. Its aim
ISûTOûhDIVERSIFYûTHEûFUNDINGû
sources available to local
authorities, reduce reliance
ONûTHEû07,"ûANDûENABLEû
INVESTORSûTOûMOREûEASILYûFUNDû
5+ûLOCALûAUTHORITYû
infrastructure”.
7HETHERûTHISûDEALûISûTHEûlRSTû
OFûMANYûREMAINSûTOûBEûSEENû
-ANYûBELIEVEûTHEûMARKETû
might inject more discipline
into local authorities and add
ANûEXTRAûLAYERûOFûSCRUTINYûnûINû
terms of ratings agencies,
BONDûANALYSTS ûINVESTORû
roadshows and pricing metrics
nûTHATûMIGHTûPUNISHûWAYWARDû
councils.
But there are challenges. For
ONE ûTHEûAVAILABILITYûOFûNO
QUESTIONS
ASKEDûMONEYûFROMû
THEû07,"ûCREATESûAû
disincentive to do all the
legwork involved in a bond
deal.
Still, after the government
hike in rates, there is a pricing
ADVANTAGEûTHEûBONDûWORKEDû
OUTûROUGHLYûBPûCHEAPERû
THANûAû07,"ûLOAN
-OODYSûISûNOTûCOMPLETELYû
CONVINCED ûANDûHASûPREVIOUSLYû
said that, while the rate hike
LASTûYEARûMAYûSPURûSOMEû
ISSUANCE ûTHEû07,"ûWOULDû
remain the main lender for
councils for some time to
come. As well as the additional
work of preparing for a bond
DEAL ûCROSS
GUARANTEESûMAYûPUTû
MANYûOFF
h7EûHAVEûDECIDEDûNOTûTOû
get involved with this,” one
DEBTûADVISORYûBANKERûAWAYû
FROMûTHEûDEALûPREVIOUSLYûTOLDû
)&2ûh)TSûDOOMEDûTOûFAILUREû
)TSûBASEDûONûAûPRINCIPLEûOFû
cross-guarantee, which is
CRAZYû#ANûYOUûIMAGINEûAû4ORYû
council cross-guaranteeing
the debts of a Labour
COUNCIL vûTop news
“We’ve been working
on this issue for so
many years, so to see it
out is quite a relief”4 IFR Top news 2323 .p 4 - 14 .indd 14 06 / 03 / 2020 19 : 26 : 36