Warrington bond sale cancelled amid rate cut fears

The UK Municipal Bonds Agency (UKMBA), which raises money in the debt markets for local authorities, has cancelled a bond issue for Warrington Borough Council, according to a Reuters report.

The report said the eight-year sterling bond sale was withdrawn after investors raised concerns about changes to how the UK Debt Management Office’s Public Works Loans Board (PWLB) lends money to local authorities.

The way in which local authorities are funded was changed last week — with the PWLB cutting the rate of its lending facility by one percentage point and increasing the checks it performs on councils.

Christian Wall, a director at PFM, the managed service provider to the UKMBA, told Reuters: ““Investors were concerned that local authorities that use PWLB would not be able to access it in the future.

“The way some recent changes were announced or not announced has caused a lot of people to speculate who is eligible or not eligible.”

Reuters cited a UK Government document claiming that some councils had been using the PWLB lending facility to buy investment property to generate yield — deemed “not an appropriate use of PWLB loans.”

Deutsche Bank, HSBC and Santander were bookrunners on Tuesday’s cancelled deal. 

The planned bond sale would have been the third via the UKMBA following two bonds with Lancashire County Council — in February and August this year — after the agency spent five years trying to launch its first issue.

The UKMBA told the Public Finance website it remains confident it will be able to provide cheaper borrowing rates than the PWLB.

It said: “The agency’s five-year floating rate note issued in partnership with Lancashire County Council is priced considerably cheaper than rates now offered by the PWLB.”

Public Finance reported that councils have been told they will now be expected to demonstrate that their capital plans do not include any borrowing to buy assets purely to produce a yield.

The website said restrictions on borrowing came after local authorities bought £6.6 billion of investment property between 2016-17 and 2018-19, according to the National Audit Office.

The UKMBA said: “We look forward to new issuances when the impact of the changes to the PWLB’s terms and conditions have been digested and markets are more certain.”