About UKMBA

About the UK Municipal Bonds Agency Plc

What is the UK Municipal Bonds Agency Plc?

The UK Municipal Bonds Agency Plc helps local councils to finance their investment in projects including infrastructure and housing, efficiently and cost effectively. The UK Municipal Bonds Agency Plc is a first for the sector in the UK. It issues bonds to finance local authority projects at a lower cost than the Debt Management Office. This lowers council’s finance costs, which means more can be invested into local economies, infrastructure and housing projects. The UK Municipal Bonds Agency Plc helps councils borrow from one another, thereby reducing borrowing costs. It helps councils negotiate better rates from banks, pension funds and insurance companies. The agency also acts as a centre of expertise, offering tailored lending services.

How does the UK Municipal Bonds Agency Plc work?

The UK Municipal Bonds Agency Plc raises finance by issuing municipal bonds to capital markets. Drawing on extensive expertise it creates the type of bonds that are attractive to investors and at an interest rate that is appealing to local councils. The UK Municipal Bonds Agency Plc issues bonds whose characteristics lower the cost of borrowing. These include

  • Larger Bond Issues. By pooling borrowing requirements, benchmark size issues can be created (for which there is greater demand). Through repeat issues, the market can access a pipeline of attractive investment opportunities.
  • A Joint and Several Guarantee. More than one party is responsible for the repayment of the bond, thereby reducing the risk of default.
  • Strong Risk Management. Borrowing councils are subject to a robust credit assessment process.

In addition, the UK Municipal Bonds Agency Plc helps to match lending and borrowing between councils, cutting out the ‘middle man’ and reducing costs. Finally, the UK Municipal Bonds Agency Plc uses its expertise and size to negotiate better borrowing rates for councils with banks, pension funds and insurance companies.

Who owns the UK Municipal Bonds Agency Plc?

The UK Municipal Bonds Agency Plc is a public limited company, owned by local councils and the Local Government Association.

The case for the UK Municipal Bonds Agency Plc

Until the launch of the UK Municipal Bonds Agency Plc, 75% of local authority borrowing came from the Public Works Loan Board (PWLB), part of the Debt Management Office (DMO). The UK Municipal Bonds Agency Plc provides competition and diversity of finance, which improves efficiency and means more money can be invested in the real economy. This is attractive to institutional investors who want to invest in local government infrastructure.

A centre of expertise

The UK Municipal Bonds Agency Plc brings together real expertise for the first time at the intersection of finance and local government. This expertise allows the creation of tailored products which meet investors’ needs and drive product innovation.

Improved transparency

Larger bond issues and lower borrowing costs – along with the peer oversight of joint and several guarantees – are incentives which can improve the creditworthiness of a council.

The case from abroad

While a municipal bonds agency has not previously existed in the UK they have been successfully established throughout Europe – in France, the Nordics, Scandinavia and Holland as well as in Japan, New Zealand and Canada. In each case, borrowing costs, transparency and efficiency were improved by the creation of a municipal bonds agency.