The UK Municipal Bonds Agency (UKMBA) provides loans to UK local authorities to fund capital expenditure, essential projects such as schools, care homes, housing, recycling centres, energy from waste plants, and infrastructure.
Funding
The UK Municipal Bonds Agency (UKMBA) provides loans to UK local authorities to fund capital expenditure, essential projects such as schools, care homes, housing, recycling centres, energy from waste plants, and infrastructure. With 56 local authorities and the Local Government Association as shareholders, the UKMBA is owned by local government for local government.
How the Agency works
The UK Municipal Bonds Agency borrows money, primarily in the capital markets, to lend to local authorities. The UK Municipal Bonds Agency is not a bank and will only borrow to fund loans it has already agreed to provide.
The UKMBA provides funding through three lending programmes:
- Proportionally guaranteed, pooled loans of £1 million or more for maturities greater than one year.
- Standalone loans to a single local authority for £250 million or more for maturities greater than one year. These loans are outside of the proportional guarantee and are guaranteed solely by the borrower, who must obtain an external credit rating from one or more of the major credit rating agencies.
- Short-term, pooled loans, outside of the proportional guarantee for maturities of less than one year.
Except for standalone loans, local authorities do not need to obtain a credit rating from one of the three major credit rating agencies, Moody’s, Standard & Poor’s or Fitch.
The majority of loans provided by the UK Municipal Bonds Agency are expected to be pooled and guaranteed collectively by borrowers. The guarantee is proportional and several:
- A guarantor is liable for a share of any default, which is proportional to its share of the total pool of loans allowing for the default e.g. if an authority’s borrowing totals 1 per cent of the pool following a default, it will be liable for 1 per cent of the default.
- “Several” means an authority can only be held liable for its specific obligations, not those of others. This prevents bondholders using the guarantee to single out a council or small group of councils to cover a default by another council.
- An authority that has no outstanding loans to the UKMBA is not liable under the proportional guarantee.
No UK local authority has ever defaulted on a loan.
Key benefits
The key benefits to local authorities are:
- Savings due to lower interest rates.
- Protection from changes to the PWLB’s terms and conditions and diversified funding sources.
- Fully transparent pricing.
- Tailored products to suit local authorities’ needs.
- Economies of scale thereby reducing costs.
The UKMBA offers:
- Fixed rate loans
- Forward rate and forward starting loans
- Floating rate debt