Warrington mulls £250 million bond

The council is evaluating the viability of issuing a bond to raise between £250 million and £300 million towards its £814 million three-year capital programme, which includes provision for £380 million in loans to registered social landlords.

Officers are expected to advise the council’s executive board in August or September on whether they think the authority should consider the option of a 25-year bond or use more traditional financing, largely through the cheap borrowing available to councils through the Public Works Loan Board.

Danny Mather, corporate finance manager at Warrington Council, believes the council would be the first local authority in modern times to issue a bond, if it goes ahead.

He said the council was assessing the ‘pros and cons’ and had sought advice on getting a credit rating from Birmingham Council, which already has such a rating.

Mr Mather said the size of the capital programme - £814 million - made a bond a viable option and that, from talks with City institutions, the council thought it could get a better rate than the cheap borrowing available from the PWLB.

‘We actually feel we could generate a saving. It would give the authority much more of a commercial focus if we go down a bond route,’ he said.

He thinks other councils may want to follow suit but are waiting for a local authority to ‘put a toe in the water’.

Last month, the council approved a £30 million commercial loan to Muir Group Housing Association, which plans to deliver 300 homes over the next six years, including at least 138 affordable homes within the borough.

It will consider a proposal to lend £20 million to Plus Dane Group next month to fund further development in Warrington. The council is in negotiations with several other associations on the potential allocation of the remaining £330 million.

The Local Government Association has noted previously that some councils might respond to the rise in the PWLB rate in 2010 by issuing their own bonds. In October 2010 the PWLB increased its interest rate to 1 per cent above the government’s benchmark ‘gilt’ rate.

It expects to provide an update on its proposal for a local authority collective agency, which could raise funds from bonds markets on behalf of councils, at its national conference in Manchester next month.