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Cash-strapped local councils to raise billions with new municipal bonds

Local authorities are on the verge of creating a multibillion pound municipal bond market, with the first issue by a municipal debt agency expected in April. It is set to raise £250-£300m, with sources close to the project expecting annual issuance to ramp up quickly to £2bn-£3bn. The bonds will be backed jointly by 48 local councils and the Local Government Association and issued by a specially created entity, the Local Capital Finance Company. Councils are said to have grown frustrated at charges imposed on them by the Treasury's Debt Management Office, on which they have so far relied on for most of their £84bn of outstanding funding. The LGA believes bonds issued via the pooled LCF vehicle could end up cutting the price they pay for finance by 0.25% or more - saving upwards of £5m a year. It could also improve access to European funds through the European Investment Bank.

 

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