(Bloomberg) — The UK county of Lancashire has scrapped plans to sell another bond in a blow to the country’s moribund market for municipal debt.
Officials at the local authority in north-west England explored bond issuance to refinance £350 million ($442 million) of debt maturing next month, even securing updated credit ratings in what is typically a precursor to a sale. However, a review found that approach “does not currently present the best option and therefore a new bond issue will not be pursued,” according to the Lancashire County Council’s budget for the 2025/26 financial year.
The decision reflects a widespread view among UK regional authorities that bond issuance is unlikely to secure lower costs than a central government borrowing facility. These councils, which provide a range of frontline services from rubbish collection to libraries, can get money from the so-called Public Works Loan Board, normally at a rate set 80 basis points above gilts.
It’s a far cry from the huge market for US municipal debt, and contrasts with a regular stream of issuance from regional authorities and state agencies elsewhere in Europe — where three such deals landed on Tuesday alone.
The UK Municipal Bonds Agency was set up to develop the market in 2014 but only issued its first two bonds in 2020, both on behalf of Lancashire. Spokespeople for the agency and Lancashire council did not immediately respond to requests for comment.
Investor sentiment in the UK sector may have been dented by a series of local authorities falling into financial distress. While Lancashire was not one of them, many are contending with real-term cuts in funding from central government, along with high inflation and soaring demand for services such as social care.
Lancashire was the last council to issue bonds in 2020. Back then, the PWLB borrowing premium over gilts was a percentage point higher for most loans. That made bond issuance more attractive by comparison than it is now.
Since then, several prospective UK local authority deals have been scrapped. Municipal bonds were used regularly throughout the early and mid-20th century, but fell into disuse during the 1970s and 1980s as central government introduced controls over capital finance.
Alongside the £350 million floating-rate note, Lancashire has a similar amount of loans from other local authorities maturing in the 2025/26 financial year. The council intends to liquidate some investments to reduce the amount it needs to refinance on the view “that borrowing rates are expected to reduce gradually in the next 12 months,” the documents said.
–With assistance from Tom Rees.
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