Wandsworth looks to become first London borough to tap bond markets

The London Borough of Wandsworth has unveiled plans to issue a bond on the financial markets rather than borrow from the government-backed Public Works Loan Board.

The funds raised will be used to pay the debt the authority will inherit as part of the shake-up of council housing finance and to improve its housing stock over a ten-year period.

If Wandsworth goes ahead with the plan, it will be the first London borough to issue a bond. However, other public bodies – notably Transport for London and Network Rail – have raised capital for major infrastructure projects in this way.

The council said that the lower interest rates available through a bond could save between £625,000 and £1m every year the scheme was in place. The rates offered by the PWLB are now higher than the best deals in the market.

Credit ratings agency Moodys is to be appointed by the council to determine its credit rating. Wandsworth said it hoped to achieve a Triple A rating. Once this rating is obtained, HSBC and Morgan Stanley will market the bond for the council.

Wandsworth’s finance spokesman Cllr Guy Senior said the intention was to repay the bond within ten years.

He said "This is an innovative and radical approach to raising funds that will enable us to make sizeable long-term savings on the current subsidy arrangements. By issuing a bond we can raise capital from the markets instead of via the more traditional route of borrowing from the PWLB at a higher rate of interest.”

Cllr Senior said the new rules on housing finance would mean Wandsworth would be free to keep all the rent it collected and all the money it generated from vacant house sales and the disposal of land.

“This will have very significant long term financial benefits for the borough and for local tax payers,” he argued.

Cllr Senior added: "This is new territory for local government although other arms of the public sector have used this type of mechanism in the past. What we will be looking to achieve above all else is the best possible financial return for our residents."

In July this year the Mayor of London, Boris Johnson, urged local authorities to consider using the bond markets. He made the comments after the Greater London Authority raised £600m through a bond issue to help finance its share of the £14.8bn construction costs for Crossrail.