County sees credit rating downgraded

LANCASHIRE County Council is among a number of local authorities to have had its credit rating downgraded.

The ratings agency Moody’s made the move late last month to reflect concerns over the local government sector as a whole - citing a lack of clarity about central government’s intentions for councils.

Its concerns included the question mark over long-term funding for local authorities and outstanding national policy decisions on issues with significant local impact - including social care and devolution.

The agency also said that increased demand for council services set against a weak economic outlook was another factor in its decision.

County Hall’s baseline credit assessment has fallen one notch from A3 to Baa1.

However, the price of the authority’s bonds actually improved slightly in the wake of the announcement - because the market had been expecting a bigger downgrade of the UK government’s own sovereign bond rating, which also fell from Aa2 to Aa3.

The higher an organisation’s credit rating, the less it usually pays in interest on its borrowing.

Lancashire County Council has issued two major bonds so far this year as part of a plan to refinance its capital funding requirements - a £350m bond over five-years and one for £250m over 40 years.

The Local Democracy Reporting Service (LDRS) understands that both of the bonds were around two and a half times oversubscribed - with the majority of investors coming from UK insurance companies and pension funds.

The new debt strategy was devised after a hike in interest rates last year by the Public Works Loans Board (PWLB), which has traditionally been a source of finance for local authorities.

According to the UK Municipal Bonds Agency (UKMBA), which issued the bonds on behalf of the county council, they will deliver “significant savings” for the authority.