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- £200 million bond is the UK’s first Consumer Price Index (CPI) linked bond
- Bond proceeds will be used by Greater London Authority (GLA) to part finance a new Tube link in the capital
- Provides access to low cost funding - saving the Greater London Authority an estimated £40 million over the next 25 years
- Specialist pensions insurer, Rothesay Life were sole lender on the transaction
A £1billion infrastructure project that will link Battersea to the London Underground is another step closer today due to a pioneering new method of financing agreed between the GLA and Lloyds Bank Commercial Banking. Today they confirmed that the United Kingdom’s first ever Consumer Price Index-linked Sterling bond has been issued in a £200m deal that will contribute to the cost of the new Tube link.
The bond was developed by Lloyds Bank Commercial Banking and is a first in the Sterling bond market. It has enabled the GLA to raise finance in the most cost effective manner, and by taking this approach the Authority is expected to deliver the best possible value for Londoners by potentially saving up to £40m over the next 25 years.
An extension to the Northern Line is essential to the regeneration of Vauxhall, Nine Elms and Battersea and will lead to the creation of 24,000 jobs and 18,000 new homes.
Working with Lloyds Bank Capital Markets team, the GLA was able to hold a competitive dialogue with Sterling institutional investors and concluded that it was better value-for-money to issue bonds linked to CPI, rather than the traditional Retail Price Index.
The Mayor of London, Boris Johnson, said: “This deal demonstrates the continuing lure of London to investors with an eye for a world-leading transaction. These wise heads realise the incredible potential of our city and my team will draw on every possible source of funding in order to ensure the mega infrastructure projects we need to continue to thrive are able to move off the drawing board and into reality.”
James Garvey, Managing Director, Head of Capital Markets at Lloyds Bank Commercial Banking said: “We are delighted to have led this milestone transaction for the GLA. The bond was structured to meet the financing requirements of the GLA drawing on demand from the growing volume of CPI-linked liabilities in the UK pension industry. In securing first mover advantage, the GLA has raised finance at a very competitive cost.
“This transaction is a great example of our Helping Britain Prosper plan in action, in which we have committed to support £30 billion of infrastructure projects in the National Infrastructure Plan by 2017.”
Tom Pearce, Managing Director at Rothesay Life said; “Lending to high quality institutions such as GLA is core to Rothesay Life’s low risk asset strategy and we are delighted to have made this investment in London infrastructure.”
Securing funding through a cost effective bond issuance programme has become increasingly important to UK Local Authorities as they look at alternatives to the traditional funding route of the Public Works Loan Board (PWLB). And this is the GLA’s second bond issuance via Lloyds Bank after an inaugural £600 million issuance in 2011 to part fund the CrossRail project. The bond issue, which will pay the investor a CPI-linked coupon of 0.34%, is expected to save the GLA £40million over the next 25 years.
Transaction details:
- The bond will be issued through Community Finance Company, a local authority financing vehicle developed by Lloyds Bank Commercial Banking that allows local authorities to access low cost funding from the Sterling bond market.
- The £40m forecast saving assumes that the Bank of England forecasts for inflation over the next 23.55 years are correct and represents the difference between the equivalent fixed rate borrowing the GLA could have taken out at the Public Works Loan Board ‘project rate’ compared to rate actually obtained by the index-linked bond. http://www.bankofengland.co.uk/MONETARYPOLICY/Pages/framework/framework.aspx
Background
Lloyds Banking Group Helping Britain Prosper Plan
At Lloyds Banking Group, we are committed to helping UK businesses start up, scale up, and trade internationally to support the long term strength of the UK economy. Within the 2015 Helping Britain Prosper Plan, we have a number of metrics which specifically address our support to businesses. In 2015, we will increase the amount of new funding support provided to UK manufacturing businesses by £1bn a year, help 72,000 business trade internationally and support £10bn worth of UK infrastructure projects in the Governments National Infrastructure Plan.
Lloyds Bank Commercial Banking provides comprehensive expert financial services to businesses of all sizes, from start-ups, through to small businesses, mid-sized businesses and multinational corporations. These corporate clients range from privately-owned firms to FTSE 100 PLCs, multinational corporations and financial institutions.
Maintaining a network of relationship teams across the UK, as well as internationally, Lloyds Bank Commercial Banking delivers the mix of local understanding and global expertise necessary to provide long-term support and advice to its clients.
Lloyds Bank Commercial Banking offers a broad range of finance beyond just term lending and this spans import and export trade finance, structured and asset finance, securitisation facilities and capital market funding. Its product specialists provide bespoke financial services and solutions including tailored cash management, international trade, treasury and risk management services.
Its heritage means it has an unrivalled understanding of business needs and a proven track record of supporting businesses across the sectors and regions. Taking a relationship approach, it provides support to its clients throughout the economic cycle
Lloyds Bank has been voted Best UK Bank at the Global Finance Awards 2014 and Best UK Bank at both The Banker Awards 2013 and the Euromoney Awards for Excellence 2013 and 2014. It has also been voted Bank of the Year for an unprecedented ten consecutive years at the FDs’ Excellence Awards in association with ICAEW and supported by the CBI & Real Business.
http://commercialbanking.lloydsbank.com/home/
