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The first of its kind municipal bond saw 30 local councils in Victoria launching a $200m bond. The Local Government Funding Vehicle has been set up by the Municipal Association of Victoria on behalf of the participating councils in the State of Victoria. As reported in YieldReport, this is the nation’s inaugural aggregated funding vehicle for local government and lets the councils to replace some of their traditional bank borrowings with lower cost debt capital markets funding. CBA and NAB joint lead managed the deal. The medium-term notes are being marketed to both domestic and international investors in two tranches. The 5y notes have an indicative pricing margin of Swap + 75bps and the 7y notes have an indicative pricing margin of Swap + 90bps.
Moody’s has assigns Aa2 issuer rating to the local government funding vehicle. The outlook assigned is stable. At the same time, Moody’s has assigned a (P)Aa2 senior secured rating to the LGFV’s medium term notes programme. The agency says that the ratings the very strong credit quality of the participating local councils as well as the credit enhancement mechanisms included in the LGFV’s structure. However, participating councils will not cover each other’s payments in case of need, and uncertainties remain regarding the resolution mechanism under the Victoria Local Government Act in the unlikely event of a council default, which partially offsets LGFV’s strengths.
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