NAB deal capability: pooled funding

Friday, 01 May 2015

Updated

The Local Government Funding Vehicle (LGFV) allows councils in the state of Victoria, for the first time, to broaden their debt funding base beyond bank loans and into the capital markets. The vehicle is not guaranteed by state or federal government and while the loans cross-collateralise each other no one council guarantees another's debt.

James Waddell, director, capital markets origination at National Australia Bank (NAB), says the LGFV's debut deal achieved much for its underlying council clients. With new competition for council lending, banks tightened the margins they offered borrowers in this sector in Victoria as soon as the LGFV was announced, according to Waddell.

He adds that they did so again when the new entity's debut deal priced inside the major-bank curve. NAB has been part of the drive to bring individual councils up to speed with capital-markets realities, having relied on bank funding in the past. As Basel III continues to challenge bank lenders, this type of innovation will only become more important, Waddell believes.

"We will continue to educate councils in Victoria around the capital markets," he says. "We have already been active in doing so once this year, and this opportunity will be open to all councils with an interest in participating in future transactions."

Waddell continues: "The economies of scale a pooled borrowing vehicle brings to a sector like local authorities are very attractive, especially when borrowers have to deal with high administration costs elsewhere. I can see applicability across the three south- eastern states of Australia. And I would encourage politicians in Queensland and Western Australia to consider a more liberal approach to how public- sector bodies fund themselves, too."

Connie Sokaris, NAB's general manager, investment-grade originations, agrees. She comments: "As we look at medium- term themes around government and how we replace public-sector money with private capital, the likes of the LGFV will become increasingly important. It is an issue of scale, about being able to reach a type of market which borrowers are not able to access independently."

This content is reprinted from a co-published article by KangaNews and National Australia Bank, which appeared in the April/May 2015 issue.

To read the original coverage from KangaNews on this transaction click here.