Auckland Council secures $600m rainy day stash

ROMY UDANGA
Last updated 05:00 24/12/2010

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A $600 million bank loan facility for the Supercity's new council sets a number of firsts: the first syndicated facility for a New Zealand council; the country's largest domestic-facilitated transaction since the start of the global financial crisis in 2008, and the first time the four Australian and two international banks involved have combined for this type of local government deal.

The standby loan facility announced yesterday was lead managed by the BNZ. If the facility is called on, the BNZ has agreed to put in the same as the ANZ, ASB and Westpac, while Citibank and HSBC are liable for a smaller portion.

Shelley Ruha, head of the BNZ's institutional banking, said it was a significant transaction on the local market.

But it has no impact on the Auckland council's credit rating - AA over the long-term and A1 for short-term.

BNZ and the Auckland Council declined to talk about the terms of the facility as it was ``commercially sensitive" but council chief executive Doug McKay described it as "very competitive" given the significant amount of over-subscription.

"We did well for the ratepayers of Auckland. We asked for a standby credit of $600m and over a billion dollars applied. That shows the confidence of the banking sector in the new Auckland Council."

The council already has funding arranged for its $1.4 billion of planned capital expenditure in the 2011-2012 fiscal year and doesn't plan to draw down on the facility, at least at this stage.

SO WHAT IS THE MONEY FOR?

Auckland Council chief finance officer Andrew McKenzie said the facility "provides the council with liquidity support as part of its prudent treasury management and will support all the funding that we do".

In plain English that means it's a rainy day stash that can be drawn on if needed to cover funding gaps that may occur in its capital expenditure from time to time, but it would rather not use it unless it has to.

The council's funding comes from a variety of sources including rates - tipped to rise 4.9 per cent in July next year, property developers' contributions, income from investments such as Auckland Airport, and subsidies from central government. Sometimes this funding can be held up for various reasons - for example a development not happening when expected or the government changing its mind at the last minute over promised funding.

Among the planned capital projects in the 2011-2012 fiscal year are new libraries, swimming pools and roading.

The standby facility may also be used if the council needs to refinance the debt it already has.

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Currently it owes about $2.8b, around half of which matures within the next three years, a third is due between three and five years and 17 per cent after five years.

McKenzie said it provides ``additional liquidity and backup in case an existing funding line is no longer available.''

- © Fairfax NZ News

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