Housing plan effect on credit rating questioned
Mayor Lianne Dalziel has questioned claims the city council's Standard and Poors (S&P) credit rating could be affected by a plan to delve into the affordable housing market.
The council is considering tapping its investment arm, Christchurch City Holdings Ltd (CCHL), for $50 million so it can set up a new entity that can work with the private sector to stimulate the affordable housing market in Christchurch.
CCHL will need to borrow in order to come up with the $50m and that, according to CCHL chief executive Bob Lineham, will have long-term financial effects.
In a letter to the council, Lineham said the additional debt would reflect on the council's group balance sheet and could affect the council's credit rating.
The council has a S&P credit rating of A+ qualified with a negative outlook.
"A downgrade of the credit rating to A could add an additional cost to council and CCHL's debt servicing charges," Lineham warned.
At a council meeting this week, Dalziel questioned Lineham's claim the extra debt could affect the S&P rating and asked chief financial officer Peter Gudsell for his opinion.
Gudsell said while Lineham was technically correct, he doubted whether it would lead to a downgrade of the council's credit rating.
"Any S&P assessment will be based on a much wider analysis across our governance, the stability of the country, our flexibility and willingness to increase rates, our financial strength, and future borrowing levels, so in my opinion continuing to actively manage our short, medium and long term debt, our costs and revenue, and acting with financial discipline will ensure there is a low chance of S&P taking a negative view," Gudsell said.
The council was expected to have made a decision on how to progress the affordable housing plans at its meeting this week but it was deferred until Thursday.