Monday, October 7
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Funding agency credit rating still AA+ despite council downgrades


Wellington's Municipal Office Building (the tall cream coloured building in the middle) sits next to the Town Hall (left) in Te Ngākau Civic Square.

Local Government Funding Agency’s long term rating is steady despite downgrades to councils including Wellington and Hamilton City.
Photo: Supplied/ Wellington City Council

Falling credit ratings for councils has had no impact on the Local Government Funding Agency’s capacity to borrow or lend money, the agency said.

S&P Global Ratings has confirmed the agency’s ratings are stable because of its dominant market position as a source of financing for councils.

It kept the fund’s long-term ratings at AA+ and raised its standalone credit profile, which excludes any support from central government, from AA- to AA+.

But S&P has downgraded some councils, including Wellington and Hamilton City councils, because of weak financial positions and rising debt.

LGFA is a ‘super borrower’, raising large amounts of money on better terms than local bodies can and lends it to them.

Chief executive Mark Butcher said the agency could continue to do its job because its own credit rating was so high.

“S&P in February of this year put the sector outlook on negative. S&P are very predictable, they gave the market warning, they gave us warning as well to so we were able to respond.

“The news hasn’t been of a surprise so there hasn’t been a significant impact on our GFA in terms of our borrowing costs and it certainly hasn’t had any impact on our ability to issue debt and onlend it to councils.”

He said it has also been working hard to mitigate the impact of local councils being hit with rating downgrades.

“We’ve taken some measures recently to grow our capital base, to reduce our borrower concentration, to increase our liquidity. Because the sector’s been growing very strongly in terms of its debt requirement we’ve also diversified our funding sources recently to now be able to access offshore markets.

“They’re all being seen by the rating agency as being prudent and as being ahead of the sector.”

Butcher said LGFA was very comfortable with the credit quality of the local government sector with council ratings remaining high on a global scale.



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