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Home / Business / Economy / Official Cash Rate

Bond issue gets $350m for region

By Wayne Thompson
NZ Herald·
22 Mar, 2010 03:00 PM2 mins to read

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Auckland City Council's retail bond issue has raised $350 million to share around the region's councils ahead of the Super City merger.

The council is acting as a central banker for borrowing, using the investor appeal of its credit rating and quantity of funds to crunch deals for longer terms at sharper interest rates.

Co-operation between the eight councils arose out of concerns about how the new Auckland Council would fare in refinancing some of the $3 billion combined councils' debt.

It is Auckland City Council's second retail bond offer and its finance general manager, Andrew McKenzie, said all $350 million was picked up by investors on Friday, including 1000 Auckland residents and ratepayers.

The bonds were issued for five years with a minimum of 6.25 per cent, or as a five-year swap rate plus a margin of 1.11 per cent. The coupon rate was set at 6.28 per cent a year.

Mr McKenzie said it was another good result after the council's $150 million retail bond issue in January last year.

"We have secured long-term funding at a good cost to ratepayers."

The bonds were secured over a charge on rates and although banks were competing in the market at similar rates, people must have considered the risk versus return favourable.

The city council was disappointed last year when international agency Standard & Poor's downgraded its credit rating from AA to AA- in anticipation of what the rating would be when the Auckland Council absorbed all councils' debts from November 1.

Securities laws were relaxed in 2008 to let councils go to the retail debt market. The central bank co-ordination means councils don't compete in the market at the same time, which would push up costs.

Manukau City Council raised $124 million with retail bonds and Waitakere City $150 million with a wholesale placement at a time when banks were reluctant to lend for terms as long as five years.

Some of that money went to other councils without credit ratings to satisfy borrowing needs for infrastructure and debt refinancing.

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