Councils combine for cheap loans

Auckland's eight councils are banding together to seek cheaper loans in an unprecedented show of co-operation a year ahead of the Super City merger.

Usually, councils act alone to fill their multimillion-dollar borrowing needs for infrastructure and debt refinancing. They issue parcels of debt to investors through banks on the wholesale market or through retail bonds. But the international crisis raised the cost of credit and councils were forced to borrow for shorter terms.

This gave rise to concern among senior staff about how the new Auckland Council would fare in refinancing some of the $3 billion combined councils' debt.

In response, the councils will set up a centralised treasury to decide borrowing needs of the group and to source funds - without competing against each other. This will be done under the auspices of the agency which is steering the Super City transition.

Until the new Auckland Council opens for business, Auckland City Council will act as a conduit for the region's borrowing. It will use the investor appeal of its strong credit rating and quantity of funds sought to crunch deals for longer terms at sharper interest rates.

The new integrated treasury group will be chaired by Andy Coupe, a senior adviser for UBS investment bank seconded to the Auckland Transition Agency as joint leader of its workstream for finance and treasury.

"The Auckland Council would have inherited a wholly inappropriate portfolio of debt securities in a year's time," he said.

"It would have comprised an awful lot of short-term debt to refinance in its first year.

"The council would not go broke but if you are forced to do a lot in a short time, you tend not to get the best deal."

Mr Coupe said the group could not make decisions that went against the individual councils' long-term spending plans and treasury management policies.

Already, the transition agency has approved of councils' wishes to lend to each other. Last month, North Shore City Council received $50 million from Waitakere City Council's $150 million wholesale placement. It also took $36 million from Manukau City Council's $124 million bond issues on the retail market.

North Shore City Council chief financial officer Dale Lott said those councils had offerings of debt going out at a time when his council found banks reluctant to lend for terms as long as five years.

"It seemed more efficient to ask Manukau and Waitakere to extend the amount to be raised so we could have some.

"It saved North Shore the set-up costs of it having to go out to public offering and we shared the other councils' costs.

"The result was reduced cost of funding ... it's been good for local government."

Waitakere City Council funds management group manager Bruce Wilkin said the council's credit rating from the Standard & Poor's agency allows it to borrow on more favourable terms than unrated councils.

"What Waitakere and Manukau have done is an example of where things are heading. Treasurers of all councils are actively communicating with each other."

Manukau finance director Dave Foster said the aim was to save costs for ratepayers.

"You won't see councils competing against one another with multiple issues in the market."

MONEY-GO-ROUND
* Waitakere and Manukau raise loans.
* They on-lend $86 million of it to North Shore at credit cost.
* North Shore shares loan set-up costs.
* Auckland City to act as central conduit for raising all pre-Super City loans.