Local government funder looks for $300 million
The Local Government Funding Agency is making its first debt issue today, looking to raise $300 million of what is expected to be up to $5 billion over the next five years.
Wednesday, February 15th 2012, 6:30AM
The LGFA, created by a law change that passed last year, has been set up to try and reduce borrowing costs for local authorities in New Zealand.
Tenders close this afternoon at 2pm on its first-ever offer, which features two separate lots of bonds.
The LGFA is offering $50 million worth of bonds that mature in April 2015 and $250 million worth of bonds maturing in December 2017.
The coupon rate for both bond offers is 6.00%. The LGFA's performance targets include keeping its average cost of funds less than 0.50% higher than for New Zealand government bonds in the period to June 30 this year.
The government's latest bond tender, held earlier this month, had a coupon rate of 5.50% and was oversubscribed, with bids of $415 million for the offer of $200 million, successful bids having a weighted average yield of 4.09%.
However, the government bonds were for a much longer term (11 years) than the ones currently on offer by the LGFA, maturing in April 2023.
The LGFA has the same credit rating as the government, with an AA+ long-term currency rating from both Fitch and Standard & Poor's, placing its above any of the big New Zealand banks.
Local government debt is predicted to double to $11 billion within five years.
So far 18 local councils have joined the LGFA and together they own an 80% share; the central government owns the other 20%.
S&P has assessed the LGFA as having an "extremely high" likelihood of central government support if it hits financial troubles.
"Additionally, LGFA provides several benefits to the central government, including the deepening of the New Zealand capital markets and an additional source of liquidity for New Zealand banks, as well as providing greater efficiency at the local government level."
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