'Super City' completes 1st retail bond issue

Auckland Council to pay 4.41% per annum on its first retail bond issue which has raised NZ$125 mln

Bonds

Auckland Council to pay 4.41% per annum on its first retail bond issue which has raised NZ$125 mln

14th Dec 12, 2:09pm by Gareth Vaughan

The Auckland Council says it'll pay annual interest of 4.41% on a NZ$125 million issue of six-year secured, unsubordinated retail bonds.

The offer, the first retail bond issue from the "Super City", closed today. Interest will be paid to investors semi-annually in arrears. The bonds are expected to be quoted on the NZX debt market from December 19.

“We are very pleased with the outcome of the bond issue and the continued support from investors in Auckland Council,” Treasurer Mark Butcher said.

The interest rate includes a base rate of 3.36% from the six-year swap rate, plus a 1.05% margin. The bonds have an AA credit rating from Standard & Poor's and an Aa2 rating from Moody's. See more detail on the bonds here.

The Auckland Council was established on November 1, 2010 through the amalgamation of eight councils in the Auckland region, - the Auckland Regional Council, Auckland City Council, Franklin District, Manukau City Council, North Shore City Council, Papakura District Council, Rodney District Council and Waitakere City Council.

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5 Comments

by Stephen Hulme | 14th Dec 12, 5:20pm 1355458858

Gareth the link to more info on the bond seems to be broken.

But comparison with a rough average rate of the two LGFA maturities issued earlier this week shows a significant rate premium paid by Auckland Council - ~3.77% versus 4.41%.

Do rate payers wish this upon themselves?

by Gareth Vaughan | 17th Dec 12, 9:30am 1355689821

Fixed the link. When comparing rates with the LGFA probably worth noting Auckland Council has gone for as much retail interest as it can get with this issue whereas LGFA is predominantly taken by institutional investors.

by Stephen Hulme | 17th Dec 12, 10:08am 1355692104

The rule of thumb from memory is that retail gets what it is given - a rate taker i.e. a wider spread - not so for institutions - a narrower spread - but if political considerations have prevailed upon those setting the rate to impose a regressive cost upon all rate payers to offset the impost on more wealthy rate payers, who am i to say otherwise.

by Mark Butcher | 17th Dec 12, 10:53am 1355694807

Stephen - just to provide some clarity regarding relative pricing...LGFA on an interpolated basis for a Dec 2018 maturity would have been 3.88% and you need to add a further 0.08% for the fact that yields rose between the Wednesday's LGFA tender and Fridays rateset on the Auckland Council Bonds. Furthermore there is an additional onlending margin charged to Council borrowers from LGFA that needs to be factored into a direct pricing comparison.

You are correct that LGFA provides the cheapest source of borrowing to the Council sector - however Auckland Council cannot borrow its full funding requirement from LGFA but maintains a divirsified apporach to it's borrowing. It uses a mix of LGFA, domestic and offshore borrowing (on a fully currency hedged basis) to deliver an average borrowing cost across it's total debt portfolio.

by Stephen Hulme | 17th Dec 12, 12:26pm 1355700402

Mark - thank you for your interpretation of Auckland Council's interest rate costs.

Nonetheless, a review of my daily emails from NZX/ANZ containing NZ Government debt closing rates confirms a 6 year rate increase of 1.583bps, interpolating the 15 Dec 2017's and 15 Mar 2019's, from Wednesday to Friday.

US T10 moved from 1.65% to 1.73% over the same time frame - but this is not to say LA rates experienced a different outcome.