Waipā District Council successful in bid to increase borrowing limit

A bespoke borrowing covenant has been formally approved for Waipā District Council by its main lender, the Local Government Funding Agency.

The borrowing limit increase from 2.8 times is a key element of the council’s draft Long Term Plan financial strategy and is only available to high-population growth councils needing to manage their debt more effectively. It has been approved for the whole nine-year period of the Long Term Plan.

Waipā is one of the first two councils to take advantage of a bespoke covenant.

In approving Waipā’s application for the bespoke covenant, the Local Government Funding Agency put in a number of conditions including:

• Reviewing the need for the higher covenant to remain if Waipā’s water debt is transferred to a new water CCO.
• Council’s forecast financial statements maintaining net debt within a limit of 3.3 times its revenue and balancing its operating budget from year four of the Long Term Plan.
• Informing the LGFA of any unbudgeted spend on non-subsidised roading projects of greater than $500,000 in a financial year.
• Providing the agency with a copy of its monthly financial report including current capital delivery metrics.

Chief financial officer Ken Morris said the agency had recognised that for growth councils recent economic factors meant it was becoming more difficult to meet the debt limit benchmark set out in the Local Government Act.

“We applied for this increased debt covenant so we can achieve our capital programme, retain affordable interest rates, and have an appropriate level of borrowing available should it urgently be required,” he said.

“Without this increased covenant, rates increases would need to be much higher.”

The increase in borrowing limit is unlikely to affect the council’s credit rating.

“The bespoke covenant was only made available to tier one growth councils after significant sensitivity testing to ensure it would not unduly jeopardise the ratings of the agency or the applying councils,” Morris said.

“In approving the covenant, the LGFA analysed Waipā’s financial strategy and has determined it prudent and sustainable enough to allow the higher covenant level to be granted."