NZ Local Government Funding Agency AA+ rating – Fitch

Fitch Ratings has affirmed New Zealand Local Government Funding Agency Limited’s (LGFA) Long-Term Local-Currency Rating at ‘AA+’ and Long-Term Foreign-Currency Rating at ‘AA’. Fitch has also affirmed its Short-Term Foreign- and Local-Currency Ratings at ‘F1+’. The Outlook on the Long-Term Ratings is Stable. At the same time, Fitch has affirmed the senior unsecured bonds at AA+.

The affirmation reflects the strong underlying asset quality of LGFA’s shareholders composed of regional and territorial councils (local councils), which is supported by a Joint and Several Liability (JSL) guarantee. The ratings also consider the strong links of the vehicle with the New Zealand sovereign (Local-Currency IDR ‘AA+’/Stable/’F1+’). The ratings and Outlooks mirror those of the New Zealand sovereign.

LGFA’s debt is not guaranteed by the sovereign but Fitch views its support as exceptionally strong due to its strategic importance. The government provides a liquidity facility through its treasury vehicle, the Debt Management Office (DMO). The DMO also provides LGFA with operational support through treasury functionality, back-office systems and the sole counterparty for derivative transactions.

LGFA has issued three bonds with maturities April 2015, December 2017 and March 2019, and the total issuance at FYE12 was NZD835m. LGFA’s asset maturity profile is directly linked to their debt maturity profile, with the exception of some prefunding liquidity. LGFA’s debt is expected to grow from NZD835m at FYE12 to NZD7.4bn by FYE20.

Fitch believes that LGFA has sufficient liquidity as it aims to hold 10% of its assets in liquid form and benefits from a liquidity facility of up to NZD500m, which grows to NZD1bn in FY15, provided by the DMO.

LGFA is 20% owned by the sovereign, and 80% owned by the local councils who are borrowing from the vehicle. LGFA’s primary purpose is to provide long-term and cost-efficient funding to local councils.