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Super city a safe bet, S&P says

Friday 29th October 2010

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The amalgamated Auckland “super-city” is good for an AA credit rating from the credit agency Standard & Poor’s, although heavy infrastructure spending and any lack of spending control could threaten that.

The AA long-term and A-1+ short-term issuer credit ratings come with a “stable” outlook and reflect S&P’s view of “the strong institutional framework benefiting local governments in New Zealand, a strong and diversified local economy, and the council's strong management."
"Offsetting these strengths is the new council's need to deliver large infrastructure projects, its increasing debt levels, and only moderate budgetary flexibility," said credit analyst Anna Hughes.
“The predecessor to Auckland Council's treasury team, the Integrated Treasury Group, has put in place the fiscal-management structure needed to support Auckland Council. We expect this structure will enable decision making across the Auckland region to improve over time,” Hughes said.

The new council had “some flexibility for undertaking additional borrowings”, but pressure for a credit rating downgrade would emerge if Auckland’s debt increased more quickly and higher than forecast — “in particular, if it reached about 160% of revenue.”

“The most likely scenario for this would be either a change in policy that led to a more aggressive capital-spending program or a weakening of the operating position; or our assumption on underspending proving to be incorrect."

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