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Auckland Council rating may be cut by S&P on plans for debt-funded transport spend-up

Monday 14th November 2011

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Auckland Council’s credit rating may be cut by Standard & Poor’s over city’s planned increase in spending, particularly on transport.

The council’s AA long-term issuer credit rating was placed on CreditWatch negative, giving it a one-in-two chance of a downgrade, S&P said in a statement. The rating agency says the council’s spending plans are likely to put debt levels beyond 170 percent of operating revenue in the 2013 financial year, rising to 200 percent by 2015.

“The rating action follows our discussions with Auckland Council which highlighted their plans to significantly increase capital expenditure, particularly in the area of transport,” credit analyst Anna Hughes said. “We expect to resolve the CreditWatch during the next 90 days as the council finalises its draft 2012 long-term plan. Any rating action would not likely exceed one notch.”

Earlier this year, council’s plan for a rail link through the central business district was knocked back by central government officials, who concluded the benefits were grossly over-stated. That led to a standoff between Mayor Len Brown and Transport Minister Steven Joyce, which has yet to be resolved.

Last month, Brown said he wants central government to meet 80 percent of the $2.4 billion needed to build the link, something Joyce said was highly unlikely to happen.

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