Local Government Funding Agency targets $300 million
The Local Government Funding Agency aims to raise $300 million in a bond issue on Wednesday.
In what is the agency's first debt issue, it is offering two bonds, one that will mature on April 15, 2015 and another due to mature on December 15, 2017. Both are offering coupon rates of 6%.
The first issue aims to raise $50 million, with the other $250 million the target of the second issue.
Bids close at 2pm.
Incorporated on December 1 2011, the agency will operate as a large-borrower that will then re-lend to councils.
It was initially mooted at the 2009 Job Summit as an opportunity for local government borrowers to make significant savings.
Owned by 18 local authority councils and the Crown, the agency will provide investors with a new source of securities rated at AA+ (domestic long term) by international credit ratings agencies Standard and Poors and Fitch Ratings.
The ratings are the same as the New Zealand government.
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Comments and questions10
Anything that enables Councils to access more debt more easily is going to be a disaster for ratepayers.
Well said. Councils and their staff have an extraordinary talent for turning a $100 job into a $1k cost to the ratepayers. Bumbling incompetents the lot of them.
Of concern is these bonds are for the lesser councils, ie small councils and as such then the risk is not being priced in. 6% for 3 or 5 year duration is not adequate reward for the risk. Rabo Direct is paying 6% for 5 years. Yes bonds are more liquid, but will the secondary market for a Local Authority bond be viable? Auckland City is paying 6.52% for a 2017 maturing bond; I know where I would put my money.
PS all councils are cost plus, no manager is trained to get $1.10 for every $1 spent, this is not private enterprise, where you are incentivized for doing well. In Councils you get you pay, good or bad.
the coupon is 6% the yield will be determined by the price investors pay for the bond. So at this stage difficult to compare the relative returns. I suspect also the 6.25% is again a coupon.
Buying a bond for more or less than the face value will change the yield for the investor. The coupon just represents the payment made each quarter etc.
I agree. Council charges are spiralling out of control
If you ask an Adviser the majority of people who put bonds into their portfolio hold them until maturity. Therefore buying at the IPO the yield (coupon) is 6%. On the secondary market a yield 6,25% is certainly possible
This measure is to reduce costs for councils, not that you would realise that from the complainers above.
And ratepayers already by and large get a lot for their money.
Disagree. Auckland Council consent fees for building check and plumbing check have more than doubled, from $700 in 2004 to $1800 now. Where does the extra go? Maybe to prop up leaky building settlements?
Hmm - what planet are you. The area of greatest inefficiency in the economy
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