Local government debt will be rated AA+

Craig Stobo. Photo / Paul Estcourt

Investors will have access to local authority debt, which carries the same credit rating as Government bonds but pays a higher yield, when the Local Government Funding Agency issues its first securities in February.

The Local Government Funding Agency (LGFA), which will borrow billions of dollars on behalf of local authorities over the next decade, meets today to discuss its first issue of securities.

Chairman Craig Stobo has confirmed the LGFA's debt offerings will carry an AA+ (domestic) rating from Standard & Poor's and Fitch, the same grade as NZ Government bonds.

He said it was up to the market what the yield would be on the first issue.

"We're a new issuer in the market place ... so you'd expect to issue at a premium over Government [bonds] to start with but over time that should come in quite tightly."

In addition to aggregate shareholder funds of $25 million, the agency is supported by uncalled shareholder capital of $20 million and "a line of liquidity support" from the Crown which is a 20 per cent shareholder.

Eighteen local authorities, including Auckland City Council, are the other shareholders, with more councils expected to join over time.

The agency's primary purpose is to provide more efficient funding and diversified funding sources for local authorities.

Local authorities have about $5 billion of debt on issue but that is expected to rise to $11 billion within the next decade.