Super City sets up $600m loan deal

Six banks have funded the loan facility for Auckland. Photo / Thinkstock

The Auckland Council has raised a $600 million loan facility in a deal equal in size to New Zealand's largest acquisition this year.

The facility, which has been funded by six banks, will be used to help the council manage its cashflow ensuring it has the ability to refinance debt or fund investments if it is needed.

Shelley Ruha, head of institutional banking at the Bank of New Zealand, which put together the deal, said it was the first time a syndicate had been used to provide council funding

"It is very significant in the New Zealand market."

The loan facility was on a par with the Greenstone Energy deal completed this year when Greenstone's owners, Infratil and the New Zealand Superannuation Fund, jointly bought the downstream assets of Shell New Zealand, she said.

Ruha said the demand to take part in the loan facility had been "tremendous" - up to $1 billion.

"It was very subscribable because of the strength and recognised capabilities of the council. There are limited entities of the size and strength of the council."

Ruha said the $600 million was relatively evenly split between the banks - BNZ, ANZ, Westpac, Commonwealth Bank of Australia (parent of the ASB), Citibank and HSBC.

Council chief executive Doug McKay said it had decided to raise about $600 million because combined with about $500 million in cash and reserves that gave it just over $1 billion. "That gives us 12 months cover with investment and refinancing. Then if anything goes awry we have got that," McKay said.

Council chief financial officer Andrew McKenzie said the facility was just part of managing cashflow and would not be drawn down on unless needed. "We have the facility in place to make sure we can pay the bills."

The council's policy was to have access to the ability to cover any costs for assets or refinancing for a one-year period. "If the economy did tighten up we could fund what we need to."

The facility is available for a three-year period in different tranches.

Previously the separate councils had cover for up to six months for about $400 million combined.

McKenzie said it hoped not to draw on the facility and would consider other sources such as a bond offer to the market before drawing on it.

But under market rules it cannot raise any more money on the market until September when it has completed another annual report.

"This is a back-up to that."

McKenzie would not reveal the cost of the funding as it was confidential to the parties involved.

But McKay said the council had got a very competitive deal.

The council would roll over about $630 million of debt in the next year. It had a total of $3 billion of debt with the average duration at 3.5 years.