Rating downgrade disappoints council

Auckland City Council has had its credit rating downgraded by the international agency Standard & Poor's, but officials do not believe that will affect the cost to ratepayers of raising loans.

City finance general manager Andrew McKenzie said last night he was disappointed by the agency's decision yesterday to downgrade the council's credit rating from AA to AA- in anticipation of the formation of the Auckland Council. He believed it reflected a poor understanding by Standard & Poor's of this country's local government sector.

Mr McKenzie said the new rating followed an assessment of the credit quality of the Auckland Council, which will be formed on November 1 next year from the merger of the region's eight existing territorial authorities.

Although few of those are rated by Standard & Poor's, he said, the new organisation would be subject to the same legislative controls to operate in a financially prudent manner as Auckland City Council, which had a strong cash operating surplus and low-risk operations.

"In addition, the new council retains the ability to rate, and its rating base will be almost three times the size of Auckland City Council's."

Mr McKenzie said he was confident the financial market in New Zealand had a better understanding than the international agency of the strong credit features supporting the local government sector.

Although not wanting to pre-judge terms of a $350 million loan Auckland City is preparing to raise on behalf of the region's eight councils, he did not expect the S&P rating to lead to extra costs for ratepayers.

Council finance committee chairman Doug Armstrong said the city's rating had been "brought down a notch but it's still very good" and he shared Mr McKenzie's confidence that the downgrade would not lift the cost of raising loans.