AA credit rating for Christchurch City Council

Christchurch City Council has retained a high Standard and Poor’s (S&P) credit rating, reflecting its strong financial position even after the recent earthquakes.

The Council’s General Manager Corporate Services Paul Anderson says the Standard and Poor’s decision to downgrade the Council’s credit rating from AA+ to AA was understandable considering the current earthquake-related financial pressures.

“The AA rating, the same as that held by the Auckland City Council and the country’s four major trading banks, is just one notch below the AA+ credit rating the Council has held for more than a decade,” Mr Anderson says.

In announcing the new rating, Standard and Poor’s acknowledged the Council’s financial management as a “positive rating factor”.

“The positive rating factor refers to the steps we have taken through our Annual Plan 2011/12 and in particular the decision to include the special rates charge of 1.76% over five years and to defer $50 million of capital renewals to help to fund the infrastructure rebuild programme,” Mr Anderson says.

Mr Anderson says he does not expect that the change to the credit rating will impact further on the Council's interest costs. The market was expecting the change and has already factored in a 0.1% increase in interest costs. “The Local Government Funding Agency will start operating later in this calendar year which will also help to lower our borrowing costs over the next few years,” he says.

One of the reasons for the new credit rating is the Council’s lack of insurance cover for its assets which creates a risk if there is another significant event. “The Council is continuing to work with its brokers to secure insurance cover as soon as reinsurers return to the Canterbury market.”

Mr Anderson says another concern for S&P when considering the Council’s rating was that the infrastructure rebuild programme over the next five years will be partly funded by Council borrowing.

“Although we have put in place a financial strategy which will see this borrowing paid off in 10 years, S&P views this as reducing the Council's 'financial flexibility' in the next three to five years,” he says.

“S&P also noted its concerns at the negative impact of the earthquake on the local economy and uncertainty as to the impact of this on the city's rating base. However, the Council has already built into its budgets a reduction in its rating base. We expect this to recover as the rebuild accelerates over the next three years.”