Full Details of how LGFA Loans are secured
C Gilmore made this Official Information request to Christchurch City Council
The request was successful.
From: C Gilmore
From: C Gilmore
3 December 2024
Dear Christchurch City Council,
Official Information Request
Please supply the following information under the Local Government Official Information and Meetings Act Request
As per the Amendment and Restatement Deed (Guarantee and Indemnity ) between the Christchurch City Council and TEL Security Trustee( LGFA) Limited referencing page 36 :
"security" includes a guarantee or indemnity, a security interest (as construed and defined in the Personal Property Securities Act 1999), mortgage, lien, pledge, any interest in land of a security nature, any other security arrangement creating in effect security for the payment of a monetary obligation or the observance of any other obligation, and any other arrangement having like economic effect over any property, assets or revenues.
Please provide full details of the securities referred to above( secured against the Christchurch City Council borrowing to date)
Yours faithfully,
C Gilmore
From: Official Information
Christchurch City Council
Tēnā koe C Gilmore,
Thank you for your request for information.
We are handling your request under the Local Government Official
Information and Meetings Act 1987 (LGOIMA). We have forwarded it to the
appropriate Christchurch City Council staff, and we will provide a
response or update within 20 working days of the date we received your
request. Please note that the period between 20 December 2022 and 10
January 2024 do not count as working days. This timeframe will be taken
into account in our response, with a decision provided by 22 January 2025.
If we are unable to respond to your request by then, we will notify you of
an extension of that timeframe.
If you have any queries, please feel free to contact me using the
reference 1255194. If any additional factors come to light which are
relevant to your request, please do not hesitate to contact me so that
these can be taken into account.
If you have not had a reply within 10 working days, please email
[1][Christchurch City Council request email]
Nāku noa iti, nā
Jess Griffin
Official Information Advisor
Te Ratonga Ture me te Manapori - Legal & Democratic Services
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From: Official Information
Christchurch City Council
Tçnâ koe C Gilmore
On 3 December 2024, you requested the following information, under the
Local Government Official Information and Meetings Act 1987 (LGOIMA):
Please supply the following information under the Local Government
Official Information and Meetings Act Request
As per the Amendment and Restatement Deed (Guarantee and Indemnity )
between the Christchurch City Council and TEL Security Trustee (LGFA)
Limited referencing page 36 :
"security" includes a guarantee or indemnity, a security interest (as
construed and defined in the Personal Property Securities Act 1999),
mortgage, lien, pledge, any interest in land of a security nature, any
other security arrangement creating in effect security for the payment of
a monetary obligation or the observance of any other obligation, and any
other arrangement having like economic effect over any property, assets or
revenues.
Please provide full details of the securities referred to above( secured
against the Christchurch City Council borrowing to date)
Christchurch City Council can confirm that the quoted paragraph is just a
definition – it is not a reference to actual securities and it doesn’t
impact the rights or obligations of the parties to this Guarantee &
Indemnity document.
The document’s purpose is to improve the credit worthiness of the Local
Government Funding Agency (LGFA), in order to support its role as a
provider of flexible & cost-effective funding to the local authority
sector. Key parties are:
o “Principal Debtor” means LGFA.
o “Guaranteed Creditors” means the various parties who may be owed money
by LGFA from time to time – most importantly, the various investors
who buy LGFA Bonds.
o [aside: LGFA borrows money in the same way as the government and
other large borrowers, by selling “Bonds” to institutional and retail
investors. Bonds are essentially just legal obligations to pay
interest and principal at set times in the future – most of LGFA’s
Bonds are listed on the NZX Debt Market, and they can be bought & sold
between investors just like shares on the NZX Share Market.]
o “Guarantors” means the various local authorities (including
Christchurch City Council) who guarantee LGFA’s financial performance.
o “Security Trustee” means the independent entity that manages any claim
made by Guaranteed Creditors under this Guarantee & Indemnity
document.
The effect of the document is to make the Guarantors liable for any
payment that LGFA fails to make to any Guaranteed Creditor – in such an
event, the Guaranteed Creditor may apply to the Security Trustee, who can
decide to make a demand for payment from the Guarantors. Normally, the
amount demanded from each Guarantor will be in proportion to its Rates
revenue (eg. if a particular council collects 10% of the total Rates
revenue of all Guarantors, then it will need to pay 10% of the amount that
LGFA has failed to pay).
This arrangement strengthens the credit worthiness of LGFA, because its
payment obligations are effectively supported by the tax base of all the
guaranteeing local authorities. A strong credit rating is essential for
LGFA, because it allows it to borrow money on behalf of the local
authority sector at a lower interest rate than the sector could achieve by
borrowing individually. LGFA’s credit rating from Standard & Poor’s is
currently “AA+” (the same as the government’s).
From a council perspective, the Guarantee & Indemnity is a low-risk way of
supporting LGFA’s access to relatively low interest rates. The risk of
any demand actually being made by the Security Trustee is considered
remote, because LGFA is prudently managed and its own exposure is limited
to very high-quality borrowers (ie. councils). The risk is sufficiently
remote that councils do not record it as a contingent liability in their
Audited accounts, although for transparency it is still disclosed as a
“contingency” – see Christchurch City Council’s recent Annual report for
2024, on page 344 of Volume 2
([1]https://ccc.govt.nz/the-council/how-the-...).
You have the right to ask the Ombudsman to investigate and review our
decision. Complaints can be sent by email to
[2][email address].
Publication of responses to LGOIMA requests
Please note: our LGOIMA responses may be published on the Christchurch
City Council website a month after they have been responded to, with
requesters’ personal details withheld. If you have any concerns about
this, please contact the Official Information team on
[3][Christchurch City Council request email].
Nâku noa iti, nâ
Jess Griffin
Official Information Advisor
Te Ratonga Ture me te Manapori - Legal & Democratic Services
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If you are not the correct recipient of this email please advise the
sender and delete the email.
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Similar requests
Individual Shareholders, Debt Associated & Revenue
To New Zealand Local Government Funding Agency Limited by Chris McCashin
C Gilmore left an annotation ()
Tēnā koe Chris,
On 18 December 2024, you requested the following information, under the Local Government Official Information and Meetings Act 1987 (LGOIMA):
Would you please advise how LGFA Borrowings by the Christchurch City Council are secured ( against what they are secured?), and is that written in the Deed?
Please note that it is important to be clear about whose borrowing we’re talking about:
LGFA borrows by issuing (ie. selling) “Bonds” to various types of investors. Bonds are a type of financial instrument that can be bought & sold between investors – they are a common way for governments and large organisations to borrow, rather than simple bank loans. LGFA’s Bonds (like the government’s) are listed on the NZX Debt Market, so they can be bought & sold very much like company shares on the NZX Share Market.
The key legal document governing LGFA’s Bonds is a Trust Deed, which sets out the types of Bonds that can be issued and their terms & conditions. However, there is also a separate Guarantee & Indemnity document, under which a range of Councils (including CCC) guarantees LGFA’s performance – ie. if LGFA fails to make a payment, then its Bondholders can make a claim against the guaranteeing Councils.
Christchurch City Council (CCC) also borrows by issuing Bonds under a Trust Deed. Currently, CCC only issues Bonds to LGFA (ie. it only borrows from LGFA). CCC could also issue Bonds under its Trust Deed to other investors (like Auckland Council does), but there are no current plans to do so.
All Bonds issued by CCC are secured over its future Rates income – it doesn’t matter whether those Bonds are issued to LGFA or any other investor. If CCC fails to make a payment, then its Bondholders can appoint a Receiver, and the Receiver can set a Targeted Rate over all properties in the District to recover the amount owed. Please note, this does NOT imply the risk of an impossibly huge Rates increase to repay CCC’s total debt all at once – the Receiver’s Rate would ONLY be enough to recover the specific amount owed at that particular time. As at 30-Nov-24, CCC’s Net Debt was around $1.74 billion, but principal amounts are repayable over a range of dates between April 2025 and May 2035.
It is probable that all local authority debt in New Zealand is secured over Rates in this manner – the only likely exception is small bank loan facilities. Security over Rates provides LGFA (or any other Bondholders or bank lenders) with a very high level of confidence that their investment returns will be delivered in a timely manner, which allows them to make that investment at a relatively low interest rate.
In theory, CCC could issue unsecured Bonds under its Trust Deed, but this is unlikely because such Bonds would not be as attractive to investors as secured Bonds. LGFA would not buy unsecured Bonds at all, and any other investors who might be interested would demand a higher interest rate to compensate for the higher recovery risk in the event of non-payment.
You have the right to ask the Ombudsman to investigate and review our decision. Complaints can be sent by email to info@ombudsman.parliament.nz.
Publication of responses to LGOIMA requests
Please note: our LGOIMA responses may be published on the Christchurch City Council website a month after they have been responded to, with requesters’ personal details withheld. If you have any concerns about this, please contact the Official Information team on officialinformation@ccc.govt.nz.
Nāku noa iti, nā
Jess Griffin
Official Information Advisor
Te Ratonga Ture me te Manapori - Legal & Democratic Services
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This electronic email and any files transmitted with it are intended solely for the use of the individual or entity to whom they are addressed.
The views expressed in this message are those of the individual sender and may not necessarily reflect the views of the Christchurch City Council.
If you are not the correct recipient of this email please advise the sender and delete the email.
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