Auckland Council, which said earlier this week it was seeking to raise up to NZ$175 million through a six-year, fixed-rate, secured retail bond offer, says it has put the offer on ice after a court judgement '"clarified the law" relating to leaky homes and councils potential liabilities for leaky commercial properties.
In a statement Auckland Council said that, in a decision delivered today against the old North Shore City Council that's now part of Auckland Council in relation to the Spencer on Byron Hotel, the Supreme Court held that councils owe a duty of care to the owners of all buildings whether they be residential or commercial, with this duty to ensure those buildings comply with the building code.
"Until this decision, there has been some doubt as to whether or not the owner of a commercial building was entitled to sue a council for damages reflecting the cost of bringing the building up to standard. Auckland Council’s financial statements include provisions for potential future liabilities for residential properties with weathertightness issues, but not commercial properties," Auckland Council said.
Its investment statement for the planned bond offer disclosed a NZ$417 million provision in its accounts for the likely costs to be incurred as a result of active, reported and unreported leaky homes claims.
Because of the Supreme Court ruling, Auckland Council said it has decided to defer its bond offer, which it will re-launch once its staff have considered the implications of the court decision, including on the offer document.
"This decision does not impact Council's obligations under its existing bond issuances or the security over Council's rates that supports repayment of those bonds. Council's ability to comply with these obligations is not expected to be adversely affected," Auckland Council, which has an AA credit rating with a stable outlook from Standard & Poor's, said.
Delay 'won't be for long'
Auckland Council Treasurer Mark Butcher told interest.co.nz the court ruling wouldn't impact the council's other borrowing programmes, which include borrowing through the Local Government Funding Agency and its overseas borrowing programme. The only reason the bond offer had been pulled was because the council didn't want to have misleading comments in its investment statement, Butcher said.
"Under the Securities Act, while the offer's open, the investment statement must be correct and we had in there a section on litigation. So of course we couldn't leave the investment statement out there when obviously things had changed regarding litigation yesterday afternoon."
"That was the only reason we pulled it," Butcher said.
Any potential change in Auckland Council's leaky building liability couldn't be assessed yet.
"As soon as we can we'll be out there and relaunching it (the bond offer)," added Butcher. "We can't put an exact date on it at this stage, but it won't be long."
Auckland Council had planned to price its bonds at a margin of 1.08% per annum over the six-year swap rate. The NZ$175 million it had been seeking included up to NZ$50 million in oversubscriptions.
See a press release on the 125 page Supreme Court judgement here.
(Update adds comments from Auckland Council Treasurer Mark Butcher).
2 Comments
Seems as though some one should resign along with those responsible for the interest rate swap debacle. Salaries have to be lost, to at least, put a dent in the cost of this outrage.
Shame an international salesman from Markit never made it to the door of the council's finance officer. He or she could have saved the nation, well LGFA and Auckland rate payers a bundle if they had bought their own credit protection insurance.
http://seekingalpha.com/article/914521-return-to-bretton-woods-economic…
Hypertiger
Posted Today, 06:59 PM
It's because you don't understand how bretton woods works.As the USA which is the demand of the world collapses...Everyone else which is the supply will collapse as well.
The supply of goods and services is forced to devalue at some point in order to obtain the supply of the global trade medium of exchange.
Or the net producers of the world which is the supply of the demand or net consumers will have to be cut.
of course countries like Greece were propped up by the inflows of US dollars buying Euros to buy Greek bonds...until US consumers reached their maximum potnetial to sighn on the dotted line and agree to spen the rest of their lives supplying the inflation the global system demands.
It's why the governments of the world have been deficit spending by the greatest amount in history since 2008.
because when the private secotor can't supply the demand...the public sector can sign on the dotted line.
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