Dunedin City Treasury Limited has refinanced the bulk of the debt the Dunedin City Council took on to fund the new Forsyth Barr Stadium for a longer term at fixed interest rates, providing certainty about interest costs.
In an ANZ managed offer to institutional investors that was more than double subscribed, Dunedin City Treasury has sold NZ$90 million worth of five-year floating rate notes which will pay interest at a rate of 3 month bank bills plus a margin of 1.07%. The new floating notes would effectively cost the Council a fixed rate because they are hedged by interest rate swaps put in place two and a half years ago with an average swap rate for the next five years at 5.25%.
Dunedin City Treasury CEO John Knight told interest.co.nz the money was being raised to refinance three year debt due to mature on April 15 that was raised to buy land for, and help fund development of, the stadium which is due to be used in this year's Rugby World Cup.
Knight said some of the NZ$90 million due to mature on April 15 was at 8.7% and some at 4.8%. So at an average of 5.25%, there was "a bit of advantage" in it.
"Interest rates were chopping around back then (and) we had the opportunity when they got down relatively low compared with history to fix the interest rate and that enabled users to have confidence that things could be funded," said Knight.
"The Dunedin City Council is up for about $120 million to $130 million (for the stadium) in total and this is $90 million, which has just rolled over (for five years)."
Because there were swaps in place those people making the decisions knew what the interest costs were going to be several years ago, Knight added.
Although the stadium is now nearing completion, debate about its cost and political tensions continue in Dunedin.
Meanwhile, ANZ said the offer closed a day earlier than planned, having received bids from a broad range of institutional investors for more than double the maximum issue size. The issue margin, priced over three month bank bills, was brought in from the 115 basis points that was initially marketed to 107 basis points.
"There haven't been many local authority issues of any significance lately," Knight said. "We've been the first out there for quite a while."
Wellington City Council recently raised NZ$25 million through an issue of floating rate notes and the new Auckland Council wants to be able to borrow money overseas in foreign currencies.
The new Dunedin notes have an AA credit rating from Standard & Poor's and were sold in minimum subscriptions of NZ$500,000. The issue date is April 15 and maturity date five years later, on April 15, 2016.
Knight said the Dunedin City Treasury wouldn't be looking to raise any further debt until it refinances another floating rate note, worth about NZ$30 million, in October or November.
"For the next five or six years we've got between $50 million and $90 million maturing each year so we've got quite a spread of maturities."
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