ICC credit rating stands stable under scrutiny

The ICC’s rating reflected robust revenue, low-risk contingent liabilities, financial prudence ‘‘and a certain amount of flexibility’’. Michael Day Council’s finance and assurance manager

The Invercargill City Council will find it easier to borrow, should the need arise, after the latest AA+ stable credit rating from international agency Fitch Ratings.

The council has welcomed this second successive rating as an excellent one, reflecting continued independent confidence in its financial outlook.

To have that rating reaffirmed was ‘‘fantastic news’’ and stood as proof the ICC was still managing its finances prudently, the council’s finance and assurance manager Michael Day said.

As a result ‘‘it’s less difficult for the council to borrow if it needs to.’’

A corporate credit rating is a tool for lenders and investors to determine risks and an organisation’s capacity to manage debt.

The ICC’s rating reflected robust revenue, low-risk contingent liabilities, financial prudence ‘‘and a certain amount of flexibility’’, Day said.

A strong rating means ‘‘it’s less difficult for the council to borrow if it needs to.’’

Fitch said in its report that it did not expect the nationwide Three Waters reforms to change its assessment of the council’s risk profile of debt sustainability.

Councils generally borrow from banks or issue local bonds – though, more recently, the Local Government Funding Agency issues its own bonds and is able to lend at interest rates below those charged by the major financial institutions, allowing councils that qualify to reduce annual interest payments.

Borrowing is closely linked to the need to invest in new infrastructure and in new work for existing infrastructure.

This, according to Local Government NZ, is under the principle of intergenerational equity, which requires that each generation that benefits from an investment.

For instance, borrowing to fund the construction of a waste water plant that may serve a community for at least 50 years, and paying the loan off during its operational lifetime, would ensure each generation which benefits also contributes.