14 Nov 2011

Auckland Council placed on credit watch

10:55 pm on 14 November 2011

A major ratings agency has put the country's largest local body, the Auckland Council, on credit watch, with a final decision due in three months.

Standard & Poor's says the council's draft long-term budget shows debt compared with income will rise in two years to reach the threshold for a downgrade.

Auckland Council's credit rating was upgraded to the third-highest level of AA when the region's eight local bodies were merged in 2010.

Standard & Poor's says projected debt increases are largely related to transport projects and if there is a downgrade it would be by one notch to AA-, the rating enjoyed by the former Auckland City Council.

One notch downgrades have already been handed out to the government, Wellington City Council and New Plymouth District Council.

Auckland Council says if the downgrade is applied it will not affect its ability to borrow.

Standard and Poor's credit analyst Anna Hughes says the move follows discussions with the council about its plans to significantly increase capital expenditure, and it is unclear how much of the spending will be funded using debt.

Current projections suggest the council's debt levels will exceed 170% of operating revenues by 2013, and 200% by 2015.

Ms Hughes says Standard and Poor's expects to resolve the credit watch in the next 90 days as the council finalises its draft 2012 long-term plan.