Join the LGFA as a guaranteeing member (preferred)
Under this option ORC can then borrow up to the maximum amount allowed under the borrowing covenant of 175% of revenue. Based on the LTP we could borrow up to $130 million in 2021-22, increasing to $220 million in 2030-31.
We propose to borrow $25 million for the first five years with this decreasing by $2 million per annum from 2025-26, bringing borrowings down to $15 million in 2030-31.
As a guaranteeing member, we will receive 0.1% lower interest rate than as a non-guaranteeing member.
As a guaranteeing member, we will be subject to the joint and several guarantee where the debts of the LGFA are guaranteed by the members in proportion to each council’s individual rating base.
Join the LGFA as a non-guaranteeing member
We can borrow a maximum of $20 million as a non-guaranteeing member. As we are proposing to borrow more this amount this option is not preferred.
If we joined as a non-guaranteeing member and then were required to borrow more than the $20 million maximum, we would need to carry out further community consultation at that time delaying the availability of funding until that process was complete. If funds were required quickly, for example in the wake of a natural disaster, we would not be able to carry out repair works until consultation and funding was approved.
Funding under this option would be 0.1% higher, but we would not be subject to the joint and several guarantee.
Do not join LGFA
Under this option, long-term external debt could still be sourced from non-LGFA lenders or if not some level of short-term debt funding will still be required to manage cashflow requirements throughout the year.
If we do not join the LGFA the other funding sources available are:
- Bank lending
- We issue bonds in our own name
- We withdraw from long-term managed funds
This option is not preferred for the following reasons:
- Bank lending is more expensive than LGFA funding and unless adequate funding lines are maintained funding may not be immediately available.
- Bond issuance by ORC is estimated to cost at least 30 basis points more than the LGFA and it’s likely we’ll need to obtain a credit rating which will add time and cost to the process.
- Withdrawing from the managed fund is not recommended as this fund is currently earning greater returns than the borrowing rates offered by the LGFA. The managed fund is also intended to maintain a level of return to offset the general rates which will be diminished if these funds are used to fund internal debt.