(The following statement was released by the rating agency)
Nov 14 - Fitch Ratings has affirmed Hamilton City Council's (Hamilton) Long- and Short-Term Local Currency ratings at 'AA-' and 'F1+' respectively. The Outlook is Stable. At the same time, Fitch has affirmed the Local Currency Long-Term rating of Hamilton's outstanding notes at 'AA-'.
The affirmation of Hamilton's ratings reflects New Zealand's strong institutional framework, sound socio-economic profile, strengthened corporate governance, improving budgetary performance, and a stabilising debt position over the medium term.
With the election of a new Mayor and the appointment of a new Chief Executive Officer (CEO), the council has improved its management and control processes significantly. Fitch also views that improved corporate governance had a strong impact on the council's new Long-Term Plan (LTP). Financial sustainability has improved as the new management team has a stronger focus on tight cost control and debt management reflected through improving operating performance since FY09.
Hamilton's current LTP outlines its desire to limit operating expense growth whilst ensuring operating revenues are maximized. The agency remains vigilant to what extent Hamilton will achieve its modest expenditure growth targets of both staff costs and goods and services. Fitch expects Hamilton's operating margin over the forecast period to grow above the 30% posted in 2012 through continued rate rises and maximising cost savings.
Hamilton has reviewed their capex programme and re-priortised and/or delayed several projects to aid in its desire to keep debt below NZD440million, returning the budget to surplus by FYE14. Fitch believes that a combination of a stronger operating balance and reduced capex will limit debt increase.
Hamilton's short-term debt (maturing within 12 months) has decreased significantly to 21% of total debt at FYE12 (FYE11: 43%). Fitch notes Hamilton intentionally allowed short-term debt to remain high in FY11, whilst waiting to secure long-term funding through the New Zealand Local Government Funding Agency Limited (LGFA). The council has started to use LGFA and funded NZD100m through it in FY12, lengthening Hamilton's debt maturity profile.
While the Outlook on the Local Currency Long-Term Rating is Stable, debt growing above expectations or weakening operating performance would trigger a downgrade. Positive rating action is unlikely given the council's current fiscal position, size and socio-economic environment.