Debt Levels Rise As TDC Ends Capital Works Program

Overall, the financial position of Tasman District Council remains strong, according to a report on the first quarterly financial update for the year 2021-2022.

Cherie Sivignon / Tips

Overall, the financial position of Tasman District Council remains strong, according to a report on the first quarterly financial update for the year 2021-2022.

Tasman District Council’s net foreign debt rose from $ 169 million at the end of June to $ 176 million at the end of September as it embarked on a massive $ 98 million capital works program.

The first quarterly financial update for the year 2021-2022 also shows that the board budgeted for a controllable deficit of $ 4.9 million, but the actual result since the start of the year in September was a deficit of $ 3.6 million – a favorable variance of $ 1.3 million.

Controllable operating income contributed $ 2 million to the favorable variance, primarily through an additional dividend of $ 250,000 for Port Nelson Ltd, additional forestry revenues of $ 200,000 and additional revenues related to authorizations to construction and resources, says a staff report on the quarterly update.

This was offset by an unfavorable variance in operating expenses of $ 700,000, primarily attributable to recovery costs from the “July weather event”.

READ MORE:
* Tasman prepares to implement ‘demanding’ $ 98 million capital works program
* The outlook remains negative for the Tasman District Council credit rating
* Spotlight on Tasman District Council’s Use of Interest Rate Swaps

Tasman District Councilor Dean McNamara asked why the average interest rate of 3.88 percent as of September 30 was higher than expected.

MARTIN DE RUYTER / Tips

Tasman District Councilor Dean McNamara asked why the average interest rate of 3.88 percent as of September 30 was higher than expected.

Capital spending was $ 12.6 million, below budgeted spending of $ 13.8 million.

“Overall, the board’s financial position remains strong and ahead of year-end budget forecast,” the report said.

However, another report found that the council’s cost of funds included an average interest rate of 3.88 percent (of net debt) as of September 30 – higher than a budgeted rate of 3.5 percent.

At a recent operations committee meeting, councilor Dean McNamara asked why the average rate was higher than expected, “considering swaps and everything we do.”

McNamara was referring to interest rate swaps, a financial instrument designed to provide companies with a means of hedging their exposure to changes in interest rates. The board’s use of interest rate swaps was in the spotlight in 2016 after some people raised concerns about the financial instrument, which the board uses to help manage borrowing costs in the middle. and long term.

Finance group director Mike Drummond says that just like a household, the board hasn't necessarily paid off all of its debt and has been exposed to variable rates.

Cherie Sivignon / Tips

Finance group director Mike Drummond says that just like a household, the board hasn’t necessarily paid off all of its debt and has been exposed to variable rates.

In response to McNamara, the council’s chief financial officer Matt McGlinchey said the budget was set in October-November and “in the time of Covid” the market had changed.

“I guess that’s the nature of the environment we’re operating in right now… there are things happening that are hard to predict,” McGlinchey said.

Group finance director Mike Drummond said the board had incurred zero-interest debt from Crown Irrigation Investments Ltd for the Waimea Dam project which “will make a small downward adjustment in interest rates. ‘average interest’.

The council's capital expenditure stood at $ 12.6 million at the end of September, part of an expected capital expenditure of $ 98 million for the year 2021-2022.

Braden Fastier / Stuff

The council’s capital expenditure stood at $ 12.6 million at the end of September, part of an expected capital expenditure of $ 98 million for the year 2021-2022.

The board was subject to market movements and there was “significant upward pressure” on interest rates.

The interest rate risk was managed “within a corridor”.

“So just like a household, we don’t necessarily repair all of our debts,” Drummond said. “We have some exposure to variable rates. “

MARTIN DE RUYTER / STUFF

Waimea Water Ltd Managing Director Mike Scott provides an update on the construction of the Waimea Community Dam. The dam accounts for a large portion of the council’s capital spending in 2021-2022. Video first published on November 4, 2021.

Additional swaps had not been written “for some time because we were in a situation where we had more than adequate swap hedging”.

“I am convinced that there is some level of coverage going forward, but like many companies, we are not 100% covered. “

Drummond acknowledged that there would be challenges, but the board had a “reasonable capacity” to resist an increase in average interest rates without violating the limits of its cash management policy.

“However, an increase in average interest rates will translate into higher rates and higher fees and charges in a timely manner,” he said.

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