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Addendum Agenda - Ordinary Meeting – Tuesday 20 December 2016 Page 1 |
CL16.144 Council Borrowings - Loan Agreement with Treasury Corporation (Sewer Fund)
HPERM Ref: D16/396518
Group: Shoalhaven Water Group
Attachments: 1. NSW Treasury Corporation Proforma Loan Agreement ⇩
Purpose / Summary
To seek Council approval to enter into a loan agreement with New South Wales Treasury Corporation for initial loan funding for REMS 1B.
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That Council enter into a loan agreement, executed under a seal of Council, with New South Wales Treasury Corporation for the amount of $44m with a term of twenty years as the first of the REMS 1B loan provisions.
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Options
1. Adopt the recommendation in the report.
Implications: This is recommended as it provides the best economic option for the loan funding required for the 2016/17 financial year.
2. Not adopt the recommendation and to make an alternative resolution.
Implications: This process has been intrain for several months and has formed a part of the sewer fund financial strategy and delays would impact the required funding.
Background
As part of Fit for the Future reforms the NSW Government announced that Councils who were declared “Fit” would be able to borrow funds from T Corp at reduced interest rates. Given that Shoalhaven were deemed “Fit” in October 2015, they are now eligible to utilise T Corp for borrowing funds at reduced rates for approved purposed.
Accordingly Council applied to T Corp for approval to borrow $44m in the 2016/17 year for REMS 1B.
The New South Wales Treasury Corporation will provide an updated interest rate closer to the loan drawdown date. Debt covenants specified in section 11.2.1 of the attached loan agreement would require Council to maintain a debt service cover ratio of at least 1.5:1, interest cover ratio of at least 3.00:1 and a minimum cash expense cover ratio of 2 months.
Council’s current results for these ratios for the 2016 financial year were:
Debt Service Cover Ratio – 4.99:1
Interest Cover Ratio – 16.95:1
Cash Expense Cover Ratio – 8.88
In addition to this there will be no fees applied to this loan by T Corp and interest rates are calculated at the Cost of Funds plus .55% for all terms.
Community Engagement
The agreement does not require consultation with the community other than the normal Quarterly Review and Delivery Program reporting requirements.
Financial Implications
It is important for Council to gain the best interest rates on loan funding and locking this agreement in place will confirm a much lower rate for the full 20 years of the loan agreement. The main REMS 1B contract is underway and this and other future loans are built into the current sewer financial plan.
