Fitch Affirms Hamilton City Council at 'AA-'; Outlook Stable


SYDNEY, November 01 (Fitch) Fitch Ratings has affirmed HamiltonCity Council's (Hamilton) Long- and Short-Term Local Currency ratings at 'AA-'and 'F1+' respectively. The Outlook is Stable. At the same time, Fitch hasaffirmed the Local Currency Long-Term Senior Unsecured rating of Hamilton'soutstanding notes at 'AA-'.KEY RATING DRIVERSThe affirmation of Hamilton's ratings reflects: New Zealand'sstrong institutional framework; consistently improving budgetaryperformance; sound economic performance; and adequate debt and liquiditymanagement.Hamilton has continued focussing on its operating performance,improving its operating margin to 40.27% in FY13, up from 25.33% in FY12. Thisincrease is due to operating revenue growth of 3.32% and a reduction of NZD13min other expenses, namely operational efficiencies, and servicereductions. Fitch forecasts Hamilton's operating margin will average 39.65% acrossthe forecast to FY17, supported by stronger average growth in operating revenuethan operating expenditure.Hamilton's economy is adequately diversified with agriculture,and particular dairy farming, being the dominant industry. Agriculture hasremained relatively resilient since the recession ended in March 2009, benefittingfrom strong asset prices and demand. Nonetheless, the unemployment rate peaked at8.6% in FY12 reflecting the overall sluggish economic conditions. DuringFY13, there has been a significant reduction in unemployment, falling to 6.9% atFYE13 following a general improvement across the New Zealand economy.Hamilton's funding and liquidity profile improved withshort-term debt maturing within 12 months decreasing to 9% at FYE13, down from its peakof 43% in FYE11 (FYE12: 21%). This reduction in short-term maturity was broughton by Hamilton increasing total debt funding in FY13 through New Zealand LocalGovernment Funding Agency Limited (LGFA, AA/Stable) to NZD210m, or 48% ofHamilton's outstanding debt. Hamilton has signalled their intention toincrease this ratio to 80% over the medium term.An unanticipated rise in capex, coupled with pressure to remainbelow the council's self-imposed net debt limit of NZD440m, could resultin a capex backlog. However, Fitch views this risk as small given thecouncil's extensive long term planning. Furthermore, Hamilton's increasedenhancements to their capital programme, notably by significantly reducing yearlycapex spend, tightening the management of costs and engaging external supportto assist in asset management planning, would mitigate this risk.RATING SENSITIVITIES Hamilton's ratings could come under pressure should thecouncil's budgetary performance, and/or liquidity position, deterioratesignificantly adding pressure on the council's debt position.Positive rating action may occur if Hamilton's current balancecontinues to achieve results similar to yearly capex spend, while operatingwithin their self-imposed debt ceiling.Contacts: Matthew WrightDirector+61 2 8256 0323Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW2000Andrea JaehneDirector+61 2 8256 0343Committee ChairpersonRaffaele CarnevaleSenior Director +39 02 87 90 87 203Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326,Email: information is available at ''.">'. Applicable Criteria: 'Tax-Supported Rating Criteria', dated 14August 2012; 'International Local and Regional Governments Ratings Criteria -Outside the United States', dated 09 April 2013, are available atwww.fitchratings.comApplicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS ANDDISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THISLINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS,CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'SCODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATEFIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLEFROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHERPERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH WEBSITE.Fitch Australia Pty Ltd holds an Australian financial serviceslicence (AFS licence no. 337123) which authorises it to provide creditratings to wholesale clients only. Credit ratings information published by Fitch isnot intended to be used by persons who are retail clients within the meaning ofthe Corporations Act 2001.

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