Borrowing arrangements could be adjusted if the council asks a local government funding agency to cancel a covenant relating to interest on group debt compared with rates — and if the agency agrees.
Future spending could be constrained if the request is not made, the council has said.
The matter is to be considered by the council’s finance and performance committee today.
A report for councillors said one of the four covenants with the Local Government Funding Agency (LGFA) required group interest expenses to be less than 30% of annual rates income.
However, a large proportion of group borrowings were for council company Aurora Energy, ‘‘which has no relationship to annual rates income’’, the report said.
One of the other covenants — about net interest against total revenue — was more realistic, the council said.
Dunedin City Treasury chairman Tim Loan said the covenant regarding rates income was the most restrictive.
‘‘With the two largest borrowers within the group being the DCC and Aurora Energy Ltd, a large proportion of borrowings of the group are related to Aurora, which has no relationship to annual rates income,’’ he said in an email last month to council chief executive Sandy Graham.
The treasury board was of the view this covenant could be extinguished, he said.
Mr Loan said the treasury understood LGFA directors had some ability to negotiate bespoke covenants with councils.
In 2023, the Otago Daily Times reported the council’s group debt was projected to run close to the maximum allowed by the LGFA.
At the time, LGFA chief executive Mark Butcher said Dunedin’s situation was unusual because the way the council and council companies borrowed money meant they were treated as one group.
If a breach was forecast, the agency would have to ask its shareholders to permit it, he said.
The following year, the ODT reported the council could jeopardise lending arrangements within a decade if it did not sell Aurora Energy.
Group interest could not exceed 30% of rating revenue and this was ‘‘likely to be pressed in the early 2030s’’ if Aurora was not sold, a report for councillors said.
The council decided later that year to keep Aurora.
In reports for today’s meeting, the council noted much of the group’s borrowing was for company debt, rather than council operations.
At the end of June last year, total council and company borrowings were almost $1.4 billion.
Of this, Aurora had $573 million.
Group debt was forecast to reach $2.3b in 2034.
Aurora’s share of that was forecast to be about $900 million.
