articles Ratings /ratings/en/research/articles/230926-research-update-hamilton-city-council-outlook-revised-to-negative-on-weakening-fiscal-metrics-aa-a-1-rat-12863108.cshtml content esgSubNav
In This List

Research Update: Hamilton City Council Outlook Revised To Negative On Weakening Fiscal Metrics; 'AA-/A-1+' Ratings Affirmed


Instant Insights: Key Takeaways From Our Research


Non-U.S. Social Housing Sector Outlook 2024: At A Turning Point?


China GRE Ratings List


Corporate And Government Ratings That Exceed The Sovereign Rating

Research Update: Hamilton City Council Outlook Revised To Negative On Weakening Fiscal Metrics; 'AA-/A-1+' Ratings Affirmed


  • Hamilton City Council's fiscal metrics are underperforming our previous expectations. Operating surpluses are roughly half of our previous forecasts because inflation, interest rates, and other costs are outstripping revenue growth.
  • The council is delivering a large capital expenditure program that is resulting in substantial after-capital account deficits and rapidly rising debt. Its debt is among the highest in the world for 'AA-'-rated local peers.
  • Liquidity coverage will be structurally lower than in the past, driven by increased budgetary needs and higher interest expenses.
  • Therefore, we revised our long-term rating outlook on Hamilton to negative from stable. At the same time, we affirmed our 'AA-/A-1+' long- and short-term issuer credit ratings.

Rating Action

On Sept. 26, 2023, S&P Global Ratings revised its long-term rating outlook on Hamilton City Council, a New Zealand local government, to negative from stable. At the same time, we affirmed our 'AA-/A-1+' long- and short-term issuer credit ratings on the council.


The negative outlook reflects our view that Hamilton's budgetary metrics will remain weak over the next two years, leading to rapidly rising debt and narrowing tolerances within the 'AA-' rating.

Downside scenario

We could lower our ratings on Hamilton if we believed its financial management is weakening. This could be displayed by after-capital account deficits regularly exceeding 25% of total revenues, debt rising beyond our forecasts, or liquidity coverage weakening. The New Zealand central government's (the Crown) water service reforms could be a driver behind this.

Upside scenario

We could revise our outlook on Hamilton to stable if the council were to materially reduce its after-capital account deficits. This would result in debt not rising as rapidly, and liquidity coverage improving compared with our forecasts. The Crown's water service reforms could be a driver behind this.


The outlook revision reflects the risk that Hamilton's after-capital account deficits will regularly exceed 25% of total revenues, structurally weakening the council's credit metrics. We estimate Hamilton will continue to deliver record high levels of capital expenditure (capex) each year across fiscals 2024-2026 (years ending June 30) as it tries to address growth pressures. Capital grants from the Crown will likely remain elevated, only partially offsetting some of the pressure on the council's budget.

Very large after-capital account deficits of about 25% of total revenues will pressure Hamilton's debt levels and liquidity coverage. We forecast the council will have one of the highest debt-to-operating revenue metrics among 'AA-'-rated peers globally.

Hamilton's financial management, growing local economy, and New Zealand's institutional settings continue to support the council's credit profile. We have updated our analysis for Hamilton through to financial year 2026 following the release of the council's annual plan for fiscal 2024.

Our base case excludes the potential effects of the Crown's proposed water reforms. The reform program, as currently envisaged, could shift the responsibility for drinking water, wastewater, and stormwater assets from local government councils to 10 new regional water service entities from early 2025. The reforms are still under development, and subject to Crown election outcomes.

Weaker operating margins and very high capital spending will accelerate debt beyond previous forecast; rising interest costs and larger deficits will pressure liquidity coverage

We estimate Hamilton will deliver after-capital account deficits averaging 27.7% of total revenues over fiscal years 2022-2026 as it proceeds with its large infrastructure program. We expect capex of around NZ$260 million per year across 2024-2026. Hamilton is a high-growth council and expects strong population increases over the next decade. The council is responding by building infrastructure to support residential housing growth. Nearly one-third of the capital program in 2024 is related to the Peacocke and Rotokauri greenfield developments. This includes building wastewater capacity, water treatment plant upgrades, and transport and road projects (such as the Waikato River Bridge), connecting Peacocke to the rest of the city. Once complete, Peacocke will provide housing for up to 20,000 residents.

The council almost fully delivered on its NZ$325 million capital budget outlined in the 2022-2023 plan. This resulted in a hefty after-capital account deficit of 42% of total revenues in 2023, significantly higher than our previous expectation. The improved delivery reflects a large concentration of the capital program in growth developments at peak delivery phase and one-off land purchases. Rated New Zealand councils, including Hamilton, typically underdeliver on capex compared with budget, due to planning delays, supply chain constraints, labor shortages, and difficulties in obtaining external approvals. Our capex forecasts include haircuts of 10%-20% compared with the council's estimates.

Additional grants and subsidies only partially offset the substantial fiscal weakening of Hamilton's metrics. These include substantial roading subsidies from Waka Kotahi (New Zealand Transport Agency). More recently, the council was successful in its NZ$150 million grant-funded Infrastructure Acceleration Fund application to support brownfield development within the city center.

We view Hamilton's fiscal flexibility as neutral to the rating. We believe it would be difficult for the council to substantially reduce expenses such as capex relative to our forecasts without creating large backlogs, given its acute growth pressures. Further, its general property rate increase for 2024 was well below inflation.

Operating margins are narrowing for Hamilton. We expect operating surpluses to average about 13% of operating revenues in 2022-2026; down from our previous forecasts of about 21% for 2021-2025. While high in a global context, these operating surpluses are at the lower end among rated New Zealand councils. Hamilton's operating expenses rose about 13% in 2023, underpinned by high inflation, rising payments to suppliers and employees, and a sharp rise in interest costs. Average property rates rose by 4.9% in fiscal 2024, excluding the effect of growth in the ratepayer base. This is the lowest property rates increase in the Waikato region and among the lowest of rated New Zealand councils.

We forecast total tax-supported debt will be about 312% of operating revenues in 2026, up from 243% in 2023. Interest expenses will average about 10.4% of operating revenues between 2023 and 2025, in our assessment. Reflecting Hamilton's debt levels and rising interest rates, its interest expenses will likely reach 12.2% of operating expenses in 2026. This is more than twice the ratio in 2022.

Included in Hamilton's tax-supported debt is NZ$129 million of drawdowns from a loan facility as part of the Housing Infrastructure Fund. Hamilton may draw up to NZ$180.3 million from this facility to support the Peacocke development. Drawdowns are interest-free for 10 years. The council has negotiated with the Ministry of Business Innovation and Employment to defer NZ$16.4 million of loan payments originally scheduled for June 2023 to July 2027.

Hamilton's debt-service coverage ratio, which includes interest costs and upcoming budget needs, has weakened by our measures. Widening after-capital account deficits and ballooning interest costs have led the council's debt-service coverage ratio to be structurally lower than in the past. Hamilton has a total free cash position sufficient to cover about 114% of debt service during the next 12 months. We estimate the council has about NZ$174 million in cash and NZ$100.5 million of bank lines to cover NZ$95 million of upcoming debt maturities, and NZ$37 million of interest in fiscal 2024.

Further, we consider that access to the New Zealand Local Government Funding Agency (LGFA) provides Hamilton with strong access to a well-established source of external liquidity. In our view, the LGFA benefits from an "extremely high" likelihood of extraordinary central government support and has helped Hamilton to both lengthen its maturity profile and reduce its interest expenses compared with the past.

We consider Hamilton's contingent liabilities to be very small, with little uninsured exposure to natural disasters or to off-balance sheet council-controlled organizations. The council is part of the Waikato Local Authority Shared Services syndicate with 11 other councils in the region, and is jointly insured for above- and below-ground assets.

Strong local economy, experienced financial management, and New Zealand's institutional framework support the rating

New Zealand's extremely strong and predictable institutional framework underpins Hamilton's credit profile. We believe the country's institutional framework is one of the strongest and most predictable globally.

The New Zealand local government system promotes a strong management culture and high financial disclosure among local councils. Additionally, the framework supports the rate-collection ability of the councils. The system allows Hamilton to support higher debt than some of its international peers at the current rating level.

Hamilton's financial management supports our ratings. Its budgets are credible and processes are well established, with the council preparing 10-year long-term plans every three years, and annual plans in the intervening years, in line with New Zealand requirements. The council's treasury management policy sets prudent limits on borrowing, liquidity, and interest-rate risk. Hamilton only borrows in local currency, in accordance with legislation.

Local council elections held in October 2022 saw the reelection of Mayor Paula Southgate and seven new councilors. We believe the new council will continue to focus on infrastructure development to alleviate growth pressures. Day-to-day management is delegated to a full-time chief executive. The council has recently restructured its executive leadership team to establish a leaner and more agile organization.

Persistent inflation, supply chain disruptions, and rising interest rates have weighed on economic growth nationally. Our real GDP growth projections for New Zealand have been revised to 1.4% for calendar 2023 (see "Economic Outlook Asia-Pacific Q4 2023: Resilient Growth Amid China Slowdown" published Sept. 25, 2023). We forecast national GDP per capita will be about NZ$75,600 in 2023.

According to provisional estimates by economic consultancy Infometrics, the local Hamilton economy grew by about 3.8% in the year to June 2023, higher than the national average. This reflected strong consumer spending and construction activity in the back half of 2022. As with the national economy, rising headwinds have dampened economic activity more recently.

Hamilton's economy is supported by a diverse range of industries as well as being the nation's third-fastest-growing urban area behind Auckland and its surroundings. According to Infometrics, Hamilton city has recorded average yearly population growth of 2.1% per year over the past 10 years, compared with 1.6% nationally. Strong population growth will add to the knowledge-intensive labor force and benefit the local economy. The population is among the youngest of New Zealand's territorial authorities--79% of the population is below 55 years, compared with 71% nationally.

The city region historically relied on the dairy industry for most of its income and associated jobs, but employment is now more diversified. Research, education, and services have been expanding as the population grows. We believe large ongoing greenfield projects such as Peacocke and Rotokauri will contribute to the recovery of the city's economy and meet residential housing demand.

Key Statistics

Table 1

Key statistics--Hamilton City Council
--Year ended June 30--
Selected Indicators
(Mil. NZ$) 2022 2023e 2024bc 2025bc 2026bc
Operating revenues 290 320 344 352 376
Operating expenditures 249 280 299 314 329
Operating balance 42 40 45 38 47
Operating balance (% of operating revenues) 14.4 12.5 13.1 10.9 12.5
Capital revenues 107 105 118 104 106
Capital expenditures 242 322 279 260 260
Balance after capital accounts (94) (177) (116) (117) (107)
Balance after capital accounts (% of total revenues) (23.7) (41.8) (25.1) (25.7) (22.3)
Debt repaid 73 64 95 85 115
Gross borrowings 253 176 207 202 221
Balance after borrowings 86 (66) (4) (1) (1)
Tax-supported debt (outstanding at year-end) 705 835 948 1,065 1,171
Tax-supported debt (% of consolidated operating revenues) 242.7 261.2 275.5 302.2 311.6
Interest (% of operating revenues) 5.7 8.7 10.9 11.9 12.3
National GDP per capita (single units) 71,005 75,854 76,952 79,841 83,112
The data and ratios above result in part from S&P Global Ratings' own calculations, drawing on national as well as international sources, reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. The main sources are the financial statements and budgets, as provided by the issuer. bc--Base case reflects S&P Global Ratings' expectations of the most likely scenario. N/A--Not applicable. N.A.--Not available. N.M.--Not meaningful.

Ratings Score Snapshot

Institutional Framework 1
Economy 1
Financial Management 2
Budgetary Performance 4
Liquidity 2
Debt Burden 5
SACP aa-

Key Sovereign Statistics

Related Criteria

Related Research

  • Economic Outlook Asia-Pacific Q4 2023: Resilient Growth Amid China Slowdown, Sept. 25, 2023
  • Default, Transition, and Recovery: 2022 Annual International Public Finance Default And Rating Transition Study, May 24, 2023
  • Institutional Framework Assessment: New Zealand Local Governments, May 17, 2023
  • New Zealand Local Government Funding Agency, March 1, 2023
  • Pipedream Or Panacea: New Zealand's "Three Waters" Reforms Pt.1, Feb. 27, 2023
  • Pipedream Or Panacea: New Zealand's "Three Waters" Reforms Pt.2, Feb. 27, 2023
  • Global Ratings List: International Public Finance Entities 2023, Jan. 9, 2023
  • Local And Regional Governments Outlook 2023: Rougher Seas Ahead, Nov. 29, 2022
  • Credit FAQ: Lifting The Lid On New Zealand's "Three Waters" Reforms, Oct. 12, 2022
  • Comparative Statistics: Local And Regional Government Risk Indicators: Asia-Pacific LRGs' Post-Pandemic Appetite For Capital Spending Is Strong, Sept. 22, 2022

In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.

After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.

The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above.

The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria And Research').

Ratings List

Ratings Affirmed; Outlook Action
To From

Hamilton City Council

Issuer Credit Rating AA-/Negative/A-1+ AA-/Stable/A-1+

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at for further information. Complete ratings information is available to RatingsDirect subscribers at All ratings affected by this rating action can be found on S&P Global Ratings' public website at

Primary Credit Analyst:Rebecca Hrvatin, Melbourne + 61 3 9631 2123;
Secondary Contact:Anthony Walker, Melbourne + 61 3 9631 2019;
Additional Contact:Frank Dunne, Melbourne +61 396312041;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back