Long Term Community Plan 2012-2022 - Hurunui District Council

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www.hurunui.govt.nz debt exceeds $25 million: Period Minimum Maximum 0 to 3 years 15% 60% 3 to 5 years 15% 60% 5 years plus 10% 40% A maturity schedule outside these limits will require specific Council approval. Counterparty Credit Risk Counterparty credit risk is the risk of losses (realised or unrealised) arising from a counterparty defaulting on a financial instrument where the Council is a party. The credit risk to the Council in a default event will be weighted differently depending on the type of instrument entered into. Credit risk will be regularly reviewed by the Council. Treasury related transactions would only be entered into with organisations specifically approved by the Council. Counterparties and limits can only be approved on the basis of long-term credit ratings (Standard & Poor’s, Fitch or Moody’s) being A+ and above or short term rating of A-1 or above. Limits should be spread amongst a number of counterparties to avoid concentrations of credit exposure. See Matrix Guide. In determining the usage of the previous gross limits, the following product weightings will be used: • Investments (e.g. Bank Deposits) – Transaction Notional x Weighting 100%.(unless a legal right of set-off over corresponding borrowings exit whereupon a 0% weighting may apply) • Interest Rate Risk Management (e.g. swaps, FRAs) – Transaction Notional x Maturity (years) x 3%. • Foreign Exchange – Transactional principal amount x the square root of the Maturity (years) x 15% Each transaction should be entered into a treasury spreadsheet and a quarterly report prepared to show assessed counterparty actual exposure versus limits. Individual counterparty limits are kept in a spreadsheet by management and updated on a day to day basis. Credit ratings should be reviewed by the MFS on an ongoing basis and in the event of material credit downgrades; this should be immediately reported to the CEO and assessed against exposure limits. Counterparties exceeding limits should be reported to the Council. Investments are normally held to maturity date. Where investments are liquidated before legal maturity date, approval is obtained from the CEO. Matrix Guide Counterparty/Issuer Minimum long term / short term credit rating – stated and possible Investments maximum per counterparty ($m) Interest rate risk management instrument maximum per counterparty ($m) Total maximum per counterparty ($m) NZ Government N/A unlimited none Unlimited Local Government Funding Agency GFA N/A Unlimited N/A Unlimited NZD Registered Supranationals AAA 10.0 none 10.0 NZ Registered Bank [name] A+/ A-1 10.0 10.0 20.0 Local Government Stock/ Bonds/ FRN/ CP A+/ A-1 (if rated) 2.0 none 5.0 * Subject to a maximum exposure no greater than 10% of the portfolio being invested in Local Government debt at any one point in time. The maximum portfolio exposure limit does not apply to the LGFA. This summary list will be expanded on a counterparty named basis which will be authorised by the CEO 260
Hurunui Community Long Term Plan 2012 - 2022 Risk Management To avoid undue concentration of exposures, financial instruments should be used with as wide a range of approved counterparties as possible. Maturities should be well spread. The approval process must take into account the liquidity of the market the instrument is traded in and repriced from. Operational Risk • Operational risk is the risk of loss as a result of human error (or fraud), system failures and inadequate procedures and controls. • Operational risk is very relevant when dealing with financial instruments given that: • Financial instruments may not be fully understood • Too much reliance is often placed on the specialised skills of one or two people Agreements Financial instruments can only be entered into with banks that have in place an executed ISDA Master Agreement with Council. Council’s internal/appointed legal counsel must sign off on all documentation for new loan borrowings, re-financings and investment structures. Financial Covenants and Other Obligations Council must not enter into any transactions where it would cause a breach of financial covenants under existing contractual arrangements. Council must comply with all obligations and reporting requirements under existing funding facilities and legislative requirements. • Most treasury instruments are executed over the phone • Operational risk is minimised through the adoption of all requirements outlined in the full Treasury Risk Management Policy, which include: Legal Risk • Dealing Authorities and Limits • Segregation of Duties • Reporting procedures, including records, confirmations and reconciliations • Organisational Controls Legal and regulatory risks relate to the unenforceability of a transaction due to an organisation not having the legal capacity or power to enter into the transaction usually because of prohibitions contained in legislation. While legal risks are more relevant for banks, Hurunui may be exposed to such risks. Hurunui will seek to minimise this risk by adopting policy regarding: • The use of standing dealing and settlement instructions (including bank accounts, authorised persons, standard deal confirmations, contacts for disputed transactions) to be sent to counterparties. • The matching of third party confirmations and the immediate follow-up of anomalies. • The use of expert advice. 261
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Hurunui Community Long Term Plan 20
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About the Plan Introduction The Loc
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How Your Rates are Spent The Counci
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Page 285: Phone: 03 314 8816 Fax: 03 314 9181
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Long Term Community Plan 2012-2022 - Hurunui District Council

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