Moody’s issues credit rating to first Scottish council

Aberdeen City CouncilAberdeen City Council has become the first local authority in Scotland to be assigned a credit rating as it prepares to invest in major housebuilding and construction projects.

Credit rating agency Moody’s has assigned Aberdeen an Aa2 rating, one level below the United Kingdom as a whole, reflecting its “strong institutional framework” as well as a “strong track record of operating performance”.

It also noted Aberdeen’s “wealthy local economy, albeit dependent on key industries”.

However, the council’s rating was given a ‘negative’ outlook due to an expected increase in debt levels to fund major capital projects and “key project risk” arising from the development of the Aberdeen Exhibition and Conference Centre (AECC).

The rating also mirrors the negative outlook on the UK sovereign rating, following the vote to leave the European Union.

Moody’s wrote: “The council benefits from strong access to liquidity due to sovereign level access to capital markets for the LA (local authority) sector, facilitated by the Public Works Loan Board.

“The council has demonstrated a solid financial record for the last five years maintaining a net surplus against budget for each year.

“The Aa2 rating also reflects our assessment of support from the UK government (Aa1 negative) and the very high likelihood that it would intervene in the event that ACC (Aberdeen City Council) were to face acute liquidity stress.”

It added: “ACC’s ambitious capital investment programme over the next five years is forecast to increase debt to 145 per cent of operating revenues. In FY2015/16, the net direct and indirect debt outstanding was relatively modest at 86 per cent of operating revenues. The keystone project is the AECC with the majority of capital expenditure incurred in the next two years. We view ACC’s plan to borrow money in order to facilitate the significant scaling up of their capital investment program as a key credit risk.”

Aberdeen City Council leader, Jennifer Laing, said: “Being assigned a credit rating, a first for a Scottish local authority, is a vital step forward for us as we explore options to fund what is a comprehensive capital programme designed to support the city’s growth and diversification during a crucial period for Aberdeen.

“We are committed to investing in a bright and prosperous future for the people of Aberdeen and the businesses in our city, with transformation already well under way.

“Today’s announcement is another significant step towards realising our ambitions.”

The council’s finance, policy and resources committee convener, Willie Young, added: “This process and our achievement in gaining an Aa2 credit rating serves as a very positive independent assessment of Aberdeen City Council’s stability and strength.

“It is a clear demonstration of confidence in the financial management and controls we have in place, which provide us with the solid foundations we need as we build for the future.”

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