HAWERA BOROUGH LOANS

Hawera Star, Volume LIII, 12 September 1933, Page 4

HAWERA BOROUGH LOANS

CONVERSION PLAN ADOPTED MONEY RAISED AT LOWER RATE. ANNUAL SAVING OF £568. At a special general meeting of the Hawera .Borough Council last evening a formal resolution was passed enabling the council to proceed with a scheme suggested by the Local Bodies’ Loans Board and recommended by the Finance Committee of the council for the conversion of various existing borough loans. The scheme provides that these loans shall be refinanced at a lower rate of interest over a slightly longer term, but at a saving to ratepayers in annual payments of £568 5s 2d.

The Mayor (Mr J. E. Campbell) occupied the chair and also present were Crs W. J. Brigth, R. M. Rickard, L. H. Clapham, A. Reid, E. K. Cameron, W. R. Butler, A. K. North, W. G. Strange and the Town Clerk (Mr H. S'. Elliott). In a summary or the effect of the conversion scheme circulated among councillors the Town Clerk emphasised the following points : 1. —That under the scheme the terms of all the loans concerned would be extended. This, of course, was unavoidable and with the exception of the proposal regarding the amalgamated £36,000 loan, which would not mature until 1958 compared) with the present due dates 1950 for £30,000 and 1952 for £6OOO, the extension in no instance added more than 18 months to the original terms. 2. —That the added liability in respect of premiums; on conversion totalled £485 16s 9d.

3.—That the saving in annual payments on the group of loans represents £568 5s 2d per annum.

Referring to the proposed amalgamated loan of £36,000 the following particulars afforded a basis for comparison, stated Mr Elliott. “As originally arranged the £30,000 loan will mature on January 1, 1950, and the £6OOO on July 1, 1952, the interest being £5 per cent and sinking fund £1 per cent in both cases, or a total annual payment of £2160. The acr cumulated sinking fund as at March 31, 1934, will be £12,697 11s lid. Assuming that this amount earns £3 per cent and the present annual contributions are continued, the value of the fund on March 31, 1956 (22 years from March 31 next) would be £35,405 lie, or within £594 9s of the amount required. to extinguish the loan. For the purposes of comparison it is therefore assumed that the loan would run for 22 years, the annual charges being £2160. Total payments . over that neriod would be £47,520. Under the Loans Board’s proposal the term is 24 years and annual charges £lß9o—a total of £45,360, or a saving of £2160. To this has to he added a further £4091 5s (saving), bringing the amount up to £6251. “If instead of the loan being repaid by annual instalments it is arranged as an ordinary flat loan for 22 years at £4l per cent and £1 per cent sinking fund, the annual payments' at £IB9O would in 22 years amount to £41,580, plus shortage of sinking fund (£s94)—a total of £42,174. The board’s proposal, with a teym of two years longer, shows a saving of £905. It may be mentioned that in all cases calculations are based on sinking fund earning £3 per cent per annum. “The table supplied by the hoard in regard to the proposed amalgamation loan shows that additional annual contributions of £3 per cent to sinking fund replace interest at £4l per cent on debentures redeemed annually. This represents an annual saving of from £8 15s in the second to £420 in the last year of the term, amounting to £4091 5s over the whole period. “Another important matter in regard to the three existing flat loans, which total £39,500, is that the sinking funds are only £1 per cent, and whilst this would have sufficed at normal times, when same earned interest at £5 per cent, it is obvious that the rate having dropped to £4 per cent and again to £3 per cent, such funds would be inadequate for the redemption of the loans. Under the conversion scheme this would be obviated., Of course there is the possibility that the rate of interest may again advance, but by conversion the council’s position would be secure unless the rate fell below £3 per cent, which does not seem probable.” In a brief review of the effects of the conversion the Mayor said that interest would be stabilised at 4J per cent, for the whole term of the) loans at an annual saving of £568. In his opinion the council had everything to gain. On the motion of Or Strange seconded by Cr. Blight, the following formal resolution was carried: “That, subject to the approval of the Local Government Loans Board, the council proposes that conversions' shall be effected to provide that in all cases the rate of interest shall be fixed at 41 per cent, per annum, that conversion date shall be_ February 1, 1934, and that the various loans set out hereunder he converted on the terms prescribed, namely: A. Loans raised on security or rates pledged over the whole borough as originally constituted. —Flat loans : £30,000 "at 5 per dent, maturing January 1, 1950, £6,000 at 5 per cent, maturing July 1, 1952, these loans to be amalgamated and to be extinguished by annual redemptions in accordance with Loans Board\s suggestion, term to be so arranged as to preserve the benefit of the reduced annual charges as contemplated by the Act. Instalment Loans (State Advances 1 Department).—(l) £5,000 balance owing March 31, 1933, £3,304 15s lOd at 4$ per cent., maturing, 1949; (2) £20,000 (£15,500 raised) balance owing March 31, 1933, £13,247 7s 6d at 44 per cent, maturing 1957-1959; (3) £15,500 (£l4 500 raised) balance owing March 31. 1933 £12,385 0s lOd at 41 petr cent maturing 1957-1959, these loans to be amalgamated and term extended so as to preserve the benefit of reduced annual charges as contemplated by .the Act. Other instalment loans. —(1) £5.000 balance owing March 31, 1933 £4.466 9s 6d at 54 per cent maturing July 12 1949: (2) £12,000 balance owing March 31. 1933 £lO 917 13s 6d at 54 per cent, maturing January 16, 1950; (3) £2,000 balance owing March 31, 1933, £1,718 11s 8d at 54 per cent, maturing February 1, 1945, tbe two first mentioned loans to be amalgamated, 'and same, also last. mentioned loan, to he re-arranged (with the addition of the premium payable on conversion) on isimilar instalment plan and terms extended so as to preserve the benefit of the reduced annual charges) as contemplated by Act. B. Loan raised on security of late pledged' over portion of the borough which was added to tl:e borough as originally constituted. —Flat loan : £3.500 at 6 per cent maturing July 1, 1963, to be extinguished (with the re-

duction of premium payable on conversion) by annual redemptions m accordance with Loans Board’s suggestion, respecting other flat loans or if the Loans Board so recommends, that the liquidation of this loan be made by half-yearly instalments Repayable on the annuity system.” A separate resolution adopting the Finance Committee’s recommendation was passed.