lending...

Background

The CHFA has a unique position in the health sector as the sole provider of term debt to DHBs.  Debt is a more flexible borrowing instrument than equity and facilitates DHB cash flow on a more cost-effective basis.  As for other business-like environments, providing debt affords the CHFA the opportunity to encourage prudent disciplines in DHBs through the negotiation, supervision and monitoring of the use of debt and debt levels. 

CHFA’s Composite Terms of Reference require that we approach our lending responsibilities “applying normally accepted lending criteria” and recognise that DHBs are required to operate on a financially sustainable basis.  The Lending function is now well-established, with loan application, credit assessment, and monitoring procedures similar to those practiced by commercial banks.  As at 31 March 2010, lending limits of $1.8 billion had been approved, of which DHBs had drawn down $1.4 billion.  Funding for CHFA loans to DHBs is provided by the New Zealand Debt Management Office (DMO), with the DMO sourcing funds as part of wider Government bond tendering activity.

Private sector debt has been almost entirely re-financed [only $120 million of Auckland DHB bonds remain outstanding], and CHFA’s new lending is limited to the funding of major new capital projects.

Current activity

CHFA’s Lending activity is focused on:

• Providing cost effective debt funding to DHBs
• Monitoring the financial position and performance of individual DHBs in line with good commercial lending and credit risk assessment practice
• Assessing the affordability of major capital expenditure proposals presented for Ministerial approval
• Providing independent advice to the Responsible Ministers, the National Health Board and other relevant stakeholders relating to:
  • potential risks to financial sustainability, for both individual DHBs and the sector generally, and
  • the potential future development of the sector’s Policy settings (in particular, the management of capital investment within long-term affordable levels)

With its original brief to refinance private sector debt all but complete, the Lending function’s priorities are those that relate to:

• Providing Ministers and other stakeholders with high-quality independent advice on the assessed financial risks to sector financial sustainability, and
• Influencing sector participants to address such risks as they arise.