DOMESTIC INVESTOR UPDATE

26-27 September 20171

IMPORTANT NOTICE

2

• This presentation has been prepared by New Zealand Local Government Funding Agency Limited (“LGFA”) for general information purposes only. By listening to the presentation, or reading the presentation materials, you acknowledge and agree to the contents of this disclaimer.

• To the maximum extent permitted by law, neither LGFA nor any of its affiliates, directors, officers, partners, employees or agents make any representation, recommendation or warranty, express or implied as to the accuracy, completeness or currency of any of the information in this presentation and accept no responsibility or liability therefore. Data are indicative and approximate only, and all information is subject to change. Some information may be taken from publicly available sources and has not been verified by LGFA. This presentation is intended as a snapshot view of LGFA only, and LGFA has no obligation, and does not undertake or accept any responsibility or obligation, to update, expand or correct anything in this presentation or inform you of any matter arising or coming to its notice, after the date of this presentation, which may affect any matter referred to in this presentation.

• This presentation contains forward-looking statements including information regarding LGFA’s future bond issuances and forecast financial performance based on current information, estimates and forecasts. Those statements are subject to risks, uncertainties, and assumptions which are hard to predict or anticipate, and therefore actual outcomes and performance may differ materially from the statements. Any opinions expressed in this presentation reflect the judgement of LGFA as the date hereof, and do not bind LGFA.

• This presentation is not a product disclosure statement, limited disclosure document or other offer document under New Zealand law or any other law. This presentation is not, and does not constitute financial advice. All reasonable care has been taken in relation to the preparation and collation of this presentation. Except for statutory liability which may not be excluded, no person, including LGFA or any person mentioned in this presentation accepts responsibility for any loss or damage howsoever occurring resulting from the use or reliance on this presentation by any person. Past performance is not indicative of future performance and no guarantee or future rights are implied or given.

• Nothing in this presentation is an offer to sell, or solicitation of an offer to purchase, any securities. This presentation must not be relied upon by any person for making any investment decision and will not form part of any investment contract. The information provided in this presentation is not financial or investment advice and does not take into account the investment objectives, financial situation or particular needs (including financial and taxation issues) of any particular investor. Any person considering in investing in LGFA securities must refer to any relevant offer documents and disclosures provided expressly in connection with those securities and should take their own independent financial and legal advice on their proposed investment. LGFA securities have not been and will not be registered under the United States Securities Act of 1933 (U.S Securities Act) or the securities laws of any state or other jurisdiction of the United States. LGFA securities may not be offered or sold, directly or indirectly, in the United States or to, or for the account or benefit of, any person in the United States except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and any other applicable U.S. state securities laws.

• This presentation is proprietary to LGFA and may not be copied, distributed, disclosed or used without LGFA's express written consent.

• NZX Limited accepts no responsibility for any statement in this investor presentation. NZX Limited is a licensed market operator and the NZX Debt Market is a licensed market under the Financial Markets Conduct Act 2013.

DEVELOPMENTS : SEPTEMBER 2016 TO SEPTEMBER 2017

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➢ Bond lending facility established October 2016

➢ Fitch reaffirm LGFA ratings at AA+ November 2016

➢ Private placements of LGFA Bills available January 2017

➢ April 2033 bond issued April 2017

➢ NZ$8.0 billion of loans outstanding to fifty-two councils as at 31 August 2017

➢ S&P reaffirm LGFA credit rating at AA+ September 2017

➢ Loan book quality improved – no rating downgrades + five councils received rating or outlook upgrade

➢ Council participation – three new councils join taking total participation to fifty-three councils

➢ Non-Guarantors – Central Hawke’s Bay District Council, Northland Regional Council

➢ Guarantors – Waitomo District Council

➢ Horizons Regional Council moved from non-guarantor to guarantor

➢ Bespoke lending increasingly popular – 49% of long term lending in 2016-17 financial year

➢ Support from councils boosts LGFA market share to 83% and 91% (excluding Auckland Council) for year to

June 2017

➢ December 2017 refinancing of loans by councils largely completed

➢ Considering establishing an Australian Notes Programme

LGFA SPREADS TO NZGB AND SWAP (bps)

4Source: LGFASecondary market levels as at end of each month (except September 2017 as at 21 September) Average of all LGFA Bonds outstanding

RELATIONSHIP LGFA SPREADS TO SWAP vs. SWAP SPREADS (bps)

5Secondary market levels as at end of each month (except September 2017 as at 21 September) Average of all LGFA Bonds outstanding

Source: LGFA

LGFA SPREADS TO NZGB (bps)

6Source: LGFASecondary market levels as at end of each month (except September 2017 as at 21 September)

LGFA SPREADS TO SWAP (bps)

7Source: LGFASecondary market levels as at end of each month (except September 2017 as at 21 September)

LGFA BOND ISSUANCE

8

LGFA Bonds Issued by Financial Year (NZ$ millions)

Source: LGFA

Maturity 2011-12 (5 months)

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18year to date

15-Apr-15 155 10 75

15-Dec-17 605 245 110 55

15-Mar-19 75 900 95 40 70 20

15-Apr-20 365 200 190 80

15-May-21 445 625 100 150 30 30

15-Apr-23 355 655 275 65 39

15-Apr-25 100 560 40

15-Apr-27 285 470 205 36

14-Apr-33 215 30

Total Volume(NZ$ million)

835 1600 1260 1500 1265 1285 255

Average Bond

Tender Size(NZ$ million)

209 182 153 188 141 143 128

Average

Issuance Term(years)

5.34years

6.57 years

7.04 years

7.92 years

8.10 years

8.28 years

6.59years

$258m avg.

$447m avg. $353m avg.

$333m avg.

Note: 2017-18 year to date as at 31 August 2017

NZD ISSUES BY TRANCHE SIZE

Source: Bloomberg and LGFA

Note:Outstandings as at 31 August 2017Excludes New Zealand Government BondsInclude issuers rated “AA” or betterIssue size above NZ$500 million only

LGFA 28% of this group with seven maturitiesIBRD 26% of this group with six maturities

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Issuer Maturity Amount Outstanding (NZ$)

World Bank (IBRD) 22/01/2021 $2,025,000,000

LGFA 15/04/2023 $1,439,000,000

LGFA 15/05/2021 $1,430,000,000

IBRD 10/02/2020 $1,400,000,000

IBRD 26/02/2019 $1,350,000,000

LGFA 15/03/2019 $1,250,000,000

International Finance Corp (IFC) 20/05/2020 $1,125,000,000

KFW Bankengruppe 29/05/2020 $1,100,000,000

IBRD 6/10/2021 $1,050,000,000

LGFA 15/04/2027 $1,046,000,000

LGFA 15/12/2017 $1,015,000,000

Rentenbank 23/04/2024 $1,000,000,000

Asian Development Bank 6/03/2019 $950,000,000

LGFA 15/04/2020 $885,000,000

IFC 26/02/2018 $875,000,000

Queensland Treasury Corporation 18/09/2017 $875,000,000

IBRD 20/02/2018 $850,000,000

Nordic Investment Bank (NIB) 30/01/2018 $850,000,000

NIB 22/01/2019 $800,000,000

Rentenbank 12/03/2019 $800,000,000

LGFA 15/04/2025 $750,000,000

Asian Development Bank 30/05/2024 $700,000,000

Inter-American Development Bank 15/12/2017 $660,000,000

NIB 19/03/2020 $650,000,000

Rentenbank 30/01/2020 $600,000,000

Export Development Canada 20/02/2018 $600,000,000

IBRD 25/01/2022 $550,000,000

Kommunalbanken (KBN) 28/03/2019 $550,000,000

KBN 11/12/2017 $500,000,000

$27,675,000,000

PRIMARY AND SECONDARY MARKET ACTIVITY

10Source: LGFANote: Buy side only, does not capture intra day activity or tender activity. Activity in Dec 17 LGFA Bonds excluded from June 2017 turnover data onwards. September 2017 month and quarter is up to and including 22 September 2017

LGFA INVESTORS

11Source: Merlin Consulting, LGFA

LGFA INVESTOR HOLDINGS OVER TIME

12Source: LGFA

OFFSHORE INVESTOR MONTHLY CHANGES

13Source: LGFA

LGFA BILL ISSUANCE

14

Commenced Issuance in October 2015 Monthly tenders via YieldBroker

NZ$25 million 3 month Bills NZ$25 million 6 month Bills

NZ$125 million of reverse enquiry private placements into bespoke maturities

NZ$350 million outstanding across 1 month to 9 month maturities as at 28 August 2017

Issuance yields of current LGFA Bills outstanding 1.96% to 2.30%

Rated A-1+ by S&P LGFA Bills constitute unsecured debt obligations of

LGFA Any proceeds from LGFA Bill issuance and not on-

lent to councils invested as per Treasury Policy in Liquid Asset Portfolio

Source: LGFA

DECEMBER 2017 LGFA BOND MATURITY UPDATE

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December 2017 Council Loans NZ$992 million originally lent to thirty-five councils

NZ$584 million refinanced as at 31 August 2017 (59%) NZ$245 million assumed will not be refinanced (25%) NZ$163 million to be refinanced by approx. fifteen councils (16%)

December 2017 LGFA Bond holders as at 31 August 2017 NZ$1,015 million bonds outstanding in 140 holdings (including custodians)

NZ$289 million held by domestic banks (28%) NZ$294 million held by offshore investors (30%) NZ$384 million held by domestic institutions (37%) NZ$48 million held by domestic retail investors (5%)

CouncilOriginal Borrowing in this maturity

(NZ$ million)

1 Auckland Council $325

2 Christchurch City Council $143

3 Hamilton City Council $65

4 Tauranga City Council $60

5 Kapiti District Council $60

6 Greater Wellington Regional Council $50

7 Taupo District Council $25

8 Wellington City Council $25

9 Waikato District Council $20

10 Selwyn District Council $20

11 Whangarei District Council $20

12 Western Bay of Plenty District Council $20

13 New Plymouth District Council $16

14 Tasman District Council $16

15 South Taranaki District Council $15

16 Thames-Coromandel District Council $12

17 Palmerston North City Council $12

18 Rotorua District Council $10

19 Masterton District Council $10

20 Queenstown Lakes District Council $10

21 Whakatane District Council $8

22 Waipa District Council $7

23 Manawatu District Council $5

24 Whanganui District Council $5

25 Timaru District Council $5

26 Matamata-Piako District Council $5

27 Upper Hutt City Council $4

28 Kaipara District Council $3

29 Otorohanga District Council $3

30 Hauraki District Council $3

31 Gisborne District Council $2

32 Horowhenua District Council $2

33 Opotiki District Council $2

34 Tararua District Council $2

35 Hurunui District Council $2

$992

Source: LGFA

BESPOKE LENDING TO COUNCILS

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Introduced March 2015

150 trades transacted by 31 August 2017 with 41 councils

NZ$1.411 billion of transactions completed

Approx. 32% of lending since March 2015 and 49% of lending in June

2016-17 year

Limit of 30% of balance sheet for bespoke lending

VaR and PDH limits cover interest rate risk

Assists with managing liquidity

By Amount (NZ$ millions) LGFA Maturity Bespoke Maturity Total

LGFA Tender n/a $1,118.9 $1118.9

Non LGFA tender $104.0 $188.3 $292.3

Total $104.0 $1,307.2 $1,411.2

By # Trades LGFA Maturity Bespoke Maturity Total

LGFA Tender n/a 116 116

Non LGFA tender 11 23 34

Total 11 139 150Source: LGFA

As at 31 August 2017

As at 31 August 2017

MISMATCHES FROM BESPOKE LENDING

17Source: LGFA

MINIMAL MISMATCH BETWEEN LGFA BONDS AND LOANS

18Source: LGFA

RISK MANAGEMENT

19Source: LGFA

2016-17 FINANCIALS

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Net Operating Profit NZ$11.05 million compared to budget NZ$10 million and up 15.7% yoy.

Net Interest Income NZ$17.51 million compared to budget NZ$16.58 million and up 12.8% yoy.

Total Expenses NZ$6.47 million compared to budget NZ$6.58 million and up 8.1% yoy.

Bond Issuance NZ$1.285 billion compared to budget NZ$1.2 billion.

Net Operating Profit favourable to Statement of Intent (2016-17)

Loan book higher than forecast (councils have borrowed early to refinance their December 2017 loans and placed proceeds

on term deposit)

Higher than forecast loan book resulted in net interest income being NZ$0.93 million higher than budgeted

Expenses have been managed under budget for the year

All expense items generally in line with budget

Introduction of the LGFA bond lending facility (and related issuance of NZ$350 million treasury stock) did add some costs but

helped improve secondary market liquidity of LGFA bonds

Budget figures taken from Statement of Intent (2016-17)

Annual report (2016-17) available at http://www.lgfa.co.nz/files/documents/LGFA_AnnualReport_2017_F_Web.pdf

Source: LGFA 2016-17 Annual Report

LGFA PARTICPATION AND MARKET SHARE

21Source: PwC and LGFAAs at 30 June 2017

LGFA COUNCIL BORROWINGS (NZ$)

22Source: LGFA

LENDING TO PARTICIPATING COUNCILS BY EXTERNAL CREDIT RATING

23As at 31 August 2017 Note: One participating council has yet to borrow from LGFA

Includes long and short term lending

External Credit Rating (S&P, Fitch) Lending (NZ$ million) Lending (%) Number of Councils

AA $3,872.7 48.1% 12

AA- $890.0 11.1% 7

A+ $2,302.3 28.6% 4

Unrated $983.8 12.2% 29

Total $8,048.8 100% 52

Source: LGFA

S&P RATING CHANGES OVER THE PAST FOUR YEARS

Council Action Date

Western Bay of Plenty District Council Outlook Revised from Stable to Positive Oct 14, 2013

Nelson City Council Outlook Revised from Stable to Positive Dec 13, 2013

Taupo District Council Outlook Revised from Stable to Positive May 30, 2014

Western Bay of Plenty District Council Upgraded from A+ to AA- Oct 14, 2014

Whangarei District Council Outlook Revised from Stable to Positive May 19, 2015

Taupo District Council Upgraded from AA- to AA May 25, 2015

South Taranaki District Council Outlook Revised from Stable to Positive May 29, 2015

Christchurch City Council Outlook Revised from Negative to Stable Dec 7, 2015

Nelson City Council Upgraded from AA- to AA Nov 23, 2015

Whangarei District Council Upgraded from AA- to AA May 19, 2016

Western Bay of Plenty District Council Outlook Revised from Stable to Positive Sep 26, 2016

Tasman District Council Outlook Revised from Stable to Positive Oct 27, 2016

Invercargill Council (non LGFA member) Outlook Revised from Stable to Negative Dec 02, 2016

South Taranaki District Council Upgraded from A+ to AA- May 19, 2017

Whanganui District Council Outlook revised from Stable to Positive June 28 2017

Western Bay of Plenty District Council Upgraded from AA- to AA Sep 22, 2017

24Source: S&P, Moodys, FitchAs at 22 September 2017

LGFA INTERNAL CREDIT RATINGS (as at 30 June 2016)

Primary Criteria➢ Debt levels relative to population – affordability➢ Debt levels relative to asset base➢ Ability to repay debt➢ Ability to service debt – interest cover➢ Population trend

Secondary Criteria➢ 30 Year Infrastructure Strategy

• Quality of Assets• Capital Expenditure Plan

➢ Risk Management• Insurance

➢ Governance➢ Financial flexibility➢ Cashflow➢ Budget performance (balanced budget)➢ Affordability of rates / Deprivation Index➢ Natural hazards➢ Group activities (CCO’s)

LGFA Internal Ratings

2012 2013 2014 2015 2016

AA+ 1 2 2 4 4

AA 12 12 12 10 12

AA- 13 13 16 15 19

A+ 8 6 3 11 10

A 6 10 11 6 6

A- 5 2 1 1 0

LGFA undertakes own internal credit assessment and rating process for all council borrowers using most recent annual reports (June 2016)

25Source: LGFA

LGFA participating councils by internal rating category

LGFA FINANCIAL COVENANTS – PARTCIPATING COUNCILS OUTCOMES FOR JUNE 2016 YEAR

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LGFA Financial Covenants – participating councils as at 30 June 2016 with an external credit rating (22)

Foundation Policy Covenant

Net Debt / Total Revenue<250%

Net Interest / Total Revenue <20%

Net Interest / Rates <30%

Range of councils compliance

-158.7% to 214.4% 0.6% to 11.9% 1.2% to 15.5%

LGFA Financial Covenants – participating councils as at 30 June 2016 without an external credit rating (28)

Lending Policy Covenant

Net Debt / Total Revenue<175%

Net Interest / Total Revenue<20%

Net Interest / Rates <25%

Range of councils compliance

-206.2% to 111.0% -10.8% to 7.0% -28.6% to 11.8%

• Note some negative outcomes due to some councils having negative Net Debt i.e. financial assets and investments > borrowings

• LGFA councils operating within financial covenants

• Ranges highlight the differences between councils

• Sufficient financial headroom for most councils

• Improvement from 2015 for most councils

• Revenue increased• Interest rates lower• Capex and debt

restrained

Source: LGFA using data from individual council annual reports – Note there were 50 participating councils as at 30 June 2016

PERFORMANCE UNDER LGFA COVENANTS

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LGFA Participating Unrated Councils (28 as at June 2016, 25 in 2015, 26 in 2014 and 21 in 2013)

Financial Covenant June 2016 June 2015 June 2014 June 2013

Net Debt to Revenue<250%

87.9% 96.4% 104.7% 111.8%

Net Interest to Revenue<20%

6.1% 6.8% 6.6% 7.3%

Net Interest to Rates <30%

9.1% 10.0% 9.6% 11.1%

LGFA Participating Councils with an external credit rating (22 at June 2016, 20 in 2015 and 17 in both 2014 and 2013)

Financial Covenant June 2016 June 2015 June 2014 June 2013

Net Debt to Revenue<175%

32.4% 38.2% 42.6% 52.5%

Net Interest to Revenue<20%

2.2% 2.4% 2.9% 3.2%

Net Interest to Rates<25%

2.9% 3.1% 4.0% 4.1%

Source: LGFA using data from individual council annual reports

HOUSING INFRASTRUCTURE FUND (HIF)

➢ NZ$1 billion from Government available to assist high growth councils to

advance infrastructure projects important to increase housing supply

➢ The HIF will be funded through two mechanisms:

➢ Funding for water infrastructure projects will be in the form of interest free

subordinated debt from the Government for a period of up to ten years

➢ Funding for transport infrastructure will be through front loading of councils

Funding Assistance Rate subsidy via the National Land Transport Fund

➢ There were seventeen indicative applications amounting to NZ$1.79 billion

from seven out of the ten eligible councils

➢ NZ$889 million of funding awarded to five councils in July 2017

➢ The final applications are non-binding on councils. Any successful bids are

likely to form part of council’s 2018-2028 long term plan process

➢ Detailed business cases being currently worked on June to Dec 2017

➢ LGFA will closely monitor draft 2018-2028 long term plans, alternative

funding structures and available headroom under the financial covenants

(ability to cope with shocks)

28Source: LGFA, Ministry of Business, Innovation and Employment

Auckland NZ$300 million

Waikato District NZ$37 million

Hamilton City NZ$272 million

Tauranga City NZ$230 million

Queenstown Lakes District NZ$50 million

Contingency allowance NZ$111 million

HIF Allocation

CROWN INFRASTRUCTURE PARTNERS

➢ Formerly Crown Fibre Holdings

➢ Set up to manage the building of the ultra-fast broadband network

➢ The Government will co-invest NZ$600 million alongside councils and private investors

➢ Will set up companies (SPVs) to build and own new infrastructure for housing developments

➢ Long term revenue streams will come from a combination of targeted rates and volumetric

charging for the use of the infrastructure assets by new residents

➢ Councils will have the option of buying back the infrastructure at some future point

➢ Two early projects have been identified

➢ Wainui (north of Auckland) 5,500 additional homes

➢ Pukekohe, Paerata and Drury (south of Auckland) 17,800 additional homes

➢ Not just a tool for Auckland – intended to be used in other fast growing areas across New

Zealand

29

Source: LGFA and National Party www.national.org.nz/crown_company_to_invest_600m_in_housing_infrastructure

HISTORIC FINANCIAL PERFORMANCE

30Note: As at 30 June each year or for the twelve month period ending 30 June each year. Source: LGFA Annual Reports

Financials (NZ$ millions) 2012 2013 2014 2015 2016 2017

Interest Income $10.9 $73.7 $149.1 $222.8 $278.2 $320.7

Interest Expense $9.9 $68.1 $138.9 $208.9 $262.6 $303.2

Net Interest Income $1.0 $5.7 $10.2 $13.9 $15.5 $17.5

Total Income $1.0 $5.7 $10.2 $13.9 $15.5 $17.5

Operating Expenses ($5.2) ($3.0) ($3.2) ($4.7) ($6.0) ($6.5)

Net Profit ($4.2) $2.6 $7.0 $9.2 $9.5 $11.0

Liquid Assets Portfolio $52.8 $66.3 $101.7 $107.9 $266.3 $327.5

Loans to Local Government $832.7 $2,514.9 $3,742.5 $5,031.9 $6,451.3 $7,783.9

Other Assets $57.5 $107.0 $74.0 $271.9 $539.7 $380.0

Total Assets $943.0 $2,688.2 $3,918.2 $5,411.8 $7,257.3 $8,491.4

Bonds on Issue $908.9 $2,623.6 $3,825.3 $5,247.3 $6,819.7 $7,865.4

Bills on Issue $ nil $ nil $ nil $ nil $223.9 $348.2

Borrower Notes $13.2 $40.7 $61.9 $85.1 $108.4 $131.6

Other Liabilities $0.2 $0.6 $2.1 $16.1 $61.0 $92.3

Total Liabilities $922.3 $2,664.8 $3,889.3 $5,375.6 $7,213.0 $8,437.5

Shareholder Equity $20.8 $23.4 $28.8 $36.3 $44.2 $53.9

HISTORIC FINANCIAL RATIOS

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Note: As at 30 June each year or for the twelve month period ending 30 June each year. Source: LGFA Annual Reports

Ratios as at 30 June each year 2012 2013 2014 2015 2016 2017

Liquid Assets / Funding Liabilities 5.7% 2.5% 2.6% 2.0% 3.8% 4.1%

Liquid Assets / Total Assets 5.6% 2.5% 2.6% 2.0% 3.7% 3.9%

Net Interest Margin 0.12% 0.23% 0.27% 0.28% 0.24% 0.23%

Cost to Income Ratio 531.2% 53.6% 31.8% 33.7% 38.5% 36.9%

Return on Average Assets -0.45% 0.10% 0.18% 0.17% 0.13% 0.13%

Shareholder Equity / Total Assets 2.2% 0.9% 0.7% 0.7% 0.6% 0.6%

Shareholder Equity + Borrower Notes / Total Assets 3.6% 2.4% 2.3% 2.2% 2.1% 2.2%

Asset Growth n/a 185.1% 45.8% 38.1% 34.1% 17.0%

Loan Growth n/a 202% 48.8% 34.5% 28.2% 20.7%

Return on Equity n/a 12.7% 29.8% 31.9% 26.3% 25.0%

Capital Ratio 18.0% 11.9% 11.6% 11.2% 10.5% 10.9%

31

HISTORIC AND FORECAST FINANCIAL PERFORMANCE

32

Forecast performance based upon assumptions outlined in LGFA Statement of Intent 2016-17. The principal assumption is NZ$1.25 billion of gross issuance per year in each of 2017-18, 2018-19 and NZ$1.1 billion in 2019-20 financial years.

Source: LGFA

SUMMARY

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LGFA in operation since late 2011

Primary objective is to optimise debt funding terms and

conditions for New Zealand Local Government sector

Same credit rating as the New Zealand Sovereign at AA+

31 shareholders, including the New Zealand Government at 20%

Strong liquidity position supported by New Zealand Government

liquidity facility of up to NZ$1 billion (currently set by LGFA at

NZ$800 million as at 31 August 2017).

Underlying credit quality is the New Zealand Local Government

sector

LGFA's obligations are guaranteed by 45 local authorities

Largest domestic issuer of NZD domestic bonds (excluding NZ

Government) with current outstandings of NZ$8.11 billion across

eight tranches as at 31 August 2017

Regular issuance via tender

29 to 111 basis point pick up in yield over comparable NZGB

maturities

Rating Agency DomesticCurrency

Foreign Currency

Date of Report

AA+ (stable outlook) AA (stable outlook) 25 September 2017

AA+ (stable outlook) AA (stable outlook) 14 November 2016

Appendix and Contacts

LGFA PARTCIPATION

35

SHAREHOLDERS

LGFA was incorporated on 1 December 2011 with 18 foundation council shareholders and the New Zealand Government.

On 30 November 2012 a further 12 new council shareholders joined bringing the total number of council shareholders to 30. (In addition to the New Zealand Government).

BORROWERS

As of 31 August 2017 there are 53 councils who eligible borrowers.

As at 31 August 2017, 52 councils had borrowed from LGFA with Bay of Plenty Regional Council the only non-Borrower.

As at 31 August 2017 , the 53 councils comprised around 97% of total council debt.

GUARANTORS

There are 45 Guarantors of LGFA. Guarantors comprise:

➢ All shareholders except the NZ Government

➢ Any non shareholder who may borrow more than NZ$20 million

The only borrowers who are non-Guarantors are: ➢ Buller District Council➢ Central Hawke’s Bay District Council➢ Gore District Council➢ Grey District Council➢ Northland Regional Council➢ Opotiki District Council➢ South Wairarapa District Council➢ Tararua District Council

The security granted by each of the Guarantors under their respective Debenture Trust Deeds secures their obligations under the Guarantee.

There are 78 local authorities in New Zealand comprising:➢ 11 Regional Councils➢ 12 City Councils (including 1 unitary)➢ 54 District Councils (including 3 unitary)➢ 1 Unitary Territorial Authority

Source: LGFA

LGFA PARTICIPATION

36

LGFA participating councils highlighted with year of joining Participating councils by number

Source: LGFA

LGFA PARTICIPATING COUNCILS (As at 31 August 2017)

37

Shareholders Total Shares Shareholding (%) Amount borrowed (NZ$ million) Borrowing (%) Share of Guarantee (%)

New Zealand Government 5,000,000 11.1%

Auckland Council 3,731,960 8.3% 2,407.0 29.9 33.5

Christchurch City Council 3,731,960 8.3% 1,645.2 20.4 8.5

Hamilton City Council 3,731,960 8.3% 350.0 4.3 2.9

Bay of Plenty Regional Council 3,731,958 8.3% - 0.0 0.7

Wellington Regional Council 3,731,958 8.3% 305.0 3.8 2.9

Tasman District Council 3,731,958 8.3% 110.2 1.4 1.5

Tauranga City Council 3,731,958 8.3% 355.0 4.4 2.9

Wellington City Council 3,731,958 8.3% 308.0 3.8 5.8

Western Bay of Plenty District Council 3,731,958 8.3% 110.0 1.4 1.3

Whangarei District Council 1,492,784 3.3% 152.0 1.9 1.8

Hastings District Council 746,392 1.7% 60.0 0.7 1.5

Marlborough District Council 400,000 0.9% 82.0 1.0 1.3

Selwyn District Council 373,196 0.8% 35.0 0.4 0.9

Gisborne District Council 200,000 0.4% 27.0 0.3 1.1

Hauraki District Council 200,000 0.4% 41.0 0.5 0.6

Horowhenua District Council 200,000 0.4% 77.1 1.0 0.7

Hutt City Council 200,000 0.4% 112.0 1.4 2.1

Kapiti Coast District Council 200,000 0.4% 225.0 2.8 1.2

Manawatu District Council 200,000 0.4% 58.0 0.7 0.6

Masterton District Council 200,000 0.4% 54.0 0.7 0.6

New Plymouth District Council 200,000 0.4% 86.0 1.1 1.7

Otorohanga District Council 200,000 0.4% 9.0 0.1 0.3

Palmerston North City Council 200,000 0.4% 87.1 1.1 1.8

South Taranaki District Council 200,000 0.4% 62.0 0.8 0.8

Taupo District Council 200,000 0.4% 125.0 1.6 1.3

Thames-Coromandel District Council 200,000 0.4% 35.0 0.4 1.3

Waimakariri District Council 200,000 0.4% 115.1 1.4 1.1

Waipa District Council 200,000 0.4% 48.0 0.6 1.1

Whanganui District Council 200,000 0.4% 66.0 0.8 1.2

Whakatane District Council 200,000 0.4% 46.1 0.6 0.9

Total 45,000,000 7192.8 89.4 83.9Note: Total shares includes called and uncalled shares

Source: LGFA

LGFA PARTICIPATING COUNCILS CONTINUED (As at 31 August 2017)

38

Borrowers and Guarantors Amount borrowed (NZ$ million) Borrowing (%) Share of Guarantee (%)

Ashburton District Council 35.1 0.4 0.7

Canterbury Regional Council 25.0 0.3 2.0

Far North District Council 30.0 0.4 1.7

Hurunui District Council 25.0 0.3 0.3

Horizons Regional Council 15.0 0.2 0.4

Kaipara District Council 52.0 0.6 0.7

Matamata-Piako District Council 29.5 0.4 0.7

Nelson City Council 55.0 0.7 1.4

Porirua City Council 38.5 0.5 1.2

Queenstown-Lakes District Council 95.1 1.2 1.3

Rotorua District Council 114.7 1.4 1.7

Timaru District Council 77.1 1.0 1.0

Upper Hutt City Council 38.5 0.5 0.7

Waikato District Council 95.0 1.2 1.5

Waitomo District Council 30.0 0.4 0.4

Total 760.6 9.4 16.1

Borrowers Only

Buller District Council 20.0 0.2

Central Hawke’s Bay District Council 2.0 0.0

Gore District Council 17.0 0.2

Grey District Council 20.0 0.2

Northland Regional Council 2.8 0.0

Opotiki District Council 5.0 0.1

South Wairarapa District Council 17.6 0.2

Tararua District Council 11.0 0.1

Total 95.4 1.2

Total Borrowing from LGFA 8048.8 100.0

Source: LGFA

LGFA PARTCIPATING COUNCILS - AGGREGATED FINANCIAL POSITION

39The amounts in this slide have been extracted from the Local Authority Financial Statistics database managed by Statistics New Zealand – calculated as at June 2016 and for the June 2015-16 year. The data comprises the fifty-three participating council members of LGFA as at 31 August 2017.

Assets (NZ$ billion)Current Assets 3.16

Non Current Assets

Infrastructure 59.89

Land and Buildings 19.94

Investments 24.59

Other 4.94 109.36112.52

Liabilities (NZ$ billion)Debt 12.98

Non-Equity Liabilities 3.72 16.70

Net Worth (NZ$ billion) 95.82

Revenue (NZ$ million)Taxation revenue

Property 4,686

Regulatory income and petrol tax 482 5,168

Sales and other operating income 1,054

Interest and dividend income 483

Current grants and subsidies 411

Total Operating Income 7,116

Expenses (NZ$ million)Employee expenses 1,660

Depreciation 1,388

Purchases of goods and services 2,729

Interest expense 642

Current grants and subsidies 769

Total Operating Expenses 7,188

Net Operating Balance (NZ$ million) (72)

GOVERNANCE STRUCTURE

40

31 Shareholders, comprising the New Zealand Government (20%)1 and thirty councils (80%).

LGFA Shareholders Council, comprising five to ten appointees from the Council Shareholders and the Government. Role of the Shareholders' Council is to: ➢ Review and report performance of LGFA and the

Board;➢ Recommendations to Shareholders as to the

appointment, removal, replacement and remuneration of directors;

➢ Recommendations to Shareholders as to any changes to policies, or the Statement of Intent, requiring their approval;

➢ Update Shareholders on LGFA matters and to coordinate Shareholders on governance decisions.

1 NZ Government shareholding reduces to 11.1% if a call is made on uncalled capital of the 30 council shareholders

LGFA Board, is responsible for the strategic direction and control of LGFA’s activities. The Board guides and monitors the business and affairs of LGFA, in accordance with: ➢ Local Government Act 2002;➢ Local Government Borrowing Act 2011;➢ Companies Act 1993;➢ Financial Markets Conduct Act 2013➢ LGFA’s Constitution;➢ LGFA Shareholder Agreement;➢ LGFA annual Statement of Intent.

The Board will comprise between four and seven directors with a majority of independent directors appointed by Shareholders.

Shareholder Council

LGFA Board

LGFA

Central Government (20%)

30 Council Shareholders(80%)

CAPITAL STRUCTURE

Capital Position (NZ$ million)

.

41

Establishment Shares Borrower Notes

Subscription Date: At establishment of the LGFA At time of borrowing

Subscribers: NZ Government 20% ; Councils 80% Councils in relation to borrowings (excluding loans less than 365 days)

Nature: Ordinary share (paid and uncalled) Sub debt convertible (ranks behind other lenders/creditors to LGFA)

Control: Voting rights (one vote per paid in share) Non-voting

Paid up Amount: NZ$25 million in total 1.6% of Council borrowing (excluding short dated borrowing)

Uncalled Amount: 1 paid up : 1 uncalled for Council shareholders - $20 million in total -

Return:Discretionary dividend payment

LGFA cost of funds + 200bps

Paid on maturity

LGFA cost of funds

Term / Exit:Permanent capital

Exit must be to other Councils or NZ Government

Temporary capital – repaid at maturity of associated Council loan

In certain limited circumstances can be converted by LGFA into

permanent capital

NZ$ million as at 30 June 2012 as at 30 June 2013 as at 30 June 2014 as at 30 June 2015 as at 30 June 2016 as at 30 June 2017

Paid up share

capital:25.0 25.0 25.0 25.0 25.0 25.0

Retained Earnings: -4.2 -1.6 3.8 9.75 19.2 28.9

Unpaid shares: 20.0 20.0 20.0 20.0 20.0 20.0

Borrower Notes: 13.2 40.7 61.9 85.12 108.4 131.6

Total Equity:1 34.0 63.1 90.7 119.87 152.6 185.5

Equity / Total Assets 3.6% 2.4% 2.3% 2.2% 2.1% 2.2%

Source: LGFA Annual and Half Year Reports1 Note Equity excludes unpaid shares

GUARANTEE STRUCTURE

LGFA's obligations in relation to the Securities are guaranteed by the councils that are Guarantors under the Guarantee.

➢ Other than the New Zealand Government, each shareholder in LGFA must be a Guarantor.

➢ In addition any non-shareholder council that borrows in aggregate NZ$20 million or more from LGFA must be a

Guarantor.

The Guarantee is in favour of the Security Trustee in relation to the obligations of LGFA.

Any call under the Guarantee will be allocated across all the Guarantors on a pro rata basis in relation to their rates

(property tax) revenue.

In addition to the Guarantee, if there is a ‘risk of imminent default’ the LGFA Board can decide to make a call on guarantors

equal in value to their potential liability under the Guarantee (in order to reduce the risk of an LGFA default).

Parties to the guarantee able to exit the arrangement but only after:

➢ All of the exiting council’s borrowings are repaid.

➢ All of the LGFA’s borrowings, current at the time the council notifies of its withdrawal from the guarantee, are repaid.

42

GUARANTEE STRUCTURE

The Guarantee is supported by :

➢ All borrowers (in aggregate of over NZ$20 million) must be a party to the Guarantee.

➢ Each Guarantor must provide as security a charge over rates (property taxes).

➢ LGFA only lends to the Local Government sector - no history of default.

Structural Protections:

➢ Establishment Capital of NZ$25 million and uncalled capital of NZ$20 million.

➢ Borrower Notes = 1.6% of long dated loans to Participating Councils.

43

KBNNorway

KommuneKreditDenmark

Kommuninvest Sweden

Municipality FinanceFinland

Arrangement No direct explicit sovereign guarantee. Joint and several guarantee provided by members

Direct, joint and several guarantee from members (Danish Local Governments).

Municipalities and county councils that are members of the Kommuninvest Cooperative Society have signed a joint and several guarantee.

No explicit sovereign guarantee. Has explicit guarantee on funding from the Municipal Guarantee Board (MGB), which is owned and guaranteed by most Finnish municipalities.

Limitation Local Government borrowers guarantee own obligations only

No limit No limit No limit but a pro-rata side agreement

Ownership 100% owned by Kingdom of Norway.

Membership by 100% Danish Local Governments.

100% owned by Swedish local governments through Kommuninvest Cooperative Society.

53.3% owned by Finnish local governments together with the Association of Finnish Local and Regional Authorities. 30.7% owned by the Local Government Pension Institutea and 16% by the central government of Finland.

COUNCIL FINANCIAL DISTRESS - MITIGANTS

44

• Local Government Framework reduces risk of financial distress – no historical default by a council

• Council have own Treasury Management and borrowing policies – most have independent advice

• Council financial oversight by Office of Auditor General (OAG), Audit NZ and Department of Internal Affairs

• Councils under Local Government (Financial Reporting and Prudence) Regulations 2014 Act required to report annually on performance against six benchmarks

Six step intervention process possible by Central Government

• Council required to comply with LGFA lending covenants

Annual attestation by council LGFA credit analysis and monitoring performed through the year

LGFA credit watch-list in place LGFA not required to lend to participating councils

• Covenant breach is an Event of Review – after 30 days LGFA can seek repayment of loans

Request Information

Appoint Crown

Review Team

Appoint Crown

Observer

Appoint Crown

Manager

Appoint a Commission

Call an Election

Rates Affordability

Debt Affordability

Essential Services

Debt Servicing

Debt ControlOperations

Control

COUNCIL FINANCIAL DISTRESS – LGFA IMPACT

45

• As at 31 August 2017, 23 LGFA participating councils have external credit ratings (A+ to AA range)

• LGFA undertakes detailed credit analysis of each council if they apply to join LGFA (and ongoing) - not every council has been accepted as a participant

• A council default becomes a timing issue for LGFA

LGFA lends secured against rates revenue under Debenture Trust Deed

Unlikely to be other claimants on rates revenue given LGFA is the dominant lender to councils

Trustee appoints receiver and a special rate (property tax) levied on all properties in the council region to meet obligations (interest + principal) when due

Property taxes unavoidable and first ranking security over property

If council in financial difficulty you would expect some degree of central Government intervention

• Sources of LGFA liquidity and additional capital

Up to NZ$1 billion standby facility from NZ Government Liquid Assets Portfolio

Issuance of additional LGFA Bills and Bonds Conversion of Borrower Notes into equity

Uncalled capital of NZ$20 million

• LGFA Board can call upon the equity commitment from councils

• Note: central Government does not guarantee obligations of either LGFA or participating councils

PRUDENT APPROACH TO RISK MANAGEMENT

46

LGFA’s policy to minimise financial risks and carefully identify, manage and control all risk.

Market Risk➢ PDH limit of NZ$40,000➢ VAR limit of NZ$250,000

Credit RiskAll Councils that borrow from LGFA are obliged to:

➢ Provide security in relation to their borrowing from LGFA and related obligations.➢ Issue securities (bonds/FRNs/CP) to LGFA.➢ Comply with their own internal borrowing policies.➢ Comply with the LGFA financial covenants within either the Lending Policy or Foundation Policy

Auckland Council is limited to a maximum of 40% of LGFA’s total Local Authority assets.No more than the greater of NZ$100 million or 33% of a Local Authority’s borrowings from LGFA will mature in

any 12 month period.

Liquidity and Funding Risk

Cash and Investments

➢ LGFA manages liquidity risk by holding cash and a portfolio of liquid assets to meet obligations when

they fall due.

➢ Only invest in NZD senior debt securities, money market deposits and registered certificates of

deposits within strict counterparty limits.

DMO standby facility

➢ The New Zealand Debt Management Office provides a committed liquidity facility up to NZ$1 billion

in size that LGFA can draw upon to meet any exceptional and temporary liquidity shortfall.

➢ Currently the facility size is set by LGFA at NZ$800 million (as at 31 August 2017)

Financial covenantLending policy

covenantsFoundation policy

covenants

Net Debt / Total Revenue

<175% <250%

Net Interest / Total Revenue

<20% <20%

Net interest / Annual Rates Income

<25% <30%

Liquidity >110% >110%

Liquidity position as at 31 August 2017 NZ$ million

Cash and cash equivalents $26.7

Deposits and Marketable Securities $235.3

NZDMO Liquidity Facility $800.0

Total $1,062.0

Source: LGFA

LGFA AND NZGB CURVES

47Secondary market yields as at 21 September 2017NZLGFA Curve on Bloomberg: GC I737 Source: Bloomberg, LGFA

LGFA INVESTOR HOLDING CHANGES

48Source: LGFA

LGFA BOND LENDING FACILITY

49

Commenced October 2016 LGFA to issue NZ$50 million of each LGFA bond maturity to itself and hold as Treasury Stock LGFA to make available the LGFA bonds to its bank counterparties to borrow Any bond lending transacted as a repo

Terms of less than 30 days Secured against cash

Outstanding loans for each LGFA bond maturity at end of each month will be publicly disclosed via NZX

Intention to facilitate additional secondary market liquidity in LGFA bonds not to allow for shorting of LGFA bonds

Timing NZX Waivers received September 2016 Treasury systems and accounting treatment completed September 2016 Subscribe for Treasury Stock in LGFA bond tenders

October 2016 tender – 2021s, 2023s, 2025s and 2027s issued November 2016 tender – 2019s and 2020s issued April 2017 tender – 2033s issued

Sixty two transactions undertaken between October 2016 and August 2017

LGFA CREDIT RATINGS

50

Fitch Ratings - November 2016 (Note: Refer to the full report for a comprehensive analysis of LGFA)

Local Currency AA+ / Stable/ F1+ Foreign currency rating AA / Stable / F1+ Fitch notes: ➢ strong links to the sovereign – classified as a credit linked Public Sector Entity;➢ deemed to be of strategic importance;➢ sound underlying asset quality of its shareholders, local councils;➢ long-term rating is capped by the ratings of the sovereign;

➢ support of a joint and several liability guarantee.

Standard and Poor’s Ratings Services – September 2017 (Note: Refer to the full report for a comprehensive analysis of LGFA)

Local Currency AA+ / Stable / A-1+Strengths:➢ strong market position as a lender to New Zealand local government;➢ extremely high likelihood of extraordinary support from the New Zealand Government in a distress scenario

➢ exceptional credit quality of the New Zealand local government sector.Weaknesses:➢ reliance upon wholesale funding with some maturity and borrower concentration.

Additional S&P research:➢ New Zealand Councils’ High Governance Standards Ensure Strong Financial Management, Transparency and Long Term Planning – 30

November 2015 ➢ New Zealand’s Reforms Are Strengthening Council’s Financial Management and Long-Term Planning – 24 November 2014;➢ New Zealand Councils: How the Ratings Capture Qualitative Differences – 9 April 2014;➢ New Zealand Councils’ Generally Well-Managed Liquidity Positions Support Their Credit Quality – 3 February 2014.

LGFA HISTORY DECEMBER 2011 to JUNE 2016

51

Six months to June 2012

Incorporated December 2011

Commenced bond issuance in February 2012

2015 and 2017 bonds issued

Nineteen shareholders

NZ$819 million of loans to fourteen councils

July 2012 to June 2013

Twelve new council shareholders bringing total to thirty-one

KangaNews NZ Domestic Issuer of the Year – 2012

Inaugural dividend of NZ$1.5 million declared – double the

original business case

2019 bond issued

INFINZ award for Best Bond Issue of 2012

Inaugural LGFA Borrowers Forum

NZ$2.48 billion of loans outstanding to thirty-seven councils

July 2013 to June 2014

New issues of 2021 and 2023 bonds

NZ$3.7 billion of loans outstanding to forty-three councils

July 2014 to June 2015

New issues of 2020 and 2027 bonds

Bespoke lending introduced

Successful refinancing of April 2015 bond maturity and on-lending

Capital structure review

Governance review

New Treasury Management System implemented

Transitioned front/middle/back office from NZDMO

NZ$4.97 billion of loans outstanding to forty-four councils

July 2015 to June 2016

LGFA Bonds listed on NZX in November 2015

Commenced LGFA Bill issuance

Commenced short term lending to councils

Governance change – 2 new directors , one retirement

Five new council participants join taking total to fifty councils

Transitioned to Financial Markets Conduct Act

NZ$6.4 billion of loans outstanding to forty-nine councils

CONTACTS

52

Website: www.lgfa.co.nzBloomberg Ticker: NZLGFABloomberg : LGFA

Postal AddressP.O. Box 5704Lambton QuayWellington 6145

Street Address WellingtonLevel 8142 Featherston StreetWellington 6011

Street Address AucklandLevel 121-3 Albert StreetAuckland

Mark Butcher – Chief ExecutiveTel: +64 (04) 974 6744Email: mark.butcher@lgfa.co.nz

Andrew Michl – Manager, Credit & ClientTel: +64 (04) 974 6743Email: andrew.michl@lgfa.co.nz

Neil Bain – Chief Financial OfficerTel: +64 (04) 974 6742Email: neil.bain@lgfa.co.nz

Jane Phelan – Operations ManagerTel: +64 (04) 974 6530Email: lgfa@lgfa.co.nz