NEW ZEALAND LOCAL GOVERNMENT FUNDING AGENCY LIMITED INVESTMENT STATEMENT

Transcription

1 NEW ZEALAND LOCAL GOVERNMENT FUNDING AGENCY LIMITED INVESTMENT STATEMENT This document is an investment statement for the purposes of the Securities Act This investment statement is dated and has been prepared as at 13 November It is an important document and should be read in its entirety.

2 1 Contents IMPORTANT INFORMATION (The information in this section is required under the Securities Act 1978) Investment decisions are very important. They often have long term consequences. Read all documents carefully. Ask questions. Seek advice before committing yourself. Choosing an investment When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages noted below: Page What sort of investment is this? 3 Who is involved in providing it for me? 5 How much do I pay? 9 What are the charges? 10 What returns will I get? 10 What are my risks? 15 Can the investment be altered? 19 How do I cash in my investment? 19 Who do I contact with inquiries about my investment? 20 Is there anyone to whom I can complain if I have problems with the investment? 21 What other information can I obtain about this investment? 22 The Financial Markets Authority regulates conduct in financial markets The Financial Markets Authority regulates conduct in New Zealand's financial markets. The Financial Markets Authority's main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to Financial advisers can help you make investment decisions Using a financial adviser cannot prevent you from losing money, but it should be able to help you make better investment decisions. Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide advice on a limited range of products. When seeking or receiving financial advice, you should check: the type of adviser you are dealing with; the services the adviser can provide you with;

3 2 the products the adviser can advise you on. A financial adviser who provides you with personalised financial adviser services may be required to give you a disclosure statement covering these and other matters. You should ask your adviser about how he or she is paid and any conflicts of interest he or she may have. Financial advisers must have a complaints process in place and they, or the financial services provider they work for, must belong to a dispute resolution scheme if they provide services to retail clients. So if there is a dispute over an investment, you can ask someone independent to resolve it. Most financial advisers, or the financial services providers they work for, must also be registered on the financial service providers register. You can search for information about registered financial service providers at You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a financial adviser. IMPORTANT NOTICE New Zealand Local Government Funding Agency Limited ("LGFA") has established a domestic programme under which it may from time to time issue debt securities denominated in NZ dollars ("Securities"). Securities may be issued with a term of less than 365 days ("Bills") or a term of 1 year or more ("Bonds"). The purpose of this Investment Statement is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for the Securities. Offer only in New Zealand This Investment Statement only constitutes an offer of Securities in New Zealand. LGFA has not taken any action which would permit an offer of Securities, or possession or distribution of any offering material, in any country or jurisdiction where action for that purpose is required (other than New Zealand). You may not purchase, offer, sell, distribute or deliver the Securities, or have in your possession, or distribute to any person, any offering material or any documents in connection with the Securities, in any jurisdiction other than in compliance with all applicable laws and regulations. By subscribing for or purchasing the Securities, you agree to indemnify LGFA, the Managers, the Trustee and the Registrar and each of their respective directors, officers and employees for any expense, loss or liability sustained or incurred by them as a result of you breaching the selling restrictions set out above or in the conditions for a Series of Securities you hold. Tax You should obtain your own tax advice as the commentary contained in this Investment Statement is general in nature and may not apply to your individual circumstances. Definitions Certain capitalised terms used in this Investment Statement have defined meanings which appear in the Glossary section on page 24. Other capitalised terms have defined meanings given to them in the Trust Deed. All references to "NZ dollars" or $ are to New Zealand dollars unless specified otherwise. Non-reliance This Investment Statement does not constitute a recommendation to you by the Trustee, the Managers, nor any of their directors, officers, employees or agents to subscribe for, or purchase, any of the Securities. Neither the Trustee, the Managers, nor any of their directors, officers, employees or agents, accept any liability whatsoever for any loss to you arising from this Investment Statement or its contents or otherwise arising in connection with the offer of the Securities.

4 3 Neither the Trustee nor the Managers have independently verified the information contained in this Investment Statement. By accepting delivery of this Investment Statement, you acknowledge that neither the Trustee, the Managers, nor any of their directors, officers, employees, agents or advisers, give you any warranty or representation of accuracy or reliability and they take no responsibility for anything in this Investment Statement. None of them shall have any liability for any errors or omissions (including for negligence) in this Investment Statement, and you waive all claims in that regard. You must make your own independent assessment and investigation of the financial condition and affairs of LGFA and the Guarantors as you deem necessary and base any investment decision upon your independent investigation. Issuance methods LGFA may issue Securities by way of tender, syndicated issue, private placement or otherwise. A bank or financial institution may act as arranger or manager (each referred to in this Investment Statement as a "Manager") for a syndicated offer of a Series of Retail Securities. The applicable Series Notice will indicate if a Manager has been appointed in relation to a Series of Retail Securities. LGFA and the Managers will agree the terms and conditions of any syndicated offering at the time of the syndication. LGFA may pay fees for the syndication of Securities. LGFA may privately place Securities from time to time, at its absolute discretion. Financial institutions must register with LGFA to subscribe for Securities via tender. LGFA has established operating rules and guidelines governing how it will conduct tenders for Securities. For further operational information on how a financial institution registered with LGFA may tender for Securities, please see the document "Operating Rules and Guidelines" on the LGFA website at References Any websites and urls referred to in this Investment Statement do not form part of this Investment Statement. To the extent that any document incorporated by reference in this Investment Statement incorporates further information by reference, such further information does not form part of this Investment Statement. WHAT SORT OF INVESTMENT IS THIS? The Securities constitute direct, unsecured, unsubordinated debt obligations of LGFA and will rank equally with each other and with all other unsecured, unsubordinated indebtedness of LGFA, present or future, except obligations preferred by law. LGFA will offer Securities in separate series ("Series"). The Series Notice for each Series will specify: whether the Securities are Bills or Bonds; the key features of the Series (such as the Opening Date, Closing Date, Issue Date, Maturity Date, Interest Rate and Interest Payment Date); whether the Securities may be offered or sold to the public (being "Retail Securities") or may not be offered or sold to the public (being "Wholesale Securities"); and whether the Securities will bear interest at a fixed rate ("Fixed Rate Securities") or a floating rate ("Floating Rate Securities"), or in the case of Bills, will be issued on a discount to par basis. LGFA may offer one or more different Series of Securities at any time, and LGFA may also offer a Series of Securities that has exactly the same terms as a previous Series of Securities.

5 4 Each Series Notice supplements, and forms part of, this Investment Statement. Registered Securities LGFA will issue the Securities in registered form. This means that title to a Security will be determined solely by who is entered on the Register in relation to the Security. LGFA will rely on the Register to determine who is entitled to interest payments on each Interest Payment Date and to be repaid the Principal Amount of the Securities on their Maturity Date. Both LGFA and the Registrar are entitled to rely on the Register as constituting the sole and conclusive record of all Securities and who holds those Securities. Neither LGFA nor the Registrar shall be liable to you for relying on the Register or for accepting in good faith as valid any detail recorded in the Register subsequently found to be forged, irregular or not authentic. Listed Securities All existing Series of Retail Securities (other than Bills) are quoted on the NZX Debt Market. LGFA intends to apply to NZX for permission to quote all future Series of Retail Securities (other than Bills) on the NZX Debt Market. In respect of each Series, that application will be made prior to the issue of the relevant Retail Securities. NZX accepts no responsibility for any statement in this investment statement. NZX is a licensed market operator and the NZX Debt Market is a licensed market under the Financial Markets Conduct Act Key NZX Waiver LGFA has received a waiver from NZX in relation to Listing Rule In accordance with the ruling issued by NZX on Listing Rule 5.2.3, a class of debt securities will not generally be considered for quotation on the NZX Debt Market unless those securities are held by at least 100 members of the public holding at least 25% of the securities issued with each member of the public holding at least a minimum holding, and those requirements are maintained ( spread requirements ). It is possible that these minimum spread requirements will not be satisfied for some Series of Retail Securities. NZX has granted LGFA a waiver from Listing Rule 5.2.3, the effect of which is that the Retail Securities may not be widely held and there may be reduced market liquidity in the Retail Securities. The waiver was granted on the conditions that: LGFA clearly and prominently disclose the waiver, its conditions and its implications in its annual reports and in each profile or offering document for the Retail Securities; LGFA will disclose market liquidity as a risk in each offering document for the Retail Securities (excluding any offering document referred to in paragraph (f) of the definition of "Offering Document" under Listing Rule 1.6.1); and the nature of LGFA's business and operations do not change materially from its business and operations as at the date of the wavier decision. Trust Deed LGFA will issue Securities under, and subject to, the provisions of the Trust Deed and, in the case of a Series of Retail Securities, the Supplemental Trust Deed for the Series of Securities. In relation to Retail Securities the Trustee holds the right to enforce LGFA's obligations in relation to the Securities on trust for you and other holders. The Trustee's role in relation to Wholesale Securities is very limited. Guarantee The local authorities that are from time to time Guarantors under the Guarantee guarantee LGFA's obligations in relation to the Securities. More information on the Guarantee and the Guarantors is set out under the heading Guarantee on page 14. Other than for the Guarantors under the Guarantee, none of the Trustee, the Managers, the Registrar, nor any of their respective directors, officers or employees, nor any other person, guarantees the payment of interest or any other amounts due under the Securities or the amount of returns which you may receive.

6 5 The New Zealand Government does not guarantee any of LGFA's obligations or liabilities in relation to the Securities. Security Arrangements The security granted by each of the Guarantors under their respective Debenture Trust Deeds secures their obligations under the Guarantee. More information on the security arrangements is set out under the heading Security Arrangements on page 15. WHO IS INVOLVED IN PROVIDING IT FOR ME? Issuer LGFA is the issuer of the Securities. LGFA s address is City Chambers, Level 8, 142 Featherston Street, PO Box 5704, Wellington Directors The names, positions, qualifications and experience of LGFA's directors are set out below: Craig Hamilton Stobo - Independent Chair Craig graduated with a BA (Hons) First Class in Economics from the University of Otago and completed the Advanced Management Programme at Wharton Business School in Philadelphia. He has worked as a diplomat, economist, investment banker and Chief Executive Officer of BT Funds Management (NZ) Limited. He has authored reports to the NZ Government on the Taxation of Investment Income (which led to the PIE regime) and the creation of New Zealand as a funds domicile. He currently chairs listed property company Precinct Properties New Zealand Limited, AIG Insurance New Zealand Limited and Fliway Group Limited. He has private equity interests in financial services and other businesses. He was chair of the Establishment Board and acting Chief Executive of LGFA. He is chair of the establishment board of the Local Government Risk Agency. Paul Joseph Anderson - Director Paul graduated with a M Comm (Hons) First Class in Accountancy from the University of Canterbury and has qualified as a Chartered Accountant (CA). He has held analyst and policy advisory positions with New Zealand Treasury and London-based investment bank NatWest GFM. Following this he held senior corporate finance and operational roles at Telecom New Zealand and was General Manager Corporate Services at Christchurch City Council from 2007 until He was a member of the Establishment Board for LGFA. He is currently the Chief Executive of NZ Ski Limited. John Richard Avery - Independent Director John graduated with a LLB from The University of Auckland. He was a staff member, managing partner, then chairman of Hesketh Henry. He has previously been a director of The Warehouse Group Limited, Signify Limited, several start up businesses and an industry cooperative. He is currently an independent director of Fund Managers Auckland Limited, Regional Facilities Auckland Limited, Spider Tracks Limited, Office Products Depot Limited and Strategic Pay Limited and a trustee of the New Zealand School of Dance. Philip Wade Cory-Wright - Independent Director Philip graduated with a BCA in Business Management and a LLB (Hons) from Victoria University of Wellington. He is a solicitor of the High Court of New Zealand and Victoria. He has worked as a corporate finance adviser in New Zealand to the corporate sector on debt and equity matters for more than 25 years. He is currently a director of South Port New Zealand Limited and Matariki Forests Limited and strategic adviser to clients in the energy and infrastructure sectors. He was a member of the Local Government Infrastructure Expert Advisory Group tasked with advising the Minister of Local Government on improvements in local government infrastructure efficiency.

7 6 Abigail Kate Foote - Independent Director Abby graduated with a LLB (Hons) and BCA from Victoria University of Wellington. Abby has an extensive legal background and experience in the areas of finance and mergers and acquisitions, both in New Zealand and in the United Kingdom. Abby has previously served as an independent director and chair of Mike Pero Mortgages and as chief executive of internet-based financial services company Fundit. She has also held senior positions at Telecom New Zealand Limited, Cable and Wireless Plc and the Pharmaceutical Management Agency. She is also a director of Diligent Board Member Services NZ Limited, Z Energy Limited, BNZ Life Insurance Limited and Livestock Improvement Corporation Limited. Senior Management The names, positions and experience of LGFA's senior management are set out below: Mark Butcher - Chief Executive Mark graduated with a B Comm from The University of Auckland and is a CFA Charterholder. He has worked in the Treasury divisions of New Zealand banks (which included sales and trading in interest rates, derivatives and capital markets), as Chief Investment Officer of Perpetual Capital Management Limited and as General Manager of Alliance Bernstein New Zealand Limited. Prior to joining LGFA on 1 August 2014 he was the Treasurer of Auckland Council. Mark was a Director of LGFA from incorporation of the company on 1 December 2011 until his appointment as Chief Executive. Neil Bain - Chief Financial Officer Neil joined LGFA as Chief Financial Officer on 19 March Neil was previously the Head of Accounting and Transactional Services at the New Zealand Debt Management Office ("NZDMO"), where he was responsible for managing the NZDMO s financial accounting, forecasting and operational functions. Prior to that, Neil worked for the Reserve Bank of New Zealand in a variety of roles, including financial markets risk policy, financial accounting and treasury operations management. LGFA's directors, senior management and address are current as at the date of this Investment Statement, but are subject to change. A current list of LGFA's directors and address may be accessed at Trustee The Trustee is Trustees Executors Limited. The Trustee's address is Level 5, 10 Customhouse Quay, PO Box 3222 Wellington 6143, New Zealand. As at the date of this Investment Statement, the Trustee holds a licence to act as a trustee for a range of financial products, including the Securities, under the Financial Markets Supervisors Act Security Trustee The Security Trustee is TEL Security Trustee (LGFA) Limited. The Security Trustee's address is Level 5, 10 Customhouse Quay, PO Box 3222 Wellington 6143, New Zealand. Registrar The Registrar is Computershare Investor Services Limited. The Registrar's address is Level 2, 159 Hurstmere Road, Takapuna, Auckland, Private Bag 92119, Victoria Street West, Auckland.

8 7 Activities of LGFA Establishment and Purpose LGFA was established to raise debt on behalf of local authorities on terms that are more favourable to them than if they raised the debt directly. LGFA was incorporated as a limited liability company under the Companies Act 1993 on 1 December 2011, following the enactment of the Local Government Borrowing Act As LGFA is majority owned by local authorities, it constitutes a "council-controlled organisation" under the Local Government Act The Local Government Borrowing Act 2011, among other things, allows local authorities to guarantee LGFA's obligations. Statement of Intent As a council-controlled organisation, LGFA must produce a statement of intent each year that sets out its objectives. In accordance with the Local Government Act 2002, LGFA's principal objectives in carrying on its business are to: achieve its shareholders' objectives (both commercial and non-commercial) as specified in the statement of intent; be a good employer; exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage those interests when it is able to do so; and conduct its affairs in accordance with sound business practice. LGFA operates with a view to making a profit (sufficient to pay a dividend in accordance with its stated dividend policy) but does so primarily to optimise the debt funding terms and conditions for participating local authorities. Subject always to operating in accordance with sound business practice, this includes: providing debt to participating local authorities at the lowest possible interest rates; making longer-term borrowings available to participating local authorities; and increasing the certainty of access to debt markets for participating local authorities. Shareholders LGFA's shareholders are: Auckland Council Bay of Plenty Regional Council Christchurch City Council Gisborne District Council Hamilton City Council Hastings District Council Hauraki District Council

9 8 Horowhenua District Council Hutt City Council Kapiti Coast District Council Manawatu District Council Marlborough District Council Masterton District Council New Plymouth District Council Otorohanga District Council Palmerston North City Council Selwyn District Council South Taranaki District Council Tasman District Council Taupo District Council Tauranga City Council Thames-Coromandel District Council Waimakariri District Council Waipa District Council Wanganui District Council Wellington City Council Wellington Regional Council Western Bay of Plenty District Council Whakatane District Council Whangarei District Council The New Zealand Government LGFA's shareholders are current as at the date of this Investment Statement, but are subject to change. Capital Structure LGFA has the following capital structure: Paid up ordinary shares in an aggregate amount of $25 million as at the date of this Investment Statement. Unpaid ordinary shares in an aggregate available amount of $20 million as at the date of this Investment Statement, able to be called by LGFA's board if it determines there is a risk of LGFA imminently defaulting under its borrowed money indebtedness. Subordinated convertible debt instruments known as "Borrower Notes" which each local authority that borrows from LGFA must subscribe for (in an amount equal to 1.6% of the aggregate issue price paid by LGFA for debt securities (other than short term borrowing of no more than 364 days) the local authority issues to LGFA from time to time). In the ordinary course, LGFA will redeem Borrower Notes when the local authorities' related borrowings are repaid or no longer owed to LGFA.

10 In addition, if LGFA has made calls for all unpaid ordinary shares to be paid in full and LGFA's board has determined there is a risk of LGFA imminently defaulting under its borrowed money indebtedness, LGFA can require each of the Guarantors to subscribe for redeemable shares in LGFA and/or convert the Borrower Notes into redeemable shares in LGFA. The obligations of the Guarantors to subscribe for redeemable shares in LGFA are secured by the security granted under their respective Debenture Trust Deeds. Lending to local authorities 9 LGFA lends to participating local authorities by subscribing for debt securities they issue from time to time. Local authorities' obligations under the debt securities they issue to LGFA are secured by their respective Debenture Trust Deeds. Liquidity and hedging NZDMO provides LGFA with a committed liquidity facility. The facility has an initial term of 10 years from December The facility's maximum aggregate principal amount: was initially set at $500,000,000 with the ability to incrementally increase to $1,000,000,000, unless LGFA selects a lower amount; and will vary depending on LGFA's credit rating (the available facility may reduce if LGFA's credit rating decreases). LGFA has selected a maximum aggregate principal amount of $400,000,000 for the period to 20 February LGFA may draw upon the liquidity facility to meet any exceptional and temporary liquidity shortfall affecting it. LGFA's obligations under the liquidity facility and its hedging arrangements are guaranteed by the Guarantors under the Guarantee and also, through the Guarantee, secured by the Guarantors' Debenture Trust Deeds (in each case on a pari passu basis with the Securities). Credit Rating LGFA has issuer credit ratings from: Standard & Poor's (Australia) Pty Limited ("S&P") of AA+ NZ dollar long-term and A1+ short-term; and Fitch Australia Pty Ltd ("Fitch") of AA+ NZ dollar long-term and F1+ short term, with positive outlook. The ratings are not a recommendation to you to buy, sell or hold the Securities and the ratings may be subject to revision, qualification or withdrawal at any time by S&P and/or Fitch. Any downward revision, qualification or withdrawal of the ratings may affect your ability to sell your Securities and the price you are able to sell them for. HOW MUCH DO I PAY? If you subscribe for Securities via tender, you must settle your application with LGFA in accordance with the LGFA Operating Rules and Guidelines. Issue Price The Issue Price for each Security may be equal to, less than, or more than, the Principal Amount of the Security (being $1.00). The Series Notice for each Series will state the Issue Price for Securities of that Series or specify how LGFA will calculate the Issue Price for Securities of that Series.

11 10 Minimum and Maximum Investment The applicable Series Notice will set out the minimum and maximum Principal Amounts of Securities offered in each Series. You may apply for as many Securities of a particular Series as you wish, subject to these minimum and maximum amounts. Applications LGFA reserves the right to refuse all or any part of your application without giving a reason. LGFA may also decide not to accept any applications whatsoever. LGFA may change the Opening Date, the Closing Date or the Issue Date in respect of any Series of Securities. If LGFA refuses your application (whether because of late receipt or otherwise) or accepts your application in part LGFA will refund (without interest) the application money relating to your application or the unsuccessful part of your application as soon as practicable and, in any event, within 14 days of the applicable Issue Date. Where your payment for Securities is dishonoured, LGFA may forfeit your Securities and may pursue you for any loss LGFA suffers. If Managers are appointed in relation to a Series of Retail Securities, they may scale the applications in consultation with LGFA. No cooling-off There is no cooling-off period in relation to the Securities. Consequently, once your application has been lodged, you cannot withdraw it, unless LGFA determines otherwise in its sole discretion. WHAT ARE THE CHARGES? Unless the applicable Series Notice provides otherwise, you will pay no fees or charges to invest in Securities. However, you may have to pay a brokerage fee or commission to the person who recommends your investment in Securities or who arranges your application for Securities. WHAT RETURNS WILL I GET? Overview The information set out in this section should be read in conjunction with the information set out in the section What are my risks? on page 15. Certain events could reduce or eliminate the returns you intend to derive from holding the Securities. Bills Interest payments are not made on Bills. Rather Bills are issued on a discount to par basis and the Principal Amount of each Bill is paid on its Maturity Date. Fixed Rate Securities Bonds that are Fixed Rate Securities will bear interest on their respective Principal Amounts at the Interest Rate specified in the Series Notice for the Securities. The applicable Series Notice will also specify the Interest Payment Dates (which may be quarterly, semi-annual, annual or otherwise) and the first Interest Payment Date for the Securities. Unless the applicable Series Notice provides otherwise, LGFA will pay interest in arrear in equal instalments on the Interest Payment Dates.

12 11 Floating Rate Securities Bonds that are Floating Rate Securities will bear interest on their respective Principal Amounts at a variable Interest Rate. LGFA will determine the Interest Rate by reference to the Base Rate applicable to each Interest Period, which may be adjusted by adding or subtracting the Margin (expressed as a percentage rate per annum), each as specified in the Series Notice for the Securities. The applicable Series Notice will also specify the Interest Payment Dates, the first Interest Payment Date, and the Interest Period (which may be one, two, three or six months' duration) for the Securities. LGFA will pay interest on the Securities in arrear on the Interest Payment Dates. Nature of the returns The returns and the effective return you receive on your investment will depend on the Issue Price and interest rate applicable to your Securities (or discount rate in the case of Bills), the term of your investment, the price you sell your Securities for if you do not hold them to maturity, and any taxes applicable to your investment. If you do not hold your Securities to their Maturity Date, the returns you receive on your Securities may be reduced. This is described in more detail below and in the section How do I cash in my investment? on page 19. It is not possible to quantify as at the date of this Investment Statement the exact amount of returns you will receive, and therefore no such amount can be promised by LGFA. Principal Amount LGFA will repay you the Principal Amount of each Security you hold on the Maturity Date. LGFA is not obliged to repay the Securities prior to their Maturity Date. Payments LGFA will make payments to you if you are the person registered as the holder as at the Record Date for the payment. LGFA will make payments to the bank account you nominated when you applied for the Securities or such other bank account as you advise the Registrar in writing from time to time (provided you give such notice prior to the Record Date for the payment). If a payment date is not a Business Day, LGFA will make payment on the next day which is a Business Day. You are not entitled to any additional interest or other payment in respect of any such delay. Non-payment Each Security will cease to bear interest from its Maturity Date unless LGFA improperly withholds or refuses payment of the Principal Amount. In such event, interest will continue to accrue (after as well as before any judgment) up to but excluding the date on which LGFA makes payment in full of the Principal Amount. Early repayment of the Securities Under the Trust Deed, the Security Trustee may require LGFA to repay the Securities prior to their scheduled maturity (together with accrued and unpaid interest) if an Event of Default occurs. The Events of Default are contained in the Trust Deed, and are summarised below: if LGFA does not pay the Principal Amount of the Securities on the due date or within two Business Days after the due date because of a technical, computer or similar error outside LGFA's control; or if LGFA does not pay any interest on the Securities within two Business Days after the due date; or if LGFA breaches or omits to observe any of its material undertakings in the Trust Deed (other than any nonpayment of principal or interest referred to above) and (if capable of remedy) does not remedy such breach or omission within 30 days of notice of the breach or omission being given to LGFA; or

13 12 if an order is made or an effective resolution is passed for LGFA's liquidation or dissolution (other than for the purposes of solvent reconstruction or amalgamation); or if a receiver, administrator, liquidator or statutory manager is appointed in respect of LGFA or LGFA's assets or a creditor takes possession of the whole or any material part of LGFA's assets; or if LGFA is declared or becomes insolvent or is deemed under any applicable law to be unable to pay its debts when they fall due; or if any material provision of the Guarantee: o o ceases to have effect in whole or part, other than by performance or as permitted by its terms; or becomes wholly or partly void, voidable, illegal, invalid or unenforceable (other than by reason only of a party waiving any of its rights) or the performance of any such provision becomes illegal. Key factors that determine returns The key factors that determine the returns on your investment are: the Issue Price and interest rate applicable to your Securities (or discount rate in the case of Bills) and the term of your Securities; whether you hold your investment until the Maturity Date; the effect of taxes; fluctuations in the price of Securities if you sell them on a secondary market, as described under the heading What are my risks? on page 15; and the other risk factors described on page 15 under the heading What are my risks?. Taxation Taxes will affect the return on your investment. If a law requires LGFA to deduct an amount in respect of taxes from a payment to you under a Security, such that you would not actually receive the full amount provided for under the Security on the due date, then LGFA will deduct the amount and pay it to the relevant authority. LGFA is not obliged to pay you any additional amounts in relation to any such deduction. Under the Trust Deed, you indemnify LGFA and the Registrar in respect of any tax which LGFA or the Registrar becomes liable to pay on your behalf. LGFA may deduct any indemnity payment from future amounts payable. When determining the appropriate withholding tax treatment of interest paid to you, LGFA and the Registrar are entitled to rely on information you have given them as to your residency and status for tax purposes. The information set out below does not constitute taxation advice to you. LGFA believes that the information set out below is correct as at the date of this Investment Statement. Taxation laws are subject to change, and such changes may materially affect your tax position with respect to an investment in the Securities. You should seek qualified, independent financial and taxation advice before deciding to invest. In particular, you should consult your tax adviser in relation to your specific circumstances. Any reference to "interest" in this section of the Investment Statement shall be taken as a reference to interest as defined in the Tax Act. On maturity of a Bill, the difference between the Issue Price and the Principal Amount will be deemed to be "interest" for tax purposes.

14 13 Resident withholding tax If you are either a New Zealand resident for tax purposes or you are engaged in business in New Zealand through a fixed establishment (as defined in the Tax Act) in New Zealand ("Resident Holder"), LGFA will deduct resident withholding tax ("RWT") from the gross amount of interest it pays you in accordance with the provisions of the Tax Act. If you are a Resident Holder, LGFA will deduct RWT at 33% unless you supply your IRD number to the Registrar and (if you are an individual or hold the Securities as trustee) elect for RWT to be deducted at a different rate. If you are an individual or a trustee Resident Holder and have supplied your IRD number to the Registrar, you may elect for LGFA to deduct RWT at 33%, 30% or 17.5%. In addition, if you are a Resident Holder and a trustee of certain testamentary trusts or an individual (not acting as a trustee) with a reasonable expectation at the time of the election that your income for the income year applicable to you (eg, 1 April 2015 to 31 March 2016) will be $14,000 or less, and have supplied your IRD number to the Registrar, you may elect for LGFA to deduct RWT at 10.5%. If the Commissioner of Inland Revenue determines that the rate you have elected is inconsistent with your marginal tax rate, the Commissioner may require LGFA to withhold RWT at a different rate to the rate you elected. The RWT rate for interest paid to most companies is 28% as at the date of this Investment Statement. However, if a company (not acting as a trustee) that holds Securities has not supplied its tax file number to the Registrar or has elected that a 33% RWT rate apply, LGFA will deduct RWT at 33%. You should notify the Registrar of any changes to your elected RWT rate as a result of changes to your particular circumstances. LGFA will not deduct RWT if you provide a copy of a RWT exemption certificate to the Registrar at least five Business Days prior to the Record Date for the relevant payment. Non-resident withholding tax If at any time you hold a Security you are not a New Zealand tax resident and are not engaged in business in New Zealand through a fixed establishment (as defined in the Tax Act) ("Non-resident Holder"), LGFA will deduct nonresident withholding tax ("NRWT"), where appropriate, at the rate required by law from payments made to you. If you are a Non-resident Holder and you derive interest jointly with one or more persons, and at least one of those persons is a New Zealand tax resident, LGFA must deduct NRWT from the interest paid or credited to you at the applicable rate of RWT (see above). If LGFA is lawfully able to pay the approved issuer levy (as defined in section 86F of the Stamp and Cheque Duties Act 1971) in respect of any payment of interest to you where you are a Non-resident Holder and are neither: deriving the interest jointly with one or more persons, at least one of whom is a New Zealand tax resident; or associated with LGFA for the purposes of the NRWT rules in the Income Tax Act 2007, then, unless you have notified the Registrar that NRWT should be deducted instead, LGFA will pay the approved issuer levy to the appropriate authority on its own account instead of deducting NRWT at the rate otherwise applicable. The terms of the Guarantee do not require the Guarantors to register the Guarantee for approved issuer levy purposes. If a Guarantor is required to make a payment in respect of interest due to you where you are a Nonresident Holder under the Guarantee and the Guarantor has not elected (or is not lawfully able) to pay the approved issuer levy in lieu of NRWT, the Guarantor will deduct NRWT from any such payment due to you if required by law to do so. Withholding tax proposals Inland Revenue and the Treasury have released an issues paper proposing to reform the way withholding tax applies to interest. The proposals are expected to be enacted in the second half of If enacted as proposed,

15 interest derived by a non-resident with a fixed establishment in New Zealand will be subject to RWT if the nonresident derives the interest in connection with its fixed establishment in New Zealand. If the non-resident does not derive the interest in connection with its fixed establishment in New Zealand, then it is proposed that NRWT or AIL, as the case may be, will be applicable. Financial arrangements rules Under the financial arrangements rules in the Tax Act, any gains you make on the disposal of your Securities, including the difference between the Issue Price and the Principal Amount on maturity of a Bill, will generally be taxable at your marginal rate if you are a New Zealand tax resident. If you are not a New Zealand tax resident, you may also be subject to tax on such gains. You should consult your own taxation advisers about the effect of taxes on your investment in any Securities. Person legally liable to pay returns The person legally liable to pay principal and interest on the Securities is LGFA. If LGFA fails to pay amounts that are due, the Guarantors will be liable for making the payment under the Guarantee. Guarantee LGFA's obligations in relation to the Securities are guaranteed by the local authorities that are from time to time Guarantors under the Guarantee. Other than the New Zealand Government, each holder of ordinary shares in LGFA (as at the date of this Investment Statement, being those specified on page 7) must be (and is) a Guarantor. In addition, LGFA's policy is that any local authority that borrows in aggregate $20,000,000 or more from LGFA must be a Guarantor. As at the date of this Investment Statement, the only Guarantors that are not also shareholders of LGFA are Ashburton District Council, Canterbury Regional Council, Far North District Council, Hurunui District Council, Matamata-Piako District Council, Nelson City Council, Porirua City Council, Queenstown Lakes District Council, Rotorua District Council, Timaru District Council, Upper Hutt City Council and Waikato District Council. As at the date of this Investment Statement, the only borrowers from LGFA that are not also Guarantors of LGFA are Buller District Council, Grey District Council, Manawatu-Wanganui Regional Council, Opotiki District Council and Tararua District Council. The Guarantors each jointly and severally guarantee to the Security Trustee, for the benefit of the Trustee (in the case of each Series of Retail Securities), each holder of Wholesale Securities (in the case of each Series of Wholesale Securities) and other creditors of LGFA to whom LGFA extends the benefit of the Guarantee and Security Trust Deed from time to time (each such creditor, including the Trustee and the holders of Wholesale Securities, a "Beneficiary"), LGFA's due payment and delivery of all amounts LGFA is or may at any time become liable to pay to the Beneficiaries ("Guarantee"). In the case of each Series of Retail Securities, the Security Trustee must make a demand under the Guarantee on behalf of the Trustee when the Trustee requests the Security Trustee to do so and confirms to the Security Trustee that an Event of Default has occurred. However, the Trustee may refrain from exercising its powers to make such a request until it has been instructed to do so by an Extraordinary Resolution of the holders of the affected Retail Securities. In the case of each Series of Wholesale Securities, the Security Trustee must make a demand under the Guarantee on behalf of each holder of Wholesale Securities when such holder requests the Security Trustee to do so and confirms to the Security Trustee that an Event of Default has occurred. Each demand the Security Trustee makes under the Guarantee must be made on a pro-rata basis according to each Guarantor's prior year's annual rates revenues. If a Guarantor fails to pay its pro-rata share of a demand under the Guarantee, the Security Trustee will make further demands on the other Guarantors for payment of the unpaid amount on a pro-rata basis until the outstanding amounts are paid in full. 14

16 15 Security Arrangements The Securities are not secured by any mortgage or other charge over LGFA's assets. Each Guarantor must have entered into a Debenture Trust Deed with a Debenture Trustee. In summary, each Debenture Trust Deed creates a security interest in favour of the Debenture Trustee over all rates the local authority sets or assesses from time to time under certain legislation or arising under section 115 of the Local Government Act 2002 and all rates revenue in respect thereof. The security is limited to rates and rates revenues, and does not extend to any other assets of the local authorities. The security interest is held by the Debenture Trustee for the benefit of all creditors of the Guarantor to whom the Guarantor has issued stock (including Security Stock). Each Guarantor must have issued Security Stock to the Security Trustee to secure its liabilities under the Guarantee. The Security Trustee holds the benefit of the Security Stock on behalf of the Trustee (in the case of each Series of Retail Securities), each holder of Wholesale Securities (in the case of each Series of Wholesale Securities) and the other Beneficiaries from time to time. Each Guarantor must have issued a Security Stock Certificate to the Security Trustee in relation to the Guarantee. In the case of certain Guarantors, the relevant Security Stock Certificate provides that the Priority Amount of the Security Stock is (subject to certain exclusions specified in the relevant Debenture Trust Deed and/or Security Stock Certificate) the aggregate amount of the obligations the relevant Guarantor owes the Security Trustee under the Guarantee from time to time. That Guarantor's obligations to the Security Trustee rank equally with all other obligations of the Guarantor in respect of which "first ranking" Stock (including Security Stock) has been issued from time to time, up to the Security Trustee's Priority Amount. Amounts above the Security Trustee's Priority Amount rank behind the claims of other "first ranking" Stockholders but before claims of any subsequent security holders of the relevant Guarantor. In the case of all other Guarantors, the relevant Guarantor's obligations to the Security Trustee rank equally with all other obligations of the Guarantor in respect of which Stock (including Security Stock) has been issued from time to time, without any Stock having preference or priority over any other Stock, unless the terms of the relevant Stock expressly subordinate it to other Stock. If a Guarantor does not satisfy its obligations under the Guarantee, the Security Trustee may request the relevant Debenture Trustee to enforce the security interest created by the Debenture Trust Deed. The Security Trustee is not required to exercise its rights as holder of Security Stock unless it is requested to do so by Beneficiaries whose aggregate Exposures amount to not less than 25% of the aggregate Exposures of all Beneficiaries at the relevant time and those Beneficiaries have confirmed to the Security Trustee that an event of default has occurred. The Trustee and each holder of Wholesale Securities are Beneficiaries under the Security Trust Deed and so may request the Security Trustee to exercise its rights under a Debenture Trust Deed as a holder of Security Stock. However, in the case of Retail Securities, the Trustee may refrain from making such a request until it has been instructed to do so by an Extraordinary Resolution of the holders of the affected Retail Securities. The Debenture Trustee is not required to enforce the security interest created by the Debenture Trust Deed unless directed to do so by an extraordinary resolution of Stockholders and/or in certain cases a specified percentage of "majority stockholders". The Debenture Trustee is not bound to comply with such a direction if it is not first indemnified to its satisfaction against any actions, proceedings, claims, demands, costs and expenses that it may face as a result of complying with the direction. The Debenture Trustee has the power under each Debenture Trust Deed to appoint a receiver to levy a special rate on the relevant local authority's ratepayers. WHAT ARE MY RISKS? Principal Risks Investing in Securities involves risks, including those described in this section. You should carefully consider the risk factors in this section in light of your personal circumstances and seek professional advice from your financial adviser, accountant, lawyer or other professional adviser before deciding whether to invest in Securities. The principal risks which may affect your ability to receive the returns referred to under the heading What returns will I get? and recover your investment in full in the Securities are:

17 16 The insolvency or statutory management of LGFA. The risks that could result in the insolvency or statutory management of LGFA are described below. If you transfer your Securities before maturity (as described in How do I cash in my investment? on page 19), the sale price you obtain for your Securities may be less than the amount you paid to purchase them. This is because changes in market interest rates or other market factors can affect the market value of the Securities. For instance, if you hold Fixed Rate Securities and market interest rates go up, the market value of your Securities may go down, and vice versa. This loss or gain of capital is caused by a change in underlying market interest rates, which LGFA has no control over. A deterioration, whether real or perceived, in LGFA's credit worthiness (including a downgrade of its credit rating) or the lack of an established market or demand for the Securities may also affect the price you are able to sell your Securities for. A Guarantor failing to make payment when due under the Guarantee or the Security Trustee being unable to recover the full amount owed to you under the Debenture Trust Deeds could affect your ability to recover your investment. A change in tax rates or the way tax rates affect your taxable income could impact your returns. Risks that could result in the insolvency or statutory management of LGFA LGFA is exposed to the risks described below. These risks reflect the nature of its business and the environment in which it operates. Failure to manage these risks could have an adverse effect on LGFA's financial performance, reputation and solvency. However, LGFA considers that these risks would need to be extreme in their impact before they would result in the insolvency or statutory management of LGFA. Credit risk LGFA is exposed to the risks associated with lending and extending credit to local authorities. Less favourable economic conditions, whether generally or in a specific geographic region, or external events such as climatic, biological or geological disasters, could increase the risk that those local authorities will default, causing loss to LGFA. To mitigate the risk of a local authority defaulting, LGFA has implemented lending policies that, among other things, require local authorities to certify their compliance with certain financial covenants. Liquidity risk Liquidity risk is the risk that LGFA is unable to fund increases in assets or to meet its payment obligations (including to repay depositors or maturing wholesale debt) as they fall due. Liquidity risk is inherent in all LGFA's lending operations due to the timing mismatches between cash inflows and cash outflows. LGFA closely manages liquidity risk. LGFA's board of directors is responsible for setting long-term policies to mitigate LGFA's liquidity risk. Market risk Market risk is the risk that changes in interest rates, foreign exchange rates, credit spreads, equity prices and indices, prices of commodities, debt securities and other financial contracts including derivatives will affect LGFA's earnings or financial position. As LGFA holds a certain level of assets as a liquidity buffer, movements in the markets for these assets may have a material adverse effect on LGFA.