Summary
- In late October 2025, S&P Global published a Scenario Analysis titled New Zealand Water Reforms Don’t Guarantee Rating Relief For Local Councils.
- The Post, RNZ, and The Kākā covered the report from the credit ratings agency.
- The new water companies created under the “Local Waters Done Well” reforms are expected to take water infrastructure assets, services, and debt from direct council control and place those services under the control of new corporate entities (entities which are usually owned by councils and called “council-controlled organisations”).
- The previous Labour Government’s “Three Waters” attempted reforms were similar in creating new corporate water entities, though Labour’s “Three Waters” entities would be larger and councils would not be given a choice about joining the large entities.
- Allowing more borrowing and using intergenerational debt to fund water infrastructure was a major aim of both the “Three Waters“ and the “Local Waters Done Well” reforms.
- The new water companies are expected to have “balance sheet separation” and shift water-related liabilities off council books around the country.
- However, S&P Global are now looking to downgrade council credit ratings based on the debts of their new “Local Water Done Well” companies.
- Councils might still be treated as having a “contingent liability” for their water company’s debts. Higher debts can lead to lower credit ratings, and lower credit ratings can lead to higher interest costs on council debt.
- Media coverage also emphasised that councils could still be “on the hook” when something if something “goes wrong with that water entity”.
The key points from the New Zealand Water Reforms Don’t Guarantee Rating Relief For Local Councils. Scenario Analysis are…
- Proposed water reforms may not ease the financial burden on New Zealand’s local councils; our ratings on some may continue to face downward pressure.
- Our credit ratings on councils may still capture their exposure to water services, recognizing that accounting separation does not eliminate potential for financial support being provided to water council-controlled organizations (WCCOs).
- Reforms promise flexibility, but they also create uncertainty. Each structure carries different implications for credit ratings.
- WCCOs may deliver more professional water services but are likely to increase investment and public sector leverage, which may ultimately affect the credit profile of their local council parent entities.
Bernard Hickey on the The Kākā interviewed Standard & Poor’s Global Ratings Director of Government Ratings Anthony Walker on the report and they discussed the “Three Waters”/“Local Waters Done Well” reforms. The 16 minute interview gives some insight into the local government system and these issues.
Quotes
Our ratings capture all exposures that could affect a council’s ability to repay debt, regardless of accounting treatment, particularly when guarantees are involved.
While the reforms promise flexibility, they also create uncertainty. Councils’ chosen structures–from multi-council mergers to in-house business units–will carry different implications for ratings.
Water Service Delivery Plans (WSDPs) reveal wide divergence. Most councils favor consolidation, others are staying solo. The Department Of Internal Affairs, and the local government minister’s recent warnings, suggest more changes could occur.
Scenario Analysis: New Zealand Water Reforms Don’t Guarantee Rating Relief For Local Councils,S&P Global, 28 October 2025
This assessment by S&P means that as new water entities take on debt to spend on water networks, this would be added to the debt position of their council owners. This could lead to credit ratings downgrades, which likely means higher interest rates on debt and more cost burden on ratepayers.
This downside risk to credit ratings will be unwelcome news as councils across the country work toward meeting the terms of the Local Water Done Well reforms, which promised the option of taking water infrastructure and debt off council books, feasibly increasing borrowing headroom.
Thomas Manch, Water entity debt to weigh on council credit ratings, S&P warns,The Post (Stuff Limited), 30 October 2025
“Under all the proposals we’ve seen, we think that the water entity debt will definitely be part of a council’s credit profile, whether that’s directly on balance sheet as debt or whether that is through a contingent liability,”
S&P credit analyst Anthony Walker as quote in Water entity debt to weigh on council credit ratings, S&P warns,The Post (Stuff Limited), 30 October 2025
The issue though, from a council’s credit rating perspective, is if something goes wrong with that water entity, and we’ve seen this around the world, that means that councils are on the hook…
…They can’t back out…
…And while some officials might say, well, that’s never going to happen, I’ve just mentioned, we have seen that happen around the world, and councils can get into a lot of financial stress when they’re guaranteeing entities.
S&P credit analyst Anthony Walker as quote in Proposed government water reforms will cost ratepayers more – report, RNZ, 31 October 2025
In capital markets, off the books doesn’t always mean off the hook. As New Zealand local councils pursue new water service models, we think shifting assets and liabilities “off-balance sheet” may ease the optics, but not the underlying credit risk.
Standard & Poor’s Global Ratings Director of Government Ratings Anthony Walker as quote in Mini-Hoon: S&P’s Anthony Walker critiques ‘Local Water Done Well’, The Kākā, 30 October 2025
Article Details
Headline: Couple wins battle to get ‘inundation hazard’ note off property title
Author: Thomas Manch
Published on: 30 October 2025
Published by: The Post (Stuff Limited)
Link:
Article Details
Headline: Proposed government water reforms will cost ratepayers more – report
Author: Nona Pelletier
Published on: 31 October 2025
Published by: RNZ
Link:
Further reading on this issue
Household Water Costs in Hamilton City Projected to Triple within 9-years under New Water Company
OPINION: Is Removing Water Services from Rates an Existential Threat to Councils?
