Questions & Answers about the Guarantee of State and Territory Borrowing
- Why has the Australian Government introduced the Guarantee of State and Territory Borrowing?
- What are the arrangements between July 2009 and 31 December 2010?
- What securities are covered?
- What impact will the closure of the Scheme on 31 December 2010 have on guaranteed securities?
- What is the level of the fee?
- Who pays the fee?
- What is the timing of the payment of the fee?
- Who should investors in state and territory debt contact for more information?
- Who should state and territory governments contact for more information?
1. Why has the Australian Government introduced the Guarantee of State and Territory Borrowing?
On 25 March 2009, the Australian Government announced that a voluntary, temporary guarantee would be put in place over state and territory (state) borrowing. The guarantee arrangements will remain available for new or existing state borrowing until 31 December 2010.
Like financial markets around the world, state government bond markets were hit hard by the financial turbulence and global recession. This threatened the capacity of state and territory governments to deliver critical infrastructure projects to support jobs as well as boost productivity and improve living standards in the long term.
2. What are the arrangements between July 2009 and 31 December 2010?
The Guarantee of State and Territory Borrowing commenced on 24 July 2009. State and territory (state) governments are able to apply to the Scheme Administrator to have their new and/or existing eligible securities guaranteed under the Scheme from this time until 31 December 2010. Access to the Scheme is voluntary and subject to an approval process and other conditions, including the payment of a monthly fee on the amounts guaranteed.
State governments can apply for the Government guarantee for particular securities or programs. Investors can choose whether or not they purchase a security that is covered by the Government guarantee.
3. What securities are covered?
Securities issued by state and territory (state) Issuing Entities, which are not complex, are denominated in Australian Dollars, and which do not exceed a maturity of 180 months can be covered by the Guarantee.
4. What impact will the closure of the Scheme on 31 December 2010 have on guaranteed securities
Securities covered by the Guarantee will continue to be guaranteed after 31 December 2010. The guarantee will continue until these securities either mature or are bought back and extinguished by the issuer.
5. What is the level of the fee?
The fee depends on the credit rating of the state and territory government, with higher rated institutions paying a lower fee. Also, a different fee structure exists for existing stock and new issuances.
The same fee applies regardless of the term of the security.
|Credit Rating||Fee (existing stock)||Fee (new issuance)|
|AAA/Aaa||15 basis points||30 basis points|
|AA+/Aa1||20 basis points||35 basis points|
The Government will monitor the appropriateness of the fee schedule over time and will, if necessary, make changes in response to market developments.
6. Who pays the fee?
The fee is payable by the state or territory government and is based on the value of the securities covered by the Guarantee.
7. What is the timing of the fee?
The fee applies in respect of securities covered by the Guarantee from the time of issuance of new Guaranteed securities or the date at which a state or territory opts to cover eligible Existing Stock,
The fee is paid by the state or territory government monthly in arrears.
Guarantee fees continue to be payable monthly in arrears on the value of outstanding securities after the closure of the Scheme on 31 December 2010.
8. Who should investors in state and territory debt contact for more information?
Investors in securities issued by state and territory (state) governments should review the information on the Guarantee website and contact the relevant state or territory Issuing Entity for more information on the arrangements they will make regarding the guarantee.
A listing, by state, of the liabilities that have been approved for access to the guarantee is at Guaranteed Liabilities.
9. Who should state and territory governments contact for more information?
State governments wishing to ask questions in relation to the administrative arrangements can contact contact the administrator by email at email@example.com