The Dunedin City Council has begun borrowing $109 million to fund the Forsyth Barr Stadium, with $90 million of that figure locked in at an interest rate of 6.4%.
The eventual cost of repaying the interest will be about the same as the amount borrowed, making the total paid back somewhere near $218 million.
When the council considered the cost of interest in 2007, rates were about 8.5%.
Council finance and corporate support general manager Athol Stephens said amounts were now being borrowed at varying rates, of which $90 million would be converted to a fixed loan for five years, from 2011 to 2016.
Borrowing money for longer periods could be more expensive.
While $19 million of the loan was on a floating interest rate, that might also be fixed in future.
Mr Stephens said the council would monitor the situation, but warned pondering what might happen in future was "like crystal ball-gazing".
"Making strong claims about the future is fraught with risk and uncertainty."
The $109 million will go to a venues company that will be set up to own and run the stadium; the debt is to be repaid through the council's group of companies, and ratepayers are to pay an expected $5 million per annum shortfall.
Asked to explain the companies' involvement, Mr Stephens said the council had asked the companies to take $5 million from their normal dividend line to repay the stadium debt.
"They also have to pay a dividend of $7.92 million.
"The trick here is not necessarily dividends but cash flow.
"Cash flow is how you service debt."
The question then was how much cash flow was needed for investing in equipment, and how much was needed for debt.
"The group as a whole has some flexibility, some discretion around that," Mr Stephens said.
Given the value of the assets the group owned, the stadium would not result in a high level of indebtedness for the companies, he said.
Mr Stephens also explained the $6.4 million "capital maintenance fund" the council had decided to include in its funding on top of the $88 million the Carisbrook Stadium Trust had asked for.
That fund was something that would be needed if the venues company could not pay for it.
If that money was invested at, for example, 6%, it would grow to $17.8 million in 20 years, and be available for any stadium equipment that needed to be replaced.
Mr Stephens said the $66 a year for the average value residential property, worth $291,000, would remain the same, each year, throughout the life of the loan.
"The reason is the same reason that your mortgage payment is always the same."
While the interest and the principal might alter, the total amount to be paid did not, he said.
