4 DECEMBER 2009

NEW ZEALAND GAZETTE, No. 179

4361

Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2009

c) US dollar private placement

$294.266 million of US dollar private placement notes were issued on 25 November 2003 to private US investors by Powerco Limited, of which $63.081 million has been allocated to the Powerco gas division (2008: $63.385 million). The coupon payments are semi-annual and the note issue expires 25 November 2014 (11 year), 25 November 2015 (12 year), and 25 November 2016 (13 year). The notes are secured against the network assets of Powerco Ltd through the Security Trust Deed.

The interest rates on the notes are fixed until maturity.

11 year US dollar private placement notes 5.47%

12 year US dollar private placement notes 5.57%

13 year US dollar private placement notes 5.67%

d) Commercial paper facility

Powerco Limited has established a commercial paper facility to enable Powerco Limited to borrow money from the capital market. The programme is supported by a cash advances facility of $200 million with a syndicate of banks made up of the Commonwealth Bank of Australia, Westpac Banking Corporation and ANZ National Bank. The facility has the benefit of the Security Trust Deed dated 10 March 2005 as a Senior Secured Debt Facility, and as such the principal is secured against the network assets of Powerco Limited. At 30 June 2009 no commercial paper was on issue under the commercial paper programme (2008: $45 million was drawn down under the programme which included an interest portion of $1.0 million at a weighted average interest rate of 9.15%). An amount of $150 million has been drawn on the standby facility at 30 June 2009, at a weighted average interest rate of 4.83% (2008: 9.43%).

At year end the amount of the commercial paper facility allocated to the Powerco gas division was $32.155 million (2008: $32.311 million).

e) Commercial bank debt

A $160 million Term Loan Facility agreed and drawn in August 2004, expiring August 2009, which was used to refinance the remaining tranche of the Asset Purchase Facility used to fund the acquisition by Powerco Limited of United Networks Limited (UNL) assets. The Term Loan Facility is jointly provided through Commonwealth Bank of Australia, Westpac Banking Corporation and ANZ National Bank, each with an equal share. The Term Loan Facility has the benefit of the Security Trust Deed, for the purposes of which it is designated as a Senior Secured Debt Facility and thus secured against the network assets of Powerco Limited. As at 30 June 2009 a sum of $160 million had been drawn at an interest rate of 4.83% (2008: 9.43%).

During the period Powerco also operated a revolving cash advances tranche as part of the $260 million Standby Cash Advances Facility. The purpose of this facility is to fund development capital expenditure with the facility being drawn down and repaid as funding is required. This facility is jointly provided by Westpac Banking Corporation, ANZ National Bank and Commonwealth Bank of Australia and was due to expire on 3 August 2009 however has been extended to November 2009 to enable appropriate refinancing to take place. As at 30 June 2009 $50 million was drawn on the facility at a weighted average interest rate of 3.65% (2008: 9.06%).

At year end the amount of the term liabilities allocated to the gas division was nil (2008: $42.980 million) and there was $45.018 million current liabilities at year end (2008: $nil).

As at the reporting date the carrying value approximates the fair value as interest rates are reset each quarter.

f) Covenants

Powerco Limited has covenanted with all counter-parties to ensure certain financial criteria are met throughout the term of the debt agreements. These covenants include minimum Interest Coverage Ratios, minimum Net Worth values and maximum Gearing or Leverage ratios. Covenants also include various comparisons of the Guaranteeing Group earnings and assets under the Security Trust Deed to earnings and assets of the total Group.

There have been no covenant breaches to date.

g) Financial assets and liabilities

The following tables detail the fair value of financial liabilities:

The fair value of financial assets and financial liabilities are determined as follows:

• For floating rate debt carrying value approximates fair value due to continuing interest rate reset.
• For fixed rate debt opposing floating rate derivative instruments matching term and term are used in offset position to calculate fair values. The movements in these derivatives approximate movements in market values.
• The fair value of financial derivatives and fixed rate debt is determined by reference to the market quoted rates input into valuation models.