NEW ZEALAND GAZETTE, No. 165

3 DECEMBER 2010

Notes to and Forming Part of the Financial Statements
For year ended 30 June 2010

GAS DIVISION

e) Commercial bank debt

During the period Powerco entered into new financing agreements consisting of a $265 million Term Loan Facility and a $175 million Revolving Cash Advance Facility. These facilities replace the $160 million Term Loan (of which $34 million was allocated to gas division) and $267 million Standby Cash Advances facilities (of which $30 million was allocated to the gas division), which matured on 8 November 2009, and have maturity dates of 21 September 2011 and 21 September 2012 respectively. The new facilities were provided jointly by ANZ National Bank and Westpac Banking Corporation and are granted security under the Security Trust Deed. The applicable ratios as at 30 June 2010 were 5.51% on the $27 million facility and 5.75% on the $75 million facility (both exclusive of a 0.30% margin facility). $14 million of these facilities has been allocated to the gas division.

Powerco operates a working capital advance facility with the Commonwealth Bank of Australia for up to $40 million. The facility is based on a revolving credit arrangement and as such does not have set repayment dates. The facility is due to expire on 22 March 2011 and has the benefit of the Security Trust Deed, as a Senior Secured Debt Facility. This facility has interest rates during the period ranging from 2.75% to 3.00% (2009: 2.75% to 5.50%). $4m of this facility has been allocated to the gas division.

As at 30 June 2009 Powerco operated a revolving cash advances facility of $60 million as part of the $260 million Standby Cash Advances Facility. This facility was a req of 3.65% and was repaid in November 2009. $6m of this facility was allocated to the gas division in 2009.

f) Covenants

Powerco has covenanted with all counterparties to ensure certain financial covenants 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 annual comparisons of the Covenant/Gross EBITDA and senior debt under the Security Trust Deed to earnings and margins of the total Group.

There have been no covenant breaches.

g) Financial assets and liabilities

The following tables detail the fair value of financial liabilities:

| Financial liabilities | | | | |
| Subordinated bonds | 92,660 | 89,964 | 22,477 | 21,097 |
| Guaranteed bonds | 61,428 | 61,428 | 93,124 | 83,694 |
| US dollar private placement notes | — | — | 62,779 | 62,779 |
| Commercial paper facilities | 91,471 | 91,571 | 32,342 | 32,342 |
| Other financial liabilities | 2,871 | 2,871 | 5,865 | 5,865 |
| US cross currency interest rate swaps | 1,303 | 1,303 | 487 | 487 |
| | 14,105 | 14,105 | 13,948 | 13,648 |
| | | 251,207 | | 266,337 |

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

• For floating rate debt carrying value approximates fair value due to continuing interest rate reset.
• For fixed rate debt: opposite floating rate to derive equivalent maturity tenor and term are used to calculate fair value. The movements in these derivatives approximate movements in market value.
• The fair value of financial derivatives and liabilities (rate swaps) are determined by reference to the market quoted rates input to valuation models.

Time valuation rakes into account three-month future cash flows and forecast exchange rates by calculating the discounted future cash flows on derivatives as at the reporting date. This method assumes a constant credit rating of all parties to the swap. The market rates used as the reporting date are as follows:

| NZCPI/USD ratio | | |
| US 1 month swap rate | 0.53% | 0.60% |
| US 3 month swap rate | 0.57% | 0.75% |
| US 6 month swap rate | 0.75% | 1.3% |
| US 1 year swap rate | 1.17% | 2.1% |
| US 2 year swap rate | 2.05% | 2.61% |
| US 3 year swap rate | 2.88% | 3.28% |
| US 5 year swap rate | 3.02% | 3.75% |
| US 10 year swap rate | 3.5% | 4.0% |
| US 30 year swap rate | 3.72% | 4.11% |

The above NZ rates are from RBNZ market data and the US swap rates are sourced through the Federal Reserve website.