29 FEBRUARY 2012 NEW ZEALAND GAZETTE, No. 25

Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2011

                        POWERCO
                        GAS DIVISION

c) Commercial bank debt

On the period Powerco entered a NZ$160 million revolving standby to the existing $175 million Cash Advance Facility. The additional tranche was drawn down on 28 March 2011 in order to repay the $100 million maturing tranche on the 30 June 2011. The additional $60 million tranche is due for repayment on 30 September 2012. The applicable rates as at 30 June 2011 were 3.82% on the $100m tranche and 3.84% on the $175 million tranche (2010: 5.31% on the $175 million facility).

Powerco operates a working capital facility with the Commonwealth Bank of Australia for up to $50 million. The facility is based on a revolving credit arrangement and as such does not have set repayment dates. The facility was due to expire on 22 March 2011 but has been extended for a further term of 3 years, to mature 22 March 2014. The facility has the benefit of a Security Trust Deed, as a Senior Secured Debt Facility.

During the period Powerco repaid the $245 million Term Loan Facility, which was due to mature 21 September 2011, on 10 June 2011 with the proceeds of the 2011 US dollar private placement issue.

d) Covenants

Powerco has covenanted with all counterparties to ensure certain financial criteria are met throughout the term of the debt agreements. These covenants include minimum Interest Cover 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.

e) Financial assets and liabilities

The following tables detail the fair value of financial liabilities

| Financial liabilities: | | | | |
| Guaranteed bonds | 70,832 | 70,223 | 62,620 | 89,684 |
| Commercial bank debt | 141,187 | 141,187 | 61,428 | 61,428 |
| and working capital advances | 37,669 | | 81,871 | |
| US cross currency | 17,325 | 17,325 | 1,303 | 1,303 |
| interest rate swaps | 13,919 | 13,919 | NIL | NIL |
| Foreign exchange contracts | 250,765 | 250,330 | 251,207 | 248,373 |

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

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

The valuation method takes into account the interest rate curve and foreign exchange rates by calculating the discounted future cash flows of derivatives as at the reporting date. This method assumes a constant credit rating of all parties to the swap. The market rates used are the reporting date are as follows:

Reporting date interest rates

The rates above are from Bloomberg.