TrustPower Limited Senior and Subordinated Debt

19 July 2012

Investment View

Current Market Yield Spread Over Equivalent Issue Code Type (%) Term Swap Rate

TPW020 Subordinated 6.75 4.09 TPW060 Subordinated 6.15 3.56 TPW080 Senior 5.50 2.78 TPW070 Subordinated 5.70 2.87 TPW090 Senior 5.90 2.98 TPW100 Senior 5.55 2.47

Spread Since September 2008 there has been a notable increase in the level of spreads between the TrustPower senior and subordinated debt securities and their equivalent term swap rate. This reflects the general rise in corporate spreads following the global financial crisis rather than any issues specific to TrustPower. With the exception of the TPW070 security, the subordinated securities have spreads at above the senior securities. It is worth noting that the recent rise in the TPW020 spread is quite normal for a security as it gets very close to maturity. Spread to Swap Interest Rate

6.00

5.00

4.00

3.00

2.00 Spread (%) Spread

1.00

0.00

-1.00 13-Sep-02 13-Sep-03 13-Sep-04 13-Sep-05 13-Sep-06 13-Sep-07 13-Sep-08 13-Sep-09 13-Sep-10 13-Sep-11 TPW020 TPW060 TPW080 TPW070 TPW090 TPW100

Source: Iress, First NZ Capital

www.firstnzcapital.co.nz First NZ Capital Securities Limited NZX Firm 1

Comparative Securities

Issuer Security Security Type Current Credit Maturity Date Spread to Swap Indicative Code Rating (1) Interest Rate Liquidity Trustpower TPW020 Subordinated Not rated 15/09/2012 4.09% Very Low Works Infrastructure Finance WKS020 Senior BBB- 15/09/2012 4.84% Very Low Heartland Buidling Society MAR010 Senior BBB- 15/07/2013 4.44% Low Trustpower TPW060 Subordinated Not rated 15/03/2014 3.56% Very Low Genesis Power GPL010 Senior BBB+ 15/03/2014 1.25% Contact Energy CEN010 Senior BBB 15/05/2014 1.95% Moderate Trustpower TPW080 Senior Not rated 15/12/2014 2.78% Low Meridian Energy MEL010 Senior BBB+ 16/03/2015 1.47% Very Low Warehouse Group WHS010 Senior Not rated 15/06/2015 3.02% Low Trustpower TPW070 Subordinated Not rated 15/12/2015 2.87% Low Genesis Power GPL020 Senior BBB+ 15/03/2016 1.45% Greenstone Energy Finance ZEL010 Senior Not rated 15/10/2016 3.03% Moderate Air New Zealand AIR010 Senior BBB- 15/11/2016 2.55% Low Trustpower TPW090 Senior Not rated 15/12/2016 2.98% Low Meridian Energy MEL020 Senior BBB+ 16/03/2017 1.65% Very Low TrustPower TPW100 Senior Not rated 15/12/2017 2.47% Low Source: First NZ Capital Notes: 1. Current credit ratings are from Standard & Poor’s except Air New Zealand which is rated Baa3 by Moody’s although the AIR010 security does carry a credit rating.

We expect that the TrustPower senior and subordinated debt securities would probably achieve credit ratings of BBB and BBB- respectively if they were rated. However, if TrustPower proceeds with the Snowtown stage 2 wind farm development without introducing a co-investor we would expect downward pressure on these estimated credit ratings. As a result, we would expect to see an increase in the spread at which these TrustPower securities trade relative to comparable securities.

From the table above we observe that the TPW020 security which is soon to mature trades broadly in line with short dated BBB- rated securities. The spread at which the TPW060 security trades is likely to remain relatively high as it has less than one year to maturity. While the TPW080, TPW070 and TPW090 securities currently trade at spreads well above those of the other electricity companies (Contact Energy, Genesis Power and Meridian Energy) they are broadly in line with the other unrated securities. The spread of the TPW100 security is low relative to the other TrustPower securities suggesting that it represents poor value.

Summary

TrustPower does not have a credit rating from a credit rating agency. However, we expect that the TrustPower senior and subordinated debt securities would probably achieve credit ratings of BBB and BBB- respectively if they were rated. However, if TrustPower proceeds with the Snowtown stage 2 wind farm development without introducing a co- investor we would expect downward pressure on these estimated credit ratings.

Investors in senior TrustPower debt securities rank equally with other unsecured unsubordinated creditors. However, in the event that TrustPower gets into financial difficulties the subordinated debt securities will rank behind the senior debt securities and other unsecured unsubordinated creditors for payment of unpaid interest and principal.

When compared to comparable securities we believe that the TPW020 and TPW060 securities currently trade at fair levels. However, the TPW100 security currently appears to offer poor relative value. While the TPW070, TPW080 and

2 First NZ Capital Securities Limited NZX Firm www.firstnzcapital.co.nz Senior and Subordinated Debt

TPW090 securities appear to be fairly valued relative to similar unrated securities, they appear to offer good value relative to similar securities with credit ratings.

John Norling

Wealth Management Research

www.firstnzcapital.co.nz First NZ Capital Securities Limited NZX Firm 3

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