S&P: Genesis Power's proposed capital bonds BB-

(The following was released by the rating agency)

April 7, 2011--Standard & Poor's Ratings Services today said that it had assigned its 'BB-' long-term issue rating to New Zealand-based Genesis Power Ltd.'s (trading as Genesis Energy; BBB+/Negative/--) proposed capital bond issue. Also, we classified the capital bonds as having a "high" equity content, meaning that we will treat the bonds entirely as "equity" and the coupon payments as "dividends" in our financial ratio calculations. This assessment remains subject to a review of the final terms and conditions, and if there are any material changes that could affect the "high" equity content classification. The bonds are not guaranteed by the New Zealand government (local currency AAA/Stable/A-1+, foreign currency AA+/Negative/A-1+). Proceeds of the issue will partly fund the acquisition of the Tekapo A and B hydro assets.

"Our view of the proposed capital bonds' "high" equity content is based on the following key features: the mandatory deferral of coupon payments for up to five years if the corporate credit rating on Genesis Energy falls to 'BB+' or below, and the instrument's deeply subordinated recoveryposition relative to all senior unsecured creditors of the group. The proposed capital bonds rank behind the company's existing fixed-rate retail bonds issued to the New Zealand market, medium-term notes, and bank debt," Standard & Poor's credit analyst Alicia Low said. "Furthermore, the heightened risk of interest payment deferrals and deeply subordinated recovery position underpin our view of the four-notch differential between the 'BB-' rating on the capital bonds and Genesis Energy's stand-alone credit profile of 'bbb'.

Nevertheless, we consider that the mandatory deferral trigger, set within three notches of the 'BBB+' corporate credit rating, supports the issuer's credit quality because of the retention of cash in the company, which would have otherwise been used to pay interest on the capital bonds.

Other key features of the capital bonds include:

-- A 30-year term to maturity;

-- A 25 basis points step-up of the interest margin at year five;

-- A first call date from year five at the issuer's option;

-- Redemption rights for the issuer if the government of New Zealand's ownership of the voting shares in Genesis Energy reduces to 50% or less (change of control); and

-- Investors have redemption rights if the change of control results in an associated rating downgrade of one notch or more, and the resulting corporate credit rating of the company is below 'BBB+'.

Further detail on the bonds can be found in the following article, to be published shortly: "Credit FAQ: Genesis Energy's Capital Bonds Explained, Including Why They Achieved 'High' Equity Credit From Standard & Poor's".