Ann: Spark Notifies of S&P Outlook Update, page-2

This comes as no surprse. Stewart Taylor, in response to questions in recent teleconference, had indicated they were in discussions with S&P.

Placing Spark on negative outlook/watch, S&P have cited concerns over increased debt. To provide some context, in the six months to 31 December 2024, debt increased by $383m (due within one year +$149, long term +$234m).

Notwithstanding statement that "The change in outlook will not have a material impact on the Company’s cost of funding in the near-term", negative watch reviews are generally time bounded, often three months, or up to six months depending on the situation. Spark have been put on notice and It is not clear to me that management will be able to alleviate S&P's concerns within this time frame.

There is a NZD$100m facility with Commonwealth maturing 28 May 2025, and a NZD$100m facility with Bank of New Zealand maturing 30 May 2025. How these lenders now view the perceived risks and what additional premium they will charge is unknown.

The implications of this negative outlook/watch should not be understated. There is now a high probability of stricter credit conditions and reduced limilts. The biggest risk is to dividends. Banks will not view a payout ratio of 208% favourably, particularly where it requires a 60% split in the second half just to meet the bottom end of its guidance range. Specifically Spark needs a 10% year on year uplift in the second half.