International ratings agency Standard & Poor's have put New Zealand Post on negative credit watch because of the structural decline in mail volumes and the state-owned enterprise's rising capital spending.
S&P currently rates the postal service "A+" for long-term debt and "A-1" for short-term debt.
"We placed the rating on CreditWatch to reflect the increased likelihood that structural pressures in New Zealand Post's mail business, increased investment requirements in its parcel business and reclassification of subordinated notes as 100 percent debt will weaken the group's cash flow and leverage metrics," the ratings agency says.
NZ Post said on Sept. 27 that it would not re-market or redeem its $200 million of subordinated notes, which are listed on NZX, ahead of the Nov. 15 reset date.
The notes carry a coupon rate of 6.25 percent, but are trading at 2.9 percent. They will be reset at 3 percentage points above the five-year swap rate, currently 0.89 percent.
S&P says that decision will likely increase its adjusted leverage.
At present, S&P currently regards the notes as 50 percent equity but that will go to 100 percent after the reset date.
"In addition, we note that the group's results for the year ended June 30 were affected by $38 million of one-off costs associated with the remediation of unpaid holiday leave and the impairment of NZ Post's mail business and related tax assets."
Nevertheless, while the remediation payments will affect cash flow, the impairment charges "are noteworthy but non-cash and, in our view, do not affect NZ Post's fundamental risk profile," S&P says.