Notes to Consolidated Financial Statements
Note 6 Debt
Our issuance of various securities, including long-term and short-term debt, is subject to customary approval or authorization by state and federal regulatory bodies, including state public service commissions, the SEC and the FERC as granted by the Energy Policy Act of 2005. The following table provides more information on our various securities.
Our short-term debt at December 31, 2007 and 2006 was composed of borrowings under our commercial paper program; current portions of our capital lease obligations and the current portion of our long-term medium-term notes; and lines of credit for Sequent and Pivotal Utility.
Commercial Paper Our commercial paper consists of short-term, unsecured promissory notes with maturities ranging from 2 to 46 days. These unsecured promissory notes are supported by our $1 billion Credit Facility which expires in August 2011. We have the option to increase the aggregate principal amount available for borrowing under the Credit Facility to $1.25 billion on not more than three occasions during each calendar year. As of December 31, 2007 or 2006 we did not have any amounts outstanding under the Credit Facility.
Our long-term debt at December 31, 2007 and 2006 matures more than one year from the balance sheet date and consists of medium-term notes: Series A, Series B and Series C, which we issued under an indenture dated December 1, 1989; senior notes; gas facility revenue bonds; notes payable to Trusts; and capital leases. The notes are unsecured and rank on parity with all our other unsecured indebtedness. Our annual maturities of long-term debt are as follows:
Medium-term notes The following table provides more information on our medium-term notes, which were issued to refinance portions of our existing short-term debt and for general corporate purposes. Our annual maturities of our medium-term notes are as follows:
Senior Notes The following table provides more information on our senior notes, which were issued to refinance portions of our existing short-term and long-term debt, to finance acquisitions and for general corporate purposes.
In December 2007, we issued $125 million of senior notes which were part of a series originally issued by us in June 2006 in the amount of $175 million at an interest rate of 6.375%, for a total amount outstanding of $300 million at December 31, 2007. We used $123 million in net proceeds with the issuance to repay commercial paper.
The trustee with respect to all of the above-referenced senior notes is The Bank of New York Trust Company, N.A., pursuant to an indenture dated February 20, 2001. We fully and unconditionally guarantee all of our senior notes.
Gas Facility Revenue Bonds Pivotal Utility is party to a series of loan agreements with the New Jersey Economic Development Authority (NJEDA) pursuant to which the NJEDA has issued a series of gas facility revenue bonds as shown in the following table. We do not guarantee or provide any other form of security for the repayment of this indebtedness.
In June 2007, we refinanced $55 million of our gas facility revenue bonds due June 2032. The original bonds had a fixed interest rate of 5.7% per year and were refinanced with $55 million of adjustable-rate gas facility revenue bonds. The maturity date of these bonds remains June 2032. The bonds were issued at an initial annual interest rate of 3.8% and have a 35-day auction period where the interest rate will adjust every 35 days.
The variable bonds contain a provision whereby the holder can "put" the bonds back to the issuer. In 1996, Pivotal Utility executed a long-term Standby Bond Purchase Agreement (SBPA) with a syndicate of banks, which was amended and restated in June 2005. Under the terms of the SBPA, as further amended, the participating banks are obligated under certain circumstances to purchase variable bonds that are tendered by the holders thereof and not remarketed by the remarketing agent. Such obligation of the participating banks would remain in effect until the June 2010 expiration of the SBPA, unless it is extended or earlier terminated.
Notes Payable to Trusts In June 1997, we established AGL Capital Trust I (Trust I), a Delaware business trust, of which we own all the common voting securities. Trust I issued and sold $75 million of 8.17% capital securities (liquidation amount $1,000 per capital security) to certain initial investors. Trust I used the proceeds to purchase 8.17% junior subordinated deferrable interest debentures issued by us. Trust I capital securities were subject to mandatory redemption at the time of the repayment of the junior subordinated debentures in June 2037, or the optional prepayment by us after May 2007.
In July 2007, we used the proceeds from the sale of commercial paper to pay Trust I the $75 million principal amount plus a $3 million premium in connection with the early redemption of the junior subordinated debentures, and to pay the $2 million note with respect to our common securities interest in AGL Capital Trust I. The $3 million premium was recorded as interest expense in 2007.
Preferred Securities As of December 31, 2007, we had 10 million shares of authorized, unissued Class A junior participating preferred stock, no par value, and 10 million shares of authorized, unissued preferred stock, no par value.
Capital Leases Our capital leases consist primarily of a sale/leaseback transaction completed in 2002 by Florida City Gas related to its gas meters and other equipment and will be repaid over 11 years. Pursuant to the terms of the lease agreement, Florida City Gas is required to insure the leased equipment during the lease term. In addition, at the expiration of the lease term, Florida City Gas has the option to purchase the leased meters from the lessor at their fair market value.
Our Credit Facility financial covenant requires us to maintain a ratio of total debt to total capitalization of no greater than 70%. As of December 31, 2007, this ratio was 58% and was 57% as of December 31, 2006. Our debt instruments and other financial obligations include provisions that, if not complied with, could require early payment, additional collateral support or similar actions. Our most important default events include:
- a maximum leverage ratio
- insolvency events and nonpayment of scheduled principal or interest payments
- acceleration of other financial obligations
- change of control provisions
We do not have any trigger events in our debt instruments that are tied to changes in our specified credit ratings or our stock price and have not entered into any transaction that requires us to issue equity based on credit ratings or other trigger events. We are currently in compliance with all existing debt provisions and covenants.