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, authorization or review 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 shows our long-term debt included in our consolidated statements of financial position. We estimate the fair value using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile. In determining the market interest yield curve, we considered our currently assigned ratings for unsecured debt of BBB+ by S&P, Baa1 by Moody’s and A- by Fitch.

       
Outstanding as of December 31,
In millions
Year(s) due
Interest rate(1)
Weighted average(1) Interest rate
2009
2008
Short-term debt
Commercial paper
2010
0.4%
0.7%
$ 601
$ 273
Capital leases
2010
4.9
4.9
1
1
Credit Facility
2010
1.2
500
SouthStar line of credit
2010
1.1
75
Sequent lines of credit (2)
2010
1.0
17
Total short-term debt
 
0.4%
0.8%
$ 602
$ 866
Long-term debt
Senior notes
Issued February 2001
2011
7.1%
7.1%
$ 300
$ 300
Issued July 2003
2013
4.5
4.5
225
225
Issued December 2004
2015
5.0
5.0
200
200
Issued June 2006 & December 2007
2016
6.4
6.4
300
300
Issued August 2009
2019
5.3
5.3
300
Issue September 2004
2034
6.0
6.0
250
250
Total
5.8%
5.8%
1,575
1,275
Gas facility revenue bonds
Issued July 1994
2022
0.2
0.2
47
47
Issued July 1994
2024
0.4
0.6
20
20
Issued June 1992
2026
0.2
0.2
39
39
Issued June 1992
2032
0.2
0.2
55
55
Issued July 1997
2033
5.3
5.3
39
39
Total
1.2%
1.2%
200
200
Medium-term notes
Issued June 1992
2012
8.3 – 8.4
8.3 – 8.4
15
15
Issued July 1997
2017
7.2
7.2
22
22
Issued February 1991
2021
9.1
9.1
30
30
Issued April – May 1992
2022
8.6 – 8.7
8.6 – 8.7
46
46
Issued November 1996
2026
6.6
6.6
30
30
Issued July 1997
2027
7.3
7.3
53
53
Total
7.8%
7.8%
196
196
Capital leases
2013
4.9%
4.9%
3
4
Total long-term debt (3)
 
5.5%
5.5%
$1,974
$1,675
Total debt
 
4.3%
4.6%
$2,576
$2,541

(1) As of or for the year ended December 31, 2009.
(2) Sequent’s $25 million line of credit expired in June 2009.
(3) We estimate the fair value was $2,060 million as of December 31, 2009 and $1,647 million as of December 31, 2008.


Short-term Debt

Our short-term debt at December 31, 2009 and 2008 was composed of borrowings under our commercial paper program; Credit Facility; current portions of our capital lease obligations; and lines of credit for Sequent and SouthStar.

Commercial Paper and Credit Facility Our commercial paper consists of short-term, unsecured promissory notes with maturities ranging from 4 to 27 days. These unsecured promissory notes are supported by our $1 billion Credit Facility which expires in August 2011. We have the option to request an increase in the aggregate principal amount available for borrowing under the $1 billion Credit Facility to $1.25 billion on not more than three occasions during each calendar year. Several of our subsidiaries, including SouthStar participate in our commercial paper program.

SouthStar Credit Facility SouthStar’s five-year $75 million unsecured credit facility expires in November 2011. SouthStar will use this line of credit for working capital and its general corporate needs. SouthStar had no outstanding borrowings on this line of credit at December 31, 2009 and $75 million of outstanding borrowings at December 31, 2008.We do not guarantee or provide any other form of security for the repayment of this credit facility.

Long-term Debt

Our long-term debt at December 31, 2009 and 2008 matures more than one year from the statements of financial position 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; and capital leases. The trustee with respect to our 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. The annual maturities of our long-term debt for the next five years, excluding capital leases of $3 million, are as follows:

Year Amount (in millions) % of total
2011 $ 300 15%
2012 15 1
2013 225 11
2015 200 10
After 2016 1,231 63
Total $1,971 100%



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. In 2008, we completed letter of credit agreements for the bonds with a cumulative principal amount of $161 million. These agreements provided additional credit support and increased investor demand. As a result, these bonds were successfully auctioned and issued as variable rate gas facility bonds. The bonds with principal amounts of $55 million, $47 million and $39 million have interest rates that reset daily and the bond with a principal amount of $20 million has an interest rate that resets weekly. The letter of credit agreements are set to expire in June and September 2010.

Preferred Securities As of December 31, 2009, 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 at approximately $1 million per year until 2013. 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. The fair market value of the equipment will be determined on the basis of an arm’s-length transaction between an informed and willing buyer.

Default Events

Our Credit Facility financial covenants require us to maintain a ratio of total debt to total capitalization of no greater than 70%; however, our goal is to maintain this ratio at levels between 50% and 60%. Our ratio of total debt to total capitalization calculation contained in our debt covenant includes standby letters of credit, surety bonds and the exclusion of other comprehensive income pension adjustments. Adjusting for these items, our debt-to-equity calculation, as defined by our Credit Facility, was 57% at December 31, 2009 and 59% at December 31, 2008. These amounts are within our required and targeted ranges. Our debt-toequity calculation, as calculated from our consolidated statements of financial position, was 59% at December 31, 2009 and 60% at December 31, 2008.

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 have no 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.