Business Context and Reporting Period
This Form 8-K is a current report filed by Black Hills Corporation on July 12, 2010. The filing primarily addresses a material definitive agreement entered into by its subsidiary, Enserco Energy Inc., and provides an update on financial results related to interest rate swaps for the quarter ended June 30, 2010.
Key Financial Metrics and Agreements
- Credit Facility Amendment: Enserco Energy Inc. entered into a Fifth Amendment to its Third Amended and Restated Credit Agreement. This amendment increases the permitted coal fixed price position from 1.0 million tons to 2.25 million tons for July 2010, and to 2.0 million tons starting August 1, 2010. It also waives previous noncompliance with the 1.0 million ton limitation.
- Interest Rate Swap Impact: For the quarter ended June 30, 2010, the company expects to record a $16.2 million after-tax unrealized mark-to-market non-cash loss on floating-to-fixed interest rate swaps.
- Debt Maturities: The company has upcoming holding company debt maturities of $225 million in 2013 and $250 million in 2014.
- Capital Requirements: The swaps are maintained in anticipation of financing needs for planned gas-fired power generation facilities for Colorado Electric customers.
Material Changes Versus Prior Period
The filing highlights a significant reversal in the financial impact of interest rate swaps compared to the prior year. For the quarter ended June 30, 2010, the company expects a $16.2 million after-tax non-cash loss, whereas the same period in 2009 resulted in a $20.6 million after-tax non-cash gain on the same swaps.
Outlook, Risks, and Management Commentary
Management indicates that the interest rate swaps hedge exposure for periods extending to 2018 and 2028. These instruments have amended mandatory early termination dates ranging from December 15, 2010, to December 29, 2010. The company may choose to cash settle these swaps at fair value prior to the termination dates or upon the mandatory dates if not extended. The filing notes that the Preliminary Prospectus Supplement filed on July 13, 2010, contains further details on these developments.
Investor Verification Checklist
- Verify the specific terms of the Fifth Amendment to the Credit Agreement filed as Exhibit 10.
- Confirm the impact of the $16.2 million non-cash loss on the company's reported earnings for the second quarter of 2010.
- Review the Preliminary Prospectus Supplement filed on July 13, 2010, for additional context on the swap positions and financing plans.
- Assess the company's liquidity position relative to the $225 million and $250 million debt maturities scheduled for 2013 and 2014.