Business Context and Reporting Period
This Form 8-K is a joint current report filed by Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS), dated May 28, 2009. The filing discloses the creation of direct financial obligations through the issuance of pollution control revenue refunding bonds to refinance existing debt.
Key Financial Metrics and Obligations
The registrants issued a total of $179,000,000 in new bonds, which were loaned to APS to redeem prior debt. The specific breakdown of the new obligations is as follows:
- Navajo County Issuer: $166,150,000 in Pollution Control Revenue Refunding Bonds (2009 Series A through E).
- Coconino County Issuer: $12,850,000 in Pollution Control Revenue Refunding Bonds (2009 Series A).
- Maturity Date: All new bonds mature on June 1, 2034.
- Interest Rates: Initial term rates range from 5.00% to 5.75% depending on the series.
- Repayment Source: Bonds are payable solely from revenues obtained from APS pursuant to loan agreements.
The filing text does not provide specific values for revenue, profit, cash flow, margins, or overall liquidity metrics beyond the details of this specific transaction.
Material Changes and Transaction Details
The primary material change is the refinancing of existing debt. The proceeds from the new bonds will be used to redeem the following prior obligations:
- Navajo Refinancing: Redemption of $166,150,000 in 2004 Series A through E bonds, expected by June 16, 2009.
- Coconino Refinancing: Redemption of $12,850,000 in 2004 Series A bonds, expected by June 12, 2009.
The new bonds feature initial fixed term rates for periods ranging from three to seven years. Upon expiration of these initial periods, the bonds will convert to new rate periods (daily, weekly, monthly, flexible, term, or fixed) subject to mandatory tender and remarketing.
Management Commentary, Risks, and Contingencies
The filing outlines specific risks and contingencies associated with the new debt instruments:
- Events of Default: Acceleration of obligations may occur if APS fails to make payments, experiences bankruptcy/insolvency, or fails to perform covenants after a cure period.
- Taxability Risk: APS may be required to redeem the bonds if a determination of taxability is made regarding the interest on the new bonds.
- Covenants: The loan agreements include covenants to preserve the tax-exempt status of the interest and a customary limitation on liens.
- Prepayment: Obligations are subject to mandatory prepayment if the bonds are accelerated due to an Event of Default under the indentures.
Investor Verification Checklist
- Verify the exact redemption dates for the 2004 Series bonds (expected June 12 and June 16, 2009).
- Confirm the specific interest rate conversion mechanisms and remarketing terms applicable after the initial term rate periods expire.
- Review the full text of the Loan Agreements and Indentures to understand the specific covenants regarding tax-exempt status and lien limitations.
- Assess the impact of the new debt service requirements on APS's future cash flows, noting that the filing does not provide a comprehensive cash flow statement.