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), on August 12, 2005. The filing discloses the creation of a direct financial obligation through the amendment of existing reimbursement agreements related to pollution control bonds.
Key Financial Metrics and Obligations
The filing details the extension of two direct-pay letters of credit supporting pollution control bonds issued by the Coconino County, Arizona Pollution Control Corporation for the benefit of APS.
- Letter of Credit Amounts: $33,315,524 and $17,213,872.
- Total Obligation: $50,529,396.
- Extended Term: The letters of credit were extended from an original termination date of October 28, 2005, to August 12, 2010.
- Purpose: To support APS's obligations for principal and interest payments on the bonds and to cover the purchase price of bonds tendered by holders that are not remarketed.
- Costs: APS must pay interest on outstanding loans and fees based on its current senior unsecured debt credit ratings.
The filing text does not provide specific values for revenue, profit, cash flow, margins, or overall liquidity metrics for the reporting period.
Material Changes
The primary material change is the extension of the maturity date for the letters of credit supporting the 1994 and 1998 bond series. Previously set to terminate on October 28, 2005, the obligations now extend to August 12, 2010. This amendment modifies the terms of the Amended and Restated Reimbursement Agreements dated October 28, 2003.
Outlook, Risks, and Contingencies
The reimbursement agreements contain customary covenants requiring APS to maintain certain financial ratios. The filing outlines significant risks and contingencies:
- Events of Default: Includes failure to make bond payments, bankruptcy/insolvency events, or failure to perform covenants after a grace period.
- Acceleration Clauses: If an event of default occurs, lenders may accelerate APS's obligations, requiring a mandatory tender of the bonds. This would trigger an immediate reimbursement obligation to the bank.
- Cross Default: The agreements include a cross-default provision.
- Automatic Acceleration: Acceleration of obligations occurs automatically in the event of an insolvency or bankruptcy default.
- Loan Terms: Drawings made to pay for tendered bonds may remain outstanding as loans for up to one year or until August 12, 2010, provided APS satisfies certain conditions. These loans are secured by the purchased bonds until remarketed.
Investor Verification Checklist
- Verify APS's current senior unsecured debt credit rating to determine applicable fees and interest rates on the letters of credit.
- Confirm APS's compliance with the financial ratio covenants required by the reimbursement agreements.
- Review the status of the underlying pollution control bonds issued in 1994 and 1998 for any pending tender offers or remarketing issues.
- Assess the impact of the extended liability term (through 2010) on the company's long-term debt maturity profile.