Business Context and Reporting Period
This Form 8-K Current Report, dated May 31, 2011, covers PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (the "Utility"). The filing reports the entry into new material definitive credit agreements and the termination of existing ones on May 31, 2011.
Key Financial Metrics and Agreements
The filing details two new senior unsecured revolving credit facilities:
- Utility Facility: A $3 billion five-year revolving credit agreement entered into by Pacific Gas and Electric Company. This replaces prior agreements totaling $2.69 billion ($1.94 billion and $750 million).
- Corporation Facility: A $300 million five-year revolving credit agreement entered into by PG&E Corporation. This replaces a prior $187 million agreement.
- Interest Rates: Borrowings bear interest based on LIBOR or a base rate plus an applicable margin ranging from 0.875% to 1.600%. Facility fees range from 0.125% to 0.400%, dependent on credit ratings.
- Sublimits: The Utility facility includes a $1 billion sublimit for letters of credit and a $300 million sublimit for swing line loans. The Corporation facility includes $100 million sublimits for both letters of credit and swing line loans.
- Debt Covenant: Both agreements require maintaining a ratio of total consolidated debt to total consolidated capitalization of not more than 0.65 to 1.00.
Material Changes Versus Prior Period
The primary material change is the replacement of existing credit facilities with larger, consolidated agreements:
- The Utility's credit capacity increased from a combined $2.69 billion under two separate agreements to a single $3 billion facility.
- The Corporation's credit capacity increased from $187 million to $300 million.
- Both new facilities extend the maturity date to May 31, 2016.
- The new agreements include expansion options: the Utility may increase commitments by up to $500 million, and the Corporation by up to $100 million, subject to lender approval.
Outlook, Risks, and Contingencies
Management Commentary and Purpose: The new facilities are intended for working capital, other corporate purposes, and commercial paper back-up. The Corporation facility will also be used to refinance debt outstanding under the existing agreement.
Risks and Default Provisions:
- Events of Default: Include cross-defaults relating to specified other debt in excess of $100 million, insolvency, bankruptcy, or receivership.
- Consequences: Upon default, lenders may terminate commitments and declare all outstanding amounts immediately payable. Insolvency events trigger automatic termination.
- Covenants: The agreements include standard covenants limiting liens, mergers, and sales of substantially all assets.
Unusual Items: The filing notes that lenders and their affiliates have provided and may continue to provide investment banking and advisory services to the registrants for customary compensation.
Investor Verification Checklist
- Verify the current senior unsecured debt ratings from Standard & Poor's and Moody's to determine the specific applicable interest margin and facility fee.
- Confirm the company's compliance with the 0.65 to 1.00 debt-to-capitalization ratio covenant as of the most recent fiscal quarter.
- Review the utilization of the new $3 billion and $300 million facilities to assess liquidity needs versus actual drawdowns.
- Monitor for any cross-default events related to other debt instruments exceeding $100 million.