Business Context and Reporting Period
This Form 8-K Current Report, dated October 22, 2009, is filed by Black Hills Corporation and its wholly-owned subsidiary, Black Hills Power, Inc. The filing announces the entry into a material definitive agreement regarding a public offering of debt securities.
Key Financial Metrics and Transaction Details
- Debt Issuance: Black Hills Power, Inc. entered into an underwriting agreement for an $180 million aggregate principal amount of first mortgage bonds (6.125% Series AF due 2039).
- Underwriters: RBC Capital Markets Corporation, RBS Securities Inc., and Scotia Capital (USA) Inc.
- Expected Closing: October 27, 2009.
- Existing Debt Repayment: The Company intends to use net proceeds to repay approximately $103.3 million borrowed under a Utility Money Pool Agreement with Black Hills Corporation (variable rate of 0.95% as of September 30, 2009).
- Project Funding: Approximately $27 million of net proceeds will fund the remaining costs for the Wygen III coal-fired generation facility (total expected cost: $255 million).
- Bond Refunding: Approximately $30 million will be used to repay Series AC, 8.06% first mortgage bonds maturing in February 2010.
- Parent Company Liquidity: Black Hills Corporation expects to use the funds received from the subsidiary to pay down borrowings under its unsecured revolving credit facility.
Material Changes and Strategic Actions
The primary material change is the shift from variable-rate intercompany borrowing to fixed-rate public debt. The Company is refinancing $103.3 million of short-term variable-rate debt (0.95%) with long-term fixed-rate bonds (6.125%). Additionally, the filing notes that in April 2009, the Company sold a 25% ownership interest in the Wygen III project to MDU Resources Group, Inc., retaining majority ownership.
Outlook, Risks, and Management Commentary
- Project Timeline: The Wygen III facility, a 110 megawatt coal-fired base load electric generation facility near Gillette, Wyoming, is expected to become operational in mid-2010.
- Regulatory Status: The Bonds are registered under the Securities Act of 1934. The offering is being made via a prospectus and prospectus supplement.
- Conditions: The closing of the offering is subject to the satisfaction of customary closing conditions.
Investor Verification Checklist
- Verify the final closing date of the $180 million bond offering (expected October 27, 2009).
- Confirm the exact net proceeds received after underwriting fees and expenses.
- Monitor the repayment of the $103.3 million Utility Money Pool Agreement to assess the impact on Black Hills Corporation's revolving credit facility usage.
- Track the construction progress and cost estimates for the Wygen III facility to ensure the $27 million allocation is sufficient.
- Review the full Underwriting Agreement (Exhibit 1) for covenants and specific terms of the 6.125% Series AF bonds.