Business Context and Reporting Period
This Form 8-K Current Report, dated June 26, 2009, is jointly filed by Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS). The filing discloses the creation of a direct financial obligation related to the Palo Verde Project.
Key Financial Metrics and Obligations
On June 26, 2009, the Maricopa County, Arizona Pollution Control Corporation issued $163,975,000 in Pollution Control Revenue Refunding Bonds (2009 Series A through E) for the benefit of APS. The proceeds were loaned to APS to redeem an equivalent amount of 2005 Series bonds. The new bonds mature on May 1, 2029.
| Series | Principal Amount | Initial Term Rate | Initial Term Period |
|---|---|---|---|
| 2009 Series A | $35,975,000 | 6.00% | Five years (to May 1, 2014) |
| 2009 Series B | $32,000,000 | 5.50% | Three years (to May 1, 2012) |
| 2009 Series C | $32,000,000 | 5.75% | Four years (to May 1, 2013) |
| 2009 Series D | $32,000,000 | 6.00% | Five years (to May 1, 2014) |
| 2009 Series E | $32,000,000 | 6.00% | Five years (to May 1, 2014) |
The filing text does not provide specific values for revenue, net profit, operating cash flow, or overall liquidity ratios for the reporting period.
Material Changes
The primary material change is the refinancing of $163,975,000 in debt. The 2005 Series bonds are being redeemed by July 17, 2009, and replaced with the 2009 Series bonds. This transaction alters the company's debt maturity profile and interest rate structure for the Palo Verde Project.
Outlook, Risks, and Contingencies
- Interest Rate Risk: Upon expiration of the initial term rate periods, interest rates will convert to variable rates (daily, weekly, monthly, flexible, auction, term, or fixed) subject to remarketing.
- Default Risk: APS obligations may be accelerated upon an Event of Default, including failure to make payments, bankruptcy/insolvency, or covenant breaches.
- Tax Contingency: APS may be required to redeem the bonds if they are determined to be taxable, subject to indenture qualifications.
- Covenants: The Loan Agreement includes covenants to preserve tax-exempt status and a customary limitation on liens.
Investor Verification Checklist
- Confirm the successful redemption of the 2005 Series bonds by the July 17, 2009 deadline.
- Monitor the remarketing process for the 2009 Series bonds as initial term periods expire between 2012 and 2014.
- Review future filings for any changes in the variable interest rates applied after the initial term periods.
- Verify compliance with tax-exempt status covenants to avoid mandatory redemption triggers.