APS 2011 Annual Report Download - page 136

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
See Lines of Credit and Short-Term Borrowings in Note 5 and “Financial Assurances” in
Note 11 for discussion of APS’s other letters of credit.
Debt Provisions
Pinnacle West's and APS’s debt covenants related to their respective bank financing
arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with this
covenant. For both Pinnacle West and APS, this covenant requires that the ratio of consolidated debt
to total consolidated capitalization not exceed 65%. At December 31, 2011, the ratio was
approximately 47% for Pinnacle West and 46% for APS. Failure to comply with such covenant levels
would result in an event of default which, generally speaking, would require the immediate repayment
of the debt subject to the covenants and could cross-default other debt. See further discussion of "cross-
default" provisions below.
Neither Pinnacle West's nor APS’s financing agreements contain "rating triggers" that would
result in an acceleration of the required interest and principal payments in the event of a rating
downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates we
pay for borrowings thereunder are determined by our current credit ratings.
All of Pinnacle West's loan agreements contain "cross-default" provisions that would result in
defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or
APS were to default under certain other material agreements. All of APS’s bank agreements contain
cross-default provisions that would result in defaults and the potential acceleration of payment under
these bank agreements if APS were to default under certain other material agreements. Pinnacle West
and APS do not have a material adverse change restriction for credit facility borrowings.
An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As
defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of
total shareholder equity and long-term debt, including current maturities of long-term debt. At
December 31, 2011, APS was in compliance with this common equity ratio requirement. Its total
shareholder equity was approximately $3.9 billion, and total capitalization was approximately
$7.2 billion. APS would be prohibited from paying dividends if the payment would reduce its total
shareholder equity below approximately $2.9 billion, assuming APS’s total capitalization remains the
same. Since APS was in compliance with this common equity ratio requirement, this restriction does
not materially affect Pinnacle West's ability to meet its ongoing capital requirements.