APS 2012 Annual Report Download - page 60

36
FINANCIAL RISKS
Financial market disruptions or new financial rules or regulations may increase our financing costs
or limit our access to the credit markets, which may adversely affect our liquidity and our ability to
implement our financial strategy.
We rely on access to credit markets as a significant source of liquidity and the capital markets
for capital requirements not satisfied by cash flow from our operations. We believe that we will
maintain sufficient access to these financial markets. However, certain market disruptions or rules or
regulations may increase our cost of borrowing generally, and/or otherwise adversely affect our ability
to access these financial markets.
In addition, the credit commitments of our lenders under our bank facilities may not be satisfied for
a variety of reasons, including periods of financial distress or liquidity issues affecting our lenders,
which could materially adversely affect the adequacy of our liquidity sources.
Changes in economic conditions, monetary policy or other factors could result in higher interest
rates, which would increase our interest expense on our existing variable rate debt and new debt we
expect to issue in the future, and thus reduce funds available to us for our current plans. Additionally,
an increase in our leverage could adversely affect us by:
• causing a downgrade of our credit ratings;
• increasing the cost of future debt financing and refinancing;
• increasing our vulnerability to adverse economic and industry conditions; and
• requiring us to dedicate an increased portion of our cash flow from operations to
payments on our debt, which would reduce funds available to us for operations, future
business opportunities or other purposes.
A downgrade of our credit ratings could materially and adversely affect our business, financial
condition and results of operations.
Our current ratings are set forth in “Liquidity and Capital Resources – Credit Ratings” in
Item 7. We cannot be sure that any of our current ratings will remain in effect for any given period of
time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment,
circumstances in the future so warrant. Any downgrade or withdrawal could adversely affect the
market price of Pinnacle West’s and APS’s securities, limit our access to capital and increase our
borrowing costs, which would diminish our financial results. We would be required to pay a higher
interest rate for future financings, and our potential pool of investors and funding sources could
decrease. In addition, borrowing costs under our existing credit facilities depend on our credit ratings.
A downgrade would also require us to provide substantial additional support in the form of letters of
credit or cash or other collateral to various counterparties. If our short-term ratings were to be lowered,
it could severely limit access to the commercial paper market. We note that the ratings from rating
agencies are not recommendations to buy, sell or hold our securities and that each rating should be
evaluated independently of any other rating.