APS 2013 Annual Report Download - page 115

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 12, 2013, APS purchased all $33 million of the Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue
Refunding Bonds, 1994 Series A, due 2029. On January 15, 2014, these bonds were canceled. These bonds were classified as current maturities of long-
term debt on our Consolidated Balance Sheets at December 31, 2012.
On October 11, 2013, APS purchased all $32 million of the City of Farmington, New Mexico Pollution Control Revenue Bonds, 1994 Series C, due
2024. On January 15, 2014, these bonds were canceled. These bonds were classified as current maturities of long-term debt on our Consolidated Balance
Sheets at December 31, 2012.
On January 10, 2014, APS issued $250 million of 4.70% unsecured senior notes that mature on January 15, 2044. The proceeds from the sale were
used to repay commercial paper which was used to fund the purchase price and costs associated with the acquisition of SCE’s 48% ownership interest in each
of Units 4 and 5 of Four Corners and to replenish cash used to re-acquire two series of tax-exempt indebtedness.
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, 2013, the ratio was approximately 47% for Pinnacle West and 45% 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,
2013, APS was in compliance with this common equity ratio requirement. Its total shareholder equity was approximately $4.3 billion, and total capitalization
was approximately $7.5 billion. APS would be prohibited from paying dividends if the payment would reduce its total shareholder equity below
approximately $3.0 billion, assuming APS’s total capitalization remains the
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