Allegheny Power 2010 Annual Report Download - page 125

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Other Long-term Debt
FGCO, NGC and each of the Utilities, except for JCP&L and Penelec, have a first mortgage indenture under which they
can issue FMBs secured by a direct first mortgage lien on substantially all of their property and franchises, other than
specifically excepted property.
FirstEnergy and its subsidiaries have various debt covenants under their respective financing arrangements. The most
restrictive of the debt covenants relate to the nonpayment of interest and/or principal on debt and the maintenance of
certain financial ratios. There also exist cross-default provisions in a number of the respective financing arrangements of
FirstEnergy, FES, FGCO, NGC and the Utilities. These provisions generally trigger a default in the applicable financing
arrangement of an entity if it or any of its significant subsidiaries defaults under another financing arrangement of a
certain principal amount, typically $50 million. Although such defaults by any of the Utilities will generally cross-default
FirstEnergy financing arrangements containing these provisions, defaults by FirstEnergy will not generally cross-default
applicable financing arrangements of any of the Utilities. Defaults by any of FES, FGCO or NGC will generally cross-
default to applicable financing arrangements of FirstEnergy and, due to the existence of guarantees of FirstEnergy of
certain financing arrangements of FES, FGCO and NGC, defaults by FirstEnergy will generally cross-default FES, FGCO
and NGC financing arrangements containing these provisions. Cross-default provisions are not typically found in any of
the senior note or FMBs of FirstEnergy or the Utilities.
Based on the amount of FMBs authenticated by the respective mortgage bond trustees as of December 31, 2010, the
Utilities’ annual sinking fund requirement for all FMB issued under the various mortgage indentures amounted to
payments of $36 million (Penn - $7 million, Met-Ed - $8 million, and Penelec - $21 million) in 2010. Penn expects to
meet its 2011 annual sinking fund requirement with a replacement credit under its mortgage indenture. Met-Ed can fulfill
its sinking fund obligation by providing bondable property additions, previously retired FMBs or cash to the respective
mortgage bond trustees. Since Penelec’s first mortgage bond indenture was terminated in 2010, Penelec no longer has a
sinking fund obligation.
As of December 31, 2010, FirstEnergy’s currently payable long-term debt includes approximately $827 million (FES -
$778 million, Met-Ed - $29 million and Penelec - $20 million) of variable interest rate PCRBs, the bondholders of which
are entitled to the benefit of irrevocable direct pay bank LOCs. The interest rates on the PCRBs are reset daily or weekly.
Bondholders can tender their PCRBs for mandatory purchase prior to maturity with the purchase price payable from
remarketing proceeds, or if the PCRBs are not successfully remarketed, by drawings on the irrevocable direct pay LOCs.
The subsidiary obligor is required to reimburse the applicable LOC bank for any such drawings or, if the LOC bank fails
to honor its LOC for any reason, must itself pay the purchase price.
On August 20, 2010, FES completed the remarketing of $250 million of PCRBs. Of the $250 million, $235 million of
PCRBs were converted from a variable interest rate to a fixed interest rate. The remaining $15 million of PCRBs continue
to bear a fixed interest rate. The interest rate conversion minimizes financial risk by converting the long-term debt into a
fixed rate and, as a result, reducing exposure to variable interest rates over the short-term. These remarketings included
two series: $235 million of PCRBs that now bears a per-annum rate of 2.25% and is subject to mandatory purchase on
June 3, 2013; and $15 million of PCRBs that now bears a per-annum rate of 1.5% and is subject to mandatory purchase
on June 1, 2011.
On October 1, 2010, FES completed the refinancing and remarketing of six series of PCRBs totaling $313 million. These
PCRBs were converted from a variable interest rate to a fixed long term interest rate of 3.375% per annum and are
subject to mandatory purchase on July 1, 2015.
On December 3, 2010, FES completed the remarketing of four series of PCRBs totaling $153 million and Penelec
completed the remarketing of one $25 million PCRB. These PCRBs were converted from a variable interest rate to fixed
interest rates ranging from 2.25% to 3.75% per annum.
Sinking fund requirements for FMBs and maturing long-term debt (excluding capital leases and variable rate PCRBs) for
the next five years are:
Y
ear FE FES OE CEI JCP&L Met-Ed Penelec
(In millions)
2011 $ 445 $ 163 $ 1 $ 20 $ 32 $ - $ -
2012 448 68 1 22 34 - -
2013 554 75 1 324 36 150 -
2014 529 99 1 26 38 250 150
2015 639 450 151 24 41 - -