Allegheny Power 2010 Annual Report Download - page 47

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32
As of December 31, 2010, FirstEnergy could issue additional debt of approximately $3.2 billion, or recognize a reduction in
equity of approximately $1.7 billion, and remain within the limitations of the financial covenants required by its revolving
credit facility.
The revolving credit facility does not contain provisions that either restrict the ability to borrow or accelerate repayment of
outstanding advances as a result of any change in credit ratings. Pricing is defined in "pricing grids," whereby the cost of
funds borrowed under the facility is related to the credit ratings of the company borrowing the funds.
FirstEnergy Money Pools
FirstEnergy's regulated companies also have the ability to borrow from each other and the holding company to meet their
short-term working capital requirements. A similar but separate arrangement exists among FirstEnergy's unregulated
companies. FESC administers these two money pools and tracks surplus funds of FirstEnergy and the respective regulated
and unregulated subsidiaries, as well as proceeds available from bank borrowings. Companies receiving a loan under the
money pool agreements must repay the principal amount of the loan, together with accrued interest, within 364 days of
borrowing the funds. The rate of interest is the same for each company receiving a loan from their respective pool and is
based on the average cost of funds available through the pool. The average interest rate for borrowings in 2010 was
0.51% per annum for the regulated companies' money pool and 0.60% per annum for the unregulated companies' money
pool.
Pollution Control Revenue Bonds
As of December 31, 2010, FirstEnergy's currently payable long-term debt included 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.
The LOCs for FirstEnergy variable interest rate PCRBs were issued by the following banks as of December 31, 2010:
Aggregate LOC Reimbursements of
LOC Bank Amount(2) LOC Termination Date LOC Draws Due
(In millions)
CitiBank N.A. $166 June 2014 June 2014
The Bank of Nova Scotia 178 Beginning April 2011 Multiple dates
(3)
The Royal Bank of Scotland 131 June 2012 6 months
Wachovia Bank 152 March 2014 March 2014
Barclays Bank
(1)
208
A
pril 2011 30 days
Total $835
(1)
Supported by 13 participating banks, with no one bank having more than 22% of the total commitment.
(2)
Includes approximately $8 million of applicable interest coverage.
(3)
Shorter of 6 months or LOC termination date ($49 million) and shorter of one year or LOC termination date ($129 million).
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 $25 million PCRBs. These PCRBs were converted from a variable interest rate to fixed
interest rates ranging from 2.25% to 3.75% per annum.