Vectren 2008 Annual Report Download - page 91

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89
Interest rates and outstanding balances associated with short-term borrowing arrangements follows:
(In millions) 2008 2007 2006
Weighted average commercial paper and bank loans
outstanding during the yea
r
388.0$ 391.3$ 256.1$
Weighted average interest rates during the yea
r
Commercial paper 3.76% 5.54% 5.16%
Bank loans 3.22% 5.61% 5.51%
(In millions) 2008 2007
Commercial paper 91.5$ 385.9$
Bank loans 428.0 171.1
Total short-term borrow
i
ngs 5
19
.5
$
557.
0
$
Year Ended December 31,
At December 31,
Vectren Capital Short Term Debt Issuance
On September 11, 2008, Vectren Capital entered into a 364-day $120 million credit agreement that was syndicated
with 7 banks. The agreement provides for revolving loans and letters of credit up to $120 million and is in addition
to Vectren Capital’s $255 million which expires in November 2010. Borrowings under the supplemental one year
agreement may be at a floating rate or a Eurodollar rate. Current floating rate advances would be priced at the
greater of the Federal Funds Rate plus 0.5 percent or the Prime Rate. Current Eurodollar advances, based on
Vectren's current credit rating, would expect to be priced at the appropriate Libor rate plus 0.65 percent.
Impacts on Short-Term Borrowings from Recent Events in Credit Markets
Historically, the Company has funded the short-term borrowing needs of Utility Holdings’ operations through the
commercial paper market. In 2008, the Company’s access to longer term commercial paper was significantly
reduced as a result of the continued turmoil and volatility in the financial markets. As a result, the Company has
met working capital requirements through a combination of A2/P2 commercial paper issuances and draws on
Utility Holdings’ $515 million commercial paper back-up credit facilities, which expires in November of 2010. In
addition, the Company increased its cash investments by approximately $75 million during the fourth quarter of
2008. These cash positions were liquidated in January 2009 based upon improvements in the short-term debt and
commercial paper markets. Their liquidation resulted in an increase to the available short-term debt capacity for
Utility Holdings by $40 million and for the Vectren Capital by $35 million.
Covenants
Both long-term and short-term borrowing arrangements contain customary default provisions; restrictions on liens,
sale-leaseback transactions, mergers or consolidations, and sales of assets; and restrictions on leverage and interest
coverage, among other restrictions. As an example, the Vectren Capital’s short-term debt agreement expiring in
2010 contains a covenant that the ratio of consolidated total debt to consolidated total capitalization will not exceed
65 percent. As of December 31, 2008, the Company was in compliance with all financial covenants.
11. Common Shareholders’ Equity
Common Stock Offering
In February 2007, the Company sold 4.6 million authorized but previously unissued shares of its common stock to a
group of underwriters in an SEC-registered primary offering at a price of $28.33 per share. The transaction
generated proceeds, net of underwriting discounts and commissions, of approximately $125.7 million. The
Company executed an equity forward sale agreement (equity forward) in connection with the offering, and
therefore, did not receive proceeds at the time of the equity offering. The equity forward allowed the Company to
price an offering under market conditions existing at that time, and to better match the receipt of the offering
proceeds and the associated share dilution with the implementation of regulatory initiatives.
On June 27, 2008, the Company physically settled the equity forward by delivering the 4.6 million shares, receiving
proceeds of approximately $124.9 million. The slight difference between the proceeds generated by the public
offering and those received by the Company were due to adjustments defined in the equity forward agreement
including: 1) daily increases in the forward sale price based on a floating interest factor equal to the federal funds