CenterPoint Energy 2008 Annual Report Download - page 133

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111
CENTERPOINT ENERGY, INC.
SCHEDULE I — NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY)
(1) Background. The condensed parent company financial statements and notes should be read in conjunction
with the consolidated financial statements and notes of CenterPoint Energy, Inc. (CenterPoint Energy or the
Company) appearing in the Annual Report on Form 10-K. Bank facilities at CenterPoint Energy Houston Electric,
LLC and CenterPoint Energy Resources Corp., indirect wholly owned subsidiaries of the Company, limit debt,
excluding transition bonds, as a percentage of their total capitalization to 65%. These covenants could restrict the
ability of these subsidiaries to distribute dividends to the Company.
(2) Derivatives. In December 2007 and January 2008, the Company entered into treasury rate lock derivative
instruments (treasury rate locks) having an aggregate notional amount of $300 million and a weighted-average
locked U.S. treasury rate on ten-year debt of 4.05%. These treasury rate locks were executed to hedge the ten-year
U.S. treasury rate expected to be used in pricing $300 million of fixed-rate debt the Company planned to issue in
2008, because changes in the U.S treasury rate would cause variability in the Company’s forecasted interest
payments. These treasury rate lock derivatives were designated as cash flow hedges. Accordingly, unrealized gains
and losses associated with the treasury rate lock derivative instruments were recorded as a component of
accumulated other comprehensive income. In May 2008, the Company settled its treasury rate locks for a payment
of $7 million. The $7 million loss recognized upon settlement of the treasury rate locks was recorded as a
component of accumulated other comprehensive loss and will be recognized as a component of interest expense
over the ten-year life of the related $300 million senior notes issued in May 2008. Amortization of amounts deferred
in accumulated other comprehensive loss for the year ended December 31, 2008 was less than $1 million. During
the years ended December 31, 2007 and 2008, the Company recognized a loss of $2 million and $5 million,
respectively, for these treasury rate locks in accumulated other comprehensive loss. Ineffectiveness for the treasury
rate locks was not material during the years ended December 31, 2007 and 2008.
(3) Long-term Debt. In May 2008, the Company issued $300 million aggregate principal amount of senior notes
due in May 2018 with an interest rate of 6.50%. The proceeds from the sale of the senior notes were used for general
corporate purposes, including the satisfaction of cash payment obligations in connection with conversions of the
Company’s 3.75% convertible senior notes.
The Company’s $1.2 billion credit facility has a first-drawn cost of London Interbank Offered Rate (LIBOR)
plus 55 basis points based on the Company’s current credit ratings. The facility contains a debt (excluding transition
bonds) to earnings before interest, taxes, depreciation and amortization (EBITDA) covenant, which was modified (i)
in August 2008 so that the permitted ratio of debt to EBITDA would continue at its then-current level for the
remaining term of the facility and (ii) in November 2008 so that the permitted ratio of debt to EBITDA would be
temporarily increased until the earlier of December 31, 2009 or CenterPoint Houston’s issuance of bonds to
securitize the costs incurred as a result of Hurricane Ike, after which time the permitted ratio would revert to the
level that existed prior to the November 2008 modification.
Under the Company’s $1.2 billion credit facility, an additional utilization fee of 5 basis points applies to
borrowings any time more than 50% of the facility is utilized. The spread to LIBOR and the utilization fee fluctuate
based on the borrower’s credit rating.
As of December 31, 2008, the Company had $264 million of borrowings and approximately $27 million of
outstanding letters of credit under its $1.2 billion credit facility. The Company had no commercial paper outstanding
at December 31, 2008. The Company was in compliance with all covenants as of December 31, 2008.
On May 19, 2003, the Company issued $575 million aggregate principal amount of convertible senior notes due
May 15, 2023 with an interest rate of 3.75%.
In the fourth quarter of 2007, holders of the Company’s 3.75% convertible senior notes converted approximately
$40 million principal amount of such notes. Substantially all of such conversions were settled with a cash payment
for the principal amount and delivery of 1.3 million shares of the Company’s common stock for the excess value due
converting holders.