CenterPoint Energy 2010 Annual Report Download - page 53

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• incremental collateral that may be required due to regulation of derivatives; and
• provisions of relevant tax and securities laws.
As of December 31, 2010, CenterPoint Houston had approximately $2.5 billion aggregate principal amount of
general mortgage bonds outstanding under the General Mortgage, (a) including $290 million held in trust to secure
pollution control bonds that are not reflected on our consolidated financial statements because we are both the
obligor on the bonds and the owner of the bonds, (b) an additional approximately $237 million held in trust to secure
pollution control bonds for which we are obligated and (c) approximately $229 million held in trust to secure
pollution control bonds for which CenterPoint Houston is obligated. Additionally, CenterPoint Houston had
approximately $253 million aggregate principal amount of first mortgage bonds outstanding under the Mortgage,
including approximately $151 million held in trust to secure certain pollution control bonds for which we are
obligated. CenterPoint Houston may issue additional general mortgage bonds on the basis of retired bonds, 70% of
property additions or cash deposited with the trustee. Approximately $2.3 billion of additional first mortgage bonds
and general mortgage bonds in the aggregate could be issued on the basis of retired bonds and 70% of property
additions as of December 31, 2010. However, CenterPoint Houston has contractually agreed that it will not issue
additional first mortgage bonds, subject to certain exceptions.
Our current credit ratings are discussed in ―Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Liquidity and Capital Resources — Future Sources and Uses of Cash — Impact on
Liquidity of a Downgrade in Credit Ratings‖ in Item 7 of Part II of this report. These credit ratings may not remain
in effect for any given period of time and one or more of these ratings may be lowered or withdrawn entirely by a
rating agency. We note that these credit ratings are not recommendations to buy, sell or hold our securities. Each
rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of
our credit ratings could have a material adverse impact on our ability to access capital on acceptable terms.
As a holding company with no operations of our own, we will depend on distributions from our subsidiaries to
meet our payment obligations, and provisions of applicable law or contractual restrictions could limit the
amount of those distributions.
We derive all our operating income from, and hold all our assets through, our subsidiaries. As a result, we will
depend on distributions from our subsidiaries in order to meet our payment obligations. In general, these subsidiaries
are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations,
whether by dividends, distributions, loans or otherwise. In addition, provisions of applicable law, such as those
limiting the legal sources of dividends, limit our subsidiaries’ ability to make payments or other distributions to us,
and our subsidiaries could agree to contractual restrictions on their ability to make distributions.
Our right to receive any assets of any subsidiary, and therefore the right of our creditors to participate in those
assets, will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors. In
addition, even if we were a creditor of any subsidiary, our rights as a creditor would be subordinated to any security
interest in the assets of that subsidiary and any indebtedness of the subsidiary senior to that held by us.
The use of derivative contracts by us and our subsidiaries in the normal course of business could result in
financial losses that could negatively impact our results of operations and those of our subsidiaries.
We and our subsidiaries use derivative instruments, such as swaps, options, futures and forwards, to manage our
commodity, weather and financial market risks. We and our subsidiaries could recognize financial losses as a result
of volatility in the market values of these contracts or should a counterparty fail to perform. In the absence of
actively quoted market prices and pricing information from external sources, the valuation of these financial
instruments can involve management’s judgment or use of estimates. As a result, changes in the underlying
assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.