CenterPoint Energy 2010 Annual Report Download - page 81

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unsecured credit limit. We estimate that as of December 31, 2010, unsecured credit limits extended to CES by
counterparties aggregate $248 million; however, utilized credit capacity was $79 million.
Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop
below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other
collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline
services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline
below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as
$181 million as of December 31, 2010. The amount of collateral will depend on seasonal variations in transportation
levels.
In September 1999, we issued ZENS having an original principal amount of $1.0 billion of which $840 million
remain outstanding at December 31, 2010. Each ZENS note was originally exchangeable at the holder’s option at
any time for an amount of cash equal to 95% of the market value of the reference shares of Time Warner Inc.
common stock (TW Common) attributable to such note. The number and identity of the reference shares
attributable to each ZENS note are adjusted for certain corporate events. As of December 31, 2010, the reference
shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of Time Warner Cable Inc.
common stock (TWC Common) and 0.045455 share of AOL Inc. common stock (AOL Common). If our
creditworthiness were to drop such that ZENS note holders thought our liquidity was adversely affected or the
market for the ZENS notes were to become illiquid, some ZENS note holders might decide to exchange their ZENS
notes for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of TW
Common, TWC Common and AOL Common that we own or from other sources. We own shares of TW Common,
TWC Common and AOL Common equal to approximately 100% of the reference shares used to calculate our
obligation to the holders of the ZENS notes. ZENS note exchanges result in a cash outflow because tax deferrals
related to the ZENS notes and TW Common, TWC Common and AOL Common shares would typically cease when
ZENS notes are exchanged or otherwise retired and TW Common, TWC Common and AOL Common shares are
sold. The ultimate tax liability related to the ZENS notes continues to increase by the amount of the tax benefit
realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement
of the ZENS notes.
Cross Defaults. Under our revolving credit facility, a payment default on, or a non-payment default that permits
acceleration of, any indebtedness exceeding $50 million by us or any of our significant subsidiaries will cause a
default. In addition, three outstanding series of our senior notes, aggregating $750 million in principal amount as of
December 31, 2010, provide that a payment default by us, CERC Corp. or CenterPoint Houston in respect of, or an
acceleration of, borrowed money and certain other specified types of obligations, in the aggregate principal amount
of $50 million, will cause a default. A default by CenterPoint Energy would not trigger a default under our
subsidiaries’ debt instruments or bank credit facilities.
Possible Acquisitions, Divestitures and Joint Ventures. From time to time, we consider the acquisition or the
disposition of assets or businesses or possible joint ventures or other joint ownership arrangements with respect to
assets or businesses. Any determination to take any action in this regard will be based on market conditions and
opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated
potential capital commitments are unpredictable. We may seek to fund all or part of any such efforts with proceeds
from debt and/or equity issuances. Debt or equity financing may not, however, be available to us at that time due to
a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general
economic conditions, market conditions and market perceptions.
Other Factors that Could Affect Cash Requirements. In addition to the above factors, our liquidity and capital
resources could be affected by:
• cash collateral requirements that could exist in connection with certain contracts, including our weather
hedging arrangements, and gas purchases, gas price and gas storage activities of our Natural Gas
Distribution and Competitive Natural Gas Sales and Services business segments;
• acceleration of payment dates on certain gas supply contracts under certain circumstances, as a result of
increased gas prices and concentration of natural gas suppliers;