Dominion Power 2005 Annual Report Download - page 45

Dominion 2005 43
In February 2005, in connection with the acquisition of a non-
utility generating facility from Panda-Rosemary LP (Rosemary), Vir-
ginia Power assumed $62 million of Rosemary’s 8.625% senior
notes that mature in 2016. In addition, in February and April of
2005, Virginia Power issued $2 million and $6 million, respectively,
of 7.25% promissory notes, which mature in 2025 and 2032,
respectively, in exchange for electric distribution facilities at certain
military bases in connection with their privatization.
In January 2006, Virginia Power issued $450 million of 5.4%
senior notes that mature in 2016 and $550 million of 6.0% senior
notes that mature in 2036.
In February 2006, Dominion Energy Brayton Point, LLC borrowed
$47 million in connection with the Massachusetts Development
Finance Agency’s issuance of its Solid Waste Disposal Revenue
Bonds (Dominion Energy Brayton Point Issue) Series 2006, which
mature in 2036 and bear a coupon rate of 5%, in order to finance
certain improvements to our Brayton Point Station located in
Somerset, Massachusetts.
During 2005, we repaid $2.2 billion of long-term debt securities.
Issuance of Common Stock
During 2005, we received proceeds of $345 million for 5.8 million
shares issued through Dominion Direct®(a dividend reinvestment
and open enrollment direct stock purchase plan), employee savings
plans and the exercise of employee stock options. In February
2005, Dominion Direct®and the Dominion employee savings plans
began purchasing Dominion common stock on the open market
with the proceeds received through these programs, rather than
having additional new common shares issued.
Repurchases of Common Stock
In February 2005, we were authorized by our Board of Directors to
repurchase up to the lesser of 25 million shares or $2.0 billion of
our outstanding common stock. During 2005, we repurchased 3.7
million shares for approximately $276 million.
Forward Equity Transaction
In September 2004, we entered into a forward equity sale agree-
ment (forward agreement) with Merrill Lynch International (MLI), as
forward purchaser, relating to 10 million shares of our common
stock. The forward agreement provided for the sale of two tranches
of our common stock, each with stated maturity dates and settle-
ment prices. In connection with the forward agreement, MLI bor-
rowed an equal number of shares of our common stock from stock
lenders and, at our request, sold the borrowed shares to J.P. Mor-
gan Securities Inc. (JPM) under a purchase agreement among
Dominion, MLI and JPM. JPM subsequently offered the borrowed
shares to the public. We accounted for the forward agreement as
equity at its initial fair value but did not receive any proceeds from
the sale of the borrowed shares.
The use of a forward agreement allowed us to avoid equity mar-
ket uncertainty by pricing a stock offering under then existing mar-
ket conditions, while mitigating share dilution by postponing the
issuance of stock until funds were needed. Except in specified cir-
cumstances or events that would have required physical share set-
tlement, we were able to elect to settle the forward agreement by
means of a physical share, cash or net share settlement and were
also able to elect to settle the agreement in whole, or in part, ear-
lier than the stated maturity date at fixed settlement prices. Under
either a physical share or net share settlement, the maximum num-
ber of shares that were deliverable under the terms of the forward
agreement was limited to the 10 million shares specified in the two
tranches. Assuming gross share settlement of all shares under the
forward agreement, we would have received aggregate proceeds of
approximately $644 million, based on maturity forward prices of
$64.62 per share for the 2 million shares included in the first
tranche and $64.34 per share for the 8 million shares included in
the second tranche.
We elected to cash settle the first tranche in December 2004
and paid MLI $5.8 million, representing the difference between our
share price and the applicable forward sale price, multiplied by the
2 million shares. Additionally, we elected to cash settle 3 million
shares of the second tranche in February 2005 and paid MLI $17.4
million. We recorded the settlement payments as a reduction to
common stock in our Consolidated Balance Sheets.
In April 2005, we entered into an agreement with MLI that
extended the settlement date for the remaining 5 million shares of
the second tranche to August 2005. In August 2005, we delivered
5 million newly issued shares of our common stock to MLI, and
received proceeds of $319.7 million as final settlement of the for-
ward agreement.
Credit Ratings
Credit ratings are intended to provide banks and capital market par-
ticipants with a framework for comparing the credit quality of securi-
ties and are not a recommendation to buy, sell or hold securities. We
believe that the current credit ratings of the Dominion Companies
provide sufficient access to the capital markets. However, disruptions
in the banking and capital markets not specifically related to us may
affect the Dominion Companies’ ability to access these funding
sources or cause an increase in the return required by investors.
Both quantitative (financial strength) and qualitative (business
or operating characteristics) factors are considered by the credit
rating agencies in establishing an individual company’s credit rating.
Credit ratings should be evaluated independently and are subject to
revision or withdrawal at any time by the assigning rating organiza-
tion. The credit ratings for the Dominion Companies are most
affected by each company’s financial profile, mix of regulated and
nonregulated businesses and respective cash flows, changes in
methodologies used by the rating agencies and “event risk,” if
applicable, such as major acquisitions.
Credit ratings for the Dominion Companies as of February 1,
2006 follow:
Standard
Fitch Moody’s & Poor’s
Dominion Resources, Inc.
Senior unsecured debt securities BBB+ Baa1 BBB
Preferred securities of affiliated trusts BBB Baa2 BB+
Commercial paper F2 P-2 A-2
Virginia Power
Mortgage bonds AA2A–
Senior unsecured (including tax-exempt)
debt securities BBB+ A3 BBB
Preferred securities of affiliated trust BBB Baa1 BB+
Preferred stock BBB Baa2 BB+
Commercial paper F2 P-1 A-2
CNG
Senior unsecured debt securities BBB+ A3 BBB
Preferred securities of affiliated trust BBB Baa1 BB+
Commercial paper F2 P-2 A-2
These credit ratings reflect Standard & Poor’s December 2005
downgrade of its credit ratings for the Dominion Companies’ senior