Entergy 2005 Annual Report Download - page 42

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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DEBTOR-IN-POSSESSION CREDIT AGREEMENT
On September 26, 2005, Entergy New Orleans, as borrower, and
Entergy Corporation, as lender, entered into the Debtor-in-
Possession (DIP) credit agreement, a debtor-in-possession credit
facility to provide funding to Entergy New Orleans during its business
restoration efforts. On December 9, 2005, the bankruptcy court
issued its final order approving the DIP Credit Agreement. The
indenture trustee of Entergy New Orleans’ first mortgage bonds
appealed the final order, and that appeal is pending. Subsequent to
the indenture trustee filing its notice of appeal, Entergy New
Orleans, Entergy Corporation, and the indenture trustee filed with
the bankruptcy court a motion to approve a settlement among the
parties. The settlement would result in the dismissal of the indenture
trustee’s appeal. The settlement is set for hearing in the bankruptcy
court on March 22, 2006.
The credit facility provides for up to $200 million in loans. These
funds were requested to enable Entergy New Orleans to meet its
liquidity needs, including employee wages and benefits and
payments under power purchase and gas supply agreements, and
to continue its efforts to repair and restore the facilities needed to
serve its electric and gas customers. The facility enables Entergy
New Orleans to request funding from Entergy Corporation, but the
decision to lend money is at the sole discretion of Entergy
Corporation. As of December 31, 2005, Entergy New Orleans had
$90 million of outstanding borrowings under the DIP credit agree-
ment. Management currently expects the bankruptcy court-authorized
funding level to be sufficient to fund Entergy New Orleans’ expected
level of operations through 2006.
Borrowings under the DIP credit agreement are due in full, and
the agreement will terminate, at the earliest of (i) August 23, 2006,
or such later date as Entergy Corporation shall agree to in its sole
discretion, (ii) the acceleration of the loans and the termination of
the DIP credit agreement in accordance with its terms, (iii) the date
of the closing of a sale of all or substantially all of Entergy New
Orleans’ assets pursuant to section 363 of the United States
Bankruptcy Code or a confirmed plan of reorganization, or (iv) the
effective date of a plan of reorganization in Entergy New Orleans’
bankruptcy case.
As security for Entergy Corporation as the lender, the terms of
the December 9, 2005 bankruptcy court order provide that all bor-
rowings by Entergy New Orleans under the DIP Credit Agreement
are: (i) entitled to superpriority administrative claim status pursuant
to section 364(c)(1) of the Bankruptcy Code; (ii) secured by a per-
fected first priority lien on all property of Entergy New Orleans
pursuant to sections 364(c)(2) and 364(d) of the Bankruptcy Code,
except on any property of Entergy New Orleans subject to valid,
perfected, and non-avoidable liens of the lender on Entergy New
Orleans’ $15 million credit facility; and (iii) secured by a perfected
junior lien pursuant to section 364(c)(3) of the Bankruptcy Code on
all property of Entergy New Orleans subject to valid, perfected, and
non-avoidable liens in favor of the lender on Entergy New Orleans’
$15 million credit facility that existed as of the date Entergy New
Orleans filed its bankruptcy petition.
The interest rate on borrowings under the DIP credit agreement
will be the average interest rate of borrowings outstanding under
Entergy Corporation’s $2 billion revolving credit facility, which was
approximately 4.7% per annum at December 31, 2005.
CAPITAL STRUCTURE
Entergy’s capitalization is balanced between equity and debt, as shown
in the following table. The increase in the debt to capital percentage
from 2004 to 2005 is the result of increased debt outstanding due to
additional borrowings on Entergy Corporation’s $2 billion revolving
credit facility, additional debt issuances, including Entergy
Corporation’s equity units issuance, along with a decrease in share-
holders’ equity, primarily due to repurchases of common stock.
2005 2004 2003
Net debt to net capital at the end of the year 51.5% 45.3% 45.9%
Effect of subtracting cash from debt 1.6% 2.1% 1.6%
Debt to capital at the end of the year 53.1% 47.4% 47.5%
Net debt consists of debt less cash and cash equivalents. Debt con-
sists of notes payable, capital lease obligations, preferred stock with
sinking fund, and long-term debt, including the currently maturing
portion. Capital consists of debt, shareholders’ equity, and preferred
stock without sinking fund. Net capital consists of capital less cash
and cash equivalents. Entergy uses the net debt to net capital ratio
in analyzing its financial condition and believes it provides useful
information to its investors and creditors in evaluating Entergy’s
financial condition.
Long-term debt, including the currently maturing portion, makes
up substantially all of Entergy’s total debt outstanding. Following
are Entergy’s long-term debt principal maturities as of December
31, 2005 by operating segment. The figures below include principal
payments on the Entergy Louisiana and System Energy sale-lease-
back transactions, which are included in long-term debt on the
balance sheet (in millions):
Long-term 2009- After
Debt Maturities 2006 2007 2008 2010 2010
U.S. Utility $ 23 $ 93 $ 802 $ 746 $4,705
Non-Utility Nuclear 81 80 20 42 151
Parent Company & Other
Business Segments – – 272 1,327 586
Total $104 $173 $1,094 $2,115 $5,442
Note 5 to the consolidated financial statements provides more detail
concerning long-term debt.
In May 2005, Entergy Corporation terminated its two separate,
revolving credit facilities, a $500 million five-year credit facility and
a $965 million three-year credit facility. At that time, Entergy
Corporation entered into a $2 billion five-year revolving credit
facility, which expires in May 2010. As of December 31, 2005, $785
million in borrowings were outstanding on this facility.
In December 2005, Entergy Corporation entered into a $1.5 bil-
lion three-year revolving credit facility, which expires in December
2008. As of December 31, 2005, no borrowings were outstanding on
this facility.
Entergy also has the ability to issue letters of credit against the
total borrowing capacity of both the three-year and the five-year
credit facilities, and $239.5 million of letters of credit had been
issued against the five-year facility at December 31, 2005.
Following is a summary of the borrowings outstanding and capacity
available under these facilities as of December 31, 2005 (in millions):
Facility Capacity Borrowings Letters of Credit Capacity Available
5-Year Facility $2,000 $785 $240 $ 975
3-Year Facility $1,500 $ – $ – $1,500
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued