Entergy 2008 Annual Report Download - page 38

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
Management’s Financial Discussion and Analysis continued
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HU R R I C A N E GU S T A V , HU R R I C A N E IK E , AR K A N S A S IC E ST O R M ,
A N D OT H E R SH O R T -T E R M LI Q U I D I T Y SO U R C E S A N D US E S
As discussed above, Entergy is currently evaluating various
sources of recovering its Hurricane Gustav, Hurricane Ike, and
Arkansas ice storm restoration costs. Entergy believes its total
liquidity is sufficient to meet its current obligations, including the
effects associated with Hurricane Gustav, Hurricane Ike, and the
Arkansas ice storms. Nevertheless, each Utility operating company
is responsible for its storm restoration cost obligations and for
recovering its storm-related costs. In October 2008, Entergy Gulf
States Louisiana, Entergy Louisiana, and Entergy New Orleans
drew all of their funded storm reserves, a total of $229 million.
As of December 31, 2008, Entergy had $1.9 billion of cash and
cash equivalents on hand on a consolidated basis, and believes that
it has sufficient financing authority, subject to debt covenants, to
meet its anticipated obligations.
Entergy’s and the Utility’s short-term financing authorizations
and credit facilities are discussed in more detail in Note 4 to
the financial statements. As of December 31, 2008, Entergy had
undrawn revolving credit facility capacity of $195 million at Entergy
Corporation, $100 million at Entergy Arkansas, $100 million at
Entergy Gulf States Louisiana, $200 million at Entergy Louisiana,
and $50 million at Entergy Mississippi, subject to debt covenants.
Entergy Texas was fully drawn under its $100 million revolving credit
facility. Entergy Corporation’s revolving credit facility requires it
to maintain a consolidated debt ratio of 65 percent or less of its
total capitalization. Some of the Utility operating company credit
facilities have similar covenants. The Entergy Arkansas and Entergy
Mississippi revolving credit facilities expire in April and May 2009,
respectively. These facilities are generally renewed on an annual
basis. The remaining Utility operating company credit facilities
and the Entergy Corporation credit facility expire in 2012. Entergy
anticipates that operating cash flow in excess of storm restoration
spending will remain a source of liquidity.
Long-term debt maturities in 2009 occur in the fourth quarter
and include $219 million at the Utility, $30 million at Non-Utility
Nuclear, and $267 million at Entergy Corporation. In January 2009,
Entergy Texas issued $500 million of long-term debt and used a
portion of the proceeds to repay its $160 million note payable to
Entergy Corporation, to repay the $100 million outstanding on
its credit facility, and to repay short-term borrowings under the
Entergy System money pool. Entergy Texas intends to use the
remaining proceeds to repay on or prior to maturity approximately
$70 million of obligations that had been assumed by Entergy Texas
under the debt assumption agreement with Entergy Gulf States
Louisiana and for other general corporate purposes. In February
2009, Entergy Corporation was unable to remarket successfully
$500 million of notes associated with its equity units. The note
holders therefore put the notes to Entergy, Entergy retired the
notes, and Entergy issued 6.6 million shares of common stock to
the note holders. See Note 5 to the financial statements for details
regarding long-term debt.
CA P I T A L ST R U C T U R E
Entergy’s capitalization is balanced between equity and debt, as
shown in the following table. The increase in the debt to capital
percentage from 2007 to 2008 is primarily the result of additional
borrowings under Entergy Corporation’s revolving credit facilities.
The increase in the debt to capital percentage from 2006 to 2007
is primarily the result of additional borrowings under Entergy
Corporation’s revolving credit facility, along with a decrease in
shareholders’ equity primarily due to repurchases of common
stock. The increases in the debt to capital percentages are in
line with Entergy’s financial and risk management aspirations.
2008 2007 2006
Net debt to net capital at the end of the year 55.6% 54.7% 49.4%
Effect of subtracting cash from debt 4.1% 2.9% 2.9%
Debt to capital at the end of the year 59.7% 57.6% 52.3%
Net debt consists of debt less cash and cash equivalents. Debt
consists 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 and
estimated interest payments as of December 31, 2008. To estimate
future interest payments for variable rate debt, Entergy used the
rate as of December 31, 2008. The figures below include payments
on the Entergy Louisiana and System Energy sale-leaseback
transactions, which are included in long-term debt on the balance
sheet (in millions):
Long-term Debt Maturities 2012- After
and Estimated Interest Payments 2009 2010 2011 2013 2013
Utility $ 661 $ 887 $ 708 $1,686 $7,572
Non-Utility Nuclear 36 37 36 53 82
Parent Company & Other
Business Segments 417 401 662 3,278 –
Total $1,114 $1,325 $1,406 $5,017 $7,654
Note 5 to the financial statements provides more detail concerning
long-term debt.
Entergy Corporation has a revolving credit facility that expires in
August 2012 and has a borrowing capacity of $3.5 billion. Entergy
Corporation also has the ability to issue letters of credit against
the total borrowing capacity of the credit facility. The facility
fee is currently 0.09% of the commitment amount. Facility fees
and interest rates on loans under the credit facility can fluctuate
depending on the senior unsecured debt ratings of Entergy
Corporation. The weighted average interest rate as of December
31, 2008 was 2.171% on the drawn portion of the facility.
As of December 31, 2008, amounts outstanding and capacity
available under the $3.5 billion credit facility are (in millions):
Capacity Borrowings Letters of Credit Capacity Available
$3,500 $3,237 $68 $195
Under covenants contained in Entergy Corporation’s credit facil-
ity and in the indenture governing Entergy Corporation’s senior
notes, Entergy is required to maintain a consolidated debt ratio of
65% or less of its total capitalization. The calculation of this debt
ratio under Entergy Corporation’s credit facility and in the inden-
ture governing the Entergy Corporation senior notes is different
than the calculation of the debt to capital ratio above. Entergy is
currently in compliance with this covenant. If Entergy fails to meet
this ratio, or if Entergy or one of the Utility operating companies
(except Entergy New Orleans) defaults on other indebtedness
or is in bankruptcy or insolvency proceedings, an acceleration of
the Entergy Corporation credit facility’s maturity date may occur
and there may be an acceleration of amounts due under Entergy
Corporation’s senior notes.