Eversource 2006 Annual Report Download - page 24

22 NU 2006 ANNUAL REPORT
had $67.5 million of LOCs secured by that facility. In June of 2006, NU
terminated a separate $310 million liquidity facility as a result of the
reduced liquidity needs of NU Enterprises.
NU’s debt agreements provide that certain of its subsidiaries must
comply with certain financial and non-financial covenants as are
customarily included in such agreements, including but not limited to,
debt service coverage ratios and interest coverage ratios. The parties
to these agreements currently are and expect to remain in compliance
with these covenants.
On December 12, 2005, NU sold 23 million common shares at a
price of $19.09 per share. Proceeds from this issuance, which were
approximately $425 million after underwriter commissions and expenses,
were used to reduce short-term debt and to contribute equity to the
Utility Group companies. In 2006, NU contributed $60.8 million of
equity to CL&P, $21.7 million to PSNH, $31.9 million to WMECO, and
$35.1 million to Yankee Gas. The company does not expect to issue
additional common equity in 2007 or 2008, other than through its
compensation plans. A modest equity issuance in 2009 is possible,
depending on the company’s capital program and the company’s future
debt toequity ratio compared to targets.
NU’ssenior unsecured debt is rated Baa2, BBB-, and BBB with a
stable outlook, by Moody’s Investors Service (Moody’s), Standard &
Poor’s(S&P) and Fitch Ratings (Fitch), respectively. If NU were to be
downgraded to a sub-investment grade level by either Moody’s or S&P,
anumber of Select Energy’s contracts would require the posting of
additional collateral in the form of cash or LOCs. If NU’ssenior
unsecured ratings were reduced to sub-investment grade by either
Moody’s or S&P, Select Energy could, under its present contracts, be
asked toprovide approximately $136.8 million of collateral or LOCs
to various unaffiliated counterparties and approximately $52.4 million to
several independent system operators and unaffiliated local distribution
companies (LDCs) in each case at December 31, 2006. If such a
downgrade were to occur, management believes NU would currently
be ableto provide this collateral.
There was limited ratings activity involving NU and its subsidiaries in
2006. Moody’s downgraded PSNH secured debt to Baa1 from A3 due to
lower projected cash flows as a result of PSNH’s full recovery of Part 3
stranded costs as of June 30, 2006. On December 12, 2005, Moody’s
also lowered the outlook for Yankee Gas to “negative” from “stable” to
reflect the fact that some of Yankee Gas’s credit measures are relatively
weak in relation to its Baa2 issuer rating. NU expects that the Moody’s
decision on Yankee Gas’s rating will depend upon the outcome of the
rate case Yankee Gas filed on December 29, 2006. Additionally, S&P
improved NU’s business risk position to a “4” from a “5,” to reflect the
exit of the NU Enterprises businesses, while Fitch raised its outlook on
NU and CL&P to stable from negative also due primarily to the exit
from the NU Enterprises businesses.
NU paid common dividends of $112.7 million in 2006, compared with
$87.6 million in 2005 and $80.2 million in 2004. The increase in common
dividends reflects increases in quarterly dividends of $0.0125 per share
in the third quarters of 2004, 2005, and 2006 as well as a higher number
of shares outstanding in 2006 as a result of NU’s common share
issuance on December 12, 2005. Management expects to continue
its current policy of dividend increases, subject to the approval of the
NU Board of Trustees and the company’s future earnings and cash
requirements. In February of 2007, the NU Board of Trustees approved
aquarterly dividend of $0.1875 per share, payable on March 30, 2007,
to shareholders of record as of March 1, 2007. In general, the Utility
Group companies pay approximately 60 percent of their cash earnings
to NU in the form of common dividends. In 2006, CL&P, PSNH, WMECO,
and Yankee Gas paid $63.7 million, $41.7 million, $7.9 million, and $7.9
million, respectively, in common dividends to NU.
NU’s ability to pay dividends is not regulated under the Federal Power Act,
but may be affected by certain state statutes, the leverage restrictions in
its revolving credit agreement and the ability of its subsidiaries to pay
dividends to it. The Federal Power Act limits the payment of dividends
by CL&P, PSNH and WMECO to their retained earnings balances, and
PSNH is required to reserve an additional amount under its FERC
hydroelectric license conditions. In addition, certain state statutes may
impose additional limitations on such companies and on Yankee Gas.
CL&P, PSNH, WMECO and Yankee Gas also have a revolving credit
agreement that imposes leverage restrictions.
Cash capital expenditures included on the accompanying consolidated
statements of cash flows and described in the liquidity section of this
management’s discussion and analysis do not include cost of removal,
the allowance for funds used during construction (AFUDC) related to
equity funds and the capitalized portion of pension expense or income.
NU’s cash capital expenditures totaled $872.2 million in 2006, compared
with $775.4 million in 2005 and $671.5 million in 2004. NU’s2006 cash
capital expenditures included $567.2 million by CL&P, $126.7 million
by PSNH, $42.8 million by WMECO, $87.6 million by Yankee Gas, and
$47.9 million by other NU subsidiaries, including $25.8 million by
NU Enterprises. The increase in NU’s cash capital expenditures was
primarily the result of higher transmission capital expenditures,
particularlyat CL&P. For information regarding 2007 through 2011
projected capital expenditures, see “Business Development and Capital
Expenditures,” included in this Management’s Discussion and Analysis.
NU expects to fund approximately 60 percent of its expected capital
expenditures over the next several years through internally generated
cash flows. As a result, the company expects its Utility Group companies,
particularly CL&P, to issue debt regularly.
Utility Group: The Utility Group companies maintain a $400 million
credit line that expires on November 6, 2010. There were no borrowings
outstanding under that facility at December 31, 2006.
In addition to its revolving credit facility, CL&P has an arrangement with
afinancial institution under which CL&P can sell up to $100 million of
accounts receivable and unbilled revenues. There were no amounts
outstanding under that facility at December 31, 2006. For more
information regarding the sale of receivables, see Note 1L, “Summary
of Significant Accounting Policies – Sale of Receivables,” to the
consolidated financial statements.
On June 7, 2006, CL&P closed on the sale of $250 million of 30-year
first mortgage bonds with a coupon rate of 6.35 percent. Because of an
interestrate hedge CL&P executed earlier in 2006 to offset the impact
of higher interest rates, CL&P received $7.8 million from the hedge
counterparties at the closing of this transaction.