Eversource 2008 Annual Report Download - page 26

October 2008, S&P armed all of its ratings and outlooks
on NU parent, CL&P, PSNH and WMECO. On November5,
2008, S&P raised CL&P’s unsecured debt rating to BBB
from BBB- as a result of a comprehensive review of the
unsecured ratings of United States investment grade
utilities. S&P’s ratings on CL&P’s bonds and preferred
stock were unaected.
If NU parent’s senior unsecured debt ratings were to
be reduced to a sub-investment grade level by either
Moody’s or S&P, a number of Select Energy’s supply
contracts would require Select Energy to post additional
collateral in the form of cash or letters of credit (LOCs).
If such an event were to occur, Select Energy would,
under its remaining contracts, be required to provide
cash or LOCs in an aggregate amount of $23.2 million
to various unaliated counterparties and cash or
LOCs in the aggregate amount of $10 million to two
independent system operators, in each case at December
31, 2008. NU parent would be able to provide that
collateral. If unsecured debt ratings for CL&P or PSNH
were to be reduced by either Moody’s or S&P, a number
of supply contracts would require CL&P and PSNH to
post additional collateral in the form of cash or LOCs to
various unaliated counterparties. If these ratings were
to be reduced by one level, PSNH would be required to
post collateral of $1 million as of December 31, 2008. If
these ratings were to be reduced by two levels or below
investment grade, the amount of collateral required to be
posted by CL&P and PSNH would be $1.3 million and $24.5
million, respectively, at December 31, 2008. CL&P and
PSNH would be able to provide these collateral amounts.
NU paid common dividends of $129.1 million in 2008,
compared with $121 million in 2007 and $112.7 million in
2006. The increase in common dividends paid from 2006
to 2008 reflects a 7.1 percent increase in the amount of
NU parent’s common dividend that took eect in the third
quarter of 2006, a 6.7 percent increase that took eect
in the third quarter of 2007 and a 6.3 percent increase
that took eect in the third quarter of 2008. On February
10, 2009, our Board of Trustees declared a common
dividend of $0.2375 per share, payable on March 31, 2009
to shareholders of record as of March 1, 2009, which
represents a $0.10 per share, or 11.8 percent, increase on an
annual basis.
The February 2009 dividend declaration reflects our
new policy, announced in November 2008, of targeting
a dividend payout ratio of approximately 50 percent of
earnings. Our goal is to continue increasing the dividend
at a rate above industry average and to provide an
attractive return to shareholders. In general, the regulated
companies pay approximately 60 percent of their cash
earnings to NU parent in the form of common dividends.
In 2008, CL&P, PSNH, WMECO and Yankee Gas paid
$106.5 million, $36.4 million, $39.7 million, and $31 million,
respectively, in common dividends to NU parent. In 2008,
NU parent contributed $210 million of equity to CL&P,
$75.6 million to PSNH, $16.3 million to WMECO, and $20.8
million to Yankee Gas.
NU parent’s ability to pay common dividends is subject
to approval by its Board of Trustees and to NU’s future
earnings and cash flow requirements and is not regulated
under the Federal Power Act but may be limited by certain
state statutes, the leverage restrictions in its revolving
credit agreement and the ability of its subsidiaries to
pay common dividends. The Federal Power Act does,
however, limit the payment of dividends by CL&P, PSNH
and WMECO to their respective retained earnings balances
unless a higher amount is approved by FERC, 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 the
regulated companies. CL&P, PSNH, WMECO and Yankee
Gas also are parties to 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 amounts incurred on capital
projects but not yet paid, cost of removal, the AFUDC
related to equity funds, and the capitalized portions of
pension and PBOP expense or income. Our cash capital
expenditures totaled $1.3 billion in 2008, compared with
$1.1 billion in 2007 and $872.2 million in 2006. Our cash
capital expenditures in 2008 included $849.5 million by
CL&P, $238.9 million by PSNH, $78.3 million by WMECO,
$58.3 million by Yankee Gas, and $30.4 million by other
NU subsidiaries. Our cash capital expenditures in 2007
included $826.2 million by CL&P, $167.7 million by PSNH,
$47.3 million by WMECO, $57.6 million by Yankee Gas, and
$16 million by other NU subsidiaries. The increase in our
aggregate cash capital expenditures was primarily the
result of higher distribution segment capital expenditures.
NU Parent: NU parent has a credit line in a nominal
aggregate amount of $500 million including the
commitment of LBCB (as further discussed below), which
expires on November6, 2010. At December 31, 2008, NU
parent had $87 million of LOCs issued for the benefit of
certain subsidiaries (primarily PSNH) and $303.5 million of
borrowings outstanding under this facility. The weighted-
average interest rate on these short-term borrowings at
December31, 2008 was 3.35 percent, which is based on a
variable rate plus an applicable margin based on our credit
ratings. We had approximately $50 million of borrowing
availability on this facility as of February25, 2009,
excluding LBCB’s remaining unfunded commitment. We
also had approximately $466 million of externally invested
cash at February25, 2009.
Regulated Companies: The regulated companies maintain
a joint credit facility in a nominal aggregate amount of
$400 million including the commitment of LBCB (as
further discussed below), which expires on November6,
2010. There were $315 million of borrowings outstanding
under this facility at December 31, 2008. The weighted-
average interest rate on these short-term borrowings at
December 31, 2008 was 3.35 percent, which is based on a
variable rate plus an applicable margin based on our credit
ratings. We had approximately $1 million of borrowing
availability on this facility as of February 25, 2009,
excluding LBCB’s remaining unfunded commitment. As
stated above, we also had approximately $466 million of
externally invested cash at February25, 2009.
Prior to June 30, 2008, CL&P had an arrangement with
CL&P Receivables Corporation (CRC), a consolidated
wholly-owned subsidiary of CL&P, and a financial
institution under which the financial institution could
purchase up to $100 million of CL&P’s accounts receivable
and unbilled revenues from CRC. On June 30, 2008, CL&P
chose to terminate the Receivables Purchase and Sale
Agreement due to the availability and lower relative cost
of other liquidity sources. At this time, we have no further
plans to securitize the accounts receivable and unbilled
revenues of our regulated companies and will utilize our
credit facilities and other financing vehicles, as necessary,
to fund the daily operating activities and capital programs
of these companies.
Our debt agreements provide that NU and certain of its
subsidiaries, including CL&P, PSNH and WMECO, must
comply with certain financial and non-financial covenants
as are customarily included in such agreements, including
a consolidated debt to capitalization ratio. The parties
to these agreements currently are and expect to remain
in compliance with these covenants. Refer to Note 2,
“Short-Term Debt,” and Note 11, “Long-Term Debt,” to
our consolidated financial statements included in this
annual report for further discussion of material terms and
conditions of our outstanding debt agreements.
Impact of Financial Market Conditions: While the
impact of continued market volatility and the extent and
impacts of any economic downturn cannot be predicted,
we currently believe that we have sucient operating
flexibility and access to funding sources to maintain
adequate liquidity (as evidenced by CL&P’s issuance of
$250 million of 10-year bonds in February 2009 at 5.5
percent). The credit outlooks for NU parent and our
regulated companies are all stable, with all their ratings
and outlooks armed by S&P in late October 2008. Our
companies have modest risk of calls for collateral due to
our business model, as described further below. No cash
contributions to our pension plan are required during
2009. We also have only $50 million of long-term debt
maturing in 2009, and projected capital expenditures for
25