Progress Energy 2004 Annual Report Download - page 87

the terms of Progress Energy’s five-year credit facility,
even in the event of a MAC, Progress Energy may
continue to borrow funds so long as the proceeds are
used to repay maturing commercial paper balances.
CROSS-DEFAULT PROVISIONS
Each of these credit agreements contains cross-default
provisions for defaults of indebtedness in excess of
$10 million. Under these provisions, if the applicable
borrower or certain subsidiaries of the borrower fail to
pay various debt obligations in excess of $10 million, the
lenders could accelerate payment of any outstanding
borrowing and terminate their commitments to the credit
facility. Progress Energy’s cross-default provision applies
only to Progress Energy and its significant subsidiaries
(i.e., PEC, Florida Progress, PEF, Progress Capital
Holdings, Inc. (PCH) and Progress Fuels).
Additionally, certain of Progress Energy’s long-term debt
indentures contain cross-default provisions for defaults of
indebtedness in excess of $25 million; these provisions
apply only to other obligations of Progress Energy, primarily
commercial paper issued by the holding company, not its
subsidiaries. In the event that these indenture cross-
default provisions are triggered, the debt holders could
accelerate payment of approximately $4.3 billion in long-
term debt. Certain agreements underlying the Company’s
indebtedness also limit its ability to incur additional liens or
engage in certain types of sale and leaseback transactions.
OTHER RESTRICTIONS
Neither Progress Energy’s Articles of Incorporation nor
any of its debt obligations contain any restrictions on the
payment of dividends. Certain documents restrict the
payment of dividends by Progress Energy’s subsidiaries
as outlined below.
PEC’s mortgage indenture provides that, as long as any
first mortgage bonds are outstanding, cash dividends and
distributions on its common stock and purchases of its
common stock are restricted to aggregate net income
available for PEC since December 31, 1948, plus
$3 million, less the amount of all preferred stock dividends
and distributions, and all common stock purchases, since
December 31, 1948. At December 31, 2004, none of PEC’s
retained earnings was restricted.
In addition, PEC’s Articles of Incorporation provide that
cash dividends on common stock shall be limited to
75% of net income available for dividends if common
stock equity falls below 25% of total capitalization, and
to 50% if common stock equity falls below 20%. At
December 31, 2004, PEC’s common stock equity was
approximately 52.2% of total capitalization.
PEF’s mortgage indenture provides that it will not pay any
cash dividends upon its common stock, or make any
other distribution to the stockholders, except a payment
or distribution out of net income of PEF subsequent to
December 31, 1943. At December 31, 2004, none of PEF’s
retained earnings was restricted.
In addition, PEF’s Articles of Incorporation provide that no
cash dividends or distributions on common stock shall be
paid, if the aggregate amount thereof since April 30, 1944,
including the amount then proposed to be expended, plus
all other charges to retained earnings since April 30, 1944,
exceed (a) all credits to retained earnings since April 30,
1944, plus (b) all amounts credited to capital surplus after
April 30, 1944, arising from the donation to PEF of cash or
securities or transfers of amounts from retained earnings
to capital surplus.
PEF’s Articles of Incorporation also provide that cash
dividends on common stock shall be limited to 75% of net
income available for dividends if common stock equity falls
below 25% of total capitalization, and to 50% if common
stock equity falls below 20%. On December 31, 2004,
PEF’s common stock equity was approximately 54.4% of
total capitalization.
C. Collateralized Obligations
PEC’s and PEF’s first mortgage bonds are collateralized
by their respective mortgage indentures. Each mortgage
constitutes a first lien on substantially all of the fixed
properties of the respective company, subject to certain
permitted encumbrances and exceptions. Each
mortgage also constitutes a lien on subsequently
acquired property. At December 31, 2004, PEC and PEF
had a total of approximately $3.84 billion of first mortgage
bonds outstanding, including those related to pollution
control obligations. Each mortgage allows the issuance
of additional mortgage bonds upon the satisfaction of
certain conditions.
D. Progress Genco Ventures, LLC
(Genco) Bank Facility
In December 2004, Genco repaid its bank facility and
recorded a $9 million pre-tax loss ($6 million after-tax) in
other, net on the extinguishment. At that time, the related
$195 million notional amount of interest rate collars in
place to hedge floating interest rate exposure on the bank
facility was terminated and pre-tax deferred losses of
$6 million ($4 million after-tax) were reclassified into
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Progress Energy Annual Report 2004