Vectren 2008 Annual Report Download - page 58

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56
therefore, did not receive proceeds at the time of the equity offering. The equity forward allowed the Company to
price an offering under market conditions existing at that time, and to better match the receipt of the offering
proceeds and the associated share dilution with the implementation of regulatory initiatives.
On June 27, 2008, the Company physically settled the equity forward by delivering the 4.6 million shares, receiving
proceeds of approximately $124.9 million. The slight difference between the proceeds generated by the public
offering and those received by the Company were due to adjustments defined in the equity forward agreement
including: 1) daily increases in the forward sale price based on a floating interest factor equal to the federal funds
rate, less a 35 basis point fixed spread, and 2) structured quarterly decreases to the forward sale price that align with
expected Company dividend payments.
Vectren transferred the proceeds to Utility Holdings, and Utility Holdings used the proceeds to repay short-term
debt obligations incurred primarily to fund its capital expenditure program. The proceeds received were recorded
as an increase to Common Stock in Common Shareholders’ Equity and are presented in the Statement of Cash
Flows as a financing activity.
Utility Holdings 2008 Debt Issuance
In March 2008, Utility Holdings issued $125 million in 6.25 percent senior unsecured notes due April 1, 2039
(2039 Notes) at par. The 2039 Notes are guaranteed by Utility Holdings’ three public utilities: SIGECO, Indiana
Gas, and VEDO. These guarantees are full and unconditional and joint and several.
The 2039 Notes have no sinking fund requirements, and interest payments are due monthly. The notes may be
called by Utility Holdings, in whole or in part, at any time on or after April 1, 2013, at 100 percent of principal
amount plus accrued interest. During 2007, Utility Holdings entered into several interest rate hedges with an $80
million notional amount. Upon issuance of the notes, these instruments were settled resulting in the payment of
approximately $9.6 million, which was recorded as a Regulatory asset pursuant to existing regulatory orders. The
value paid is being amortized as an increase to interest expense over the life of the issue. The proceeds from the
sale of the 2039 Notes less settlement of the hedging arrangements and payments of issuance costs amounted to
approximately $111.1 million.
Auction Rate Securities
On December 6, 2007, SIGECO closed on $17 million of auction rate tax-exempt long-term debt. The debt had a
life of 33 years, maturing on January 1, 2041. The initial interest rate was set at 4.50 percent but the rate was to
reset every 7 days through an auction process that began December 13, 2007. This new debt was collateralized
through the issuance of first mortgage bonds and the payment of interest and principal was insured through Ambac
Assurance Corporation (Ambac).
In February 2008, SIGECO provided notice to the current holders of approximately $103 million of tax-exempt
auction rate mode long-term debt, including the $17 million issued in December 2007, of its plans to convert that
debt from its current auction rate mode into a daily interest rate mode. In March 2008, the debt was tendered at 100
percent of the principal amount plus accrued interest. During March 2008, SIGECO remarketed approximately
$61.8 million of these instruments at interest rates that are fixed to maturity, receiving proceeds, net of issuance
costs, of approximately $60.0 million. The terms are $22.6 million at 5.15 percent due in 2023, $22.2 million at
5.35 percent due in 2030 and $17.0 million at 5.45 percent due in 2041. The remaining $41.3 million continues to
be held in treasury and is expected to be remarketed in 2009.
Utility Holdings 2006 Debt Issuance
In October 2006, Utility Holdings issued $100 million in 5.95 percent senior unsecured notes due October 1, 2036
(2036 Notes). The 30-year notes were priced at par. The 2036 Notes are guaranteed by Utility Holdings’ three
public utilities: SIGECO, Indiana Gas, and VEDO. These guarantees are full and unconditional and joint and
several. These notes, as well as the timely payment of principal and interest, are insured by a financial guaranty
insurance policy by Financial Guaranty Insurance Company (FGIC).
The 2036 Notes have no sinking fund requirements, and interest payments are due quarterly. The notes may be
called by Utility Holdings, in whole or in part, at any time on or after October 1, 2011, at 100 percent of principal
amount plus accrued interest. During the first and second quarters of 2006, Utility Holdings entered into several