Vectren 2010 Annual Report Download - page 55

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Financial Condition
Within Vectren’s consolidated group, Utility Holdings primarily funds the short-term and long-term financing needs of the Utility
Group operations, and Vectren Capital Corp (Vectren Capital) funds short-term and long-term financing needs of the Nonutility
Group and corporate operations. Vectren Corporation guarantees Vectren Capital’s debt, but does not guarantee Utility
Holdings’ debt. Vectren Capital’s long-term and short-term obligations outstanding at December 31, 2010 approximated $410
million and $71 million, respectively. Utility Holdings’ outstanding long-term and short-term borrowing arrangements are jointly
and severally guaranteed by Indiana Gas, SIGECO, and VEDO. Utility Holdings’ long-term debt, including current maturities,
and short-term obligations outstanding at December 31, 2010 approximated $919 million and $47 million, respectively.
Additionally, prior to Utility Holdings’ formation, Indiana Gas and SIGECO funded their operations separately, and therefore,
have long-term debt outstanding funded solely by their operations. SIGECO will also occasionally issue tax exempt debt to fund
qualifying pollution control capital expenditures.
The Company’s common stock dividends are primarily funded by utility operations. Nonutility operations have demonstrated
profitability and the ability to generate cash flows. These cash flows are primarily reinvested in other nonutility ventures, but are
also used to fund a portion of the Company’s dividends, and from time to time may be reinvested in utility operations or used for
corporate expenses.
The credit ratings of the senior unsecured debt of Utility Holdings and Indiana Gas, at December 31, 2010, are A-/A3 as rated
by Standard and Poor's Ratings Services (Standard and Poor’s) and Moody’s Investors Service (Moody’s), respectively. The
credit ratings on SIGECO's secured debt are A/A1. Utility Holdings’ commercial paper has a credit rating of A-2/P-2. In
September of 2010, Moody’s increased its rating on Utility Holdings’ and Indiana Gas’ senior unsecured debt from Baa1 to A3
and on SIGECO’s secured debt from A2 to A1. The current outlook of both Moody’s and Standard and Poor’s is stable. A
security rating is not a recommendation to buy, sell, or hold securities. The rating is subject to revision or withdrawal at any
time, and each rating should be evaluated independently of any other rating. Standard and Poor’s and Moody’s lowest level
investment grade rating is BBB- and Baa3, respectively.
The Company’s consolidated equity capitalization objective is 45-55 percent of long-term capitalization. This objective may
have varied, and will vary, depending on particular business opportunities, capital spending requirements, execution of long-
term financing plans, and seasonal factors that affect the Company’s operations. The Company’s equity component was 46
percent of long-term capitalization at both December 31, 2010 and 2009. Long-term capitalization includes long-term debt,
including current maturities and debt subject to tender, as well as common shareholders’ equity.
As of December 31, 2010, the Company was in compliance with all financial covenants.
Available Liquidity in Current Credit Conditions
The Company’s A-/A3 investment grade credit ratings have allowed it to access the capital markets as needed. Over the last
three years, the Company has significantly enhanced its short-term borrowing capacity with the completion of several long-term
financing transactions including issuances of long-term debt and the settlement of an equity forward contract. The Company
anticipates funding future capital expenditures and dividends through internally generated funds. In addition, available liquidity
is expected to be enhanced by cash resulting from the extension of bonus depreciation legislation. Therefore, management
expects that only a portion of the Utility Holdings’ $250 million debt redemption due in December 2011 needs to be refinanced
with new long-term debt. The Company currently foresees no issues with accessing the capital markets to execute the
refinancing.
Long-term debt transactions completed in 2010 and 2009 include issuances by Vectren Capital totaling $275 million and a $100
million issuance by Vectren Utility Holdings. SIGECO also remarketed $41.3 million of long-term debt and completed a $22.3
million tax-exempt first mortgage bond issuance. These transactions, along with financing transactions completed in 2008, are
more fully described below. (See Financing Cash Flow.)
Consolidated Short-Term Borrowing Arrangements
At December 31, 2010, the Company has $600 million of short-term borrowing capacity, including $350 million for the Utility
Group and $250 million for the wholly owned Nonutility Group and corporate operations. As reduced by borrowings currently
outstanding, approximately $303 million was available for the Utility Group operations and approximately $179 million was