Vectren 2013 Annual Report Download - page 59

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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 debt, including current maturities, and short-term obligations outstanding at
December 31, 2013 approximated $550 million and $40 million, respectively. Utility Holdings’ outstanding long-term and short-
term borrowing arrangements are jointly and severally guaranteed by its wholly owned subsidiaries and regulated utilities
Indiana Gas, SIGECO, and VEDO. Utility Holdings’ long-term debt and short-term obligations outstanding at December 31,
2013 approximated $875 million and $29 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. Total
Indiana Gas and SIGECO long-term debt, including current maturities, outstanding at December 31, 2013, was $382.5 million.
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.
Vectren Corporation's corporate credit rating is A-, as rated by Standard and Poor's Ratings Services (Standard and Poor's).
Moody's Investors Services (Moody's) does not provide a rating for Vectren Corporation. The credit ratings of the senior
unsecured debt of Utility Holdings and Indiana Gas, at December 31, 2013, were A-/A3 as rated by Standard and Poor's and
Moody’s, respectively. The credit ratings on SIGECO's secured debt are A/A1. Utility Holdings’ commercial paper had a credit
rating of A-2/P-2. On January 30, 2014, Moody's upgraded the senior unsecured credit ratings of Utility Holdings and Indiana
Gas from A3 to A2. In addition, Utility Holdings' commercial paper was upgraded to P-1 from P-2, and SIGECO's senior secured
debt was upgraded to Aa3 from 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
and 48 percent of long-term capitalization at December 31, 2013 and 2012, respectively. Long-term capitalization includes long-
term debt, including current maturities, as well as common shareholders’ equity. The decrease in 2013 is the result of short-term
debt due at December 31, 2012, being refinanced with long-term debt during 2013.
Both long-term and short-term borrowing arrangements contain customary default provisions; restrictions on liens, sale-
leaseback transactions, mergers or consolidations, and sales of assets; and restrictions on leverage, among other
restrictions. Multiple debt agreements contain a covenant that the ratio of consolidated total debt to consolidated total
capitalization will not exceed 65 percent. As of December 31, 2013, the Company was in compliance with all debt covenants.
Available Liquidity in Current Credit Conditions
The Company's A-/A2 investment grade credit ratings have allowed it to access the capital markets as needed, and the
Company believes it will have the ability to continue to do so. Given the Company's intent to maintain a balanced long-term
capitalization ratio, it anticipates funding future capital expenditures and dividends principally through internally generated funds,
which have recently been enhanced by bonus depreciation legislation supplemented with a modest amount of incremental long-
term debt, and refinancing maturing debt using the capital markets. However, the resources required for capital investment
remain uncertain for a variety of factors including pending legislative and regulatory initiatives involving gas pipeline
infrastructure replacement; coal mine safety; expanded EPA regulations for air, water, and fly ash; and growth of Infrastructure
Services and Energy Services. These factors may result in the need to raise additional capital in the coming years. In addition,