NOTE

— LONG-TERM DEBT AND CREDIT AGREEMENTS

Long-term debt consists of notes payable under the following agreements:

	December 31,
	2016			2015
	(Dollars in thousands)
Limited and non-recourse agreements:
Loans:
Non-recourse:
Other loans	$	6,368		$	-
Limited recourse:
Loan agreement with OPIC (the Olkaria III power plant)		246,630			264,624
Loan agreement with Banco Industrial S.A. and Westrust Bank (International) Limited		36,750			40,250
Senior Secured Notes:
Non-recourse:
Ormat Funding Corp. ("OFC")		17,026			29,968
OrCal Geothermal Inc. ("OrCal")		35,181			43,332
Don A. Campbell 1 ("DAC1")		92,361
Limited recourse:
OFC 2 LLC ("OFC 2")		247,232			261,959
		681,548			640,133
Less current portion		(53,729	)		(51,425	)
Non current portion	$	627,819		$	588,708
Full recourse agreements:
Senior unsecured bonds	$	204,332		$	249,981
Loans from institutional investors		3,333			6,667
Loan agreements with DEG (the Olkaria III and IV power plants)		65,789			23,684
Loan from a commercial bank		1,529			-
Revolving credit lines with banks		-			-
		274,983			280,332
Less current portion		(12,242	)		(11,229	)
Non current portion	$	262,741		$	269,103

Loan Agreement

with

Banco Industrial S.A. and Westrust Bank (International) Limited

July

31,

2015,

one

of our indirect wholly-owned subsidiaries, Ortitlản, Limitada, obtained a

-year secured term loan in the principal amount of

$42.0

million for the

MW Amatitlan power plant in Guatemala. Under the credit agreement with Banco Industrial S.A. and Westrust Bank (International) Limited, we can expand the Amatitlan power plant with financing to be provided either via equity, additional debt from Banco Industrial S.A. or from other lenders, subject to certain limitations on expansion financing in the credit agreement.

The loan is payable in

quarterly payments commencing

September

30,

2015.

The loan bears interest at a rate

per annum

equal to of the sum of the LIBO Rate (which cannot be lower than

1.25%)

plus a margin of (i)

4.35%

as long as the Company’s guaranty of the loan (as described below) is outstanding or (ii)

4.75%

otherwise. Interest is payable quarterly, on

March

30,

June

30,

September

and

December

of each year, on the stated maturity date of the loan and on any prepayment or payment of the loan. The loan must be prepaid on the occurrence of certain events, such as casualty, condemnation, asset sales and expansion financing not provided by the lenders under the credit agreement, among others. The loan

may

be voluntarily prepaid if certain conditions are satisfied, including payment of a premium (ranging from

100

basis points) if prepayment occurs prior to the

eighth

anniversary of the loan.

There are various restrictive covenants under the Amatitlan credit agreement. These include, among others, (i) a financial covenant to maintain a Debt Service Coverage Ratio (as defined in the credit agreement) of not less than

1.15

1.00

as of the last day of any fiscal quarter and (ii) limitations on Restricted Payments (as defined in the credit agreement) that among other things would limit dividends that could be paid to us unless the historical and projected Debt Service Coverage Ratio is not less than

1.25

1.00

for the

four

fiscal quarterly periods (calculated as a single accounting period).

As of

December

31,

2016,

the actual historical and projected

-month Debt Service Coverage Ratio was

1.87

and

1.92,

respectively. The credit agreement includes various events of default that would permit acceleration of the loan (subject in some cases to grace and cure periods). These include, among others, a Change of Control (as defined in the credit agreement) and failure to maintain certain required balances in debt service and maintenance reserve accounts. The credit agreement includes certain equity cure rights for failure to maintain the Debt Service Coverage Ratio and the minimum amounts required in the debt service and maintenance reserve accounts.

The loan is secured by substantially all the assets of the borrower and a pledge of all of the membership interests of the borrower.

The Company has guaranteed payment of all obligations under the credit agreement and related financing documents. The guaranty is limited in the sense that the Company is only required to pay the guaranteed obligations if a “trigger event” occurs. A trigger event is the occurrence and continuation of a default by Instituto Nacional de Electricidad (“INDE”) in its payment obligations under the power purchase agreement for the Amatitlàn power plant or a refusal by INDE to receive capacity and energy sold under that power purchase agreement. Our obligations under the guaranty

may

be terminated prior to payment in full of the guaranteed obligations under certain circumstances described in the guaranty. If our guaranty is terminated early, the interest rate payable on the loan would increase as described above.

As of

December

31,

2016,

$36.8

million of this loan is outstanding.

Finance Agreement with OPIC (the Olkaria III Complex)

August

23,

2012,

the Company’s wholly owned subsidiary, OrPower

entered into a Finance Agreement with Overseas Private Investment Corporation (“OPIC”), an agency of the United States government, to provide limited-recourse senior secured debt financing in an aggregate principal amount of up to

$310.0

million (the “OPIC Loan”) for the refinancing and financing of the Olkaria III geothermal power complex in Kenya. The Finance Agreement was amended on

November

2012.

The OPIC Loan is comprised of up to

three

tranches:

•

Tranche I in an aggregate principal amount of

$85.0

million, which was drawn in

November

2012,

was used to prepay approximately

$20.5

million (plus associated prepayment penalty and breakage costs of

$1.5

million) of the DEG Loan, as described below. The remainder of Tranche I proceeds was used for reimbursement of prior capital costs and other corporate purposes.

•

Tranche II in an aggregate principal amount of

$180.0

million

was used to fund the construction and well field drilling for the expansion of the Olkaria III geothermal power complex (“Plant

2”).

November

2012,

an amount of

$135.0

million was disbursed under this Tranche II, and in

February

2013,

the remaining

$45.0

million was distributed under this Tranche II.

•

Tranche III in an aggregate principal amount of

$45.0

million

was used to fund the construction of Plant

of the Olkaria III complex. In

November

2013,

an amount of

$45.0

million was disbursed under this Tranche.

July

2013,

we completed the conversion of the interest rate applicable to both Tranche I and Tranche II from a floating interest rate to a fixed interest rate. The average fixed interest rate for Tranche I, which has an outstanding balance as of

December

31,

2016

$66.0

million and matures on

December

15,

2030,

and Tranche II, which has an outstanding balance as of

December

31,

2016

$142.9

million and matures on

June

15,

2030,

6.31%.

November

2013,

we fixed the interest rate for Tranche III. The fixed interest rate for Tranche III, which has an outstanding balance as of

December

31,

2016

$37.6

million and matures on

December

15,

2030,

6.12%.

OrPower

has a right to make voluntary prepayments of all or a portion of the OPIC Loan subject to prior notice, minimum prepayment amounts,

and a prepayment premium of

2.0%

in the

first

two

years after the Plant

commercial operation date, declining to

in the

third

year after the Plant

commercial operation date, and without premium thereafter, plus a redemption premium. In addition, the OPIC Loan is subject to customary mandatory prepayment in the event of certain reductions in generation capacity of the power plants, unless such reductions will not cause the projected ratio of cash flow to debt service to fall below

1.7.

The OPIC Loan is secured by substantially all of OrPower

’

s assets and by a pledge of all of the equity interests in OrPower

The finance agreement includes customary events of default, including failure to pay any principal, interest or other amounts when due, failure to

comply with covenants, breach of representations and warranties, non-payment or acceleration of other debt of OrPower

bankruptcy of OrPower

or certain of its affiliates, judgments rendered against OrPower

expropriation, change of control, and revocation or early termination of security documents or certain project-related agreements, subject to various exceptions and notice, cure and grace periods.

The repayment of the remaining outstanding DEG Loan (see

“

Full-Recourse Third-Party Debt”

below) in the amount of approximately

$15.8

million as of

December

31,

2016,

has been subordinated to the OPIC Loan.

There are various restrictive covenants under the OPIC Loan, which include a required historical and projected

-month DSCR of not less than

1.4

(measured as of

March

15,

June

15,

September

and

December

of each year). If OrPower

fails to comply with these financial ratios it will be prohibited from making distributions to its shareholders. In addition, if the DSCR falls below

1.1,

subject to certain cure rights, such failure will constitute an event of default by OrPower

This covenant in respect of Tranche I became effective on

December

15,

2014.

As of

December

31,

2016,

the actual historical and projected

-month DSCR was

2.69

and

2.96,

respectively.

As of

December

31,

2016,

$246.6

million of the OPIC Loan was outstanding.

Debt service reserve

As required under the terms of the OPIC Loan, OrPower

maintains an account which

may

be funded by cash or backed by letters of credit in an amount sufficient to pay scheduled debt service amounts, including principal and interest, due under the terms of the OPIC Loan in the following

six

months. This restricted cash account is classified as current in the consolidated balance sheets. As of

December

31,

2016

and

2015,

the balance of the account

was

$4.3

million and

$7.2

million, respectively. In addition, as of

December

31,

2016,

part of the required debt service reserve was backed by a letter of credit in the amount of

$17.3

million (see Note

23).

Well drilling reserve

As required under the terms of the OPIC Loan, OrPower

may

be required to maintain an account which

may

be funded by cash or backed by letters of credit to reserve funds for future well drilling, based on determination upon the completion of the expansion work

OFC Senior Secured Notes

February

2004,

OFC, a wholly owned subsidiary, issued

$190.0

million of

8.25%

Senior Secured Notes (“OFC Senior Secured Notes”) and received net cash proceeds of approximately

$179.7

million, after deduction of issuance costs of approximately

$10.3

million. The OFC Senior Secured Notes have a final maturity of

December

30,

2020.

Principal and interest on the OFC Senior Secured Notes are payable in semi-annual payments. The OFC Senior Secured Notes are collateralized by substantially all of the assets of OFC and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC. There are various restrictive covenants under the OFC Senior Secured Notes, which include limitations on additional indebtedness of OFC and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC. In addition, there are restrictions on the ability of OFC to make distributions to its shareholders, which include a required historical and projected

-month DSCR of not less than

1.25

(measured semi-annually as of

June

and

December

of each year). If OFC fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders. The Company believes that the transition to variable energy prices under the Ormesa and Mammoth PPAs and the impact of the currently low natural gas prices on the revenues under these PPAs

may

cause OFC to not meet the DSCR ratio requirements for making distributions, but it does not believe that there will be an event of default by OFC. OFC is only required to measure these covenants on a semi-annual basis and as of

December

31,

2016,

the last measurement date of the covenants, the actual historical

-month DSCR was

1.25

and the pro-forma

-month DSCR was

1.38.

There were

$17.0

million and

$30.0

million of OFC Senior Secured Notes outstanding as of

December

31,

2016

and

December

31,

2015,

respectively.

February

2013,

the Company repurchased

$12.8

million aggregate principal amount of OFC Senior Secured Notes from the OFC noteholders and recognized a gain of approximately

$0.8

million in the

first

quarter of

2013.

January

2014,

the Company repurchased

$13.2

million aggregate principal amount of OFC Senior Secured Notes from the OFC noteholders and recognized a gain of approximately

$0.3

million in the

first

quarter of

2014.

June

2015,

the Company repurchased

$30.6

million aggregate principal amount of OFC Senior Secured Notes from the OFC noteholders and recognized a loss of approximately

$1.7

million in the

second

quarter of

2015.

September

2016,

the Company repurchased

$6.8

million aggregate principal amount of OFC Senior Secured Notes from the OFC noteholders and recognized a loss of

$0.6

million, in the

third

quarter of

2016.

OFC

may

redeem the OFC Senior Secured Notes, in whole or in part, at any time, at redemption price equal to the principal amount of the OFC Senior Secured Notes to be redeemed plus accrued interest, premium and liquidated damages, if any, plus a “make-whole” premium. Upon certain events, as defined in the indenture governing the OFC Senior Secured Notes, OFC

may

be required to redeem a portion of the OFC Senior Secured Notes at a redemption price ranging from

100%

101%

of the principal amount of the OFC Senior Secured Notes being redeemed plus accrued interest, premium and liquidated damages, if any

Debt service reserve

As required under the terms of the OFC Senior Secured Notes, OFC maintains an account which

may

be funded by cash or backed by letters of credit (see below) in an amount sufficient to pay scheduled debt service amounts, including principal and interest, due under the terms of the OFC Senior Secured Notes in the following

six

months. This restricted cash account is classified as current in the consolidated balance sheets. As of each of

December

31,

2016

and

2015,

the balance of such account

was

$2.1

million and

$1.4

million, respectively. In addition, as of each of

December

31,

2016

and

2015,

part of the required debt service reserve was backed by a letter of credit in the amount of

$11.5

million and

$11.6

million (see Note

23),

respectively.

OrCal Senior Secured Notes

December

2005,

OrCal, a wholly owned subsidiary, issued

$165.0

million,

6.21%

Senior Secured Notes (“OrCal Senior Secured Notes”) and received net cash proceeds of approximately

$161.1

million, after deduction of issuance costs of approximately

$3.9

million, which have been included in deferred financing costs in the consolidated balance sheet. The OrCal Senior Secured Notes have been rated BBB- by Fitch Ratings. The OrCal Senior Secured Notes have a final maturity of

December

30,

2020.

Principal and interest on the OrCal Senior Secured Notes are payable in semi-annual payments. The OrCal Senior Secured Notes are collateralized by substantially all of the assets of OrCal, and those of its subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OrCal. There are various restrictive covenants under the OrCal Senior Secured Notes, which

include limitations on additional indebtedness of OrCal and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OrCal. In addition, there are restrictions on the ability of OrCal to make distributions to its shareholders, which include a required historical and projected

-month DSCR of not less than

1.25

(measured semi-annually as of

June

and

December

of each year). If OrCal fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders. OrCal is only required to measure these covenants on a semi-annual basis and as of

December

31,

2016,

the last measurement date of the covenants, the actual historical

-month DSCR was

1.77

and the pro-forma

-month DSCR was

2.57.

There was

$35.2

million and

$43.3

million of OrCal Senior Secured Notes outstanding as of

December

31,

2016

and

December

31,

2015,

respectively.

OrCal

may

redeem the OrCal Senior Secured Notes, in whole or in part, at any time at a redemption price equal to the principal amount of the OrCal Senior Secured Notes to be redeemed plus accrued interest, and a “make-whole” premium. Upon certain events, as defined in the indenture governing the OrCal Senior Secured Notes, OrCal

may

be required to redeem a portion of the OrCal Senior Secured Notes at a redemption price of

100%

of the principal amount of the OrCal Senior Secured Notes being redeemed plus accrued interest

Debt service reserve

As required under the terms of the OrCal Senior Secured Notes, OrCal maintains an account which

may

six

months. This restricted cash account is classified as current in the consolidated balance sheets. As of

December

31,

2016

and

2015,

the balance of such account was

$1.9

million and

$1.6

million, respectively. In addition, as of

December

31,

2016

and

2015,

part of the required debt service reserve was backed by a letter of credit in the amount of

$4.6

million and

$5.5

million, respectively (see Note

23).

OFC

Senior Secured Notes

September

2011,

the Company

’s subsidiary OFC

and its wholly owned project subsidiaries (collectively, the “OFC

Issuers”) entered into a note purchase agreement (the “Note Purchase Agreement”) with OFC

Noteholder Trust, as purchaser, John Hancock Life Insurance Company (U.S.A.), as administrative agent, and the DOE, as guarantor, in connection with the offer and sale of up to

$350.0

million aggregate principal amount of OFC

Senior Secured Notes (“OFC

Senior Secured Notes”) due

December

31,

2034.

Subject to the fulfillment of customary and other specified conditions precedent, the OFC

Senior Secured Notes

may

be issued in up to

six

distinct series associated with the phased construction (Phase I and Phase II) of the Jersey Valley, McGinness Hills and Tuscarora geothermal power plants, which are owned by the OFC

Issuers.

The OFC

Senior Secured Notes will mature and the principal amount of the OFC

Senior Secured Notes will be payable in equal quarterly installments and in any event not later than

December

31,

2034.

Each series of notes will bear interest at a rate calculated based on a spread over the Treasury yield curve that will be set at least

ten

business days prior to the issuance of such series of notes. Interest will be payable quarterly in arrears. The DOE will guarantee payment of

80%

of principal and interest on the OFC

Senior Secured Notes pursuant to Section

1705

of Title XVII of the Energy Policy Act of

2005,

as amended. The conditions precedent to the issuance of the OFC

Senior Secured Notes includes certain specified conditions required by the DOE in connection with its guarantee of the OFC

Senior Secured Notes.

October

31,

2011,

the Issuers completed the sale of

$151.7

million in aggregate principal amount

4.687%

Series A Notes due

2032

(the “Series A Notes”). The net proceeds from the sale of the Series A Notes, after deducting transaction fees and expenses, were approximately

$141.1

million, and were used to finance a portion of the construction costs of Phase I of the McGinness Hills and Tuscarora power plants and to fund certain reserves. Principal and interest on the Series A Notes are payable quarterly in arrears on the last day of

March,

June,

September

and

December

of each year.

June

20,

2014,

Phase

of Tuscarora Facility achieved Project Completion under the OFC

Note Purchase

Agreement. In accordance with the terms of the Note Purchase Agreement and following recalibration of the financing assumptions, the loan amount was adjusted through a principal prepayment of

$4.3

million.

August

29,

2014,

OFC

signed a

$140.0

million loan under the OFC

Senior Secured Notes to finance the construction of the McGinness Hills

Phase project. This drawdown is the last tranche (Series C notes) under the Note Purchase Agreement with John Hancock Life Insurance Company and guaranteed by the DOE’s Loan Programs Office in accordance with and subject to the DOE's Loan Guarantee Program under Section

1705

of Title XVII of the Energy Policy Act of

2005.

The

$140.0

million loan, which matures in

December

2032,

carries a

4.61%

coupon with principal to be repaid on a quarterly basis. The OFC

Senior Secured Notes, which include loans for the Tuscarora, Jersey Valley and McGinness Hills complexes, are rated “BBB” by Standard & Poor's.

In connection with the anticipated drawdown, on

August

13,

2014,

the Company entered into an on-the-run interest rate lock agreement with a financial institution with a termination date of

August

15,

2014.

This on-the-run interest rate lock agreement had a notional amount of

$140.0

million and was designated by us

as a cash flow hedge. The objective of this cash flow hedge was to eliminate the variability in the changes in the

-year U.S. Treasury rate as that is

one

of the components in the annual interest rate of the OFC

loan that was forecasted to be fixed on

August

15,

2014.

As such, the Company hedged the variability in total proceeds attributable to changes in the

-year U.S. Treasury rate for the forecasted issuance of fixed rate OFC

loan. On

August

18,

2014,

the settlement date, the Company paid

$1.5

million to the counterparty of the on-the-run interest rate lock agreement.

The Company concluded that the cash flow hedge was fully effective with no ineffective portion and no amounts excluded from the effectiveness testing, thus

, in

2014,

the total loss from the cash flow hedge was fully recognized in “Loss in respect of derivatives instruments designated for cash flow hedge” under other comprehensive income of

$0.9

million noted above, which was net of related taxes of

$0.6

million. The cash flow hedge loss recorded is amortized over the life of the OFC

loan using the effective interest method. In

2016

and

2015,

the Company reclassified

$0.1

million, each year, of the loss from “Accumulated other comprehensive income (loss)” into interest expense.

The OFC

Senior Secured Notes are collateralized by substantially all of the assets of OFC

and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC

There are various restrictive covenants under the OFC

Senior Secured Notes, which include limitations on additional indebtedness of OFC

and its wholly owned subsidiaries.

Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC

In addition, there are restrictions on the ability of OFC

to make distributions to its shareholders.

Among other things, the distribution restrictions include a historical debt service coverage ratio requirement of at least

1.2

(on a blended basis for all OFC

power plants), measured, at the time of any proposed distribution, over each of the

two

six

-months periods comprised of distinct consecutive fiscal quarters immediately preceding the proposed distribution, and a projected future debt service coverage ratio requirement of at least

1.5

(on a blended basis for all OFC

power plants), measured, at the time of any proposed distribution, over each of the

two

six

-months periods comprised of distinct consecutive fiscal quarters immediately following such proposed distribution.

As of

December

31,

2016,

our historical debt service coverage ratio was

2.49

and

2.09,

respectively for each of the

two

six

-month periods, and our projected future debt service coverage ratio was

1.98

and

2.05,

respectively for each of the

two

six

-month periods.

There were $

247.2

million and

$262.0

million of OFC

Senior Secured Notes outstanding as of

December

31,

2016

and

December

31,

2015,

respectively.

The Company provided a guarantee in connection with the issuance of the Series A and C Notes. One trigger event is the failure of any facility financed by the relevant Series of OFC

Senior Secured Notes to reach completion and meet certain operational performance levels (the non-performance trigger) which gives rise to a prepayment obligation on the OFC

Senior Secured Notes. The other trigger event is a payment default on the OFC

Senior Secured Notes or the occurrence of certain fundamental defaults that result in the acceleration of the OFC

Senior Secured Notes, in each case that occurs prior to the date that the relevant facility(ies) financed by such OFC

Senior Secured Notes reaches completion and meets certain operational performance levels. A demand on the Company

’s guarantee based on the non-performance trigger is limited to an amount equal to the prepayment amount on the OFC

Senior Secured Notes necessary to bring the OFC

Issuers into compliance with certain coverage ratios. A demand on the Company’s guarantee based on the other trigger event is not so limited.

Debt service reserve

; other restricted funds

Under the terms of the OFC

Senior Secured Notes, OFC

is required to maintain a debt service reserve and certain other reserves, as follows:

(i)

A debt service reserve account which

may

be funded by cash or backed by letters of credit (see below) in an amount sufficient to pay scheduled debt service amounts, including principal and interest, due under the terms of the OFC

Senior Secured Notes in the following

six

months. This restricted cash account is classified as current in the consolidated balance sheet. As of

December

31,

2016,

part of the required debt service reserve was backed by a letter of credit in the amount of

$21.0

million (see Note

23).

(ii)

A performance level reserve account, intended to provide additional security for the OFC

Senior Secured Notes, which

may

be funded by cash or backed by letters of credit. This reserve builds up over time and reduces gradually each time the

project achieves certain milestones. Upon issuance of the Series A Notes, this reserve was funded in the amount of

$28.0

million. As of

December

31,

2016,

the balance of such account was

$9.7

million and there was no

requirement

for an additional letter of credit to be issued.

(iii)

Under the terms of the OFC

Senior Secured Notes, OFC

is also required to maintain a well field drilling and maintenance reserve that builds up over time and is dedicated to costs and expenses associated with drilling and maintenance of the

project's well field, which

may

be funded by cash or backed by letters of credit.

(iv)

A performance level reserve account

for McGinness Hills Phase II, intended to provide additional security for the OFC

Senior Secured Notes, which

may

be funded by cash or backed by letters of credit. Upon issuance of the Series C Notes, this reserve was funded in the amount of

$53.4

million in letter of credit. As of

December

31,

2016,

there was no

requirement

for an additional letter of credit to be issued.

Don A. Campbell Senior

Secured Notes — Non-Recourse

November

29,

2016,

a Company subsidiary, ORNI

LLC (“ORNI

47”),

entered into a note purchase agreement (the “Note Purchase Agreement”) with MUFG Union Bank, N.A., as collateral agent, Munich Reinsurance America, Inc. and Munich American Reassurance Company (the “Purchasers”) pursuant to which ORNI

issued and sold to the Purchasers

$92.5

million aggregate principal amount of its

4.03%

Senior Secured Notes due

September

27,

2033

(the “Notes”) in a private placement exempt from the registration requirements of the Securities Act of

1933,

as amended. ORNI

is the owner of the Don A. Campbell Phase I (“DAC

1”)

geothermal power plant, and part of ORPD.

The net proceeds from the sale of the Notes, after deducting certain transaction expenses and the funding of a debt service reserve account, were approximately $

87.1

million and ORNI

intends to use the proceeds from the sale of the Notes to refinance the development and construction costs of the DAC

geothermal power plant, which were originally financed using equity.

ORNI

will pay a scheduled amount of principal of the Notes beginning on

December

27,

2016

and then quarterly, on the

27th

day of each

March,

June,

September

and

December,

until the Notes mature.

The Notes constitute senior secured obligations of ORNI

and are secured by all of the assets of ORNI

47.

Under the Note Purchase Agreement, ORNI

may

prepay at any time all, or from time to time any part of, the Notes in an amount equal to at least

million or such lesser amount as

may

remain outstanding under the Notes at

100%

of the principal amount to be prepaid plus the applicable make-whole amount determined for the prepayment date with respect to such principal amount. Upon the occurrence of a Change of Control (as defined in the Note Purchase Agreement), ORNI

must make an offer to each holder of Notes to repurchase all of the holder

’s Notes at

101%

of the aggregate principal amount of Notes to be repurchased plus accrued and unpaid interest, if any, on the Notes to be repurchased to, but not including, the date of repurchase. Each holder of Notes

may

accept such offer in whole or in part. In certain events, including certain asset sales outside the ordinary course of business, ORNI

must make mandatory prepayments of the Notes at

100%

of the principal amount to be prepaid. The Note Purchase Agreement requires ORNI

to comply with certain covenants, including, among others, restrictions on the incurrence of indebtedness or liens, amendment or modification of material project documents, the ability of ORNI

to merge or consolidate with another entity. The Note Purchase Agreement also contains customary events of default. In addition, there are restrictions on the ability of ORNI

to make distributions to its shareholders, which include a required historical and projected Debt Service Coverage Ratio not less than

1.20

for the

four

fiscal quarterly periods. As of

December

31,

2016,

the projected Debt Service Coverage Ratio was

1.85.

As of

December

31,

2016,

$92.4

million is outstanding under the DAC

Loan.

Senior Unsecured Bonds

August

2010,

the Company entered into a trust instrument governing the issuance of, and accepted subscriptions for, an aggregate principal amount of approximately

$142.0

million of senior unsecured bonds (the “Bonds”). Subject to early redemption, the principal of the Bonds was repayable in a single bullet payment upon the final maturity of the Bonds on

August

2017.

The Bonds bore interest at a fixed rate of

7%,

payable semi-annually

February

2011,

the Company accepted subscription for an aggregate principal amount of approximately

$107.5

million of additional senior unsecured bonds (the “Additional Bonds”) under

two

addendums to the trust instrument. The terms and conditions of the Additional Bonds were identical to the original Bonds. The Additional Bonds were issued at a premium which reflects an effective fixed interest of

6.75%.

September

2016,

the Company concluded an auction

tender

and accepted subscriptions for

$204

million aggregate principal amount of

two

tranches (Series

approximately

$67

million and Series

approximately

$137

million) of senior unsecured bonds. The proceeds from the senior unsecured bonds were used on

September

29,

2016,

to prepay the Company

’s

$250

million senior secured bonds that were payable on

August

2017.

The senior unsecured bonds,

which were issued on

September

14,

2016,

have an outstanding aggregate principal amount of approximately

$204.0

million consisting of

two

tranches (approximately

$67

million principal amount of Series

and approximately

$137

million principal amount of Series

3).

The Series

Bonds will mature in

September

2020

and bear interest at a fixed rate of

3.7%

per annum, payable semi-annually. The Series

Bonds will mature in

September

2022

and bear interest at a fixed rate of

4.45%

per annum, payable semi-annually. The Bonds will be repaid at maturity in a single bullet payment, unless earlier prepaid by Ormat pursuant to the terms and conditions of the trust instrument that governs the Bonds. Both tranches received a rating of ilA+ from Maloot S&P in Israel with a stable outlook.

Loans from institutional investors

July

2009,

the Company entered into a

-year loan agreement of

$20.0

million with a group of institutional investors (the “First Loan”). The First Loan matured on

July

16,

2015,

was payable in

semi-annual installments, which commenced on

January

16,

2010,

and bore interest of

6.5%

As of

December

31,

2015,

this loan was fully repaid.

July

2009,

the Company entered into an

-year loan agreement of

$20.0

million with another group of institutional investors (the “Second Loan”). The Second Loan matures on

August

2017,

is payable in

semi-annual installments, which commenced on

February

2012,

and bears interest at

-month LIBOR plus

5.0%

As of

December

31,

2016,

$3.3

million was outstanding under this loan.

November

2010,

the Company entered into a

-year loan agreement of

$20.0

million with a group of institutional investors (the “Third Loan”). The Third Loan maturity date was

November

16,

2016,

was payable in

ten

semi-annual installments, which commenced on

May

16,

2012,

and bore interest of

5.75%

October

2015,

the Company prepaid this term loan in full and in accordance with the loan’s prepayment provisions. The total prepayment amount was

$6.2

million comprising principal and interest.

Loan Agreement

with DEG

(the Olkaria III Complex

)

March

2009,

the Company

’s wholly owned subsidiary, OrPower

entered into a project financing loan of

$105.0

million to refinance its investment in Phase I of the Olkaria III complex located in Kenya (the “DEG Loan”). The DEG Loan was provided by a group of European Development Finance Institutions (“DFIs”) arranged by DEG — Deutsche Investitions — und Entwicklungsgesellschaft mbH (“DEG”). The

first

disbursement of

$90.0

million occurred on

March

23,

2009

and the

second

disbursement of

$15.0

million occurred on

July

10,

2009.

The DEG Loan will mature on

December

15,

2018,

and is payable in

equal semi-annual installments, commencing

December

15,

2009.

Interest on the DEG Loan is variable based on

-month LIBOR plus

4.0%

and OrPower

had the option to fix the interest rate upon each disbursement. Upon the

first

disbursement, the Company fixed the interest rate on

$77.0

million of the DEG Loan at

6.90%.

As of

December

31,

2016,

$15.8

million is outstanding under the DEG Loan (out of which

$10.8

million bears interest at a fixed rate).

October

2012,

OrPower

DEG and the parties thereto

amended and restated the DEG Loan agreement (the “

DEG Amendment”

). The DEG Amendment became effective on

November

2012

upon the execution by OrPower

of the Tranche I and Tranche II Notes and the related disbursements of the proceeds thereof under the OPIC Finance Agreement (as described above). The amended and restated DEG Loan Agreement provides for: (i) the prepayment in full of

two

loans thereunder in the total principal amount of approximately

$20.5

million; (ii) the release and discharge of all collateral security previously provided by OrPower

to the secured parties under the DEG Loan agreement and the substitution of the Company’

s guarantee of OrPower

4’

s payment and certain other performance obligations in lieu thereof; and (iii) the establishment of a LIBOR floor of

1.25%

in respect of

one

of the loans under the DEG Loan agreement, and (iv) the elimination of most of the affirmative and negative covenants under the DEG Loan agreement and certain other conforming provisions to take into account OrPower

4’

s execution of the OPIC Finance Agreement and its obligations thereunder.

October

20,

2016,

OrPower

entered into a new

$50

million subordinated facility agreement with

DEG (the “DEG

Facility Agreement”) and on

December

21,

2016,

OrPower

completed a drawdown of the full loan amount of

$50

million, with a fixed interest rate of

6.28%

for the duration of the loan (the “DEG

Loan”). The DEG

Loan will be repaid in

equal semi-annual principal installments commencing

December

21,

2018,

with a final maturity on

June

21,

2028.

The DEG

Loan is intended for the refinance of Plant

of the Olkaria III Complex, which was originally financed using equity and is subordinated to the senior loan provided by OPIC for Plants

of the complex. The loan is guaranteed by the Company.

Under the DEG

Facility Agreement, OrPower

may

prepay at any time all, or from time to time any part of the DEG

Loan in an amount equal to at least

million or such lesser amount as

may

remain outstanding under the DEG

Loan at

100%

of the principal amount to be prepaid plus the applicable make-whole amount and certain prepayment premium amount determined for the prepayment date with respect to such principal amount. In certain events, OrPower

must make mandatory prepayments of the DEG

Loan at

100%

of the principal amount to be prepaid

plus the applicable make-whole amount and certain prepayment premium amount determined for the prepayment date with respect to such principal amount. The DEG

Facility Agreement requires OrPower

to comply with certain covenants, including, among others, restrictions on the incurrence of indebtedness or liens. The Facility Agreement also contains customary events of default.

As of

December

31,

2016,

$50.0

million is outstanding under the DEG

Loan.

Revolving credit lines with commercial banks

As of

December

31,

2016,

the Company has credit agreements with

eight

commercial banks for an aggregate amount of

$524.8

million (including

$60.0

million from Union Bank, N.A. (“Union Bank”) and

$35.0

million from HSBC), see below. Under the terms of these credit agreements, the Company, or its Israeli subsidiary, Ormat Systems, can request: (i) extensions of credit in the form of loans and/or the issuance of

one

or more letters of credit in the amount of up to

$215.0

million; and (ii) the issuance of

one

or more letters of credit in the amount of up to

$309.8

million. The credit agreements mature between end of

March,

2017

and

July

2019.

Loans and draws under the credit agreements or under any letters of credit will bear interest at the respective bank’s cost of funds plus a margin.

As of

December

31,

2016,

loans were outstanding, and letters of credit with an aggregate stated amount

$341.6

million were issued and outstanding under such credit agreements.

Credit Agreements

Credit agreement with Union Bank

February

2012,

the Company’s wholly owned subsidiary, Ormat Nevada Inc. (“Ormat Nevada”), entered into an amended and restated credit agreement with Union Bank. Under the amended and restated agreement, the credit termination date was extended to

February

2014

(which was subsequently extended to

March

31,

2014

pursuant to Amendment No.

to the agreement and then to

June

30,

2017),

and the aggregate amount available under the credit agreement was increased from

$39.0

million to

$60.0

million. The facility is limited to the issuance, extension, modification or amendment of letters of credit. Union Bank is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that

may,

from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, the Company entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which the Company agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured. There are various restrictive covenants under the credit agreement, which include a requirement to comply with the following financial ratios, which are measured quarterly: (i) a

-month debt to EBITDA ratio not to exceed

4.5;

(ii)

-month DSCR of not less than

1.35;

and (iii) distribution leverage ratio not to exceed

2.0.

As of

December

31,

2016:

(i) the actual

-month debt to EBITDA ratio was

2.95;

(ii) the

-month DSCR was

2.54;

and (iii) the distribution leverage ratio was

0.81.

In addition, there are restrictions on dividend distributions in the event of a payment default or noncompliance with such ratios, and subject to specified carve-outs and exceptions, a negative pledge on the assets of Ormat Nevada in favor of Union Bank. As of

December

31,

2016,

letters of credit in the aggregate amount of

$32.6

million remain issued and outstanding under this credit agreement with Union Bank.

Credit agreement with

HSBC

May

2013,

Ormat Nevada, entered into a credit agreement with HSBC Bank USA, N.A for

one

year with annual renewals. The current expiration date of the facility under this credit agreement is

December

31,

2017.

The aggregate amount available under the credit agreement was increased by

$10

million to

$35.0

million. This credit line is limited to the issuance, extension, modification or amendment of letters of credit and

$10.0

million out of this credit line for working capital needs. HSBC is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that

may,

from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, we entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which we agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured. There are various restrictive covenants under the credit agreement, including a requirement to comply with the following financial ratios, which are measured quarterly: (i) a

-month debt to EBITDA ratio not to exceed

4.5;

(ii)

-month DSCR of not less than

1.35;

and (iii) distribution leverage ratio not to exceed

2.0.

As of

December

31,

2016:

(i) the actual

-month debt to EBITDA ratio was

2.95;

(ii) the

-month DSCR was

2.54;

and (iii) the distribution leverage ratio was

0.81.

December

31,

2016,

letters of credit in the aggregate amount of

$23.2

million remain issued and outstanding under this credit agreement.

Restrictive covenants

The Company

’s obligations under the credit agreements, the loan agreements, and the trust instrument governing the bonds, described above, are unsecured, but are subject to a negative pledge in favor of the banks and the other lenders and certain other restrictive covenants. These include, among other things, a prohibition on: (i) creating any floating charge or any permanent pledge, charge or lien over our assets without obtaining the prior written approval of the lender; (ii) guaranteeing the liabilities of any

third

party without obtaining the prior written approval of the lender; and (iii) selling, assigning, transferring, conveying or disposing of all or substantially all of our assets, or a change of control in our ownership structure. Some of the credit agreements, the term loan agreements, as well as the trust instrument contain cross-default provisions with respect to other material indebtedness owed by us to any

third

party. In some cases, the Company has agreed to maintain certain financial ratios, which are measured quarterly, such as: (i) equity of at least

$600.0

million and in no event less than

25%

of total assets; (ii)

-month debt, net of cash, cash equivalents marketable securities and short-term bank deposits to Adjusted EBITDA ratio not to exceed

and (iii) dividend distribution not to exceed

35%

of net income for that year. As of

December

31,

2016:

(i) total equity was

$1,170.0

million and the actual equity to total assets ratio was

47.53%,

and (ii) the

-month debt, net of cash, cash equivalents marketable securities and short-term bank deposits to Adjusted EBITDA ratio was

2.32.

During the year ended

December

31,

2016,

the Company distributed interim dividends in an aggregate amount of

$25.7

million.

Future minimum payments

Future minimum payments under long-term obligations, excluding revolving credit lines with commercial banks, as of

December

31,

2016

are as follows:

	(Dollars in thousands)

Year ending December 31:
2017	$	65,971
2018		64,805
2019		59,146
2020		126,870
2021		46,579
Thereafter		593,161
Total	$	956,532