Note 11 - Long-term Debt and Credit Agreements

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE

11

 — LONG-TERM DEBT AND CREDIT AGREEMENTS

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

	December 31,
	2017			2016
	(Dollars in thousands)
Limited and non-recourse agreements:
Loans:
Non-recourse:
Other loans	$	7,252		$	6,368
Limited recourse:
Loan agreement with OPIC (the Olkaria III power plant)		228,635			246,630
Loan agreement with Banco Industrial S.A. and Westrust Bank (International) Limited		33,251			36,750
Senior Secured Notes:
Non-recourse:
OFC Senior Secured Notes		-			17,026
OrCal Senior Secured Notes		32,142			35,181
DAC 1 Senior Secured Notes		88,339			92,361
Limited recourse:
OFC 2 Senior Secured Notes		232,526			247,232
		622,145			681,548
Less current portion		(54,720	)		(53,729	)
Non current portion	$	567,425		$	627,819
Full recourse agreements:
Senior Unsecured Bonds	$	204,332		$	204,332
Loans from institutional investors		-			3,333
Loan agreements with DEG (the Olkaria III and IV power plants)		50,000			65,789
Loan from a commercial bank		587			1,529
Revolving credit lines with banks		51,500			-
		306,419			274,983
Less current portion		(54,587	)		(12,242	)
Non current portion	$	251,832		$	262,741

Loan Agreement

with

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

On

July 31, 2015,

Ortitlản, Limitada, the Company’s wholly owned subsidiary, obtained a

12

-year secured term loan in the principal amount of

$42.0

million for the

20

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

48

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 30

and

December 30

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

-

50

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

to

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

to

1.00

for the

four

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

As of

December 31, 2017,

the actual historical and projected

12

-month Debt Service Coverage Ratio was

1.49

and

1.89,

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

collateralized 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 INDE in its payment obligations under the PPA for the Amatitlàn power plant or a refusal by INDE to receive capacity and energy sold under that PPA. Th

e Company’s

obligations under the guaranty

may

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

As of

December 31, 2017,

$33.3

million of this loan is outstanding.

Finance Agreement with OPIC (the Olkaria III Complex)

On

August

 

23,

2012,

OrPower

4,

the Company’s wholly owned subsidiary, entered into a Finance Agreement with Overseas Private Investment Corporation (“OPIC”), an agency of the U.S. 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 9, 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 the Tranche I proceeds were 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” ). In November 2012, $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 3 of the Olkaria III complex. In November 2013, an amount of $45.0 million was disbursed under this Tranche.

I

n

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, 2017

of

$61.4

million and matures on

December 15, 2030,

and Tranche II, which has an outstanding balance as of

December 31, 2017

of

$132.4

million and matures on

June 15, 2030,

is

6.31%

.

In

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, 2017

of

$34.9

million and matures on

December 15, 2030,

is

6.12%.

OrPower

4

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

2

commercial operation date, declining to

1%

in the

third

year after the Plant

2

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

collateralized by substantially all of OrPower

4’

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

4.

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

4,

bankruptcy of OrPower

4

or certain of its affiliates, judgments rendered against OrPower

4,

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.

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

12

-month DSCR of

not

less than

1.4

(measured as of

March 15,

June 15,

September 15

and

December 15

of each year). If OrPower

4

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

4.

This covenant in respect of Tranche I became effective on

December 15, 2014.

As of

December 31, 2017,

the actual historical and projected

12

-month DSCR was

2.64

and

3.09,

respectively.

As of

December 31, 2017,

$228.6

million of the OPIC Loan was outstanding.

Debt service reserve

As required under the terms of the OPIC Loan, OrPower

4

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, 2017

and

2016,

the balance of the account

was

$3.7

million and

$4.3

million, respectively. In addition, as of

December 31, 2017,

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

$16.7

million (see Note

22

).

Well drilling reserve

As required under the terms of the OPIC Loan, OrPower

4

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

In

February

2004,

OFC,

the Company

’s 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 had a final maturity date of

December 30, 2020.

Principal and interest on the OFC Senior Secured Notes were payable in semi-annual payments. The OFC Senior Secured Notes were collateralized by substantially all of the assets of OFC and those of its wholly owned subsidiaries and were fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC.

In

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.

In

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.

In

September 2017,

the Company fully prepaid the outstanding amount of

$14.3

million of OFC Senior Secured Notes, plus an additional make-whole premium of

$1.3

million.

OrCal Senior Secured Notes

In

December 2005,

OrCal, the Company

’s w

holly 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 date 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

12

-month debt service coverage ratio (“DSCR”) of

not

less than

1.25

(measured semi-annually as of

June 

30

and

December 

31

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, 2017,

the last measurement date of the covenants, the actual historical

12

-month DSCR was

1.54

and the pro-forma

12

-month DSCR was

2.63.

There was

$32.1

million and

$35.2

million of OrCal Senior Secured Notes outstanding as of

December 31, 2017

and

December 31, 2016,

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

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 OrCal 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, 2017

and

2016,

the balance of such account was

$1.9

million. In addition, as of each of

December 31, 2017

and

2016,

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

$4.6

million (see Note

22

).

OFC

2

Senior Secured Notes

In

September 2011,

OFC

2,

the Company

’s wholly owned subsidiary, and OFC

2’s

wholly owned project subsidiaries (collectively, the “OFC

2

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

2

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

2

Senior Secured Notes (“OFC

2

Senior Secured Notes”) due

December 31, 2034.

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

2

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

2

Issuers.

The OFC

2

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

2

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

2

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

2

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

2

Senior Secured Notes.

On

October 31, 2011,

the OFC

2

Issuers completed the sale of

$151.7

million in aggregate principal amount

of

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.

On

June 20, 2014,

Phase

1

of Tuscarora Facility achieved Project Completion under the 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.

On

August 29, 2014,

OFC

2

sold $

140.0

million of OFC

2

Senior Secured Notes 

(the “Series

  C Notes”) 

to finance the construction of the

second

phase of the McGinness Hills project. The Series C Notes are the last tranche under the Note Purchase Agreement with John Hancock Life Insurance Company and are 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 Series C Notes, which mature in

December 2032,

carry a

4.61%

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

2

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 sale of the Series C Notes, 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

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

10

-year U.S. Treasury rate as that is

one

of the components in the annual interest rate of the OFC

2

Senior Secured Notes that was forecasted to be fixed on

August 15, 2014.

The Company hedged the variability in total proceeds attributable to changes in the

10

-year U.S. Treasury rate for the forecasted sale of Series C Notes. 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

2

Senior Secured Notes 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

2

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

2

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

2.

There are various restrictive covenants under the OFC

2

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

2

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

2.

  In addition, there are restrictions on the ability of OFC

2

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

2

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 DSCR requirement of at least

1.5

(on a blended basis for all OFC

2

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, 2017,

our historical DSCR was 

2.70

and

2.25,

 respectively, for each of the

two six

-month periods, and our projected future DSCR was

2.04

and

2.13,

respectively, for each of the

two six

-month periods.

There were

$2

32.5

million and

$247.2

million of OFC

2

Senior Secured Notes outstanding as of

December 31, 2017

and

December 31, 2016,

respectively.

The Company provided a guaranty in connection with the issuance of the Series A Notes and Series C Notes. The guaranty

may

be drawn in the event of, among other things, the failure of any facility financed by the relevant series of OFC

2

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

2

Senior Secured Notes. The guarantee may also be drawn if there is a payment default on the OFC

2

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

2

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

2

Senior Secured Notes reaches completion and meets the applicable operational performance levels. The Company

’s liability under the guaranty with respect to the non-performance trigger is limited to an amount equal to the prepayment amount on the OFC

2

Senior Secured Notes necessary to bring the OFC

2

Issuers into compliance with certain coverage ratios. The Company’s liability under the guarantee with respect to the other trigger event described above is

not

so limited.

Debt service reserve

; other restricted funds

Under the terms of the OFC

2

Senior Secured Notes, OFC

2

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 2 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, 2017, part of the required debt service reserve was backed by a letter of credit in the amount of $18.7 million (see Note 22 ).

(ii) A performance level reserve account, intended to provide additional security for the OFC 2 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, 2017, the balance of such account was zero million, and no letter of credit was required to be issued.

(iii) Under the terms of the OFC 2 Senior Secured Notes, OFC 2 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 2 Senior Secured Notes, which may be funded by cash or backed by letters of credit. As of December 31, 2017, there was no requirement for an additional security to be issued as the project was completed.

Don A. Campbell Senior Secured Notes

— Non-Recourse

On

November 29, 2016,

ORNI

47

LLC (“ORNI

47”

),

the Company’s subsidiary, 

entered into a note purchase agreement (the “ORNI

47

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

47

issued and sold to the Purchasers

$92.5

million aggregate principal amount of its

4.03%

Senior Secured Notes due

September 27, 2033 (

the “DAC

1

Senior Secured Notes”) in a private placement exempt from the registration requirements of the Securities Act of

1933,

as amended. ORNI

47

is the owner of the

first

phase of the Don A. Campbell geothermal power plant (“DAC

1”

), and part of the ORPD LLC (“ORPD”) portfolio.

The net proceeds from the sale of the DAC

1

Senior Secured Notes, after deducting certain transaction expenses and the funding of a debt service reserve account, were approximately $

87.1

million and ORNI

47

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

1

geothermal power plant, which were originally financed using equity.

ORNI

47

began paying a scheduled amount of principal of the DAC

1

Senior Secured Notes on

December 27, 2016

and now makes principal payments quarterly, on the

27th

day of each

March,

June,

September

and

December,

until the DAC

1

Senior Secured Notes mature.

The DAC

1

Senior Secured Notes constitute senior secured obligations of ORNI

47

and are secured by all of the assets of ORNI

47.

Under the ORNI

47

Note Purchase Agreement, ORNI

47

may

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

1

Senior Secured Notes in an amount equal to at least

$2

million or such lesser amount as

may

remain outstanding under the DAC

1

Senior Secured 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 ORNI

47

Note Purchase Agreement), ORNI

47

must make an offer to each holder of DAC

1

Senior Secured Notes to repurchase all of the holder

’s notes at

101%

of the aggregate principal amount of such notes to be repurchased plus accrued and unpaid interest, if any, on such notes to, but

not

including, the date of repurchase. Each holder of

DAC

1

Senior Secured 

Notes

may

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

47

must make mandatory prepayments of the

DAC

1

Senior Secured 

Notes at

100%

of the principal amount to be prepaid. The ORNI

47

Note Purchase Agreement requires ORNI

47

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

47

to merge or consolidate with another entity. The ORNI

47

 Note Purchase Agreement also contains customary events of default.  In addition, there are restrictions on the ability of ORNI

47

to make distributions to its shareholders, which include a required historical and projected DSCR of 

not

less than

1.20

for the

four

fiscal quarterly periods. As of

December 31, 2017,

the historical and projected DSCR were

1.47

and

1.81,

respectively.

As of

December 31, 2017,

$88.3

million is outstanding under the DAC

1

Senior Secured Notes.

Senior Unsecured Bonds

In

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 1, 2017.

The Bonds bore interest at a fixed rate of

7%,

payable semi-annually

.

In

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%.

In

September 2016,

the Company concluded an auction tender and accepted subscriptions for

two

series of senior unsecured bonds comprised of approximately

$67

million aggregate principal amount of senior unsecured bonds (the “Series

2

Bonds”) and approximately

$137

million aggregate principal amount of senior unsecured bonds (the “Series

3

Bonds”, and, together with the Series

2

Bonds, the “Senior Unsecured Bonds”). The proceeds from the Series

2

 Bonds and Series

3

 Bonds were used on

September 29, 2016 

to prepay the Company

’s

$250

million aggregate principal amount of Bonds and Additional Bonds that were payable on

August 1, 2017.

The Series

2

Bonds will mature in

September 2020

and bear interest at a fixed rate of

3.7%

per annum, payable semi-annually. The Series

3

Bonds will mature in

September 2022

and bear interest at a fixed rate of

4.45%

per annum, payable semi-annually. The Series

2

Bonds and Series

3

Bonds will be repaid at maturity in a single bullet payment, unless earlier prepaid by the Company pursuant to the terms and conditions of the trust instrument that governs such Senior Unsecured Bonds. Both tranches received a rating of ilA+ from Maloot S&P in Israel with a stable outlook.

Loans from institutional investors

In

July 2009,

the Company entered into an

8

-year loan agreement of

$20.0

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

August 1, 2017,

was payable in

12

semi-annual installments, which commenced on

February 1, 2012,

and bore interest at

6

-month LIBOR plus

5.0%

.

Loan Agreement

s

with DEG

(the Olkaria III Complex

)

In

March 2009, O

rPower

4,

 

the Company

’s wholly owned subsidiary, 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 DEG Loan was to mature on

December 15, 2018,

and payable in

19

equal semi-annual installments. Interest on the loan was variable based on

6

-month LIBOR plus

4.0%.

We fixed the interest rate on most of the loan at

6.90%.

In

September 2017,

the Company prepaid the outstanding amount of

$11.8

million of the DEG Loan, plus an additional prepayment fee of

$0.1

million.

On

October 20, 2016,

OrPower

4

entered into a new

$50

million subordinated loan agreement with

DEG (the “DEG

2

Loan Agreement”) and on

December 21, 2016,

OrPower

4

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

2

Loan”). The DEG

2

Loan will be repaid in

20

equal semi-annual principal installments commencing

December 21, 2018,

with a final maturity date of 

June 21, 2028.

Proceeds of the DEG

2

Loan were used by OrPower

4

to refinance Plant

4

of the Olkaria III Complex, which was originally financed using equity. The DEG

2

Loan is subordinated to the senior loan provided by OPIC for Plants

1

-

3

of the Olkaria III Complex. The DEG

2

Loan is guaranteed by the Company.

Under the DEG

2

Loan Agreement, OrPower

4

may

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

2

Loan in an amount equal to at least

$5

million or such lesser amount as

may

remain outstanding under the DEG

2

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

4

must make mandatory prepayments of the DEG

2

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

2

Loan Agreement requires OrPower

4

to comply with certain covenants, including, among others, restrictions on the incurrence of indebtedness or liens. The DEG

2

Loan Agreement also contains customary events of default.

As of

December 31, 2017,

$50.0

million is outstanding under the DEG

2

Loan.

Revolving credit lines with commercial banks

As of

December 31, 2017,

the Company has credit agreements with

eight

commercial banks for an aggregate amount of

$468.0

million (including

$60.0

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

$35.0

million from HSBC), as described below. Under the terms of these credit agreements, the Company, or its Israeli subsidiary, Ormat Systems Ltd. (“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

$233.0

million; and (ii) the issuance of

one

or more letters of credit in the amount of up to

$235.0

million. The credit agreements mature between end of

March 2018

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, 2017,

$51.5

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

of

$277.7

million were issued and outstanding under such credit agreements.

Credit Agreements

Credit agreement with Union Bank

In

February 

2012,

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

June 30, 2018.

On

December 31. 2017,

the aggregate amount available under the credit agreement was

$6

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 lenders. 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

12

-month debt to EBITDA ratio

not

to exceed

4.5;

(ii) 

12

-month DSCR of

not

less than

1.35;

and (iii) distribution leverage ratio

not

to exceed

2.0.

As of

December 31, 2017: (

i) the actual

12

-month debt to EBITDA ratio was

2.17;

(ii) the

12

-month DSCR was

2.96;

and (iii) the distribution leverage ratio was

0.99.

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, 2017,

letters of credit in the aggregate amount of

$37.4

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

.

Credit agreement with

HSBC

In

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

August 31, 2018.

The aggregate amount available under the credit agreement was increased by

$10

million to

$35

million. Other than the

$10

million of this credit facility which

may

be drawn for our working capital needs, this credit line is limited to the issuance, extension, modification or amendment of letters of credit. 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

12

-month debt to EBITDA ratio

not

to exceed

4.5;

(ii) 

12

-month DSCR of

not

less than

1.35;

and (iii) distribution leverage ratio

not

to exceed

2.0.

As of

December 31, 2017: (

i) the actual

12

-month debt to EBITDA ratio was

2.17;

(ii) the

12

-month DSCR was

2.96;

and (iii) the distribution leverage ratio was

0.99.

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 HSBC.

As of

December 31,

2017,

letters of credit in the aggregate amount of

$16.2

million remain issued and outstanding under this credit agreement.

Chubb Surety Bond

In

May 2017,

the Company entered into a surety bond

 agreement (the “Surety Agreement”) with Chubb Limited (“Chubb”) pursuant to which the Company

may

request that Chubb issue up to an aggregate

$200.0

million of surety bonds with respect to the contractual obligations of the Company and its subsidiaries in exchange for bank letters of credit or as otherwise

may

be required.  There is

no

 expiration date for the Surety Agreement, but it

may

be terminated by the Company at any time upon

twenty

days’ prior written notice to Chubb. Delivery of such termination notice will

not

affect any surety bonds issued and outstanding prior to the date on which such notice is delivered. As of

December 31, 2017,

Chubb issued a surety bond in the amount of

$106.2

million under the Surety 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)

12

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

not

to exceed

6;

and (iii) dividend distribution

not

to exceed

35%

of net income for that year. As of

December 31, 2017: (

i) total equity was

$1,295.7

million and the actual equity to total assets ratio was

49.4%,

and (ii) the

12

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

2.58.

During the year ended

December 31, 2017,

the Company distributed interim dividends in an aggregate amount of

$20.5

million.

Future minimum payments

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

December 31, 2017

are as follows:

	(Dollars in thousands)
Year ending December 31:
2018	$	57,807
2019		55,539
2020		123,093
2021		46,579
2022		184,148
Thereafter		409,898
Total	$	877,064