0001564590-18-029296.txt : 20181113 0001564590-18-029296.hdr.sgml : 20181113 20181113160101 ACCESSION NUMBER: 0001564590-18-029296 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181113 DATE AS OF CHANGE: 20181113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: InfraREIT, Inc. CENTRAL INDEX KEY: 0001506401 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 273797217 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-36822 FILM NUMBER: 181177831 BUSINESS ADDRESS: STREET 1: 1900 NORTH AKARD STREET CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214-855-6700 MAIL ADDRESS: STREET 1: 1900 NORTH AKARD STREET CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: InfraREIT, L.L.C. DATE OF NAME CHANGE: 20140716 FORMER COMPANY: FORMER CONFORMED NAME: InfraREIT L.L.C. DATE OF NAME CHANGE: 20140714 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRIC INFRASTRUCTURE ALLIANCE OF AMERICA, L.L.C. DATE OF NAME CHANGE: 20101123 10-Q/A 1 hifr-10qa_20180930.htm HIFR-Q3-10Q/A-20180930 hifr-10qa_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-36822

 

InfraREIT, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Maryland

 

75-2952822

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

1900 North Akard Street

Dallas, Texas 75201

 

75201

(Address of Principal Executive Offices)

 

(Zip Code)

(214) 855-6700

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

As of October 29, 2018, 43,962,167 shares of common stock were issued and outstanding.

 

 

 

 

 


 

EXPLANATORY NOTE

InfraREIT, Inc. (the Company) is filing this Amendment No. 1 on Form 10-Q/A (Amended Filing) to amend its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed with the U.S. Securities and Exchange Commission (SEC) on November 1, 2018 (Original Filing). This Amended Filing is being filed solely to include the consolidated financial statements of Sharyland Utilities, L.P. (Sharyland), the Company’s sole tenant, in Item 6 of Part II. Because the Company’s assets are leased to Sharyland under triple-net leases that transfer substantially all operating costs to Sharyland, financial information about Sharyland may be relevant to investors. Sharyland’s financial statements were provided to the Company by Sharyland, and the Company did not participate in their preparation or review.

Item 6 of Part II is the only portion of the Original Filing being amended by this Amended Filing. Accordingly, except as described above and specifically noted in the exhibit list below, this Amended Filing does not otherwise update any exhibits as originally filed and does not, and does not purport to, update or restate the information in any other Item of the Original Filing or otherwise reflect events that occurred after the filing date of the Original Filing.

 

PART II.  OTHER INFORMATION

Item 6.

Exhibits

 

Exhibit
Number

 

 

 

Description

 

 

 

 

 

2.1*

 

 

Agreement and Plan of Merger, dated as of October 18, 2018, among Oncor Electric Delivery Company LLC, 1912 Merger Sub LLC, Oncor T&D Partners, LP, InfraREIT, Inc. and InfraREIT Partners, LP (filed as exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 18, 2018 and filed October 18, 2018 and incorporated herein by reference).

 

 

 

 

 

2.2*

 

 

Agreement and Plan of Merger, dated as of October 18, 2018, among Sharyland Utilities, L.P., Sharyland Distribution & Transmission Services, L.L.C., and Oncor Electric Delivery Company LLC (filed as exhibit 2.2 to the Company’s Current Report on Form 8-K dated October 18, 2018 and filed October 18, 2018 and incorporated herein by reference).

 

 

 

 

 

3.1

 

 

Articles of Restatement of the Registrant (filed as exhibit 3.3 to the Company’s Current Report on Form 8-K dated March 9, 2015 and filed March 10, 2015 and incorporated herein by reference).

 

 

 

 

 

3.2

 

 

Amended and Restated Bylaws of the Registrant (filed as exhibit 3.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).

 

 

 

 

 

10.1

 

 

Omnibus Termination Agreement, dated as of October 18, 2018, among InfraREIT, Inc., InfraREIT Partners, LP, Sharyland Distribution & Transmission Services, L.L.C., Hunt Consolidated, Inc., Hunt Transmission Services, L.L.C., Electricity Participant Partnership. L.L.C., Hunt Utility Services, LLC and Sharyland Utilities, L.P. (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 18, 2018 and filed October 18, 2018 and incorporated herein by reference).

 

 

 

 

 

31.1**

 

 

Rule 13A-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

 

 

31.2**

 

 

Rule 13A-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

 

 

 

31.3***

 

 

Rule 13A-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

 

 

31.4***

 

 

Rule 13A-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

 

 

 

32.1**

 

 

Section 1350 Certification of Chief Executive Officer

 

 

 

 

 

32.2**

 

 

Section 1350 Certification of Chief Financial Officer

 

 

 

 

 

32.3***

 

 

Section 1350 Certification of Chief Executive Officer

 

 

 

 

 

32.4***

 

 

Section 1350 Certification of Chief Financial Officer

 

 

 

 

 

99.1***

 

 

Consolidated Financial Statements of Sharyland Utilities, L.P.

 

 

 

 

 

99.2***

 

 

Supplemental Financial Information of Sharyland Utilities, L.P.

 

 

 

 

 

101.INS**

 

 

XBRL Instance Document

 

 

 

 

 

101.SCH**

 

 

XBRL Taxonomy Extension Schema Document

2


 

Exhibit
Number

 

 

 

Description

 

 

 

 

 

101.CAL**

 

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

101.DEF**

 

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

101.LAB**

 

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

 

 

101.PRE**

 

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.

 

**

Incorporated by reference to the corresponding exhibit to the Original Filing.

 

***

Filed or furnished with this Amended Filing.

 

3


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

InfraREIT, Inc.

 

(Registrant)

 

 

 

/s/ Brant Meleski

Date: November 13, 2018

Brant Meleski

 

Senior Vice President and Chief Financial Officer

 

4

EX-31.3 2 hifr-ex313_8.htm EX-31.3 hifr-ex313_8.htm

Exhibit 31.3

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Campbell, certify that:

1.

I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of InfraREIT, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

Date: November 13, 2018

/s/ David A. Campbell

 

David A. Campbell

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

EX-31.4 3 hifr-ex314_9.htm EX-31.4 hifr-ex314_9.htm

Exhibit 31.4

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brant Meleski, certify that:

1.

I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of InfraREIT, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

Date: November 13, 2018

/s/ Brant Meleski

 

Brant Meleski

 

Senior Vice President and Chief Financial Officer

 

(Principal Financial Officer)

 

EX-32.3 4 hifr-ex323_7.htm EX-32.3 hifr-ex323_7.htm

Exhibit 32.3

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Amendment No. 1 to the Quarterly Report on Form 10-Q of InfraREIT, Inc. for the fiscal quarter ended September 30, 2018 (the “Report”), I, David A. Campbell, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

 

Date: November 13, 2018

/s/ David A. Campbell

 

David A. Campbell

 

President and Chief Executive Officer

 

(Principal Executive Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-32.4 5 hifr-ex324_6.htm EX-32.4 hifr-ex324_6.htm

Exhibit 32.4

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Amendment No. 1 to the Quarterly Report on Form 10-Q of InfraREIT, Inc. for the fiscal quarter ended September 30, 2018 (the “Report”), I, Brant Meleski, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

 

Date: November 13, 2018

/s/ Brant Meleski

 

Brant Meleski

 

Senior Vice President and Chief Financial Officer

 

(Principal Financial Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-99.1 6 hifr-ex991_35.htm EX-99.1 hifr-ex991_35.htm

 

Exhibit 99.1

 

 

 

 

 

 

 

SHARYLAND UTILITIES, L.P.

Consolidated Financial Statements
September 30, 2018
(Unaudited)

 

 

 

 

 

 

 


SHARYLAND UTILITIES, L.P.

Consolidated Balance Sheets
(In thousands)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,510

 

 

$

25,503

 

Accounts receivable, net

 

 

42,487

 

 

 

55,885

 

Due from affiliates

 

 

11,340

 

 

 

7,096

 

Inventory

 

 

1,844

 

 

 

1,844

 

Prepayments and other current assets

 

 

2,925

 

 

 

3,321

 

Total current assets

 

 

76,106

 

 

 

93,649

 

Property, Plant and Equipment - net

 

 

1,970,604

 

 

 

1,942,393

 

Goodwill

 

 

1,100

 

 

 

1,100

 

Deferred Charges - Regulatory Assets, net

 

 

45,984

 

 

 

44,055

 

Total Assets

 

$

2,093,794

 

 

$

2,081,197

 

Liabilities and Partners' Capital

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

32,651

 

 

$

46,515

 

Current portion of long-term debt

 

 

3,493

 

 

 

3,493

 

Current portion of financing obligation

 

 

34,096

 

 

 

29,611

 

Due to affiliates

 

 

29,163

 

 

 

31,615

 

State margin tax payable

 

 

1,369

 

 

 

1,915

 

Total current liabilities

 

 

100,772

 

 

 

113,149

 

Long-Term Financing Obligation

 

 

1,692,691

 

 

 

1,668,904

 

Long-Term Debt

 

 

152,723

 

 

 

155,342

 

Regulatory Liabilities

 

 

24,516

 

 

 

13,563

 

OPEB and Other Liabilities

 

 

1,889

 

 

 

1,889

 

Total Liabilities

 

 

1,972,591

 

 

 

1,952,847

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Partners' Capital

 

 

 

 

 

 

 

 

General partner

 

 

1,161

 

 

 

1,232

 

Limited partner

 

 

120,042

 

 

 

127,118

 

Total partners' capital

 

 

121,203

 

 

 

128,350

 

Total Liabilities and Partners' Capital

 

$

2,093,794

 

 

$

2,081,197

 

 

See accompanying notes to the consolidated financial statements.

 


SHARYLAND UTILITIES, L.P.

Consolidated Statements of Operations
(In thousands)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues - net

 

$

60,552

 

 

$

87,033

 

 

$

193,054

 

 

$

249,831

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expense

 

 

151

 

 

 

6,457

 

 

 

234

 

 

 

19,303

 

Transmission expense

 

 

3,965

 

 

 

8,191

 

 

 

11,895

 

 

 

24,064

 

Administrative and general expense

 

 

7,647

 

 

 

7,117

 

 

 

25,685

 

 

 

31,609

 

Depreciation and amortization

 

 

11,729

 

 

 

11,094

 

 

 

34,871

 

 

 

33,422

 

Total operating expenses

 

 

23,492

 

 

 

32,859

 

 

 

72,685

 

 

 

108,398

 

Operating Income

 

 

37,060

 

 

 

54,174

 

 

 

120,369

 

 

 

141,433

 

Other Expense - net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense - net

 

 

(45,118

)

 

 

(39,231

)

 

 

(126,437

)

 

 

(114,814

)

Other income - net

 

 

18

 

 

 

17

 

 

 

98

 

 

 

43

 

Tax reimbursements for

   contribution in aid of construction

 

 

 

 

 

106

 

 

 

 

 

 

294

 

Total other expense - net

 

 

(45,100

)

 

 

(39,108

)

 

 

(126,339

)

 

 

(114,477

)

Net (Loss) Income Before Income Taxes

 

 

(8,040

)

 

 

15,066

 

 

 

(5,970

)

 

 

26,956

 

Income Tax Expense

 

 

482

 

 

 

459

 

 

 

1,177

 

 

 

1,315

 

Net (Loss) Income

 

$

(8,522

)

 

$

14,607

 

 

$

(7,147

)

 

$

25,641

 

 

 

See accompanying notes to the consolidated financial statements.


SHARYLAND UTILITIES, L.P.

Consolidated Statements of Partners’ Capital
Nine Months Ended September 30, 2018

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

General

 

 

Limited

 

 

Partners'

 

 

 

Partner

 

 

Partner

 

 

Capital

 

Balance at December 31, 2017

 

$

1,232

 

 

$

127,118

 

 

$

128,350

 

Net Loss

 

 

(71

)

 

 

(7,076

)

 

 

(7,147

)

Balance at September 30, 2018

 

$

1,161

 

 

$

120,042

 

 

$

121,203

 

 

See accompanying notes to the consolidated financial statements.


SHARYLAND UTILITIES, L.P.

Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from Operating Activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(7,147

)

 

$

25,641

 

Adjustments to reconcile net income to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

28,361

 

 

 

32,146

 

Amortization of deferred costs

 

 

7,414

 

 

 

2,181

 

Allowance for funds used during construction - equity

 

 

(58

)

 

 

(1

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

13,398

 

 

 

(7,188

)

Due from affiliates

 

 

(4,244

)

 

 

7,316

 

Inventory

 

 

 

 

 

(464

)

Prepayments and other current assets

 

 

396

 

 

 

2,687

 

Deferred charges - regulatory assets and liabilities

 

 

1,490

 

 

 

3,326

 

Accounts payable, accrued liabilities and other

 

 

(13,157

)

 

 

(4,264

)

Due to affiliates

 

 

(2,452

)

 

 

(126

)

State margin tax payable

 

 

(546

)

 

 

(224

)

Net cash provided by operating activities

 

 

23,455

 

 

 

61,030

 

Cash flows from Investing Activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(6,773

)

 

 

(3,780

)

Net cash used in investing activities

 

 

(6,773

)

 

 

(3,780

)

Cash flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

 

 

 

997

 

Proceeds from short-term borrowing

 

 

16,000

 

 

 

10,000

 

Proceeds from short-term borrowing from affiliates

 

 

 

 

 

10,000

 

Repayments of notes payable

 

 

(299

)

 

 

(395

)

Repayments of short-term borrowing

 

 

(16,000

)

 

 

(10,000

)

Repayments of short-term borrowing to affiliates

 

 

 

 

 

(10,000

)

Repayments of long-term debt

 

 

(2,619

)

 

 

(2,619

)

Repayments of financing obligation

 

 

(21,757

)

 

 

(30,745

)

Net cash used in financing activities

 

 

(24,675

)

 

 

(32,762

)

Net (decrease) increase in cash and cash equivalents

 

 

(7,993

)

 

 

24,488

 

Cash and cash equivalents at beginning of period

 

 

25,503

 

 

 

12,263

 

Cash and cash equivalents at end of period

 

$

17,510

 

 

$

36,751

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.


6

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(1)

Description of Business and Summary of Significant Accounting Policies

 

(a)

Description of Business

Sharyland Utilities, L.P. (the Partnership or SULP) is a partnership engaged in providing transmission of electricity throughout Texas. Those transmission activities include the operation and maintenance of: 138 Kilovolt (kV) looped system of transmission lines and connected substations near Stanton; 138 kV direct current transmission interconnection between Texas and Mexico (Railroad DC Tie); 138 kV transmission lines located in South Texas;  345 kV transmission lines and connected substations in the Texas Panhandle; 345 kV transmission lines near Wichita Falls, Abilene and Brownwood, Texas; and a 345 kV transmission line from the eastern half of the North Edinburg substation to the Palmito substation in South Texas.

The Partnership was organized as a Texas limited partnership on November 3, 1998, as an electric distribution utility located in Hidalgo County, Texas. On March 24, 2016, the Partnership transferred its ownership in SU FERC, L.L.C., a subsidiary of the Partnership, to its General Partner.

On March 18, 2016, Hunt Power, L.P. (HP), an affiliate of the Partnership, contributed GS Project Entity, L.L.C. (GSPE) to the partners of the Partnership (Partners). The Partners contributed their interests in GSPE to the Partnership. GSPE became a wholly owned subsidiary of the Partnership. On May 6, 2016, HP also contributed CV Project Entity, L.L.C. (CVPE) to the Partners. The Partners contributed their interests in CVPE to the Partnership. CVPE became a wholly owned subsidiary of the Partnership.

The Partnership leases most of its transmission and distribution assets from a related party, Sharyland Distribution & Transmission Services, L.L.C. (SDTS) under Master Lease Agreements. See Note 3.

 

(b)

Principles of Consolidation and Presentation

All significant intercompany balances and transactions have been eliminated. The Partnership maintains accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). The Partnership’s consolidated financial statements reflect the effects of the different rate making principles mandated by FERC and the Public Utility Counsel of Texas (PUCT) regulating its operations.

 

(c)

Use of Estimates

The preparation of the Partnership’s consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

(d)

Recent Accounting Guidance

Recently Adopted Accounting Guidance

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The new standard should be applied retrospectively to all periods presented, unless deemed impracticable, in which case prospective application is permitted. We adopted the new guidance on January 1, 2018 with no impact on our presentation of our cash flows.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715), the amendments of ASU No. 2017-07 require an entity to report the service cost component of net benefit costs in the same line item as other compensation costs arising from services rendered by the related employees during the applicable service period. The other components of net benefit cost are required to be presented separately from the service cost component and outside the subtotal of income from operations. Further, ASU No. 2017-07 prescribes that only the service cost component of net benefit costs is eligible for capitalization. The Partnership adopted the new guidance on January 1, 2018 with minimal impact on its financial position, results of operations or cash flows.

 


7

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

Recent Accounting Guidance Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2019 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Partnership is currently evaluating the new guidance and the extent of the impact this standard may have on its financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods and services. The guidance supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 is effective for periods beginning after December 15, 2018. The Partnership’s revenues from customers are tariff-based and are designed to recover the cost of providing electric delivery service to customers including a reasonable rate of return on invested capital. Revenues are generally recognized when the underlying service has been provided in an amount prescribed by the related tariff. The new guidance does not change this pattern of recognition and therefore the adoption will not have an effect on the Partnership’s financial position, results of operations or cash flows.

(2)

Asset Exchange Agreement

On July 21, 2017, the Partnership and SDTS signed a definitive agreement (2017 Asset Exchange Agreement) with Oncor Electric Delivery Company LLC (Oncor) to exchange SDTS’s retail distribution assets and the Partnership’s general plant used in distribution operations for a group of Oncor’s transmission assets located in West and Central Texas and cash. The 2017 Asset Exchange Agrement closed in November 2017 and, among other things, resulted in the Partnership exchanging $6.1 million of general plant and regulatory assets used for the retail distribution business net of liabilities at its carrying value with Oncor for approximately $6.1 million in cash. On November 9, 2017 Oncor paid Sharyland $6.9 million based on an estimate, and on February 24, 2018, Sharyland repaid $832,000.

SDTS exchanged approximately $403.0 million of net distribution assets for $383 million of transmission assets located in West and Central Texas, $18 million of net cash and a $2 million receivable from Oncor as of December 31, 2017.

The Partnership leases these transmission assets from SDTS and operates them under an amended certificate of convenience and necessity (CCN). The Partnership no longer leases the distribution assets transferred to Oncor. SDTS will continue to own and lease to the Partnership certain substations related to its distribution assets, but the Partnership exited the retail distribution business. On October 13, 2017, the PUCT issued an order under Docket No. 47469 approving the Partnership, SDTS and Oncor’s joint Sale-Transfer-Merger application (STM).

Concurrently with the execution of the 2017 Exchange Agreement, the Partnership and SDTS entered into an agreement (Rate Case Dismissal Agreement) with certain parties to their pending rate case under Docket No 45414 (Rate Case), which resulted in the dismissal of the Rate Case upon the completion of the 2017 Asset Exchange Agreement with Oncor. On September 29, 2017, the PUCT issued an order dismissing the Rate Case contingent on PUCT approval of the STM and the closing of the 2017 Exchange Agreement. For further information related to the Rate Case and the dismissal, see Note 13, Commitments and Contingencies - regulatory proceedings.

 


8

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(3)

Leases

The Partnership leases most of its Transmission and all of its Distribution Substation (T&D) assets from SDTS, a related party, under five Master Lease Agreements (MLA). See Regulatory Proceedings on Note 13, Commitment and Contingencies, leases. Also under these same MLAs, SDTS is responsible for funding all prudently incurred electric plant capital expenditures deemed necessary to serve customers by the Partnership. In accordance with the MLAs, the Partnership is responsible for the maintenance and the operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, FERC, and any other regulatory entity with jurisdiction over the T&D assets. The MLAs obligate the Partnership to pay all property-related expenses, including maintenance, repairs, taxes on equipment in service, insurance, and to comply with the terms of the secured credit facilities and secured-term loan, if any, affecting the leased assets. The MLAs are subject to failed sale-leaseback accounting. See Note 4.

The MLAs, as amended, expire at various dates from December 31, 2019 through December 31, 2022. Each agreement includes annual base payments while all but two agreements include additional payments, based on an agreed upon percentage of revenue earned by the Partnership, as defined in the MLAs, in excess of annual specified breakpoints. The rate used to calculate additional payments varies by lease and ranges from a high of 37% to a low of 23% over the term of the agreements.

The Partnership made fixed lease payments during the periods presented as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Fixed Lease Payments

 

$

47,130

 

 

$

40,856

 

 

$

138,331

 

 

$

122,201

 

 

The Partnership’s MLAs include a rent validation mechanism after year end to true up lease payments for the difference between actual and estimated incremental capital expenditures placed in service. As a result of the rent validation, the Partnership made additional fixed payments of approximately $346,000 and $334,000 on March 28, 2018 and March 22, 2017, respectively, associated with the years ended December 31, 2017 and 2016, respectively.

The Partnership is also subject to certain restrictive covenants, including indebtedness limits, contained in the MLAs. The Partnership was in compliance with all such covenants as of September 30, 2018 and December 31, 2017.

Future minimum lease payments in accordance with these MLAs are as follows:

 

(In thousands)

 

Total

 

Year Ending December 31:

 

 

 

 

2018 - Q4

 

 

48,129

 

2019

 

 

193,655

 

2020

 

 

182,099

 

2021

 

 

8,576

 

2022 and Thereafter

 

 

4,460

 

Total future minimum lease payments

 

$

436,919

 

 

 


9

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(4)

Failed Sale-Leaseback – Financing Obligation

The Partnership leases most of its T&D assets from SDTS, a related party. SDTS has legal title to such T&D assets under lease. The Partnership, as a managing member of SDTS, has the exclusive power and authority on behalf of SDTS to manage, control, administer, and operate the T&D assets and business affairs of SDTS in accordance with the limited liability company agreement governing SDTS. These rights and obligations constitute continuing involvement, which results in failed sale-leaseback (financing) accounting. Under failed sale-leaseback accounting, the Partnership is deemed owner of the assets under all MLAs, including assets currently under construction. Consequently, the T&D assets, including assets currently under construction and corresponding financial obligations, are included in the Partnership’s Consolidated Balance Sheets. The leases are considered a failed sale-leaseback (financing) due to the Partnership’s continuing involvement in SDTS and due to the ongoing involvement in the construction of the T&D assets as defined by ASC Topic 840, Accounting for Leases.

Approximately $1.7 billion is included in long-term financing obligation liabilities related to the failed sale-leaseback (financing), as of September 30, 2018 and December 31, 2017, respectively. Approximately $34.1 million and $29.6 million of the failed sale-leaseback (financing) obligation are included in current liabilities as of September 30, 2018 and December 31, 2017, respectively.

The Partnership recorded interest on failed sale-leaseback (financing) in interest expense, net as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Failed sale-lease back interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed portion of failed-leaseback interest

 

$

40,005

 

 

$

30,057

 

 

$

114,139

 

 

$

89,855

 

Variable portion of failed-leaseback interest

 

 

2,204

 

 

 

7,600

 

 

 

5,965

 

 

 

20,292

 

Failed sale-lease back interest expense

 

$

42,209

 

 

$

37,657

 

 

$

120,104

 

 

$

110,147

 

 

As a result of the failed sale-leaseback (financing) transaction, the Partnership accounted for lease payments to the lessor as a reduction of its financing obligation. Payments made on the long-term financing obligation were as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Payments on long-term financing obligation

 

$

6,673

 

 

$

10,667

 

 

$

21,757

 

 

$

30,745

 

 

Future payments of the financing obligation as of September 30, 2018 are as follows:

 

 

 

Total

 

Year Ending December 31:

 

 

 

 

2018 - Q4

 

$

8,591

 

2019

 

 

34,296

 

2020

 

 

29,226

 

2021

 

 

7,069

 

2022

 

 

1,167

 

Thereafter

 

 

1,565,819

 

Total financing obligation

 

 

1,646,168

 

Less: current portion of financing obligation

 

 

(34,096

)

Leased system under construction obligation

 

 

56,826

 

Lease deferral (Note 7)

 

 

23,793

 

Long-term lease obligation

 

$

1,692,691

 

 

 


10

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

The Partnership recorded depreciation expense related to the assets accounted for in accordance with failed sale-leaseback as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Failed sale-lease back depreciation expense

 

$

7,945

 

 

$

8,981

 

 

$

23,424

 

 

$

26,430

 

 

(5)

Property, Plant and Equipment - net

The major classes of property, plant and equipment at September 30, 2018 and December 31, 2017 are as follows:

 

 

 

September 30,

 

 

December 31,

 

(In thousands)

 

2018

 

 

2017

 

Property, plant and equipment

 

 

 

 

 

 

 

 

Leased system

 

$

1,860,227

 

 

$

1,757,327

 

Transmission plant

 

 

262,399

 

 

 

262,465

 

General plant

 

 

8,490

 

 

 

10,977

 

 

 

 

2,131,116

 

 

 

2,030,769

 

Construction Work in Progress:

 

 

 

 

 

 

 

 

Leased system under construction

 

 

56,826

 

 

 

109,697

 

Transmission plant under construction

 

 

7,438

 

 

 

2,231

 

General plant under construction

 

 

1,447

 

 

 

1,162

 

 

 

 

65,711

 

 

 

113,090

 

Other

 

 

293

 

 

 

293

 

Total Property, plant and equipment

 

 

2,197,120

 

 

 

2,144,152

 

Accumulated Depreciation - Leased system

 

 

(217,566

)

 

 

(194,142

)

Accumulated Depreciation - Transmission plant

 

 

(7,222

)

 

 

(4,903

)

Accumulated Depreciation - General plant

 

 

(1,728

)

 

 

(2,714

)

Property, Plant, and Equipment - net

 

$

1,970,604

 

 

$

1,942,393

 

 

See Note 2  in regards to the 2017 Asset Exchange Agreement.

See Note 4  in regards to leased system and leased system under construction.

General plant consists of a warehouse, furniture, fixtures, equipment, computer hardware, software, and vehicles.

 


11

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(6)

Deferred Charges – Regulatory Assets - Liabilities

Deferred Charges – Regulatory Assets, Net

Regulatory assets represent probable future recovery of costs from customers through the regulatory ratemaking process. The table below provides detail of deferred charges that are included on the Partnership’s Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017.

 

 

 

 

 

September 30, 2018

 

 

December 31, 2017

 

(In thousands)

 

Amortization Period

 

Gross

Carrying

Amount

 

 

Accumulated Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated Amortization

 

 

Net

Carrying

Amount

 

Deferred costs recoverable

   in future years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred financing costs

 

(a)

 

$

5,763

 

 

$

(4,408

)

 

$

1,355

 

 

$

5,763

 

 

$

(3,504

)

 

$

2,259

 

Inception operating costs

 

(b)

 

 

23,793

 

 

 

 

 

 

23,793

 

 

 

23,793

 

 

 

 

 

 

23,793

 

Rate case costs

 

(c)

 

 

13,861

 

 

 

(4,998

)

 

 

8,863

 

 

 

13,324

 

 

 

(4,998

)

 

 

8,326

 

Study costs/Transition

   to competition

 

(d)

 

 

5,918

 

 

 

(2,756

)

 

 

3,162

 

 

 

5,918

 

 

 

(2,610

)

 

 

3,308

 

Transition cost

 

(e)

 

 

14,100

 

 

 

(6,364

)

 

 

7,736

 

 

 

6,369

 

 

 

 

 

 

6,369

 

Deferred Overhead

 

 

 

 

1,075

 

 

 

 

 

 

1,075

 

 

 

 

 

 

 

 

 

 

Net Deferred

  Charges - Regulatory Assets

 

 

 

$

64,510

 

 

$

(18,526

)

 

$

45,984

 

 

$

55,167

 

 

$

(11,112

)

 

$

44,055

 

 

 

a)

Amortized over the length of the related loan.

 

b)

Amortization period is anticipated to be established in a future rate case.

 

c)

$5.0 million was recovered through May 2017. The recovery period for the $8.9 million is anticipated to be established in 2018 in rate case expense Docket No. 45979.

 

d)

$2.0 million was recovered through December 2017. $0.9 million will be recovered through April 2019 and the Partnership anticipates establishing  the recovery period for the remaining $3.0 million in a future rate case.

 

e)

This amount began to be recovered in January 2018 and is expected to be fully recoverd in 2019.

Deferred financing costs included in net deferred charges – regulatory assets consist of debt issuance costs incurred in connection with the construction credit agreements associated with GSPE and CVPE. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs will be included in the costs of debt in connection with a future rate case.

The inception operating costs of approximately $23.8 million at September 30, 2018 and December 31, 2017 represent operating costs incurred from inception through December 31, 2007. The 2013 rate case settlement established that the Partnership may seek recovery in a future rate case, pursuant to the mechanism established in Docket Nos. 21591 and 27556, of the inception operating costs plus related return on rate base. The right to benefit from the inception operating costs was transferred to SDTS. Consequently, due to the failed sale-leaseback accounting treatment, the Partnership has recorded a corresponding liability in financing obligation.

In 2017, the PUCT approved the 2017 Asset Exchange between the Partnership and Oncor in Docket 47649. As part of the Order, the Partnership was allow to recover certain expenses incurred in connection with the transition of the assets between the Partnership and Oncor (Transition Cost) not to exceed $17.0 million. The actual transition costs to be recovered is $14.1 million to be recovered as a regulatory asset.

See Note 13, Commitments and Contingencies – Regulatory proceedings for information regarding the rate case Docket.

Regulatory Liabilities

Regulatory liabilities represent probable future reduction in rates due to the over-recovery of costs from customers through the regulatory ratemaking process.

 


12

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

The Partnership’s regulatory liability related to cost of removal is established through depreciation rates and represents the amount that the Partnership expects to incur in the future. The regulatory liability is recorded as long-term liability net of actual removal costs incurred.

With the passage of the Tax Cuts and Jobs Act (TCJA), the PUCT ordered electric utilities in Texas to record a regulatory liability for the balance of excess accumulated deferred income taxes (Excess ADFIT) that now exists because of the decrease in the Federal Income Tax rate from 35% to 21%. The Partnership will continue to assess the amount of the regulatory liability and expects that amortization of the regulatory liability will be determined in the Partnership’s next base rate proceeding to be filed in 2020. The regulatory liability is expected to lower future customer rates over a future period to be determined by the PUCT.

In prior interim transmission rate filings, the Partnership incorrectly included certain distribution property, plant and equipment as part of the Partnership’s transmission rate base resulting in the Partnership over-collecting revenues for certain periods of time. The Partnership has calculated the amount of over collected transmission revenue and an associated carrying charge and has booked an interim TCOS regulatory liability in September 2018. The Partnership expects the regulatory liability to be addressed in its next base rate case to be filed in 2020.

The carrying amount of the regulatory liabilities as of September 30, 2018 and December 31, 2017 are as follows:

 

 

 

Amortization period

 

September 30,

 

 

December 31,

 

(In thousands)

 

Ends

 

2018

 

 

2017

 

Postretirement benefits costs

 

(a)

 

$

2,701

 

 

$

2,701

 

Postretirement benefits collections

 

(b)

 

 

5,827

 

 

 

5,765

 

Estimated net removal costs

 

(c)

 

 

5,798

 

 

 

3,892

 

Provision in lieu of excess ADFIT

 

(b)

 

 

1,205

 

 

 

1,205

 

Interim TCOS

 

(b)

 

 

8,985

 

 

 

 

Regulatory liabilities

 

 

 

$

24,516

 

 

$

13,563

 

 

 

a)

This item represents liabilities recorded in accordance with postretirement benefits accounting standards.

 

b)

The amortization of this item is anticipated to be established in a future rate case.

 

c)

For regulatory purposes, this balance will be part of accumulated depreciation. In future rate cases, this balance will be taken into account when determing the appropriate depreciation rates.

 

(7)

Related-Party Transactions

The Partnership made payments associated with the lease of some of its T&D assets to SDTS as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Lease payments

 

$

48,080

 

 

$

47,420

 

 

$

144,389

 

 

$

140,300

 

 

The Partnership received payments throughout the period related to the acquisition of gross property plant and equipment, contracted services, direct labor, materials and supervision associated with its existing asset build out on the T&D assets from SDTS as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Asset build out payments received

 

$

17,285

 

 

$

57,251

 

 

$

48,845

 

 

$

151,075

 

 

 


13

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

Asset build out costs are included on the Consolidated Balance Sheets under Property, Plant and Equipment - net.

On February 12, 2015, the Partnership entered into a subordinated and unsecured loan agreement of $10.0 million with Loyal Trust No. 1 (LT1), a related party, as amended on, February 16, 2018. The promissory note matures on December 31, 2019. The revolving promissory note accrues interest at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually. As of September 30, 2018 and December 31, 2017, the Partnership had no amount outstanding on the subordinated note.

No interest expense was incurred on the subordinated note during the three and nine month periods ended September 30, 2018. The interest expense and fees on the subordinated note were no amount and approximately $100,000 during the three and nine months ended September 30, 2017, respectively.

The Partnership leases office space for its Dallas location from an affiliate through a contractually agreed upon lease amount. Charges for the lease are included in general and administrative expense in the accompanying Consolidated Statements of Operations as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Lease office expense

 

$

69

 

 

$

90

 

 

$

154

 

 

$

262

 

 

An affiliate of the Partnership provides services to the Partnership at contractually agreed upon hourly rates and set amounts for infrastructure support. Charges for such services are included in general and administrative expense in the accompanying Consolidated Statements of Operations as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Infrastructure support services

 

$

667

 

 

$

648

 

 

$

2,659

 

 

$

1,880

 

 

Accrued fees related to these charges are included in due to affiliates on the Partnership’s Consolidated Balance Sheets and were approximately $668,000 and $763,000 as of September 30, 2018 and December 31, 2017, respectively.

(8)

Allocation of Partners’ Capital

Revenues, income, gains, losses, expenditures, deductions, credits and distributions, as defined in the partnership agreement, are allocated 1 percent to the general partner and 99 percent to the limited partner.

(9)

Credit Facility

On May 15, 2014, the Partnership entered into an unsecured revolving credit facility of $5.0 million with Amegy Bank, as amended on, December 10, 2014. On August 11, 2017, the credit facility was amended and extended to increase the commitment to $10.0 million and extend the term. The credit facility accrues interest on the outstanding balance at the Prime Rate. At September 30, 2018, the Prime Rate was at 5.25%. In addition to the interest on the outstanding balance, commitment fees accrue at 0.35% for the unused portion of the credit facility. The revolving credit facility expires on August 11, 2019.

As of September 30, 2018 and December 31, 2017, the Partnership had no amount outstanding on the revolving credit facility, respectively. The interest expense and fees for the revolving credit facility were approximately $15,000 and $71,000 during the three and nine months ended September 30, 2018, respectively. The interest expense and fees for the revolving credit facility were approximately $18,000 and $105,000 during the three and nine months ended September 30, 2017, respectively.

The agreement requires maintenance of certain financial ratios and imposes certain restricted covenants. The Partnership was in compliance with all covenants as of September 30, 2018 and December 31, 2017, respectively.

 


14

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(10)

Long-Term Debt

 

(In thousands)

 

Maturity Date

 

30-Sep-18

 

 

December 31, 2017

CVPE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Notes - $23.5 million

 

January  15, 2020

 

$

23,500

 

 

 

3.58

%

 

$

23,500

 

 

 

3.58

%

 

Term Loan - $82.5 million

 

January  15, 2020

 

 

78,376

 

 

 

3.83

%

*

 

79,922

 

 

 

3.32

%

*

GSPE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan - $57.2 million

 

October  31, 2019

 

 

54,340

 

 

 

3.83

%

*

 

55,413

 

 

 

3.32

%

*

Total long-term debt

 

 

 

 

156,216

 

 

 

 

 

 

 

158,835

 

 

 

 

 

 

Less: current portion of long-term debt

 

 

 

 

3,493

 

 

 

 

 

 

 

3,493

 

 

 

 

 

 

Long-term debt

 

 

 

$

152,723

 

 

 

 

 

 

$

155,342

 

 

 

 

 

 

 

*Interest based on LIBOR plus an applicable margin

Senior Secured Credit Facilities – On January 15, 2015, in conjunction with the acquisition, CVPE entered into a construction-term loan agreement consisting of a $106.5 million construction term loan syndicated to five banks and a $23.5 million senior secured note issued to Prudential Insurance Company of America and affiliates (Fixed Rate Notes). The senior secured credit facilities and Fixed Rate Notes are collateralized by the CVPE assets.

The CV Project was placed in service June 10, 2016 and the new transmission cost of service (TCOS) rate that included the CVPE assets was approved on September 22, 2016 by the PUCT. On November 30, 2016, the amount outstanding on the construction-term loan was converted into a term loan with a balance of $82.5 million. After this conversion, interest accrues at LIBOR plus 1.75%. Interest is payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan are payable quarterly after the conversion. The outstanding borrowing under the term loan at September 30, 2018 and December 31, 2017 was $78.4 million and $79.9 million, respectively.

As of September 30, 2018 and December 31, 2017, the Fixed Rate Notes had a principal balance of $23.5 million, respectively. Interest is payable quarterly at a rate of 3.58% per annum. The Fixed Rate Notes and the term loan mature on January 15, 2020 and do not provide for any principal payments.

The construction-term loan agreement and senior secured notes contain certain default triggers, including without limitation: failure to maintain compliance with financial and other covenants contained in the agreement, limitation on liens, investments and the incurrence of additional indebtedness. CVPE was in compliance with all debt covenants for the construction-term loan agreement at September 30, 2018 and December 31, 2017.

On March 31, 2015, GSPE entered into a construction-term loan agreement of $84.0 million syndicated to three banks. The senior secured credit facilities are collateralized by GSPE’s assets.

The GS Project was placed in service in March 29, 2016 and the new TCOS rate that included the GSPE assets was approved on June 13, 2016 by the PUCT. On October 31, 2016, the amount outstanding on the construction-term loan was converted into a term loan with a balance of $57.2 million. After this conversion, interest accrues at LIBOR plus 1.75%. Interest is payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan are payable quarterly after the conversion. The term loan will mature on October 31, 2019. The outstanding borrowing under the term loan at September 30, 2018 and December 31, 2017 was $54.3 million and $55.4 million, respectively.

The construction-term loan agreement contains certain default triggers, including without limitation: failure to maintain compliance with financial and other covenants contained in the agreement, limitation on liens, investments and the incurrence of additional indebtedness. GSPE was in compliance with all debt covenants for the construction-term loan agreement at September 30, 2018 and December 31, 2017.

 


15

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

Future maturities of the total long-term debt as of September 30, 2018 are as follows:

 

(In thousands)

 

Total

 

Year Ending December 31:

 

 

 

 

2018 - Q4

 

$

874

 

2019

 

 

56,045

 

2020

 

 

99,297

 

 

 

$

156,216

 

 

(11)

Postretirement Benefits

The Partnership provides continued major medical and dental coverage to retired employees and their dependents meeting certain eligibility requirements. The Partnership’s postretirement health care benefit plan provides prescription drug coverage. The Medicare Prescription Drug Improvement and Modernization Act of 2003 includes a federal subsidy for plans that offer prescription drug benefits that are actuarially equivalent to Medicare Part D. The Partnership and the actuarial advisors have determined that the prescription drug coverage provided by the Partnership’s postretirement health care benefit plan is actuarially equivalent to Medicare Part D, and accordingly, the subsidy provides some relief for ongoing retiree prescription costs.

The Partnership is required to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on its balance sheet. FASB guidance requires an entity to include items that have not yet been recognized as net periodic postretirement benefit cost as a component of accumulated other comprehensive income. However, for a regulated utility this item is allowed to be recorded as a regulatory asset if: (i) the utility has historically recovered and currently recovers postretirement benefit plan expenses in its electric rates; and (ii) there is no negative evidence that the existing regulatory treatment will change. The Partnership has recorded the unrecognized components of net periodic postretirement benefit cost as a regulatory asset (liability) as these expenses are probable of future recovery.

(12)

Fair Value of Financial Instruments

In accordance with ASC Topic 820, Fair Value Measurements and Disclosures, the Partnership is required to assess the fair value of its financial instruments and disclose the level of inputs used for that estimate set forth in ASC 820.

The carrying amounts of the Partnership’s cash and cash equivalents, due to and from affiliates, and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

As of September 30, 2018 and December 31, 2017, the Partnership had approximately $132.7 million and $135.3 million, respectively, of borrowings under the construction-term loans which accrued interest under a floating rate structure. Accordingly, the carrying value of such indebtedness approximated the fair value for the amounts outstanding.

The Partnership also had borrowings totaling $23.5 million under senior secured notes with a rate of 3.58% per annum as of September 30, 2018 and December 31, 2017. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

Financial instruments, measured at fair value as defined by ASC 820, by level within the fair value hierarchy were as follows:

 

 

 

Carrying