NOTE 5 – LONG-TERM DEBT

The mortgage notes payable and pollution control revenue bonds are secured on a parity basis by a Master First Mortgage Indenture, Deed of Trust and Security Agreement (“Master Indenture”) except for two unsecured notes in the aggregate amount of $41.5 million as of December 31, 2017. Substantially all our assets, rents, revenues and margins are pledged as collateral. The Springerville certificates are secured by the assets of Springerville Unit 3. All long-term debt contains certain restrictive financial covenants, including a DSR requirement and ECR requirement.

Long-term debt consists of the following (dollars in thousands):


	December 31,		December 31,
	2017		2016
Mortgage notes payable
3.66% to 8.08% CFC, due through 2028	$	80,948	$	83,653
2.63% to 6.17% CoBank, ACB, due through 2042		257,630		268,045
First Mortgage Obligations, Series 2017A, Tranche 1, 3.34%, due through 2029		60,000		—
First Mortgage Bonds, Series 2016A, 4.25% due 2046		250,000		250,000
First Mortgage Bonds, Series 2014E-1, 3.70% due 2024		250,000		250,000
First Mortgage Bonds, Series 2014E-2, 4.70% due 2044		250,000		250,000
First Mortgage Bonds, Series 2010A, 6.00% due 2040		500,000		500,000
First Mortgage Obligations, Series 2014B, Tranche 1, 3.90%, due through 2033		180,000		180,000
First Mortgage Obligations, Series 2014B, Tranche 2, 4.30%, due through 2039		20,000		20,000
First Mortgage Obligations, Series 2014B, Tranche 3, 4.45%, due through 2045		550,000		550,000
First Mortgage Obligations, Series 2009C, Tranche 1, 6.00%, due through 2019		54,286		81,429
First Mortgage Obligations, Series 2009C, Tranche 2, 6.31%, due through 2021		88,000		110,000
Variable rate CFC, as determined by CFC, due through 2026		549		598
Variable rate CFC, LIBOR-based term loan, due through 2049		102,220		102,220
Variable rate CoBank, ACB, LIBOR-based term loan, due through 2044		102,220		102,220
Pollution control revenue bonds
City of Gallup, NM, 5.00%, Series 2005, due through 2017		—		5,540
Moffat County, CO, 2.00% term rate through October 2022, Series 2009, due 2036		46,800		46,800
Springerville certificates
Series A, 6.04%, due through 2018		13,721		52,994
Series B, 7.14%, due through 2033		405,000		405,000
Other		47		1,222
Total debt	$	3,211,421	$	3,259,721
Less debt issuance costs		(21,720)		(22,255)
Less debt discounts		(10,360)		(10,569)
Plus debt premiums		18,949		20,711
Total debt adjusted for discounts, premiums and debt issuance costs	$	3,198,290	$	3,247,608
Less current maturities		(78,004)		(107,903)
Long-term debt	$	3,120,286	$	3,139,705

We have a secured revolving credit facility with Bank of America, N.A. (“Bank of America”) and CoBank, ACB as Joint Lead Arrangers in the amount of $750 million (“Revolving Credit Agreement”) extending through July 26, 2019. We had no outstanding borrowings at December 31, 2017 and no outstanding borrowings at December 31, 2016. As of December 31, 2017, we have $605.0 million in availability (including $355.0 million under the commercial paper back-up sublimit) under the Revolving Credit Agreement. We expect to renew or replace the Revolving Credit Agreement prior to its expiration.

On May 23, 2016, we issued our First Mortgage Bonds, Series 2016A (“Series 2016A Bonds”) in an unregistered offering pursuant to Rule 144A under the Securities Act of 1933, as amended, with an aggregate principal amount of $250 million. The Series 2016A Bonds mature on June 1, 2046 and bear interest at a rate of 4.25 percent per annum. We utilized the proceeds from the Series 2016A Bonds primarily to repay outstanding indebtedness under the Revolving Credit Agreement. In connection with the Series 2016A Bonds, we entered into an exchange and registration rights agreement pursuant to which we agreed to file a registration statement relating to an exchange offer for our Series 2016A Bonds. On June 27, 2016, we commenced an offer to exchange all of the unregistered $250 million aggregate principal amount of the Series 2016A Bonds for $250 million aggregate principal amount of registered Series 2016A Bonds. We completed the exchange offer in July 2016 which satisfied our obligations under the exchange and registration rights agreement. The exchange offer did not represent a new financing transaction and there were no proceeds to us when the exchange offer was completed.

On October 2, 2017, we converted our Moffat County, CO pollution control revenue bonds from a weekly variable rate mode to a five-year term rate mode at a rate of 2.0 percent ending October 3, 2022. On October 17, 2017, the letter of credit issued under the Revolving Credit Agreement to support the variable rate demand bonds was terminated.

On November 16, 2017, we entered into a Note Purchase Agreement with a group of institutional investors to sell our First Mortgage Obligations, Series 2017A in an aggregate principal amount of $120 million, consisting of $60 million of our 3.34 percent First Mortgage Obligations, Series 2017A Notes, Tranche 1, due December 12, 2029, and $60 million of our 3.39 percent First Mortgage Obligations, Series 2017A Notes, Tranche 2, due December 12, 2029 in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The closing of the sale of the Series 2017A Notes, Tranche 1 occurred on December 12, 2017 and the closing of the sale of the Series 2017A Notes, Tranche 2 is expected to occur on April 12, 2018, subject to the satisfaction of certain conditions.

Annual maturities of total debt adjusted for debt issuance costs, discounts and premiums at December 31, 2017 are as follows (dollars in thousands):


2018	$	78,004
2019		97,443
2020		84,499
2021		90,760
2022		96,333
Thereafter		2,751,251
	$	3,198,290

We are exposed to certain risks in the normal course of operations in providing a reliable and affordable source of wholesale electricity to our Members. These risks include interest rate risk, which represents the risk of increased operating expenses and higher rates due to increases in interest rates related to future long-term borrowings. To manage this exposure, we entered into forward starting interest rate swaps to hedge a portion of our future long-term debt interest rate exposure. On October 12, 2017, in conjunction with the pricing on the offering of the First Mortgage Obligations, Series 2017A, we settled the interest rate swap entered into in April 2016, which resulted in a realized gain of $4.6 million that has been deferred as a regulatory liability and is being amortized to interest expense over the 12-year term of the First Mortgage Obligations, Series 2017A. We anticipate settling the remaining interest rate swap in conjunction with the issuance of future long-term debt. See Note 2 – Accounting for Rate Regulation and Note 7 – Fair Value.

The terms of the remaining interest rate swap contract are as follows (dollars in thousands):

Notional

Fixed

Benchmark Interest

Effective

Maturity

Amount

Rate (Pay)

Rate (Receive)

Date

Interest rate swap - June 2016

80,000

2.304

30 year - LIBOR

June 2019

June 2049