Debt

9 Months Ended

Sep. 30, 2020

Note 5 – Debt

Long-Term Debt

Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. However, details surrounding the fair value and individual carrying values of instruments are discussed below or provided in the table that follows.

The fair values of Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values of the revolving credit facility and IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. Additionally, the borrowings by Southwest under its revolving credit facility are generally repaid quickly and the IDRBs have interest rates that reset frequently.

The fair values of Southwest’s debentures (which include senior and medium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings, and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures are categorized as Level 2.

The Centuri secured revolving credit and term loan facility and Centuri’s other debt obligations (not actively traded) are categorized as Level 3. Because Centuri’s debt is not publicly traded, fair values for its secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology utilizing current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.


	September 30, 2020				December 31, 2019
	Carrying Amount		Market Value		Carrying Amount		Market Value
(Thousands of dollars)
Southwest Gas Corporation:
Debentures:
Notes, 4.45%, due 2020	$	—	$	—	$	125,000	$	126,673
Notes, 6.1%, due 2041	125,000		172,353		125,000		162,666
Notes, 3.875%, due 2022	250,000		260,388		250,000		258,550
Notes, 4.875%, due 2043	250,000		317,325		250,000		291,928
Notes, 3.8%, due 2046	300,000		335,970		300,000		308,307
Notes, 3.7%, due 2028	300,000		341,388		300,000		320,685
Notes, 4.15%, due 2049	300,000		361,053		300,000		330,138
Notes, 2.2%, due 2030	450,000		471,227		—		—
8% Series, due 2026	75,000		99,423		75,000		96,905
Medium-term notes, 7.78% series, due 2022	25,000		26,944		25,000		27,500
Medium-term notes, 7.92% series, due 2027	25,000		33,716		25,000		32,543
Medium-term notes, 6.76% series, due 2027	7,500		9,569		7,500		9,156
Unamortized discount and debt issuance costs	(18,091)				(14,450)
	2,089,409				1,768,050
Revolving credit facility and commercial paper	58,000		58,000		150,000		150,000
Industrial development revenue bonds:
Variable-rate bonds:
Tax-exempt Series A, due 2028	50,000		50,000		50,000		50,000
2003 Series A, due 2038	50,000		50,000		50,000		50,000
2008 Series A, due 2038	50,000		50,000		50,000		50,000
2009 Series A, due 2039	50,000		50,000		50,000		50,000
Unamortized discount and debt issuance costs	(1,533)				(1,717)
	198,467				198,283
Less: current maturities	—				(125,000)
Long-term debt, less current maturities - Southwest Gas Corporation	$	2,345,876			$	1,991,333
Centuri:
Centuri term loan facility	$	231,010	$	236,477	$	244,812	$	252,182
Unamortized debt issuance costs	(890)				(1,101)
	230,120				243,711
Centuri secured revolving credit facility	59,908		59,950		60,021		60,057
Centuri other debt obligations	94,721		97,120		43,929		44,787
Less: current maturities	(44,903)				(38,512)
Long-term debt, less current maturities - Centuri	$	339,846			$	309,149
Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt	$	2,345,876			$	2,116,333
Centuri long-term debt	384,749				347,661
Less: current maturities	(44,903)				(163,512)
Long-term debt, less current maturities - Southwest Gas Holdings, Inc.	$	2,685,722			$	2,300,482

Southwest has a $400 million credit facility, for which it has designated $150 million of associated capacity as long-term debt and the remaining $250 million, for working capital purposes. Interest rates for the credit facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At September 30, 2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for

loans bearing interest with reference to the alternative base rate. At September 30, 2020, $58 million was outstanding on the long-term portion (including $50 million under the commercial paper program, discussed below) of the facility.

On April 10, 2020, Southwest amended its credit facility agreement; total borrowing capacity under the amended agreement remains at $400 million. The amended agreement extended the maturity date from March 2022 to April 2025. Under the amended agreement, the applicable margin will range from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to an alternate base rate. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may further amend the credit facility with a replacement rate as set forth in the amended agreement. Southwest is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.

Southwest has a $50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do not represent additional borrowing capacity under the credit facility. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At September 30, 2020, as noted above, $50 million of borrowings were outstanding under the commercial paper program.

In June 2020, Southwest issued $450 million aggregate principal amount of 2.20% Senior Notes at a discount of 0.126%. The notes will mature in June 2030. A portion of the net proceeds was used to reduce borrowings under Southwest’s credit facility and to redeem the 4.45% $125 million Notes due in December 2020, which were redeemed in September 2020 after Southwest provided advance notice to the holders of its intention to redeem the notes in full at a redemption price of 100% plus accrued and unpaid interest.

Centuri has a $590 million senior secured revolving credit and term loan facility, scheduled to expire in November 2023. The capacity of the line of credit portion of the facility is $325 million; related amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of approximately $265 million. The $590 million facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri’s assets securing the facility at September 30, 2020 totaled $1.4 billion. At September 30, 2020, $291 million in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility. During 2020, Centuri also received proceeds of $70 million in equipment loans, which were used for repayment of outstanding borrowings on the line of credit.

Short-Term Debt

Southwest Gas Holdings, Inc. has a $100 million credit facility that is primarily used for short-term financing needs. There was $54 million outstanding under this credit facility as of September 30, 2020.

Similar to Southwest amending its credit facility agreement, on April 10, 2020, Southwest Gas Holdings, Inc. also amended its existing credit facility, extending the maturity date to April 2025. The revolving borrowing capacity under the amended agreement remained at $100 million, the same as before the amendment. Interest rate benchmarks (LIBOR or an alternative) as well as related ranges, including with regard to the applicable margin, largely mirror those included in Southwest’s amended facility agreement noted above, determined in this case based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. Similar to the Southwest facility amendment, upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest Gas Holdings, Inc. may amend its credit facility agreement with a replacement rate, as set forth in the amended agreement. The commitment fee rates, terms, and covenants, noted above for Southwest are also applicable to Southwest Gas Holdings, Inc. in its amended credit facility, including the noted ratio of funded debt to total capitalization as of the end of any quarter of any fiscal year.

As discussed previously, under Southwest’s $400 million credit facility, $250 million has been designated by management for working capital purposes. Southwest had no short-term borrowings outstanding at September 30, 2020 under this facility.

LIBOR

It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of September 30, 2020, $54 million, $8 million and $172 million, respectively, for the holding company, Southwest, and Centuri, were outstanding under credit facilities whereby interest was with reference to LIBOR and for which facility maturity dates extend beyond 2021. As of September 30, 2020, these LIBOR-based borrowings represent approximately 0.3% of Southwest’s total debt, and 8% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc., in accordance with the April 2020 amendments to their respective facilities, may make further amendments with replacement rates if LIBOR is discontinued. However, replacement rates are not currently determinable. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will continue to monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.