Note 17 – Credit Facilities and Long-Term Debt

Line of Credit

The Company has a revolving credit facility with the Bank of America with a maximum borrowing capacity of $30.0 million due April 1, 2017. On November 26, 2014, the Company entered into an amendment temporarily increasing the borrowing capacity by $10.0 million to a maximum of $40.0 million. In an order approving this temporary increase in borrowing capacity, the MPSC stated that any amounts borrowed under this increase in excess of $5.0 million would first require the approval of the MPSC. Amounts borrowed under this temporary increase have a maturity date of July 1, 2015. This revolving credit facility includes an annual commitment fee ranging from 25 to 45 basis points of the unused portion of the facility and interest on the amounts outstanding at LIBOR plus 175 to 225 basis points. The Company had outstanding borrowings under this facility of $28.8 million and $24.5 million at December 31, 2014 and 2013, respectively. For the year ended December 31, 2014, the weighted average borrowing outstanding on the revolving line of credit was $23.4 million. For the years ended December 31, 2014, 2013 and 2012, the weighted average interest rate on the revolving credit facility was 2.45%, 2.42% and 3.33%, respectively.

Notes Payable

The following table details the Company’s outstanding long-term debt balances at December 31, 2014 and 2013.

	December 31,
	2014		2013

LIBOR plus 1.75 to 2.25%, Bank of America amortizing term loan, due April 1, 2017	$	8,875,000	$	9,375,000
6.16%, Allstate/CUNA Senior unsecured note, due June 29, 2017		13,000,000		13,000,000
5.38%, Sun Life fixed rate note, due June 1, 2017		15,334,000		15,334,000
LIBOR plus 3.85%, Sun Life floating rate note, due May 3, 2014		-		3,000,000
4.15% Sun Life senior secured guaranteed note, due June 1, 2017		2,989,552		2,989,552
Vehicle and equipment financing loans		64,509		2,190
Total notes payable		40,263,061		43,700,742
Less: current portion		542,201		3,502,190
Notes payable, less current portion	$	39,720,860	$	40,198,552

Bank of America

The Bank of America amortizing term loan is an obligation of Energy West. The term loan contains an interest rate swap provision that allows for the interest rate to be fixed in the future. The term loan is amortized at a rate of $125,000 per quarter, with the first principal payment having come due on December 31, 2012. As of December 31, 2014, the Company had not exercised the interest rate swap provision for the fixed interest rate. For the years ended December 31, 2014, 2013 and 2012, the weighted average interest rate on the term loan was 2.15%, 2.19% and 2.14%, respectively, resulting in $200,727, $215,593 and $56,226 of interest expense.

Allstate/CUNA

The Allstate/CUNA senior unsecured note is an obligation of Energy West. Interest expense from the senior unsecured note was $800,800 for the years ended December 31, 2014, 2013 and 2012, respectively.

Sun Life

The Sun Life fixed rate note is a joint obligation of the Company, NEO, Orwell and Brainard, and is guaranteed by the Company, Lightning Pipeline and Great Plains. This note received approval from the PUCO on March 30, 2011. The note is governed by a note purchase agreement. Prepayment of this note prior to maturity is subject to a 50 basis point make-whole premium. For the years ended December 31, 2014, 2013 and 2012, interest expense related to the fixed rate note was $824,969 per year.

The Sun Life floating rate note is an obligation of Great Plains and is guaranteed by the Company. This note was repaid in May 2014. For the years ended December 31, 2014, 2013 and 2012, the weighted average interest rate on the floating rate note was 4.10%, 4.13% and 4.31% respectively resulting in $40,900, $123,850 and $129,200 of interest expense.

The Sun Life senior secured guaranteed note is a joint obligation of NEO, Orwell, and Brainard and is guaranteed by the Company’s non-regulated Ohio subsidiaries. For the years ended December 31, 2014, 2013 and 2012, interest expense from the senior secured guaranteed note was $123,007, $123,007 and $23,576, respectively.

The following table shows the aggregate future maturities of the Company’s notes payable.

Years Ending
2015	$	542,201
2016		522,308
2017		39,198,552
2018		-
2019		-
Thereafter		-
Total	$	40,263,061

Debt Covenants

Bank of America

The Bank of America revolving credit agreement and term loan contain various covenants, which requires that Energy West and its subsidiaries maintain compliance with a number of financial covenants, including a limitation on investments in another entity by acquisition of any debt or equity securities or assets or by making loans or advances to such entity. In addition, Energy West must maintain a total debt to total capital ratio of not more than .55-to-1.00 and an interest coverage ratio of no less than 2.0-to-1.0. The credit facility restricted Energy West’s ability to create, incur or assume indebtedness except (i) indebtedness under the credit facility (ii) indebtedness incurred under certain capitalized leases including the capital lease related to the Loring pipeline, and purchase money obligations not to exceed $500,000, (iii) certain indebtedness of Energy West’s subsidiaries, (iv) certain subordinated indebtedness, (v) certain hedging obligations and (vi) other indebtedness not to exceed $1.0 million.

In addition, the Bank of America revolving credit agreement and term loan also restricts Energy West’s ability to pay dividends and make distributions, redemptions and repurchases of stock during any 60-month period to 80% of its net income over that period. In addition, no event of default may exist at the time such dividend, distribution, redemption or repurchase is made. Energy West is also prohibited from consummating a merger or consolidation or selling all or substantially all of its assets or stock except for (i) any merger consolidation or sale by or with certain of its subsidiaries, (ii) any such purchase or other acquisition by Energy West or certain of its subsidiaries and (iii) sales and dispositions of assets for at least fair market value so long as the net book value of all assets sold or otherwise disposed of in any fiscal year does not exceed 5% of the net book value of Energy West’s assets as of the last day of the preceding fiscal year.

Allstate/CUNA

The Allstate/CUNA senior unsecured notes contain various covenants, including a limitation on Energy West’s total dividends and distributions made in the immediately preceding 60-month period to 100% of aggregate consolidated net income for such period. The notes restrict Energy West from incurring additional senior indebtedness in excess of 65% of capitalization at any time and require Energy West to maintain an interest coverage ratio of more than 150% of the pro forma annual interest charges on a consolidated basis in two of the three preceding fiscal years.

Sun Life

The Sun Life covenants restrict certain cash balances and require two main types of debt service reserve accounts to be maintained to cover approximately one year of interest payments. The total balance in the debt service reserve accounts was $0.9 million and $1.1 million at December 31, 2014 and 2013, respectively, and is included in restricted cash on the Company’s Consolidated Balance Sheets. The debt service reserve accounts cannot be used for operating cash needs.

The covenants also provide that any cash dividends, distributions, redemptions or repurchases of common stock may be made by the obligors to the holding company only if (i) the aggregate amount of all such dividends, distributions, redemptions and repurchases for the fiscal year do not exceed 70% of net income of the obligors for the four fiscal quarters then ending determined as of the end of each fiscal quarter, and (ii) there exists no other event of default at the time the dividend, distribution, redemption or repurchase is made. The inability of the obligors to pay a dividend to the holding company may impact the Company’s ability to pay a dividend to shareholders.

The obligors are also prohibited from creating, assuming or incurring additional indebtedness except for (i) obligations under certain financing agreements, (ii) indebtedness incurred under certain capitalized leases and purchase money obligations not to exceed $500,000 at any one time outstanding, (iii) indebtedness outstanding as of March 31, 2011, (iv) certain unsecured intercompany indebtedness and (v) certain other indebtedness permitted under the notes.

The covenants require, on a consolidated basis, an interest coverage ratio of at least 2.0 to 1.0, measured quarterly on a trailing four quarter basis. The notes generally define the interest coverage ratio as the ratio of EBITDA to gross interest expense. The note defines EBITDA as net income plus the sum of interest expense, any provision for federal, state, and local taxes, depreciation, and amortization determined on a consolidated basis in accordance with GAAP, but excluding any extraordinary non-operating income or loss and any gain or loss from non-operating transactions. The interest coverage ratio is measured with respect to the Obligors on a consolidated basis and also with respect to the Company and all of its subsidiaries on a consolidated basis. The notes also require that the Company does not permit indebtedness to exceed 60% of capitalization at any time. Like the interest coverage ratio, the ratio of debt to capitalization is measured on a consolidated basis for the Obligors and again on a consolidated basis with respect to the Company and all of its subsidiaries.

The notes prohibit the Company from selling or otherwise transferring assets except in the ordinary course of business and to the extent such sales or transfers, in the aggregate, over each rolling twelve month period, do not exceed 1% of our total assets. The Company received consent from Sun Life, under its covenant restrictions, approving the sale of Independence prior to the finalization of the transaction. Generally, the Company may consummate a merger or consolidation if there is no event of default and the provisions of the notes are assumed by the surviving or continuing corporation. The Company is also generally limited in making acquisitions in excess of 10% of our total assets.

An event of default, if not cured or waived, would require the Company to immediately pay the outstanding principal balance of the notes as well as any and all interest and other payments due. An event of default would also entitle Sun Life to exercise certain rights with respect to any collateral that secures the indebtedness incurred under the notes.

The Company believes it is in compliance with all of the covenants under its debt agreements.