Short-Term and Long-Term Debt

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Abstract]

Short-Term and Long-Term Debt [Text Block]

SHORT-TERM AND LONG-TERM DEBT

Short-Term Debt. As of September 30, 2011, total short-term debt outstanding was $18.4 million ($14.4 million as of December 31, 2010) and consisted of long-term debt due within one year and notes payable.

Long-Term Debt. As of September 30, 2011, total long-term debt outstanding was $844.4 million ($771.6 million as of December 31, 2010).

On August 25, 2011, ALLETE, Inc. entered into a $75.0 million Term Loan Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, and Bank of America, N.A., as a Lender (Term Loan). The Term Loan is an unsecured, single-draw loan that is due on August 25, 2014. The interest rate on the Term Loan is equal to the one-month LIBOR plus 1.00 percent; however, we also entered into an interest rate swap agreement which effectively fixed the interest rate at 1.825 percent over the term of the loan. (See Note 4. Derivatives.) Proceeds from the Term Loan will be used for general corporate purposes. As of September 30, 2011, there was $75.0 million outstanding on the Term Loan.

On May 25, 2011, ALLETE, Inc. entered into a new $250 million Credit Agreement (Agreement) with JPMorgan Chase Bank, N.A., as Administrative Agent, and several other lenders that are parties thereto. The Agreement was effective July 1, 2011, and replaced our previous $150 million credit facility. The Agreement is unsecured and has a maturity date of June 30, 2015, which may be extended for one year. Such extension is subject to bank approvals. Advances from the Agreement may be used for general corporate purposes, to provide liquidity in support of ALLETE’s commercial paper program and to issue up to $40 million in letters of credit.

Financial Covenants. Our long-term debt arrangements contain customary covenants. In addition, our lines of credit and letters of credit supporting certain long-term debt arrangements contain financial covenants. Our compliance with financial covenants is not dependent on debt ratings. The most restrictive covenant requires ALLETE to maintain a ratio of Indebtedness to Total Capitalization (as the amounts are calculated in accordance with the respective long-term debt arrangements) of less than or equal to 0.65 to 1.00 measured quarterly. As of September 30, 2011, our ratio was approximately 0.45 to 1.00. Failure to meet this covenant would give rise to an event of default if not cured after notice from a lender, in which event ALLETE may need to pursue alternative sources of funding. Some of ALLETE’s debt arrangements contain “cross-default” provisions that would result in an event of default if there is a failure under other financing arrangements to meet payment terms or to observe other covenants that would result in an acceleration of payments due. As of September 30, 2011, ALLETE was in compliance with its financial covenants.