Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2019

All of Pinnacle West’s and APS’s debt is unsecured. The following table presents the components of long-term debt on the Consolidated Balance Sheets outstanding at December 31, 2019 and 2018 (dollars in thousands):



	Maturity	Interest	December 31,
	Dates (a)	Rates	2019			2018
APS
Pollution control bonds:
Variable	2029	(b)	$	35,975		$	35,975
Fixed	2024	4.70%	115,150			115,150
Total pollution control bonds			151,125			151,125
Senior unsecured notes	2020-2049	2.20%-6.88%	4,875,000			4,575,000
Term loans		(c)	200,000			—
Unamortized discount			(12,434		)	(12,638		)
Unamortized premium			7,423			7,736
Unamortized debt issuance cost			(37,981		)	(31,787		)
Total APS long-term debt			5,183,133			4,689,436
Less current maturities			350,000			500,000
Total APS long-term debt less current maturities			4,833,133			4,189,436
Pinnacle West
Senior unsecured notes	2020	2.25%	300,000			300,000
Term loan	2020	(d)	150,000			150,000
Unamortized discount			(57		)	(121		)
Unamortized debt issuance cost			(518		)	(1,083		)
Total Pinnacle West long-term debt			449,425			448,796
Less current maturities			450,000			—
Total Pinnacle West long-term debt less current maturities			(575		)	448,796
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	4,832,558		$	4,638,232


(a)	This schedule does not reflect the timing of redemptions that may occur prior to maturities.


(b)	The weighted-average rate for the variable rate pollution control bonds was 1.54% at December 31, 2019 and 1.76% at December 31, 2018.


(c)	The weighted-average interest rate was 2.12% at December 31, 2019.


(d)	The weighted-average interest rate was 2.20% at December 31, 2019 and 3.02% at December 31, 2018.

The following table shows principal payments due on Pinnacle West’s and APS’s total long-term debt (dollars in thousands):



Year	Consolidated Pinnacle West		Consolidated APS
2020	$	800,000	$	350,000
2021	—		—
2022	—		—
2023	—		—
2024	365,150		365,150
Thereafter	4,510,975		4,510,975
Total	$	5,676,125	$	5,226,125

Debt Fair Value

Our long-term debt fair value estimates are classified within Level 2 of the fair value hierarchy. The following table represents the estimated fair value of our long-term debt, including current maturities (dollars in thousands):



	As of December 31, 2019				As of December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	449,425	$	450,822	$	448,796	$	443,955
APS	5,183,133		5,743,570		4,689,436		4,789,608
Total	$	5,632,558	$	6,194,392	$	5,138,232	$	5,233,563

Credit Facilities and Debt Issuances

APS

On February 26, 2019, APS entered into a $200 million term loan agreement that matures August 26, 2020. APS used the proceeds to repay existing indebtedness. Borrowings under the agreement bear interest at LIBOR plus 0.50% per annum.

On February 28, 2019, APS issued $300 million of 4.25% unsecured senior notes that mature on March 1, 2049. The net proceeds from the sale, together with funds made available from the term loan described above, were used to repay existing indebtedness.

On March 1, 2019, APS repaid at maturity $500 million aggregate principal amount of its 8.75% senior notes.

On August 19, 2019, APS issued $300 million of 2.6% unsecured senior notes that mature on August 15, 2029. The net proceeds from the sale were used to repay short-term indebtedness, consisting of commercial paper borrowings, and to replenish cash used to fund capital expenditures.

On November 20, 2019, APS issued $300 million of 3.5% unsecured senior notes that mature on December 1, 2049. The net proceeds from the sale were used to repay short-term indebtedness, consisting of commercial paper borrowings, to replenish cash used to fund capital expenditures, and to redeem, on December 30, 2019, $100 million of the $250 million aggregate principal amount of our 2.2% Notes due January 15, 2020.

On January 15, 2020, APS repaid at maturity the remaining $150 million of the $250 million aggregate principal amount of its 2.2% senior notes mentioned above.

See “Lines of Credit and Short-Term Borrowings” in Note 6 and “Financial Assurances” in Note 11 for discussion of APS’s separate outstanding letters of credit.

Debt Provisions

Pinnacle West’s and APS’s debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with this covenant. For both Pinnacle West and APS, this covenant requires that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2019, the ratio was approximately 52% for Pinnacle West and 47% for APS. Failure to comply with such covenant levels would result in an event of default, which, generally speaking, would require the immediate repayment of the debt subject to the covenants and could cross-default other debt. See further discussion of “cross-default” provisions below.

Neither Pinnacle West’s nor APS’s financing agreements contain “rating triggers” that would result in an acceleration of the required interest and principal payments in the event of a rating downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates we pay for borrowings thereunder are determined by our current credit ratings.

All of Pinnacle West’s loan agreements contain "cross-default" provisions that would result in defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS’s bank agreements contain "cross-default" provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings.

Although provisions in APS’s articles of incorporation and ACC financing orders establish maximum amounts of preferred stock and debt that APS may issue, APS does not expect any of these provisions to limit its ability to meet its capital requirements. On November 27, 2018, the ACC issued a financing order in which, subject to specified parameters and procedures, it approved an increase in APS’s long-term debt authorization from $5.1 billion to $5.9 billion in light of the projected growth of APS and its customer base and the resulting projected financing needs. See Note 6 for additional short-term debt provisions.