Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2020

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, 2020 and 2019 (dollars in thousands):


	Maturity	Interest	December 31,
	Dates (a)	Rates	2020		2019
APS
Pollution control bonds:
Variable	2029	(b)	$	35,975	$	35,975
Fixed	2024	4.70%	—		115,150
Total pollution control bonds			35,975		151,125
Senior unsecured notes	2024-2050	2.55%-6.88%	5,830,000		4,875,000
Term loans		(c)	—		200,000
Unamortized discount			(15,900)		(12,434)
Unamortized premium			14,781		7,423
Unamortized debt issuance cost			(46,911)		(37,981)
Total APS long-term debt			5,817,945		5,183,133
Less current maturities			—		350,000
Total APS long-term debt less current maturities			5,817,945		4,833,133
Pinnacle West
Senior unsecured notes	2025	1.3%	500,000		300,000
Term loan		(d)	—		150,000
Unamortized discount			(44)		(57)
Unamortized debt issuance cost			(3,635)		(518)
Total Pinnacle West long-term debt			496,321		449,425
Less current maturities			—		450,000
Total Pinnacle West long-term debt less current maturities			496,321		(575)
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	6,314,266	$	4,832,558

(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 0.18% at December 31, 2020 and 1.54% at December 31, 2019.

(c) The weighted-average interest rate was 2.12% at December 31, 2019. This term loan was repaid on May 26, 2020. See additional details below.

(d) The weighted-average interest rate was 2.20% at December 31, 2019. This term loan was repaid on June 19, 2020. See additional details below.

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
2021	$	—	$	—
2022	—		—
2023	—		—
2024	250,000		250,000
2025	800,000		300,000
Thereafter	5,315,975		5,315,975
Total	$	6,365,975	$	5,865,975

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, 2020				As of December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	496,321	$	509,050	$	449,425	$	450,822
APS	5,817,945		7,103,791		5,183,133		5,743,570
Total	$	6,314,266	$	7,612,841	$	5,632,558	$	6,194,392

Credit Facilities and Debt Issuances

Pinnacle West

On June 17, 2020, Pinnacle West issued $500 million of 1.3% unsecured senior notes that mature June 15, 2025. The net proceeds from the sale were used to repay early its $150 million term loan facility set to mature on December 21, 2020, to repay short-term indebtedness consisting of commercial paper and replenish cash incurred or used to fund capital expenditures, to redeem prior to maturity our $300 million, 2.25% senior notes due November 30, 2020, and for general corporate purposes.

On December 23, 2020, Pinnacle West entered into a $150 million term loan facility that matures June 2022. The proceeds were received on January 4, 2021 and used for general corporate purposes. We recognized the term loan facility as long-term debt upon settlement on January 4, 2021.

APS

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.

On May 22, 2020, APS issued $600 million of 3.35% unsecured senior notes that mature May 15, 2050. The net proceeds from the sale were used to repay early its $200 million term loan facility and to repay short-term indebtedness, consisting of commercial paper and revolver borrowings, and to replenish cash used to fund capital expenditures.

On September 11, 2020, APS issued $400 million of 2.65% unsecured senior notes that mature September 15, 2050. The net proceeds from the sale will be used to replenish cash used for previous eligible green expenditures and fund future eligible green expenditures.

On November 19, 2020, APS reopened its $300 million, 2.6% unsecured senior notes that mature on August 15, 2029, and issued an additional $105 million of 2.6% unsecured senior notes. The aggregate balance of $405 million will mature on August 15, 2029. The net proceeds from the sale, together with funds made available from other sources, were used to redeem, prior to maturity, no later than 20 days after the date that the new notes were issued, (i) the $49.4 million outstanding principal amount of 4.7% City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service Company Four Corners Project), 1994 Series A, and (ii) the $65.75 million outstanding principal amount of 4.7% City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service Company Four Corners Project), 1994 Series B.

On December 28, 2020, Pinnacle West contributed $150 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness.

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, 2020, the ratio was approximately 54% for Pinnacle West and 49% 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 December 17, 2020, the ACC issued a financing order in which, subject to specified parameters and procedures, it approved APS’s long-term debt authorization from $5.9 billion to $7.5 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.)