Long-Term Debt and Liquidity Matters

6 Months Ended

Jun. 30, 2011

Long-Term Debt and Liquidity Matters

Long-Term Debt and Liquidity Matters

2. Long-Term Debt and Liquidity Matters

Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper programs.  During the first quarter of 2011, APS refinanced an existing revolving credit facility (as discussed below) that would have otherwise matured in September 2011.

Pinnacle West

On February 23, 2011, Pinnacle West entered into a $175 million term loan facility that matures February 20, 2015.  Pinnacle West used the proceeds of the loan to repay its 5.91% $175 million Senior Notes.  Interest rates are based on Pinnacle West’s senior unsecured debt credit ratings, or if unavailable, its long-term issuer ratings.  On July 25, 2011, we repaid $25 million of the $175 million term loan facility.

At June 30, 2011, Pinnacle West’s $200 million credit facility, which matures in 2013, was available for bank borrowings, support of its $200 million commercial paper program, or for issuances of letters of credit.  Pinnacle West has the option to increase the amount of the facility up to a maximum of $300 million upon the satisfaction of certain conditions and with the consent of the lenders. At June 30, 2011, Pinnacle West had no outstanding borrowings under this credit facility, no outstanding letters of credit and commercial paper borrowings of $7 million.

APS

On February 14, 2011, APS refinanced its $489 million revolving credit facility that would have matured in September 2011, with a new $500 million facility.  The new revolving credit facility terminates in February 2015.  APS may increase the amount of the facility up to a maximum of $700 million upon the satisfaction of certain conditions and with the consent of the lenders.  APS will use the facility for general corporate purposes, commercial paper program support and for the issuance of letters of credit.  Interest rates are based on APS’s senior unsecured debt credit ratings.

At June 30, 2011, APS had two credit facilities totaling $1 billion, including the $500 million credit facility described above and a $500 million facility that matures in February 2013.  These facilities are available to support its $250 million commercial paper program, for bank borrowings or for issuances of letters of credit.  At June 30, 2011, APS had no borrowings outstanding under any of its credit facilities and no outstanding commercial paper.  A $20 million letter of credit was outstanding under APS’s 2011 $500 million credit facility described above.

See “Financial Assurances” in Note 10 for discussion of APS’s other letters of credit.

Debt Provisions

An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of long-term debt. At June 30, 2011, APS was in compliance with this common equity ratio requirement.  Its total shareholder equity was approximately $3.7 billion, and total capitalization was approximately $7.1 billion. APS would be prohibited from paying dividends if the payment would reduce its total shareholder equity below approximately $2.8 billion, assuming APS’s total capitalization remains the same. This restriction does not materially affect Pinnacle West’s ability to meet its ongoing capital requirements.