Long-Term Debt And Loans Payable

12 Months Ended

Dec. 31, 2019

Long-Term Debt And Loans Payable [Abstract]

Long-Term Debt And Loans Payable

Note 11 – Long-term Debt and Loans Payable

Long-term Debt – The consolidated statements of capitalization provide a summary of long-term debt as of December 31, 2019 and 2018. The supplemental indentures with respect to specific issues of the first mortgage bonds restrict the ability of Aqua Pennsylvania and other operating subsidiaries of the Company to declare dividends, in cash or property, or repurchase or otherwise acquire the stock of these companies. Loan agreements for Aqua Pennsylvania and other operating subsidiaries of the Company have restrictions on minimum net assets.  As of December 31, 2019, restrictions on the net assets of the Company were $2,450,381 of the total $3,880,860 in net assets.  Included in this amount were restrictions on Aqua Pennsylvania’s net assets of $1,332,017 of their total net assets of $1,775,110. As of December 31, 2019, $1,591,800 of Aqua Pennsylvania’s retained earnings of $1,611,800 and $221,466 of the retained earnings of $270,192 of other subsidiaries were free of these restrictions. Some supplemental indentures also prohibit Aqua Pennsylvania and some other subsidiaries of the Company from making loans to, or purchasing the stock of, the Company.

Sinking fund payments are required by the terms of specific issues of long-term debt. Excluding amounts due under the Company’s revolving credit agreement, the future sinking fund payments and debt maturities of the Company’s long-term debt are as follows:

Interest Rate Range		2020		2021		2022		2023		2024		Thereafter
0.00% to 0.99%	$	670	$	460	$	461	$	461	$	252	$	1,170
1.00% to 1.99%		1,016		978		957		835		764		6,183
2.00% to 2.99%		1,863		1,913		1,964		2,017		1,619		6,298
3.00% to 3.99%		91,524		41,287		24,622		2,065		1,767		1,133,776
4.00% to 4.99%		292		168		94		99		103		1,554,035
5.00% to 5.99%		6,191		6,215		787		10,811		10,611		76,995
6.00% to 6.99%		-		-		-		-		-		31,000
7.00% to 7.99%		574		666		374		-		-		29,137
8.00% to 8.99%		521		1,665		721		784		852		483
9.00% to 9.99%		2,400		4,900		-		-		-		12,000
Total	$	105,051	$	58,252	$	29,980	$	17,072	$	15,968	$	2,851,077

In December 2019, Aqua Pennsylvania issued $125,000 of first mortgage bonds, of which $75,000 is due in 2052 and $50,000 is due in 2053 with interest rates of 3.39% and 3.41%, respectively. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

In May 2019, Aqua Pennsylvania issued $125,000 of first mortgage bonds, of which $75,000 is due in 2049, $25,000 is due in 2054, and $25,000 is due in 2059 with interest rates of 4.02%, 4.07%, and 4.12%, respectively. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes. Additionally, in September 2019, Aqua Pennsylvania issued $175,000 of first mortgage bonds, of which $50,000 is due in 2054, $75,000 is due in 2058, and $50,000 is due in 2059 with interest rates of 4.09%, 4.13%, and 4.14%, respectively.

On May 18, 2019, the Company redeemed $313,500 of the Company’s outstanding notes (the “Company Debt Refinancing”) that had maturities ranging from 2019-2037 and interest rates ranging from 3.57% - 5.83%. Additionally, the Company Debt Refinancing was subject to a make whole payment of $25,237, and $18,528 of this payment was expensed, and is presented in the consolidated statements of net income on the line item “loss on debt extinguishment.” The balance of the payment, or $6,709, was deferred, as a regulatory asset, as it represents an amount by which the Company expects to receive prospective rate recovery.

On April 26, 2019, the Company issued $900,000 of long-term debt (the “Senior Notes”), less expenses of $7,931, of which $400,000 is due in 2029, and $500,000 is due in 2049 with interest rates of 3.566% and 4.276%, respectively. The Company used the net proceeds from the issuance of Senior Notes to (1) secure $436,000 of funding for the Peoples Gas Acquisition, (2) complete the redemption of $313,500 aggregate principal amount of certain of the Company’s outstanding notes noted below, (3) pay related costs and expenses, and (4) for general corporate purposes.

In November 2018, Aqua Pennsylvania issued $125,000 of first mortgage bonds, of which $65,000 is due in 2047, $30,000 is due in 2052, and $30,000 is due in 2053 with interest rates of 4.44%, 4.49%, and 4.51%, respectively. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

In June 2018, Aqua Pennsylvania issued $100,000 of first mortgage bonds, of which $25,000 is due in 2042, $10,000 is due in 2045, and $65,000 is due in 2048 with interest rates of 3.99%, 4.04%, and 4.09%, respectively. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

In July 2018, Aqua Pennsylvania redeemed $49,660 of tax-exempt bonds at 5.25% that were originally maturing in 2042 and 2043, respectively.

As of December 31, 2019 and 2018, the Company did not have any funds restricted for construction activity.

The weighted average cost of long-term debt at December 31, 2019 and 2018 was 4.09% and 4.23%, respectively.  The weighted average cost of fixed rate long-term debt at December 31, 2019 and 2018 was 4.09% and 4.31%, respectively.

In December 2018, the Company entered into a five year $550,000 unsecured revolving credit facility, which replaced the Company’s prior five year $500,000 unsecured revolving credit facility. The Company’s new unsecured revolving credit facility will be used to repay all indebtedness and fees under our prior unsecured revolving credit facility, and for other general corporate purposes. Additionally, the facility expands by $150,000 of capacity, upon closing of the Peoples Gas Acquisition, which amount will be available to repay certain outstanding indebtedness and fees to close an existing credit facility of Peoples and for general corporate purposes. Further, at the Company’s request this facility expands by an additional amount of up to $300,000, upon the closing of the Peoples Gas Acquisition. The facility includes a $25,000 sublimit for daily demand loans. Funds borrowed under this facility are classified as long-term debt and are used to provide working capital as well as support for letters of credit for insurance policies and other financing arrangements. As of December 31, 2019, the Company has the following sublimits and available capacity under the credit facility: $50,000 letter of credit sublimit, $32,876 of letters of credit available capacity, $0 borrowed under the swing-line commitment, and $0 of funds borrowed under the agreement. Interest under this facility is based at the Company’s option, on the prime rate, an adjusted Euro-Rate, an adjusted federal funds rate or at rates offered by the banks. A facility fee is charged on the total commitment amount of the agreement. Under these facilities the average cost of borrowings was 3.55% and 2.92%, and the average borrowing was $102,973 and $207,277, during 2019 and 2018, respectively.

The Company is obligated to comply with covenants under some of its loan and debt agreements. These covenants contain a number of restrictive financial covenants, which among other things limit, subject to specific exceptions, the Company’s ratio of consolidated total indebtedness to consolidated total capitalization, and require a minimum level of earnings coverage over interest expense. During 2019, the Company was in compliance with its debt covenants under its loan and debt agreements. Failure to comply with the Company’s debt covenants could result in an event of default, which could result in the Company being required to repay or finance its borrowings before their due date, possibly limiting the Company’s future borrowings, and increasing its borrowing costs.

Loans Payable – In November 2019, Aqua Pennsylvania renewed its $100,000 364-day unsecured revolving credit facility with four banks. The funds borrowed under this agreement are classified as loans payable and used to provide working capital. As of December 31, 2019 and 2018, funds borrowed under the agreement were $25,724 and $15,449, respectively. Interest under this facility is based, at the borrower’s option, on the prime rate, an adjusted federal funds rate, an adjusted London Interbank Offered Rate corresponding to the interest period selected, an adjusted Euro-Rate corresponding to the interest period selected or at rates offered by the banks. This agreement restricts short-term borrowings of Aqua Pennsylvania. A commitment fee of 0.05% is charged on the total commitment amount of Aqua Pennsylvania’s revolving credit agreement. The average cost of borrowing under the facility was 3.12% and 2.68%, and the average borrowing was $21,871 and $22,056, during 2019 and 2018, respectively. The maximum amount outstanding at the end of any one month was $39,930 and $45,000 in 2019 and 2018, respectively.

At December 31, 2019 and 2018, the Company had other combined short-term lines of credit of $35,500. Funds borrowed under these lines are classified as loans payable and are used to provide working capital. As of December 31, 2019 and 2018, funds borrowed under the short-term lines of credit were $0, respectively. The average borrowing under the lines was $0 during 2019 and 2018, respectively. The maximum amount outstanding at the end of any one month was $0 in 2019 and 2018, respectively. Interest under the lines is based at the Company’s option, depending on the line, on the prime rate, an adjusted Euro-Rate, an adjusted federal funds rate or at rates offered by the banks. The average cost of borrowings under all lines during 2019 and 2018 was 3.12% and 2.68%, respectively.

Interest Income and Expense– Interest income of $25,406, $152, and $202 was recognized for the years ended December 31, 2019, 2018, and 2017, respectively. Interest expense was $125,383, $99,054, and $88,543 in 2019, 2018, and 2017, including amounts capitalized for borrowed funds of $4,231 $3,332, and $3,578, respectively.

Unsecured Bridge Loan Commitment – On October 22, 2018, the Company obtained the Bridge Commitment from certain banks to provide senior unsecured bridge loans in an aggregate amount of up to $5,100,000 to, among other things, backstop the Peoples Gas Acquisition purchase price and the refinancing of certain debt of the Company and of Peoples. As of December 31, 2019, the Company had terminated $4,350,000 of commitments under the Bridge Commitment in connection with, among other things, the replacement of the Company’s unsecured revolving credit facility, and the issuances of common stock, tangible equity units, and senior notes in April 2019.

Interest Rate Swap Agreements – In October 2018, the Company entered into interest rate swap agreements to mitigate interest rate risk associated with an anticipated $850,000 of debt issuances to fund a portion of the Peoples Gas Acquisition and refinance a portion of the Company’s borrowings. On April 24, 2019, the Company settled the interest rate swap agreements upon issuance of $900,000 of long-term debt to be used to finance a portion of the purchase price of the Peoples Gas Acquisition and redeem $313,500 of the Company’s existing debt. The settlement resulted in a payment by the Company of $83,520.

The interest rate swaps did not qualify for hedge accounting and any changes in the fair value of the swaps was included in our earnings. The interest rate swaps were classified as financial derivatives used for non-trading activities. Other than the interest rate swaps, the Company has no other derivative instruments. The Company recorded the fair value of the interest rate swaps by discounting the future net cash flows associated with the debt issuance and recognized either an asset or liability at the balance sheet date.

The following table provides a summary of the amounts recognized in earnings for our interest rate swap agreements:

		Amount of Gain (Loss) Recognized in Income on Derivatives
		Years Ended December 31,
	Location of Gain (Loss) Recognized	2019		2018
Derivatives not designated as hedging instrument:
Interest rate swaps	Other (expense) income	$	(23,742)	$	(59,779)