NOTE 8

DEBT

At December 31, 2019, Artesian Resources had a $40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian Resources. As of December 31, 2019, there was $40.0 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time. The term of this line of credit expires on the earlier of May 23, 2020 or any date on which Citizens demands payment. The Company expects to renew this line of credit.

At December 31, 2019, Artesian Water had a $20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland. As of December 31, 2019, there was $12.5 million of available funds under this line of credit. The interest rate for borrowings under this line allows the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank; the Company has historically used the weekly variable interest rate. The term of this line of credit expires on July 20, 2020. The Company expects to renew this line of credit.

On January 31, 2018, Artesian Water and CoBank entered into a Bond Purchase Agreement relating to the issue and sale by Artesian Water to CoBank of a $25 million principal amount First Mortgage Bond, Series U, or the Series U Bond, due January 31, 2038, or the Series U Maturity Date. The Series U Bond was issued pursuant to Artesian Water’s Indenture of Mortgage dated as of July 1, 1961, as amended and supplemented by supplemental indentures, including the Twenty-Third Supplemental Indenture, dated as of January 31, 2018 from Artesian Water to Wilmington Trust Company, as Trustee. The Indenture is a first mortgage lien against substantially all of Artesian Water’s utility plant. The proceeds from the sale of the Series U Bond together with other funds of Artesian Water, were used to pay in full at maturity indebtedness of Artesian Water under those certain First Mortgage Bonds, Series P. The DEPSC approved the issuance of the Series U Bond on December 21, 2017.

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The Series U Bond carries an annual interest rate of 4.71% through and including the Series U Maturity Date. Interest is payable on January 30th, April 30th, July 30th and October 30th in each year and on the Series U Maturity Date, beginning April 30, 2018 until Artesian Water’s obligation with respect to the payment of principal, premium (if any) and interest shall be discharged. Overdue payments shall bear interest as provided in the Twenty-Third Supplemental Indenture. The term of the Series U Bond also includes certain limitations on Artesian Water’s indebtedness.

On August 8, 2018, Artesian Wastewater and CoBank entered into a Master Loan Agreement, or the MLA, and two supplements to the MLA, in which CoBank will loan Artesian Wastewater up to a total principal amount of $12 million. As of December 31, 2018, $12.0 million was issued from this loan. Artesian Wastewater agreed to pay interest, pursuant to a promissory note, on the unpaid principal balance of the loans at 5.12% per annum. Interest shall be calculated and paid quarterly in arrears on the thirtieth (30th) day of each of March, June, September and December. Artesian Wastewater agrees to repay each loan, pursuant to a promissory note, in eighty consecutive quarterly installments, each due on the thirtieth (30th) day of each March, June, September, and December, with the first installment due on March 30, 2019, and the last installment due on December 30, 2038. The amount of each installment shall be the same principal amount that would be required to be repaid if the loan was scheduled to be repaid in level installments of principal and interest and such schedule was calculated utilizing 5.12% as the rate accruing on the loan; provided, however, that the last installment of each loan shall be in an amount equal to the then unpaid principal balance of the loan. Two parcels of land in Artesian Wastewater are pledged as security for this loan pursuant to the terms of a mortgage and security agreement between Artesian Wastewater and CoBank. Closing on the debt financing was approved by the DEPSC on June 5, 2018.

On December 17, 2019, Artesian Water Company entered into a Bond Purchase Agreement relating to the issue and sale by Artesian Water to CoBank of a $30 million principal amount First Mortgage Bond, Series V, or the Series V Bond, due October 31, 2049, or the Series V Maturity Date. The Series V Bond was issued pursuant to Artesian Water’s Indenture of Mortgage dated as of July 1, 1961, as amended and supplemented by supplemental indentures, including the Twenty-Fourth Supplemental Indenture dated as of December 17, 2019 from Artesian Water to Wilmington Trust Company, as Trustee. The Indenture is a first mortgage lien against substantially all of Artesian Water’s utility plant. The proceeds from the sale of the Series V Bond were used to pay down outstanding lines of credit of the Company and a loan payable to Artesian Resources. The DEPSC approved the issuance of the Series V Bond on November 14, 2019.

The Series V Bond carries an annual interest rate of 4.42% through but excluding the Series V Maturity Date. Interest is payable on January 30th, April 30th, July 30th and October 30th in each year and on the Series V Maturity Date, beginning January 30, 2020 until Artesian Water’s obligation with respect to the payment of principal, premium (if any) and interest shall be discharged. Overdue payments shall bear interest as provided in the Twenty-Fourth Supplemental Indenture. The term of the Series V Bond also includes certain limitations on Artesian Water’s indebtedness.

CoBank may make an annual patronage refund. The annual patronage refund rate was reduced in 2019 to 0.80% from 1.00% of the average line of credit and loan volume outstanding by Artesian. The $20 million line of credit, the First Mortgage Bonds and the promissory note are with CoBank. The patronage refunds earned by Artesian in 2019 and 2018 were $0.9 million and $1.2 million, respectively.

The weighted average interest rate on the lines of credit discussed above paid by the Company was 3.74% for the year ended December 31, 2019. These lines of credit, as well as the long-term debt obligations shown below, require us to abide by certain financial covenants and ratios. As of December 31, 2019, we were in compliance with these covenants.

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Long-term debt consists of:

	December 31,
In thousands	2019		2018
First mortgage bonds

Series R, 5.96%, due December 31, 2028	$	25,000	$	25,000
Series S, 4.45%, due December 31, 2033		8,400		9,000
Series T, 4.24%, due December 20, 2036		40,000		40,000
Series U, 4.71%, due January 31, 2038		25,000		25,000
Series V, 4.42%, due October 31, 2049		30,000		—
		128,400		99,000

State revolving fund loans

4.48%, due August 1, 2021		622		912
3.57%, due September 1, 2023		385		473
3.64%, due May 1, 2025		778		904
3.41%, due February 1, 2031		2,034		2,177
3.40%, due July 1, 2032		1,995		2,121
		5,814		6,587
Notes Payable

Promissory Note		11,648		12,000

Sub-total		145,862		117,587

Less: current maturities (principal amount)		1,706		1,725

Total long-term debt	$	144,156	$	115,862

Payments of principal amounts due during the next five years and thereafter:

In thousands	2020		2021		2022		2023		2024		Thereafter
First Mortgage bonds	$	600	$	600	$	600	$	600	$	600	$	125,400
State revolving fund loans		737		832		533		552		466		2,694
Promissory note		369		390		411		433		454		9,591
Total payments	$	1,706	$	1,822	$	1,544	$	1,585	$	1,520	$	137,685