Debt

3 Months Ended

Mar. 31, 2020

Note 5 – Debt

Long-Term Debt

Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. However, details surrounding the fair value and individual carrying values of instruments are discussed below or provided in the table that follows.

Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values of the revolving credit facility and IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. Additionally, the borrowings by Southwest under its revolving credit facility are generally repaid quickly and the IDRBs have interest rates that reset frequently.

The fair values of Southwest’s debentures (which include senior and medium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings, and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures are categorized as Level 2.

The Centuri secured revolving credit and term loan facility and Centuri’s other debt obligations (not actively traded) are categorized as Level 3. Because Centuri’s debt is not publicly traded, fair values for its secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology utilizing current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.



	March 31, 2020					December 31, 2019
	Carrying Amount			Market Value		Carrying Amount			Market Value
(Thousands of dollars)
Southwest Gas Corporation:
Debentures:
Notes, 4.45%, due 2020	$	125,000		$	125,975	$	125,000		$	126,673
Notes, 6.1%, due 2041	125,000			178,950		125,000			162,666
Notes, 3.875%, due 2022	250,000			252,688		250,000			258,550
Notes, 4.875%, due 2043	250,000			290,645		250,000			291,928
Notes, 3.8%, due 2046	300,000			278,106		300,000			308,307
Notes, 3.7%, due 2028	300,000			311,565		300,000			320,685
Notes, 4.15%, due 2049	300,000			297,987		300,000			330,138
8% Series, due 2026	75,000			96,435		75,000			96,905
Medium-term notes, 7.78% series, due 2022	25,000			27,293		25,000			27,500
Medium-term notes, 7.92% series, due 2027	25,000			32,621		25,000			32,543
Medium-term notes, 6.76% series, due 2027	7,500			9,185		7,500			9,156
Unamortized discount and debt issuance costs	(14,220		)			(14,450		)
	1,768,280					1,768,050
Revolving credit facility and commercial paper	150,000			150,000		150,000			150,000
Industrial development revenue bonds:
Variable-rate bonds:
Tax-exempt Series A, due 2028	50,000			50,000		50,000			50,000
2003 Series A, due 2038	50,000			50,000		50,000			50,000
2008 Series A, due 2038	50,000			50,000		50,000			50,000
2009 Series A, due 2039	50,000			50,000		50,000			50,000
Unamortized discount and debt issuance costs	(1,656		)			(1,717		)
	198,344					198,283
Less: current maturities	(125,000		)			(125,000		)
Long-term debt, less current maturities - Southwest Gas Corporation	$	1,991,624				$	1,991,333
Centuri:
Centuri term loan facility	$	232,642		$	228,304	$	244,812		$	252,182
Unamortized debt issuance costs	(1,031		)			(1,101		)
	231,611					243,711
Centuri secured revolving credit facility	42,666			42,658		60,021			60,057
Centuri other debt obligations	88,757			87,758		43,929			44,787
Less: current maturities	(44,574		)			(38,512		)
Long-term debt, less current maturities - Centuri	$	318,460				$	309,149
Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt	$	2,116,624				$	2,116,333
Centuri long-term debt	363,034					347,661
Less: current maturities	(169,574		)			(163,512		)
Long-term debt, less current maturities - Southwest Gas Holdings, Inc.	$	2,310,084				$	2,300,482

Southwest has a $400 million credit facility, for which it has designated $150 million of associated capacity as long-term debt and the remaining $250 million, for working capital purposes. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At March 31, 2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At March 31, 2020, the full $150 million was outstanding on the long-term portion of the facility.

On April 10, 2020, Southwest amended its credit facility agreement; total borrowing capacity under the amended agreement remains $400 million. The amended agreement extends the maturity date from March 2022 to April 2025. Interest rates for the facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to an alternate base rate. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may amend the credit facility with a replacement rate as set forth in the amended agreement. Southwest is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.

Southwest has a $50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do not represent additional borrowing capacity under the credit facility. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At March 31, 2020, no borrowings were outstanding under the commercial paper program.

Centuri has a $590 million senior secured revolving credit and term loan facility, scheduled to expire in November 2023. The capacity of the line of credit portion of the facility is $325 million; amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of approximately $265 million. The $590 million facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri’s assets securing the facility at March 31, 2020 totaled $1.2 billion. At March 31, 2020, $275 million in borrowings were outstanding under the Centuri’s combined secured revolving credit and term loan facility. Centuri also received proceeds of $50 million in equipment loans in 2020, which were used for repayment of outstanding borrowings on the line of credit.

Short-Term Debt

Southwest Gas Holdings, Inc. has a $100 million credit facility that is primarily used for short-term financing needs. There was $60 million outstanding under this credit facility as of March 31, 2020.

On April 10, 2020, Southwest Gas Holdings, Inc. amended its existing credit facility, extending the maturity date to April 2025. The revolving borrowing capacity under the amended agreement remains at $100 million. Interest rates for the amended facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. The applicable margin ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to the alternate base rate. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest Gas Holdings, Inc. may amend the credit facility agreement with a replacement rate, as set forth in the amended agreement. Southwest Gas Holdings, Inc. is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest Gas Holdings, Inc. to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.

As discussed previously, under Southwest’s $400 million credit facility, $250 million has been designated by management for working capital purposes. Southwest had $97 million of short-term borrowings outstanding at March 31, 2020 under this facility.

LIBOR

It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of March 31, 2020, $60 million, $247 million, and $177 million, respectively, for the holding company, Southwest, and Centuri was outstanding under their credit facilities whereby interest was with reference to LIBOR and for which maturity dates extend beyond 2021. These amounts reflect approximately 11% of Southwest’s total debt, and 18% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc. (see above) in amending their respective facilities in April 2020 may make further amendments with replacement rates if LIBOR is discontinued. However, replacement rates are not currently determinable. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will continue to monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR

discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predicable or less attractive than LIBOR.