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11.

Long-Term Debt

Long-term debt as of December 31, 2021 and 2020 consisted of the following:

2021
Unamortized
Debt Issuance
(in thousands) Principal Costs
Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041 $ 99,632 $
Unsecured Business Finance Authority:
Revenue Bonds (Series 20148), 4.50%, due January 1, 2045 4,725 101
Revenue Bonds (Series 20184), interest rates from 4.375% to 5.00%,
due April 1, 2048 4,460 235
Revenue Bonds (Series 20188), 4.33%, due April 1, 2028 805 44
Revenue Bonds (Series 20194), interest rates from 2.19% to 4.15%,
due April 1, 2049 7,945 267
Revenue Bonds (Series 2020A), interest rates from 3.15% to 4%,
due April 1, 2050 7,000 275
Revenue Bonds (Series 20208), 5.25%, due April 1, 2023 255 7
Revenue Bonds (Series 2020C), interest rates from 1.25% to 4.02%,
due September 1, 2055 (3) 72,420 7,836
Revenue Bonds (Series 20214}, interest rates from 4% to 5%,
due April 1, 2051 5,065 240
Revenue Bonds (Series 20218), 1.05%, due April 1, 2024 125 5
Unsecured notes payable to bank, floating-rate, due March 1, 2030 2,267 10
Unsecured notes payable to bank, 3.62%, due June 20, 2023 1,141 2
Unsecured notes payable to bank, 4.20%, due December 20, 2041 1,094 4
Unsecured notes payable to bank, 4.83%, due December 20, 2041 840 S
Unsecured notes payable to bank, 4.25%, due June 20, 2033 626 S
Unsecured notes payable to bank, 4.90%, due March 6, 2040 $24 30
Unsecured notes payable to bank, 5.33%, due June 20, 2043 324 10
Unsecured notes payable to bank, 4.38%, due September 20, 2044 1,091 15
Unsecured notes payable to bank, 3.98%, due January 1, 2046 781 12
Unsecured notes payable to bank, 4.18%, due October 20, 2046 1,131 11
Unsecured nates payable to bank, 4.25%, due December 20, 2046 2,547 12
Unsecured New Hampshire State Revolving Fund (“SRF”) notes (1) 22,592 182
Unsecured New Hampshire Drinking Water & Groundwater Trust
Fund ("DWGTF") notes (2) 8,520 10
Paycheck Protection Program Loan, 1.00%, due May 7, 2022 2,544 2
Unamortized debt issuance costs for defeased obligations,
allowed by regulation - 2,952
Total 248,454 $ 12,242
Less current postion (9,149)
Less unamortized debt issuance costs (12,242)
Total long-term debt, less current portion
and unamortized debt issuance costs $ 227,063

{1) SRF notes aredue through 20S1 at interest cates ranging from 1% to 3.8%. These notes are payable In 120 to 240 consecutive monthly
installments of principal and Interest. The 1% fate applies to construction projects stil! in process until the earlier of {I} the date of
substantlal completion of the Improvements, or (ii) varlous dates specified in the note (such earlier date being the interest rate change
date). Commencing on the Interest rate change date, the interest rate changes to the lower of (I) the rate a5 stated in the note or (ii) 80% of
the established 11 General Obligations Bond Index published during the specified tlme period before the interest rate change date,

(2) OWGTF notes are due through 2050 at interest rates ranging from 2.7% to 3.4%. These notes are payable in 360 consecutive monthly
installments of principle and interest. The 1% rate applies to construction projects still in process untl! the earlier of {i} the date of
substantial completion of the impr of {ii} June 1, 2020 as specified in the note {such earlier date being the interest rate change
date). Commencing on the interest rate change date, the inter est rate change to the rate as Stated in the note.

(3) Revenue Bonds (2020C) proceeds were partially used to advance refund the 2014A, 2015A and 20158 bonds with maturity dates of
January 1, 2045, January 1, 2046, and January 1, 2031 respectively. The advance refunding proceeds are held In escrow until thelr future
call dates of December 2023 and December 2024, to then be used to facllitate retirement of the bonds. Of the remalning $7,836 of
Unamortized Debt Issuance Casts a$ af December 31, 2020 generated by the September 2nd issuance, $6,491 are directly tied the advance
refunding and will fuliy-amortize on a straight-line basis until their respective call dates.

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2020

Unamortized
Debt Issuance
(in thousands) Principal Costs
Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041 $ 102,173 $
Unsecured Business Finance Authority:
Revenue Bonds (Series 20148), 4.50%, due January 1, 2045 4,830 105
Revenue Bonds (Series 2018A), interest rates from 4.375% to 5.00%,
due April 1, 2048 4,460 244
Revenue Bonds (Series 2018B), 4.33%, due April 1, 2028 $00 50
Revenue Bonds (Series 2019A), interest rates from 2.19% to 4.15%,
due April 1, 2049 8,080 277
Revenue Bonds (Series 2020A}, interest rates from 3.15% to 4%,
due April 1, 2050 7,000 284
Revenue Bonds (Series 20208), 5.25%, due April 1, 2023 380 12
Revenue Bonds (Series 2020C), interest rates from 1.25% to 4.02%,
due September 1, 2055 (3) 73,630 10,654
Unsecured notes payable to bank, floating-rate, due March 1, 2030 2,494 12
Unsecured notes payable to bank, 3.62%, due June 20, 2023 1,219 4
Unsecured notes payable to bank, 4.20%, due December 20, 2041 1,128 4
Unsecured notes payable to bank, 4.83%, due December 20, 2041 864 5
Unsecured notes payable to bank, 4.25%, due June 20, 2033 667 5
Unsecured notes payable to bank, 4.90%, due March 6, 2040 541 31
Unsecured notes payable to bank, 5.33%, due June 20, 2043 332 11
Unsecured notes payable to bank, 4.38%, due September 20, 2044 1,118 15
Unsecured notes payable to bank, 3.98%, due January 1, 2046 800 12
Unsecured New Hampshire State Revolving Fund (“SRF”) notes (1) 23,048 162
Unsecured New Hampshire Drinking Water & Groundwater Trust
Fund ("DWGTF") notes (2) 8,675 11
Paycheck Protection Program Loan, 1.00%, due May 7, 2022 2,544 -
Unamonrtized debt issuance costs for defeased obligations,
altowed by regulation - 3,162
Total 244,883 5 15,060
Less current portion (6,018)
Less unamortized debt issuance costs (15,060)

Total long-term debt, less current portion
and unamortized debt issuance costs $ 223,805

(1) SRF notes are due through 2051 at interest rates ranging from 1% to 3.8% These notes are payable in 120 to 240 consecutive monthly Install ments
of principal and interest. The 1% rate applies to construction projects still in process until the earlier of {i} the date of substantial completion of the
improvements, or (rif various dates specified in the note (such eartier date being the interest rate change date). Commencing on the interest rate
change date, the interest rate changes to the lower of (i) the rate as stated in the note or (ii) 80% of the established 11 General Obligations Band Index
published during the specified time per od before the interest rate change date.

(2) DWGTF notes are due through 2050 at Interest rates ranging from 1% to 3.38% These notes are payable in 360 consecutive monthly installments
of principle and interest. The 1% rate applies to construction projects st! in process until the eartier of (i) the date of substantial completion of the
impravements or (ii} June 1, 2020 as specified in the note (such earlier date being the Interest rate change date). Commencing on the interest rate
change date, the interest rate change to the rate as stated in the note.

(3) Revenue Bonds (2020C) proceeds were partially used to advance refund the 2014A, 2015A and 20156 bonds with maturity dates of January 1,
2045, January 1, 2046, and January 1. 2031 respectively. The advance refunding proceeds are held in escrow until their future call dates of
December 2023 and December 2024, to then be used to facilitate retirement of the bonds. Of the remaining $10,654 of Unamortized Debt Issuance
Costs as of December 31, 2020 generated by the September 2nd Issuance, $9,269 are directly tied the advance refunding and will fully-amortize ona
stralght-line basts until thelr respective call dates.

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The aggregate principal payment requirements subsequent to December 31, 2021 are as
follows:

(in thousands} Amount

2022 $ 9,149
2023 7,853
2024 7,080
2025 7,338
2026 7,659
2027 and thereafter 203,375
Total $ 248,454

Several of Pennichuck Water's loan agreements contain a covenant that prevents Pennichuck
Water from declaring dividends if Pennichuck Water does not maintain a minimum net
worth of $4.5 million. As of December 31, 2021 and 2020, Pennichuck Water’s net worth was
$97.8 million and $103.6 million, respectively.

The 2014A, 2014B, 2018A, 2018B, 2019A, 2020A, 2020B, 2020C, 2021A and 2021B bonds
were issued under a new bond indenture and loan and trust agreement, established with the
issuance of the 2014 Series Bonds, which contains certain covenant obligations upon
Pennichuck Water, which are as follows:

Debt to Capital Covenant - Pennichuck Water cannot create, issue, incur, assume or
guarantee any short-term debt if (1) the sum of the short-term debt plus its funded debt
(“Debt”) shall exceed 85% of the sum of its short-term debt, funded debt and capital stock
plus surplus accounts (“Capital”), unless the short-term debt issued in excess of the 85%
is subordinated to the Series 2014 bonds. Thereby, the ratio of Debt to Capital must be
equal to or less than 1.0. As of December 31, 2021 and 2020, Pennichuck Water has a
Debt to Capital Coverage ratio of 0.7 and 0.6, respectively.

All Bonds Test - Additionally, Pennichuck Water cannot create, issue, incur, assume or
guarantee any new funded debt, if the total outstanding funded debt (“Total Funded
Debt”) will exceed the sum of MARA {as defined in Note 14 of these consolidated financial
statements) and 85% of its Net Capital Properties (“MARA and Capital Properties”}, and
unless net revenues or EBITDA (earnings before interest, taxes, depreciation and
amortization) shall equal or exceed for at least 12 consecutive months out of the 15
months preceding the issuance of the new funded debt by 1.1 times the maximum
amount for which Pennichuck Water will be obligated to pay in any future year (“Max
Amount Due”}, as a result of the new funded debt being incurred. Thereby, the ratio of
Total Funded Debt to MARA and Capital Properties must be equal to or less than 1.0; as
of December 31, 2021 and 2020, this coverage ratio was 0.6 and 0.6, respectively. Also,
the ratio of EBITDA to the Max Amount Due must be equal to or greater than 1.1; as of
December 31, 2021 and 2020, this ratio was 2.3 and 2.6, respectively.

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Rate Covenant Test - If during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at least 1.1 times all amounts paid or required to be paid during that year
(“Amounts Paid”), then the Company shall undertake reasonable efforts to initiate a rate-
making proceeding with the NHPUC, to rectify this coverage requirement in the
succeeding fiscal years. Thereby, the ratio of EBITDA to Amounts Paid must be equal to
or greater than 1.1; as of December 31, 2021 and 2020, the Rate Covenant coverage ratio
was 2.19 and 3.57, respectively.

Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $12.4 million
and $9.2 million at December 31, 2021 and 2020, respectively, contains a minimum debt
service coverage ratio requirement of 1.10. At December 31, 2021 and 2020, this ratio was
1.47 and 2.07, respectively.

On September 2, 2020, Pennichuck Water issued approximately $73.6 million of taxable
bonds through the New Hampshire Business Finance Authority to: (1) advance refund and
refinance Pennichuck Water’s series 2014A, 2015A, and 2015B bonds; (2) early retire an AULI
bank loan set to mature on March 1, 2021 with a “bullet” maturity due at that date; (3)
complete the replenishment of the Material Operating Expense Revenue Requirement
(MOERR) RSF for Pennichuck Water back to nearly its authorized imprest value; and (4) repay
Pennichuck Water’s Fixed Asset Line of Credit (FALOC) for monies borrowed while awaiting
rate relief from this bonding event and the Pennichuck Water rate case approved by NHPUC
Order No. 26,425. The bond issuance was approved by the Company's Board of Directors and
the Sole Stockholder. This issuance received NHPUC approval in Order No. 26,383 dated July
24, 2020, which authorized up to $75.0 million in bonds.

On October 29, 2021, the NHPUC issued NISI Order No. 26,538, with an effective date of
November 30, 2021, approving Pennichuck East Utility’s request to borrow $2,546,632 from
CoBank, ACB for a 25-year term. This financing was used to fund a “one time” refill and
replenishment of the Company's Material Operating Expense Revenue Requirement
(MOERR) RSF, as well as repay intercompany debt incurred to support the Company as it
awaits final permanent rate relief (set to occur in early 2022), and the reestablishment of its
RSF funds. On November 30, 2021, Pennichuck East Utility closed on this term loan financing
transaction with CoBank, ACB in the amount of $2,546,632 for a term of 25 years at an
interest rate of 4.25%,

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As of December 31, 2021 and 2020, the Company had a $2.3 million and $2.5 million,
respectively, interest rate swap which qualifies as a derivative. This financial derivative is
designated as a cash flow hedge. This financial instrument is used to mitigate interest rate
risk associated with our outstanding $2.3 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.88% as of
December 31, 2021. The combined effect of the LIBOR-based borrowing formula and the
swap produces an “all-in fixed borrowing cost” equal to 5.95%. The fair value of the financial
derivative, as of December 31, 2021 and 2020, included in our Consolidated Balance Sheets
under “Other Liabilities and Deferred Credits” as “Derivative instrument” was $290,000 and
$460,000, respectively. Changes in the fair value of this derivative were deferred in
accumulated other comprehensive income.

Swap settlements are recorded in the statements of income (loss) with the hedged item as
interest expense. During the years ended December 31, 2021 and 2020, $68,000 loss and
$42,000 income, respectively, was reclassified pre-tax from accumulated other
comprehensive income (loss) to interest expense as a result of swap settlements. The
Company expects to reclassify approximately $76,000, pre-tax, from accumulated other
comprehensive income to interest expense as a result of swap settlements, over the next
twelve months.

Paycheck Protection Program Loan

On May 7, 2020, the Company received loan proceeds in the amount of approximately
$2,543,600 under the Small Business Administration (SBA) PPP. The PPP, established as part
of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted
March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times the
average monthly payroll expenses of the qualifying business. The loan and accrued interest
may be forgiven after eight or twenty-four weeks providing the Company uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains
certain payroll levels.

Any unforgiven portion of the PPP loan is payable over two years, from the date of the initial
approval of the loan, at an interest rate of 1%, with deferral of payments for the first ten
months. Early in 2022, the Company’s application for forgiveness was denied and the PPP
loan has been reclassified to current portion of long-term debt with a maturity date of May
7, 2022.

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12.

Lines of Credit

In December of 2020, the Company’s existing Working Capital Line of Credit (WCLOC) and
Pennichuck Water‘s FALOC were renewed. The WCLOC was extended and renewed for an
additional year and a half, expiring on June 30, 2022, whereas the FALOC was extended and
renewed for an additional two and a half years, expiring on June 30, 2023. Additionally, as a
part of the renewal and extension of the FALOC, the capacity of that facility was increased
from $10 million to $12 million, while the Company’s WCLOC remains at $4 million.
Pennichuck East’s Fixed Asset Line of Credit (PEU FALOC) was renewed and extended for an
additional three years on November 24, 2020, expiring on September 30, 2023, at its current
facility level of $3 million. The two Fixed Asset Lines of Credit (FALOC and PEU FALOC) are
used to fund construction work in progress on capital projects, which will be refinanced into
long-term term loan obligations or issued bond indebtedness, annually.

Short-term borrowing activity under the Company’s WCLOC for the years ended
December 31, 2021 and 2020 was:

(in thousands) 2621 2020

Established line as of December 31, S 4,000 § 4,000
Maximum amount outstanding during period 2,312 3,006
Average amount outstanding during period 942 1,354
Amount outstanding as of December 31, - 624
Weighted average interest rate during period 1.88% 2.47%
interest rate as of December 31, 1.84% 1.90%

Short-term borrowing activity under Pennichuck Water’s FALOC for the years ended
December 31, 2021 and 2020 was:

(in thousands) 2021 2020
Established line as of December 31, S$ 12,000 S 12,000
Maximum amount outstanding during period 5,851 7,223
Average amount outstanding during period 3,775 3,610
Amount outstanding as of December 31, 5,851 4,550
Weighted average interest rate during period 1.88% 2.80%
Interest rate as of December 31, 1.84% 1.90%

al

Short-term borrowing activity under Pennichuck East’s FALOC for the years ended
December 31, 2021 and 2020 was:

2021 2020
Established line as of December 31, 5 3,000 S 3,000
Maximum amount outstanding during period 1,171 1,106
Average amount outstanding during period 909 1,022
Amount outstanding as of December 31, 757 306
Weighted average interest rate during period 2.13% 2.80%
Interest rate as of December 31, 2.09% 2.15%

The Company’s revolving credit loan facilities with TD Bank contain certain covenant
obligations upon Pennichuck Water, which are as follows:

Debt to Capital Covenant - Pennichuck Water cannot create, issue, incur, assume or
guarantee any short-term debt if (1) the sum of the short-term debt plus its funded debt
(“Debt”) shall exceed 85% of the sum of its short-term debt, funded debt and capital stock
plus surplus accounts (“Capital”), unless the short-term debt issued in excess of the 85%
is subordinated to the loan facility. Thereby, the ratio of Debt to Capital must be equal to
or less than 1.0. As of December 31, 2021 and 2020, Pennichuck Water has a Debt to
Capital Coverage ratio of 0.7 and 0.6, respectively.

All Bonds Test - Additionally, Pennichuck Water cannot create, issue, incur, assume or
guarantee any new funded debt, if the total outstanding funded debt (“Total Funded
Debt”) will exceed the sum of MARA (as defined in Note 14 of these consolidated financial
statements) and 85% of its Net Capital Properties (“MARA and Capital Properties”), and
unless net revenues or EBITDA (earnings before interest, taxes, depreciation and
amortization) shall equal or exceed for at least 12 consecutive months out of the 15
months preceding the issuance of the new funded debt by 1.1 times the maximum
amount for which Pennichuck Water will be obligated to pay in any future year (“Max
Amount Due”), as a result of the new funded debt being incurred. Thereby, the ratio of
Total Funded Debt to MARA and Capital Properties must be equal to or less than 1.0; as
of December 31, 2021 and 2020, this coverage ratio was 0.6 and 0.6, respectively. Also,
the ratio of EBITDA to the Max Amount Due must be equal to or greater than 1.1; as of
December 31, 2021 and 2020 this ratio was 2.3 and 2.6, respectively.

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Rate Covenant Test - If during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at least 1.1 times all amounts paid or required to be paid during that year
(“Amounts Paid”}, then the Company shall undertake reasonable efforts to initiate a rate-
making proceeding with the NHPUC, to rectify this coverage requirement in the
succeeding fiscal years. Thereby, the ratio of EBITDA to Amounts Paid must be equal to
or greater than 1.1; as of December 31, 2021 and 2020, the Rate Covenant coverage ratio

was 2.19 and 3.57, respectively.

13. Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income by

component for the years ended December 31, 2021 and 2020:

(in thousands)

Beginning balance

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other
comprehensive income

Net current period other comprehensive income (loss)

Ending balance

interest Rate Contract

2021 2020
254 «=§ 318
43 (89)
59 25
102 (64)

The following table presents reclassifications out of accumulated other comprehensive

income for the years ended December 31, 2021 and 2020:

Amounts Reclassified
from Accumulated Other
Comprehensive Income

Details about Accumulated Other
Comprehensive Income Components

(in thousands) 2021 2020
Gain on cash flow hedges:
Interest rate contracts $ 98 6S 42
(39) (17)

Amounts reclassified from accumulated
other comprehensive income $ 59 863§ 25

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Affected tine Itemin
the Statement Where

Net Income is Presented

Interest expense
Tax expense

Net of tax

14.

Transaction with the City of Nashua

On January 25, 2012, in full settlement of an ongoing Eminent Domain lawsuit filed by the
City of Nashua (“City”) and with the approval of the NHPUC, the City acquired all of the
outstanding shares of the Company and, thereby, indirect acquisition of its regulated
subsidiaries. The total amount of the acquisition was $150.6 million (“Acquisition Price”) of
which $138.4 million was for the purchase of the outstanding shares, $5.0 million for the
establishment of a Rate Stabilization Fund, $2.6 million for legal and due diligence costs, $2.3
million for severance costs, $1.3 million for underwriting fees, and $1.0 million for bond
discount and issue costs. The entire purchase of $150.6 million was funded by General
Obligation Bonds (“Bonds”) issued by the City of Nashua. The Company is not a party to the
Bonds and has not guaranteed nor is obligated in any manner for the repayment of the Bonds.
The Company remains an independent corporation with an independent Board of Directors,
with the City of Nashua as its sole stockholder.

Pennichuck Water, Pennichuck East, PAC, Service Corporation, and Southwood will continue
as subsidiaries of Pennichuck Corporation and Pennichuck Water, Pennichuck East and PAC
will continue as regulated companies under the jurisdiction of the NHPUC. The terms of the
merger and the requisite accounting and rate-setting mechanisms were agreed to in the
NHPUC Order No. 25,292 (“PUC Order”) dated November 23, 2011.

Transactions with Related Party — City of Nashua

The Company issued a promissory note to the City of Nashua in the amount of approximately
$120 million to be repaid over a thirty (30) year period with monthly payments of
approximately $707,000, including interest at 5.75%. The Company recorded an additional
amount of approximately $30.6 million as contributed capital. The remaining outstanding
balance of the note payable to the City at December 31, 2021 and 2020 was approximately
$99.6 million and $102 million, respectively, as disclosed in Note 11 to these consolidated
financial statements. During 2021 and 2020, dividends of approximately $279,000 and
$279,000, respectively, were declared and paid to the City. The dividends paid to the City
during 2021 comprised approximately $279,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2021. The dividends paid to the City
during 2020 comprised approximately $279,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2020.

Additional ongoing transactions occur in the normal course of business, between the
Company and the City, related to municipal water usage, fire protection and sewer billing
support services, and property taxes related to real property owned by the Company within
the City of Nashua. For the years ended December 31, 2021 and 2020, respectively,
approximately $3.9 million and $3.4 million were paid to the Company by the City for
municipal water consumption, fire protection charges, and sewer billing support services.
Conversely, the Company paid property taxes to the City of Nashua of approximately $2.3
million for the year ended December 31, 2021, and approximately $2.7 million for the year
ended December 31, 2020.

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Rate Stabilization Fund — Restricted Cash

As a part of the acquisition, the Company agreed to contribute $5,000,000 of the proceeds
from the settlement transaction to Pennichuck Water, which was used to establish an RSF,
allowing for the maintenance of stable water utility rates and providing a mechanism to
ensure the Company’s continued ability to meet its obligations under the promissory note to
the City, in the event of adverse revenue developments. Restricted cash consists of amounts
set aside in the RSF account and is adjusted monthly as required in the NHPUC Order, as
discussed in Note 1 of these financial statements.

Municipal Acquisition Regulatory Asset (“MARA”)

Pursuant to the NHPUC Order, the Company established a new Regulatory asset (MARA) which
represents the amount that the Acquisition Price exceeded the net book assets of the
Company’s regulated subsidiaries (Pennichuck Water, Pennichuck East, and PAC) at
December 31, 2011. The initial amount of the MARA was approximately $89 million for the
regulated companies, offset by a non-regulated amount of approximately $4.8 million. The
MARA is to be amortized over a thirty (30) year period in the same manner as the repayment
of debt service for the City’s acquisition bonds. The balance in the MARA at December 31, 2021
was approximately $68.9 million, reduced by the non-regulated credit of approximately $3.8
million.

Aggregate amortization expense for the years ended December 31, 2021 and 2020 totaled
approximately $2,119,000 and $2,061,000, respectively.

The following table represents the total estimated amortization of MARA:

Estimated

Amortization

(in thousands) Expense
2022 Ss 2,183
2023 2,253
2024 2,328
2025 2,409
2026 2,498
2026 and thereafter 53,411
Total $ 65,082

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