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Proposed Term Loan Borrowing from CoBank
PEU is a New Hampshire public utility corporation providing retail water service to approximately
8,565 customers in the New Hampshire towns of Atkinson, Barnstead, Bow, Chester, Conway,
Derry, Exeter, Hooksett, Lee, Litchfield, Londonderry, Middleton, Pelham, Plaistow, Raymond,
Sandown, Tilton, Weare and Windham. PEU is wholly-owned by Pennichuck which, in turn, is
wholly-owned by the City.
PEU has entered into a Master Loan Agreement with CoBank dated as of February 9, 2010 (the
“Master Loan Agreement”), which provides the framework for CoBank to make loans to PEU from
time to time. A copy of the Master Loan Agreement is attached to this letter as Attachment A.
PEU requests the City’s approval for PEU to enter into a term loan with CoBank in an amount of
up to $2,550,000 with an amortization period of up to 25 years, with an interest rate to be
determined based on market conditions (currently estimated at approximately 4.25% per annum).
A copy of the CONFIDENTIAL term sheet for the term loan with CoBank is attached to this
letter as Attachment B.
The proceeds from the CoBank loan will be used for “one time” use of debt funds to refill PEU’s
Rate Stabilization Funds (“RSF funds”) to their imprest levels, in conjunction with the
implementation of new rate structure elements in PEU’s current permanent rate proceeding before
the NH Public Utilities Commission (Docket No. DW 20-156), including the implementation of a
Material Operating Expense Factor (“MOEF”) in its allowed revenues which is designed to
maintain the RSF funds at or near their imprest levels on a going forward basis.
The CoBank loan will be secured by (i) a security interest in PEU’s equity interest in CoBank
(consisting of PEU’s $212,825 earned equity investment in CoBank from patronage dividends
received since 2010, and PEU’s right to receive future patronage dividends), and (ii) the
unconditional guarantee of PEU’s obligations to CoBank by Pennichuck pursuant to the
Guarantee of Payment (Continuing) dated as of February 9, 2010 between Pennichuck and
CoBank (the “Guaranty Agreement”), a copy of which is attached to this letter as Attachment C.
The Lender — CoBank, ACB. CoBank is a government sponsored enterprise (“GSE”) owned by
its customers, who consist of agricultural cooperatives, rural energy, communications and water
companies and other businesses that serve rural America. As a GSE, CoBank issues its debt
securities with the implicit full faith and credit of the United States Government and uses these
low-cost funds to make loans to companies like PEU that meet its charter requirements. Asa
result of the implicit backing of the U.S. Government, CoBank’s borrowing costs are lower than
commercial banks and financial institutions, and these lower costs are passed on to its borrowers.
In addition to the tower rates, CoBank loans generally have fewer covenants or restrictions as
compared to loans from commercial banks and other financial institutions.
Approval by Pennichuck and PEU. The CoBank loan and guaranty have been approved by the
Board of Directors of Pennichuck and PEU.
Pennichuck recommends that the City authorize (i) PEU to enter into the loan with CoBank; and
(ii) Pennichuck to guaranty the loan.
