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Proposed Term Loan Borrowing from CoBank
PEU is a New Hampshire public utility corporation providing retail water service to
approximately 8,580 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 $700,000 with an amortization period of up to 25 years, with an interest rate to be
determined based on market conditions (currently estimated at approximately 4.65% 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 to refinance and repay up to approximately
$700,000 of Fixed Asset Line of Credit (“FALOC”) borrowings by PEU, under its $3 million
FALOC with CoBank, which was used to fund capital improvements to the PEU water system
infrastructure during 2021, which were not funded by State of New Hampshire Drinking Water
Revolving Loan Fund (SRF) or NH Drinking Water and Groundwater debt or grants.
The FALOC with CoBank was approved by the Company’s Board of Directors, the NH Public
Utilities Commission (““NHPUC”), and the City of Nashua as shareholder, in March of 2018 (in
NHPUC Order No. 26,117; Docket PWC 17-157), to provide for capital improvements financing
during each calendar year, with subsequent annual refinancing and repayment of amounts
borrowed with term loans, consistent with the Company’s allowed rate structure with the
NHPUC, under Order No. 26,179 (Docket DW 17-128). This facility was renewed and
extended thru June 30, 2023 during 2020, with all of the approvals required at that time, and as
included in NHPUC Docket No. DW 20-081, and Order No. 26,418.
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.
As a 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 lower rates, CoBank loans generally have fewer covenants or
restrictions as compared to loans from commercial banks and other financial institutions.
