Rate Covenant Test - if during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at feast 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, 2020 and 2019, the Rate Covenant coverage ratio
was 3.57 and 1.98, respectively.
Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $9.2 million
and $8.8 million at December 31, 2020 and 2019, respectively, contains a minimum debt
service coverage ratio requirement of 1.10. At December 31, 2020 and 2019, this ratio was
2.07 and 1.84, 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.
As of December 31, 2020 and 2019, the Company had a $2.5 million and $2.7 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 $2.5 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.75% as of
December 31, 2020. 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, 2020 and 2019, included in our Consolidated Balance Sheets
under “Other Liabilities and Deferred Credits” as “Derivative instrument” was $460,000 and
$353,000, 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, 2020 and 2019, $42,000 and $70,000,
respectively, was reclassified pre-tax from accumulated other comprehensive income to
interest expense as a result of swap settlements. The Company expects to reclassify
approximately $94,000, pre-tax, from accumulated other comprehensive income to interest
expense as a result of swap settlements, over the next twelve months.
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