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 NH Public Utilities Commission, 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,
2017 and 2016, the Rate Covenant coverage ratio was 1.41 and 1.93, respectively.
Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $8.1
million and $8.5 million at December 31, 2017 and 2016, respectively, contains a minimum
debt service coverage ratio requirement of 1.25. At December 31, 2017 and 2016, this ratio
was 0.92 and 1.29, respectively. This covenant has not been met, and the Bank has waived
such noncompliance. Also, Pennichuck East is required to maintain a maximum ratio of total
debt to total capitalization of 65%; at December 31, 2017 and 2016, this ratio was 59% and
56%, respectively.
The Company’s revolving credit loan facility with TD Bank contains a covenant that requires
the Company to maintain a minimum fixed charge coverage ratio of at least 1.0; at
December 31 2017 and 2016, the fixed charge coverage ratio was 0.81 and 1.05,
respectively. The Company is also required to maintain an equity capitalization ratio of not
less than 35%; at December 31, 2017 and 2016, the equity capitalization ratio was 34% and
36%, respectively. These covenants have not been met, and TD Bank has waived such
noncompliance.
Under this agreement, the Company is also precluded from declaring or paying dividends, or
making any other payment or distribution of its equity without the bank’s prior written
consent, except for: (1) its obligations under Rate Order No. 25,292 as it pertains to the
Company’s specific obligations under the City Bond Fixed Revenue Requirement
(“CBFRR”) which provides for payments of approximately $707,000 per month of the note
payable to the City of Nashua (the “City”), and quarterly dividends to the City for the
remainder of this annual obligation, as defined by the order; and (2) a specific allowance,
under Rate Order No. 25,292, whereby the Company is allowed to make distributions to the
City from current earnings and profits in excess of the CBFRR, to provide funds to allow the
City to reimburse itself for the costs incurred by the City relating to its efforts in pursuing the
eminent domain proceedings from January 2002 through August 2009; provided, however,
that such amount shall not exceed $500,000 in any fiscal year, or $5,000,000 in the aggre-
gate, of all such distributions. No special dividend was declared or paid in 2017 or 2016.
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