amortized over the lives of the underlying bond obligations. The Series 2015A bonds, which
were issued at a premium, include $5.1 million to construct a new operations facility in 2016.
The $222,000 cost of issuance associated with both the Series 2015A and Series 2015B
bonds is being amortized over the 30-year and [5-year life of the debt obligations.
These bonds were issued under a new bond indenture and loan and trust agreement, 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, 2015 and 2014,
Pennichuck Water Works has a Debt to Capital Coverage ratio of 0.4 and 0.4,
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 12 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, 2015 and 2014, this coverage
ratio was 0.4 and 0.5, respectively. Also, the ratio of EBITDA to the Max Amount
Due must be equal to or greater than 1.1; as of December 31, 2015 and 2014, this
ratio was 1.6 and 4.0, respectively.
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,
2015 and 2014, the Rate Covenant coverage ratio was 2.10 and 3.52, respectively.
Pennichuck East’s loan agreement for its unsecured notes payable to a bank of $6.5 million
and $6.2 million at December 31, 2015 and 2014, respectively, contains a minimum debt
service coverage ratio requirement of [.25. At December 31, 2015 and 2014, this ratio was
1.64 and 1.83, respectively. Also, Pennichuck East is required to maintain a maximum ratio
of total debt to total capitalization of 65%; at December 31, 2015 and 2014, this ratio was
50% and 44%, respectively.
31
