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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.
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.
Lower Costs Are Good for Customers.
Pennichuck and its Board of Directors have determined that the capital projects to be financed by
the CoBank loan will allow PEU to continue to provide safe, adequate and reliable water service
to their customers on a cost-effective basis. The terms of the loan are very favorable compared
to other alternatives and will result in lower financing costs than would be available under other
debt options. These lower financing costs will be passed on to customers.
The cash generated from the intercompany debt refinancing will be utilized to repay and restructure
current debt payable to Pennichuck, without negatively impacting the customers of PEU.
Other Approvals. As a regulated public utility, PEU must obtain approval of the loan from the
New Hampshire Public Utilities Commission (““NHPUC”), which will approve the loan if it finds
the loan to be consistent with the public good. PEU will be filing a petition for approval with the
NHPUC in early February and expects the NHPUC to consider the petition promptly.
Requested Approvals. For the reasons described above, Pennichuck respectfully requests that
the City, acting in its capacity as sole shareholder of Pennichuck and pursuant to Article [X(3) of
Pennichuck’s Articles of Incorporation, authorize the following actions:
RESOLVED, that the City hereby approves the loan to Pennichuck East Utility, Inc.
from CoBank, ACB, in an amount up to $2,200,000, with a 25-year amortization
schedule.
FURTHER RESOLVED, that the City hereby approves the guaranty by Pennichuck
Corporation of the payment by Pennichuck East Utility, Inc. of the loan authorized in
the prior resolution; and
