Debt

12 Months Ended

Dec. 31, 2017

DEBT

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of December 31, 2017 and December 31, 2016 are as follows (in thousands):



	December 31, 2017					December 31, 2016
	Short-term		Long-term			Short-term		Long-term
BONDS AND NOTES PAYABLE -
4.380% Series A 2016, maturing June 2028	$	—	$	28,750		$	—	$	28,750
4.580% Series B 2016, maturing June 2036	—		86,250			—		86,250
1.200% WIFA Loan, maturing October 2032	3		41			—		—
4.650% Harquahala Loan, maturing January 2021	5		15			—		—
	8		115,056			—		115,000
OTHER
Capital lease obligations	—		—			25		54
Debt issuance costs	—		(693		)	—		(737		)
Total debt	$	8	$	114,363		$	25	$	114,317

2016 Senior Secured Notes

On June 24, 2016, the Company issued two series of senior secured notes with an aggregate total principal balance of $115.0 million at a blended interest rate of 4.55%. Series A carries a principal balance of $28.8 million and bears an interest rate of 4.38% over a twelve year term, with the principal payment due on June 15, 2028. Series B carries a principal balance of $86.3 million and bears an interest rate of 4.58% over a 20-year term. Series B is interest only for the first five years, with $1.9 million principal payments paid semiannually thereafter. The proceeds of the senior secured notes were primarily used to refinance the previously outstanding long-term tax exempt bonds, which were subject to an early redemption option at 103%, plus accrued interest, as a result of the U.S. IPO. As part of the refinancing of the long-term debt, the Company paid a prepayment penalty of $3.2 million and wrote off the remaining $2.2 million in capitalized loan fees related to the tax exempt bonds, which were recorded as additional interest expense in the second quarter of 2016. The senior secured notes are collateralized by a security interest in the Company’s equity interest in its subsidiaries, including all payments representing profits and qualifying distributions.

The senior secured notes require the Company maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. Consolidated EBITDA is calculated as net income plus depreciation, taxes, interest and other non-cash charges net of non-cash income. Consolidated debt service is calculated as interest expense, principal payments, and dividend or stock repurchases. The senior secured notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. However, for the quarter ending June 30, 2021 through the quarter ending March 31, 2024, the ratio drops to 1.20. As of December 31, 2017, the Company was in compliance with its financial debt covenants.

Eagletail Loans

In May 2017, the Company acquired Eagletail. As part of the acquisition, the Company assumed two unsecured loans held by Eagletail. These loans are payable to the Water Infrastructure Finance Authority of Arizona ("WIFA") and Harquahala Valley Community Benefits Foundation ("Harquahala") and as of December 31, 2017 carry balances of $44,000 and $20,000, respectively. The WIFA loan bears an interest rate of 1.20% over a 20-year term, while the Harquahala loan bears an interest rate of 4.65% over a 15-year term.

Tax Exempt Bonds

We issued tax-exempt bonds through The Industrial Development Authority of the County of Pima in the amount of $36.5 million on December 28, 2006; $53.6 million, net of a discount of $511,000, on November 19, 2007; and $24.6 million on October 1, 2008. Proceeds from these bonds were used for qualifying costs of constructing and equipping the water and wastewater treatment facilities of our subsidiaries, Palo Verde and Santa Cruz. The tax-exempt bonds were redeemed in June 2016 with proceeds from the 2016 senior secured notes.

At December 31, 2017, the Company had no capital lease obligations outstanding and the remaining aggregate annual maturities of debt for the years ended December 31 are as follows (in thousands):



	Debt
2018	$	8
2019	8
2020	10
2021	1,921
2022	3,836
Thereafter	109,281
Total	$	115,064

At December 31, 2017, the carrying value of the non-current portion of long-term debt was $115.1 million, with an estimated fair value of $115.7 million. At December 31, 2016, the carrying value of the non-current portion of long-term debt was $115.0 million, with an estimated fair value of $108.4 million. The fair value of our debt was estimated based on interest rates considered available for instruments of similar terms and remaining maturities.