DEBT OBLIGATIONS:

The following table sets forth the debt obligations of Southern Union and Panhandle at the dates indicated:



	Successor		Predecessor
	December 31, 2012		December 31, 2011
Southern Union Credit Facility	$	210	$	200
Southern Union:
7.60% Senior Notes due 2024	360		360
8.25% Senior Notes due 2029	300		300
7.24% to 9.44% First Mortgage Bonds due 2020 to 2027	—		20
7.20% Junior Subordinated Notes due 2066 ⁽¹⁾	600		600
Term Loan due 2013	—		250
Note Payable	7		7
Unamortized fair value adjustments	49		—
	1,316		1,537
Panhandle:
6.05% Senior Notes due 2013	250		250
6.20% Senior Notes due 2017	300		300
8.125% Senior Notes due 2019	150		150
7.00% Senior Notes due 2029	66		66
7.00% Senior Notes due 2018	400		400
Term Loan due 2012	—		797
Term Loan due 2015	455		—
Net premiums on long-term debt	—		3
Unamortized fair value adjustments	136		—
	1,757		1,966
Total consolidated debt obligations	3,283		3,703
Less: Current portion of long term debt	259		343
Less: Short-term debt⁽²⁾	—		200
Total long-term debt	$	3,024	$	3,160


⁽¹⁾	Effective November 1, 2011, the interest rate on the Junior Subordinated Notes changed to a variable rate based upon the three-month LIBOR rate plus 3.0175%, reset quarterly. See “Interest Rate Swaps” below for more information regarding the interest rate on these notes.


⁽²⁾	The Southern Union Credit Facility was included in short-term debt as of December 31, 2011, but not as of December 31, 2012. See discussion in “Credit Facilities” below.

Based on the estimated borrowing rates currently available to the Company and its subsidiaries for loans with similar terms and average maturities, the aggregate fair value of the Company’s consolidated debt obligations at December 31, 2012 and December 31, 2011 was $3.39 billion and $3.96 billion, respectively. As of December 31, 2012 and December 31, 2011, the aggregate carrying amount of the Company’s consolidated debt obligations was $3.28 billion and $3.70 billion, respectively. The fair value of the Company’s consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

Long-Term Debt. Southern Union had approximately $3.28 billion of long-term debt at December 31, 2012, of which $259 million was current.

As of December 31, 2012, the Company had scheduled long-term debt principal payments as follows:



	2013		2014		2015		2016		2017		2018 and thereafter
Southern Union Company	$	1	$	1	$	1	$	211	$	1	$	1,262
Panhandle	250		—		455		—		300		616
Total	$	251	$	1	$	456	$	211	$	301	$	1,878

Each note or bond is an obligation of Southern Union or a unit of Panhandle, as noted above. Panhandle’s debt is non-recourse to Southern Union. All debts that are listed as debt of Southern Union are direct obligations of Southern Union. None of the Company’s long-term debt is cross-collateralized and most of its long-term debt obligations contain cross-default provisions.

Credit Facilities. In March 2012, the Company entered into the Eighth Amended and Restated Revolving Credit Agreement with certain banks in the amount of $700 million (Southern Union Credit Facility). The Southern Union Credit Facility is an amendment, restatement and refinancing of the Company’s $550 million Seventh Amended and Restated Revolving Credit Agreement and is scheduled to mature on May 20, 2016. The Company entered into the Southern Union Credit Facility in order to (i) obtain consent to the transactions contemplated by the Merger Agreement, the Citrus Merger Agreement and the Support Agreement; (ii) to increase the amount of the facility from $550 million to $700 million; and (iii) to modify certain covenants. Borrowings under the Southern Union Credit Facility are available for the Company’s working capital, other general corporate purposes and letter of credit requirements. The interest rate and commitment fee under the Southern Union Credit Facility are calculated using a pricing grid, which is based upon the credit rating for the Company’s senior unsecured notes. The annualized interest rate for the Southern Union Credit Facility was 1.84% at December 31, 2012.

On August 10, 2012, Southern Union entered into a First Amendment of the Southern Union Credit Facility. The Amendment provides for, among other things, (i) a revision to the change of control definition to permit equity ownership of Southern Union by ETP or any direct or indirect subsidiaries of ETP in addition to ETE or any direct or indirect subsidiary of ETE; and (ii) a waiver of any potential default that may result from the Holdco Transaction.

The Company previously classified borrowings under the Southern Union Credit Facility as short-term debt as the individual borrowings are generally for periods of 15 to 180 days. Such borrowings have been classified as non-current based on the Company’s expectation that such borrowings will be refinanced upon maturity. Therefore, the Southern Union Credit Facility was classified in the table above and in the consolidated balance sheets as short-term debt as of December 31, 2011 and as long-term debt as of December 31, 2012.

Term Loans. In March 2012, the Company retired the $250 million term loan due August 2013 and the $465 million term loan of its indirect wholly owned subsidiary, LNG Holdings, due June 2012 ($342 million of which was outstanding) utilizing a combination of the merger consideration received in connection with the Citrus Merger and drawdowns from its 2012 Revolver.

In February 2012, the Company refinanced LNG Holdings’ $455 million term loan due March 2012 with an unsecured three-year term loan facility due February 2015, with LNG Holdings as borrower and PEPL and Trunkline LNG as guarantors and a floating interest rate tied to LIBOR plus a margin based on the rating of PEPL’s senior unsecured debt. The effective interest rate of this term loan was 1.84% at December 31, 2012.

Restrictive Covenants. The Company is not party to any lending agreement that would accelerate the maturity date of any obligation due to a failure to maintain any specific credit rating, nor would a reduction in any credit rating, by itself, cause an event of default under any of the Company’s lending agreements. Financial covenants exist in certain of the Company’s debt agreements. A failure by the Company to satisfy any such covenant would give rise to an event of default under the associated debt, which could become immediately due and payable if the Company did not cure such default within any permitted cure period or if the Company did not obtain amendments, consents or waivers from its lenders with respect to such covenants.

The Company’s restrictive covenants include restrictions on debt levels, restrictions on liens securing debt and guarantees, restrictions on mergers and on the sales of assets, capitalization requirements, dividend restrictions, cross default and cross-acceleration and prepayment of debt provisions. A breach of any of these covenants could result in acceleration of the Company’s debt and other financial obligations and that of its subsidiaries. Under the current credit agreements, the financial covenants are as follows:


•	Under the Southern Union Credit Facility, the ratio of consolidated funded debt to consolidated earnings before interest, taxes, depreciation and amortization, as defined therein, cannot exceed 5.25 times through December 31, 2012 and 5.00 times thereafter;


•	Under the Southern Union Credit Facility, in the event Southern Union's credit rating falls below investment grade, the ratio of consolidated earnings before interest, taxes, depreciation and amortization to consolidated interest expense, as defined therein, cannot be less than 2.00 times;


•	Under LNG Holding's $455 million term loan, the ratio of consolidated funded debt to consolidated earnings before interest, taxes, depreciation and amortization, as defined therein, for Panhandle cannot exceed 5.00 times.

In addition to the above financial covenants, the Company and/or its subsidiaries are subject to certain additional restrictions and covenants. These restrictions and covenants include limitations on additional debt at some of its subsidiaries; limitations on the use of proceeds from borrowing at some of its subsidiaries; limitations, in some cases, on transactions with its affiliates; limitations on the incurrence of liens; potential limitations on the abilities of some of its subsidiaries to declare and pay dividends and potential limitations on some of its subsidiaries to participate in the Company’s cash management program; and limitations on the Company’s ability to prepay debt. As of December 31, 2012, the Company is in compliance with these covenants.

Note Payable – ETE. On March 26, 2012, the Company received $221 million from ETE to pay certain expenses in connection with the Merger, including (i) payments made to employees related to outstanding awards of stock options, stock appreciation rights and RSUs; and (ii) payments to certain executives under applicable employment or change in control agreements, which provided for compensation when their employment was terminated in connection with a change in control. In connection with the receipt of the $221 million from ETE, on March 26, 2012, the Company entered into an interest-bearing promissory note payable on or before March 25, 2013. The interest rate under the promissory note is 3.75% and accrued interest is payable monthly in arrears. A payment of $55 million to ETE was made in May 2012, and the outstanding balance of $166 million was recorded as a capital contribution from ETE as of December 31, 2012, as the note was assumed by Holdco.

Panhandle 6.05% Senior Notes due 2013. Panhandle has $250 million principal amount of senior notes which mature on August 15, 2013. Panhandle currently expects to refinance all or a portion of the debt upon maturity or, alternatively, to retire all or a portion of the debt with proceeds from repayment of the note receivable from Southern Union.

Interest Rate Swaps. The Company has interest rate swap agreements that effectively fix the interest rate applicable to the floating rate on a portion of the $600 million Junior Subordinated Notes due 2066. See Note 11 for more information regarding these swap agreements.