Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2021

All of Pinnacle West’s and APS’s debt is unsecured. The following table presents the components of long-term debt on the Consolidated Balance Sheets outstanding (dollars in thousands):


	Maturity	Interest	December 31,
	Dates (a)	Rates	2021		2020
APS
Pollution control bonds:
Variable	2029	(b)	$	35,975	$	35,975

Total pollution control bonds			35,975		35,975
Senior unsecured notes	2024-2050	2.20%-6.88%	6,280,000		5,830,000

Unamortized discount			(14,995)		(15,900)
Unamortized premium			13,575		14,781
Unamortized debt issuance cost			(47,862)		(46,911)
Total APS long-term debt			6,266,693		5,817,945
Less current maturities			—		—
Total APS long-term debt less current maturities			6,266,693		5,817,945
Pinnacle West
Senior unsecured notes	2025	1.3%	500,000		500,000
Term loans	2022-2024	(c)	300,000		—
Unamortized discount			(34)		(44)
Unamortized debt issuance cost			(2,924)		(3,635)

Total Pinnacle West long-term debt			797,042		496,321
Less current maturities			150,000		—
Total Pinnacle West long-term debt less current maturities			647,042		496,321
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	6,913,735	$	6,314,266

(a) This schedule does not reflect the timing of redemptions that may occur prior to maturities.

(b) The weighted-average rate for the variable rate pollution control bonds was 0.22% at December 31, 2021, and 0.18% at December 31, 2020.

The following table shows principal payments due on Pinnacle West’s and APS’s total long-term debt (dollars in thousands):


Year	Consolidated Pinnacle West		Consolidated APS
2022	$	150,000	$	—
2023	—		—
2024	400,000		250,000
2025	800,000		300,000
2026	250,000		250,000
Thereafter	5,515,975		5,515,975
Total	$	7,115,975	$	6,315,975

Debt Fair Value

Our long-term debt fair value estimates are classified within Level 2 of the fair value hierarchy. The following table represents the estimated fair value of our long-term debt, including current maturities (dollars in thousands):


	As of December 31, 2021				As of December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	797,042	$	792,735	$	496,321	$	509,050
APS	6,266,693		6,933,619		5,817,945		7,103,791
Total	$	7,063,735	$	7,726,354	$	6,314,266	$	7,612,841

Credit Facilities and Debt Issuances

Pinnacle West

On December 21, 2021, Pinnacle West entered into a $450 million term loan facility that matures December 20, 2024. On December 21, 2021, $150 million of the proceeds were received and recognized as long-term debt on the Consolidated Balance Sheets. On January 6, 2022, the remaining $300 million of proceeds was received and recognized on that date as long-term debt on the Consolidated Balance Sheets. The proceeds were used for general corporate purposes.

On December 23, 2020, Pinnacle West entered into a $150 million term loan facility that matures June 30, 2022. The proceeds were received on January 4, 2021, and used for general corporate purposes. We recognized the term loan facility as long-term debt upon settlement on January 4, 2021. On January 6, 2022, Pinnacle West repaid this term loan facility early.

APS

On August 16, 2021, APS issued $450 million of 2.2% unsecured senior notes that mature December 15, 2031. The net proceeds from the sale were used to repay short-term indebtedness consisting of commercial paper, replenish cash used to fund capital expenditures, and for general corporate purposes.

On December 21, 2021, Pinnacle West contributed $150 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness.

On January 6, 2022, Pinnacle West contributed $150 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness.

See “Lines of Credit and Short-Term Borrowings” in Note 6 and “Financial Assurances” in Note 11 for discussion of APS’s separate outstanding letters of credit.

BCE

On February 11, 2022, a special purpose subsidiary of BCE entered into a credit agreement to finance capital expenditures and related costs for a microgrid project in California under development by the subsidiary. The credit facilities consist of an approximately $33 million equity bridge loan facility, an

approximately $42 million non-recourse construction to term loan facility, and an approximately $5 million letter of credit. In connection with the credit agreement, Pinnacle West has guaranteed the full amount of the equity bridge loan. On February 11, 2022, $12 million was drawn from the equity bridge loan.

Debt Provisions

Pinnacle West’s and APS’s debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with this covenant. For both Pinnacle West and APS, this covenant requires that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2021, the ratio was approximately 56% for Pinnacle West and 50% for APS. Failure to comply with such covenant levels would result in an event of default, which, generally speaking, would require the immediate repayment of the debt subject to the covenants and could cross-default other debt. See further discussion of “cross-default” provisions below.

Neither Pinnacle West’s nor APS’s financing agreements contain “rating triggers” that would result in an acceleration of the required interest and principal payments in the event of a rating downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates we pay for borrowings thereunder are determined by our current credit ratings.

All of Pinnacle West’s loan agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings.

Although provisions in APS’s articles of incorporation and ACC financing orders establish maximum amounts of preferred stock and debt that APS may issue, APS does not expect any of these provisions to limit its ability to meet its capital requirements. On December 17, 2020, the ACC issued a financing order in which, subject to specified parameters and procedures, it approved APS’s long-term debt authorization from $5.9 billion to $7.5 billion in light of the projected growth of APS and its customer base and the resulting projected financing needs. See Note 6 for additional short-term debt provisions.