Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2022

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	2022		2021
APS
Pollution control bonds:
Variable	2029	(b)	$	163,975	$	35,975

Total pollution control bonds			163,975		35,975
Senior unsecured notes	2024-2050	2.20%-6.88%	6,680,000		6,280,000

Unamortized discount			(14,548)		(14,995)
Unamortized premium			12,368		13,575
Unamortized debt issuance cost			(48,266)		(47,862)
Total APS long-term debt			6,793,529		6,266,693
Less current maturities			—		—
Total APS long-term debt less current maturities			6,793,529		6,266,693
BCE
Los Alamitos equity bridge loan	(d)	(d)	27,575		—
Los Alamitos construction facility	(e)	(e)	23,110		—
Unamortized debt issuance cost			(135)		—
Total BCE long-term debt			50,550		—
Less current maturities			50,685		—
Total BCE long-term debt less current maturities			(135)		—
Pinnacle West
Senior unsecured notes	2025	1.3%	500,000		500,000
Term loans	2024	(c)	450,000		300,000
Unamortized discount			(25)		(34)
Unamortized debt issuance cost			(2,083)		(2,924)

Total Pinnacle West long-term debt			947,892		797,042
Less current maturities			—		150,000
Total Pinnacle West long-term debt less current maturities			947,892		647,042
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	7,741,286	$	6,913,735

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

(b) The weighted-average interest rate for the variable rate pollution control bonds was 3.96% at December 31, 2022, and 0.22% at December 31, 2021. See additional details below.

(c) The weighted-average interest rate was 5.1% at December 31, 2022, and 0.81% at December 31, 2021. See additional details below.

(d) The weighted-average interest rate for the variable rate equity bridge loan is 5.18% at December 31, 2022 and will mature on the project’s commercial operation date, expected on or before August 15, 2023. See additional details below.

(e) The weighted-average interest rate for the variable rate construction facility is 5.71% at December 31, 2022 and will mature on the project’s commercial operation date, expected on or before August 15, 2023. See additional details below.

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


Year	Consolidated Pinnacle West		Consolidated APS		BCE
2023	$	50,685	$	—	$	50,685
2024	700,000		250,000		—
2025	800,000		300,000		—
2026	250,000		250,000		—
2027	300,000		300,000		—
Thereafter	5,743,975		5,743,975		—
Total	$	7,844,660	$	6,843,975	$	50,685

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, 2022				As of December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	947,892	$	905,525	$	797,042	$	792,735
APS	6,793,529		5,629,491		6,266,693		6,933,619
BCE	50,550		50,685		—		—
Total	$	7,791,971	$	6,585,701	$	7,063,735	$	7,726,354

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 was set to mature 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.

On December 16, 2022, Pinnacle West entered into a $175 million term loan facility that matures December 16, 2024. The proceeds were received on January 6, 2023 and used for general corporate purposes. We recognized the term loan facility as long-term debt upon settlement on January 6, 2023.

APS

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.

On September 15, 2022, APS remarketed $128 million of the Maricopa County, Arizona Pollution Control Corporation Revenue Refunding Bonds, 2009 Series B, C, D and E, due May 1, 2029 (the “Bonds”). The Bonds were originally issued on June 26, 2009, and prior to this remarketing were held as treasury bonds. Each series of the Bonds has a principal amount of $32 million. All series of the Bonds have been remarketed and issued in weekly variable interest rate modes and are classified as long-term debt on our Consolidated Balance Sheets.

On November 8, 2022, APS issued $400 million of 6.35% unsecured senior notes that mature December 15, 2032. 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 January 6, 2023, 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 5 and “Financial Assurances” in Note 10 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 31 MW solar and battery storage project in Los Alamitos, California (“Los Alamitos”) that is under development by the subsidiary. The credit agreement consists of an approximately $33 million equity bridge loan facility, an approximately $42 million non-recourse construction facility, and an approximately $5 million letter of credit facility. In connection with the credit agreement, Pinnacle West has issued a guarantee of up to $42 million primarily relating to the equity bridge loan. As of December 31, 2022, $28 million has been drawn from the equity bridge loan and there is a $23 million outstanding balance for the construction facility and $2.5 million letters of credit outstanding under the credit facility. The equity bridge loan and construction facility mature and are due on the project’s commercial operation date, expected on or before August 15, 2023. BCE expects to convert the construction facility into a term loan upon the project’s commercial operation date. On October 19, 2022, BCE executed an interest rate swap to hedge the variable interest rate exposure of this credit facility. See Note 15.

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, 2022, the ratio was approximately 57.7% for Pinnacle West and 50.8% 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 of $7.5 billion. On December 15, 2022, the ACC issued a financing order approving APS’s application filed on April 6, 2022 requesting to increase the long-term debt limit from $7.5 billion to $8.0 billion and to exclude financing lease PPAs from the definition of long-term indebtedness for purposes of the ACC financing orders. See Note 5 for additional short-term debt provisions.