Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2018

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 at December 31, 2018 and 2017 (dollars in thousands):



	Maturity	Interest	December 31,
	Dates (a)	Rates	2018			2017
APS
Pollution control bonds:
Variable	2029	(b)	$	35,975		$	35,975
Fixed	2024	4.70%	115,150			147,150
Total pollution control bonds			151,125			183,125
Senior unsecured notes	2019-2048	2.20%-8.75%	4,575,000			4,275,000
Term loans		(c)	—			150,000
Unamortized discount			(12,638		)	(11,288		)
Unamortized premium			7,736			8,049
Unamortized debt issuance cost			(31,787		)	(31,594		)
Total APS long-term debt			4,689,436			4,573,292
Less current maturities			500,000			82,000
Total APS long-term debt less current maturities			4,189,436			4,491,292
Pinnacle West
Senior unsecured notes	2020	2.25%	300,000			300,000
Term loan	2020	(d)	150,000			—
Unamortized discount			(121		)	(184		)
Unamortized debt issuance cost			(1,083		)	(1,395		)
Total Pinnacle West long-term debt			448,796			298,421
Less current maturities			—			—
Total Pinnacle West long-term debt less current maturities			448,796			298,421
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	4,638,232		$	4,789,713


(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 1.76% at December 31, 2018 and 1.77% at December 31, 2017.


(c)	The weighted-average interest rate was 2.24% at December 31, 2017.


(d)	The weighted-average interest rate was 3.02% at December 31, 2018.

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
2019	$	500,000	$	500,000
2020	700,000		250,000
2021	—		—
2022	—		—
2023	—		—
Thereafter	3,976,125		3,976,125
Total	$	5,176,125	$	4,726,125

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, 2018				As of December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	448,796	$	443,955	$	298,421	$	298,608
APS	4,689,436		4,789,608		4,573,292		5,006,348
Total	$	5,138,232	$	5,233,563	$	4,871,713	$	5,304,956

Credit Facilities and Debt Issuances

Pinnacle West

On December 21, 2018, Pinnacle West entered into a $150 million term loan facility that matures December 2020. The proceeds were used for general corporate purposes.

APS

On May 30, 2018, APS purchased all $32 million of Maricopa County, Arizona Pollution Control Corporation Pollution Control Revenue Refunding Bonds, 2009 Series C, due 2029. These bonds were classified as current maturities of long-term debt on our Consolidated Balance Sheets at December 31, 2017.

On June 26, 2018, APS repaid at maturity APS's $50 million term loan facility.

On August 9, 2018, APS issued $300 million of 4.20% unsecured senior notes that mature on August 15, 2048. The net proceeds from the sale of the notes were used to repay commercial paper borrowings.

On November 30, 2018, APS repaid its $100 million term loan facility that would have matured April 22, 2019.

On December 21, 2018, 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.

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, 2018, the ratio was approximately 50% for Pinnacle West and 46% 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 November 27, 2018, the ACC issued a financing order in which, subject to specified parameters and procedures, it approved an increase in APS’s long-term debt authorization from $5.1 billion to $5.9 billion in light of the projected growth of APS and its customer base and the resulting projected financing needs. See Note 5 for additional short-term debt provisions.