Debt

12 Months Ended

Dec. 31, 2017



Long-term debt
$ in millions	Interest Rate	Maturity	December 31, 2017			December 31, 2016
Term loan - rates from: 4.01% - 4.60% (a) and 4.00% - 4.01% (b)		2022	$	440.6		$	445.0
Tax-exempt First Mortgage Bonds	4.8%	2036	—			100.0
Tax-exempt First Mortgage Bonds - rates from: 1.52% - 1.92% (a) and 1.29% - 1.42% (b)		2020	200.0			200.0
U.S. Government note	4.2%	2061	17.8			18.0
Capital leases			0.2			0.4
Unamortized deferred financing costs			(9.8		)	(10.7		)
Unamortized debt discounts and premiums, net			(2.0		)	(5.5		)
Total long-term debt at subsidiary			646.8			747.2

Bank term loan - rates from: 3.02% - 4.10% (a) and 2.67% - 3.02% (b)		2020	70.0			125.0
Senior unsecured bonds	6.75%	2019	200.0			200.0
Senior unsecured bonds	7.25%	2021	780.0			780.0
Note to DPL Capital Trust II (c)	8.125%	2031	15.6			15.6
Unamortized deferred financing costs			(6.8		)	(8.8		)
Unamortized debt discounts and premiums, net			(0.5		)	(0.6		)
Total long-term debt			1,705.1			1,858.4
Less: current portion			(4.7		)	(29.7		)
Long-term debt, net of current portion			$	1,700.4		$	1,828.7


(a)	Range of interest rates for the year ended December 31, 2017.


(b)	Range of interest rates for the year ended December 31, 2016.


(c)	Note payable to related party. See Note 13 – Related Party Transactions for additional information.

At December 31, 2017, maturities of long-term debt are summarized as follows:



Due during the years ending December 31,
$ in millions
2018	$	4.7
2019	224.5
2020	254.6
2021	784.6
2022	422.9
Thereafter	32.7
	1,724.0
Unamortized discounts and premiums, net	(2.5		)
Total long-term debt	$	1,721.5

Premiums or discounts recognized at the Merger date are amortized over the life of the debt using the effective interest method.

Significant transactions

On January 3, 2018, DP&L and its lenders amended DP&L's Term Loan B credit agreement. The amendment (a) modified the definition of "applicable rate", from 2.25% per annum to 1.00% per annum - in the case of the Base Rate, and from 3.25% per annum to 2.00% per annum - in the case of the Eurodollar Rate, and (b) included a "call protection" provision which stated that in the event the loan was repriced or any portion of the loans were prepaid, repaid, refinanced, substituted, or replaced on or prior July 3, 2018, such prepayment, acceleration, repayment, refinancing, substitution or replacement would be made at 101% of the principal amount so prepaid, repaid, refinanced, substituted or replaced. After July 3, 2018 any such transaction would occur at 100% of the principal amount of the then outstanding loans.

On December 15, 2017, shortly after DPL and AES Ohio Generation entered into an Asset Purchase Agreement agreeing to sell Peaker assets to Kimura Power, DPL and its lenders amended DPL's revolving credit loan and term loan credit agreement. This agreement was amended to, among other things, (a) explicitly carve out the sale of DPL's Peaker assets and coal generation facilities from its "limitation on asset disposition" covenant, (b) modify the definition of Consolidated EBITDA (which is used for measuring the Consolidated Debt to EBITDA ratio and the Interest Coverage Ratio in the agreement), to also exclude, out-of-pocket third party costs and expenses incurred directly in connection with the implementation, negotiation, documentation and closing of the Generation Separation and up to $25.0 million of non-recurring cash expenses related to the closure, or sale, of generation stations, (c) modify the definition of "maturity date" used in the agreement to mean July 31, 2020; provided, however, if DPL fails to retire, redeem, or refinance at least $100.0 million in aggregate of principal amount of its senior unsecured bonds due October 1, 2019, then the maturity date shall be July, 1 2019, and (d) modify the maximum Consolidated Debt to EBITDA ratio permitted not to exceed 7.25 to 1.00 September 20, 2015 through December 31, 2018, 7.00 to 1.00 January 1, 2019 through June 30, 2019, 6.75 to 1.00 July 1, 2019 through December 31, 2019, and 6.50 to 1.00 January 1, 2020 and beyond. As part of this agreement DPL has also agreed to repay the remaining balance on its secured term loan within 10 days after receiving proceeds from the sale of the Peaker assets. This agreement was effective December 15, 2017, however certain provisions, including the modification of the Consolidated Debt to EBITDA covenant and the carving out of the sale of Peaker assets from its "limitation on asset disposition" covenant, are conditioned on the repayment in full of the term loan.

On December 8, 2017, DPL made a $30.0 million prepayment on its term loan. As of December 31, 2017, the outstanding balance was $70.0 million.

On May 26, 2017, DP&L commenced a tender offer to purchase any and all of the outstanding 4.8% tax-exempt First Mortgage Bonds at par value (plus accrued and unpaid interest). By June 23, 2017, or the expiration date of the tender, $8.1 million of the outstanding bonds were tendered. On June 26, 2017, DP&L accepted all of the tendered bonds, redeemed and retired them. On July 7, 2017, DP&L notified the Ohio Air Quality Development Authority and the Trustee of the same First Mortgage Bonds that DP&L was going to call at par value (plus accrued and unpaid interest) $21.9 million of these bonds. This call was completed on August 7, 2017. On September 28, 2017, DP&L issued an irrevocable call notice to purchase all of the remaining outstanding 4.8% tax-exempt First Mortgage Bonds at par value (plus accrued and unpaid interest). As of September 30, 2017, all of the bonds were either redeemed or defeased. This was done to facilitate Generation Separation and the release of the DP&L generation assets from the lien of DP&L's First and Refunding Mortgage. The redemption of the $70.0 million principal amount of bonds was completed on October 30, 2017.

On January 6, 2016, DPL issued a Notice of Partial Redemption to the Trustee (Wells Fargo Bank N.A.) on the DPL 6.5% Senior Notes due 2016 (a component of the Dolphin Subsidiary II, Inc. debt). DPL notified the trustee that it was calling $73.0 million of the $130.0 million outstanding principal amount of these notes. The record date of this redemption was January 21, 2016, and the redemption date was February 5, 2016. These bonds were redeemed at par plus accrued interest and a make-whole premium of $2.4 million. On October 17, 2016, the remaining $57.0 million of outstanding principal was redeemed at par on their maturity date with cash on hand.

On August 24, 2016, DP&L refinanced its 1.875% First Mortgage Bonds due 2016, with a variable rate Term Loan B of $445.0 million maturing on August 24, 2022 and secured by a pledge of DP&L First Mortgage Bonds. The variable rate on the loan is calculated based on LIBOR plus a spread of 3.25%, with a LIBOR floor of 0.75%. Up to the maturity date but not starting until March 31, 2017, the loan amortizes 0.25% of the initial principal balance quarterly and contains covenants and restrictions that are generally consistent with existing DP&L credit agreements.

Debt covenants and restrictions

DP&L’s unsecured revolving credit agreement and Bond Purchase and Covenants Agreement (financing document entered into in connection with the sale of $200.0 million of variable rate tax-exempt First Mortgage Bonds, dated as of August 1, 2015, containing representations, warranties, covenants and defaults consistent with those contained in the revolving credit facilities loan documents of DP&L) have two financial covenants. The first measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. The second financial covenant measures EBITDA to Interest Expense. The EBITDA to Interest Expense ratio is calculated, at the end of each fiscal quarter, by dividing consolidated EBITDA for the four prior fiscal quarters by the consolidated interest charges for the same period.

DPL’s revolving credit agreement and term loan have two financial covenants. The first financial covenant, a Total Debt to EBITDA ratio, is calculated at the end of each fiscal quarter by dividing total debt at the end of the current quarter by consolidated EBITDA for the four prior fiscal quarters. The second financial covenant is an EBITDA to Interest Expense ratio that is calculated, at the end of each fiscal quarter, by dividing EBITDA for the four prior fiscal quarters by the consolidated interest charges for the same period.

DP&L does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL. DPL’s secured revolving credit agreement, secured term loan, and senior unsecured notes due 2019 restrict dividend payments from DPL to AES, such that DPL cannot make dividend payments unless at the time of, and/or as a result of, the distribution, DPL’s leverage ratio does not exceed 0.67 to 1.00 and DPL’s interest coverage ratio is not less than 2.50 to 1.00 or, if such ratios are not within the parameters, DPL’s senior long-term debt rating from one of the three major credit rating agencies is at least investment grade. As of December 31, 2017, DPL’s leverage ratio was at 1.50 to 1.00 and DPL’s senior long-term debt rating from all three major credit rating agencies was below investment grade. As a result, as of December 31, 2017, DPL was prohibited under each of these agreements from making a distribution to its shareholder or making a loan to any of its affiliates (other than its subsidiaries). DPL is also restricted from making dividend and tax sharing payments from DPL to AES per its 2017 ESP. This order restricts dividend payments from DPL to AES during the term of the 2017 ESP and restricts tax sharing payments from DPL to AES during the term of the DMR. See Note 9 – Income Taxes for more information.

DP&L’s revolving credit facility and Bond Purchase and Covenants Agreement (financing document entered into in connection with the issuance of the $200.0 million of variable rate tax-exempt First Mortgage Bonds, dated as of August 1, 2015, containing representations, warranties and covenants consistent with those contained in DP&L's revolving credit facilities loan documents) have two financial covenants. First, prior to the date of completion of the separation of DP&L’s generation assets from its transmission and distribution assets, DP&L’s Total Debt to Total Capitalization may not be greater than 0.65 to 1.00 at any time; and, on and after the date of completion of the separation of DP&L’s generation assets from its transmission and distribution assets, which occurred October 1, 2017, DP&L’s Total Debt to Total Capitalization may not be greater than 0.75 to 1.00 at any time. Except that after separation required compliance with this financial covenant shall be suspended (a) any time after separation during which DP&L maintains a rating of BBB- (or in the case of Moody’s Investors Service, Inc. Baa3) or higher with a stable outlook from at least one of Fitch Investors Service Inc., Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc., as determined in accordance with the terms of the revolving credit facility or (b) for the time period January 1, 2017 to December 31, 2017 (as modified by the amendment described below) if DP&L’s long-term indebtedness (as determined by the PUCO) is less than or equal to $750.0 million. The Total Debt to Capitalization covenant is calculated as the sum of DP&L’s current and long-term portion of debt, divided by the total of DP&L’s net worth and total debt.

On February 21, 2017, DP&L and its lenders amended DP&L’s revolving credit agreement and Bond Purchase and Covenant Agreement. These amendments modified the definition of Consolidated Net Worth in each agreement (which is used for measuring the Total Debt to Total Capitalization ratio under each of the agreements), to exclude, through March 31, 2018, non-cash charges related directly to impairments of coal generation assets in DP&L's fiscal quarter ending December 31, 2016 and thereafter. With this amendment, DP&L was able to ensure compliance with the Total Debt to Total Capitalization ratio through October 1, 2017, the date Generation Separation occurred. After Generation Separation, and per the terms of the original agreement (before any amendment), the required Total Debt to Total Capitalization ratio increased from 0.65 to 1.00 to 0.75 to 1.00. On September 30, 2017, DP&L's adjusted (excluding impairments) Total Debt to Total Capitalization was 0.61 to 1.00 and as of December 31, 2017 it was 0.67 to 1.00. After Generation Separation occurred, the calculation of this covenant is on an unadjusted basis. The amendment also changed, for each agreement, the dates after Generation Separation during which compliance with the Total Capitalization ratio detailed above will be suspended if long-term indebtedness, as determined by the PUCO, is less than or equal to $750.0 million. As noted above this time period previously was January 1, 2017 to December 31, 2017, and is now the twelve months immediately subsequent to the separation of the generation assets from DP&L (or from October 1, 2017 through September 30, 2018). Generation Separation occurred on October 1, 2017.

As of December 31, 2017, DP&L and DPL were in compliance with all debt covenants, including the financial covenants described above.

Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage. All generation assets were released from the lien of DP&L's first and refunding mortgage in connection with the completion of Generation Separation on October 1, 2017.

THE DAYTON POWER AND LIGHT COMPANY [Member]

Debt Instrument [Line Items]

Debt

Long-term debt is as follows:



Long-term debt
$ in millions	Interest Rate	Maturity	December 31, 2017			December 31, 2016
Term loan - rates from: 4.01% - 4.60% (a) and 4.00% - 4.01% (b)		2022	$	440.6		$	445.0
Tax-exempt First Mortgage Bonds	4.8%	2036	—			100.0
Tax-exempt First Mortgage Bonds - rates from: 1.52% - 1.92% (a) and 1.29% - 1.42% (b)		2020	200.0			200.0
U.S. Government note	4.2%	2061	17.8			18.0
Capital leases			—			0.4
Debt classified as held-for-sale			—			(13.4		)
Unamortized deferred financing costs			(9.8		)	(11.7		)
Unamortized debt discount			(2.0		)	(2.2		)
Total long-term debt			646.6			736.1
Less: current portion			(4.6		)	(4.6		)
Long-term debt, net of current portion			$	642.0		$	731.5


(a)	Range of interest rates for the year ended December 31, 2017.


(b)	Range of interest rates for the year ended December 31, 2016.

At December 31, 2017, maturities of long-term debt are summarized as follows:



Due during the years ending December 31,
$ in millions
2018	$	4.6
2019	4.6
2020	204.6
2021	4.6
2022	422.9
Thereafter	17.1
	658.4
Unamortized discounts and premiums, net	(2.0		)
Total long-term debt	$	656.4

Significant transactions

On December 31, 2016, DP&L borrowed $5.0 million from DPL at an interest rate of 3.02%. The notes were due on or before January 30, 2017 and were repaid on the maturity date.

Debt covenants and restrictions

As of December 31, 2017, DP&L was in compliance with all debt covenants, including the financial covenants described above and did not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.