Note 7 – Long-Term Debt

Carrying amounts of the Company’s long-term debt and their related estimated fair values as of December 31, 2012 and December 31, 2011 are disclosed in the following table. The fair values of the revolving credit facility, the NPL revolving credit facility, and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values, and are categorized as Level 1 (quoted prices for identical financial instruments) within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability. The market values of debentures (except the 4.45% Notes) and fixed-rate IDRBs are categorized as Level 2. The 4.45% Notes and NPL other debt obligations are categorized as Level 3 (based on significant unobservable inputs to their fair values). Fair values for the debentures, fixed-rate IDRBs, and NPL other debt obligations were determined through a market-based valuation approach, where fair market values are determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable.


December 31,	2012					2011
	Carrying Amount			Market Value		Carrying Amount			Market Value
(Thousands of dollars)
Debentures:
Notes, 7.625%, due 2012	$	—		$	—	$	200,000		$	204,312
Notes, 4.45%, due 2020		125,000			141,771		125,000			128,673
Notes, 6.1%, due 2041		125,000			165,779		125,000			143,074
Notes, 3.875%, due 2022		250,000			277,950		—			—
8% Series, due 2026		75,000			111,501		75,000			96,340
Medium-term notes, 7.59% series, due 2017		25,000			30,710		25,000			30,199
Medium-term notes, 7.78% series, due 2022		25,000			34,637		25,000			31,932
Medium-term notes, 7.92% series, due 2027		25,000			36,953		25,000			31,648
Medium-term notes, 6.76% series, due 2027		7,500			10,058		7,500			8,510
Unamortized discount		(3,403	)				(2,087	)

		654,097					605,413

Revolving credit facility and commercial paper		111,000			111,000		109,000			109,000

Industrial development revenue bonds:
Variable-rate bonds:
Tax-exempt Series A, due 2028		50,000			50,000		50,000			50,000
2003 Series A, due 2038		50,000			50,000		50,000			50,000
2008 Series A, due 2038		50,000			50,000		50,000			50,000
2009 Series A, due 2039		50,000			50,000		50,000			50,000
Fixed-rate bonds:
6.10% 1999 Series A, due 2038		—			—		12,410			12,410
5.95% 1999 Series C, due 2038		—			—		14,320			14,449
5.55% 1999 Series D, due 2038		8,270			8,375		8,270			8,253
5.45% 2003 Series C, due 2038 (rate resets in March 2013)		30,000			30,152		30,000			31,332
5.25% 2003 Series D, due 2038		20,000			20,571		20,000			19,583
5.80% 2003 Series E, due 2038 (rate resets in March 2013)		15,000			15,102		15,000			15,634
5.25% 2004 Series A, due 2034		65,000			66,955		65,000			64,291
5.00% 2004 Series B, due 2033		31,200			31,655		31,200			30,283
4.85% 2005 Series A, due 2035		100,000			101,184		100,000			94,836
4.75% 2006 Series A, due 2036		24,855			25,189		24,855			23,179
Unamortized discount		(3,195	)				(3,360	)

		491,130					517,695

NPL credit facility		41,562			41,562		16,566			16,566
NPL other debt obligations		20,721			20,991		4,802			4,814

		1,318,510					1,253,476
Less: current maturities		(50,137	)				(322,618	)

Long-term debt, less current maturities	$	1,268,373				$	930,858

In January 2012, the Company redeemed at par its $12.4 million 1999 6.1% Series A fixed-rate IDRBs (originally due in 2038). In August 2012, the Company redeemed at par its $14.3 million 1999 5.95% Series C fixed-rate IDRBs (originally due in 2038).

In March 2012, the Company issued $250 million in 3.875% Senior Notes at a 0.034% discount. The notes will mature on April 1, 2022. Management used approximately $200 million of the net proceeds in connection with the repayment of the $200 million 7.625% Senior Notes that matured in May 2012. The remaining net proceeds were used for general corporate purposes.

In March 2012, the Company replaced the existing $300 million revolving credit facility that was to expire in May 2012 with a $300 million facility that is scheduled to expire in March 2017. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or the “alternate base rate,” plus, in each case, an applicable margin that is determined based on the Company’s senior unsecured debt rating. At the Company’s current unsecured debt rating, the applicable margin is 1.125% for loans bearing interest with reference to LIBOR and 0.125% for loans bearing interest with reference to the alternative base rate. Southwest has designated $150 million of the $300 million facility for long-term purposes and the remaining $150 million for working capital purposes. At December 31, 2012, $91 million was outstanding on the credit facility. Borrowings under the credit facility ranged from $0 during the second quarter of 2012 to a high of $130 million during November 2012. The effective interest rate on the long-term portion of the credit facility was 1.43% at December 31, 2012. There were no borrowings outstanding on the short-term portion of the credit facility at December 31, 2011 and 2012. (See Note 8 – Short-Term Debt).

The Company has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by the Company’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program will be designated as long-term debt. Interest rates for the new program are calculated at the then current commercial paper rate. At December 31, 2012, $20 million was outstanding on the commercial paper program. The effective interest rate on the commercial paper program was 0.84% at December 31, 2012.

In February 2013, a notice of mandatory tender was sent to holders of the Clark County, Nevada 5.45% Series 2003C and 5.80% Series 2003E IDRBs. These IDRBs (totaling $45 million) are subject to mandatory tender on March 1, 2013 at a price of 100% plus accrued interest, and the Company intends to tender these IDRBs to the trustee for cancellation immediately following the mandatory tender, thereby extinguishing this debt. Therefore, these IDRBs are shown as current maturities in the Company’s consolidated balance sheet. The Company will facilitate the redemption primarily from borrowings under its $300 million credit facility.

In June 2012, NPL replaced its existing $30 million revolving credit facility that was to expire in June 2013 with a $75 million facility that is scheduled to expire in June 2015. The credit facility was amended in October 2012 to temporarily increase the facility from $75 million to $85 million until December 29, 2012 and then reverted back to $75 million. Interest rates for the credit facility were also amended in October 2012 and are now calculated at either LIBOR or a base rate, plus, in each case, 1.00% or 0.75% depending on NPL’s leverage ratio at the end of each quarter. At December 31, 2012, $41.6 million was outstanding on the NPL credit facility. The effective interest rate on NPL’s credit facility was 0.97% at December 31, 2012.

The effective interest rates on the variable-rate IDRBs are included in the table below:


	December 31, 2012			December 31, 2011
2003 Series A		1.71	%		0.83	%
2008 Series A		1.59	%		1.62	%
2009 Series A		1.14	%		1.56	%
Tax-exempt Series A		1.25	%		2.22	%

In Nevada, interest fluctuations due to changing interest rates on the 2003 Series A, 2008 Series A, and 2009 Series A variable-rate IDRBs are tracked and recovered from ratepayers through an interest balancing account.

Estimated maturities of long-term debt for the next five years are (in thousands):


2013	$	50,137
2014		5,249
2015		46,705
2016		4,143
2017		137,049

No debt instruments have credit triggers or other clauses that result in default if Company bond ratings are lowered by rating agencies. Certain Company debt instruments contain securities ratings covenants that, if set in motion, would increase financing costs. Certain debt instruments also have leverage ratio caps and minimum net worth requirements. At December 31, 2012, the Company is in compliance with all of its covenants. Under the most restrictive of the covenants, the Company could issue over $1.7 billion in additional debt and meet the leverage ratio requirement. The Company has at least $700 million of cushion in equity relating to the minimum net worth requirement.