Debt and Credit Agreements

Long-Term Debt

Long-term debt includes both corporate debt and nonrecourse project debt, whereby lenders rely on specific project assets to repay such obligations. At December 31, 2011, recourse debt to EME totaled $3.7 billion and nonrecourse project debt totaled $1.2 billion. The following table summarizes long-term debt (rates and terms as of December 31, 2011):



	December 31,
(in millions)	2011		2010
Recourse
EME (parent only)
Senior Notes, net
due 2013 (7.50%)	$	500	$	500
due 2016 (7.75%)	500		500
due 2017 (7.00%)	1,200		1,200
due 2019 (7.20%)	800		800
due 2027 (7.625%)	700		700

Nonrecourse
Big Sky Wind, LLC Vendor financing loan due 2014 (LIBOR¹ plus 3.5%) (4.05%)	211		190
Viento Funding II, Inc. Term Loan due 2020 (LIBOR plus 2.75%) (3.56%)	207		150
American Bituminous Power Partners, L.P. Bonds due 2017 (Floating 0.24%)	55		63
Cedro Hill Wind, LLC Term Loan due 2025 (LIBOR plus 3.0%) (3.58%)	131		135
High Lonesome Mesa, LLC Bonds Series 2010A and 2010B due 2017 (6.85%)	72		75
Walnut Creek Energy Construction Loan due 2013 (LIBOR + 2.25%) (2.546%)	138		—
WCEP Holdings, LLC Construction Loan due 2013 (LIBOR + 4%) (4.296%)	49		—
Laredo Ridge Term Loan due 2026 (LIBOR + 2.75%) (3.33%)	74		—
Tapestry Wind, LLC Term Loan due 2021 (LIBOR + 2.5%) (3.08%)	214		—
Other	61		77
Subtotal	$	4,912	$	4,390
Less current portion of long-term debt	57		48
Long-term debt net of current portion	$	4,855	$	4,342


¹	London Interbank Offered Rate (LIBOR)

Long-term debt maturities at December 31, 2011, for the next five years are summarized as follows: $57 million in 2012, $755 million in 2013, $284 million in 2014, $72 million in 2015, and $566 million in 2016.

Liens and Security Interests

In connection with Midwest Generation's financing activities, a first priority security interest was provided in substantially all the coal-fired generating plants owned by Midwest Generation and the assets relating to those plants, the receivables of EMMT directly related to Midwest Generation's hedging activities and the pledge of the intercompany notes from EME (approximately $1.3 billion at December 31, 2011). The net book value of assets pledged or mortgaged was $2.3 billion at December 31, 2011. In addition to these assets, Midwest Generation's membership interests and the capital stock of Edison Mission Midwest Holdings were pledged.

In connection with the wind financing set forth below, payment obligations are generally secured by pledges of its direct and indirect ownership interests in the projects, project agreements and reserve accounts, if applicable. In connection with the Big Sky turbine financing, the loan is secured by a leasehold mortgage on the project's real property assets, a pledge of all other collateral of the Big Sky wind project, as well as a cash reserve account into which one-third of distributable cash flow, if any, of the Big Sky wind project is to be deposited on a monthly basis. For further details regarding consolidated assets pledged as security for debt obligations, see Note 3—Variable Interest Entities.

Senior Notes

EME has $3.7 billion of senior notes due 2013 through 2027. The senior notes are redeemable by EME at any time at a price equal to 100% of the principal amount, plus accrued and unpaid interest and liquidated damages, if any, of the senior notes plus a "make-whole" premium. The senior notes are EME's senior unsecured obligations, ranking equal in right of payment to all of EME's existing and future senior unsecured indebtedness, and will be senior to all of EME's future subordinated indebtedness. EME's secured debt and its other secured obligations are effectively senior to the senior notes to the extent of the value of the assets securing such debt or other obligations. None of EME's subsidiaries have guaranteed the senior notes and, as a result, all the existing and future liabilities of EME's subsidiaries are effectively senior to the senior notes.

Credit Agreements

At December 31, 2011, total borrowing commitments under EME's secured credit facility maturing in June 2012 were $564 million. The credit facility contains financial covenants which require EME to maintain an interest coverage ratio not less than 1.20 and a corporate debt to corporate capital ratio not more than 0.75. A failure to meet a ratio threshold could trigger other provisions and require a prepayment of the outstanding borrowings. At December 31, 2011, the interest coverage ratio was 2.87 for the year ended December 31, 2011 and the corporate debt to corporate capital ratio was 0.59.

EME's corporate credit agreement contains covenants that restrict its ability and the ability of several of its subsidiaries to make distributions. This restriction impacts the subsidiaries that own interests in the Westside projects, the Sunrise project, the coal plants, and the Big 4 projects. These subsidiaries would not be able to make a distribution to EME's shareholder if an event of default were to occur and be continuing under EME's secured credit agreement after giving effect to the distribution. Subsequent to the end of the fiscal year, EME terminated its secured credit facility.

Borrowings made under Midwest Generation's credit facility currently bear interest at LIBOR plus 1.15%, unless average utilized commitments during a period exceed $250 million, in which case the margin increases to 1.275%. The working capital facility matures in June 2012. The working capital facility contains financial covenants which require Midwest Generation to maintain a debt to capitalization ratio of no greater than 0.60 to 1. At December 31, 2011, the debt to capitalization ratio was 0.15 to 1. Midwest Generation uses its secured working capital facility to provide credit support for its hedging activities and for general working capital purposes. Midwest Generation can also support its hedging activities by granting liens to eligible hedge counterparties.

The following table summarizes the status of the EME and Midwest Generation credit facilities at December 31, 2011:



(in millions)	EME			Midwest Generation
Commitments	$	564		$	500
Outstanding borrowings	—			—
Outstanding letters of credit	(66		)	(3		)
Amount available	$	498		$	497

Any replacement of the above credit lines will likely be on less favorable terms and conditions, and there is no assurance that EME will, or will be able to, replace these credit lines or any portion of them.

Viento Funding II Wind Financing Amendment

In February 2011, EME completed, through its subsidiary, Viento Funding II, Inc., an amendment of its 2009 nonrecourse financing of its interests in the Wildorado, San Juan Mesa and Elkhorn Ridge wind projects. The amendment increased the financing amount to $255 million, which included a $227 million ten-year term loan (expiring in December 2020), a $23 million seven-year letter of credit facility and a $5 million seven-year working capital facility. At December 31, 2011, $207 million was outstanding under this loan. The amount of outstanding letters of credit was $23 million. Interest under the term loan accrues at LIBOR plus 2.75% initially with the rate increasing 0.25% on every fourth anniversary. Viento Funding II, Inc. entered into interest rate swap agreements at 3.415% to hedge the majority of the variable interest rate under the term loan. Approximately $79 million under the swap agreements entered in connection with the 2009 financing were left unchanged at 3.175% and were outstanding at December 31, 2011. The effective interest rate as of December 31, 2011 was 5.81%. In conjunction with the foregoing, EME expensed $3 million of deferred financing costs and incurred a loss of $2 million from the termination of interest rate swaps, included as part of interest expense on the consolidated statement of operations.

Distributions from Viento Funding II are subject to compliance with the terms and conditions of its credit agreement, including a 12-month historic debt service coverage ratio test as specified in the agreements of 1.20 to 1.00. The debt service coverage ratio was 3.12 at December 31, 2011.

American Bituminous Project

EME consolidated the Ambit project on January 1, 2010. At December 31, 2011, this project had $55 million of bonds payable, which are supported by a letter of credit. Principal payments are due annually through October 1, 2017. Interest rates are reset weekly based on current bond yields for similar securities. The Ambit project is required to maintain funded reserve accounts primarily for debt servicing and maintenance costs. The required reserve account balance at December 31, 2011 was $20 million and was under funded by $13 million. The underfunded reserve does not create an event of default under the loan, but does restrict distributions from the Ambit project.

Big Sky Turbine Financing

In October 2009, EME, through its subsidiary, Big Sky, entered into turbine financing arrangements totaling approximately $206 million for wind turbine purchase obligations related to the 240 MW Big Sky wind project with the following principal terms:


•	interest under the loan accrues at six-month LIBOR plus 2.5% prior to the release of the EME guarantee, and at six-month LIBOR plus 3.5% thereafter; and


•	the loan has a five-year final maturity. However, specific events, including project performance, may trigger earlier repayment. Based on historical operating history, the loan could mature as early as February 2013.

Big Sky's repayment obligations were guaranteed by EME until certain conditions are met, including commercial operations. On February 1, 2012, the lender agreed that all conditions have been satisfied and released EME from such guarantee.

High Lonesome

In November 2010, EME completed through its subsidiary, High Lonesome Mesa, LLC, a nonrecourse financing of its interests in the High Lonesome wind project. The $81 million financing included: $50 million Series 2010A bonds issued by the New Mexico Renewable Energy Transmission Authority, as a conduit issuer for High Lonesome Mesa, LLC, with proceeds loaned to the High Lonesome wind project, $25 million Series 2010B bonds issued directly by the project, and a $6 million debt service reserve letter of credit facility. In June 2011, High Lonesome Mesa, LLC entered into a $7 million letter of credit reimbursement agreement to provide credit support for a power purchase and sale agreement.

Both series of bonds mature on November 1, 2017, and accrue interest at 6.85%. The Series 2010A bonds are scheduled to partially amortize over the term, while no principal payments of the Series 2010B bonds are due until maturity. As of December 31, 2011, there were $47 million and $25 million outstanding under the Series 2010A bonds and Series 2010B bonds, respectively, and $12 million of outstanding letters of credit.

Distributions from High Lonesome are subject to compliance with the terms and conditions of its trust indentures, including a 12-month historic debt service coverage ratio test as specified in the agreements of 1.20 to 1.00. The debt service coverage ratio was 1.42 at October 31, 2011, the last payment date.

Laredo Ridge

In July 2010, EME completed through its subsidiary, Laredo Ridge Wind, LLC, a nonrecourse financing of its interests in the Laredo Ridge wind project. The financing included: a $75 million construction loan that was converted to a 15-year amortizing term loan on March 18, 2011; a $53 million bridge loan, secured by the expected U.S. Treasury grant, that was repaid in full on July 22, 2011; a $9 million letter of credit facility; and a $3 million working capital facility.

Interest under the term loan will accrue at LIBOR plus 2.75% initially, with the rate increasing 0.125% after the third, sixth, ninth and twelfth years. Pursuant to the financing agreement, Laredo Ridge entered into a forward starting interest rate swap agreement at 3.46% to hedge the majority of the variable interest rate debt effective on March 18, 2011 upon conversion of the construction loan to the term loan. As of December 31, 2011, there was $74 million outstanding under the term loan at an effective interest rate of 5.92% classified as long-term debt on EME's consolidated balance sheet, and $8 million of outstanding letters of credit. As of December 31, 2010, short-term debt on EME's consolidated balance sheet consisted of $53 million under the bridge loan and $43 million under the construction loan, at weighted average rates of 2.76% and 3.01%, respectively.

Distributions from Laredo Ridge are subject to compliance with the terms and conditions of its financing agreement, including a 12-month historic debt service coverage ratio test as specified in the agreements of 1.20 to 1.00. The debt service coverage ratio was 1.70 at December 31, 2011.

Cedro Hill

In March 2010, EME completed through its subsidiary, Cedro Hill Wind, LLC, a nonrecourse financing of its interests in the Cedro Hill wind project. The financing included a $135 million construction loan that was converted to a 15-year amortizing term loan on December 22, 2010, a $10 million letter of credit facility and a $4 million working capital facility.

Interest under the term loan will accrue at LIBOR plus 3% initially, with the rate increasing 0.125% after the third, sixth, ninth and eleventh years and 0.25% after the thirteenth year. Pursuant to the financing agreement, Cedro Hill Wind entered into a forward starting interest rate swap agreement at 4.29% to hedge the majority of the variable interest rate debt. As of December 31, 2011, there was $131 million outstanding under the term loan at an effective interest rate of 6.92% classified as long-term debt on EME's consolidated balance sheet and $10 million of outstanding letters of credit.

Distributions from Cedro Hill are subject to compliance with the terms and conditions of its financing agreement, including a 12-month historic debt service coverage ratio test as specified in the agreements of 1.20 to 1.00. The debt service coverage ratio was 2.05 at December 31, 2011.

2011 Project Financings

Tapestry Wind

In December 2011, EME completed, through its subsidiary, Tapestry Wind, LLC, a nonrecourse financing of its interests in the Taloga, Buffalo Bear and Pinnacle wind projects. The financing included a $214 million 10-year partially amortizing term loan (expiring in December 2021), a $12 million 10-year debt service reserve letter of credit facility, an $8 million 10-year project letter of credit facility and an $8 million 10-year working capital facility. Interest under the term loans accrues at LIBOR plus 2.5% initially, with the rate increasing 0.125% on the fourth and eighth anniversary of the closing date. Tapestry Wind, LLC entered into interest rate swap agreements at 2.21% to hedge the majority of the variable interest rate under the term loan. Tapestry Wind LLC also entered into forward starting interest rate swap agreements at 3.57% to hedge the forecasted refinancing of the final maturity payment of the term loan, effective December 21, 2021. A total of $97 million of cash proceeds received was deposited into an escrow account as of December 31, 2011 and is expected to be released in the first quarter of 2012 when the Pinnacle project achieves certain completion milestones.

Distributions from Tapestry Wind, LLC are subject to compliance with the terms and conditions of its credit agreements, including a 12-month historic debt service coverage ratio test as specified in the agreements of 1.2 to 1.0. At December 31, 2011, $214 million was outstanding under this loan at an effective interest rate of 4.55%. The amount of outstanding letters of credit was $13 million.

Walnut Creek

In July 2011, EME completed, through wholly owned subsidiaries, nonrecourse financings to fund construction of the Walnut Creek project, a 479 MW natural gas-fired peaker plant in southern California. The financings included floating rate construction loans totaling $495 million that will convert to 10-year amortizing term loans by June 30, 2013, subject to meeting specified conditions, and also included $122 million of letter of credit ($40 million outstanding at December 31, 2011) and working capital facilities.

The nonrecourse financings were completed in two parts: the first of which was a construction plus term loan financing of $442 million that initially accrues interest at LIBOR plus 2.25% and increases by 0.25% after the third, sixth and ninth anniversaries of the term conversion date that was obtained by Walnut Creek Energy. An interest rate swap agreement for a portion of the construction loan fixed the floating rate at 0.8135% beginning November 30, 2011 through May 31, 2013. The effective rate for the outstanding loan of $138 million was 2.75 % at December 31, 2011. Under the swap agreement for majority of the term loan, the fixed interest rate will be 3.5429% beginning June 28, 2013 through May 31, 2023 and the effective rate is expected to be 6.045%.

A second construction plus term loan financing of $53 million was obtained by WCEP Holdings, LLC that accrues interest at LIBOR plus 4.00% over the entire term. An interest rate swap agreement for a portion of the construction loan fixed the floating rate at 0.79% beginning July 29, 2011 through May 31, 2013. The effective rate for the outstanding loan of $49 million was 4.54% at December 31, 2011. Under the swap agreement for the majority of the term loan, the fixed interest rate will be 4.0025% beginning June 28, 2013 through May 31, 2023 and the effective rate is expected to be 8.00%.

In May 2011, EME purchased, through wholly owned subsidiaries, select equipment at AES Southland Funding, LLC and its affiliates' (AES's) Huntington Beach facilities and leased such equipment back to an AES affiliate until its planned decommissioning at the end of 2012 for which AES retained the ARO. The transaction resulted in an exemption for 90% of emission reduction credits needed to complete permitting activities for the Walnut Creek project. The $56 million of notes payable for the purchase was paid in July 2011.

Other Letters of Credit Facilities

As of December 31, 2011, a subsidiary of EME had a $10 million letter of credit facility with $2 million outstanding letters of credit.

Standby Letters of Credit

Letters of credit under EME's and its subsidiaries' credit facilities aggregated $177 million and were scheduled to expire as follows: $146 million in 2012, $3 million in 2013, $10 million in 2017, and $18 million in 2018. Standby letters of credit include $40 million issued in connection with the power purchase agreement with SCE, an affiliate of EME, under the Walnut Creek credit facility. Certain letters of credit are subject to automatic annual renewal provisions.