Capitalization

Information concerning financing activities is contained in Note 6 of Notes to Consolidated Financial Statements in the 2010 Annual Reports on Form 10-K.

Short-term Debt

On October 31, 2011, PNMR entered into the PNMR Revolving Credit Facility, which has a financing capacity of $300.0 million, and PNM entered into the PNM Revolving Credit Facility, which has a financing capacity of $400.0 million. These new facilities expire on October 31, 2016, and include two one-year extension options, subject to approval by a majority of the lenders and, with respect to the PNM Revolving Credit Facility, regulatory approval. The new credit facilities replace the $517.0 million PNMR Facility and the $368.0 million PNM Facility, both of which would have expired in August 2012. The terms and conditions of the new facilities are substantially similar to the prior facilities. PNMR also has a local line of credit amounting to $5.0 million that expires in August 2012. TNMP has a revolving credit facility with financing capacity of $75.0 million under the TNMP Revolving Credit Facility that expires in December 2015. At September 30, 2011, the weighted average interest rate was 1.48% for the PNMR Facility and 0.88% for the PNM Facility. Short-term debt outstanding consisted of:



	September 30,		December 31,
Short-term Debt	2011		2010
	(In thousands)
PNM – Revolving credit facility	$	257,000	$	190,000
TNMP – Revolving credit facility	—		—
PNMR
Revolving credit facility	32,000		32,000
Local lines of credit	—		—
	$	289,000	$	222,000

On November 1, 2011, PNMR utilized a portion of the proceeds from the sale of First Choice (see Note 16) to repay short-term debt incurred to finance the October 5, 2011 payment for the purchase of PNMR's Series A preferred stock described below, as well as all other PNMR borrowings under the PNMR Revolving Credit Facility. In addition, on November 1, 2011, PNMR loaned $63.8 million to PNM under their intercompany loan agreement and PNM repaid all borrowings under the PNM Revolving Credit Facility. At November 1, 2011, PNMR, PNM, and TNMP had $235.4 million, $394.8 million, and $74.7 million of availability under their respective revolving credit facilities and local lines of credit, including reductions of availability due to outstanding letters of credit. Total availability at November 1, 2011, on a consolidated basis, was $704.9 million for PNMR. At November 1, 2011, PNMR had invested cash of $166.7 million. PNM and TNMP had no such investments.

As of November 1, 2011, PNM and TNMP had $63.8 million and $5.4 million in borrowings from PNMR under their intercompany loan agreements, but had no such borrowings as of September 30, 2011.

Financing Activities

In March 2009, TNMP entered into and borrowed $50.0 million under a loan agreement with Union Bank, N. A. (the “2009 Term Loan Agreement”). Through hedging arrangements, TNMP established fixed interest rates for the 2009 Term Loan Agreement of 6.05% for the first three years and 6.30% thereafter. In January 2010, the relationship was modified to reduce the fixed interest rate to 4.80% through March 31, 2012 and to 5.05% thereafter. This hedge was accounted for as a cash-flow hedge and the December 31, 2010 pre-tax fair value of $1.9 million was included in other current liabilities, except for $0.8 million included in other deferred credits, and in AOCI. Amounts reclassified from AOCI are included in interest charges. The fair value determinations were made using Level 2 inputs under GAAP and were determined using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the swap agreements.

On September 30, 2011, TNMP entered into and borrowed $50.0 million under a Term Loan Credit Agreement (the "2011 Term Loan Agreement") with JPMorgan Chase Bank, N.A. Borrowings under this agreement must be repaid by June 30, 2014 and are secured by $50.0 million aggregate principal amount of first mortgage bonds of TNMP (the "Series 2011 A Bonds"). TNMP entered into hedging agreements whereby it effectively established fixed interest rates for such borrowing of 1.475% through March 30, 2014 and 1.985% thereafter, which is an effective rate of 3.566% over the life of the debt considering the amounts paid to exit the prior arrangements and enter into the new arrangements. The hedging obligations entered into in connection with the 2011 Term Loan Agreement are also secured by the Series 2011 A Bonds. This hedge is accounted for as a cash-flow hedge and had a zero fair value at September 30, 2011, using Level 2 inputs under GAAP. The 2011 Term Loan Agreement replaces the 2009 Term Loan Agreement. On September 30, 2011, TNMP repaid all amounts outstanding under the 2009 Term Loan Agreement and related hedging agreements.

On October 6, 2011, PNM priced a public offering of $160.0 million aggregate principal amount of its 5.35% Senior Unsecured Notes due 2021. The bonds were offered at 99.857% of face amount and the offering closed on October 12, 2011. The notes bear interest at a rate of 5.35% per annum, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2012, and will mature on October 1, 2021. Proceeds from the offering were used to repay outstanding borrowings under the PNM Facility.

On October 24, 2011, PNMR commenced a cash tender offer to purchase up to $50.0 million aggregate principal amount of its outstanding 9.25% Senior Unsecured Notes, Series A, due 2015. The price PNMR is offering to pay for the notes is their principal amount plus a premium of up to 17%, depending on when the notes are tendered, plus accrued and unpaid interest. The tender offer is scheduled to expire on November 21, 2011. If the tender offer is successful, PNMR will use a portion of the proceeds from the sale of First Choice (see Note 16) to fund the purchase.

Convertible Preferred Stock

On September 23, 2011, PNMR entered into an agreement to purchase of all of its outstanding convertible preferred stock, Series A (the “Preferred Stock”) pursuant to a Sale and Purchase Agreement dated September 23, 2011 between PNMR and Cascade. Cascade owned all of the 477,800 outstanding shares of Preferred Stock, which were convertible into 4,778,000 shares of PNMR common stock. Upon signing, the agreement obligated PNMR to purchase the Preferred Stock at a 2% discount from a price determined by the daily volume weighted average price per share of PNMR's common stock for the ten trading days ending on September 30, 2011 times the number of shares of PNMR common stock into which the Preferred Stock was convertible. The purchase of the Preferred Stock closed on October 5, 2011 with PNMR paying Cascade $73.5 million. The difference between the purchase price and the $100.0 million carrying value of the Preferred Stock is reflected as an addition to common stock in the accompanying Condensed Consolidated Financial Statements. PNMR utilized a borrowing under its revolving credit facility to fund the purchase of the Preferred Stock. Such borrowing was repaid on November 1, 2011 with a portion of the proceeds from the sale of First Choice (see Note 16).

PNMR issued the Preferred Stock in November 2008. The Preferred Stock was entitled to receive dividends equivalent to any dividends paid on PNMR common stock as if the Preferred Stock had been converted into common stock. The Preferred Stock was entitled to vote on all matters voted upon by common stockholders, except for the election of the Board. In the event of liquidation of PNMR, preferred holders would have received a preference of $0.10 per common share equivalent. After that preference, common holders would have received an equivalent liquidation preference per share and all remaining distributions would have been shared ratably between common and preferred holders using the number of shares of common stock into which the Preferred Stock was convertible. The terms of the Preferred Stock resulted in it being substantially equivalent to common stock. Therefore, for earnings per share purposes the number of common shares into which the Preferred Stock was convertible was included in the weighted average number of common shares outstanding for periods prior to September 23, 2011. Similarly, dividends on the Preferred Stock were considered to be common dividends in the accompanying Condensed Consolidated Financial Statements.