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Financing | 9 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
Financing | Financing The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K. Financing Activities In October 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank N.A. (the "JPM LOC Facility") under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds, which SJCC was required to post in connection with permits relating to the operation of the San Juan mine. On March 15, 2019, WSJ LLC acquired the assets of SJCC following the bankruptcy of Westmoreland. WSJ LLC assumed all obligations of SJCC, including those under the letter of credit support arrangements. See Note 11. In May 2020, JPMorgan Chase Bank N.A. gave notice that it would not extend the letters of credit beyond their October 21, 2020 expiration. In August 2020, PNMR entered into replacement letter of credit arrangements with Wells Fargo Bank, N.A. (the "WFB LOC Facility") to replace the JPM LOC Facility. Letters of credit were issued under the WFB LOC Facility and exchanged for the letters of credit outstanding under the JPM LOC Facility prior to the expiration of the JPM LOC Facility. On October 21, 2020, the JPM LOC Facility expired according to its terms. On January 7, 2020, PNMR entered into forward sale agreements with each of Citibank N.A., and Bank of America N.A., as forward purchasers and an underwriting agreement with Citigroup Global Markets Inc., and BofA Securities, Inc. as representatives of the underwriters named therein, relating to an aggregate of approximately 6.2 million shares of PNMR common stock (including 0.8 million shares of PNMR common stock pursuant to the underwriters’ option to purchase additional shares) with each of Citibank N.A., and Bank of America N.A., as forward purchasers (the “PNMR 2020 Forward Equity Sale Agreements”). On January 8, 2020, the underwriters exercised in full their option to purchase the additional 0.8 million shares of PNMR common stock and PNMR entered into separate forward sales agreements with respect to the additional shares. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. PNMR expects to physically settle all shares under the PNMR 2020 Forward Equity Sale Agreements by delivering newly issued shares to the forward purchasers on or before January 7, 2021 in exchange for cash at the then applicable forward sales price. PNMR also has the option to net settle the agreement in cash or shares of PNMR common stock. Under a net cash settlement, under which no PNMR common stock would be issued, PNMR would receive net proceeds for a decrease in the market value of PNMR's common stock relative to the then applicable forward sales price per share, or would owe cash in the event of an increase in the market value of PNMR common stock. Under a net share settlement, PNMR would not receive any cash proceeds and may be required to deliver a sufficient number of shares of PNMR common stock to satisfy its obligation to the forward purchasers. The number of shares to be delivered to the forward purchasers would be based on the increase in the PNMR's common stock price relative to the then applicable forward sales price per share. The forward sale agreements meet the derivative scope exception requirements for contracts involving an entity’s own equity. Until settlement of the forward sale agreements, PNMR’s EPS dilution resulting from the agreements, if any, will be determined using the treasury stock method, which will result in dilution during periods when the average market price of PNMR stock during the reporting period is higher than the applicable forward sales price as of the end of that period. See Note 4. On April 24, 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement with institutional investors for the sale of $185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP issued the remaining $75.0 million of TNMP 2020 Bonds on July 15, 2020 and used the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit facility and for other corporate purposes. The TNMP 2020 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 2020 Bond Purchase Agreement. The terms of the TNMP 2020 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 2020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium. Information concerning the funding dates, maturities and interest rates on the TNMP 2020 Bonds issued in April and July 2020 are as follows:
Funding Date |  | Maturity Date |  | Principal Amount |  | Interest Rate
|  |  |  | (In millions) |  |
April 24, 2020 |  | April 24, 2030 |  | $ | 85.0 |  |  | 2.73 | %
April 24, 2020 |  | April 24, 2050 |  | 25.0 |  |  | 3.36 |
|  |  |  | 110.0 |  |  |
July 15, 2020 |  | July 15, 2035 |  | 25.0 |  |  | 2.93 |
July 15, 2020 |  | July 15, 2050 |  | 50.0 |  |  | 3.36 |
|  |  |  | $ | 185.0 |  |  |
On April 15, 2020, PNM entered into a $250.0 million term loan agreement (the "PNM 2020 Term Loan"), between PNM, the lenders party thereto, and U.S. Bank, as administrative agent. Proceeds from the PNM 2020 Term Loan were used to prepay the PNM 2019 $250.0 million Term Loan due July 2020, without penalty. The PNM 2020 Term Loan bears interest at a variable rate, which was 2.70% at September 30, 2020, and matures on June 15, 2021. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan. On April 30, 2020, PNM entered into an agreement (the "PNM 2020 Note Purchase Agreement") with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes offered in private placement transactions. Under the agreement, PNM issued $150.0 million aggregate principal amount of its 3.21% senior unsecured notes, Series A, due April 30, 2030, and $50.0 million of its aggregate principal amount of its 3.57% senior unsecured notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 SUNs agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium. At December 31, 2019, PNM had $40.0 million of outstanding PCRBs, which have a final maturity of June 1, 2040 and two series of outstanding PCRBs of $39.3 million and $21.0 million, which have a final maturity of June 1, 2043. These PCRBs, aggregating $100.3 million, were subject to mandatory tender on June 1, 2020. On June 1, 2020, PNM purchased these PCRBs utilizing borrowings under the PNM Revolving Credit Facility and converted the PCRBs to the weekly mode. PNM held these PCRBs (without legally canceling them) until July 1, 2020, when they were remarketed in the weekly mode (the "PNM Floating Rate PCRBs") and PNM used the remarketing proceeds to repay the revolver borrowings. PNM Floating Rate PCRBs in the weekly mode bear interest at rates that are reset weekly, giving investors the option to return the PCRBs for remarketing to new investors upon 7 days' notice. At September 30, 2020, this rate was 0.32%. A corresponding portion of the borrowing capacity under the PNM Revolving Credit Facility is reserved to support the investors' option to return the PNM Floating Rate PCRBs upon 7 days' notice. In accordance with GAAP, as PNM can demonstrate the intent and ability to keep the PNM Floating Rate PCRBs outstanding through at least the October 31, 2023 maturity of the PNM Revolving Credit Facility, the PNM Floating Rate PCRBs, aggregating $100.3 million, are reflected as long-term debt in the Condensed Consolidated Balance Sheets at September 30, 2020. At December 31, 2019, PNM had PCRBs outstanding of $36.0 million at 6.25% issued by the Maricopa County, Arizona Pollution Control Corporation as well as $255.0 million at 5.90% and $11.5 million at 6.25% issued by the City of Farmington, New Mexico. The $36.0 million PCRBs became callable at 101% of par on January 1, 2020 and the remaining $266.5 million PCRBs became callable at par on June 1, 2020. On June 22, 2020, PNM provided notice to the bondholders that it was calling the PCRBs aggregating $302.5 million. On July 22, 2020, PNM purchased the PCRBs in lieu of redemption and remarketed them to new investors (the "PNM 2020 Fixed Rate PCRBs"). Information concerning the funding dates, mandatory tender dates, and interest rates on the PNM 2020 Fixed Rate PCRBs are as follows:
Funding Date |  | Mandatory Tender Date |  | Principal Amount |  | Interest Rate
|  |  |  | (In millions) |  |
July 22, 2020 |  | June 1, 2022 |  | $ | 36.0 |  |  | 1.05 | %
July 22, 2020 |  | June 1, 2022 |  | 11.5 |  |  | 1.20 |
July 22, 2020 |  | June 1, 2023 |  | 130.0 |  |  | 1.10 |
July 22, 2020 |  | June 1, 2024 |  | 125.0 |  |  | 1.15 |
|  |  |  | $ | 302.5 |  |  |
On October 20, 2020, in connection with the execution of the Merger Agreement (Note 18), PNMR entered into backstop credit facilities related to the Merger between PNMR, the lenders party thereto, and MUFG Bank, Ltd., as administrative agent. The $300.0 million 364-day revolving credit facility ("Merger Backstop Revolving Facility") was available to provide liquidity to refinance the PNMR Revolving Credit Facility, if needed, and the $50.0 million, 364-day delayed-draw term loan ("Merger Backstop Term Loan") is available to provide liquidity to refinance any of the applicable PNMR term loan or TNMP and PNMR Development credit facilities, if needed, and to fund other corporate purposes. The Merger Backstop Revolving Facility expired upon the execution of the necessary waiver amendments (discussed below). The Merger Backstop Term Loan matures on the earliest of the closing of the Merger or October 19, 2021 and bears interest at a variable rate based on a pricing grid. PNMR must pay interest on its borrowings under the Merger Backstop Term Loan from time to time following funding and must repay all amounts on or before the maturity date. The Merger Backstop Term Loan, consistent with PNMR’s current credit facilities, contains “ratings triggers” for pricing purposes only. If PNMR is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost. Borrowings under the Merger Backstop Term Loan are conditioned on the ability of PNMR to make certain representations. The Merger Backstop Term Loan includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio of less than or equal to 70%. The Merger Backstop Term Loan includes customary events of default and has cross default provisions and change of control provisions. If an event of default occurs, the administrative agent may, or upon the request and direction of lenders holding a specified percentage of the commitments shall, terminate the obligations of the lenders to make loans under the Merger Backstop Term Loan, and/or declare the obligations outstanding under the Merger Backstop Term Loan to be due and payable. Such termination and acceleration will occur automatically in the event of an insolvency or bankruptcy default. As discussed in PNMR's Current Report on Form 8-K filed with the SEC on October 20, 2020, the execution of the Merger Agreement constituted a “Change of Control” under certain PNMR, TNMP and PNMR Development debt agreements. Under each of the specified debt agreements, a “Change of Control” constitutes an “Event of Default,” pursuant to which the lender parties thereto had the right to accelerate the indebtedness under the debt agreements. As discussed in PNMR's Current Report on Form 8-K filed with the SEC on October 28, 2020, PNMR, TNMP and PNMR Development entered into amendment agreements with the lender parties thereto to amend the definition of "Change of Control" such that the entry into the Merger Agreement would not constitute a Change of Control and to waive the Event of Default arising from entry into the Merger Agreement. The documents governing TNMP's aggregate $750.0 million of outstanding First Mortgage Bonds ("TNMP FMBs") obligate TNMP to offer, within 30 business days following the signing of the Merger Agreement, to prepay all $750.0 million outstanding TNMP FMBs at 100% of the principal amount, plus accrued and unpaid interest thereon, but without any make-whole amount or other premium. However, based on the Company's assessment of the likelihood of the holders of the TNMP FMBs to accept the offer, the Company believes that it has adequate liquidity to satisfy its obligations to purchase the bonds. TNMP will make such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs, however holders of the TNMP FMBs are not required to tender their TNMP FMBs and may accept or reject such offer to prepay. The information in this Quarterly Report on Form 10-Q is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. The offer to prepay the TNMP FMBs will be made only pursuant to an offer to prepay, which set forth the terms and conditions of the offer to prepay. At September 30, 2020, variable interest rates were 0.95% on the $50.0 million PNMR 2018 Two-Year Term Loan that matures in December 2020, 1.11% on the PNMR 2019 Term Loan that matures in June 2021, 2.70% on the PNM 2020 Term Loan that matures in June 2021, 0.80% on the PNM 2019 $40.0 million Term Loan that matures in June 2021, and 0.95% on the $90.0 million PNMR Development Term Loan that matures in November 2020. On April 1, 2020, the NMPRC approved PNM’s request to issue approximately $361 million of Securitized Bonds upon the retirement of SJGS in 2022. The NMPRC's approval of the issuance of these Securitized Bonds is currently being appealed to the NM Supreme Court. See SJGS Abandonment Application in Note 12. Short-term Debt and Liquidity Currently, the PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. Both facilities currently expire on October 31, 2023 and contain options to be extended through October 2024, subject to approval by a majority of the lenders. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds that matures on September 23, 2022 and contains two one-year extension options, subject to approval by a majority of the lenders. PNMR Development has a $40.0 million revolving credit facility that expires on February 23, 2021. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. Short-term debt outstanding consists of:
|  | September 30, |  | December 31,
Short-term Debt |  | 2020 |  | 2019
|  | (In thousands)
PNM: |  |  |  |
PNM Revolving Credit Facility |  | $ | 1,700 |  |  | $ | 48,000 |
PNM 2017 New Mexico Credit Facility |  | 20,000 |  |  | 10,000 |
|  | 21,700 |  |  | 58,000 |
TNMP: |  |  |  |
TNMP Revolving Credit Facility |  | — |  |  | 15,000 |
TNMP Electricity Relief ERCOT loan (Note 12) |  | 494 |  |  | — |
|  | 494 |  |  | 15,000 |
PNMR Revolving Credit Facility |  | 162,100 |  |  | 112,100 |
|  | $ | 184,294 |  |  | $ | 185,100 |
At September 30, 2020, the weighted average interest rate was 1.66% for the PNMR Revolving Credit Facility, 1.40% for the PNM Revolving Credit Facility, and 1.41% for the PNM 2017 New Mexico Credit Facility. There were no borrowings outstanding under the TNMP Revolving Credit Facility at September 30, 2020. In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.7 million, $2.2 million, and $0.1 million at September 30, 2020 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of September 30, 2020, and December 31, 2019, each of PNM, TNMP, and PNMR Development had zero intercompany borrowings from PNMR. In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR for three separate tranches, each of $50.0 million, of its variable rate debt. These hedge agreements are accounted for as cash flow hedges and had fair values of $1.5 million and $0.4 million at September 30, 2020 and December 31, 2019 that are included in other current liabilities on the Condensed Consolidated Balance Sheets. As discussed in Note 3, changes in the fair value of the cash flow hedges are deferred in AOCI and amounts reclassified to the Condensed Consolidated Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement. At October 27, 2020, PNMR, PNM, TNMP, and PNMR Development had availability of $129.7 million, $397.8 million, $74.9 million, and $40.0 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit. PNM had $30.0 million of availability under the PNM 2017 New Mexico Credit Facility. In addition, PNMR has $50.0 million of available credit under the Merger Backstop Term Loan that has not been drawn upon. Total availability at October 27, 2020, on a consolidated basis, was $722.4 million for PNMR. Availability under PNM's Revolving Credit Facility and total availability at PNMR, on a consolidated basis, does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs. As of October 27, 2020, PNM, TNMP, and PNMR Development had no borrowings from PNMR under their intercompany loan agreements. At October 27, 2020, PNMR, PNM, and TNMP had invested cash of $0.9 million, $13.8 million, and $22.8 million. The Company’s debt arrangements have various maturities and expiration dates. The $90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 Two-Year Term Loan matures in December 2020, and the $300.0 million PNMR 2018 SUNs mature on March 9, 2021. The $150.0 million PNMR 2019 Term Loan, the PNM 2019 $40.0 million Term Loan, and the PNM 2020 Term Loan that currently has $150.0 million outstanding all mature in June 2021. In addition, PNM has $146.0 million of 1.875% PCRBs that must be repriced by October 2021 and $160.0 million aggregate principal of its 5.35% Senior Unsecured Notes that mature in October 2021. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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