Financing

3 Months Ended

Mar. 31, 2021

FinancingThe 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 contains 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 informational financing filing and 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 2020 Annual Reports on Form 10-K.

Financing Activities

In August 2020, PNMR entered into letter of credit arrangements with Wells Fargo Bank, N.A. (the "WFB LOC Facility") under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds currently held by WSJ LLC (who assumed all the obligations of SJCC post-bankruptcy). The reclamation bonds were required to be posted in connection with permits relating to the operation of the San Juan mine.

On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs (the “PNMR 2018 SUNs”), which matured on March 9, 2021. The proceeds from the offering were used to repay the $150.0 million PNMR 2015 Term Loan that was due on March 9, 2018 and to reduce borrowings under the PNMR Revolving Credit Facility. On December 22, 2020, PNMR entered into the $300.0 million PNMR 2020 Delayed-Draw Term Loan that matures in January 2022 and drew $80.0 million to refinance existing indebtedness and for other corporate purposes. On March 9, 2021, PNMR utilized the remaining $220.0 million of capacity under the PNMR 2020 Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs. The remaining $80.0 million repayment of the PNMR 2018 SUNs was funded through borrowings under the PNMR Revolving Credit Facility.

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 have the right to accelerate the indebtedness under the debt agreements. The definition of Change of Control under the PNM debt agreements and PNM note purchase agreements was not triggered by the execution of the Merger Agreement.

On October 26, 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 amended Change of Control definition under the PNMR, TNMP, and PNMR Development debt agreements will, however, be triggered again upon the closing of the Merger. Prior to the closing of the Merger, the Company intends to coordinate with the lenders and Avangrid to either amend the definition of Change of Control permitting Avangrid ownership of the Company; or to refinance or enter into new debt agreements that would include Avangrid as an owner of the Company. The Change of Control provisions in the PNM debt agreements and PNM note purchase agreements are not triggered by the close of the Merger.

The documents governing TNMP's aggregate $750.0 million of outstanding First Mortgage Bonds ("TNMP FMBs") obligated 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. TNMP made such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs, and none of the holders of the TNMP FMBs accepted TNMP’s offer. The documents governing the TNMP FMBs require TNMP to make another offer, within 30 business days of closing of the Merger, to prepay all outstanding TNMP FMBs at par. 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. Similar to the offer to prepay made after signing the Merger Agreement, the post-Merger closing offer to prepay the TNMP FMBs will be made only pursuant to an offer to prepay, which will set forth the terms and conditions of the offer to prepay.

At March 31, 2021, variable interest rates were 1.07% on the PNMR 2019 Term Loan that matures in June 2021, 1.21% on the PNMR 2020 Term Loan that matures in January 2022, 1.36% on the PNMR 2020 Delayed-Draw Term Loan that

matures in January 2022, 0.76% on the PNM 2019 $40.0 million Term Loan that matures in June 2021, 0.14% on the PNM Floating Rate PCRBs in the weekly mode, and 1.48% on the PNMR Development Term Loan that matures in January 2022.

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 January 31, 2022. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advance notice, subject to approval by the lender. 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:


	March 31,		December 31,
Short-term Debt	2021		2020
	(In thousands)
PNM:
PNM Revolving Credit Facility	$	—	$	—
PNM 2017 New Mexico Credit Facility	—		10,000
	—		10,000

TNMP Revolving Credit Facility	43,100		—



PNMR:
PNMR Revolving Credit Facility	114,400		12,000


PNMR Development Revolving Credit Facility	40,000		10,000
	$	197,500	$	32,000

At March 31, 2021, the weighted average interest rate was 1.61% for the PNMR Revolving Credit Facility, 1.11% for the PNMR Development Revolving Credit Facility, and 0.86% for the TNMP Revolving Credit Facility. There were no borrowings outstanding under the PNM 2017 New Mexico Revolving Credit Facility at March 31, 2021.

In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $3.4 million, $2.2 million, and zero at March 31, 2021 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of March 31, 2021 and December 31, 2020, neither PNM nor TNMP had any intercompany borrowings from PNMR. PNMR had $32.4 million and zero in intercompany borrowings from PNMR Development at March 31, 2021 and December 31, 2020. PNMR Development had zero and $0.3 million in intercompany borrowings from PNMR at March 31, 2021 and December 31, 2020.

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. On March 23, 2021 the 1.926% fixed interest rate hedge agreement expired according to its terms and the remaining agreements are expected to expire in May 2021. The hedge agreements are accounted for as cash flow hedges and had fair values of $0.3 million and $0.9 million at March 31, 2021 and December 31, 2020 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 the fair value hierarchy, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement.

At April 23, 2021, PNMR, PNM, TNMP, and PNMR Development had availability of $184.4 million, $395.9 million, $24.5 million, and zero under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit. PNM had $40.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at April 23, 2021, on a consolidated basis, was $644.8 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 April 23, 2021, PNM, TNMP, and PNMR Development had no borrowings from PNMR under their intercompany loan agreements however, PNMR had $32.4 million in borrowings from PNMR Development. At April 23, 2021, PNMR, PNM, and TNMP had invested cash of $0.9 million, zero, and zero.

The Company’s debt arrangements have various maturities and expiration dates. The PNM 2019 $40.0 million Term Loan matures in June 2021. In addition, PNM has $146.0 million of PCRBs that must be repriced and $160.0 million of SUNs that mature in October 2021, with an option to repay the SUNs at par as early as July 1, 2021. The $150.0 million PNMR 2019 Term Loan matures in June 2021. The $150.0 million PNMR 2020 Term Loan, the $300.0 million PNMR 2020 Delayed-Draw Term Loan, and the $65.0 million PNMR Development Term Loan all mature in January 2022. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.