Long-Term Debt

In April 2015, the FASB issued Accounting Standards Update ASU 2015-03, “Interest — Simplifying the Presentation of Debt Issuance Costs” which became effective for SJW Group during the first quarter of 2016. ASU 2015-03 changed the presentation of debt issuance costs for term debt in the balance sheet by requiring the debt issuance costs to be presented as a direct deduction from the related debt liability, rather than recorded as an asset. In August 2015, ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” was issued to provide clarification to ASU 2015-03. The standard specified that the SEC would not object to an entity deferring and presenting debt issuance costs related to lines-of-credit as an asset and subsequently amortizing the costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. This standard required application on a retrospective basis. Upon adoption of the standard, SJW Group reclassified its long-term debt issuance costs totaling $3,561 and $3,638 from other assets to long-term debt on the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, respectively. There was no material impact from adopting the new standard on SJW Group’s Consolidated Statements of Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows.

Long-term debt as of December 31 was as follows:



Description	Due Date	2016		2015
Senior notes, San Jose Water Company:
Series A 8.58%	2022	$	20,000	20,000
Series B 7.37%	2024	30,000		30,000
Series C 9.45%	2020	10,000		10,000
Series D 7.15%	2026	15,000		15,000
Series E 6.81%	2028	15,000		15,000
Series F 7.20%	2031	20,000		20,000
Series G 5.93%	2033	20,000		20,000
Series H 5.71%	2037	20,000		20,000
Series I 5.93%	2037	20,000		20,000
Series J 6.54%	2024	10,000		10,000
Series K 6.75%	2039	20,000		20,000
Series L 5.14%	2044	50,000		50,000
SJWTX, Inc. Series A 6.27%	2036	15,000		15,000
SJW Corp. Series A 4.35%	2021	50,000		50,000
Total senior notes		$	315,000	315,000
Mortgage loans 5.61% - 6.09%	2016	—		2,997
	2017	—		11,634
444 West Santa Clara Street, L.P. 5.68% (non-recourse to SJW Land Company)	2021	2,717		2,836
California Pollution Control Financing Authority Revenue Bonds 5.10%, San Jose Water Company	2040	50,000		50,000
California Pollution Control Financing Authority Revenue Bonds 4.75%, San Jose Water Company	2046	70,000		—
SDWSRF loans 2.39% and 2.60%, San Jose Water Company	2027	—		1,849
Total debt		$	437,717	384,316
Less:
Unamortized debt issuance costs related to debt above		4,257		3,638
Current portion		125		3,491
Total long-term debt, less current portion		$	433,335	377,187

Senior notes held by institutional investors are unsecured obligations of SJW Group, San Jose Water Company and SJWTX, Inc. and require interest-only payments until maturity. To minimize issuance costs, the companies’ debt has primarily been placed privately.

The senior note agreements of San Jose Water Company generally have terms and conditions that restrict the Company from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. As of December 31, 2016, San Jose Water Company was not restricted from issuing future indebtedness as a result of these terms and conditions.

The senior note agreement of SJWTX, Inc. has terms and conditions that restrict SJWTX, Inc. from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2016, SJWTX, Inc. and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

The senior note agreement of SJW Group has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011. As of December 31, 2016, SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

SJW Land Company had two mortgage loans, one for its Arizona property and one for its Tennessee property, that were due in 2016 and 2017. These loans amortized over 10 years, were secured by two properties and carried a fixed interest rate with 120 monthly principal and interest payments. The loan agreements had restricted the Company from prepayment in the first three years and had required submission of periodic financial reports as part of the loan covenants. During the year ended December 31, 2016, the two mortgage loans were paid off.

444 West Santa Clara Street, L.P., in which SJW Land Company owns a 70% limited partnership interest, has a mortgage loan in the outstanding amount of $2,717 as of December 31, 2016. The mortgage loan is due in 2021 and is amortized over 20 years with an interest rate of 5.68%. The mortgage loan is secured by the partnership’s real property and is non-recourse to SJW Land Company. An amortization schedule of the mortgage loan with 444 West Santa Clara Street, L.P. is as follows:



	Amortization Schedule
Year	Total Payment	Interest	Principal
2017	276	150	126
2018	276	143	133
2019	276	135	141
2020	276	127	149
2021	2,208	40	2,168

On December 15, 2016, San Jose Water Company entered into a loan agreement with the California Pollution Control Financing Authority (“CPCFA”). The CPCFA had simultaneously entered into an indenture with The Bank of New York Mellon Trust Company, N.A. as trustee pursuant to which the CPCFA issued $70,000 in aggregate principal of its 4.75% fixed rate revenue bonds. The CPCFA loaned the proceeds of the bond issuance to San Jose Water Company pursuant to the loan agreement. The terms of the revenue bonds provide for interest only payments until maturity, which is November 1, 2046. As of December 31, 2016, $19,001in loan proceeds were being held as restricted cash by the trustee for the revenue bonds until certain conditions were met. On January 10, 2017, the conditions were met and the trustee released the remaining loan proceeds to San Jose Water Company.

San Jose Water Company has obligations pursuant to loan agreements with the CPCFA totaling $120,000 in aggregate principal amounts of CPCFA revenue bonds outstanding as of December 31, 2016. The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements. As of December 31, 2016, San Jose Water Company was in compliance with all such covenants.

San Jose Water Company had two loans from the SDWSRF at a rate of 2.39% and 2.60%. The two loans were paid off in June 2016. There were no outstanding balances on the loans as of December 31, 2016. San Jose Water Company had issued standby letters of credit with a commercial bank in the amount of $3,000 in support of these loans. The letters of credit were automatically renewed for one year each December unless the issuing bank elected not to renew it. The letters of credit were terminated in conjunction with the payoff of the SDWSRF loans.

The fair value of long-term debt as of December 31, 2016 and 2015 was approximately $502,446 and $500,035, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the Company. The fair value of long-term debt would be categorized as Level 2 of the fair value hierarchy.