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Debt and Financing Arrangements | 12 Months Ended
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Dec. 31, 2015
Debt and Financing Arrangements | Note 5: Debt and Financing Arrangements The Company funds a portion of its operations through the issuance of long-term debt and through short-term borrowings under its revolving Credit Facility. The Company’s subsidiaries conduct a portion of their operations in leased facilities and also lease some of their machinery, vehicles and office equipment. Details regarding long-term debt, short-term debt and leases follow: Long-Term Debt and Interest Expense Long-Term Debt Structure and Covenants—The agreements under which the long-term debt of Unitil and its utility subsidiaries, Unitil Energy, Fitchburg, Northern Utilities, and Granite State, were issued contain various covenants and restrictions. These agreements do not contain any covenants or restrictions pertaining to the maintenance of financial ratios or the issuance of short-term debt. These agreements do contain covenants relating to, among other things, the issuance of additional long-term debt, cross-default provisions and business combinations, as described below. The long-term debt of Unitil is issued under Unsecured Promissory Notes with negative pledge provisions. The long-term debt’s negative pledge provisions contain restrictions which, among other things, limit the incursion of additional long-term debt. Accordingly, in order for Unitil to issue new long-term debt, the covenants of the existing long-term agreement(s) must be satisfied, including that Unitil have total funded indebtedness less than 70% of total capitalization, and earnings available for interest equal to at least two times the interest charges for funded indebtedness. Each future senior long-term debt issuance of Unitil will rank pari passu with all other senior unsecured long-term debt issuances. The Unitil long-term debt agreement requires that if Unitil defaults on any other future long-term debt agreement(s), it would constitute a default under its present long-term debt agreement. Furthermore, the default provisions are triggered by the defaults of Unitil Energy and Fitchburg or certain other actions against Unitil subsidiaries. Substantially all of the property of Unitil Energy is subject to liens of indenture under which First Mortgage Bonds (FMB) have been issued. In order to issue new FMB, the customary covenants of the existing Unitil Energy Indenture Agreement must be met; including that Unitil Energy have sufficient available net bondable plant to issue the securities and earnings available for interest charges equal to at least two times the annual interest requirement. The Unitil Energy agreements further require that if Unitil Energy defaults on any Unitil Energy FMB, it would constitute a default for all Unitil Energy FMB. The Unitil Energy default provisions are not triggered by the actions or defaults of Unitil or its other subsidiaries. All of the long-term debt of Fitchburg, Northern Utilities and Granite State are issued under Unsecured Promissory Notes with negative pledge provisions. Each issue of long-term debt ranks pari passu with its other senior unsecured long-term debt within that subsidiary. The long-term debt’s negative pledge provisions contain restrictions which, among other things, limit the incursion of additional long-term debt. Accordingly, in order for Fitchburg, Northern Utilities or Granite State to issue new long-term debt, the covenants of the existing long-term agreements of that subsidiary must be satisfied, including that the subsidiary have total funded indebtedness less than 65% of total capitalization. Additionally, to issue new long-term debt, Fitchburg must maintain earnings available for interest equal to at least two times the interest charges for funded indebtedness. As with the Unitil Energy agreements, the Fitchburg, Northern Utilities and Granite State long-term debt agreements each require that if that subsidiary defaults on any of its own long-term debt agreements, it would constitute a default under all of that subsidiary’s long-term debt agreements. None of the Fitchburg, Northern Utilities and Granite State default provisions are triggered by the actions or defaults of Unitil or any of its other subsidiaries. The Unitil, Unitil Energy, Fitchburg, Northern Utilities and Granite State long-term debt instruments and agreements contain covenants restricting the ability of each company to incur liens and to enter into sale and leaseback transactions, and restricting the ability of each company to consolidate with, to merge with or into, or to sell or otherwise dispose of all or substantially all of its assets. The Granite State notes are guaranteed by Unitil for the payment of principal, interest and other amounts payable. This guarantee will terminate if Granite State is reorganized and merges with and into Northern Utilities. Unitil Energy, Fitchburg, Northern Utilities and Granite State pay common dividends to their sole common shareholder, Unitil Corporation and these common dividends are the primary source of cash for the payment of dividends to Unitil’s common shareholders. The long-term debt issued by the Company and its subsidiaries contains certain covenants that determine the amount that the Company and each of these subsidiary companies has available to pay for dividends. As of December 31, 2015, in accordance with the covenants, these subsidiary companies had a combined amount of $163.1 million available for the payment of dividends and Unitil Corporation had $194.6 million available for the payment of dividends. As of December 31, 2015, the Company’s balance in Retained Earnings was $45.1 million. Therefore, there were no restrictions on the Company’s Retained Earnings at December 31, 2015 for the payment of dividends. Issuance of Long-Term Debt—On October 15, 2014, Northern Utilities completed a private placement of $50 million aggregate principal amount of 4.42% Senior Unsecured Notes due October 15, 2044 to institutional investors. The proceeds from the offering were used to repay short-term debt and for general corporate purposes. Debt Repayment—The total aggregate amount of debt repayments relating to bond issues and normal scheduled long-term debt repayments amounted to $7.4 million, $4.4 million, and $0.5 million in 2015, 2014, and 2013, respectively. The aggregate amount of bond repayment requirements and normal scheduled long-term debt repayments for each of the five years following 2015 is: 2016 – $17.4 million; 2017 – $17.2 million; 2018 – $30.1 million; 2019 – $18.8 million; 2020 – $19.8 million and thereafter $222.2 million. Fair Value of Long-Term Debt—Currently, the Company believes that there is no active market in the Company’s debt securities, which have all been sold through private placements. If there were an active market for the Company’s debt securities, the fair value of the Company’s long-term debt would be estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the Company’s long-term debt is estimated using Level 2 inputs (valuations based on quoted prices available in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are directly observable, and inputs derived principally from market data.) In estimating the fair value of the Company’s long-term debt, the assumed market yield reflects the Moody’s Baa Utility Bond Average Yield. Costs, including prepayment costs, associated with the early settlement of long-term debt are not taken into consideration in determining fair value.
Estimated Fair Value of Long-Term Debt (millions) |  | December 31, |
|  | 2015 |  |  | 2014 |
Estimated Fair Value of Long-Term Debt |  | $ | 345.2 |  |  | $ | 380.6 |
Details on long-term debt at December 31, 2015 and 2014 are shown below:
Long-Term Debt (millions) |  | December 31, |
| 2015 |  |  | 2014 |
Unitil Corporation Senior Notes: |  |  |  |  |  |  |  |
6.33% Notes, Due May 1, 2022 |  | $ | 20.0 |  |  | $ | 20.0 |
Unitil Energy First Mortgage Bonds: |  |  |  |  |  |  |  |
5.24% Series, Due March 2, 2020 |  |  | 15.0 |  |  |  | 15.0 |
8.49% Series, Due October 14, 2024 |  |  | 12.0 |  |  |  | 15.0 |
6.96% Series, Due September 1, 2028 |  |  | 20.0 |  |  |  | 20.0 |
8.00% Series, Due May 1, 2031 |  |  | 15.0 |  |  |  | 15.0 |
6.32% Series, Due September 15, 2036 |  |  | 15.0 |  |  |  | 15.0 |
Fitchburg Long-Term Notes: |  |  |  |  |  |  |  |
6.75% Notes, Due November 30, 2023 |  |  | 11.4 |  |  |  | 15.2 |
7.37% Notes, Due January 15, 2029 |  |  | 12.0 |  |  |  | 12.0 |
7.98% Notes, Due June 1, 2031 |  |  | 14.0 |  |  |  | 14.0 |
6.79% Notes, Due October 15, 2025 |  |  | 10.0 |  |  |  | 10.0 |
5.90% Notes, Due December 15, 2030 |  |  | 15.0 |  |  |  | 15.0 |
Northern Utilities Senior Notes: |  |  |  |  |  |  |  |
6.95% Senior Notes, Series A, Due December 3, 2018 |  |  | 30.0 |  |  |  | 30.0 |
5.29% Senior Notes, Due March 2, 2020 |  |  | 25.0 |  |  |  | 25.0 |
7.72% Senior Notes, Series B, Due December 3, 2038 |  |  | 50.0 |  |  |  | 50.0 |
4.42% Senior Notes, Due October 15, 2044 |  |  | 50.0 |  |  |  | 50.0 |
Granite State Senior Notes: |  |  |  |  |  |  |  |
7.15% Senior Notes, Due December 15, 2018 |  |  | 10.0 |  |  |  | 10.0 |
Unitil Realty Corp. Senior Secured Notes: |  |  |  |  |  |  |  |
8.00% Notes, Due August 1, 2017 |  |  | 1.1 |  |  |  | 1.7 |
Total Long-Term Debt |  |  | 325.5 |  |  |  | 332.9 |
Less: Current Portion |  |  | 17.4 |  |  |  | 4.0 |
Total Long-Term Debt, Less Current Portion |  | $ | 308.1 |  |  | $ | 328.9 |
Interest Expense, net—Interest expense is presented in the financial statements net of interest income. Interest expense is mainly comprised of interest on long-term debt and short-term borrowings. In addition, certain reconciling rate mechanisms used by the Company’s distribution operating utilities give rise to regulatory assets (and regulatory liabilities) on which interest is calculated. Unitil’s utility subsidiaries operate a number of reconciling rate mechanisms to recover specifically identified costs on a pass-through basis. These reconciling rate mechanisms track costs and revenue on a monthly basis. In any given month, this monthly tracking and reconciling process will produce either an under-collected or an over-collected balance of costs. In accordance with the distribution utilities’ rate tariffs, interest is accrued on these balances and will produce either interest income or interest expense. Consistent with regulatory precedent, interest income is recorded on an under-collection of costs, which creates a regulatory asset to be recovered in future periods when rates are reset. Interest expense is recorded on an over-collection of costs, which creates a regulatory liability to be refunded in future periods when rates are reset. A summary of interest expense and interest income is provided in the following table:
Interest Expense, net (millions) |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Interest Expense |  |  |  |  |  |  |  |  |  |  |  |
Long-Term Debt |  | $ | 22.0 |  |  | $ | 20.5 |  |  | $ | 20.2 |
Short-Term Debt |  |  | 0.9 |  |  |  | 1.1 |  |  |  | 1.2 |
Regulatory Liabilities |  |  | 0.9 |  |  |  | 0.6 |  |  |  | 0.6 |
Subtotal Interest Expense |  |  | 23.8 |  |  |  | 22.2 |  |  |  | 22.0 |
Interest Income |  |  |  |  |  |  |  |  |  |  |  |
Regulatory Assets |  |  | (0.7 | ) |  |  | (0.6 | ) |  |  | (2.3 | )
AFUDC(1) and Other |  |  | (1.2 | ) |  |  | (0.7 | ) |  |  | (0.9 | )
Subtotal Interest Income |  |  | (1.9 | ) |  |  | (1.3 | ) |  |  | (3.2 | )
Total Interest Expense, net |  | $ | 21.9 |  |  | $ | 20.9 |  |  | $ | 18.8 |
| (1) | AFUDC—Allowance for Funds Used During Construction
Credit Arrangements On October 4, 2013, the Company entered into an Amended and Restated Credit Agreement (the “Credit Facility”) with a syndicate of lenders which amended and restated in its entirety the Company’s prior credit agreement, dated as of November 26, 2008, as amended. The Credit Facility extends to October 4, 2018 and provides for a new borrowing limit of $120 million which includes a $25 million sublimit for the issuance of standby letters of credit. The Credit Facility provides Unitil with the ability to elect that borrowings under the Credit Facility bear interest under several options, including at a daily fluctuating rate of interest per annum equal to one-month London Interbank Offered Rate plus 1.375%. Provided there is no event of default under the Credit Facility, the Company may on a one-time basis request an increase in the aggregate commitments under the Credit Facility by an aggregate additional amount of up to $30 million. On July 24, 2015, the Company entered into the First Amendment to the Credit Facility. The First Amendment provides for an extension of the scheduled termination date to October 4, 2020, reduces the daily fluctuating rate of interest per annum equal to one-month LIBOR plus 1.25%, and reduces other customary credit facility fees. All other terms and conditions of the Credit Facility, including affirmative and negative covenants, remain substantially unchanged. The Company utilizes the credit facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $140.3 million and $179.4 million for the years ended December 31, 2015 and December 31, 2014, respectively. Total gross repayments were $127.6 million and $210.3 million for the years ended December 31, 2015 and December 31, 2014, respectively. The following table details the borrowing limits, amounts outstanding and amounts available under the revolving Credit Facility as of December 31, 2015 and December 31, 2014:
Revolving Credit Facility (millions) |
|  | December 31, |
|  | 2015 |  |  | 2014 |
Limit |  | $ | 120.0 |  |  | $ | 120.0 |
Outstanding |  | $ | 42.0 |  |  | $ | 29.3 |
Available |  | $ | 78.0 |  |  | $ | 90.7 |
The Credit Facility contains customary terms and conditions for credit facilities of this type, including affirmative and negative covenants. There are restrictions on, among other things, Unitil’s and its subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on Unitil’s ability to merge or consolidate with another entity or change its line of business. The affirmative and negative covenants under the Credit Facility shall apply to Unitil until the Credit Facility terminates and all amounts borrowed under the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized). The only financial covenant in the Credit Facility provides that Unitil’s Funded Debt to Capitalization (as each term is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At December 31, 2015 and December 31, 2014, the Company was in compliance with the covenants contained in the Credit Facility in effect on that date. (See also “Credit Arrangements” in Note 5.) The weighted average interest rates on all short-term borrowings were 1.5%, 1.6%, and 1.8% during 2015, 2014, and 2013, respectively. Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, and Northern Utilities are currently rated “BBB+” by Standard & Poor’s Ratings Services. In April 2014, Unitil Service Corp. entered into a financing arrangement for various information systems and technology equipment. The financing arrangement is structured as a capital lease obligation. Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of $13.4 million. The capital lease matures on September 30, 2020. As of December 31, 2015, there are $2.6 million of current and $10.4 million of noncurrent obligations under this capital lease on the Company’s Consolidated Balance Sheets. Northern Utilities enters into asset management agreements under which Northern Utilities releases certain natural gas pipeline and storage assets, resells the natural gas storage inventory to an asset manager and subsequently repurchases the inventory over the course of the natural gas heating season at the same price at which it sold the natural gas inventory to the asset manager. There was $10.8 million and $15.1 million of natural gas storage inventory at December 31, 2015 and 2014, respectively, related to these asset management agreements. The amount of natural gas inventory released in December 2015, which was payable in January 2016, was $0.6 million and recorded in Accounts Payable at December 31, 2015. The amount of natural gas inventory released in December 2014, which was payable in January 2015, was $1.0 million and recorded in Accounts Payable at December 31, 2014. Leases Unitil’s subsidiaries conduct a portion of their operations in leased facilities and also lease some of their vehicles, machinery and office equipment under both capital and operating lease arrangements. Total rental expense under operating leases charged to operations for the years ended December 31, 2015, 2014 and 2013 amounted to $1.7 million, $1.3 million and $1.2 million respectively. Assets under capital leases amounted to approximately $15.3 million and $9.7 million as of December 31, 2015 and 2014, respectively, less accumulated amortization of $0.8 million and $0.8 million, respectively and are included in Net Utility Plant on the Company’s Consolidated Balance Sheets. The following table is a schedule of future operating lease payment obligations and future minimum lease payments under capital leases as of December 31, 2015. The payments for capital leases consist of $3.1 million of current Capital Lease Obligations and $11.0 million of noncurrent Capital Lease Obligations on the Company’s Consolidated Balance Sheets as of December 31, 2015. $2.6 million of the current Capital Lease Obligations and $10.4 million of the noncurrent Capital Lease Obligations reflect amounts under a financing arrangement entered into in April 2014 for various information systems and technology equipment. The financing arrangement is structured as a capital lease obligation.
Year Ending December 31, (000’s) |  | Operating Leases |  |  | Capital Leases |
2016 |  | $ | 1,326 |  |  | $ | 3,060 |
2017 |  |  | 1,048 |  |  |  | 2,937 |
2018 |  |  | 698 |  |  |  | 2,891 |
2019 |  |  | 355 |  |  |  | 2,851 |
2020 |  |  | 180 |  |  |  | 2,357 |
2021 – 2025 |  |  | 125 |  |  |  | — |
Total Payments |  | $ | 3,732 |  |  | $ | 14,096 |
Guarantees The Company provides limited guarantees on certain energy and natural gas storage management contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these guarantees. As of December 31, 2015, there were approximately $19.3 million of guarantees outstanding and the longest term guarantee extends through August 2016. The Company also guarantees the payment of principal, interest and other amounts payable on the notes issued by Unitil Realty and Granite State. As of December 31, 2015, the principal amount outstanding for the 8% Unitil Realty notes was $1.1 million, and the principal amount outstanding for the 7.15% Granite State notes was $10.0 million.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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