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DEBT AND FINANCING ARRANGEMENTS

9 Months Ended

Sep. 30, 2020

NOTE 4 –DEBT AND FINANCING ARRANGEMENTS

Details on long-term debt at September 30, 2020, September 30, 2019 and December 31, 2019 are shown below:


($ millions)	September 30,				December 31,
	2020		2019		2019
Unitil Corporation:
6.33% Senior Notes, Due May 1, 2022	$	20.0	$	20.0	$	20.0
3.70% Senior Notes, Due August 1, 2026		30.0		30.0		30.0
3.43% Senior Notes, Due December 18, 2029		30.0		—		30.0
Unitil Energy First Mortgage Bonds:
5.24% Senior Secured Notes, Due March 2, 2020		—		5.0		5.0
8.49% Senior Secured Notes, Due October 14, 2024		4.5		6.0		4.5
6.96% Senior Secured Notes, Due September 1, 2028		16.0		18.0		18.0
8.00% Senior Secured Notes, Due May 1, 2031		15.0		15.0		15.0
6.32% Senior Secured Notes, Due September 15, 2036		15.0		15.0		15.0
3.58% Senior Secured Notes, Due September 15, 2040		27.5		—		—
4.18% Senior Secured Notes, Due November 30, 2048		30.0		30.0		30.0
Fitchburg:
6.75% Senior Notes, Due November 30, 2023		3.8		5.7		3.8
6.79% Senior Notes, Due October 15, 2025		10.0		10.0		10.0
3.52% Senior Notes, Due November 1, 2027		10.0		10.0		10.0
7.37% Senior Notes, Due January 15, 2029		10.8		12.0		12.0
5.90% Senior Notes, Due December 15, 2030		15.0		15.0		15.0
7.98% Senior Notes, Due J une 1, 2031		14.0		14.0		14.0
3.78% Senior Notes, Due September 15, 2040		27.5		—		—
4.32% Senior Notes, Due November 1, 2047		15.0		15.0		15.0
Northern Utilities:
5.29% Senior Notes, Due March 2, 2020		—		8.2		8.2
3.52% Senior Notes, Due November 1, 2027		20.0		20.0		20.0
7.72% Senior Notes, Due December 3, 2038		50.0		50.0		50.0
3.78% Senior Notes, Due September 15, 2040		40.0		—		—
4.42% Senior Notes, Due October 15, 2044		50.0		50.0		50.0
4.32% Senior Notes, Due November 1, 2047		30.0		30.0		30.0
4.04% Senior Notes, Due September 12, 2049		40.0		40.0		40.0
Granite State:
3.72% Senior Notes, Due November 1, 2027		15.0		15.0		15.0

Total Long-Term Debt		539.1		433.9		460.5
Less: Unamortized Debt Issuance Costs		3.8		3.5		3.5

Total Long-Term Debt, net of Unamortized Debt Issuance Costs		535.3		430.4		457.0
Less: Current Portion		6.3		19.5		19.5

Total Long-term Debt, Less Current Portion	$	529.0	$	410.9	$	437.5

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.


($ millions)	September 30,				December 31,
	2020		2019		2019
Estimated Fair Value of Long-Term Debt	$	631.7	$	495.1	$	518.7

On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement and related documents (collectively, the “Credit Facility”) with a syndicate of lenders, which amended and restated in its entirety the Company’s prior credit facility. The Credit Facility extends to July 25, 2023, subject to two

one-year

extensions under certain circumstances, and has a borrowing limit of $120 million, which includes a $25 million sublimit for the issuance of standby letters of credit. The Credit Facility provides the Company 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 1.125%. The Company may increase the borrowing limit under the Credit Facility by up to $50 million under certain circumstances.

The Company utilizes the Credit Facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $186.0 million for the nine months ended September 30, 2020. Total gross repayments were $227.3 million for the nine months ended September 30, 2020.

The following table details the borrowing limits, amounts outstanding and amounts available under the Credit Facility as of September 30 2020, September 30, 2019 and December 31, 2019:


	Revolving Credit Facility ($ millions)
	September 30,				December 31,
	2020		2019		2019
Limit	$	120.0	$	120.0	$	120.0
Short-Term Borrowings Outstanding		17.3		49.2		58.6
Letter of Credit Outstanding		0.1		0.1		0.1

Available	$	102.6	$	70.7	$	61.3

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, the Company’s and its subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on the Company’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 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 Funded Debt to Capitalization (as each term is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At September 30, 2020, September 30, 2019 and December 31, 2019, the Company was in compliance with the covenants contained in the Credit Facility in effect on that date.

The average interest rates on all short-term borrowings and intercompany money pool transactions were 1.3% and 3.4% for the three months ended September 30, 2020 and September 30, 2019, respectively. The average interest rates on all short-term borrowings and intercompany money pool transactions were 1.8% and 3.6% for the nine months ended September 30, 2020 and September 30, 2019, respectively. The average interest rate on all short-term borrowings for the twelve months ended December 31, 2019 was 3.4%.

As discussed previously, the Company divested of its

non-regulated

subsidiary business, Usource, in the first quarter of 2019. The Company used the net proceeds of $9.8 million from this divestiture for general corporate purposes.

On September 15, 2020, Northern Utilities issued $40 million of Notes due 2040 at 3.78%. Fitchburg issued $27.5 million of Notes due 2040 at 3.78%. Unitil Energy issued $27.5 million of Bonds due 2040 at 3.58%. Northern Utilities, Fitchburg and Unitil Energy used the net proceeds from these offerings to repay short-term debt and for general corporate purposes. Approximately $0.5 million of costs associated with these issuances have been netted against Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.

On December 18, 2019, Unitil Corporation issued $30 million of Notes due 2029 at 3.43%. Unitil Corporation used the net proceeds from this offering to repay short-term debt and for general corporate purposes. Approximately $0.2 million of costs associated with these issuances have been netted against Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.

On September 12, 2019, Northern Utilities issued $40 million of Notes due 2049 at 4.04%. Northern Utilities used the net proceeds from this offering to repay short-term debt and for general corporate purposes. Approximately $0.2 million of costs associated with these issuances have been netted against Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.

In April 2014, Unitil Service Corp. entered into a financing arrangement, structured as a capital lease obligation, for various information systems and technology equipment. Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of $13.4 million. This capital lease was paid off in the second quarter of 2019.

Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, Northern Utilities, and Granite State are currently rated “BBB+” by Standard & Poor’s Ratings Services. Unitil Corporation and Granite State are currently rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated “Baa1” by Moody’s Investors Services.

Northern Utilities enters into asset management agreements under which Northern Utilities releases certain gas pipeline and storage assets, resells the gas storage inventory to an asset manager and subsequently repurchases the inventory over the course of the gas heating season at the same price at which it sold the gas inventory to the asset manager. There was $6.0 million, $8.1 million and $6.5 million of gas storage inventory at September 30, 2020, September 30, 2019 and December 31, 2019, respectively, related to these asset management agreements. The amount of gas inventory released in September 2020 and payable in October 2020 is less than $0.1 million and is recorded in Accounts Payable at September 30, 2020. The amount of gas inventory released in September 2019 and payable in October 2019 was $0.1 million and was recorded in Accounts Payable at September 30, 2019. The amount of gas inventory released in December 2019 and payable in January 2020 was $1.0 million and was recorded in Accounts Payable at December 31, 2019.

Guarantees

The Company provides limited guarantees on certain energy and gas storage management contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these guarantees. As of September 30, 2020, there were approximately $6.2 million of guarantees outstanding.

Leases

Unitil’s subsidiaries 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 three months ended September 30, 2020 and 2019 amounted to $0.5 million and $0.4 million, respectively. Total rental expense under operating leases charged to operations for the nine months ended September 30, 2020 and 2019 amounted to $1.4 million and $1.1 million, respectively.

The balance sheet classification of the Company’s lease obligations was as follows:


	September 30,				December 31,
Lease Obligations ($ millions)	2020		2019		2019
Operating Lease Obligations:
Other Current Liabilities (current portion)	$	1.6	$	1.2	$	1.2
Other Noncurrent Liabilities (long-term portion)		4.0		3.0		2.8

Total Operating Lease Obligations	$	5.6	$	4.2	$	4.0

Capital Lease Obligations:
Other Current Liabilities (current portion)	$	0.2	$	0.3	$	0.2
Other Noncurrent Liabilities (long-term portion)		0.3		0.3		0.3

Total Capital Lease Obligations	$	0.5	$	0.6	$	0.5

Total Lease Obligations	$	6.1	$	4.8	$	4.5

Cash paid for amounts included in the measurement of operating lease obligations for the nine months ended September 30, 2020 was $1.4 million and was included in Cash Provided by Operating Activities on the Consolidated Statements of Cash Flows.

Assets under capital leases amounted to approximately $1.1 million, $1.3 million and $1.2 million as of September 30, 2020, September 30, 2019 and December 31, 2019, respectively, less accumulated amortization of $0.6 million, $0.6 million and $0.6 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 September 30, 2020. The payments for capital leases consist of $0.2 million of current capital lease obligations, which are included in Other Current Liabilities and $0.3 million of noncurrent capital lease obligations, which are included in Other Noncurrent Liabilities, on the Company’s Consolidated Balance Sheets as of September 30, 2020.

The payments for operating leases consist of $1.6 million of current operating lease obligations, which are included in Other Current Liabilities and $4.0 million of noncurrent operating lease obligations, which are included in Other Noncurrent Liabilities, on the Company’s Consolidated Balance Sheets as of September 30, 2020.


Lease Payments ($000’s) Year Ending December 31,	Operating Leases		Capital Leases
Rest of 2020	$	462	$	66
2021		1,746		193
2022		1,468		130
2023		1,172		88
2024		842		33
2025-2029		425		—

Total Payments		6,115		510

Less: Interest		504		25

Amount of Lease Obligations Recorded on Consolidated Balance Sheets	$	5,611	$	485

Operating lease obligations are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used the interest rate stated in each lease agreement. As of September 30, 2020, the weighted average remaining lease term is four years and the weighted average operating discount rate used to determine the operating lease obligations was 4.4%.