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Id M Sullivan
. ASC T Mountjoy
Frank Stainback
James M Miller
Michael A Fiorella
Allen W. Holbroot
R Michael Sullivan
Brynn 11 Reynolds
Tysun A Kamuf
Mark W Starnes
C Ellsworth Mountjoy
Susan Montalvo-Cesser
Mary L Moorhouse
SLJL.LIVAN, M O U N T J O Y . STAINBACK & M I L L E R P S C
A T T O R N E Y S AT L A W
April 23, 2012
Federal Express
Jeff DeRouen Executive Director Public Service Commission 211 Sower Boulevard, P.O. Box 615 Frankfort, Kentucky 40602-06 15
PUBLIC SERV ~ Z COIVIMISSIGi G
RE: In the Matter ofl Application of Big Rivers Electric Corporation for Approval to Issue Evidences of Indebtedness, P.S.C. Case No. 2012- 00119
Dear Mr. DeRouen:
Enclosed for filing on behalf of Rig Rivers Electric Corporation (“Big Rivers”) are an original and ten copies of Big Rivers’ responses to (i) the Commission Staffs First Information Request dated April 11, 2012, and (ii) Kentucky Industrial Utility Customers, Inc.’s First Set of Data Requests dated April 11, 2012 (The “KIUC Data Requests”). Also enclosed are an original and ten copies of a motion for deviation. A copy of this letter, a copy of Big Rivers’ responses to the Commission Staffs First Request for Information and the KITJC First Data Requests, and a copy of the motion for a deviation have been served on each of the persons shown on the attached service list.
Big Rivers further encloses a petition seeking confidential treatment pursuant to 807 KAW 5:001, Section 7 for certain material filed in response to the KIUC Data Requests. I certify that a copy of the petition and the material, with only those portions for which confidential treatment is sought obscured, has been served on all parties.
Please contact me with any questions you may have about this filing.
Sincerely yours, e
James M. Miller
JMM/ej Enclosures
Telephone (270) 926-4000
Telecopier (270) 683-6691 cc: Mark A. Hite
Albert Yockey Iuu St Ann Building
PO Box 727
Owensboro, I(entucliy
42102-0727
SERVICE LJST BIG RIVERS ELECTRIC CORPORATION
PSC CASE NO. 2012-001 19
Michael L,. Kui-tz, Esq. Kurt J. Boehm, Esq. Boehm, Kurtz & Lowry 36 East Seventh Street Suite 1.5 10 Cincinnati, OH 4.5202
Counsel for Kentucky Industrial Utility Customers, Inc.
RIG RIVERS ELECTRIC CORPORATION
APPLICATION OF EIG RIVERS ELECTRIC CORPORATION FOR APPROVAL, TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
VERIFICATION
I, Mark A. Hite, verify, state, and affirm that I prepared or supervised the preparation of the data responses filed with this Verification, and that those data responses are true and accurate to the best of my knowledge, information, and belief formed after a reasonable inquiry.
COMMONWEALTH OF KENTUCKY ) COTJNTY OF HENDERSON )
SLJBSCRIRED AND SWORN TO before me by Mark A. Hite on this the L&ay of April, 2012.
Notary Public, Ky. State at Large My Conirnissioii Expires / 4 [ 2 -1 .?
Application of Big Rivers Electric Corporation for to Issue Evidences of Indebtedness
Case No. 2012-00119 Electronic File in Response to
PSC'S Initial Request for information
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
1 CASE NO. 2012-00119
Response to Commission Staff's Initial Request for Information dated April 11,2012
April 23,2012
Information filed on CD accompanying responses
PSC 1-14 - Exhibits E F G €3 and I plus Revised Exhibit A (PSC 1-10)
ELECTRIC C O R P O RAT1 0 N
Your Touchstone Energy” Cooperative .-==---
COMMONWEALTH OF KENTUCKY
BEFORE THE PUBLIC SERVICE COMMISSION OF KENTUCKY
In the Matter of:
APPLICATION OF BIG RIVERS ELECTRIC ) Case No. CORPORATION FOR APPROVAL TO ISSUE ) 2012-oo119 EVIDENCES OF INDEBTEDNESS 1
Respanse to Commission Staffs Initial Request for Information
dated April 11,2012
FILED: April 23,2012
BIG RIVERS ELECTRIC CORPORATION
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSIJE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for Information
Dated April 11,2012
April 23,2012
Refer to the application, page 5, paragraph 13 (ii), wlticlt states that “$60
2
3
4 5 Response)
6
7 8 9 environmental compliance plan.
ntiIIiorz will be used for capital expeitditures, in the ordinary course of busiitess. ” Provide
Rig Rivers’ thee or five year capital expenditures forecast.
Please see the Capital Expenditures Budgets for 20 12 through 20 1 5 attached
hereto. These Capital Expenditures Budgets do not include capital projects associated with Big
Rivers’ 20 12 environmental coinpliance plan, and Big Rivers does not plan to use any portion
of the $60,000,000 as the permanent source of financing for the capital projects in the 2012
10
11 12 Witness) Mark A. Hite
13
Case No. 2012-00119 Response to PSC 1-1
Witness: Mark A. Hite Page 1 of 1
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3
BIG RIVERS ELECTRIC CORPORATION
1
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22 23 24
25
APPLJCATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for Information
ated April 11,2012
April 23,2012
Item 2) million will be used to replenish tlte Transition Reserve, that was prepaid on tlte R I X Note on April 1, 2011. ” Also on page 5, paragraph 14 states that “Big Rivers will pay $140
million of tlte proposed CoBank Term Loan, $302 million of tlte proposed CF’C Term Loan, plus tlte $35 million RUS Note prepaid status that resulted from the April 1,2011, payment of tlie Transition Reserve to reduce tlte Maximum Debt Balance on the RUS Note by $477
million on the closing date, from $561,603,000 to $84,603,000.” Explaiit wltetlter the $35 million will be used to replenislt tlte Transition Reserve account or to reduce tlte balance of tlte 5.75 percent Rural Utilities Services rRUS’7 Note dated July 16, 2009 (“RUS Note’?.
Refer to Rig Rivers’ application, page 5, paragraph 13.(iiO, wliiclt states, “$35
Response) proceeds from the CoBank Term Loan will be used to replenish the Transition Reserve. The
confusion created by the quoted language is probably best cured by drawing a clearer
distinction between the principal balance on the RTJS Note, and the Allowed Balance as shown
on the RIJS Maximum Debt Balance Schedule that is attached to the RTJS Note.
At the closing of the proposed financing transactions, $35,000,000 of the
At tlie same time, the $35,000,000 prepayment on the principal of the RUS Note
will remain unchanged, and an additional $442,000,000 will be paid on the principal of the
RTJS Note. The principal balance of the RTJS Note will then be $84,603,000.
At the closing, the current RTJS Maxiinuni Debt Balance Schedule on the RTJS Note will he replaced with a revised schedule. On the revised schedule, the Allowed Balance
will be $84,603,000, which will be the same as the principal balance on the RTJS Note. At this
point the $35,000,000 prepayment on the RUS Note becomes permanent, because Big Rivers
cannot “claw it back” without causing the principal balance on the RUS Note to exceed the
new Allowed Balance. The summary below provides additional clarity.
Case No. 2012-00119 Response to PSC 1-2
Witness: Mark A. Wite Page 1 of 2
BIG RIVERS ELECTRIC CORPORATION
Outstanding Maximum Debt Prepaid Status Balance .- -- Balance
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staffs Initial Request for Information
Dated April 11,2012
April 23,2012
Reduction ($442,000,000) ($477,000,000) ($3S,000,000) Post-Closing $84,603,000 $84,603,000 0
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Case No. 2012-00119 Response to PSC 1-2
Witness: Mark A. Hite Page 2 of 2
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF RIG RIVERS ELECTRIC CORPORATION FOR APPROVAL, TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for Information
ated ApriP 11,2012
April 23,2012
Item 3) Refer to tlte application, page 5, paragraph 14.
a. Paragraph 14 states that tite Maximum Debt Balance on tite RUS Note will be reduced bj7 $477 million on tiie closing date, from $561,603,000 to $84,603,00O.Page 12 of the Testimony of Mark A. Hite (‘%lite Testimony ’y, lines 12 through 15, states that “w]e estimate titat tite outstanding balance on the RUS Note just prior to the proposedfinancing transactions closing date of June 29,2012, will be $526,603,000. ” Explain tiie difference between tite $561,603,000 RUS Note balance mentioned in paragraph I 4 and the $526,603,000 balance referenced in tlte Hite Testimony.
6. Starting at line 19, paragraph 14 states that “...the present value benefit resulting from these transactions, discounted at 5.75 percent, is estimated at $28,559,298. ” The discount rate of 5.7Spercent equals tite interest rate on tite current RUS Note. Explain how it was determined that tite 5.75 percent was reasonable for use in tiie net present value calculation.
Response)
a. Please see the response to Item PSC 1-2 above.
b. Big Rivers generally uses 5.75% as a discount rate when evaluating
economic options involving cash because that has historically been Rig
Rivers’ opportunity cost given that Rig Rivers has the option to use excess
cash to prepay the RTJS Series A Note. If Rig Rivers has excess cash and
deploys it in some manner other than prepaying the RTJS Series A Note, Big
Rivers is foregoing a 5.75% interest expense savings.
Case No. 2012-00119 Response to PSC 1-3
Witness: Mark A. Rite Page 1 of 2
BIG RIVERS ELECTRIC CORPORATION
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff's Initial Request for Information
Dated April 11,2012
April 23,2012
1
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Case No. 2012-00119 Response to PSC 1-3
Witness: Mark A. Hite Page 2 of 2
BIG RIVERS ELECTRIC CORPORATION
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APPLJICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL, TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE, NO. 2012-001 19
Response to Commission Staff’s Initial Request for Information
ated April 11,2012
April 23,2012
Item 4) transactions described in tlte application, Big Rivers ’ liabilities will increase bj? a total
amount of $103,155,800, of wlticlt $60,000,000 is tlie amount to be used for capital expenditures in tlte ordinary course of business plus $43,155,800, rvlticlt is tlte amount to be used to finance tlie National Rural Utilities Cooperative Finance Corporation (“C9y
Capital Term Certificates. If no, explain.
Coitfirm that after June 29,2012, wlticlt is tlte proposed closing date for the
Response)
$139,38 1,389 calculated in either of the following ways:
The total increase in Big Rivers’ liabilities as of the closing will be
CoBank and CFC Term Loans RIJS Series A Note (GAM) CFC CTCs
$ 537,000,000 (440,774,411)
43,155,800 Increase in Liabilities $ 139,381,389
Transition Reserve $ 35,000,000
CFC CTCs 43,155,800 RUS Series A Note Difference (MAP vs. Stated) 1,225,589
Increase in Liabilities $ 139,381,389
Capital Expenditures 60,000,000
(442,000,000)
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14 Witness) Mark A. Hite
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Case No. 2012-00119 Response to PSC 1-4
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS EL,ECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Stafps Initial Request for Information
rated April 11,2012
April 23,2012
Item 5) the all-iiz effective interest rate on tlae new CoBank Term Loart is expected to be approximately 4.24percent. Also, on page 10, I i i m 18-1 9, Mr. Hite states that the all-in effective interest rate on tlie new CFC Secured Loan Agreement is expected to be approximately 4.76 percent.
Refer to tlie Mite Testimony, page 6, lines 15-1 6 wherein Mr. Hite states tliat
a. Explain wliy Big Rivers is not proposing to refinance the remaining $84,603,000 of tlte 5.75percent R I B Note dated July 16,2009.
6. Provide the calculation of tlie 4.24 percent CoBank Term Loan interest
mte. c. Provide tlie calculation of the 4.76 perceitt CFC Loan interest rate or state
Itow it can be calculated by using the amounts provided iii Exhibit H of the application.
Response) a. Each of the term loan amounts, $235,000,000 from CoBank and
$302,000,000 fioni CFC, proposed in this Financing Application represent
the maximum amount available froin these two lenders for the specified
purposes, at this time. While discussions with CoBank and CFC were fluid
and extended over several months, Big Rivers did seek to refinance the
entire $526,603,000 RUS Series A Note outstanding balance. In connection
with the CoBank term loan, Big Rivers’ ultimate decisions to (1) use
$35,000,000 thereof to replenish the Transition Reserve account at the
closing, and (2) to allow using $60,000,000 thereof for routine capital
expenditures, along with CoBank’s final offer of an additional $10,000,000
Case No. 2012-00119 Response to PSC 1-5
Witness: Mark A. Hite Page 1 of 4
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for Information
ated April 11,2012
April 23,2012
($235,000,000 vs. $225,000,000) due to excess syndicate commitment,
resulted in a remaining RUS Series A Note balance of $84,603,000.
b. The 4.24% estimated all-in effective rate on the CoBank term loan was
calculated by factoring in the effects of a $235,000,000 term loan, with 20-
year, level debt service, using an interest rate provided by CoBank. Also
included in the 4.24% calculation are the effects of the return of patronage
capital to Big Rivers and the closing fees payable to CoBank.
The level debt service calculation derives an approximately equal
total annual payment amount for all years of the loan. The determining
inputs for that calculation are: loan amount, term, and the interest rate. The
calculation takes those inputs and determines a uniform total annual
payment for all years. The amount of principal paid each year varies much
like a standard home mortgage loan.
Patronage capital retirements are calculated by multiplying the
CoBank-estimated effective cash patronage rate of 0.62% times each year’s
annual average principal balance outstanding.
Net cash flow is the basis for the 4.24% all-in CoBank rate. Net
annual cash flow is the aggregate of: project principal payment, project
interest, annual patronage capital retired, and the closing fees payable to
CoBaik. The all-in effective rate of 4.24% is an internal rate of return
(“IRR’) on the estimated annual cash flows spanning from the initial project
advance through the final patronage capital retirement. Also, please see Rig
Rivers’ response to PSC 1-14.
c. The 4.76% estimated all-in effective rate on the CFC term loan was
calculated by factoring in the effects of a $302,000,000 term loan, with 20-
year, level debt service, using recent CFC interest rates (serial note pricing).
Case No. 2012-00119 Response to PSC 1-5
Witness: Mark A. Wite Page 2 of 4
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff's Initial Request for I n ~ o ~ ~ a t i o ~
ated April 111,2
April 23,2012
Also included in the 4.76% calculation are the effects of a CFC Capital
Term Certificate (CTC) loan from CFC, the interest on that loan, the yield
earned on that equity investment in CFC, as well as the return of patronage
capital to Big Rivers.
The level debt service calculation derives an equal total annual
payment amount for all years of the loan. The determining inputs for the
calculation are: loan amount, term, and interest rates as of a certain point in
time. This calculation takes those inputs and determines a uniform total
annual payment for all years. The amount of principal paid each year varies
much like a standard home mortgage loan, understanding the nature of the
serial note pricing structure. Also note that the serial note pricing structure
results in accelerated principal retirement.
Patronage capital allocations are calculated according to CFC policy,
which currently requires an 8% retirement. CFC allocates 8% of annual
interest to be paid back to the borrower. CFC pays (retires) 50% of this total
immediately and allocates the remaining 50% for retirement 25 years after
the initial retirement.
CFC requires an equity certificate purchase of 14.29% of the total
project amount. In the instant case, the $302,000,000 project loan produces
an equity requirement, the purchase of CTCs, of $43,155,800. CFC
provides a separate loan to finance the purchase of the equity certificates.
The CTC loan amortizes at the exact rate of the project loan. Interest
charged for CTC loans is set by CFC and multiplied by the remaining
portion of the equity loan. CFC currently offers a CTC yield of 70%,
meaning that 70% of the interest charged for CTCs in a given year is paid
back to the borrower.
Case No. 2012-00119 Response to PSC 1-5
Witness: Mark A. Hite Page 3 of 4
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF RIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSIJE EVIDENCES OF INDEBTEDNESS
Response to Commission Staff3 Initial Request for In~ormatjo~
ated April 11,2012
April 23,2012
Net cash flow is the basis for the 4.76% all-in CFC rate. Net annual
cash flow is the aggregate of: project principal payment, project interest,
annual patronage capital retired, CTC interest, and CTC yield. The all-in
effective rate of 4.76% is an IRR on the estimated annual cash flows
spanning from the initial project advance through the final patronage capital
retirement. Also, please see Rig Rivers’ response to PSC 1-14.
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-5
Witness: Mark A. Hite Page 4 of 4
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff's Initial Request for Information
Dated April 11,2012
April 23,2012
Item 6) Provide a sclr edule sliowiizg tlie following:
a. A listing of both the existiitgfinanciiig and tlze proposedfinancing down the left side of the scliedule.
b. Iii the second column show tlte current balances of the existiitgfinanciitg iizstrumeiz ts.
c. In the third, fourth andfifth columns show the amounts of tlte proposed financing along with how the proposed funds will be used. For example, forth CoBarzk Term Loan column, $235 million, ($140) million used to reduce the RUS Note would be shown and tlte ($35) million used to repleiiisli tlte Transition Reserve would all be shown in column 3. Columns 4 and 5 would show the effects of tlze CoBank Revolver and tlie CFC Loan with column 5 showing the loan balances.
d. Include the effects of the interes f-bearing Capital Term Certificates from CFC aiid tlze CFC Equity Loarz in the amount of $43,155,800. Iiiclude the projected interest rate for the Capital Term Certificates.
e. Using the curreitt existing iiiterest rates along with the anticipated all-iit effective interest rates, show the difference in annual interest expense
before and after the proposed refinancing.
J: Show any net change iii Big Rivers' liabilities before and after the proposed refiiianciizg.
Response)
a. Please see the Schedule of Proposed Financings attached hereto.
b. Please see the response to PSC 1-6a.
Case No. 2012-001 19 Response to PSC 1-6
Page 1 of 3 Witness: Mark A.
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVA J TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff’s Initial Request for Information
April 23,2012
c. Please see the response to PSC 1-6a. Note that there is no effect resulting
from the renewal of the $SO,OOO,OOO CoRank Revolver.
d. Please see the response to PSC 1-6a. The Capital Term Certificate Equity
Loan froin CFC is included in the above schedule. The projected interest
rate for the Equity Loan is 5.65%.
e. Please see Interest Schedule Before and After Proposed Financing which is
attached hereto. The decrease in annualized all-in interest expense is
$1,42 1,349. Note that the decrease in annualized all-in interest expense
associated with only the refinancing of the RTJS Series A Note is
$5,446,196. Also note that these reductions exclude amortization of the
$1,225,589 loss associated with the refinancing.
The derivation of the CoRank estimated 4.24% and the CFC
estimated 4.76% all-in effective rates are described in response to Items 5b.
and c., respectively. Such all-in effective rates do not include the straight
line amortization of the refinancing loss associated with the RTJS and GAAP
accounting for the RTJS Series A Note. And, as discussed on lines 5 through
9 on page 16 of Exhibit 15 of the Application, the estimated cost of Big
Rivers’ counsel, which is not, included therein, along with the closing costs
paid to CoBank, will be deferred and amortized on a straight line basis over
the life of the term loans. In reality, five elements of Rig Rivers’ statement
of operations will be impacted by the accounting for the CoRank and CFC
term loans, as follows: interest expense, amortization of refinancing loss,
amortization of refinancing expenses, interest income and patronage
allocations. And, understandably, the amounts thereof will be different from
period to period.
Case No. 2012-00119 Response to PSC 1-6
Witness: Mark A. Hite Page 2 of 3
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL, TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to CQIIl~iSSiQn StafpS Initial Request for Information
Dated April 11,2012
April 23,2012
f. Please see the response to PSC 1-6a. The increase in liabilities after the
proposed financing is $139,381,389.
3
4 5 Witness) Mark A. Hite
6
Case No. 2012-00119 Response to PSC 1-6
Witness: Mark A. Hite Page 3 of 3
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BIG RIVERS ELECTRIC CORPORATION
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staffs Initial Request for Information
ated April 11,2012
April 23,2012
1 Item 7) 2 3
4
Refer to the Hite Testinzony, page 13, lines 3 trtrougli 6, wlticlt state tliaf "Big
Rivers is obligated to niake payments to RUS on the RPJS Note of $60 nzillion by October I , 2012 nttd to make anotlierpaymetzf on tlze RUS Note of $200 nzillion by January 1,2016. "
Confirm the $60 million and the $200 vrzillion payments are principal payments.
5 6 Response) Yes.
7 8
9 Witness) Mark A. Hite
10
Case No. 2012-00119 Response to PSC 1-7
Witness: Mark A. Hite Page 1 of 1
RIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for In~ormat~on
April 23,2012
Item 8) Refer to the Hite Testintony, page 17, lines 14 though 17, which state ‘ya/t
tlie next meeting of the Rig Rivers Board, which cicrrently is sclteduled for April 20,2012,
Big Rivers will obtain the compreltensive Board resolution authorizing it to restructure its finances in the manner contemplated. ” When available, provide a copy of the resolution authorizing the restructuring of the financing as contemplated in this proceeding.
Response) closing when it is available. Because this resolution is not required until the closing, which is
set for June 29, Big Rivers has postponed preparing and submitting the resolution to the board
of directors until its May meeting. Attached to this response are excerpts from the minutes of
Big Rivers’ board of directors meetings in December of 20 1 1 and January of 201 2 related to
these financing transactions.
Big Rivers will provide this resolution approving all the documents for the
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-8
Witness: Mark A. Hite Page 1 of 1
EXCERPT FROM THE MINUTES OF REGULAR MEETING OF THE BOARD O F DIEEXTORS
OF BIG RIVERS ELECTRIC CORPORATION HELD IN HENDERSON, KENTUCKY, ON
DECEMBER 16,2011
After an explanation by Mr. Blackbun on refinancing options, Director Elder moved that
the following resolution be approved
a portion of its debt with the Rural Utilities Service (“RUS”); and WHEREAS, Big Rivers Electric Corporation (the “Corporation”) is seeking to refinance
WHEJXEAS, representatives of the Corporation have had promising initial discussions with the National Rural Utilities Cooperative Finance Corporation (“CFC”) regarding the participation of CFC in that proposed transaction; and
WHER-EAS, the Corporation’s management has presented the Board of Directors with management’s plan for that proposed transaction, and the terms initially proposed by CFC for the proposed transaction.
NOW, THEREFORE, the Board hereby resolves as follows:
RESOLVED, that each of the following is an Authorized Representative: The President and Chief Executive Officer of the Corporation and the Senior Vice President of the Corporation;
RESOLVED, FURTHER, that the Authorized Representatives be, and each of them hereby is, authorized and directed to seek and negotiate the terms and documents necessary for obtaining fiom CFC a term loan in an amount not to exceed $302 million (the “Credit Transaction”), on such terms and conditions as the Authorized Representatives believe are in the best interest of the Corporation, with the final terns and documents being subject to approval by the Board of Directors of the Corporation;
RESOLVED, FURTHER, that the Authorized Representatives be, and each of them hereby is, authorized and directed to execute and deliver to CFC on behalf of the Corporation, at such time as the Authorized Representatives are satisfied with the terms for the Credit Transaction negotiated with CFC, an engagement letter reflecting the basic terms for the Credit Transaction that are acceptable to the Authorized Representatives in their judgment, for purposes of finalizing drafts of the definitive documents for the Credit Transactions that can be submitted to the Board of Directors of the Corporation for approval;
RESOLVED, FURTHER, that the Authorized Representatives be, and each of them hereby is, authorized and directed to execute and deliver to CFC on behalf of the Corporation, an agreement in a form acceptable to the Authorized Representatives and consistent with agreements customarily provided under these circumstances, by which the Authorized Representatives commit the Corporation to pay the reasonable counsel fees and expenses incurred by CFC in connection with the Credit Transaction; and
Case No. 2012-001 19 Attachment for Response to PSC 1-8
Witness: Mark A. Hite Page 1 of 5
EXCERPT FROM THE MINUTES OF REGULAR MEETING OF THE BOARD O F DIRECTORS
OF BIG RIVERS ELECTRIC CORPORATION HELD IN HENDERSON, KENTUCKY, ON
DECEMBER 16,2011
RESOLVED, FTJRTHER., that the Authorized Representatives of the Corporation be, and each of them hereby is authorized and directed for, and on behalf of the Corporation, to execute all such agreements, documents, instruments certificates, and other papers, and to do all such acts and things as may be necessary or desirable to accomplish the tasks contemplated in these resolutions, including, without limitation, initiating the processes to obtain all approvals or consents from the Corporation’s other creditors, including its indenture trustee, and the Kentucky PubIic Service Commission, and the carrying out of the terms of the various agreements and documents authorized or approved in the foregoing resolutions, and to otherwise carry out the purposes and intent o f the foregoing resolutions; and any such acts or things done or accomplished prior to the date hereof in furtherance of the foregoing be, and they hereby are, in all respects approved and ratified.
The motion was seconded and unanimously adopted.
I, Paula Mitchell, Executive Secretary of the Board of Directors of Big Rivers Electric Corporation, hereby certify that the above is a true and correct excerpt from the minutes of the Regular Meeting of the Board of Directors of said Corporation held on 12-1 6- 11.
-- -- Case No. 2012-00119
Attachment for Response to PSC 1-8 Witness: Mark A. Hite
Page 2 of 5
EXCERPT FROM THE MINUTES OF REGULAR MEETING OF THE BOARD OF DTRECTORS
OF BIG RIVERS ELECTRIC CORPORATION HELD IN EENDERSON, KENTUCKY, ON
JANUARY 20,2012
After an explanation by hk. Blackburn regarding refinancing, Director Denton moved
that management be authorized to execute the CoBank and CFC term sheets and final
documents. The motion was seconded and unanimously adopted.
I, Paula Mitchell, Executive Secretary of the Board of Directors of Big Rivers Electric Corporation, hereby certify that the above is a true and correct excerpt from the minutes of the Regular Meeting of the Board of Directors of said Corporation held on 1-20-1 2.
Case No. 2012-00119 Attachment for Response to PSC 1-8
Witness: Mark A. Hite Page 3 of 5
EXCERPT FROM THE MINUTES OF REGULAR MEETING OF THE BOARD OF DIRECTORS
OF BIG RIVERS ELECTRIC CORPORATION HELD IN ElENDERSON, mNTUCKY, QN
DECEMBER 16,2011
Director Elder moved that the following resolution be approved:
AS, Big Rivers Electric Corporation (the “Corporation”) is seelcing to refinance a portion of its debt with the Rural Utilities Service (“RUS”) and to renew or replace its existing revolving credit facility with CoBank ACE3 (“CoBaJIk”); and
WHEREAS, representatives of the Corporation have had promising initial discussions with CoBank regarding the participation of CoBank in those proposed transactions; and
WHEREAS, the Corporation’s management has presented the Board of Directors with management’s plan for those proposed transactions, and the terms initially proposed by CoBank for the proposed transactions.
NOW, THEREFORE, the Board hereby resolves as follows:
RESOLVED, that each of the following is an Authorized Representative: The President and Chief Executive Officer of the Corporation and the Senior Vice President Financial & Energy Services & CFO of the Corporation;
RESOLVED, F’URTHER, that the Authorized Representatives be, and each of them hereby is, authorized and directed to seek and negotiate the terms and documents necessary for obtaining fiom CoBank a term loan in an amount not to exceed $225 million, and a revolving creQt facility in an amount not to exceed $50 million (the “Credit Transactions”), on such terms and conditions as the Authorized Representatives believe are in the best interest of the Corporation, with the final terms and documents being subject to approval by the Board of Directors of the Corporation;
RESOLVED, FURTHER, tlat the Authorized Representatives be, and each of them hereby is, authorized and directed to execute and deliver to CoBank on behalf of the Corporation, at such time as the Authorized Representatives are satisfied with the terms for the Credit Transactions negotiated with CoBank, a “Mandate Letter” similar to that provided by COB& and described and exhibited to the Board of Directors, but reflecting such other or modified terms that are acceptable to the Authorized Representatives in their judgment, for purposes of finalizing drafts of the definitive documents for the Credit Transactions that can be submitted to the Board of Directors of the Corporation;
RESOLVED, FURTHER, that the Authorized Representatives be, and each of them hereby is, authorized and directed to execute and deliver to CoHank on behalf of the Corporation, an agreement in a form acceptable to the Authorized Representatives and consistent with agreements customarily provided under these circumstances, by which the Authorized Representatives commit the Corporation to pay the reasonable counsel fees and expenses incurred by CoBank in connection with the Credit Transaction; and
Case No. 2012-00119 Attachment for Response to PSC 1-8
Witness: Mark A. Hite Page 4 of 5
EXCERPT FROM THE MINUTES OF REGULAR MEETING OF THE BOARD OF DIRECTORS
HELD IN HENDERSON, KENTUCKY, ON OF BIG RIC?ERS ELECTMC CORPORATION
DECEMBER 16,2011
SOLVED, FBTIRT EIR, that the Authorized Representatives of the Corporation be, and each of them hereby is authorized and directed for, and on behalf of the Corporation, to execute all such agreements, documents, instruments certificates, and other papers, and to do all such acts and things as may be necessary or desirable to accomplish the tasks contemplated in these resolutions, including, without limitation, initiating the processes to obtain all approvals or cansents fiom the Corporation’s other creditors, including its indenture trustee, and the Kentucky Public Service Commission, and the carrying out of the terms of the various agreements and documents authorized or approved in the foregoing resolutions, and to otherwise carry out the purposes and intent of the foregoing resolutions; and any such acts or h n g s done or accomplished prior to the date hereof in f!urtherance of the foregoing be, and they hereby are, in all respects approved and ratified.
The motion was seconded and unanimously adopted.
I, Paula Mitchell, Executive Secretary of the Board of Directors of Big Rivers Electric Corporation, hereby cerbfy that the above is a me and correct excerpt from the minutes of the Regular Meeting of the Board of Directors of said Corporation held on 12-16-11.
Case No. 2012-00119 Attachment for Response to PSC 1-8
Witness: Mark A. Rite Page 5 of 5
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISStJE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff's Initial Request for I ~ f Q ~ ~ a t ~ o ~
ated April 11,2
April 23,2012
Item 9)
Provide an explanation of paragraplz M and its relation to the CFC Equity Loan of
$43,155,800 wlziclt, as stated ON page 4 of the application, was calculated by multiplying 14.29 percent 637 the $302,000,000 Refinance Note.
Refer to Exhibit 12 of the application, the CFC Loan Agreement, page 16.
Response)
Note, the Equity Note is 12.5% of the aggregate of the Refinance Note and the Equity Note.
This allows CFC to maintain a leverage ratio of 8: 1, enabling them quick and effective access
to the capital markets. CFC, as a cooperative, raises its equity through investments from its
members. One of the primary investment products are CFC CTCs. On any term loan, a CFC
member is required to purchase equity, or CTCs, such that CFC's 8: 1 leverage ratio is
maintained. For clarity, the computations thereof are as follows:
While the $43,1 5S,800 Equity Note is 14.29% of the $302,000,000 Refinance
Refinance Note $302,000,000 Equity Note % 14.29% Equity Note $43,155,800 Aggregate Notes $ 3 4 5 ~ 55,800 Aggregate Notes YO 12.50%
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-9
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE: EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
esponse to Commission Staff's nitial Request for ~ ~ ~ o ~ m a t ~ ~ ~
ated April 1 I, 20112
April 23,2012
Item 10)
iticlude the cadi flow effects of the $60,000,000 and $35,000,000 borrowing from CoBaizk
for capital expenditures in the ordinary course of business and for the replenishing of the
Transition Reserve, respectively. If this carznot be confirmed, explain. Provide a revised
Exhibit E showing the effects of the addition~l$95,000,000 borrowing from CoBnnk.
Refer to the Hite Testimony, Exhibit E. Confirm that this exhibit docs not
Response) $35,000,000 borrowing from CoBank. These amounts are shown separately on Tables R and C in Exhibit E. Attach hereto is a new schedule showing the entire CoBank borrowing of $235,000,000, as compared with paying down the RTJS Series A Note.
Exhibit E, Table A does not iriclude the aforementioned $60,000,000 and
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-10
Witness: Mark A. Hite Page 1 of 1
ivers Electric Corporation Exhibit E, Table A
Exhibit A - Economic Analysis Item 10 Response - Borrow $537mm
Cash Flows - Net Outflow
Period 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45
Nominal Cash Flows
I I Discount Rate 5.75% i
CoBank Term Loan CFC Term loan RUS Series A Note $93,893,026 $0 ($7,280,358:
($16,737,450) ($16,733,341) ($16,773,028) ($16,842,174) ($16,858,497) ($16,904,479) ($16,952,771) ($17,026,097) ($17,056,722) ($17,112,626) ($17,171,317) ($17,249,707) ($17,297,614) ($17,365,511) ($17,436,778) ($17,521,292) ($17,590,086) ($17,672,481) ($17,758,951) ($17,850,879)
$20,904 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
(23,885,108) (23,880,074) (23,874,899) (23,869,578) (23,865,009) (23,861,232) (23,858,774) (23,857,722) (23,857,660) (23,858,670) (23,860,842) (23,863,693) (23,866,980) (23,871,055) (23,875,655) (23,881,172) (23,890,993) (23,901,728) (23,913,452) (23,926,249)
0 0 0 0 0
542,305 530,573 518,510 506,105 492,448 477,447 460,522 441,509 420,737 398,055 373,296 346,856 318,915 289,057 257,469 223,688 184,241 142,287 97,649
(3,671,755: (4,864,673: (4,864,673: (4,874,650: (4,881,351: (4,851,345: (4,851,345:
(32,592,384; (47,208,2753 (1 1,801,795:
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Sum of Cash Flows $86,612,668 (44,294,313 (45,478,088 (45,512,599 (45,586,402 (45,604,857 (45,617,056 (45,662,890 (73,476,203 (88,122,656 (52,773,091 (41,032,158 (41,113,400 (41,164,595 (41,236,566 (41,312,433 (41,402,465 (41,481,079 (41,574,209 (41,672,403 (41,777,128
20,904 0 0 0 0
542,305 530,573 518,510 506,105 492,448 477,447 460,522 441,509 420,737 398,055 373,296 346,856 318,915 289,057 257,469 223,688 184,241 142,287 97,649 50,137
($249,997,872) ($470,448,740) ($131,742,603) ($852,189,214)
PV ($474,160,542)
NPV of Option 1 in lieu of Option 2
Option 2 -Status Quo RUS Series A Note - with no pay
down $0
(106,702,764 (46,693,037 (46,693,516
(246,314,386 (45,188,190 (45,201,395 (45,200,743 (45,191,024 (22,002,000
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
($649,187,056)
($518,340,364)
$44,179,822
Case No. 2012-00119 Attachment for Response to PSC 1-10
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE: NO. 2012-00119
Response to Commission Staff‘s Initial Request for Informatioa
Dated April 11,2012
April 23,2012
tern 11) Refer to the Hide Testimony, Exhibits E and I;. Exhibit Eprovides the cash
outflow for $140,000,000 of the CoBank Term Loan to be $208,891,510. Explain where this
amount can be found on Exhibit F, page 1 of 3, which is an amortization scliedulefor
$140,000,000 of the C‘oBnnk Term Loan.
Response) page 1 of 3 of Hite Testimony, Exhibit F. The total line at the bottom (for column referenced
as: “Total Cash Flows Incl. Patronage & Upfront Fee Aniort”) is shown as $208,232,036,
which does not include the closing fees listed at the top of the page of $659,474, which occur
at the time of financing. The sum of these cash flows is $208,891 ,S 10.
The $208,891,5 10 is the sum of all cash flows (net outflows). Please refer to
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-11
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS ELECT C CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for Information
Dated April 11,2012
April 23,2012
Item 12)
“Debt Service ’’ and “Ending Balance” columns.
Refer to the Hite Testimony, Exltibit F. Explain tlte coluntns between the
Response) with formulas intact, is provided on the CD accompanying these data responses. Exhibit I; was
originally provided by CoBank and was utilized by Big Rivers as an evaluation tool. Principal
payment is the only computation that is dependent upon the notional columns.
Please see the response to PSC 1 - 14. An electronic version of this information,
Witness) Mark A. Hite
Case No. 2012-001 19 Response to PSC 1-12
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-001319
Response to Commission Staff's Initial Request for Information
Dated April 18,2012
April 23,2012
Item 13) in forniatiorz contained itt each column is calculated alorig with the rationale or the support
for the calculatioizs.
Refer to the Hite Testimony, Exhibit H. Provide at1 explannrtioit of lrow tire
Response)
with formulas intact, is provided on the CD accompanying these data responses. Exhibit H
was originally provided by CFC and was utilized by Rig Rivers as an evaluation tool. Also
refer to the responses to PSC 1-5b. and PSC 1 -5c., which explain the elements of the all-in
effective interest rate.
Please see the response to PSC1-14. An electronic version of this information,
Witness) Mark A. Hite
Case No. 2012-00119 Response to PSC 1-13
Witness: Mark A. Hite Page 31 of 1
BIG RIVERS ELECTRIC CORPOR_ATI[ON
APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff's Initial Request for Information
Dated April 11,2012
April 23,2062
Provide a COPY of Exhibits E, F, G, ki and 4 in electroizicformat with
2 formulae irztact and uizprotected.
3 4 Response)
5 6
7 8 9 Witness) Mark A. Hite
Exhibits E, F, G, H, and I in electronic format with formulae intact and
unprotected are provided on the CD accompanying these responses. Please reference all
worksheets entitled Exhibit E through Exhibit I.
10
Case No. 2012-00119 Response to PSC 1-14
Witness: Mark A. Hite Page 1 of 1
BIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSIJE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for ~ n ~ o r ~ ~ t i o ~
April 23,2012
Item 15)
00063.’ Refer to the Hite Testinzony, Exhibit Hite-3, page 1 of 3, in Case No. 2012-
a. Reconcile the amount in the statement “CoRank/CFC debt issue ($527 million)” with the amounts in paragraph 8 of the application in this proceeding where it states “Big Rivers proposes to borrow $235 millioiz from CoBank and paragraph 10 where it states “Big Rivers proposes to borrow $302 million from the National Rural Utilities Cooperative Finance Corporation. ”
6. Reconcile the amount in the statement “used to retire $467 million of RIX Series A Note April 2012 and fund capital expenditures ” with the amount in paragraph 13(Q of the application in this proceeding where it states “$442 million will be prepaid on the 5.75% RUS Notes”
Response) a. After Hite Testimony, Exhibit Hite-3, in Case No. 2012-00063 was
completed, CoBank proposed an increase of $10,000,000 in the CoBaidc
Term Loan. The additional $1 0,000,000 offered by CoBank was
incorporated into this application. Regarding Case 20 12-00063 , since
$527,000,000 was an assumption common amongst all scenarios, the
additional $1 0,000,000 has no effect on the relative difference between the
scenarios.
1 Case No. 2012-00063, Application of Big Rivers Electric Corporation for Approval if Its 2012 Environmental Compliance Plan, for Approval of its Amended Environmental Cost Recovery Surcharge Tariff, for Certificates of Public Convenience and Necessity and for Authority to Establish a Regulatory Account (filed Apr 2, 2012).
Case No. 2012-00119 Response to PSC 1-15
Witness: Mark A. Hite Page 1 of 2
RIG RIVERS ELECTRIC CORPORATION
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APPLICATION OF BIG RIVERS ELECTRIC CORPORATION FOR APPROVAL TO ISSUE EVIDENCES OF INDEBTEDNESS
CASE NO. 2012-00119
Response to Commission Staff‘s Initial Request for ~ n f ~ r ~ a t ~ o ~
ated April 11,2012
April 23,2012
b. At the time Rig Rivers filed Case No. 2012-00063, the assumption was that
Big Rivers would use the proceeds of the $527,000,000 CoRank and CFC
Term Loans to hiid $60,000,000 of routine capital expenditures and
refinance $467,000,000 of the RTJS Series A Note. Further, it was assumed
Big Rivers would replenish the $35,000,000 Transition Reserve out of its
operating cash, and subsequently claw back such amount by avoiding hture
RUS Series A Note payments until the RTJS Series A Note balance equaled
the Allowed Balance under the RUS Maximum Debt Balance Schedule.
Since filling Case No. 20 12-00063, Big Rivers’ management determined
that it would be more prudent to utilize cash from the CoRank and CFC Term Loans to replenish the Transition Reserve at closing, rather than using
Big Rivers’ operating cash, so as to be less reliant on its lines of credit in the
fiiture. Replenishing the $35,000,000 Transition Reserve, less the additional
$10,000,000 from CoRank ($235,000,000 vs. $225,000,000) mentioned in
the response to item 15a. above, accounts for the $25,000,000 difference.
Regarding Case 20 12-00063, since the aforementioned assumption was
common amongst all scenarios, this change has no effect on the relative
difference between the scenarios.
Mark A. Hite
Case No. 2012-00119 Response to PSC 1-15
Witness: Mark A. Hite Page 2 of 2
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