Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On December 6, 2016, FirstEnergy Corp. (FE) and certain of its subsidiaries entered into the following new credit facilities (New Facilities):
|
|
1.
|
a $4 billion five-year syndicated revolving credit agreement among FE, The Cleveland Electric Illuminating Company (CEI), Metropolitan Edison Company (ME), Ohio Edison Company (OE), Pennsylvania Power Company (Penn), The Toledo Edison Company (TE), Jersey Central Power & Light Company (JCP&L), Monongahela Power Company (MP), Pennsylvania Electric Company (PN), The Potomac Edison Company (PE) and West Penn Power Company (WP), as borrowers, Mizuho Bank, Ltd. (Mizuho), as administrative agent, and the lenders, fronting banks and swing line lenders identified therein (New FE Facility);
|
|
|
2.
|
a $1 billion five-year syndicated revolving credit agreement among FirstEnergy Transmission, LLC (FET), American Transmission Systems, Incorporated (ATSI), Mid-Atlantic Interstate Transmission, LLC (MAIT) and Trans-Allegheny Interstate Line Company (TrAIL), as borrowers, PNC Bank, National Association (PNC), as administrative agent, and the lenders and fronting banks identified therein (New FET Facility and together with the New FE Facility, New Syndicated Revolvers);
|
|
|
3.
|
a $1.2 billion five-year syndicated term loan credit agreement among FE, as borrower, Bank of America, N.A. (BofA), as administrative agent, and the lenders identified therein (New FE Term Loan); and
|
|
|
4.
|
a $700 million two-year secured revolving credit and surety credit support agreement among FirstEnergy Solutions Corp. (FES), as borrower, FirstEnergy Generation, LLC (FG) and FirstEnergy Nuclear Generation, LLC (NG), as guarantors, and FE, as lender (New FES Secured Facility).
|
The New Facilities were entered into in connection with the concurrent termination by FE and its subsidiaries of the following existing syndicated credit facilities that were to expire on March 31, 2019 (Prior Facilities):
|
|
1.
|
the $3.5 billion revolving credit agreement, dated as of June 17, 2011, as amended, among FE, CEI, ME, OE, Penn, TE, JCP&L, MP, PN, PE and WP, as borrowers, Mizuho, as successor administrative agent, and the lenders, fronting banks and swing line lenders identified therein (Prior FE Facility);
|
|
|
2.
|
the $1.5 billion revolving credit agreement, dated as of June 17, 2011, as amended, among FES and Allegheny Energy Supply Company LLC (AE Supply), as borrowers, JPMorgan Chase Bank, N.A. (JPMorgan), as administrative agent, and the lenders, fronting banks and swing line lenders identified therein (Prior FES/AE Supply Facility);
|
|
|
3.
|
the $1 billion revolving credit agreement, dated as of May 8, 2012, as amended, among FET, ATSI and TrAIL, as borrowers, and PNC, as administrative agent, and the lenders and fronting banks identified therein (Prior FET Facility);
|
|
|
4.
|
the $1 billion term loan credit agreement, dated as of March 31, 2014, among FE, as borrower, Mizuho, as successor administrative agent, and the lenders identified therein (Prior FE 2014 Term Loan); and
|
|
|
5.
|
the $200 million term loan credit agreement, dated as of May 29, 2015, among FE, as borrower, BofA, as administrative agent, and the lenders identified therein (Prior FE 2015 Term Loan and together with the Prior FE 2014 Term Loan, the Prior FE Term Loans).
|
New Syndicated Revolvers
Under the New FE Facility, an aggregate amount of $4 billion is available to be borrowed, repaid and reborrowed under a syndicated credit facility, subject to separate borrowing sublimits for each borrower including FE and its regulated distribution subsidiaries as described in the table below. Under the New FET Facility, an aggregate amount of $1 billion is available to be borrowed, repaid and reborrowed under a syndicated credit facility, subject to separate borrowing sublimits for each borrower including FE’s transmission subsidiaries as described in the table below.
The following table describes the borrowing sub-limits for each borrower under the New Syndicated Revolvers, as well as the limitations on short-term indebtedness applicable to each borrower under current regulatory approvals and applicable statutory and/or charter limitations, as of December 6, 2016:
|
|
|
|
|
|
|
|
|
Borrower
|
New FE Facility Sublimit
|
New FET Facility Sublimit
|
Regulatory and Other Short-Term Debt Limitation
|
|
|
(in millions)
|
|
FE
|
$4,000
|
—
|
|
—
|
|
(1)
|
FET
|
—
|
|
1,000
|
|
—
|
|
(1)
|
OE
|
500
|
|
—
|
|
500
|
|
(2)
|
CEI
|
500
|
|
—
|
|
500
|
|
(2)
|
TE
|
500
|
|
—
|
|
500
|
|
(2)
|
JCP&L
|
600
|
|
—
|
|
500
|
|
(2)
|
ME
|
300
|
|
—
|
|
500
|
|
(2)
|
PN
|
300
|
|
—
|
|
300
|
|
(2)
|
WP
|
200
|
|
—
|
|
200
|
|
(2)
|
MP
|
500
|
|
—
|
|
500
|
|
(2)
|
PE
|
150
|
|
—
|
|
150
|
|
(2)
|
ATSI
|
—
|
|
500
|
|
500
|
|
(2)
|
Penn
|
50
|
|
—
|
|
100
|
|
(2)
|
TrAIL
|
—
|
|
400
|
|
400
|
|
(2)
|
MAIT
|
—
|
|
400
|
|
400
|
|
(3)
|
(1) No limitations.
(2) Includes amounts which may be borrowed under the regulated companies’ money pool.
(3) Federal Energy Regulatory Commission financing authorization pending.
Pursuant to the New Syndicated Revolvers, the banks listed below agreed to provide individual commitments as further described herein.
|
|
|
|
|
Bank
|
New FE Facility
|
New FET Facility
|
Mizuho
|
$251,550,000.00
|
$44,000,000.00
|
JPMorgan
|
$244,250,000.00
|
$44,000,000.00
|
PNC
|
$244,250,000.00
|
$44,000,000.00
|
BofA
|
$237,250,000.00
|
$44,000,000.00
|
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
|
$237,250,000.00
|
$44,000,000.00
|
Citibank, N.A.
|
$251,650,000.00
|
$44,000,000.00
|
The Bank of Nova Scotia
|
$244,250,000.00
|
$44,000,000.00
|
Barclays Bank PLC
|
$244,250,000.00
|
$44,000,000.00
|
CoBank, ACB
|
$90,100,000.00
|
$175,000,000.00
|
Canadian Imperial Bank of Commerce, New York Branch
|
$125,000,000.00
|
$100,000,000.00
|
Goldman Sachs Bank USA
|
$198,600,000.00
|
$38,000,000.00
|
Morgan Stanley Bank, N.A.
|
$94,727,572.92
|
$18,112,488.08
|
Morgan Stanley Senior Funding, Inc.
|
$103,872,427.08
|
$19,887,511.92
|
Sumitomo Mitsui Banking Corporation
|
$187,000,000.00
|
$38,000,000.00
|
TD Bank, N.A.
|
$187,000,000.00
|
$38,000,000.00
|
U.S. Bank National Association
|
$187,000,000.00
|
$38,000,000.00
|
KeyBank National Association
|
$172,700,000.00
|
$50,000,000.00
|
Santander Bank, N.A.
|
$152,300,000.00
|
$38,000,000.00
|
Fifth Third Bank
|
$129,000,000.00
|
$32,300,000.00
|
Industrial and Commercial Bank of China Limited, New York Branch
|
$178,300,000.00
|
—
|
|
The Bank of New York Mellon
|
$105,400,000.00
|
$28,100,000.00
|
Citizens Bank, N.A.
|
$64,500,000.00
|
$16,100,000.00
|
The Huntington National Bank
|
$47,100,000.00
|
$12,900,000.00
|
First National Bank of Pennsylvania
|
$22,700,000.00
|
$5,600,000.00
|
TOTAL
|
$4,000,000,000.00
|
$1,000,000,000.00
|
|
Initial borrowings under the New Syndicated Revolvers were used by the applicable borrowers to pay off outstanding obligations under the Prior FE Facility and Prior FET Facility at the time of their termination. Commitments under each of the New Syndicated Revolvers will be available until December 6, 2021, unless the lenders agree, at the request of the applicable
borrowers, to up to two additional one-year extensions. Additional proceeds from the New FE Facility may be used for working capital and other general corporate purposes of the borrowers and their subsidiaries, including intercompany loans and advances by a borrower to any of its subsidiaries, including FES, AE Supply, FirstEnergy Nuclear Operating Company (FENOC), Bay Shore Power Company and their respective subsidiaries. Additional proceeds under the New FET Facility may be used for working capital and other general corporate purposes of the borrowers and their subsidiaries.
Generally, borrowings under the New Syndicated Revolvers are available to each borrower separately and will mature on the earlier of 364 days from the date of borrowing (or 10 days in the case of a swing line advance under the New FE Facility) or the commitment termination date, as the same may be extended. Upon a borrower demonstrating to the administrative agent authorization to borrow amounts maturing more than 364 days from the date of borrowing, its borrowings will mature on the latest commitment termination date.
Borrowings under the New Syndicated Revolvers may take the form of alternate base rate advances or eurodollar rate advances, borrowed pro rata from all lenders in proportion to their respective commitments. Borrowings under the New FE Facility may also be made from time to time on a same-day basis directly from one or more swing line lenders in an aggregate amount not to exceed $250 million for periods of up to ten days.
Outstanding alternate base rate advances will bear interest at a fluctuating interest rate per annum equal to the sum of an applicable margin for alternate base rate advances determined by reference to the applicable borrower’s then-current senior unsecured non-credit enhanced debt ratings (reference ratings) plus the highest of (i) the “prime rate” published by the Wall Street Journal from time to time, (ii) the sum of 1/2 of 1% per annum plus the federal funds rate in effect from time to time and (iii) the London Interbank Offered Rate (LIBOR) for a one-month interest period plus 1%. Outstanding eurodollar rate advances will bear interest at LIBOR for interest periods of one week or one, two, three or six months plus an applicable margin determined by reference to the applicable borrower’s reference ratings. Swing line loans under the New FE Facility will bear interest at a rate per annum equal to the sum of the alternate base rate plus an applicable margin determined by reference to the applicable borrower’s reference ratings. Changes in reference ratings of a borrower would lower or raise its applicable margin depending on whether ratings improved or were lowered, respectively.
Under each of the New Syndicated Revolvers, the applicable borrowers will pay the lenders a commitment fee on the amount of the unused commitments on a quarterly basis.
In addition, under each of the New Syndicated Revolvers, borrowers may request from time to time the issuance of letters of credit which are renewable upon the request of the borrowers and which expire upon the earlier of one year from the date of issuance or the third business day preceding the commitment termination date applicable to the issuing bank under the New FE Facility or New FET Facility, as applicable. The stated amount of outstanding letters of credit will count against total commitments available under the New Syndicated Revolvers and against the applicable borrower’s sub-limit under such facility. Currently, the initial fronting banks have agreed to issue up to an aggregate amount of $250 million of letters of credit under the New FE Facility (which may be increased up to an aggregate amount of $700 million if and to the extent that additional fronting bank commitments are obtained) and $100 million of letters of credit under the New FET Facility. Each borrower will pay the lenders a fee equal to the then-applicable margin for eurodollar rate advances for such borrower multiplied by the stated amount of each letter of credit issued for its account, in each case for the number of days that such letter of credit is issued but undrawn, payable quarterly in arrears.
Under the terms of the New Syndicated Revolvers, borrowings are available upon customary representations and warranties, terms and conditions for facilities of this type, and the borrowers are subject to certain customary affirmative and negative covenants, including limitations on the ability to sell, lease, transfer or dispose of assets, to grant or permit liens upon properties to secure debt, to merge or consolidate, subject to certain exceptions, the ability to enter into any prohibited transactions as defined in the Employee Retirement Income Security Act of 1974 or the ability to use the proceeds of any borrowing for prohibited purposes. Each borrower is also required to maintain a consolidated debt to total capitalization ratio, as defined in each of the New Syndicated Revolvers, of no more than 0.65 to 1.00, or in the case of FET, 0.75 to 1.00. For purposes of calculating FE’s ratio, the total capitalization denominator provides for certain permitted adjustments including (i) an exclusion for certain previously incurred after-tax, non-cash write-downs and non-cash charges and other permitted charges of approximately $2.75 billion, which exclusions had been incorporated in the ratio in the Prior FE Facility and Prior FE Term Loans and (ii) a new exclusion for future after-tax, non-cash write-downs and non-cash charges up to $5.5 billion related to asset impairments attributable to the power generation assets owned by FES, AE Supply and each of their subsidiaries.
Under the New FE Facility, FE is now also required to maintain a minimum interest coverage ratio of 1.75 to 1.00 until December 31, 2017, 2.00 to 1.00 beginning January 1, 2018 until December 31, 2018, 2.25 to 1.00 beginning January 1, 2019 until December 31, 2019, and 2.50 to 1.00 beginning January 1, 2020 until December 31, 2021.
Borrowings under each of the New Syndicated Revolvers are subject to acceleration upon the occurrence of events of default that each borrower considers usual and customary, including a cross-default to other indebtedness of such borrower or its significant subsidiaries in excess of $100 million and defaults for certain bankruptcy or insolvency events of such borrower or its significant subsidiaries. As in the Prior FE Facility, FES, AE Supply and their subsidiaries are excluded from these defaults for FE. In addition to the changes to FE’s debt to total capitalization ratio covenant described above, other changes were
implemented in the New FE Facility to further insulate FE from certain adverse events that may occur at FES, AE Supply and their subsidiaries. Additionally, the exclusion of those subsidiaries from, among other things, the definition of “significant subsidiaries” generally, which results in their further exclusion from FE’s covenants relating to limitations on liens and sales of assets and defaults related to adverse judgments in excess of $100 million. Any failure by FE to comply with the minimum interest coverage ratio covenant would not impact any other borrower’s ability to borrow under the New FE Facility.
The borrowers paid customary arrangement and upfront fees to the arranging banks and other lenders in connection with the closing of the New Syndicated Revolvers. FE and certain of the other borrowers and their affiliates maintain ordinary banking and investment banking relationships with lenders under the New Syndicated Facilities.
New FE Term Loan
On December 6, 2016, the New FE Term Loan was fully drawn from the lenders under their respective commitments set forth in the table below and FE used the proceeds to repay advances outstanding under the Prior FE Term Loans. Interest is payable on the unpaid principal amount until repaid in full. FE must repay the principal amount no later than December 6, 2021, the maturity date of the New FE Term Loan.
The initial borrowing under the New FE Term Loan, which took the form of a Eurodollar rate advance, may be converted from time to time, in whole or in part, to alternate base rate advances or other Eurodollar rate advances. Outstanding alternate base rate advances will bear interest at a fluctuating interest rate per annum equal to the sum of an applicable margin for alternate base rate advances determined by reference to FE’s reference ratings plus the highest of (i) the administrative agent’s publicly-announced “prime rate”, (ii) the sum of 1/2 of 1% per annum plus the Federal Funds Rate in effect from time to time and (iii) the rate of interest per annum appearing on a nationally-recognized service such as the Dow Jones Market Service (Telerate) equal to one-month LIBOR on each day plus 1%. Outstanding eurodollar rate advances will bear interest at LIBOR for interest periods of one week or one, two, three or six months plus an applicable margin determined by reference to FE’s reference ratings. Changes in FE’s reference ratings would lower or raise its applicable margin depending on whether ratings improved or were lowered, respectively.
The New FE Term Loan contains customary representations and warranties, terms and conditions, and is subject to customary affirmative and negative covenants. The representations and warranties, covenants and default provisions under the New FE Term Loan are substantially identical to those applicable to FE under the New FE Facility described above, including the debt to total capitalization ratio and interest coverage ratio financial covenants. FE and its affiliates maintain ordinary banking and investment banking relationships with certain of the lenders under the New FE Term Loan.
The following banks are parties to the New FE Term Loan with individual commitments listed below:
|
|
|
|
Banks
|
Commitment Amount
|
Mizuho
|
$59,700,000.00
|
JPMorgan
|
$67,000,000.00
|
PNC
|
$67,000,000.00
|
BofA
|
$74,000,000.00
|
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
|
—
|
|
MUFG Union Bank, N.A.
|
$74,000,000.00
|
Citibank, N.A.
|
$59,600,000.00
|
The Bank of Nova Scotia
|
$67,000,000.00
|
Barclays Bank PLC
|
$67,000,000.00
|
CoBank, ACB
|
$44,900,000.00
|
Canadian Imperial Bank of Commerce, New York Branch
|
$70,000,000.00
|
Goldman Sachs Bank USA
|
$58,400,000.00
|
Morgan Stanley Bank, N.A.
|
$27,855,439.37
|
Morgan Stanley Senior Funding, Inc.
|
$30,544,560.63
|
Sumitomo Mitsui Banking Corporation
|
$70,000,000.00
|
TD Bank, N.A.
|
$70,000,000.00
|
U.S. Bank National Association
|
$70,000,000.00
|
KeyBank National Association
|
$29,300,000.00
|
Santander Bank, N.A.
|
$45,700,000.00
|
Fifth Third Bank
|
$38,700,000.00
|
Industrial and Commercial Bank of China Limited, New York Branch
|
$21,700,000.00
|
The Bank of New York Mellon
|
$41,500,000.00
|
Citizens Bank, N.A.
|
$19,400,000.00
|
The Huntington National Bank
|
$20,000,000.00
|
First National Bank of Pennsylvania
|
$6,700,000.00
|
TOTAL
|
$1,200,000,000.00
|
FE paid customary arrangement and upfront fees to the arranging banks and other lenders in connection with the closing of the New FE Term Loan. FE maintains ordinary banking and investment banking relationships with lenders under the New FE Term Loan.
New FES Secured Facility
Under the New FES Secured Facility, FE, as lender, is providing a commitment to make revolving loans to FES of $500 million and additional secured credit support of $200 million. Subject to certain terms and conditions, FE has agreed to provide credit support for the account of FES in an aggregate amount not to exceed $200 million (Surety Credit Support) relating to a certain surety bond for the benefit of the Pennsylvania Department of Environmental Protection with respect to Little Blue Run, and each other surety bond designated in writing to FE. Borrowings and Surety Credit Support will be available under the New FES Secured Facility until December 31, 2018.
Under the New FES Secured Facility, borrowings are available upon customary representations and warranties, terms and conditions for facilities of this type, and FES, as borrower, is subject to certain customary affirmative and negative covenants, including limitations on the ability to sell, lease, transfer or dispose of assets, to grant or permit liens upon properties to secure debt, incur debt, to merge or consolidate, the ability to use the proceeds of any borrowing for prohibited purposes or permit any modification, amendment, termination or release of the mortgage indentures described below in a manner that is disproportionately adverse to FE as a lender as compared to all other holders of first mortgage bonds, taken as a whole.
Borrowings under the New FES Secured Facility are subject to acceleration upon the occurrence of events of default that the parties consider usual and customary, including a cross-acceleration to other indebtedness of FES or its subsidiaries in excess of $50 million and an event of default for certain judgments or orders or arbitration awards for the payment of money exceeding any applicable insurance coverage by more than $50 million if there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment, order or award shall not be in effect.
Each of FG and NG, will act as guarantors under the New FES Secured Facility and will deliver first mortgage bonds to FE, as lender, in the aggregate principal amount of $700 million. The NG first mortgage bonds will be issued under the Sixth
Supplemental Indenture, to the Open-End Mortgage, General Mortgage Indenture and Deed of Trust, dated as of June 1, 2009, by and between NG and The Bank of New York Mellon Trust Company, N.A. (BNYMTC), as trustee, and secured primarily by a valid first lien on substantially all of NG’s property used, or to be used, in connection with the generation and production of electric energy, subject to certain exceptions. The FG first mortgage bonds will be issued under the Ninth Supplemental Indenture, to the Open-End Mortgage, General Mortgage Indenture and Deed of Trust, dated as of June 19, 2008, by and between FG and BNYMTC, as trustee, and secured primarily by a valid first lien on substantially all of FG’s property used, or to be used, in connection with the generation and production of electric energy, subject to certain exceptions. Delivery of the first mortgage bonds to FE is a condition to the initial borrowing by FES under the New FES Secured Facility and also to the Surety Credit Support.
In connection with the cancellation of the Prior FES/AE Supply Facility and entry into the New FES Secured Facility, certain commitments and amendments associated with shared services and operational matters are being made as follows:
|
|
(i)
|
a new Subordination Agreement among the loan parties to the New FES Secured Facility;
|
|
|
(ii)
|
amendments to the Service Agreement by and between FirstEnergy Service Company (FESC), FES, FG and NG, dated April 25, 2011 (Service Company Agreement) pursuant to which FESC’s ability to exercise termination rights thereunder, will be modified to prevent such exercise until no earlier than December 31, 2018, including exceptions for a change in control of FES or its subsidiaries;
|
|
|
(iii)
|
amendments to the Fifth Amended and Restated Non-Utility Money Pool Agreement, dated as of December 19, 2013, by and among FirstEnergy, FES, FG, NG, AE Supply and the other parties thereto relating to continued access to the money pool for FES, FG, NG and FENOC without a commitment by FE and the other participants to fund loans to any of FES, FG, NG and FENOC; and
|
|
|
(iv)
|
a side letter between FE and FES relating to (a) the New FE Facility, the Intercompany Income Tax Allocation Agreement, effective February 24, 2011, among FE, FES and the other parties thereto (Tax Allocation Agreement) relating to FE making or causing each other participant in the Tax Allocation Agreement to make any payments due FES and its subsidiaries in accordance with the Tax Allocation Agreement, provided that such payments shall cease upon FES and its subsidiaries ceasing to be members of the Consolidated Group (as defined in the Tax Allocation Agreement); (b) the completion of certain modifications to FE’s cash management and accounting systems by May 22, 2017; and (c) an agreement by FE that it will not enter into any modification to the New FE Facility that would be reasonably likely to materially and adversely affect FE’s ability to comply with its obligations under the New FES Secured Facility.
|
Other Amendments
FE is a guarantor under a syndicated senior secured term loan facility due March 3, 2020, under which Global Mining Holding Company LLC (Global Holding), a joint venture between FE and certain third parties that owns the Signal Peak mining operations, borrowed $300 million. In addition to FE, certain direct or indirect subsidiaries of Global Holding, continue to provide their joint and several guaranties of the obligations of Global Holding under this facility. In connection with the entry into the New FE Facility, FE and the other parties to this facility entered into amendments to conform, restate and amend certain definitions, covenants and other provisions of the facility and related guaranties to align with the provisions of the New FE Facility.
The foregoing descriptions of the various agreements referenced above do not purport to be complete and are qualified in their entirety by reference to the agreements themselves. The New FE Facility, New FET Facility, New FE Term Loan and New FES Secured Facility are filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to this Form 8-K, and are incorporated herein by reference.