Pattern Energy Group Inc. - 10-Q filing on 2018-08-09

Debt

6 Months Ended

Jun. 30, 2018

The Company’s debt consists of the following for periods presented below (in thousands):



							As of June 30, 2018
	June 30, 2018			December 31, 2017			Contractual Interest Rate			Effective Interest Rate
	June 30, 2018			December 31, 2017			Contractual Interest Rate			Effective Interest Rate			Maturity
Corporate-level
Revolving Credit Facility	$	201,000		$	—		varies		⁽¹⁾	3.78	%	⁽¹⁾	November 2022
2020 Notes	225,000			225,000			4.00	%		6.60	%		July 2020
2024 Notes	350,000			350,000			5.88	%		5.88	%		February 2024
Project-level
Fixed interest rate
El Arrayán EKF term loan ⁽⁵⁾	—			99,112
Santa Isabel term loan	102,508			103,878			4.57	%		4.57	%		September 2033
Variable interest rate
Ocotillo commercial term loan	287,067			289,339			3.83	%		4.05	%	⁽³⁾	June 2033
El Arrayán commercial term loan ⁽⁵⁾	—			90,102
Spring Valley term loan	122,125			125,678			4.09	%		5.02	%	⁽³⁾	June 2030
St. Joseph term loan ⁽²⁾	161,300			171,487			3.40	%		3.93	%	⁽³⁾	November 2033
Western Interconnect term loan ⁽²⁾	53,060			54,395			4.34	%		4.33	%	⁽³⁾	April 2027
Meikle term loan ⁽²⁾	250,601			266,557			3.27	%		3.92	%	⁽³⁾	May 2024
Futtsu term loan	76,312			—			1.07	%		1.85	%	⁽³⁾	December 2033
Ohorayama term loan	98,870			—			0.87	%		0.87	%	⁽³⁾	February 2036
Tsugaru Construction Loan	53,837			—			0.72	%		0.72	%	⁽³⁾	March 2038
Tsugaru Holdings Loan Agreement	58,320			—			3.09	%		3.09	%	⁽³⁾	July 2022
Imputed interest rate
Hatchet Ridge financing lease obligation	184,704			192,079			1.43	%		1.43	%		December 2032
	2,224,704			1,967,627
Unamortized premium/discount, net⁽⁴⁾	(10,993		)	(13,470		)
Unamortized financing costs	(27,385		)	(23,426		)
Total debt, net	2,186,326			1,930,731

As reflected on the consolidated balance sheets
Revolving Credit Facility	$	201,000		$	—
Current portion of long-term debt, net of financing costs	61,583			51,996
Long term debt, net of financing costs	1,923,743			1,878,735
Total debt, net	$	2,186,326		$	1,930,731


⁽¹⁾	Refer to Revolving Credit Facility for interest rate details.


⁽²⁾	The amortization for the St. Joseph term loan, the Western Interconnect term loan and the Meikle term loan are through September 2036, March 2036 and December 2038, respectively, which differs from the stated maturity date of such loans due to prepayment requirements.


⁽³⁾	Includes impact of interest rate swaps. See Note 12, Derivative Instruments, for discussion of interest rate swaps.


⁽⁴⁾	The discount relates to the 2020 Notes.


⁽⁵⁾	As discussed in Note 4, Assets Held for Sale, as of May 21, 2018, the debt related to El Arrayán Wind is included in liabilities related to assets held for sale.

Interest and commitment fees incurred and interest expense for debt consisted of the following (in thousands):



	Three months ended June 30,					Six months ended June 30,
	2018			2017		2018			2017
Corporate-level interest and commitment fees incurred	$	9,555		$	8,497	$	18,220		$	15,612
Project-level interest and commitment fees incurred	16,892			13,107		31,085			25,468
Capitalized interest, commitment fees, and letter of credit fees	(1,481		)	—		(1,481		)	—
Amortization of debt discount/premium, net	1,250			1,125		2,477			2,227
Amortization of financing costs	1,389			1,994		2,638			3,852
Other interest	104			116		214			235
Interest expense	$	27,709		$	24,839	$	53,153		$	47,394

Corporate Level Debt

Revolving Credit Facility

Certain of the Company's subsidiaries have entered into a Second Amended and Restated Credit and Guaranty Agreement to the Revolving Credit Facility (the Revolving Credit Facility). The Revolving Credit Facility provides for a revolving credit facility of $440 million. The facility has a five-year term and is comprised of a revolving loan facility, a letter of credit facility and a swingline facility. The facility is secured by pledges of the capital stock and ownership interests in certain of the Company's holding company subsidiaries, in addition to other customary collateral.

As of June 30, 2018, $200.1 million was available for borrowing under the $440 million Revolving Credit Facility. The Revolving Credit Facility contains a broad range of covenants that, subject to certain exceptions, restrict the Company’s holding company subsidiaries' ability to incur debt, grant liens, sell or lease assets, transfer equity interests, dissolve, pay distributions and change its business. As of June 30, 2018, the Company's holding company subsidiaries were in compliance with covenants contained in the Revolving Credit Facility.

As of June 30, 2018 and December 31, 2017, letters of credit of $38.9 million and $47.5 million, respectively, were issued under the Revolving Credit Facility.

2020 Notes

In July 2015, the Company issued $225.0 million aggregate principal amount of 4.00% convertible senior notes due 2020 (Convertible Senior Notes or 2020 Notes). The 2020 Notes bear interest at a rate of 4.00% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2016. The 2020 Notes will mature on July 15, 2020. The 2020 Notes were sold in a private placement. The following table presents a summary of the equity and liability components of the 2020 Notes (in thousands):



	June 30, 2018			December 31, 2017
Principal	$	225,000		$	225,000
Less:
Unamortized debt discount	(10,993		)	(13,470		)
Unamortized financing costs	(2,249		)	(2,794		)
Carrying value of convertible senior notes	$	211,758		$	208,736
Carrying value of the equity component ⁽¹⁾	$	23,743		$	23,743


⁽¹⁾	Included in the consolidated balance sheets as additional paid-in capital, net of $0.7 million in equity issuance costs.

Project Debt

Tsugaru Facility

In March 2018, Tsugaru entered into a credit agreement for a construction facility (Tsugaru Construction Loan), a term facility, a letter of credit facility (the LC Facility) and a Japanese consumption tax facility (the JCT Facility) (collectively, the Tsugaru Facility). Under the Tsugaru Facility, the Company may borrow up to $371.4 million to fund the construction of Tsugaru which automatically converts to a term facility upon the earlier of completion of construction of the project (expected to be March 2020) or September 2020 (the Term Conversion Date). The Tsugaru Construction Loan, including the term facility and LC Facility, mature 18 years following the Term Conversion Date, not later than March 2039. The interest rate on the Tsugaru Construction Loan and term facility is the Tokyo Interbank Offered Rate (TIBOR) plus 0.65%. The LC Facility establishes a $19.7 million debt service reserve account letter of credit and an $8.0 million operations and maintenance reserve account letter of credit with amounts outstanding under the letters of credit owing interest at a rate of 1.10% and fees on the undrawn amounts of 0.30%. The JCT Facility provides for up to $33.8 million to pay Japanese consumption taxes arising from payment of project costs, with an interest rate of TIBOR plus 0.30% and a maturity date corresponding to the Term Conversion Date. The Company owes a commitment fee of 0.3% on any available amounts under the Construction Facility and the JCT Facility and on any undrawn amounts on the letters of credit up to the Term Conversion Date. Collateral for the credit facility includes Tsugaru's tangible assets and contractual rights and cash on deposit with the depository agent. The credit agreement contains a broad range of covenants that, subject to certain exceptions, restrict Tsugaru's ability to incur debt, grant liens, sell or lease certain assets, transfer equity interests, dissolve, make distributions or change its business. As of June 30, 2018, outstanding borrowings under the Tsugaru Construction Loan totaled $53.8 million.

Tsugaru Holdings Loan Agreement

In March 2018, Tsugaru Holdings entered into a loan agreement (Tsugaru Holdings Loan Agreement) that provides for borrowings of up to $70.1 million during the Tsugaru construction period, until no later than September 2020. The interest rate on outstanding borrowings under the Tsugaru Holdings Loan Agreement is TIBOR plus 3.0% with principal due July 2022 and a commitment fee of 0.50% on the unused portion of the Tsugaru Holdings Loan Agreement. The Tsugaru Holdings Loan Agreement is subject to certain covenants and is secured by the membership interests and other rights. As of June 30, 2018, outstanding borrowings under the Tsugaru Holdings Loan Agreement totaled $58.3 million.