20190329Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:JOSEPH TERRY
TERRI CARLOCK
DATE: MARCH 28,2019
RE:INTERMOUNTAIN GAS COMPANYNS REQUEST FOR
AUTHORIZATION TO ISSUE AND SELL SECURITIES;
CASE NO. INT.G-19-02
On March 11,2019 Intermountain Gas Company ("Intermountain", "Company"), a
subsidiary of MDU Resources Group, Inc.("MDU"), filed an Application requesting
authorization to issue and sell up to $75 million of unsecured notes on or about June 14,2019
with one or more maturity dates ranging from five to thirty years from issuance ("Bonds").
Additionally, the Company requested authority to enter into a base revolving line of credit
facility for $85 million with the option to borrow an additional $25 million for a total requested
line of credit authority of $l l0 million ("Line of Credit") through June 14, 2024 (five years).
The Company included the correct filing fee with the application.
The interest rate for the Bonds'will be set at the time of issuance based upon the term of
the note. The chart below shows the differing tranches and their base along with the added basis
point and the expected rates based on current treasury rates.
Tranche
(Loan
Term)
Treasury
Term
Base
Added
Basis
Points
Current
Treasury
Rate
Expected Rates
Low High
5 year 5 year 110-130 2.34%3.44%3.64%
10 Year 10 year 120-155 2.54%3.74%4.O9%
L5 Year 10 year 740-770 2.54Yo 3.94%4.24%
30 Year 30 Year 155-200 2.96%4.51%4.96%
DECISION MEMORANDUM I MARCH 28,2019
Net proceeds from the sale of the Bonds will be used lor the acquisition, construction,
extension or improvement of utility facilities; improvement or maintenance of service; and
refunding the Company's treasury expended on utility purposes.
The proceeds from the Line of Credit will be used for capital expenditures; deferred gas
costs; and general corporate purpose needs.
For the Line of Credit, the Company has the option to select between predetermined
interest rate methods. The rate will be based upon the London Interbank Offered Rate (LIBOR),
U.S. Bank Prime Rate, or the Federal Funds rate plus appropriate margins. Additional charges
for the Line of Credit will include administrative fees of $ 1 5,000 annually and commitment fees
based on a performance grid. The performance grid has lour levels with the rate determined by
the ratio of consolidated funded indebtedness to total capitalization as shown in the table below:
Pricing
Level
lndebtedness to
Capitalization Ratio
Facility
Fee
Eurodollar
Advances/Letter
of Credit Fee
Base Rate
Advances
I > 0.60:1.0 0.300%1.45A%4.454%
il 20.55:1.0 but <0.60: L.0 0.22s%7.275%o.275%
>0.45:1.0 but <0.55:1.0 0.175%t.475%a.750%
IV < 0.45:1.0 0.1,25%t.aao%4.a00%
Therefore the higher the debt incurred, the greater the borrowing cost for borrowed funds.
The debt ratio for the Company was 49.3% as of December 3 1 ,2A18, therefore we would expect
that the Company to be in the III Pricing Level.
Intermountain is not independently rated b), any of the rating agencies and instead is rated
as parl of the MDU's family of companies. MDU was rated at BBB+ by both Fitch and
Moody's. Because Intermountain is approximately 5o/o of MDU's net income, the probabitity is
low that this authority will impact MDU's credit rating.
STAFF RECOMMENDATION
Staff recommends the Commission approve the aulhority to issue up to $75 million in
unsecured notes.
Staff recommends the Commission approve the authority to enter into the five year $85
million revolving line of credit with the option to borrow another $25 million.
1DECISION MEMORANDUM MARCH 28,2019
ilr
Staff recommends the Commission order Intermountain to continue filing quarterly
reports identifying the date of issuance, principal amount, interest rate, date of maturity and
identity of payee for all promissory notes issued in that quarter. In addition, order the Company
to continue filing its capitalization ratios with the quarterly report.
COMMISSION DECISION
Does the Commission approve the $75 million in unsecured notes?
Does the Commission approve the 5-year revolving line of credit for $85 million with the
option to utilize an additional $25 million?
Does the Commission wish to establish the filing requirements described?
J Terry
LldmemosllNT-C- I 9-02 Decision Memo
DECISION MEMORANDUM -3-MARCH 28,2419