20040510Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TERRI CARLOCK
DATE:MAY 7, 2004
RE:IN THE MATER OF A VISTA CORPORATION'S APPLICATION FOR
AUTHORITY TO ISSUE NOT MORE THAN $250 000 000 OF DEBT AND
NOT MORE THEN 3,000,000 SHARES OF COMMON STOCK;
CASE NO. A VU-04-
On April 12, 2004, Avista Corporation (Avista) applied for authority to offer, issue and
sale up to and including $250 000 000 of unsecured bonds, notes and other indebtedness, which
may be converted into or exchangeable for shares of A vista s common stock. These debt
instruments may be at fixed or variable rates. If debt securities were converted for common
stock the shares issued would be not more than 3 000 000 shares of common stock. If converted
or exchanged the amount and price of conversion or exchange will be negotiated at the time of
offering. The requested authority also includes ongoing authority to refund, extend, renew or
replace any of these issuances to fully utilize the flexible nature of these markets and funds.
Avista will only enter into transactions where the all-in cost is competitive with the-existing
market prices of similar transactions. The proceeds will be used general corporate purposes, to
refinance debt maturities and to repay funds borrowed under Avista s credit facility.
A vista will file information pertaining to the types of issuances to be made and the
expected terms as soon as practical prior to the issue, but no later than the date of issuance.
A vista acknowledges that for ratemaking purposes, that the determination of capital costs, capital
structure and any associated ratemaking decision is reserved for the appropriate proceeding.
The current capital structure for Avista consists of 42% common equity, 7.3% preferred
securities and 50.7% long-term debt. If the full $250 000 000 was issued as debt, the proforma
capital structure would consist of36.9% common equity, 6.4% preferred securities and 56.
DECISION MEMORANDUM - 1 -MAY 7, 2004
long-term debt. I believe this is unlikely, but if the full amount were converted or exchanged for
common stock, the proforma capital structure would consist of 49.1 % common equity, 6.4%
preferred securities and 44.5% long-term debt.
STAFF RECOMMENDATION
The proposed debt issuance and conversion authority provides an opportunity for A vista
to reduce borrowing costs and to increase flexibility with future refinance options. Staff
recommends approval of the requested authority. Staff recommends A vista be required to file an
annual status report with the Commission showing all actual and proposed activity with this
authority. Staff recommends that the authority under this initial approval be continuing. A vista
will file all final documents from the issuances with the Commission. A vista will retain
documentation showing the reasonableness and cost effectiveness of all issues, refunding,
replacements, conversions or exchanges.
COMMISSION DECISION
Does the Commission accept Staffs recommendations to:
1) Approve Avista s request for authority to issue and sell up to and including
$250 000 000 of unsecured bonds, notes and other indebtedness, which may be converted into or
exchangeable for no more than 3 000 000 shares of Avista s common stock.
2) Approve Staff s recommended additional annual filing requirement.
3) Approve Staffs recommendation that the Commission authority under this order
continue to be in force.
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Terri Carlock
i :udmemos/avuu04.dm5 .2004
DECISION MEMORANDUM - 2 -MAY 7 2004