SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 11, 1994
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CONNECTICUT NATURAL GAS CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut
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(State or other jurisdiction of incorporation)
1-7727 06-0383860
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(Commission (I.R.S. Employer
File Number) Identification No.)
100 Columbus Boulevard, Hartford, Connecticut 06103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(203) 727-3000
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Item 5. Other Information
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(a) Connecticut Department of Public Utility Control Decision Re: Docket
94-04-10, Application of Connecticut Natural Gas Corporation for
Approval of Issuance of Medium Term Notes
(State STATE OF CONNECTICUT
Logo) --------------------
DEPARTMENT OF PUBLIC UTILITY CONTROL
ONE CENTRAL PARK PLAZA
NEW BRITAIN, CT 06051
DOCKET NO. 94-04-10 APPLICATION OF CONNECTICUT NATURAL GAS
CORPORATION FOR APPROVAL OF ISSUANCE OF
MEDIUM-TERM NOTES
May 11, 1994
By the following Commissioners:
Reginald J. Smith
Evan W. Woollacott
Thomas M. Benedict
DECISION
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DECISION
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I. INTRODUCTION
By application filed with the Department of Public Utility Control
(Department) on April 15, 1994, and submitted pursuant to Section 16-43 of
the General Statutes of Connecticut (Conn. Gen. Stat.), Connecticut Natural
Gas Corporation (CNG or Company), a public service company as defined in
Section 16-1 of the Conn. Gen. Stat., requests Department approval to issue,
from time to time, up to $75 million of medium-term notes (MTNs). The MTNs
will be issued, through private placements, in increments of $1 million to
$25 million for the period July 1, 1994 to September 30, 1998. The Company
is requesting that the Department use a two-phase approach to review and
approve the proposed MTN program. Phase I will approve the general program
while Phase II will approve certain issues within specific parameters.
II. DEPARTMENT ANALYSIS AND EVALUATION OF EVIDENCE
The Company instituted its first MTN program in 1991 which worked well
for the Company in that the average life of CNG s long-term debt increased
from 5.5 years to 14 years, the average coupon rate decreased from 9.05% to
8.20%, and the effective cost of long-term debt decreased from 9.23% to
8.54%. The Company s response to Interrogatory GA-17 shows it saved
$920,000 in 1992 and $602,000 in 1993 by issuing MTNs versus first mortgage
bonds. These savings are continuous at approximately $27,500 per month.
The purpose of CNG s request is to obtain needed financial flexibility to
access debt markets on a timely basis in relation to the Company s cash flow
needs. Exhibit E in the application contains projected cash flows and
external funding requirements for the fiscal years ending September 30 for
1994 through 1998. As Exhibit E shows, the Company s funding requirements
are expected to occur in relatively small increments over that period. The
requested MTN program will allow CNG to go to the debt markets more
frequently and issue long-term notes in smaller dollar amounts as compared
to the first mortgage bond markets. This enables the Company to manage its
cash position more effectively throughout the year. The Department finds a
maturity of 1 year to 30 years for Phase II issuance applications to be
acceptable in that it allows the Company the greatest financial flexibility
in obtaining the best possible rate.
The MTN program should not have an effect on the Company s credit
rating in that it plans to maintain a debt to equity ratio of approximately
50/50 and, as such, it should not increase leverage or percentage of debt in
the capital structure. The Company plans on issuing approximately 400,000
shares of common stock equity during the third or fourth quarter of 1994
which should amount to an increase of approximately $10,000,000 in equity.
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Docket No. 94-04-10 Page 2
The two basic issues the Department considers when reviewing a finance
application are the effect on the overall cost of capital and did the
Company obtain the lowest possible rate available. For the former, the
Department examined Exhibit I, which shows an overall cost of capital of
9.22% as of February 28, 1994, which dropped to 9.18% due to the MTN
program, a positive outcome. On the issue of least cost financing, the
Department finds that due to the changing debt markets, MTNs could have a
lower rate than a first mortgage bond. In addition, when considering
issuance costs, MTNs are frequently at a lower cost as can be seen from the
Company s response to Interrogatory GA-20. It shows issuance expenses of
$375,000 for first mortgage bonds versus $190,000 for MTNs given issuances
in $10,000,000 increments.
Conn. Gen. Stat. Section 16-43(a) requires that each public service
company obtain the approval of the Department prior to issuing any notes,
bonds, or other evidences of indebtedness or securities of any nature for a
period exceeding one year. Sections 16-1-60 and 16-1-61 of the Regulations
of Connecticut State Agencies (Conn. Agencies Regs.) set forth the
Department s requirements for making an application to the Department
pursuant to Conn. Gen. Stat. section 16-43. The Department finds the above
cited statutes will be fulfilled through the initial Phase I application and
subsequent Phase II applications.
III. FINDINGS OF FACT
1. The proposed financing and its effect on the Company s financial
structure are reasonable.
2. MTNs allow the Company greater financial flexibility in the rapidly
changing debt markets.
3. The statutory requirements under Conn. Gen. Stat. Section 16-43(9) and
Conn. Agencies Regs. Section 16-1-60 and 16-1-61 will be met through
approval of this Phase I application and subsequent Phase II
applications.
IV. CONCLUSION AND ORDERS
A. Conclusion
Upon consideration of the record of this proceeding, approval of the
instant application is in the public interest subject to the conditions and
orders below.
B. Orders
For the following Orders, please submit an original and ten copies of
the requested material identified by Docket Number, Title, and Order Number
to the Executive Secretary.
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Docket No. 94-04-10 Page 3
1. The proceeds from the issue and sale, after issuance expenses,
shall be used by the Company for the purposes specified in its
application and not for non-utility purposes. The Company shall
furnish to the Department within thirty (30) days from issuing the
MTNs, a statement reflecting how the proceeds of such MTNs are
utilized.
2. The terms and conditions under which the MTNs are to be issued and
sold shall be substantially as specified by the Company in its
application and no further material written or oral supplements to
or material modifications of those terms and conditions shall be
executed without prior approval of the Department.
3. The Company, upon a Phase II application, will submit an exhibit
comparing rates, maturities, and other applicable costs on MTNs to
first mortgage bonds.
4. The Company, upon a Phase II application, will submit an exhibit
showing the effect the proposed financing has on its interest
coverage ratios using both the SEC coverage methodology and its
bond indenture coverage methodology.
5. The Company, upon a Phase II application, will submit an exhibit
similar to Exhibit N in the instant case, but that also includes
first mortgage bonds, showing the all-in spread over treasuries
for each.
DPUC ELECTRONIC LIBRARY LOCATION K:\FINL_DEC\FILED UNDER UTILITY TYPE,
DOCKET NO., DATE
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DOCKET NO. 94-04-10 APPLICATION OF CONNECTICUT NATURAL GAS
CORPORATION FOR APPROVAL OF ISSUANCE OF
MEDIUM-TERM NOTES
This Decision is adopted by the following Commissioners.
Reginald J. Smith
Evan W. Woollacott
Thomas M. Benedict
CERTIFICATE OF SERVICE
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The foregoing is a true and correct copy of the Decision issued by the
Department of Public Utility Control, State of Connecticut, and was
forwarded by Certified Mail to all parties of record in this proceeding on
the date indicated.
S/ Robert J. Murphy May 12, 1994
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Robert J. Murphy Date
Executive Secretary
Department of Public
Utility Control
J. SUTPHIN
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNECTICUT NATURAL GAS CORPORATION
Date 05/23/94 S/ Andrew H. Johnson
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(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)
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