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): MARCH 31, 1998
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BANGOR HYDRO-ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
MAINE 0-505 01-0024370
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(State of Incorporation) (Commission File No.) (IRS Employer ID No.)
33 STATE STREET, BANGOR, MAINE 04401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 207-945-5621
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CURRENT REPORT, FORM 8-K DATE OF REPORT
BANGOR HYDRO-ELECTRIC COMPANY APRIL 8, 1998
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ITEM 5. OTHER EVENTS
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EXISTING LENDING AGREEMENTS AND MONETIZATION OF POWER SALE CONTRACT:
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As previously reported, the Company has been negotiating a
transaction for the monetization of a power sale contract with UNITIL Power
Corp. (UNITIL), a New Hampshire based electric utility. The Company
currently provides power to UNITIL at significantly above-market rates, with
the contract term ending in the year 2003. Based upon current projections of
wholesale electricity markets, it is expected that the rates charged under
the UNITIL contract will remain at above-market levels for the remainder of
the contract term. Therefore, the assignment of the Company's rights under
the contract has a positive present cash value. On March 31, 1998, the
Company completed a transaction with a financial institution that provided a
loan of approximately $23 million in net proceeds secured by the value of the
UNITIL contract.
Also as previously reported, it is the Company's intention to use
the proceeds of the transaction to finance a portion of a power purchase
contract restructuring with Penobscot Energy Recovery Company ("PERC") and to
resolve outstanding financial covenant issues under the Company's credit
agreement with its lending banks. That credit agreement contains a number of
covenants keyed to the Company's financial condition and performance. One
such covenant required the Company to maintain a consolidated fixed charge
ratio of 1.5 to 1.0 (defined as the ratio of the sum of the Company s net
income, income tax expense and interest expense to the Company s interest
expense, subject to a few minor adjustments) and is measured quarterly for
the prior four quarters. After the first quarter of 1997, the Company was
not in compliance with the fixed charge ratio covenant. The Company obtained
temporary waivers of the noncompliance through June 6, 1997.
On June 6, 1997 the Company and the lending banks amended the
credit agreement. Under the amendment, compliance with the fixed charge
ratio covenant was permanently waived for the four quarters ending March 31,
1997 and June 30, 1997. The Company was also out of compliance with the
fixed charge ratio covenant for the four quarters ending September 30, 1997
and December 31, 1997 and received temporary waivers of those violations
through March 31, 1998. On November 20, 1997, the Company and the lending
banks amended the agreement as part of a plan to reduce the level of the
banks' credit commitment and reestablish the financial covenants to levels
that the Company anticipates it can reasonably achieve. Under that amendment
(as subsequently modified), assuming the monetization of the UNITIL contract
were completed on or before March 31, 1998, the Company would be permitted
to proceed with the restructuring of its power purchase contract with PERC
and to use a portion of the loan proceeds to complete the PERC transaction,
with the remainder of the proceeds to be used to reduce permanently the
borrowing capacity of the existing revolving credit facility. On or before
December 31, 1998, the Company must reduce permanently the borrowing capacity
under the revolving credit facility by an additional $6 million. The
amendment also established new financial covenant levels that appear
reasonably to be achievable under the Company's current financial forecasts
although there are a number of important variables that could affect the
Company's ability to meet those covenants in the future.
At the time the Company filed its 1997 Annual Report on Form 10-K, the
monetization of the UNITIL contract had not been completed and the financial
covenant violations referred to above had, therefore, not been waived
permanently. As discussed in that Report, all debt under the bank credit
facilities, including certain medium term notes, was classified as a current
liability on the Company's consolidated balance sheet as of December 31,
1997. As a result of the permanent waivers that became effective upon
completion of the UNITIL monetization, $22 million of medium term notes,
previously classified as a current liability, have been reclassified as a
long term liability.
BANGOR HYDRO-ELECTRIC COMPANY
by /s/ Frederick S. Samp
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Frederick S. Samp
Chief Financial Officer
Dated: April 8, 1998
