8-KMaterial AgreementsFinancial Events

FIRSTENERGY CORP 8-K Report, Material Agreement (Oct 15, 2008)

Filed October 15, 2008For Securities:FE

Summary

FirstEnergy Corp. (FE) and its subsidiaries have entered into a $300 million secured term loan facility with Credit Suisse to bolster liquidity amid volatile credit markets. This facility, available through October 2009, allows for borrowings up to $300 million, with individual loan maturities of 30 days, subject to potential extensions and blackout periods for securities offerings. Proceeds are intended for general corporate purposes, with specific restrictions on repaying other credit facilities. The loan is secured by a first mortgage bond from FGCO, and its terms include restrictive covenants and mandatory prepayment clauses triggered by certain debt or equity issuances. This move highlights the company's proactive approach to managing its financial flexibility during a challenging economic period. Investors should note the specific terms of the loan, including interest rate structures (Alternate Base Rate or Eurodollar Rate), commitment fees, and conditions precedent to borrowing, such as the FGCO mortgage requirement and the drawdown of existing credit facilities. The mandatory prepayment provisions and covenants, particularly the debt-to-capitalization ratio limit of 0.65:1.00, are critical for understanding ongoing financial obligations and potential future liquidity needs.

Key Highlights

  • 1FirstEnergy Corp. (FE) and subsidiaries secured a $300 million secured term loan facility with Credit Suisse.
  • 2The facility is designed to enhance liquidity amidst turbulent credit and bond markets.
  • 3Borrowings are available through October 7, 2009, with individual loan maturities of 30 days.
  • 4Proceeds are for general corporate purposes, with limitations on repaying other debt facilities.
  • 5The loan requires FGCO to issue a first mortgage bond as collateral.
  • 6Mandatory prepayment is triggered by the incurrence of certain new debt or equity.
  • 7The facility includes restrictive covenants, such as limitations on asset sales and liens, and a debt-to-capitalization ratio cap of 0.65:1.00.

Frequently Asked Questions

The primary purpose of the $300 million secured term loan facility is to enhance FirstEnergy Corp.'s liquidity position in response to volatile credit and bond markets, providing financial flexibility for general corporate purposes.

The facility is available until October 7, 2009. While each individual borrowing matures 30 days from the borrowing date (or by October 7, 2009, whichever is earlier), there are provisions for 'blackout periods' related to securities offerings. Loans cannot be re-borrowed once repaid. Conditions precedent include issuing a first mortgage bond by FGCO and drawing down existing credit facilities.

A mandatory prepayment is triggered if FirstEnergy or any subsidiary incurs or issues debt for borrowed money, or issues equity to an external party. However, debt incurred under certain pre-existing credit facilities is exempt from this provision.

Key covenants include limitations on selling, leasing, or transferring assets, granting liens on properties, merging or consolidating, using proceeds for prohibited purposes, and reducing or terminating commitments under other debt facilities. Additionally, FirstEnergy must maintain a debt-to-capitalization ratio of no more than 0.65 to 1.00.