8-K: TXNM Energy's Subsidiary, Texas-New Mexico Power, Issues $140 Million in First Mortgage Bonds

Texas-New Mexico Power Company issues $140 million in 5.19% First Mortgage Bonds due April 1, 2031, in a private placement to repay short-term debt and fund capital expenditures.

Summary

• Texas-New Mexico Power Company (TNMP), a wholly-owned subsidiary of TXNM Energy, Inc., issued $140 million in aggregate principal amount of its 5.19% First Mortgage Bonds, due April 1, 2031, Series 2025A (the Bonds).
• The Bonds were sold in a private placement to institutional accredited investors.
• The proceeds from the sale of the Bonds will be used to repay short-term debt and for other general corporate purposes, including projected capital expenditures.
• Interest on the Bonds is payable semi-annually on April 1 and October 1, commencing on October 1, 2025.
• TNMP may prepay the Bonds at any time with a make-whole provision.
• A change in control of TNMP or TXNM Energy, Inc. would obligate TNMP to offer to prepay all of the Bonds at 100% of the principal amount, plus accrued interest.
• The Bonds are secured by a first mortgage lien on substantially all of TNMP's property.

Sentiment

Score: 7

Explanation: The sentiment is neutral to positive. The bond issuance provides financial flexibility for the company, but also increases its debt burden. The terms of the bonds appear reasonable, with standard protections for investors.

Positives

• The issuance allows TNMP to refinance short-term debt, potentially improving its capital structure.
• The fixed interest rate of 5.19% provides predictable interest expenses for the duration of the bonds.
• The make-whole provision protects investors in the event of early prepayment.
• The bond repurchase event provisions offer bondholders protection against certain adverse events.

Negatives

• The company takes on additional debt of $140 million.
• The make-whole provision could make it more expensive for the company to prepay the bonds.

Risks

• The Indenture contains events of default that could accelerate the repayment of the Bonds.
• Bond Repurchase Events, such as a change in control or failure to meet certain financial ratios, could require TNMP to repurchase the Bonds.
• Economic Sanctions, Etc. The Company does, or permits any Controlled Entity to, (a) become (including by virtue of being owned or controlled by a Blocked Person), own or control a Blocked Person or (b) directly or indirectly have any investment in or engage in any dealing or transaction (including any investment, dealing or transaction involving the proceeds of the 2025 Bonds) with any Person if such investment, dealing or transaction (i) would cause any holder or any affiliate of such holder to be in violation of any law or regulation applicable to such holder, or (ii) is prohibited by any U.S. Economic Sanctions Laws.
• Sale or Lease of Assets. The Company sells, leases, transfers or otherwise disposes of, any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions) except (a) sales or other transfers of assets for fair value, if the aggregate value of all such transactions in any calendar year does not exceed twenty-five percent (25%) of the book value of Total Assets of the Company, as calculated as of the end of the most recent Fiscal Quarter, and (b) sales, leases, transfers or other dispositions, at less than fair value, of any other assets of the Company and its Subsidiaries, provided that the aggregate book value of such assets shall not exceed $25,000,000 in any calendar year.
• Debt Capitalization. The ratio of (i) Consolidated Indebtedness of the Company to (ii) Consolidated Capitalization of the Company is greater than 0.65 to 1.0 (a) as of the last day of any fiscal quarter of the Company or (b) at any time if any first mortgage bonds issued under Specified Prior Supplements remain outstanding.
• Financial and Business Information. The Company fails to deliver to each Holder of 2025 Bonds that is an Institutional Investor the documents set forth below in paragraphs (a) Quarterly Statements, (b) Annual Statements, (c) SEC and other Reports (if any), (d) Notice of Event of Default or Bond Repurchase Event (if any), and (e) ERISA Matters (if any) by either (i) within the time periods set forth in such paragraphs (a), (b), (c), (d) and (e)(x) delivering paper copies, to the address, if any, specifically designated therefore by such Holder, by hand-delivery or by overnight courier or (y) delivering electronic copies by email or (ii) with respect to the documents set forth in paragraphs (a), (b) and (c), giving written notice within fifteen (15) Business Days after the timely filing on EDGAR or posting on its home page or on its Parents home page on the internet or on Intralinks or on any similar website to which each Holder of the 2025 Bonds has free access, by the Company of a Form 10-K (or such annual financial statements satisfying the requirements of paragraph (b) below), Form 10-Q (or such quarterly financial statements satisfying the requirements of paragraph (a) below), Form 8-K or any proxy statement, as the case may be.
• Officers Certificate. The Company fails to deliver to each Holder of 2025 Bonds that is an Institutional Investor, in the manner and at the time periods set forth above in paragraph 4(a)-Quarterly Statements and paragraph 4(b)-Annual Statements, a certificate of a Senior Financial Officer certifying that such Senior Financial Officer has reviewed the relevant terms of this Twenty-Third Supplemental Indenture and of the Indenture and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes an Event of Default or Bond Repurchase Event with respect to the 2025 Bonds or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.
• Material Credit Facilities. With respect to any Material Credit Facility (a) the Company or any Subsidiary of the Company defaults in the payment of any principal of or premium or make-whole amount or interest that is outstanding in an aggregate principal amount of at least $20,000,000 beyond any period of grace with respect thereto, or (b) the Company or any Subsidiary of the Company is in default in the performance of or compliance with any term of any Material Credit Facility in an aggregate outstanding principal amount of at least $20,000,000 or any other condition exists, and as a consequence of such default such Material Credit Facility has become, or has been declared (or one or more Persons are entitled to declare such Material Credit Facility to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (c) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder or lender of any Material Credit Facility to convert such indebtedness into equity interests), (i) the Company or any Subsidiary of the Company has become obligated to purchase or repay such indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $20,000,000, or (ii) one or more Persons have the right to require the Company or any Subsidiary of the Company so to purchase or repay such indebtedness.
• Material Misrepresentation. Any representation or warranty made in writing by or on behalf of the Company in this Twenty-Third Supplemental Indenture or in any writing furnished to the Holders of the 2025 Bonds in connection with the 2025 Bonds proves to have been false or incorrect in any material respect on the date made.

Future Outlook

The proceeds from the Bonds will be used to repay short-term debt and for other general corporate purposes, including projected capital expenditures.

Industry Context

Utilities often use bond issuances to finance capital projects and manage their debt profiles, taking advantage of relatively stable revenue streams to secure favorable financing terms.

Comparison to Industry Standards

• The 5.19% interest rate is within the typical range for utility bonds with similar maturities at the time of issuance, but the specific attractiveness depends on prevailing market conditions and the company's credit rating.
• Comparable companies such as Xcel Energy, Edison International, and Duke Energy also utilize first mortgage bonds as part of their capital structure.
• The make-whole provision is a common feature in investment-grade utility bonds, providing investors with protection against early redemption.

Stakeholder Impact

• Shareholders: The bond issuance provides financial flexibility but increases debt.
• Employees: Capital expenditures funded by the bonds could support job creation and retention.
• Customers: Investments in infrastructure could improve service reliability.
• Creditors: The bond issuance alters the company's debt profile.
• Suppliers: Capital expenditures could lead to increased demand for goods and services.

Next Steps

• TNMP will use the proceeds to repay short-term debt and fund capital expenditures.
• The Trustee will authenticate and deliver the Bonds.
• The Twenty-Third Supplemental Indenture will be duly recorded with the applicable Governmental Authority.

Key Dates