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Sale of Accounts
Receivable
On July 28, 2000,
Westar Energy and KGE entered into an
agreement under which we transfer an
undivided percentage ownership interest
in a revolving pool of our accounts
receivable arising from the sale of
electricity to a multi-seller conduit
administered by an independent financial
institution through the use of a special
purpose entity (SPE). We account for
this transfer as a sale in accordance
with SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and
Extinguishment of Liabilities.” The
agreement was amended on July 25, 2002
and is annually renewable upon agreement
by all parties. The amendment to the
agreement extended the term until July
23, 2003 and limited the amount of the
accounts receivable we had a right to
sell during certain periods to $125
million.
Under the terms
of the agreement, Westar Energy and
KGE may transfer accounts receivable
to the bankruptcy-remote SPE, and the
conduit must purchase from the SPE an
undivided ownership interest of up to
$125 million in those receivables. The
SPE has been structured to be legally
separate from us, but it is wholly owned
and consolidated. The percentage ownership
interest in receivables purchased by
the conduit may increase or decrease
over time, depending on the characteristics
of the SPE’s receivables, including
delinquency rates and debtor concentrations.
Under the terms
of the agreement, the conduit pays the
SPE the face amount of the undivided
interest at the time of purchase. Subsequent
to the initial purchase, additional
interests are sold and collections applied
by the SPE to the conduit, resulting
in an adjustment to the outstanding
conduit interest.
We record administrative
expense on the undivided interest owned
by the conduit, which was $2.9 million
for the year ended 2002, $5.4 million
for the year ended 2001 and $3.7 million
for the year ended 2000. These expenses
are included in other income (expense)
in our consolidated statements of income.
The outstanding
balance of SPE receivables was $48.2
million at December 31, 2002 and $43.3
million at December 31, 2001, which
is net of an undivided interest of $110.0
million and $100.0 million, respectively,
in receivables sold by the SPE to the
conduit. Our retained interest in the
SPE’s receivables is reported at fair
value and is subordinate to, and provides
credit enhancement for, the conduit’s
ownership interest in the SPE’s receivables.
Our retained interest is available to
the conduit to pay any fees or expenses
due to the conduit and to absorb all
credit losses incurred on any of the
SPE’s receivables. The retained interest
is included in accounts receivable,
net, in our consolidated balance sheets.
A termination
event will be triggered under the terms
of the agreement if Westar Energy’s
credit rating ceases to be at least
BB- by Standard & Poor’s Ratings Group
(S&P) or if the issuer credit rating
for Westar Energy ceases to be at least
Ba3 by Moody’s Investors Service (Moody’s).
If a termination event were to occur,
the administrative agent would be required
to give notice to us at least five business
days prior to a termination of the facility.
This notice provision allows for the
administrative agent to waive the termination
event by not giving notice or, in the
event notice is given, allows us to
repay the facility.
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Refinancings
On May 10, 2002,
we completed offerings for $365 million
of our first mortgage bonds and $400
million of our unsecured senior notes,
both of which will be due on May 1,
2007. The first mortgage bonds bear
interest at an annual rate of 7 7/8%
and the unsecured senior notes bear
interest at an annual rate of 9 3/4%.
Interest on the first mortgage bonds
and unsecured senior notes is payable
semi-annually on May 1 and November
1 of each year. The net proceeds from
these offerings were used to repay outstanding
indebtedness of $547 million under our
existing secured bank term loan, provide
for the repayment of $100 million of
our 7.25% first mortgage bonds due August
15, 2002 together with accrued interest,
reduce the outstanding balance on our
existing secured revolving credit facility
and pay fees and expenses of the transactions.
In conjunction with our May 10, 2002
financing, we amended our secured revolving
credit facility to reduce the total
commitment under the facility to $400
million from $500 million and to release
$100 million of our first mortgage bonds
from collateral.
On June 6, 2002,
we entered into a secured credit agreement
providing for a $585 million term loan
and a $150 million revolving credit
facility, each maturing on June 6, 2005,
provided that if we have not refinanced
or provided for the payment of our putable/
callable notes due August 15, 2003,
or our 6.875% senior unsecured notes
due August 1, 2004, at least 60 days
prior to either of the respective due
dates, the maturity date is the date
60 days prior to either of the respective
due dates. All loans under the credit
agreement are secured by KGE’s first
mortgage bonds. The proceeds of the
term loan were used to retire an existing
$400 million revolving credit facility
with an outstanding principal balance
of $380 million, to provide for the
repayment at maturity of $135 million
principal amount of KGE first mortgage
bonds due December 15, 2003 together
with accrued interest, to repurchase
approximately $45 million of our outstanding
unsecured notes and to pay customary
fees and expenses of the transactions.
Interest Rate Swap
Effective October
4, 2001, we entered into a $500 million
interest rate swap agreement with a
term of two years. At that time, the
effect of the swap agreement was to
fix the annual interest rate on the
term loan at 6.18%. In June 2002, we
refinanced the term loan associated
with this swap, which increased the
effective rate of the swap to 6.43%.
At December 31, 2002, the variable rate
in effect for the term loan was 4.40%.
Changes in the fair value of this cash
flow hedge are due to fluctuations in
the variable interest rate.
Capital Structure
Our consolidated capital structure at
December 31, 2002 and 2001 was as follows:
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