CFOs React: AEP’s Holly Koeppel

The utility's need for ready cash trumps the cost of drawing down on its credit lines.

So you have retired all the commercial paper you had issued?

Yes. We have none outstanding right now.

So how are you dealing with your current cash needs?

We actually are sitting on cash balances, and not [using] the traditional strategy [of making use of as much cash as possible]. There is a negative carry, but it’s good to be liquid at this time. And it’s a really good spot for a utility because as you know we have pretty dramatic seasonal working capital needs. But to plan ahead and to be long cash is where we want to be right now.

Are you using the cash you’ve drawn from those credit lines? What’s the virtue in drawing down lines of credit and paying interest on debt you’re not using?

That’s that negative carry. It’s nice to have money in the bank, and what we did use it for was to meet the fact that we were no longer issuing commercial paper. We sized the dollar amount to provide us with enough money in the bank to pay bills that we saw coming due in the fourth quarter, to avoid planned long-term debt issuances, and to really have money on deposit for future bills that may come due. So we have a cash cushion in the bank.

But these were existing lines that you could have drawn down at any time. Was there some underlying worry about whether banks could deliver when you needed it?

At the time of the first draw, no. After Lehman, I was not worried about our principle banking relationships, but I certainly felt more comfortable knowing that I had the money in the bank and that we were very, very liquid.

We’ve had very strong support from our bank group. We’re very grateful for the relationship and support. But I sleep better knowing that we have enough money in the bank.

Are all the 27 banks participating in your credit facility still viable?

All but Lehman, and it was in for a very modest amount. As a matter fact, in one of our facilities, another bank stepped in and took up that piece. So we have not yet had any serious consequences impacting us directly as a consequence of the Lehman failure.

What are your relationships with your banks like now?

Incredibly open and collaborative, particularly with the key banking relationships. They’re reaching out to us and they’re very open with us in terms of insight about the human capital side: when another round of layoffs is coming, how any relationships we have are going to be impacted. It’s far more of a partner relationship than it was 12 months ago. They want to insure that if we perceive any impact on service or relationship, they’re working very hard to insure a continuity and a level of support that preserves our relationship.


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