N
OTES TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
10. Long-Term Debt
Obligations
The Company has
$190,000,000 aggregate principal amount of private senior notes, Series D,
Series E and Series F (collectively, the Notes) outstanding. Estimated fair
values of the Notes were calculated using the spread between the current rate
and the U.S. Treasury rate with an equivalent maturity date. At August 31, 2008,
the spread was applied to the equivalent U.S. Treasury rate for the series and
future cash flows were discounted to determine the estimated fair value. The
table below shows the issue date, maturity date, notional/carrying amount,
estimated fair value, and fixed rate as of August 31, 2008 for each series of
Notes outstanding at August 31, 2008.
|
|
|
|
|
|
Notional/Carrying
|
|
Estimated
|
|
Fixed
|
Series
|
|
Issue Date
|
|
Maturity Date
|
|
Amount
|
|
Fair Value
|
|
Rate
|
Series D
|
|
December 21, 2007
|
|
December 21, 2014
|
|
$
|
100,000,000
|
|
$
|
98,896,861
|
|
6.07
|
%
|
Series E
|
|
June 17,
2008
|
|
June 17,
2011
|
|
|
25,000,000
|
|
|
25,002,059
|
|
5.56
|
%
|
Series F
|
|
June 17, 2008
|
|
June 17, 2013
|
|
|
65,000,000
|
|
|
64,949,829
|
|
6.02
|
%
|
|
|
|
|
|
|
$
|
190,000,000
|
|
$
|
188,848,749
|
|
|
|
On January 22, 2008, the Company
fully redeemed its Series B Notes in the amount of $60,000,000. The
weighted-average interest rate for the period from December 1, 2007 through
January 22, 2008 (date of redemption) was 6.19 percent. This rate does not
include commissions paid to the auction agent which are included in auction
agent fees in the accompanying Statement of Operations. The unamortized balance
of capitalized costs was expensed and resulted in a loss on early redemption in
the amount of $378,016 which is included in amortization of debt issuance costs
in the accompanying Statement of Operations.
On February 1, 2008, April 25, 2008
and July 18, 2008, the Company partially redeemed its Series A Notes in the
amount of $20,000,000, $10,000,000 and $30,000,000, respectively. The
unamortized balance of allocated capitalized costs was expensed and resulted in
a loss on early redemption in the amount of $254,375, $126,158 and $376,902,
respectively, which is included in amortization of debt issuance costs in the
accompanying Statement of Operations. The weighted-average interest rate for the
period for December 1, 2007 through July 18, 2008 (date of redemption) was 5.58
percent. This rate does not include commissions paid to the auction agent which
are included in auction agent fees in the accompanying Statement of Operations.
The Company partially redeemed its
Series C Notes in the amount of $20,000,000 on February 5, 2008 and redeemed the
remaining Series C Notes in the amount of $50,000,000 on April 29, 2008. The
unamortized balance of allocated capitalized costs was expensed and resulted in
a loss on early redemption in the amount of $215,635 and $552,399, respectively,
which is included in amortization of debt issuance costs in the accompanying
Statement of Operations. The weighted-average interest rate for the period from
December 1, 2007 through April 29, 2008 (date of redemption) was 5.99 percent.
This rate does not include commissions paid to the auction agent which are
included in auction agent fees in the accompanying Statement of
Operations.
2008 3rd Quarter
Report
37
N
OTES TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
The Notes are redeemable in certain
circumstances at the option of the Company. The Notes are also subject to a
mandatory redemption if the Company fails to meet asset coverage ratios required
under the 1940 Act or the rating agency guidelines if such failure is not waived
or cured. At August 31, 2008, the Company was in compliance with asset coverage
covenants and basic maintenance covenants for its senior notes. See Note 15 for
additional information.
The Notes are unsecured obligations
of the Company and, upon liquidation, dissolution or winding up of the Company,
will rank: (1) senior to all the Companys outstanding preferred stock; (2)
senior to all of the Companys outstanding common stock; (3) on a parity with
any unsecured creditors of the Company and any unsecured senior securities
representing indebtedness of the Company and (4) junior to any secured creditors
of the Company.
11. Preferred
Stock
The Company has 4,400
authorized shares of Money Market Preferred (MMP) Stock, of which all 4,400
shares are currently outstanding. The MMP Stock has rights determined by the
Board of Directors. The MMP Stock has a liquidation value of $25,000 per share
plus any accumulated, but unpaid distributions, whether or not declared. Holders
of the MMP Stock are entitled to receive cash distribution payments at an annual
rate that may vary for each rate period. At August 31, 2008, fair value of the
MMP Stock approximates the carrying amount because the distribution rate
fluctuates with changes in interest rates available in the current market. The
table below shows the number of shares outstanding, aggregate liquidation
preference, current rate as of August 31, 2008, the weighted-average rate for
period from December 1, 2007 to August 31, 2008 and the typical rate period for
each series of MMP Stock outstanding at August 31, 2008. The Company may
designate a rate period that is different than the rate period indicated in the
table below.
|
|
|
|
Aggregate
|
|
|
|
Weighted-
|
|
|
|
|
Shares
|
|
Liquidation
|
|
Current
|
|
Average
|
|
|
Series
|
|
Outstanding
|
|
Preference
|
|
Rate
|
|
Rate
|
|
Rate Period
|
MMP I Stock
|
|
2,800
|
|
$
|
70,000,000
|
|
4.93%
|
|
5.71%
|
|
28 days
|
MMP II
Stock
|
|
1,600
|
|
|
40,000,000
|
|
4.88%
|
|
5.45%
|
|
7
days
|
|
|
4,400
|
|
$
|
110,000,000
|
|
|
|
|
|
|
The rates in the above table do not
include commissions paid to the auction which are included in auction agent fees
in the accompanying Statement of Operations. Under the Investment Company Act of
1940, the Company may not declare dividends or make other distributions on
shares of common stock or purchases of such shares if, at the time of the
declaration, distribution or purchase, asset coverage with respect to the
outstanding MMP Stock would be less than 200 percent.
38
Tortoise Energy Capital Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
In the event that there are not
enough bidders in the auction at rates below the maximum rate as prescribed by
the terms of the Preferred Stock, the auction fails. When an auction fails, the
rate paid to continuing or new bidders is set at the maximum rate. A failed
auction does not cause a mandatory redemption or affect the securitys
liquidation preference. In the event of a failed auction, distributions continue
to be paid at the maximum rates and times determined in the articles
supplementary. The maximum rate on Preferred Stock based on current ratings is
200 percent of the greater of: (i) the applicable AA Composite Commercial Paper
Rate or the applicable Treasury Index Rate or (ii) the applicable LIBOR as of
the date of the auction.
The Preferred Stock is redeemable in
certain circumstances at the option of the Company. The Preferred Stock is also
subject to a mandatory redemption if the Company fails to meet asset coverage
ratios required under the 1940 Act or the rating agency guidelines if such
failure is not waived or cured. At August 31, 2008, the Company was in
compliance with asset coverage covenants and basic maintenance covenants for its
Preferred Stock. See Note 15 for additional information.
The holders of MMP Stock have voting
rights equal to the holders of common stock (one vote per MMP share) and will
vote together with the holders of shares of common stock as a single class
except on matters affecting only the holders of preferred stock or the holders
of common stock.
12. Interest Rate Swap
Contracts
The Company entered into
interest rate swap contracts in an attempt to protect itself from increasing
interest and dividend expense on its leverage resulting from increasing
short-term interest rates. A decline in interest rates may result in a decline
in the fair value of the swap contracts, which may result in a decline in the
net assets of the Company. In addition, if the counterparty to the interest rate
swap contracts defaults, the Company would not be able to use the anticipated
receipts under the swap contracts to offset the interest payments on the
Companys leverage. At the time the interest rate swap contracts reach their
scheduled termination, there is a risk that the Company would not be able to
obtain a replacement transaction, or that the terms of the replacement would not
be as favorable as on the expiring transaction. In addition, if the Company is
required to terminate any swap contract early due to the Company failing to
maintain a required 300 percent and 200 percent asset coverage of the
liquidation value of the outstanding long-term and short-term debt obligations
and preferred stock, respectively, or if the Company loses its credit rating on
its long-term debt obligations or preferred stock, then the Company could be
required to make a termination payment, in addition to redeeming all or some of
the long-term debt obligations, short-term borrowings and preferred
stock.
2008 3rd Quarter
Report
39
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
The table below shows the notional
amount at November 30, 2007, maturity date, fixed rate paid by the Company,
floating rate received by the Company, termination date(s) and the realized loss
on the termination of the interest rate swap contracts with U.S. Bank, N.A. for
the period from December 1, 2007 through August 31, 2008. At August 31, 2008,
the Company had no outstanding swap contracts.
Notional
|
|
|
|
Fixed Rate
|
|
Floating Rate
|
|
|
|
|
Realized
|
Amount at
|
|
Maturity
|
|
Paid by
|
|
Received by
|
|
Termination
|
|
Loss on
|
11/30/2007
|
|
Date
|
|
the Company
|
|
the Company
|
|
Date(s)
|
|
Termination
|
$ 60,000,000
|
|
11/25/2015
|
|
5.11
|
%
|
|
1 month U.S. Dollar LIBOR
|
|
1/10/2008,
|
|
|
$
|
(3,606,295
|
)
|
|
|
|
|
|
|
|
|
|
6/18/2008
|
|
|
|
|
|
60,000,000
|
|
12/2/2015
|
|
5.11
|
%
|
|
1 month
U.S. Dollar LIBOR
|
|
1/11/2008,
|
|
|
|
(3,629,661
|
)
|
|
|
|
|
|
|
|
|
|
6/18/2008
|
|
|
|
|
|
20,000,000
|
|
4/15/2013
|
|
5.03
|
%
|
|
1 month U.S. Dollar LIBOR
|
|
6/18/2008,
|
|
|
|
(728,598
|
)
|
|
|
|
|
|
|
|
|
|
7/25/2008
|
|
|
|
|
|
45,000,000
|
|
4/21/2012
|
|
4.99
|
%
|
|
1 month
U.S. Dollar LIBOR
|
|
6/18/2008
|
|
|
|
(1,430,984
|
)
|
20,000,000
|
|
2/15/2013
|
|
4.95
|
%
|
|
1 month U.S. Dollar LIBOR
|
|
7/25/2008
|
|
|
|
(766,428
|
)
|
20,000,000
|
|
3/1/2018
|
|
4.99
|
%
|
|
1 month
U.S. Dollar LIBOR
|
|
7/25/2008
|
|
|
|
(646,434
|
)
|
15,000,000
|
|
2/28/2017
|
|
5.05
|
%
|
|
1 month U.S. Dollar LIBOR
|
|
7/25/2008
|
|
|
|
(624,395
|
)
|
15,000,000
|
|
2/28/2015
|
|
5.01
|
%
|
|
1 month
U.S. Dollar LIBOR
|
|
7/25/2008
|
|
|
|
(601,653
|
)
|
33,000,000
|
|
4/21/2014
|
|
5.06
|
%
|
|
1 month U.S. Dollar LIBOR
|
|
7/25/2008
|
|
|
|
(1,560,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13,594,721
|
)
|
13. Common
Stock
The Company has 100,000,000
shares of capital stock authorized and 17,406,086 shares outstanding at August
31, 2008. Transactions in common stock for the year ended November 30, 2007 and
the period ended August 31, 2008, were as follows:
Shares at November 30, 2006
|
16,013,802
|
Shares sold
through shelf offering
|
1,350,000
|
Shares issued through reinvestment of
distributions
|
42,284
|
Shares at
November 30, 2007 and August 31, 2008
|
17,406,086
|
14. Credit
Facility
On March 22, 2007, the
Company entered into an agreement establishing a $150,000,000 unsecured credit
facility maturing on March 21, 2008. On March 20, 2008, the Company entered into
an extension of its unsecured credit facility. The amended credit agreement
provides for a revolving credit facility of up to $92,500,000 that can be
increased to $160,000,000 if certain conditions are met. The amended credit
facility terminates on March 20, 2009. Under the terms of the credit facility,
U.S. Bank, N.A. serves as a lender and the lending syndicate agent on behalf of
other lenders participating in the credit facility. Outstanding balances
generally will accrue interest at a variable annual rate equal to one-month
LIBOR plus 0.75 percent.
40
Tortoise Energy Capital
Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
The Company must maintain asset
coverage required under the 1940 Act. If the Company fails to maintain the
required coverage, it may be required to repay a portion of the outstanding
balance until the coverage requirement has been met.
The average principal balance and
interest rate for the period during which the credit facility was utilized
during the period ended August 31, 2008 was approximately $36,000,000 and 3.74
percent, respectively. At August 31, 2008, the Company had no outstanding
borrowings under the credit facility.
15. Subsequent
Events
On September 2, 2008, the
Company paid a distribution in the amount of $0.43 per common share, for a total
of $7,484,617. Of this total, the dividend reinvestment amounted to
$1,525,365.
The Company partially redeemed
$10,000,000 of MMP I Stock on October 7, 2008 and $5,000,000 of MMP II Stock on
October 2, 2008.
Due to the market volatility
subsequent to August 31, 2008, the Company determined that at the close of
business on October 10, 2008, the Company was not in compliance with its basic
maintenance covenants for preferred stock. The covenants were cured the
following business day. As of the close of business on October 13, 2008, the
Company was not in violation of any 1940 Act asset coverage covenants or basic
maintenance covenants for its senior notes, preferred stock and credit
facility.
2008 3rd Quarter
Report
41
A
DDITIONAL
I
NFORMATION
(Unaudited)
Director and Officer
Compensation
The Company does not
compensate any of its directors who are interested persons nor any of its
officers. For the period ended August 31, 2008, the aggregate compensation paid
by the Company to the independent directors was $114,000. The Company did not
pay any special compensation to any of its directors or officers.
Forward-Looking
Statements
This report contains
forward-looking statements within the meaning of the Securities Act of 1933.
By their nature, all forward-looking statements involve risks and uncertainties,
and actual results could differ materially from those contemplated by the
forward-looking statements. Several factors that could materially affect the
Companys actual results are the performance of the portfolio of investments
held by it, the conditions in the U.S. and international financial, petroleum
and other markets, the price at which shares of the Company will trade in the
public markets and other factors discussed in filings with the SEC.
Proxy Voting
Policies
A description of the
policies and procedures that the Company uses to determine how to vote proxies
relating to portfolio securities owned by the Company and information regarding
how the Company voted proxies relating to the portfolio of securities during the
12-month period ended June 30, 2008 are available to stockholders (i) without
charge, upon request by calling the Company at (913) 981-1020 or toll-free at
(866) 362-9331 and on the Companys Web site at www.tortoiseadvisors.com; and
(ii) on the SECs Web site at www.sec.gov.
Form N-Q
The Company files its complete schedule of portfolio
holdings for the first and third quarters of each fiscal year with the SEC on
Form N-Q. The Companys Form N-Q is available without charge upon request by
calling the Company at (866) 362-9331 or by visiting the SECs Web site at
www.sec.gov. In addition, you may review and copy the Companys Form N-Q at the
SECs Public Reference Room in Washington D.C. You may obtain information on the
operation of the Public Reference Room by calling (800) SEC-0330.
The Companys Form N-Qs are also
available on the Companys Web site at www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of
Additional Information (SAI) includes additional information about the
Companys directors and is available upon request without charge by calling the
Company at (866) 362-9331 or by visiting the SECs Web site at
www.sec.gov.
Certifications
The Companys Chief Executive Officer has submitted to
the New York Stock Exchange the annual CEO certification as required by Section
303A.12(a) of the NYSE Listed Company Manual.
The Company has filed with the SEC
the certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
42
Tortoise Energy Capital Corp.
A
DDITIONAL
I
NFORMATION
(Unaudited)
(Continued)
Privacy Policy
In order to conduct its business, the Company collects
and maintains certain nonpublic personal information about its stockholders of
record with respect to their transactions in shares of the Companys securities.
This information includes the stockholders address, tax identification or
Social Security number, share balances, and distribution elections. We do not
collect or maintain personal information about stockholders whose share balances
of our securities are held in street name by a financial institution such as a
bank or broker.
We do not disclose any nonpublic
personal information about you, the Companys other stockholders or the
Companys former stockholders to third parties unless necessary to process a
transaction, service an account, or as otherwise permitted by law.
To protect your personal information
internally, we restrict access to nonpublic personal information about the
Companys stockholders to those employees who need to know that information to
provide services to our stockholders. We also maintain certain other safeguards
to protect your nonpublic personal information.
2008 3rd Quarter
Report
43
44
Tortoise Energy Capital
Corp.
Office of the Company
and
|
ADMINISTRATOR
|
of the Investment
Adviser
|
U.S. Bancorp Fund Services,
LLC
|
Tortoise Capital Advisors,
L.L.C.
|
615 East Michigan St.
|
11550 Ash Street, Suite 300
|
Milwaukee, Wis. 53202
|
Leawood, Kan. 66211
|
|
(913)
981-1020
|
CUSTODIAN
|
(913) 981-1021 (fax)
|
U.S. Bank, N.A.
|
www.tortoiseadvisors.com
|
1555 North Rivercenter Drive, Suite
302
|
|
Milwaukee, Wis. 53212
|
Managing Directors of
|
|
Tortoise Capital Advisors,
L.L.C.
|
TRANSFER, DIVIDEND
DISBURSING
|
H. Kevin Birzer
|
AND REINVESTMENT
AGENT
|
Zachary A. Hamel
|
Computershare Trust Company,
N.A.
|
Kenneth P. Malvey
|
P.O. Box 43078
|
Terry Matlack
|
Providence, R.I.
02940-3078
|
David J. Schulte
|
(312) 588-4990
|
|
www.computershare.com
|
Board of Directors of
|
|
Tortoise Energy Capital
Corp.
|
LEGAL COUNSEL
|
|
Husch Blackwell Sanders
LLP
|
H. Kevin Birzer,
Chairman
|
4801 Main St.
|
Tortoise Capital Advisors,
L.L.C.
|
Kansas City, Mo. 64112
|
|
Terry
Matlack
Tortoise Capital Advisors,
L.L.C.
Conrad S.
Ciccotello
Independent
John R.
Graham
Independent
Charles E.
Heath
Independent
|
INVESTOR
RELATIONS
(866) 362-9331
info@tortoiseadvisors.com
STOCK
SYMBOL
Listed NYSE Symbol: TYY
This report
is for stockholder information.
This is not a prospectus intended for
use in
the purchase or sale of fund shares.
Past
performance is no guarantee of
future
results and your investment may
be
worth more or less at the time you
sell.
|
|
|
|
|
|
|
|
|
|
|
Tortoise Capital Advisors
Public Investment Companies
|
|
|
|
|
|
Total
Assets
|
|
Ticker/
|
Primary
Target
|
Investor
|
as of
8/31/08
|
Name
|
Inception
Date
|
Investments
|
Suitability
|
($ in
millions)
|
Tortoise Energy Capital Corp.
|
TYY
|
U.S. Energy Infrastructure
|
Retirement Accounts
|
$776
|
|
May 2005
|
|
Pension Plans
|
|
|
|
|
Taxable Accounts
|
|
|
Tortoise
Energy Infrastructure Corp.
|
TYG
|
U.S.
Energy Infrastructure
|
Retirement Accounts
|
$1,152
|
|
Feb.
2004
|
|
Pension
Plans
|
|
|
|
|
Taxable
Accounts
|
|
|
|
|
|
|
Tortoise North American Energy Corp.
|
TYN
|
Canadian and U.S.
|
Taxable Accounts
|
$175
|
|
Oct. 2005
|
Energy Infrastructure
|
|
|
|
Tortoise
Capital Resources Corp.
|
TTO
|
U.S.
Energy Infrastructure
|
Retirement Accounts
|
$162
|
|
Dec.
2005
|
Private
and Micro Cap
|
Pension
Plans
|
|
|
(Feb.
2007 IPO)
|
Public
Companies
|
Taxable
Accounts
|
|
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