Holding Company Act Release 27611
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27611)
Filings Under the Public Utility Holding Company Act of 1935, as amended ("Act")
December 6, 2002
Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by December 31, 2002, to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549-0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After December 31, 2002, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective.
System Energy Resources, Inc. et al. (70-7561)
Entergy Corporation ("Entergy"), a registered holding company, 639 Loyola Avenue, New Orleans, Louisiana 70113; Entergy's nonutility subsidiary, System Energy Resources, Inc. ("System Energy"), Echelon One, 1340 Echelon Parkway, Jackson, Mississippi 39213; and Entergy's utility subsidiaries ("System Operating Companies"): Entergy Arkansas, Inc. ("EAI"), 425 West Capitol, 40th Floor, Little Rock, Arkansas 72201; Entergy Louisiana, Inc. ("ELI"), 4809 Jefferson Highway, Jefferson, Louisiana 70121; Entergy Mississippi, Inc. ("EMI"), 308 East Pearl Street, Jackson, Mississippi 39201; Entergy New Orleans, Inc. ("ENOI"), 1600 Perdido Building, New Orleans, LA 70112; (together, "Applicants"), have filed a post-effective amendment under sections 6, 7 and 12(b) of the Act and rules 45, 53, and 54 under the Act to a previously filed application-declaration with the Commission.
By order dated December 23, 1998 (HCAR No. 24791), System Energy was authorized to enter into two separate but identical arrangements for the sale and leaseback of undivided portions of its interest in Unit No. 1 of the Grand Gulf Steam Electric Generating Station ("Unit No. 1"). In connection with the equity funding of the arrangements, financial support in the form of letters of credit ("LOCs") was required to be maintained to secure the payment to the equity investors of certain amounts that may be payable by System Energy under the respective leases from time to time.
Applicants state that initial LOCs in an aggregate principal amount of $128,126,450 were issued in 1988 and through additional orders, the Commission authorized issuances of replacement LOCs in this file in 1991, 1993, 1996, and 1999.1 Applicants state that the LOCs issued in 1999 in the amount of approximately $193 million are scheduled to expire on March 20, 2003.
By order dated November 6, 1996 (HCAR No. 26601), during the basic terms of the leases, (a) System Energy was authorized to extend, increase the amount of and/or change the pricing terms of subsequent LOCs within the parameters set forth in the Commission's previous orders; (b) System Energy was authorized to enter into new reimbursement agreements or further amendments to the then existing reimbursement agreement; (c) System Energy and the System Operating Companies were authorized to enter into one or more additional assignments of the availability agreement ("Availability Agreement");2 and (d) System Energy and Entergy were authorized to enter into one or more additional assignments of the capital funds agreement ("Capital Funds Agreement"),3 in each case, to provide further security for System Energy's reimbursement obligations to the entity which will issue the replacement LOCs ("LOC Entity") the administrating bank and, the participating banks.
Applicants now request authority to enter into a transaction, which will result in pre-funded LOCs.4 Applicants state that the proposed transaction would require the creation of a financing entity ("Financing Entity"), currently anticipated to be a Delaware business trust. Applicants state that neither System Energy, Entergy, nor any associate company of either corporation would form the Financing Entity or hold an equity stake in the Financing Entity. Applicants further state that the Financing Entity would issue pass-through certificates ("Pass-Through Certificates") to investors in a private placement. The Pass-Through Certificates would evidence an undivided ownership interest in all of the Financing Entity's assets and contemplate a fixed or floating return on the investment. The amount of the proceeds of the sale of the Pass-Through Certificates would equal the amount of the replacement LOCs to be issued which amount will not exceed $200 million.
Applicants state that the Financing Entity would invest the proceeds of the sale of the Pass-Through Certificates in permitted investments, currently anticipated to include and primarily consist of a guaranteed investment contract ("GIC") issued by an insurance company or other investments. The GIC or other investments would bear interest at a specified rate, would mature as to principal at the same time as the Pass-Through Certificates and be redeemable, at the option of its holder, in the same amounts and at the same time as drawings on the LOCs.
System Energy, the entity which will issue the replacement LOCs ("LOC Entity"), and the Financing Entity propose to enter into a reimbursement agreement ("New Reimbursement Agreement") providing for the issuance of the replacement LOCs that System Energy would be required to reimburse in the case of draws on the LOCs. Applicants state that, in the event of unreimbursed drawings on the LOCs, the LOC Entity would be permitted to cause the Financing Entity's investments to be liquidated and utilized to reimburse the LOC Entity for the drawings. System Energy would be obligated to reimburse the Financing Entity for the amount of the drawing. Applicants assert that the LOC Entity, currently anticipated to be a bank, may be the Financing Entity described above.
Applicants state that annualized fees, not to exceed five percent per annum, payable by System Energy under the New Reimbursement Agreement to the Financing Entity would, together with the return on the Financing Entity's permitted investments, equal the return to be paid on the Pass-Through Certificates. Applicants further state that unreimbursed drawings on the LOCs would bear interest at the same rate and be payable at the same time as the principal and interest are payable on the Pass-Through Certificates.
To support System Energy's obligations under the New Reimbursement Agreement to the LOC Entity and the Financing Entity, the Applicants may be required to enter into one or more supplementary agreements and assignments of the Capital Funds Agreement and one or more assignments of the Availability Agreement evidencing support to or for the benefit of the other parties to the New Reimbursement Agreement. The Applicants hereby request authority for (a) Entergy and System Energy to enter into one or more supplementary agreements and assignments of the Capital Funds Agreement and (b) the System Operating Companies and System Energy to enter into one or more assignments of the Availability Agreement, in each case to or for the benefit of other parties to the New Reimbursement Agreement. Additionally, to evidence or secure System Energy's obligations under the New Reimbursement Agreement to LOC Entity and the Financing Entity, System Energy may be required to issue its first mortgage bonds or other secured or unsecured debt securities ("Bonds") to or for the benefit of, other parties to the New Reimbursement Agreement. The Bonds would be issued in an amount equal to the maximum amount of up to $200 million of the replacement LOCs, have the same term as the replacement LOCs, and bear interest at the same rates as will be borne by the Pass-Through Certificates. The interest rate on the Pass-Through Certificates would not exceed at the time of issuance the greater of (a) 500 basis points over U.S. Treasury securities having a remaining term comparable to the term of such certificates, if issued at a fixed rate, or 500 basis points over LIBOR for the relevant interest rate period, if issued at a floating rate and (b) a spread over U.S. Treasury securities or LIBOR, as the case may be, that is consistent with similar securities of comparable credit quality and maturities issued in similar transactions with other companies.
For the Commission by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
1 See HCAR No.25241 (January 11, 1991), HCAR No. 25944 (December 10, 1993), HCAR No. 26601 (November 6, 1996), and HCAR No. 27157 (March 23, 2000).
2 The System Operating Companies entered into an Availability Agreement in 1974 to pay System Energy each month, in return for the right to receive capacity and energy from Unit No. 1, amounts adequate (together with other funds received by System Energy) to cover a certain proportion of System Energy's operating expenses and interest charges. System Energy's benefits and rights under the Availability Agreement have been assigned to various creditors of System Energy since 1977.
3 Under the Capital Funds Agreement dated as of June 21, 1974, Entergy agreed to furnish System Energy capital sufficient to enable System Energy to (a) maintain a minimum 35% equity ratio; (b) pay certain indebtedness when due; and (c) continue the commercial operation of Unit No. 1. Since 1977, System Energy has entered into supplementary agreements and assignments to secure System Energy's creditor group. These assignments extend terms comparable to the Capital Funds Agreement to each specific creditor group.
4 System Energy states that, due to changes in the credit markets since the issuance of the 1999 replacement LOCs, it has become increasingly difficult and expensive to obtain these replacement LOCs. System Energy asserts that the purpose in proposing pre-funded LOCs is that the proposed transaction could result in replacement LOCs with terms that could extend through the remainder of the basic term of the leases (July 15, 2015) at a cost comparable to that which may be required to periodically renew, replace, or extend the LOCs in the commercial bank market through the basic term of the leases.