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U.S. Securities and Exchange Commission


(Release No. 35-27744; 70-10154)

Gulf Power Company, et al.

Order Authorizing the Organization of Subsidiaries to Effect Financings Involving Issuance and Sale of Preferred Securities

October 28, 2003

The Southern Company ("Southern") Atlanta, Georgia, a registered holding company under the Public Utility Holding Company Act of 1935 ("Act"), and Gulf Power Company ("Gulf"), Pensacola, Florida, its wholly owned electric utility subsidiary (together "Applicants"), filed with the Securities and Exchange Commission ("Commission") an application-declaration ("Application") under sections 6(a), 7, 9(a), 10 and 12 (b) of the Act and rules 45 and 54. The Commission issued a notice of the filing of the Application on October 3, 2003 (Holding Co. Act Release No. 27733).

Gulf proposes to organize one or more subsidiaries in order to effect various financing transactions involving the issuance and sale of an aggregate of $150,000,000 of preferred securities, from time to time, through December 31, 2006. In connection with the issuance of the preferred securities, Gulf proposes to organize any such subsidiary as a business trust under the laws of the State of Florida or a statutory trust under the laws of the State of Delaware or another comparable trust in any jurisdiction, or any other entity or structure, foreign or domestic, that is considered advantageous by Gulf (individually a "Trust" and collectively the "Trusts").1 Gulf proposes that the Trusts will issue and sell from time to time preferred securities (the "Preferred Securities"), with a specified par or stated value or liquidation amount or preference per security. Gulf requests the Commission to reserve jurisdiction over the use of a foreign entity as a Trust.

Gulf has a total amount of $115,000,000 of Preferred Securities issued and outstanding through Trusts, as of June 30, 2003. The outstanding Preferred Securities were issued through Trusts rather than directly by Gulf as subordinated debt because certain rating agencies recognize preferred securities of this kind, issued through trusts, as having some equity content, whereas directly issued subordinated debt has none. Gulf states that it reports transactions of the Trusts on its financial statements and asserts that it is desirable to continue to maintain a degree of similarity in its financial statements by issuing Preferred Securities through the Trusts rather than directly issuing subordinated debt.2

Gulf currently is authorized to issue Preferred Securities in an aggregate amount of up to $30,000,000 through December 31, 2005, by Commission orders dated January 16, 1998 and June 8, 2001 (Holding Co. Act Release Nos. 26817 and 27417, respectively). Gulf requests that this proposed authorization of $150,000,000 supersede and replace the amounts remaining in these previous authorizations.

Gulf states that it will acquire all of the common stock of any Trust for an amount not less than the minimum required by any applicable law and not exceeding 21% of the total equity capitalization from time to time of the Trust (i.e., the aggregate of the equity accounts of such Trust).3 The aggregate of such investment by Gulf is referred to as the "Equity Contribution." Gulf may issue and sell to any Trust, at any time or from time to time in one or more series, subordinated debentures, promissory notes or other debt instruments (individually a "Note" and collectively the "Notes") governed by an indenture or other document. The Trust will apply both the Equity Contribution made to it and the proceeds from the sale of Preferred Securities by it, from time to time, to purchase Notes. Alternatively, Gulf may enter into a loan agreement or agreements with any Trust under which the Trust will lend Gulf (individually a "Loan" and collectively the "Loans") both the Equity Contribution to the Trust and the proceeds from the sale of the Preferred Securities by the Trust, from time to time. Gulf will issue Notes, evidencing such borrowings, to the Trust.

Gulf also proposes to guarantee (individually a "Guaranty" and collectively the "Guaranties") (i) payment of dividends or distributions on the Preferred Securities of any Trust if, and to the extent, the Trust has funds legally available, (ii) payments to the Preferred Securities holders of amounts due upon liquidation of the Trust or redemption of the Preferred Securities of the Trust, and (iii) certain additional amounts that may be payable by the Preferred Securities. Gulf's credit would support any Guaranty.

Gulf states that each Note will have a term of up to fifty (50) years. Prior to maturity, Gulf will pay interest only on the Notes at a rate equal to the dividend or distribution rate on the related series of Preferred Securities, which dividend or distribution rate may be either fixed or adjustable, to be determined on a periodic basis by auction or remarketing procedures, in accordance with a formula or formulae based upon certain reference rates, or by other predetermined methods.4

The interest payments will constitute each Trust's only income and will be used by it to pay dividends or distributions on its Preferred Securities and dividends or distributions on its common stock. Dividend payments or distributions on the Preferred Securities will be made on a monthly or other periodic basis and must be made to the extent that the Trust issuing the Preferred Securities has legally available funds and cash sufficient for those purposes. However, Gulf may have the right to defer payment of interest on any issue of Notes for five or more years. Each Trust will have the parallel right to defer dividend payments or distributions on the related series of Preferred Securities for five or more years, provided that, if dividends or distributions on the Preferred Securities of any series are not paid for 18 or more consecutive months, then the holders of the Preferred Securities of the series may have the right to appoint a trustee, special general partner or other special representative to enforce the Trust's rights under the related Note and Guaranty. The dividend or distribution rates, payment dates, redemption and other similar provisions of each series of Preferred Securities will be substantially identical to the interest rates, payment dates, redemption and other provisions of the Notes issued.

Gulf states that the Notes and related Guaranties will be subordinate to all other existing and future unsubordinated indebtedness for borrowed money of Gulf and will have no cross-default provisions with respect to other indebtedness of Gulf (i.e., a default under any other outstanding indebtedness of Gulf would not result in a default under any Note or Guaranty). However, Gulf may be prohibited from declaring and paying dividends on its outstanding capital stock and making payments in respect of pari passu debt unless all payments then due under the Notes and Guaranties (without giving effect to the deferral rights discussed above) have been made.

The distribution rate to be borne by the Preferred Securities and the interest rate on the Notes will not exceed the greater of (i) 300 basis points over U.S. Treasury securities having comparable maturities or (ii) a gross spread over U.S. Treasury securities that is consistent with similar securities issued by other companies having comparable maturities and credit quality.

Gulf will use the proceeds from the sale of the securities in connection with its ongoing construction program, to pay scheduled maturities and/or refundings of its securities, to repay short-term indebtedness to the extent outstanding and for other general corporate purposes.

Gulf represents that it will maintain its common equity as a percentage of capitalization (inclusive of short-term debt) at no less than 30 percent. Gulf further represents that no guaranties or other securities may be issued in reliance upon the requested authorization, unless (i) the security to be issued, if rated, is rated investment grade; (ii) all outstanding securities of Gulf, that are rated, are rated investment grade; and (iii) all outstanding securities of Southern, that are rated, are rated investment grade (the "Investment Grade Condition"). For purposes of this provision, a security will be deemed to be rated "investment grade" if it is rated investment grade by at least "one nationally recognized statistical rating organization," as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the Securities Exchange Act of 1934. Nevertheless, Gulf may issue a security that does not satisfy these conditions if the requirements of rule 52(a)(1) and rule 52(a)(3) are met and the issue and sale of the security have been expressly authorized by the Florida Public Service Commission.5 Gulf requests the Commission to reserve jurisdiction over any guaranties or securities that do not satisfy these conditions.

Southern states, for purposes of rule 54, that the conditions specified in rule 53(a) are satisfied, none of the adverse conditions specified in rule 53(b) exist and, consequently, rule 53(c) is inapplicable. As a result, the Commission will not consider the effect on the Southern system of the capitalization or earnings of any Southern subsidiary that is an "exempt wholesale generator" or a "foreign utility company," as those terms are defined in sections 32 and 33 of the Act, respectively, in determining whether to approve the proposed transactions.

Fees and expenses in connection with these transactions (other than underwriting discounts and commissions and those described above) are estimated not to exceed $550,000. Gulf states that no other state or federal commission, other than the Florida Public Service Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the Application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that, except as to those matters over which jurisdiction is reserved, the applicable standards of the Act and rules are satisfied and no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules, except as to matters over which jurisdiction is reserved, that the Application, as amended, is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED that jurisdiction is reserved, pending completion of the record, over the following matters: (1) the use of a foreign entity as a Trust and (2) the issuance or sale of any guaranties or securities that do not satisfy the Investment Grade Condition.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary



Modified: 10/31/2003