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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27860; 70-10206)

Ameren Corporation, et al.

Order Authorizing Various Financing and Related Transactions; Reservations of Jurisdiction

June 18, 2004

Ameren Corporation ("Ameren"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), and its wholly owned public-utility subsidiary, Union Electric Company, d/b/a AmerenUE ("AmerenUE"), both located in St. Louis, Missouri, and another Ameren public-utility subsidiary, Central Illinois Public Service Company, d/b/a AmerenCIPS ("AmerenCIPS"), Springfield, Illinois (collectively, "Applicants"), filed with the Securities and Exchange Commission ("Commission") an application-declaration, as amended ("Application") under sections 6(a), 7, 9(a), 10 and 12(b) and rules 45 and 54. The Commission issued a notice of the filing of the Application on April 30, 2004 (Holding Co. Act Release No. 27841).

Applicants request authorization to engage in financing and other related transactions, as described below, during the period commencing with the effective date of this requested Commission order and ending June 30, 2007 ("Authorization Period"). Upon the effective date of the Commission's order in this proceeding, Ameren will relinquish its authority to issue securities and engage in the other transactions authorized under its current October 5, 2001, financing order.1 In the Current Financing Order, Ameren is authorized to issue and sell: (1) in public or private offerings, up to $2.5 billion at any time outstanding of its capital stock, which consists of 400,000,000 shares of common stock, $0.01 par value ("Common Stock") or options, warrants or other stock purchase rights exercisable for Common Stock, its preferred stock, which consists of 100,000,000 shares, $0.01 par value ("Preferred Stock") and other forms of preferred securities (including, without limitation, trust preferred securities) ("Preferred Securities"), equity-linked securities ("Equity-linked Securities") and unsecured long-term debt securities ("Long-term Debt"); (2) in addition to the transactions described above, up to 25 million shares of Common Stock through stock-based plans maintained for shareholders (including new investors), officers, employees and non-employee directors, and (3) up to $1.5 billion principal amount at any time outstanding of commercial paper and/or other forms of unsecured short-term indebtedness ("Short-term Debt"). Ameren is also authorized to provide guarantees and other forms of credit support ("Guarantees") for its nonutility subsidiaries in an aggregate amount at any one time outstanding not to exceed $1.5 billion and to enter into interest rate hedging transactions with respect to its outstanding indebtedness and anticipated debt offerings.

I. Background

AmerenUE, AmerenCIPS and Central Illinois Light Company d/b/a AmerenCILCO ("AmerenCILCO"), together, provide retail and wholesale electric service to approximately 1.7 million customers and retail natural gas service to approximately 500,000 customers in a 49,000 square-mile area of Missouri and Illinois, including the St. Louis, Missouri, and Peoria and Springfield, Illinois, metropolitan areas.2 In addition, on February 2, 2004, Ameren entered into a definitive stock purchase agreement to acquire all of the securities of Illinois Power Company from Illinova Corporation, an exempt holding company and a subsidiary of Dynegy Inc. In S.E.C. File No. 70-10220, Ameren seeks approval for that acquisition and other related transactions.

Ameren directly owns CILCORP, an exempt holding company, which owns AmerenCILCO.3 Ameren also has five other direct wholly owned nonutility subsidiaries, in addition to CILCORP.4 AmerenUE has one direct wholly owned nonutility subsidiary, Union Electric Development Corporation, which holds investments in affordable housing projects that qualify for federal income tax credits and other passive investments, and also directly holds 40% of Electric Energy, Inc. ("EEI"), an exempt wholesale generator ("EWG") under section 32 of the Act, that owns and operates an electric generating station and transmission facilities in Joppa, Illinois.5

CILCORP directly owns three nonutility subsidiaries.6 AmerenCILCO also directly owns two nonutility subsidiaries, neither of which conducts any significant business at this time.7

AmerenUE, AmerenCIPS, AmerenCILCO, and AERG are referred to collectively as the "Utility Subsidiaries." The nonutility subsidiaries (other than CILCORP) are referred to collectively as "Nonutility Subsidiaries." The Utility Subsidiaries and Nonutility Subsidiaries are referred to collectively as the "Subsidiaries." The term Subsidiaries is also intended to include any other subsidiaries that may be acquired, directly or indirectly, by Ameren in a transaction that is exempt under the Act or the rules or that has otherwise been approved by the Commission.

II. The Proposed Authorizations

Applicants request authorization for the following transactions during the Authorization Period:

  1. For Ameren, to issue and sell, from time to time, directly, Common Stock, Preferred Stock8, Equity-linked Securities9 and, directly or indirectly, through one or more of its financing subsidiaries ("Financing Subsidiaries"), Preferred Securities and/or unsecured Long-term Debt in an aggregate amount at any time outstanding not to exceed $2.5 billion;
     
  2. For Ameren, to issue up to 25 million shares of Common Stock under its dividend reinvestment and stock purchase plan and employee savings and incentive compensation plans maintained for its officers and employees, or other similar stock-based plans adopted in the future, these shares to be in addition to any shares of Common Stock issued under the authority requested in (1) above;
     
  3. For Ameren, to issue and sell, from time to time, Short-term Debt in an aggregate principal amount at any time outstanding not to exceed $1.5 billion;
     
  4. For Ameren, to provide Guarantees on behalf, or for the benefit, of its Subsidiaries in an aggregate principal or nominal amount not to exceed $1.5 billion at any one time outstanding, provided that the amount of any securities issued by a Financing Subsidiary of Ameren that are guaranteed or supported by other forms of credit enhancement provided by Ameren will not count against this limitation but will instead be counted against the limitation on long-term securities proposed in (1) above;
     
  5. For Ameren, directly or indirectly through any of its Financing Subsidiaries, to enter into hedging transactions ("Interest Rate Hedges") with respect to existing indebtedness, in order to manage and minimize interest rate costs, and to enter into hedging transactions ("Anticipatory Hedges") with respect to anticipatory debt issuances, in order to lock-in current interest rates and/or manage interest rate risk exposure; and
     
  6. For AmerenUE and AmerenCIPS, (a) to acquire the equity securities of one or more Financing Subsidiaries to facilitate the issuance of long-term debt and/or preferred securities (including, without limitation, trust preferred securities) and (b) for any of AmerenUE's and AmerenCIPS' Financing Subsidiaries to engage in Interest Rate Hedges with respect to existing indebtedness, in order to manage and minimize interest rate costs, and Anticipatory Hedges with respect to anticipatory debt issuances, in order to lock-in current interest rates and/or manage interest rate risk exposure, as described in subparagraph (5) above.
     

A. Use of Proceeds

Ameren states that it will utilize the proceeds of the authorized financing for general and corporate purposes including: (a) financing, in part, of the capital expenditures of Ameren and its Subsidiaries; (b) financing working capital requirements and capital spending of the Subsidiaries, which includes making contributions to the Ameren system utility subsidiaries' money pool and the Ameren system non-state-regulated subsidiary money pool; (c) financing exempt acquisitions of interests in EWGs and "foreign utility companies" ("FUCOs"), subject to the limitations of rule 53; (d) financing exempt acquisitions of interests in "energy-related companies," as defined in rule 58, subject to the limitations of that rule; (e) the acquisition, retirement, refinancing or redemption of securities of which Ameren is the issuer under rule 42; and/or (f) the acquisition of the securities or assets of other companies, as may be authorized by the Commission in a separate proceeding.

B. Parameters Applicable to External Financing Transactions

Applicants state that the following general terms will be applicable to the proposed external financing activities where appropriate (including, without limitation, securities issued for the purpose of refinancing or refunding outstanding securities of the issuer).

1. Effective Cost of Money.

The effective cost of capital on Long-term Debt, Preferred Stock, Preferred Securities, Equity-linked Securities and Short-term Debt will not exceed competitive market rates available at the time of issuance for securities having the same or reasonably similar terms and conditions issued by similar companies of reasonably comparable credit quality; provided, that, in no event will the effective cost of capital: (1) on any series of Long-term Debt, PreferredStock or Preferred Securities exceed 500 basis points over a U.S. Treasury security having a remaining term equal to the term of the series; (2) on any series of Equity-linked Securities exceed 700 basis points over a U.S. Treasury security having a remaining term equal to the term of the series; and (3) on Short-term Debt exceed 300 basis points over the London Interbank Offered Rate for maturities of less than one year.

2. Maturity

The maturity of Long-term Debt will be between one and 50 years after issuance. Preferred Securities and Equity-linked Securities will be redeemed no later than 50 years after issuance, unless converted into Common Stock. Preferred Stock issued directly by Ameren may be perpetual in duration.

3. Issuance Expenses

The underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of securities proposed in this Application will not exceed the greater of: (1) 6% of the principal or total amount of the securities being issued; or (2) issuance expenses that are generally paid at the time of the pricing for sales of the particular issuance, having the same or reasonably similar terms and conditions issued by similar companies of reasonably comparable credit quality.

4. Common Equity Ratio

At all times during the Authorization Period, Ameren and each Utility Subsidiary will maintain common equity of at least 30% of its consolidated capitalization (common equity, preferred stock, long-term debt and short-term debt); provided that Ameren will in any event be authorized to issue Common Stock (including through stock-based plans maintained for shareholders (including new investors, officers, employees and non-employee directors)) to the extent authorized in this proceeding.

5. Investment Grade Ratings

Applicants further represent that, except for securities issued to fund intrasystem financings, no guarantees or other securities, other than Common Stock, may be issued in reliance upon the authorization granted by the Commission in this order, unless: (1) the security to be issued, if rated, is rated investment grade; (2) all outstanding securities of the issuer, that are rated, are rated investment grade; and (3) all outstanding securities of the registered holding company, that are rated, are rated investment grade. 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, as amended. The ratings test will not apply to any issuance of Common Stock. The Applicants request that the Commission reserve jurisdiction over the issuance of any guarantee or other securities in reliance upon the authorization granted by the Commission in this order at any time that the conditions set forth in clauses (1) through (3) above are not satisfied.

6. Authorization Period

No security will be issued under the proposed authorization after the last day of the Authorization Period, June 30, 2007.

III. The Specific Transactions

Ameren contemplates that Common Stock (including options, warrants and/or forward equity purchase contracts), Preferred Stock, Preferred Securities, Equity-linked Securities and Long-term Debt will be issued directly to one or more purchasers in privately-negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell such securities without registration under the Securities Act of 1933, as amended, in reliance upon one or more applicable exemptions from registration, or to the public.10

A. Common Stock

Ameren proposes that it may issue and sell Common Stock through underwriters or dealers, through agents, or directly to a limited number of purchasers or a single purchaser. If underwriters are used in the sale of Common Stock, the securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale.11

Ameren also proposes that it be permitted to issue Common Stock or options, warrants or other stock purchase rights exercisable for Common Stock in public or privately-negotiated transactions as consideration for the equity securities or assets of other companies, provided that the acquisition of those equity securities or assets has been authorized in a separate proceeding or is exempt under the Act or the rules (specifically rule 58).

B. Preferred Stock, Preferred Securities, Equity-linked Securities and Long-term Debt

Ameren proposes to issue, directly, Preferred Stock and Equity-linked Securities, or, directly or indirectly, through one or more Financing Subsidiaries, Long-Term Debt, and Preferred Securities.

Ameren proposes that Preferred Stock, Preferred Securities and Equity-linked Securities may be issued in one or more series with any rights, preferences, and priorities as may be designated in the instrument creating each series. These securities will be redeemed no later than 50 years after issuance, unless converted into Common Stock, except that Preferred Stock may be perpetual in duration.12

With respect to Long-term Debt, Ameren also proposes that Long-term Debt of a particular series (1) will be unsecured; (2) will have a maturity ranging from one to 50 years; (3) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount; (4) may be entitled to mandatory or optional sinking fund provisions; (5) may provide for reset of the coupon as provided for in a remarketing or auction arrangement; and (6) may be called from existing investors by a third party. The maturity dates, interest rates, and redemption and sinking fund provisions, if any, with respect to the Long-term Debt of a particular series, as well as any associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding.

C. Short-term Debt

Ameren proposes to issue and sell from time to time Short-term Debt in an aggregate principal amount at any time outstanding not to exceed $1.5 billion. Short-term Debt may include commercial paper notes, bank notes and other forms of short-term indebtedness.13 All Short-term Debt will be unsecured and will have maturities of less than one year from the date of issuance.

Ameren also proposes to establish and maintain back-up credit lines with banks or other institutional lenders to support its commercial paper program(s) and to establish other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings as it may deem appropriate in light of its needs and existing market conditions. Only the amounts drawn and outstanding under these agreements and facilities will be counted against the proposed limit on Short-term Debt.

D. Common Stock Issued Under Stock-based Plans

Ameren also proposes to issue up to 25 million shares of Common Stock under stock-based plans that it and its subsidiaries maintain for shareholders, investors, employees and nonemployee directors. Ameren currently maintains a dividend reinvestment plan, the Ameren Long-term Incentive Plan, the Ameren Corporation Savings Investment Plan (formerly the Union Electric Savings Investment Plan) and the Ameren Corporation Employee Long-term Savings Plan.

E. Guarantees

Ameren requests authorization to provide Guarantees with respect to financial or contractual obligations of any Subsidiary as may be appropriate in the ordinary course of the subsidiary's business, in an aggregate principal or nominal amount not to exceed $1.5 billion outstanding at any one time, provided however, that the amount of any Guarantees in respect of obligations of any Nonutility Subsidiaries shall also be subject to the limitations of rule 53(a)(1) and rule 58(a)(1), as applicable, and provided further, that any Guarantee that is outstanding, on the last day of the Authorization Period, will expire or terminate in accordance with the stated terms of the Guarantee. In addition to providing direct parent guarantees, Ameren may also provide Guarantees in the form of formal credit enhancement agreements, including but not limited to "keep well" agreements and reimbursement undertakings under letters of credit. The proposed limitation on Guarantees shall not include the amount of any guarantees or other forms of credit support provided with respect to securities issued by any Financing Subsidiary of Ameren (the amounts of which would count only against the proposed limitations on the amounts of debt and equity securities that Ameren may issue). Guarantees may, in some cases, be provided to support obligations of Subsidiaries that are not readily susceptible of exact quantification or that may be subject to varying quantification. In such cases, Ameren will determine the exposure under the guarantee for purposes of measuring compliance with the proposed limitation on Guarantees by appropriate means, including estimation of exposure based on loss experience or projected potential payment amounts. If appropriate, estimates will be made in accordance with generally accepted accounting principles in the United States of America, i.e., U.S. GAAP. The estimations will be reevaluated periodically.14

F. Hedging Transactions

Ameren, as well as AmerenUE and AmerenCIPS (these two, only to the extent described in subsection III.G. below), request authorization, directly or indirectly, through any of its Financing Subsidiaries, to enter into interest rate hedging transactions with respect to outstanding indebtedness ("Interest Rate Hedges"), subject to certain limitations and restrictions, in order to reduce or manage the effective interest rate cost.15 In no case will the notional amount of any Interest Rate Hedge exceed the principal amount of the underlying debt instrument. Transactions will be entered into for a fixed or determinable period. Applicants state that it will not engage in speculative transactions.

Ameren, as well as AmerenUE and AmerenCIPS (these two, to the extent described in subsection III.G. below), also propose, directly or indirectly through any Financing Subsidiary, to enter into interest rate hedging transactions with respect to anticipated debt offerings ("Anticipatory Hedges"), subject to certain limitations and restrictions, in order to fix the interest rate and/or limit the interest rate risk associated with any new issuance.16 Interest Rate Hedges and Anticipatory Hedges (other than exchange-traded interest rate futures contracts) would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of any credit support providers who have guaranteed the obligations of such counterparties, as published by S&P, are equal to or greater than BBB, or an equivalent rating from Moody's or Fitch, Inc.

Statement of Financial Accounting Standard ("SFAS") 133 (Accounting for Derivative Instruments and Hedging Activities) and SFAS 138 (Accounting for Certain Derivative Instruments and Certain Hedging Activities) or other standards applicable to accounting for derivative transactions as are adopted and implemented by the Financial Accounting Standards Board ("FASB") will be complied with. Applicants represent that each Interest Rate Hedge and each Anticipatory Hedge will qualify for hedge accounting treatment under the current FASB standards in effect and as determined as of the date such Interest Rate Hedge or Anticipatory Hedge is entered into. Applicants will also comply with any future FASB financial disclosure requirements associated with hedging transactions.

G. Financing Subsidiaries

In connection with the issuance of long-term debt and preferred securities, AmerenUE and AmerenCIPS request authorization to acquire, directly or indirectly, the common stock or other equity securities of one or more Financing Subsidiaries formed exclusively for the purpose of facilitating the issuance of long-term debt securities and/or preferred securities (including, without limitation, trust preferred securities) and for the loan or other transfer of the resulting proceeds to AmerenUE or AmerenCIPS, as applicable. In connection with any of this kind of financing transactions, AmerenUE and AmerenCIPS may enter into one or more Guarantees in favor of its Financing Subsidiary. AmerenUE and AmerenCIPS also request authorization to enter into expense agreements with its respective Financing Subsidiary, in which each company would agree to pay all expenses of the Financing Subsidiary.

Applicants state that the proposed Financing Subsidiaries shall be organized only if, in management's opinion, the creation and utilization of a Financing Subsidiary will likely result in tax savings, increased access to capital markets and/or lower cost of capital for AmerenUE or AmerenCIPS, as the case may be. They state, further, that no Financing Subsidiary shall acquire or dispose of, directly or indirectly, any interest in any "utility asset," as that term is defined under the Act.

AmerenUE and AmerenCIPS also request authorization to issue to any Financing Subsidiary, at any time or from time to time in one or more series, unsecured debentures, unsecured promissory notes or other unsecured debt instruments or preferred securities (individually, a "Note" and, collectively, the "Notes") governed by an indenture or indentures or other documents, and the Financing Subsidiary will apply the proceeds of any external financing by it, plus the amount of any equity contribution made to it, from time to time, to purchase the Notes. The terms (e.g., interest rate, maturity, amortization, prepayment terms, default provisions, etc.) of any the Notes would generally be designed to parallel the terms of the securities issued by the Financing Subsidiary to which the Notes relate.

In addition, AmerenUE and AmerenCIPS request that any of their Financing Subsidiaries be authorized to engage in Interest Rate Hedges with respect to existing indebtedness, in order to manage and minimize interest rate costs, and Anticipatory

Hedges with respect to anticipatory debt issuances, in order to lock-in current interest rates and/or manage interest rate risk exposure, as described in subsection III.F. above.17

IV. Conclusion

The proposed transactions are subject to rules 53 and 54. Rule 54 states that, if rule 53(a), (b) and (c) are satisfied, the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or FUCOs in determining whether to approve other transactions. Applicants state that the rule 53 standards are met. As a result, the Commission will not consider the effect on the Ameren system of the capitalization or earnings of any Ameren EWG (there is no Ameren FUCO).18

Applicants estimate that fees, commissions and expenses incurred or to be incurred in connection with the preparation and filing of this Application are not to exceed $25,000. Fees, commissions and expenses incurred in connection with any financing transaction approved in this proceeding will be within the limits described above. Applicants also state that the approval of the Illinois Commerce Commission ("ICC") may be required for AmerenUE or AmerenCIPS to acquire the equity securities of any Financing Subsidiary. The approval, if required, will be obtained at the time AmerenUE or AmerenCIPS seeks ICC approval to issue securities through any Financing Subsidiary. Applicants further state that no other state commission, and no federal commission, other than the Commission, has jurisdiction over any of the transactions proposed in this Application.

With reference to section 10(f) of the Act and with a view to potential circumstances where the ICC may have jurisdiction over the proposed acquisition of the equity securities of a Financing Subsidiary, Applicants request that the Commission reserve jurisdiction over the acquisition of the securities of any Financing Subsidiary, pending in each case the receipt of any required ICC authorization, the filing of a copy of any authorization as a supplement to the record in this proceeding, and the issuance of a supplemental order by the Commission authorizing the acquisition.

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 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 the rules, 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, except that Ameren will file certificates of notification within 60 days after the end of each of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur and the rule 24 certificates will contain the following information for the quarterly reporting period:

  1. The sales of any Common Stock and the purchase price per share and the market price per share at the date of the agreement of sale;
     
  2. The total number of shares of Common Stock issued or issuable under options, warrants or other stock-purchase rights granted during the quarter under the Plans;
     
  3. If Common Stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted to the acquiror;
     
  4. The amount and terms of any Long-term Debt, Preferred Stock, Preferred Securities or Equity-linked Securities issued directly or indirectly by Ameren during the calendar quarter;
     
  5. The amount and terms of any Short-term Debt issued directly or indirectly by Ameren during the calendar quarter;
     
  6. A description of the amount, terms and purpose of any Guarantee issued during the calendar quarter by Ameren and the name of the Subsidiary benefiting from such Guarantee;
     
  7. The name and amount invested by Ameren, AmerenUE and AmerenCIPS in any Financing Subsidiary during the calendar quarter;
     
  8. The notional amount and principal terms of any Interest Rate Hedge or Anticipatory Hedge entered into during the quarter and the identity of the parties to such instruments; and
     
  9. Consolidated balance sheet of Ameren, AmerenUE and AmerenCIPS as of the end of the calendar quarter.
     

IT IS FURTHER ORDERED that jurisdiction is reserved pending completion of the record over (1) the issuance by Applicants of any securities for which the investment grade conditions cannot be met and (2) the acquisition of the securities of any Financing Subsidiary, pending, in each case, the receipt of any required state commission authorization, the filing of a copy of any authorization as a supplement to the record in this proceeding, and the issuance of a supplemental order by the Commission authorizing the acquisition.

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


Margaret H. McFarland
Deputy Secretary


Endnotes


http://www.sec.gov/divisions/investment/opur/filing/35-27860.htm

Modified: 06/22/2004