UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Exact name of Registrants as specified in
their charters, State of Incorporation, IRS Employer
Commission address of principal executive offices and Identification
File Number Registrants' telephone number Number
- ----------- ------------------------------------------ --------------
333-52397 ESI Tractebel Acquisition Corp. 65-0827005
(a Delaware corporation)
333-52397-01 Northeast Energy, LP 65-0811248
(a Delaware limited partnership)
------------------------------------------
c/o FPL Energy, Inc.
700 Universe Boulevard
Juno Beach, Florida 33408-2683
(561) 691-7171
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) have been subject to such filing
requirements for the past 90 days. Yes No _X_
----------------------------------
This combined Form 10-Q represents separate filings by ESI Tractebel
Acquisition Corp. and Northeast Energy, LP. Information contained herein
relating to an individual registrant is filed by that registrant on its own
behalf. Each registrant makes representations only as to itself and makes no
other representations whatsoever as to any other registrant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Acquisition Corp.
(the Company) and Northeast Energy, LP (NE LP) are hereby filing cautionary
statements identifying important factors that could cause the Company and
NE LP's actual results to differ materially from those projected in forward-
looking statements (as such term is defined in the Reform Act) of the Company
and NE LP made by or on behalf of the Company and NE LP which are made in
this combined Form 10-Q, in presentations, in response to questions or
otherwise. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such
as will likely result, are expected to, will continue, is anticipated,
estimated, projection, outlook) are not statements of historical facts and
may be forward-looking. Forward-looking statements involve estimates,
assumptions and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the following important factors that could cause
the Company and NE LP's actual results to differ materially from those
contained in forward-looking statements of the Company and NE LP made by or
on behalf of the Company and NE LP.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company and NE LP undertake no obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect
the occurrence of unanticipated events. New factors emerge from time to time
and it is not possible for management to predict all of such factors, nor can
it assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions with respect to
allowed rates of return, industry and rate structure, acquisition and
disposal of assets and facilities, operation and construction of plant
facilities, recovery of fuel and purchased power costs, and present or
prospective competition.
The business and profitability of the Company and NE LP are also influenced
by economic and geographic factors including political and economic risks,
changes in and compliance with environmental and safety laws and policies,
weather conditions, population growth rates and demographic patterns,
competition for retail and wholesale customers, pricing and transportation of
commodities, market demand for energy from plants or facilities, changes in
tax rates or policies or in rates of inflation, unanticipated development
project delays or changes in project costs, unanticipated changes in
operating expenses and capital expenditures, capital market conditions,
competition for new energy development opportunities, legal and
administrative proceedings (whether civil, such as environmental, or
criminal) and settlements, and any unanticipated impact of the year 2000,
including delays or changes in costs of year 2000 compliance, or the failure
of major suppliers, customers and others with whom the Company and NE LP do
business to resolve their own year 2000 issues on a timely basis.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the Company
and NE LP.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ESI TRACTEBEL ACQUISITION CORP.
BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998
<S> <C>
ASSETS
Due from NE LP .................................................................................... $ 152
Note receivable from NE LP ........................................................................ 220,000
TOTAL ASSETS ...................................................................................... $220,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Income taxes payable ............................................................................ $ 2
Deferred credit - interest rate hedge ............................................................. 147
Securities payable ................................................................................ 220,000
Stockholders' equity:
Common stock, $.01 par value, 100 shares authorized, 20 shares issued ........................... -
Subscriptions receivable ........................................................................ -
Retained earnings ............................................................................... 3
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................................ $220,152
</TABLE>
The accompanying notes are an integral part of these financial statements.
ESI TRACTEBEL ACQUISITION CORP.
STATEMENT OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Period
Three From
Months January 12,
Ended 1998 to
June 30, June 30,
1998 1998
<S> <C> <C>
Interest income .................................................................... $ 4,342 $ 6,396
Interest expense ................................................................... (4,340) (6,391)
Income before income taxes ......................................................... 2 5
Income tax expense ................................................................. - (2)
NET INCOME ......................................................................... $ 2 $ 3
</TABLE>
The accompanying notes are an integral part of these financial statements.
ESI TRACTEBEL ACQUISITION CORP.
STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Period
From
January 12,
1998 to
June 30,
1998
<S> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................................................... $ -
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to NE LP .................................................................................... (215,202)
Net cash used in investing activities .......................................................... (215,202)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt securities ...................................................................... 215,050
Proceeds from interest rate hedge ................................................................ 152
Net cash provided by financing activities ...................................................... 215,202
Net increase in cash ............................................................................... -
Cash at beginning of period ........................................................................ -
Cash at end of period .............................................................................. $ -
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................................................... $ 6,396
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTHEAST ENERGY, LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 27,352 -
Accounts receivable .......................................................... 36,657 -
Fuel inventories ............................................................. 3,413 -
Prepaid expenses and other current assets..................................... 802 -
Total current assets ....................................................... 68,224 -
Non-current assets:
Deferred debt issuance costs - net ........................................... 6,438 -
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $10,123) ................................................... 502,928 -
Power purchase contracts (net of accumulated amortization of $23,394) ........ 865,362 -
Other assets ................................................................. 123 -
Total non-current assets ................................................... 1,374,851 -
TOTAL ASSETS ................................................................... $1,443,075 -
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of notes payable - ESI Tractebel Funding Corp. ............... $ 22,537 -
Accounts payable ............................................................. 14,587 -
Due to related parties ....................................................... 2,661 -
Other accrued expenses ....................................................... 5,846 -
Total current liabilities .................................................. 45,631 -
Non-current liabilities:
Deferred credit - O&M and fuel contracts ..................................... 340,418 -
Notes payable - ESI Tractebel Funding Corp. .................................. 456,968 -
Note payable - ESI Tractebel Acquisition Corp. ............................... 220,000 -
Amounts due utilities for energy bank balances ............................... 172,649 -
Total non-current liabilities .............................................. 1,190,035 -
Partners' equity:
General partners ............................................................. 4,147 -
Limited partners ............................................................. 203,262 -
Total partners' equity ..................................................... 207,409 -
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND PARTNERS' EQUITY ......................................... $1,443,075 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NORTHEAST ENERGY, LP
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended
June 30, June 30,
1998 1998
<S> <C> <C>
REVENUES ......................................................................... $ 66,458 $141,197
COSTS AND EXPENSES:
Fuel ........................................................................... 27,637 57,154
Operation and maintenance ...................................................... 3,890 8,628
Depreciation and amortization .................................................. 18,024 33,532
General and administrative ..................................................... 2,194 4,362
Total costs and expenses ..................................................... 51,745 103,676
OPERATING INCOME ................................................................. 14,713 37,521
OTHER EXPENSE (INCOME):
Amortization of debt issue costs ............................................... 153 225
Interest expense ............................................................... 20,297 36,060
Interest income ................................................................ (857) (1,510)
Total other expense - net .................................................... 19,593 34,775
NET INCOME (LOSS) ................................................................ $ (4,880) $ 2,746
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NORTHEAST ENERGY, LP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended
June 30,
1998
<S> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................................................ $ 32,250
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition purchase price, net of $62,635 cash acquired ....................................... (483,140)
Net cash used in investing activities ........................................................ (483,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from partners ............................................................ 535,412
Principal payment on ESI Tractebel Funding Corp. notes ......................................... (10,782)
Release of restricted cash collateral .......................................................... 69,156
Proceeds from loan by the Company .............................................................. 215,202
Distributions to partners ...................................................................... (330,746)
Net cash provided by financing activities .................................................... 478,242
Net increase in cash and cash equivalents ........................................................ 27,352
Cash and cash equivalents at beginning of period ................................................. -
Cash and cash equivalents at end of period ....................................................... $ 27,352
Supplemental disclosure of cash flow information:
Cash paid for interest ......................................................................... $ 29,711
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ESI TRACTEBEL ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management of the Company, all adjustments (consisting of
normal recurring accruals) considered necessary for fair financial statement
presentation have been made. The results of operations for an interim period
may not give a true indication of results for the year.
1. Nature of Business
The Company, a Delaware corporation, was formed on January 12, 1998 as a
special purpose funding corporation for the purpose of issuing the securities
described in Note 3. The Company's common stock is jointly owned by ESI
Northeast Energy Acquisition Funding, Inc. (ESI NE Acquisition Funding), a
wholly-owned subsidiary of ESI Energy, Inc. (ESI Energy), and Tractebel
Power, Inc. (Tractebel Power). The Company acts as agent of NE LP with
respect to the securities and holds itself out as agent of NE LP in all
dealings with third parties relating to the securities.
NE LP, a Delaware limited partnership, was formed on November 21, 1997 for
the purpose of acquiring ownership interests in electric power generation
stations and is jointly owned by subsidiaries of ESI Energy and Tractebel
Power. ESI Energy is wholly-owned by FPL Energy, Inc. which is an indirect
wholly-owned subsidiary of FPL Group, Inc., a New York Stock Exchange
company. Tractebel Power is a direct wholly-owned subsidiary of Tractebel,
Inc. which is a direct wholly-owned subsidiary of Tractebel, S.A., a Belgian
energy and environmental services business. NE LP also formed a wholly-owned
entity, Northeast Energy, LLC (NE LLC, and together with NE LP, the Partners
) to assist in such acquisitions.
On January 14, 1998, the Partners purchased all of the interests in two
existing limited partnerships, Northeast Energy Associates, A Limited
Partnership (NEA) and North Jersey Energy Associates, A Limited Partnership
(NJEA, and together with NEA, the Partnerships).
2. Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. The Securities
On February 12, 1998, the Company issued $220,000,000 of 7.99% Secured Bonds
Due 2011 to qualified institutional buyers as defined in Rule 144A of the
Securities Act of 1933 (Rule 144A). Borrowings outstanding at June 30, 1998
were $220,000,000.
The Company has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission for purposes of effecting a public
exchange offer whereby the securities (Old Securities) described above may be
exchanged for a new issue of securities which are registered under the
Securities Act of 1933 (the New Securities and together with the Old
Securities, the Securities). The New Securities will have terms substantially
identical to the Old Securities. The exchange offer became effective August
12, 1998 and expires on September 14, 1998 unless extended by the Company.
Interest on the Securities is payable semiannually on each June 30 and
December 30. Principal repayments will be made annually commencing on June
30, 2002 and are in amounts stipulated in the trust indenture relating to the
Securities. Future principal payments are as follows:
Year ending December 31:
2002 .................................................. $ 8,800,000
Thereafter ............................................ $211,200,000
The Securities are subject to optional redemption after June 30, 2008 at the
redemption prices set forth in the trust indenture and are subject to
extraordinary mandatory redemption at a redemption price of 100% of the
principal amount thereof in certain limited circumstances as defined in the
trust indenture.
The proceeds from the sale of the Old Securities were loaned to NE LP,
evidenced by a promissory note (the Note) with substantially identical terms
as the Old Securities, for the purpose of reimbursing certain of the partners
of NE LP for a portion of the original $545 million equity contribution that
was used to finance the cost of the acquisitions. The Securities are
unconditionally guaranteed by NE LP.
The Securities are payable solely from payments to be made by NE LP under the
Note and the guarantee. NE LP's obligations to make payments under the Note
are nonrecourse to the direct and indirect owners of NE LP.
Payments with respect to the Note and, therefore, in respect of the
Securities will be effectively subordinated to payment of all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Partnerships, including the guarantee by the Partnerships
of its indebtedness.
Repayment of the Securities is guaranteed by all interest in the
Partnerships. The Securities will rank senior to all subordinated
indebtedness and rank evenly with all senior indebtedness that the Company
incurs in the future.
4. Financial Instruments
In January 1998, the Company entered into a fixed interest rate hedge to
hedge its exposure to fluctuations in the interest rate associated with the
placement of the Old Securities. The financial instrument was settled on
February 17, 1998 and qualified for hedge accounting. The gain resulting from
the hedge was $151,582 and is being amortized into income using the effective
interest method.
The Company controls the credit risk arising from these instruments through
credit approvals, limits and monitoring. The Company does not normally
require collateral or other security to support financial instruments with
credit risks.
NORTHEAST ENERGY, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management of NE LP, all adjustments (consisting of normal
recurring accruals) considered necessary for fair financial statement
presentation have been made. The results of operations for an interim period
may not give a true indication of results for the year.
1. Nature of Business
NE LP, a Delaware limited partnership, was formed on November 21, 1997 for
the purpose of acquiring ownership interests in electric power generation
stations, and is jointly owned by subsidiaries of ESI Energy and Tractebel
Power. ESI Energy is wholly-owned by FPL Energy, Inc. which is an indirect
wholly-owned subsidiary of FPL Group, Inc., a New York Stock Exchange
company. Tractebel Power is a direct wholly-owned subsidiary of Tractebel,
Inc. which is a direct wholly-owned subsidiary of Tractebel, S.A., a Belgian
energy and environmental services business. NE LP also formed a wholly-owned
entity, Northeast Energy, LLC to assist in such acquisitions. NE LP had no
financial activity prior to December 31, 1997.
On January 14, 1998, the Partners purchased all of the interests in the
Partnerships. NE LP holds a one percent (1%) general partner and ninety-eight
percent (98%) limited partner interest in the Partnerships; NE LLC holds the
remaining one percent (1%) limited partner interest. See Note 2 -
Acquisitions for additional information relating to the acquisitions.
The Partnerships were formed in 1986 to develop, finance, construct, own,
manage and operate two separate 300 megawatt (MW) natural gas-fired combined-
cycle cogeneration facilities. NEA's facility is located in Bellingham,
Massachusetts and NJEA's facility is located in Sayreville, New Jersey. NEA
commenced commercial operation in September 1991 and NJEA commenced
commercial operation in August 1991. The Partnerships operate in the
independent power industry and have been granted permission by the Federal
Energy Regulatory Commission to operate as qualifying facilities defined in
the Public Utility Regulatory Policies Act of 1978, as amended and as defined
in federal regulations.
In connection with the acquisition of the Partnerships' interests, an
existing special purpose funding corporation was acquired and its name
changed from IEC Funding Corp. to ESI Tractebel Funding Corp. This entity
previously issued debt which was registered with the Securities and Exchange
Commission in an exchange offer. Repayment of this debt is secured by the
assets of the Partnerships.
Additionally, as a means of funding portions of the purchase price of the
acquisition of the Partnerships, the Company was formed. On February 12, 1998
the Company issued the Old Securities and loaned the proceeds to NE LP. The
proceeds were then distributed to ESI Energy and Tractebel Power. Repayment
of the Securities is expected from distributions from the Partnerships and is
guaranteed by all interests in the Partnerships. See Note 4 for additional
information.
The Partners share profits and losses and have interests in assets and
liabilities and cash flows in proportion to their tax basis capital accounts.
Distributions to the Partners may be made only after all required funds and
sub-funds of the Partnerships have been fully funded, as described in the
trust indenture.
2. Summary of Significant Accounting Policies
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of the Partnerships subsequent to the acquisitions, as
they are indirectly wholly-owned by NE LP. All material intercompany
transactions have been eliminated in consolidation.
Acquisitions - On January 14, 1998, the Partners acquired all of the
interests in the Partnerships for $545 million, including approximately $10
million of acquisition costs (the Acquisitions). The Acquisitions were
accounted for using the purchase method of accounting. The purchase price has
been allocated based on fair value to the net assets of the Partnerships.
The following is a summary of the assets acquired and liabilities assumed in
the Acquisitions based on a preliminary allocation of the purchase price
(thousands of dollars):
Assets:
Current assets ........................................ $114,286
Restricted cash ....................................... $ 69,156
Cogeneration facilities and carbon dioxide facility.... $512,059
Power purchase contracts .............................. $888,756
Other assets .......................................... $ 127
Liabilities:
Current liabilities ................................... $ 47,031
Operation and maintenance (O&M) contracts ............. $ 18,749
Fuel contracts ........................................ $333,544
Energy bank balances .................................. $171,530
Notes payable ......................................... $468,724
Carrying values of current assets, restricted cash and current liabilities
were considered to closely approximate fair value and were not adjusted.
Power purchase contracts were assigned a value based on the estimated amount
to be received over the contract period in excess of an independent
appraiser's assessment of market rates for power, discounted to the date of
acquisition. The cogeneration facilities and carbon dioxide facility were
initially assigned value based on an assessment of current replacement cost
for similar capacity, without the acquired power purchase agreements. In
accordance with Accounting Principles Board Opinion No. 16, the values
assigned to these long-lived assets were reduced by the net excess of the
fair values of all assets acquired over the purchase price. O&M and fuel
contract obligations were determined based on expected cash flows during
contract periods compared to estimated cash flows for similar services if
contracted for currently, discounted to the date of acquisition. Notes
payable include the previously-existing debt of the Partnerships that was
considered to approximate market value. Energy bank balances were assigned a
value representing the estimated present value of future payments to
utilities in connection with certain existing power purchase agreements.
The following unaudited pro forma information has been prepared assuming that
the Acquisitions and the issuance of the Old Securities described in Note 1 had
occurred at the beginning of the period presented (thousands of dollars):
Six
Months
Ended
June 30,
1998
Revenues .............................................. $154,306
Operating income ...................................... $ 41,799
Net income ............................................ $ 2,343
Cash and Cash Equivalents - Investments purchased with an original maturity
of three months or less are considered cash equivalents. Excess cash is
invested in high-grade money market accounts and commercial paper and are
subject to minimal credit and market risk. At June 30, 1998, the recorded
amount of cash approximates its fair value.
Accounts Receivable and Revenue - Accounts receivable primarily consist of
receivables from three Massachusetts utilities and one New Jersey utility for
electricity delivered and sold under six power purchase agreements. Prices
are based on initial floor prices per kilowatt hour (kWh), subject to
adjustment based on actual volumes of electricity purchased, escalation
factors and other conditions. Revenue is recognized in accordance with the
Emerging Issues Task Force Issue No. 91-6, Revenue Recognition of Long-Term
Power Sales Contracts. Revenue is recognized based on power delivered at
rates stipulated in power purchase agreements, except that revenue is
deferred to the extent that stipulated rates are in excess of amounts, either
scheduled or specified, in the agreements to the extent the Partnerships have
an obligation to repay such excess. The amount deferred is reflected as
amounts due utilities for energy bank balances on the consolidated balance
sheet. Revenue from steam sales is recognized upon delivery.
Cogeneration Facilities, Carbon Dioxide Facility and Other Assets - Effective
January 14, 1998, all facilities were revalued as a result of applying the
purchase method of accounting mentioned above. The facilities and other fixed
assets are depreciated using the straight-line method over the estimated
useful life of 34 years.
Major Maintenance - Effective January 14, 1998, maintenance expenses are
accrued for certain identified major maintenance and repair items related to
the Partnerships' facilities. The expenses are accrued ratably over each
major maintenance cycle. The amounts accrued relate to maintenance costs
required for the equipment to operate over its depreciable life.
Inventories - Inventories consist of natural gas and fuel oil and are stated
at the lower of cost, determined on a first in, first out (FIFO) basis, or
market.
Power Purchase Contracts - Effective January 14, 1998, power purchase
contracts which were determined to be in excess of prevailing rates for
similar contracts were adjusted as a result of applying the purchase method
of accounting mentioned above. These contracts are being amortized over
contract periods, ranging from 14 to 24 years, on a straight-line basis or
matched to scheduled fixed-price increases under the power purchase
agreements, as applicable.
O&M Contracts - Effective January 14, 1998, O&M contracts which were
determined to be in excess of prevailing rates for similar contracts were
adjusted as a result of applying the purchase method of accounting mentioned
above. The O&M contracts are being amortized on a straight-line basis over
the remaining terms of the contracts, 4 years.
Fuel Contracts - Effective January 14, 1998, fuel contracts which were
determined to be in excess of prevailing rates for similar contracts were
adjusted as a result of applying the purchase method of accounting mentioned
above. The fuel contracts are being amortized on a straight-line basis over
the remaining terms of the contracts, 16 years.
Amounts Due Utilities for Energy Bank Balances - Effective January 14, 1998,
amounts due utilities for energy bank balances were adjusted to the present
value of estimated future payments.
Interest Rate Swaps - Interest rate swaps that do not qualify for hedge
accounting are recorded at fair value, with changes in the fair value
recognized currently in income. See Note 6 for further disclosure regarding
interest rate swap agreements.
Natural Gas Hedging Instrument - Premiums paid for natural gas call options
are deferred and recognized in income in conjunction with the underlying
natural gas purchases. Gains and losses on natural gas purchase swap
agreements are recognized as adjustments to fuel costs at monthly settlement
dates. Purchases of natural gas under forward purchase agreements are
accounted for as fuel costs at their contract price at delivery. The net gain
included in fuel costs resulting from the gas purchase options, swap
agreements and forward purchases was $1.2 million for both the three and six
month periods ended June 30, 1998. See Note 6 for further disclosure
regarding natural gas hedging instruments.
Deferred Debt Issuance Costs - Deferred debt issuance costs are being
amortized over the approximate 14-year term of the note payable using the
interest method.
Income Taxes - Partnerships are not taxable entities for Federal and state
income tax purposes. As such, no provision has been made for income taxes
since such taxes, if any, are the responsibilities of the individual
partners.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Cogeneration Facilities, Power Purchase Agreements and Carbon Dioxide
Facility
Cogeneration Facilities - The cogeneration facilities have maximum output
capacities of any combination of electricity and steam equivalent to
approximately 600 MW in the aggregate.
Power Purchase Agreements - In 1986, NEA entered into five power purchase
agreements with three Massachusetts utilities to sell approximately 290 MW at
initial floor prices per kWh subject to adjustment based on actual volumes
purchased, escalation factors, and other conditions. Performance under
certain of these agreements is secured by a second mortgage on the NEA
facility. In 1987, NJEA entered into an agreement with a New Jersey utility
to sell 250 MW at an initial fixed price per kWh subject to adjustments, as
defined in the agreement. These power purchase agreements have initial terms
ranging from 20 to 30 years. All of the Partnerships' power sales to
utilities are generated through these arrangements. As such, the Partnerships
are directly affected by changes in the power generation industry.
Substantially all of the Partnerships' accounts receivable are with utilities
located in the Northeast portion of the United States. The Partnerships do
not require collateral or other security to support their receivables.
However, management does not believe significant credit risk exists at June
30, 1998. During the six month period ended June 30, 1998, revenue from two
different utilities accounted for approximately 47.8% and 39.3% of power
sales to utilities.
On November 25, 1997, the Massachusetts legislature passed a comprehensive
electric deregulation bill to establish a comprehensive framework for the
restructuring of the electric utility industry. Industry efforts are also
underway in New Jersey. While the Partnerships do not expect electric utility
industry restructuring to result in material adverse changes to the
Partnerships' power purchase agreements, the impact of electric utility
industry restructuring on the companies that purchase power from the
Partnerships is uncertain.
Energy Bank Balances - Certain agreements require the establishment of energy
banks to record cumulative payments made by the utilities in excess of
avoided cost rates scheduled or specified in such agreements. One of the
resulting energy banks is non-interest bearing; however, the remaining energy
banks bear interest at various rates specified in the agreements. Amounts
recorded in two of the energy banks will be required to be repaid to the
extent that, in later periods, power purchase agreement avoided costs are
above the contract rate. The balances of two energy banks are secured by the
NEA second mortgage and letters of credit have been established for two other
energy banks (see Note 7).
Steam Sales Agreements and Carbon Dioxide Facility - In order for the
Partnerships' facilities to maintain qualifying facility status, the
facilities are required to generate five percent of total energy output as
steam for sale to unrelated third parties. In 1990, NEA entered into an
amended and restated NEA steam sales agreement with a processor and seller of
carbon dioxide. The amended and restated NEA steam sales agreement extends
for the same terms as the carbon dioxide facility's lease, with automatic
extension for any renewal period under the carbon dioxide facility's lease.
Pursuant to the steam sales agreement, NEA sells all the steam generated by
the NEA facility at a price that fluctuates based on changes in the price of
a specified grade of fuel oil.
In conjunction with this contract, NEA constructed the carbon dioxide
facility and, in 1989, entered into a 16-year agreement to lease the facility
to the steam user. Base rent under the lease is $100,000 per month, adjusted
by the operating results of the facility as outlined in the lease agreement.
Additionally, NEA pays the steam user $100,000 annually for administrative
services rendered related to the operation of the carbon dioxide facility.
In 1989, NJEA entered into a 20-year steam sales contract with a steam user
adjacent to the NJEA facility. Under this agreement, NJEA sells a specified
maximum quantity of steam at a floor price that can increase based on changes
in prices of coal. This agreement automatically renews for two consecutive
five-year terms unless either party gives notice not to renew two years
before the expiration of each of the prior terms.
Fuel Supply, Transportation and Storage Agreements - Natural gas is provided
to the NEA and NJEA facilities primarily under long-term contracts for
supply, transportation and storage. The remaining fuel requirements are
provided under short-term spot arrangements. The long-term natural gas supply
is provided under contracts with ProGas Limited (ProGas) and Public Service
Electric and Gas Company (PSE&G). Various pipeline companies provide
transportation of the natural gas. Gas storage agreements provide contractual
arrangements for the storage of limited volumes of natural gas with third
parties for future delivery to the Partnerships.
The ProGas contracts commenced in 1991, and the initial 15-year terms were
extended an additional seven years effective in 1994. The maximum total
volumes of gas to be delivered under the ProGas contracts are approximately
48,800 and 22,000 millions of British thermal units (MMBtu) per day for NEA
and NJEA, respectively. The contract price, including transportation, of the
ProGas supply delivered to the import point is determined with reference to a
base price in 1990, re-determined annually thereafter based on specified
inflation indices. The PSE&G contract commenced in 1991, and provides for the
sale and delivery to NJEA of up to 25,000 MMBtu per day of gas for a term of
20 years. The contract price of the PSE&G gas is established monthly using a
contractually specified mechanism.
With the exception of the PSE&G arrangement, all of the Partnerships' long-
term contractual arrangements call for monthly demand charge payments. These
demand charge payments reserve certain pipeline transportation capacity and
are made regardless of the Partnerships' specified fuel requirements in any
month and regardless of whether the Partnerships utilize the capacity
reserved. These demand charges totaled approximately $10.9 million and $21.6
million for the three and six month periods ended June 30, 1998,
respectively. In the event the available capacity under these agreements is
not utilized by the operations of the facilities, the Partnerships have the
opportunity under certain of these contractual agreements to sell unused
capacity to third parties, but have not yet done so.
NEA's facility also has the capability to burn #2 fuel oil. Fuel oil is
stored on site for contingency supply.
4. Loans Payable
In 1994, the Partnerships refinanced their existing borrowings by means of a
placement of securities to qualified institutional buyers as defined in Rule
144A . In 1995, ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
filed a Registration Statement on Form S-4 with the Securities and Exchange
Commission for purposes of effecting a public exchange offer whereby the
securities mentioned above were exchanged for a new issue of securities (the
Funding Corp. Securities). The Funding Corp. Securities have terms identical
to the securities issued in accordance with Rule 144A. Interest rates on the
Funding Corp. Securities range from 8.43% to 9.77% with final maturity dates
ranging from 2000 to 2010.
Interest on the Funding Corp. Securities is payable semiannually on each June
30 and December 30. Principal repayments are made semiannually in amounts
stipulated in the trust indenture. Future principal payments are as follows:
Year ending December 31:
1998 ......... ........................................ $ 10,781,000
1999 .................................................. $ 23,511,000
2000 .................................................. $ 26,333,000
2001 .................................................. $ 20,160,000
2002 .................................................. $ 22,688,000
Thereafter ............................................ $376,032,000
The Funding Corp. Securities are not subject to optional redemption but are
subject to mandatory redemption in certain limited circumstances involving
the occurrence of an event of loss, as defined in the trust indenture, for
which the Partnerships fail to or are unable to restore a facility. The
Funding Corp. Securities are unconditionally guaranteed, jointly and
severally, by the Partnerships.
The proceeds from the sale of the Funding Corp. Securities were used to
purchase the notes outstanding under the original loan and credit agreements
and to make loans to the Partnerships. In connection with these two
transactions, the notes outstanding under the loan and credit agreements were
surrendered and new notes of the Partnership were issued to ESI Tractebel
Funding Corp. (formerly IEC Funding Corp.) in an aggregate principal amount
equal to the aggregate principal amount of the Funding Corp. Securities (the
Funding Corp. Notes). The loan and credit agreement was assigned to ESI
Tractebel Funding Corp. (formerly IEC Funding Corp.) and amended and restated
(the Amended and Restated Credit Agreement).
Borrowings are secured by a lien on, and a security interest in,
substantially all of the assets of the Partnerships. Under the Amended and
Restated Credit Agreement, the Partnerships are jointly and severally
required to make scheduled payments on the Funding Corp. Notes on dates and
in amounts identical to the scheduled payments of principal and interest on
the Funding Corp. Securities. The Funding Corp. Securities, the guarantees
thereon provided by the Partnerships and the Funding Corp. Notes are
nonrecourse to the Partners and are payable solely by the Partnerships and
from the collateral pledged as security.
Under the terms of the trust indenture governing the Funding Corp.
Securities, the Partnerships are required to establish certain funds and
subfunds which must be fully funded before any partner distributions can be
made. Cash within these funds can be drawn currently if funds in the
Partnerships' other cash accounts are insufficient to meet operational cash
requirements.
The trust indenture also contains certain restrictions on activities of the
Partnerships, including incurring additional indebtedness or liens,
partnership distributions, cancellation of certain agreements, the execution
of mergers, consolidations and asset sales.
Under the terms of the original loan and credit agreement, the Partnerships
were required to enter into interest rate swap agreements providing for the
payments on a notional principal amount to be made by the Partnerships at
fixed interest rates, in exchange for payments to be made by such financial
institutions at floating interest rates. The original specified notional
principal amount declines periodically until the scheduled expiration of the
swaps in 1999. The Partnerships are jointly and severally liable under these
agreements. As a result of the refinancing described above, the original
interest swap agreements no longer qualify for hedge accounting and are
recorded at fair value. Changes in fair value are recognized in the
consolidated statement of operations. See Note 6 for information regarding
fair value of financial instruments.
On February 12, 1998, the Company issued $220,000,000 of 7.99% Secured Bonds
Due 2011 (the Old Securities). The proceeds were loaned to NE LP and are
evidenced by the Note with substantially identical terms as the Old
Securities. The loan was used to reimburse certain ESI Energy and Tractebel
Power subsidiaries for a portion of the original $545 million equity
contribution that was used to finance the cost of the Acquisitions. A
Registration Statement on Form S-4 has been filed with the Securities and
Exchange Commission for purposes of effecting a public exchange offer whereby
the Old Securities may be exchanged for New Securities which are registered
under the Securities Act of 1933. Such New Securities will have substantially
identical terms as the Old Securities. The exchange offer became effective
August 12, 1998 and expires on September 14, 1998 unless extended by the
Company.
Interest on the Securities is payable semiannually on each June 30 and
December 30. Principal repayments are made annually commencing on June 30,
2002 and are in amounts stipulated in the trust indenture. Future principal
payments are as follows:
Year ending December 31:
2002 .................................................. $ 8,800,000
Thereafter ............................................ $211,200,000
The Securities are unconditionally guaranteed by NE LP.
The Securities are payable solely from payments to be made by NE LP under the
Note and bond guaranty and from other moneys that may be available from time
to time in the accounts held by the trustee and are not obligations of the
Partnerships. NE LP has a general obligation to make payments under the Note
and the bond guaranty. NE LP's only source of funds to make such payments is
distributions from the Partnerships. NE LP's obligations to make payments
under the Note are non-recourse to the direct and indirect owners of NE LP
(including ESI Energy and Tractebel Power). Payments with respect to the Note
and, therefore, in respect of the Securities will be effectively subordinated
to payment of all indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of the Partnerships,
including the guarantee by the Partnerships of the Funding Corp. Securities.
5. Related Party Information
Administrative Services Agreement - NE LP and an entity related to ESI Energy
have entered into an Administrative Services Agreement (the Agreement) that
provides for management and administrative services to the Partnerships. The
Agreement expires in 2018, provides for fees of a minimum of $600,000 per
year and reimburses costs and expenses of performing services.
Operation and Maintenance Agreements - NE LP and an entity related to ESI
Energy have entered into operation and maintenance agreements (the New O&M
Agreements) that provide for the operation and maintenance of the
Partnerships on the day following the expiration or early termination of the
current O&M provider. The New O&M Agreements extend for an initial term until
January 14, 2016, subject to extension by mutual agreement of the parties
before six months preceding expiration. The New O&M Agreements reimburse
costs and expenses of performing services and provide for fees of $750,000
per year, subject to certain adjustments, for each Partnership.
Fuel Management Agreements - NE LP and an entity related to ESI Energy have
entered into Fuel Management Agreements (the Fuel Agreements) that provide
for the management of all natural gas and fuel oil, transportation and
storage agreements, and the location and purchase of any additional required
natural gas or fuel oil for the Partnerships. The Fuel Agreements expire in
2023. The Fuel Agreements provide for fees of a minimum of $450,000 per year
for each Partnership and reimburse all costs and expenses of performing
services.
Accrued expenses under the Agreement, the New O&M Agreements, and the Fuel
Agreements were $.8 million and $1.5 million for the three and six month
periods ended June 30, 1998, respectively.
Amounts due to general partners and other related parties were $1.4 million
and $1.3 million at June 30, 1998, respectively. The average balances due to
related parties did not vary materially from these amounts. During the six
month period ended June 30, 1998, NE LP received $535.4 million of
contributions from its partners. During the three and six month periods ended
June 30, 1998, distributions were made to the partners of approximately $23.1
million and $330.7 million, respectively.
6. Financial Instruments
The Partnerships have made use of derivative financial instruments to hedge
their exposure to fluctuations in both interest rates and the price of
natural gas.
Under the terms of the original loan and credit agreement, the Partnerships
were required to enter into fixed interest rate swap agreements as a means of
managing exposure to the variable rate of interest of the original
Partnerships' borrowings. In conjunction with the refinancing, the
Partnerships entered into counter-swap agreements so that the Partnerships
would no longer be exposed to changes in interest rates.
The prices received by the Partnerships for power sales under their long-term
contracts do not move precisely in tandem with the prices paid by the
Partnerships for natural gas. To mitigate the price risk associated with
purchases of natural gas, the Partnerships may, from time to time, enter into
certain hedging transactions either through public exchanges or by means of
over-the-counter transactions with specific counterparties. The Partnerships
hedge purchases of natural gas through the use of natural gas call options,
natural gas purchase swap agreements that require the Partnerships to pay a
fixed price (absolutely or within a specified range) in return for a variable
price on specified notional quantities of natural gas, and forward purchases
of natural gas.
The Partnerships control the credit risk arising from these instruments
through credit approvals, limits, and monitoring. The Partnerships do not
normally require collateral or other security to support financial
instruments with credit risks.
7. Commitments and Contingencies
Energy Bank and Loan Collateral - Subsequent to the Acquisitions on January
14, 1998, certain credit arrangements were terminated and replaced with new
letters of credit and a guaranty to satisfy requirements in certain power
purchase agreements. Specifically, new energy bank letters of credit were
issued in face amounts of $12,656,000 and $54,000,000. The $12,656,000 letter
of credit expires on December 31, 1998 and can be drawn upon on one occasion
in the event that a certain power purchase agreement has terminated at a time
when there was a positive energy bank balance existing in favor of the power
purchaser. The $54,000,000 letter of credit expires on December 31, 1998 and
can be drawn upon in multiple drawings in the event that a certain power
purchase agreement has terminated at the time when there was a positive
energy bank balance existing in favor of the power purchaser. A guaranty was
made by a subsidiary of FPL Group, Inc. in favor of the Partnerships'
trustee. The guarantor unconditionally and irrevocably guarantees the payment
of an amount equal to 50% of the debt service reserve requirement with a
respect to the Funding Corp. Securities. The guaranty expires on December 31,
1998 but is automatically extended for successive one-year periods unless the
guarantor gives notice that it will not renew. Once the new credit
arrangements were in place, cash of approximately $69.2 million (plus
approximately $2.5 million in accrued interest) was released and distributed
to the Partners. Additionally, new letters of credit were issued in
substitution for cash on deposit in Partnership trust accounts and
approximately $33.2 million in cash was released and distributed to the
Partners.
Operation and Maintenance of the Cogeneration Facilities - In 1989, the
Partnerships entered into two separate ten year O&M agreements with an O&M
provider for an aggregate annual consideration of approximately $11,100,000,
subject to changes in specified indices. Under these agreements, the
Partnerships are required to pay the O&M provider a bonus payable annually
over the term of the agreements based on operating performance. The
Partnerships incurred $3.3 million and $7.5 million for O&M and bonus
expenses for the three and six month periods ended June 30, 1998,
respectively. On November 15, 1997, the O&M provider's parent announced that
it intended to sell certain of its industrial businesses, including the
business of the O&M provider. Each of the Partnerships is a party to the New
O&M Agreements mentioned above and do not anticipate a material adverse
effect related to this potential change in service provider.
Operating Lease - NEA entered into a 26 year operating lease in 1986 for a
parcel of land. The lease may be extended for another 25 years at the option
of NEA. Lease payments under the operating lease are as follows:
Year ending December 31:
1998 ......... ........................................ $ 189,000
1999 .................................................. $ 201,000
2000 .................................................. $ 213,000
2001 .................................................. $ 225,000
2002 .................................................. $ 237,000
Thereafter ............................................ $2,760,000
Lease expense under this agreement for the three and six month periods ended
June 30, 1998 was $64,000 and $104,000, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Company and NE LP
This discussion should be read in conjunction with the Notes to Financial
Statements and Notes to Consolidated Financial Statements contained herein.
The results of operations for an interim period may not give a true
indication of results for the year.
RESULTS OF OPERATIONS
The Company - A semi-annual debt interest payment of $6.4 million was made by
the Company in June 1998.
NE LP - NE LP's operations for the six months ended June 30, 1998 primarily
reflect the operations of the Partnerships subsequent to the Acquisitions on
January 14, 1998 and the related allocation of the purchase price. Revenues
for the second quarter and year to date totaled $66.5 million and $141.2
million, respectively, and were comprised of $65.5 million and $139.0
million, respectively, of power sales to utilities and $1.0 million and $2.2
million, respectively, of steam sales. Power sales to utilities reflect
changes in utility energy bank balances (which increased reported revenues)
of $3.3 million and $7.3 million, respectively, which are determined in
accordance with scheduled or specified rates under certain power purchase
contracts. Revenues for the second quarter and year to date reflect lower
generation and availability resulting from a scheduled inspection and
maintenance outage at the NEA facility.
Fuel expense for the second quarter and year to date is comprised of $32.8
million and $66.9 million, respectively, of fuel purchased for the
Partnerships and the fixed and variable costs associated with the delivery
and use of the fuel for operations. These fuel costs are offset by $5.2
million and $9.7 million, respectively, of deferred credit amortization for
fuel contracts as a result of the purchase price allocation of the
Acquisitions. Fuel expense for the second quarter and year to date reflects
decreased fuel consumption as a result of the scheduled inspection and
maintenance outage mentioned above.
O&M expenses for the second quarter and year to date are comprised of O&M
provider fees and site expenses of $5.1 million and $10.8 million,
respectively, offset by $1.2 million and $2.2 million, respectively, of
deferred credit amortization for O&M contracts as a result of the purchase
price allocation of the Acquisitions. Included in O&M expenses is the major
maintenance accrual of $1.1 million for the second quarter and $1.7 million
year to date.
Depreciation and amortization for the second quarter and year to date is
comprised of depreciation for the cogeneration and carbon dioxide facilities
of $5.4 million and $10.1 million, respectively, and $12.6 million and $23.4
million, respectively, of amortization of the power purchase contracts as a
result of the purchase price allocation of the Acquisitions.
General and administrative expenses are comprised primarily of management and
professional fees and site expenses.
Interest expense for the second quarter and year to date is comprised
primarily of interest on notes payable to ESI Tractebel Funding Corp. ($11.5
million and $21.3 million, respectively), interest on notes payable to the
Company subsequent to February 19, 1998 ($4.3 million and $6.4 million,
respectively) and interest on energy bank balances ($4.5 million and $8.4
million, respectively).
Interest income reflects cash balances earning investment income and reflects
the impact of the release and distribution of debt service reserve cash on
January 21, 1998 and energy bank collateral restricted cash on February 3,
1998.
NE LP is working to resolve the potential impact of the year 2000 on the
processing of information by its computer systems. An assessment of
identified software, including vendor-supplied software, has been completed
and work has begun to make the necessary modifications. The estimated cost of
addressing year 2000 issues in software applications is not expected to have
a material adverse effect on NE LP's financial statements. NE LP continues to
assess the potential financial and operational impacts of computerized
processes embedded in operating equipment.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated by NE LP during the six month period ended June 30, 1998
was sufficient to fund operating expenses as well as fund the debt service
requirements of the Company. For the six months ended June 30, 1998, there have
been $535.4 million of contributions from partners and $330.7 million in
distributions to partners.
During the six months ended June 30, 1998 NE LP expended net cash of $483.1
million for acquisition of the Partnerships, received $69.2 million from
release of restricted cash collateral and received $215.2 million of cash
proceeds from the loan from the Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
27.1 Financial Data Schedule - ESI Tractebel Acquisition Corp.
27.2 Financial Data Schedule - Northeast Energy, LP
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ESI TRACTEBEL ACQUISITION CORP.
NORTHEAST ENERGY, LP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
(Registrants)
Date: September 4, 1998
PETER D. BOYLAN
Peter D. Boylan
Treasurer
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<LEGEND>
This schedule contains summary financial information extracted from ESI
Tractebel Acquisition Corp.'s balance sheet as of June 30, 1998 and statement
of operations for the period January 12, 1998 to June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
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<NAME> ESI Tractebel Acquisition Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<PERIOD-START> JAN-12-1998
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-12-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
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<BONDS> $220,000
$0
$0
<COMMON> $0
<OTHER-SE> $3
<TOTAL-LIABILITY-AND-EQUITY> $220,152
<SALES> $0
<TOTAL-REVENUES> $6,396
<CGS> $0
<TOTAL-COSTS> $0
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $6,391
<INCOME-PRETAX> $5
<INCOME-TAX> $2
<INCOME-CONTINUING> $3
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $3
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
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This schedule contains summary financial information extracted from the
consolidated balance sheet as of June 30, 1998 and the consolidated statement
of operations for the six months ended June 30, 1998 of Northeast Energy, LP
and is qualified in its entirety by reference to such financial statements.
<CIK> 0001059025
<NAME> Northeast Energy, LP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> $27,352
<SECURITIES> $0
<RECEIVABLES> $36,657
<ALLOWANCES> $0
<INVENTORY> $3,413
<CURRENT-ASSETS> $68,224
<PP&E> $513,051
<DEPRECIATION> $10,123
<TOTAL-ASSETS> $1,443,075
<CURRENT-LIABILITIES> $45,631
<BONDS> $676,968
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<COMMON> $0
<OTHER-SE> $207,409
<TOTAL-LIABILITY-AND-EQUITY> $1,443,075
<SALES> $141,197
<TOTAL-REVENUES> $141,197
<CGS> $0
<TOTAL-COSTS> $99,314
<OTHER-EXPENSES> $4,362
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $36,060
<INCOME-PRETAX> $2,746
<INCOME-TAX> $0
<INCOME-CONTINUING> $2,746
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $2,746
<EPS-PRIMARY> $0
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