<PAGE>
Registration No. 333-63537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
ILLINOIS POWER SPECIAL PURPOSE TRUST
(Issuer of Securities)
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
(Depositor of the Trust as described herein)
(Exact name of Registrant as Specified in Its Certificate of Formation)
DELAWARE 37-1376566
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 450-2435.
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
______________________
ROBERT A. SCHULTZ OF ILLINOIS POWER COMPANY, THE SOLE MEMBER OF
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 424-8780
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
With copies to:
Renwick D. Martin
Owen E. MacBride Brown & Wood LLP
Schiff Hardin & Waite One World Trade Center
7200 Sears Tower New York, New York 10048-0557
Chicago, Illinois 60606 (212) 839-5319
(312) 258-5680
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Aggregate Price Aggregate Offering Registration Fee
Securities to be Registered Registered Per Unit(1) Price(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transitional Funding Trust Notes $1,000,000 100% $1,000,000 $278(2)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A registration fee of $295 was previously paid based on the fee requirement
in effect at the time of the initial filing of this Registration Statement
on September 16, 1998.
____________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1998.
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED ____________, 1998.
ILLINOIS POWER SPECIAL PURPOSE TRUST
$864,000,000 ILLINOIS POWER SPECIAL PURPOSE TRUST
TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998-1
$_________ Class A-1 ___% Notes $_________ Class A-5 ___% Notes
$_________ Class A-2 ___% Notes $_________ Class A-6 ___% Notes
$_________ Class A-3 ___% Notes $_________ Class A-7 ___% Notes
$_________ Class A-4 ___% Notes $_________ Class A-8 ___% Notes
[$___________ Class ____ Floating Rate Notes]
ILLINOIS POWER COMPANY
SERVICER
______________
The Illinois Power Special Purpose Trust Transitional Funding Trust Notes,
Series 1998-1 (the "Offered Notes"), offered hereby will consist of the [eight]
classes listed above. Each Offered Note will be secured primarily by, and
payable from the Intangible Transition Property owned by the Trust, as described
under "Description of the Intangible Transition Property" herein and in the
Prospectus and by the other Note Collateral described under "Security for the
Notes" in the Prospectus[, including with respect to the Class __ Floating Rate
Notes (the "Floating Rate Notes") payments pursuant to any Swap Agreement].
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED NOTES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP. PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH
BEGINS ON PAGE 36 IN THE PROSPECTUS.
THE OFFERED NOTES OFFERED HEREBY DO NOT CONSTITUTE A DEBT, LIABILITY OR OTHER
OBLIGATION OF THE STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION, AGENCY OR
INSTRUMENTALITY THEREOF AND DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
ILLINOIS POWER OR ANY OF ITS AFFILIATES. NONE OF THE OFFERED NOTES OR THE
UNDERLYING INTANGIBLE TRANSITIONAL PROPERTY WILL BE GUARANTEED OR INSURED BY
ILLINOIS POWER OR ITS AFFILIATES.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_____________________
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public (1) and Commissions (2) Trust (1)(3)
---------- ----------------------- -------------
<S> <C> <C> <C>
Per Class A-1 Note....... % % %
Per Class A-2 Note....... % % %
Per Class A-3 Note....... % % %
Per Class A-4 Note....... % % %
Per Class A-5 Note....... % % %
Per Class A-6 Note....... % % %
Per Class A-7 Note....... % % %
Per Class A-8 Note....... % % %
Total % % %
</TABLE>
______________________
(1) Plus accrued interest, if any, at the applicable Note Interest Rate
from _________________, 1998.
(2) Illinois Power Securitization Limited Liability Company and Illinois
Power have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deduction of expenses payable by the Trust (as defined herein)
estimated to be ______.
S-1
<PAGE>
The Offered Notes are offered severally by the Underwriters when, as and if
issued by the Trust and subject to receipt and acceptance by the Underwriters
and subject to their right to reject orders in whole or in part. It is expected
that the Offered Notes will be delivered on or about ____________ __, 1998, in
book-entry form through the facilities of The Depository Trust Company, Cedel
Bank, societe anonyme, and the Euroclear System.
_____________________
MERRILL LYNCH & CO.
The date of this Prospectus Supplement is __________________, 1998.
S-2
<PAGE>
Interest on each Class of Offered Notes at the applicable Note Interest
Rate will be payable quarterly on___________, ____________, ___________, and
_____________ or, if any such day is not a Business Day, the next succeeding
Business Day (each, a "Payment Date") commencing __________, 1999.
The Offered Notes are part of a separate Series of Illinois Power Special
Purpose Trust Transitional Funding Trust Notes being offered by the Trust from
time to time pursuant to a Prospectus dated ____________, 1998 (the
"Prospectus"), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement.
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY THE GRANTEE AND
CERTAIN OTHER ASSETS OF THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED
NOTES. NONE OF ILLINOIS POWER OR ITS AFFILIATES WILL HAVE ANY OBLIGATIONS IN
RESPECT OF THE OFFERED NOTES, OR THE INTANGIBLE TRANSITION PROPERTY, EXCEPT AS
EXPRESSLY SET FORTH IN THE PROSPECTUS.
THE TRANSITIONAL FUNDING ORDER AUTHORIZING THE ISSUANCE OF THE OFFERED NOTES
DOES NOT CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF
ILLINOIS OR ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF THE OFFERED
NOTES UNDER THE FUNDING LAW SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY
OBLIGATE THE STATE OF ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR
TO PLEDGE ANY FORM OF TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR
PAYMENT.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE OFFERED NOTES,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
OFFERED NOTES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Prospective investors should refer to the "Index of Principal Definitions"
which begins on page S- 39 herein and which begins on page 159 in the
Prospectus for the location of the definitions of capitalized terms that appear
in the Prospectus and this Prospectus Supplement.
S-3
<PAGE>
REPORTS TO HOLDERS
Unless and until the Offered Notes are no longer issued in book-entry
form, the Servicer indirectly will provide to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Offered Notes
and, upon request, to Participants of DTC, periodic reports concerning the
Offered Notes. See "Servicing -- Statements by Servicer" in the Prospectus.
Such reports may be made available to the holders of interests in the Offered
Notes (the "Noteholders") upon request to their Participants. Such reports
will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The financial information provided
to Noteholders will not be examined and reported upon, nor will an opinion
thereon be provided, by any independent public accountant.
Illinois Power Securitization Limited Liability Company (the "Grantee"), on
behalf of the Trust, will file with the Securities and Exchange Commission (the
"Commission") such periodic reports as are required by the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules, regulations or
orders of the Commission thereunder. Copies of the Registration Statement and
exhibits thereto may be obtained at the locations specified in the Prospectus
under "Available Information" at prescribed rates. Information filed with the
Commission can also be inspected at the Commission's site on the World Wide Web
at http://www.sec.gov. The Grantee may discontinue filing periodic reports
under the Exchange Act at the beginning of the fiscal year following the
issuance of the Offered Notes if there are fewer than 300 holders of such
Offered Notes.
S-4
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING PROSPECTUS SUPPLEMENT SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE
PROSPECTUS. CERTAIN CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROSPECTUS
SUPPLEMENT SUMMARY HAVE THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR, TO THE EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS IN THE PROSPECTUS. THE INDEX OF PRINCIPAL DEFINITIONS
INCLUDED IN THIS PROSPECTUS SUPPLEMENT WHICH BEGINS ON PAGE S- 39 SETS FORTH THE
PAGES ON WHICH THE DEFINITIONS OF CERTAIN PRINCIPAL TERMS APPEAR.
Summary of Offered Notes . . The Illinois Power Special Purpose Trust
Transitional Funding Trust Notes, Series 1998-1
(the "Offered Notes"). On the date of initial
issuance of the Offered Notes (the "Series
Issuance Date"), the Offered Notes will be issued
as described below.
<TABLE>
<CAPTION>
Note
Initial Expected Interest
Class Principal Amount Maturity Date Final Maturity Date Rate
---- ---------------- ------------- ------------------- --------
<S> <C> <C> <C> <C>
A-1........ %
A-2........ %
A-3........ %
A-4........ %
A-5........ %
A-6........ %
A-7........ %
A-8........ %
[.......... (1)]
</TABLE>
_______________________
[(1) Calculated as described under "Description of the Offered Notes - Floating
Rate Notes."]
Transaction Overview . . . For a brief summary of the statutes and
proceedings which form the basis for the issuance
and sale of the Offered Notes by the Trust, and a
diagram of the parties to the transaction, their
roles and their various relationships to the other
parties, investors are directed to the discussion
under the heading "Prospectus Summary --
Transaction Overview" in the Prospectus.
The Trust, whose primary asset will be Intangible
Transition Property transferred to the Trust
pursuant to the Sale Agreements, as well as any
interest rate exchange agreement executed solely
to permit the issuance of Floating Rate Notes (a
"Swap Agreement"), will issue the Offered Notes,
which will be sold to the Underwriters. The
Offered Notes will be secured primarily by, and
payable from, all of the Intangible Transition
Property (whether created by the Transitional
Funding Order issued by the ICC on September 10,
1998 (the "1998 TFO") or any other Transitional
Funding Order) which has been
S-5
<PAGE>
transferred to the Trust pursuant to a Sale
Agreement. The Offered Notes also will be
secured by the Grant Agreements, the Sale
Agreements and the Servicing Agreement; the
Collection Account and all amounts of cash or
investment property on deposit therein or
credited thereto from time to time;
[with respect to the Floating Rate Notes only,
any Swap Agreement entered into with respect
to the issuance of any such Floating Rate Notes];
all rights to compel Illinois Power, as
Servicer (or any successor), to file for and
obtain adjustments to the IFC Charges in
accordance with Section 18-104(d) of the
Funding Law, the Transitional Funding Orders,
including the 1998 TFO and all IFC Tariffs,
including the 1998 IFC Tariff (as hereinafter
defined) filed with the ICC in connection
therewith; all present and future claims,
demands, causes and choses in action in respect
of any or all of the foregoing; and all
payments on or under and all proceeds in
respect of any or all of the foregoing.
The IFC Charges are calculated to be sufficient
over time to (a) pay interest and make Scheduled
Payments on the Offered Notes, (b) pay all related
fees and expenses of the Trust and the Grantee,
including the Servicing Fee and any Administration
Fee, (c) replenish the Capital Subaccount up to
the Required Capital Level, and (d) fund and
maintain the Overcollateralization Subaccount up
to the Required Overcollateralization Level.
These payments are collectively referred to herein
as the "Specified Payments." The IFC Charges will
be increased in connection with the issuance of
any additional Notes pursuant to any subsequent
Transitional Funding Order, to a level calculated
to be sufficient over time to make the Specified
Payments in respect of all outstanding Notes.
To enhance the likelihood of timely recovery of
the amounts necessary to make the Specified
Payments, the IFC Charges may be increased from
time to time through Adjustments, as described in
the Prospectus over the life of the Notes
(including the Offered Notes). See "Description
of the Intangible Transition Property --
Adjustments to Instrument Funding Charges" in the
Prospectus.
S-6
<PAGE>
Risk Factors . . . . . . . Investors should consider the risks associated
with an investment in the Offered Notes. For a
discussion of certain material risks associated
therewith, investors should review the discussion
under "Risk Factors" which begins on page 29 of
the Prospectus.
[In addition, an investment in Floating Rate Notes
involves the additional risks discussed under
"Risk Factors -- Nature of the Notes --
Additional Risks of Floating Rate Notes" in the
Prospectus].
The Offered Notes. . . . . The Offered Notes hereunder are the Illinois Power
Special Purpose Trust Transitional Funding Trust
Notes, Series 1998-1. The Offered Notes are
comprised of the [eight] classes listed on the
cover page hereof (each, a "Class"). As of the
Series Issuance Date, the aggregate principal
balance of the Offered Notes (the "Original Note
Principal Balance") will be $864,000,000. Each
Class of Offered Notes will have a principal
balance (the "Class Principal Balance") equal to
the initial principal amount of such Class,
reduced by principal paid to such Class in
accordance with the terms of the Indenture. See
"Description of the Offered Notes" herein and
"Description of the Notes" in the Prospectus.
None of the Offered Notes or the underlying
Intangible Transition Property will be guaranteed
or insured by Illinois Power or any of its
affiliates. The 1998 TFO authorizing the issuance
of the Offered Notes does not constitute a pledge
of the full faith and credit of the State of
Illinois or of any of its political subdivisions.
The issuance of the Offered Notes under the
Funding Law shall not directly, indirectly or
contingently obligate the State of Illinois or any
political subdivision, agency or
instrumentality thereof to levy or to pledge
any form of taxation therefor or to make any
appropriation for their payment. The Offered
Notes will be payable solely by application of
the proceeds of the Intangible Transition
Property and the other Note Collateral held by
the Indenture Trustee under the Indenture. If
additional Notes (other than the Offered Notes)
are subsequently issued under the Indenture,
the Offered Notes will be at least PARI PASSU
with such other Notes as to all of the
Intangible Transition Property and the other
Note Collateral. Any and all funds or property
S-7
<PAGE>
released by the Indenture Trustee pursuant
to the Indenture will cease to be Note
Collateral and will no longer be available for
payment of the Offered Notes.
Servicer/Administrator . . Illinois Power Company, an Illinois corporation
("Illinois Power") and a subsidiary of Illinova
Corporation, an Illinois corporation, will act as
the initial servicer (in such capacity, and
together with any successor servicer, the
"Servicer") of the Intangible Transition Property
pursuant to the terms of the Servicing Agreement,
and as the initial administrator (in such
capacity, and together with any successor
administrator, the "Administrator") of the Grantee
pursuant to the terms of an Administration
Agreement between the Grantee and the
Administrator (the "Administration Agreement").
For a more complete discussion of Illinois Power
and its role as Servicer, see "The Servicer"
herein and in the Prospectus.
Grantee. . . . . . . . . . The grantee of the Intangible Transition Property
will be Illinois Power Securitization Limited
Liability Company, a special purpose Delaware
limited liability company (the "Grantee"), whose
sole member is Illinois Power. Pursuant to the
Sale Agreement entered into with respect to the
issuance by the Trust of the Offered Notes, the
Grantee will assign all of its right, title and
interest in the Intangible Transition Property
created by the 1998 TFO (the "1998 ITP"), the
Servicing Agreement and certain other related
assets to the Trust. For a more complete
discussion of the Grantee, see "The Grantee" in
the Prospectus.
Trust. . . . . . . . . . . The issuer of the Offered Notes will be the
Illinois Power Special Purpose Trust (the
"Trust"), a Delaware business trust created
under a Declaration of Trust (the "Trust
Agreement") by and among the Delaware Trustee
and the Beneficiary Trustees. For a more
complete discussion of the Trust, see "The
Trust" in the Prospectus.
Delaware Trustee . . . . . First Union Trust Company, National Association,
acting not in its individual or corporate
capacity, but solely as trustee under the Trust
Agreement (the "Delaware Trustee").
S-8
<PAGE>
Beneficiary Trustees . . . Cynthia G. Steward and Eric B. Weekes.
Indenture. . . . . . . . . The Offered Notes will be issued pursuant to the
terms of the Indenture through the execution and
delivery of a Trust issuance certificate or a
supplement to the Indenture. The 1998 ITP, any
other subsequent Intangible Transition Property
created by subsequent Transitional Funding Orders
and the other Note Collateral will be pledged
under the Indenture for the benefit of the
Noteholders.
Indenture Trustee. . . . . Harris Trust and Savings Bank, an Illinois banking
corporation (the "Indenture Trustee").
Intangible Transition
Property . . . . . . . . . As more fully described under "Description of the
Intangible Transition Property" herein and in the
Prospectus, the Intangible Transition Property,
including the 1998 ITP, is the separate property
right as set forth in the Funding Law and created
under the Transitional Funding Orders, including
the 1998 TFO, including, without limitation, the
right, title and interest to impose and receive
the IFC Charges authorized thereby and all related
revenues, collections, claims, payment, money, or
proceeds thereof, including all right, title, and
interest under and pursuant to such Transitional
Funding Orders.
IFC Charges. . . . . . . . As more fully described under "Description of the
Intangible Transition Property" and "Electric
Industry Restructuring in Illinois -- Instrument
Funding Charges" in the Prospectus, IFC Charges
are nonbypassable, usage-based, per kilowatt
hour charges to be imposed on each existing and
future retail customer or class of retail
customers in Illinois Power's service area in
Illinois, or other person or group of persons
obligated from time to time to pay to Illinois
Power or any successor Applicable Rates. In
addition, the 1998 TFO specifies that Illinois
Power will not enter into private contracts with
customers who, but for such contracts, would
otherwise have been obligated to pay Applicable
Rates unless the customer agrees to pay amounts
equal to the IFC Charges the customer would have
paid, had the servicer provided under the private
contract been subject to Applicable Rates, to the
Trust or to Illinois Power as Servicer.
S-9
<PAGE>
(The customers described in the preceding two
sentences are collectively, the "Customers".)
The IFC Charges authorized in the 1998 TFO (the
"1998 Authorized IFC Charges"), which Illinois
Power believes are higher than will actually be
required to make all payments on the Offered
Notes, based on certain assumptions contained in
its application for the 1998 TFO, including an
assumption that the Notes will bear interest at a
rate of 7.5% per annum, are set forth in
"Description of the Intangible Transition
Property" herein.
As required by the Funding Law, any increase in
the amount of the IFC Charges for any of the IFC
Customer Classes beyond the level of the 1998
Authorized IFC Charges for such IFC Customer
Classes shall require Illinois Power or any
successor Utility thereto to file an amendatory
tariff adjusting the amounts otherwise billable
by Illinois Power or such successor Utility for
Applicable Rates to offset the amount of such
excess (or, if Illinois Power or such successor
Utility shall have previously filed any such
amendatory tariffs, the incremental amount of such
excess). However, the failure of such amendatory
tariff to become effective for any reason shall
not delay or impair the effectiveness of the
increase in the IFC Charges.
In connection with the issuance and pricing of the
Offered Notes, Illinois Power filed an IFC Tariff
with the ICC (the "1998 IFC Tariff") which
provides for, among other things, certain
revisions to the IFC Charges. The actual initial
cents per kilowatt-hour IFC Charge payable by each
of the seven (7) IFC Customer Classes beginning on
the Series Issuance Date is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER kWh)
--------------------------------------------------
<S> <C>
Residential
--------------------------------------------------
Small Commercial
--------------------------------------------------
Large Commercial
--------------------------------------------------
Municipal
--------------------------------------------------
Industrial Firm
--------------------------------------------------
S-10
<PAGE>
<CAPTION>
--------------------------------------------------
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER kWh)
--------------------------------------------------
<S> <C>
Industrial High
Load Factor Firm
--------------------------------------------------
Industrial Non-Firm
--------------------------------------------------
</TABLE>
Adjustments to the IFC
Charges. . . . . . . . . . The Servicing Agreement and the 1998 TFO require
the Servicer to calculate Adjustments to the IFC
Charges. The Reconciliation Periods for the
Offered Notes will be January 1 through June 30
and July 1 through December 31 and the Adjustment
Dates will be February 1 and August 1, commencing
August 1, 1999. The Adjustments to the IFC
Charges will continue until all interest and
principal on all the Offered Notes have been paid
in full, subject only to the limitation of the
maximum amount of Intangible Transition Property
authorized by the ICC in the related
Transitional Funding Order or Orders. In
addition, the IFC Charges will be increased in
connection with the issuance of additional Notes
pursuant to any subsequent Transitional Funding
Order, to a level calculated to be sufficient over
time to provide for Specified Payments in respect
of all outstanding Notes. For a detailed
discussion of Adjustments to IFC Charges, see
"Description of the Intangible Transition
Property -- Adjustments to Instrument Funding
Charges" herein and in the Prospectus.
Payment Dates. . . . . . . Payments will be made to holders of the Offered
Notes on each [_________ ____________ ________ and
____________] (or, if any such date is not a
Business Day, the next succeeding Business Day),
commencing ___________, 1999 (each, a "Payment
Date").
Record Dates . . . . . . . With respect to any Payment Date or date of any
redemption, the Business Day preceding such
Payment Date or other date if the Offered Notes
are Book-Entry Notes or, if Definitive Notes are
issued, the last day of the preceding calendar
month (each, a "Record Date").
Expected Maturity and Final
Maturity Dates . . . . . . The "Expected Maturity Date" for any Class will be
the date when all principal and interest on such
Class of Offered Notes is expected to be paid in
full by the Trust. The "Final Maturity Date" for
any Class corresponds to the date on which such
Class of Offered Notes may be
S-11
<PAGE>
accelerated for failure to pay outstanding
principal thereon. The Expected Maturity Date
and the Final Maturity Date for each Class of
Offered Notes are specified above under
" -- Summary of Offered Notes."
Failure to pay principal on any Class of Offered
Notes in full by the Final Maturity Date shall
constitute an Event of Default, and the Indenture
Trustee may and, upon the written direction of the
holders of not less than a majority in principal
amount of all Notes of all Series then
outstanding, shall declare the unpaid principal
amount of all the Notes of all Series then
outstanding to be due and payable. See "Security
for the Notes -- Events of Default; Rights Upon
Event of Default" and "Ratings" in the Prospectus.
Issuance of Additional
Series . . . . . . . . . . The Trust may issue additional Series of Notes
from time to time. An additional Series may be
issued only upon satisfaction of the conditions
described under "Description of the Notes --
Conditions of Issuance of Additional Series and
Acquisition of Subsequent Intangible Transition
Property" in the Prospectus.
[Swap Agreement. . . . . . The Trust will enter into a swap agreement dated
the Closing Date (the "Swap Agreement") with
________________ as swap counterparty (the "Swap
Counterparty"). Pursuant to the Swap Agreement,
on each Payment Date, the Trust will be obligated
to pay to the Swap Counterparty, solely from IFC
Collections, an amount equal to the interest due
on a notional amount equal to the principal amount
of the Floating Rate Notes outstanding as of the
close of business on the preceding Payment Date,
after giving effect to all payments of principal
made to the holders of the Floating Rate Notes on
such preceding Payment Date calculated at a fixed
swap rate, and the Swap Counterparty will be
obligated to pay to the Trust an amount equal to
the product of (a) the floating rate on the
Floating Rate Notes and (b) the principal balance
of the Floating Rate Notes as of the close of
business on the preceding Payment Date after
giving effect to all payments of principal made to
the holders of the Floating Rate Notes on such
preceding Payment Date. Payments between the Swap
Counterparty and the Trust will be made on a net
basis as further described herein.
S-12
<PAGE>
The Swap Agreement will terminate or may be
terminated upon the occurrence of certain events
of default or termination events as described
herein under "Summary of Certain Provisions of the
Swap Agreement." Upon termination of the Swap
Agreement, the interest rate payable with respect
to the Floating Rate Note will automatically
convert. See "Description of the Offered Notes --
Nature of the Notes -- Floating Rate Notes" and
"Risk Factors -- Additional Risks of Floating Rate
Notes" in the Prospectus. With respect to each
Payment Date, any difference between the quarterly
payment by the Swap Counterparty to the Trust and
the quarterly payment by the Trust to the Swap
Counterparty will be referred to herein as the
"Net Trust Swap Receipt," if such difference is a
positive number, and the "Net Trust Swap Payment,"
if such difference is a negative number. Net
Trust Swap Receipts will be included in funds
available for payments to the holders of the
Floating Rate Notes on each Payment Date and Net
Trust Swap Payments will be paid to the Swap
Counterparty out of IFC Collections on each
Payment Date.
Interest . . . . . . . . . On each Payment Date, the Indenture Trustee shall
pay pro rata to the Noteholders of each Class as
of the related Record Date any unpaid interest
payable on any prior Payment Dates, (together
with, to the extent permitted by applicable law,
interest on such unpaid interest, at the
applicable Note Interest Rate), and interest in an
amount equal to one-fourth of the product of (a)
the applicable Note Interest Rate and (b) the
applicable Class Principal Balance as of the close
of business on the preceding Payment Date after
giving effect to all payments of principal made to
the Noteholders on such preceding Payment Date;
provided, however, that with respect to the
initial Payment Date, interest on each outstanding
Class Principal Balance will accrue from and
including the Series Issuance Date to, but
excluding, such initial Payment Date. Interest
will be calculated on the basis of a 360-day year
of twelve 30-day months. [With respect to the
Floating Rate Notes, interest will be calculated
as described under "Description of the Offered
Notes -- Determination of Floating Interest Rate
on Floating Rate Notes" herein.] Interest on the
Offered Notes will be distributed prior to any
distribution of principal on the Offered Notes
[and, in the case of the Floating Rate Notes,
interest will be distributed at the variable rate
S-13
<PAGE>
payable pursuant to the Swap Agreement so long as
payments are received under the terms of the Swap
Agreement]. See "Description of the Notes --
Payments on the Notes" herein and "Description of
the Notes -- Interest and Principal" in the
Prospectus.
Principal. . . . . . . . . Unless an Event of Default has occurred and is
continuing and the Offered Notes have been
declared due and payable, on each Payment Date,
the Indenture Trustee shall, as of the related
Record Date and subject to availability of funds
in the Collection Account, make Scheduled Payments
on the Offered Notes in the following order and
priority, in each case until the Class Principal
Balance for such Class has been reduced to zero:
[(1) to the holders of the Class A-1 Notes; (2) to
the holders of the Class A-2 Notes; (3) to the
holders of the Class A-3 Notes; (4) to the holders
of the Class A-4 Notes; (5) to the holders of the
Class A-5 Notes; (6) to the holders of the Class
A-6 Notes; (7) to the holders of the Class A-7
Notes; and (8) to the holders of the Class A-8
Notes; provided, however, that, unless an Event of
Default has occurred and is continuing and the
Offered Notes have been declared due and payable,
in no event shall the principal payment on any
Class on a Payment Date be greater than the
Scheduled Payment for such Class and Payment
Date.] See "Description of the Notes -- Payments
on the Notes" herein and "Description of the Notes
-- Interest and Principal" in the Prospectus.
Optional Redemption. . . . Pursuant to the terms of the Indenture, the
Offered Notes may be redeemed on any Payment Date
if, after giving effect to payments that would
otherwise be made on such date, the outstanding
principal balance of the Offered Notes has been
reduced to less than five percent (5%) of the
initial principal balance thereof. The Notes may
be so redeemed upon payment of the outstanding
principal amount of the Notes and accrued but
unpaid interest thereon as of the date of
redemption. See "Description of the Notes --
Optional Redemption" herein.
Collection Account
and Subaccounts. . . . . . Upon issuance of the Offered Notes, a Collection
Account will be established and held by the
Indenture Trustee for the benefit of the
Noteholders of all outstanding Series of Notes.
The Collection Account will consist of four
subaccounts: a general subaccount (the "General
S-14
<PAGE>
Subaccount"), a reserve subaccount (the
"Reserve Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount"), and a capital
subaccount (the "Capital Subaccount"). Unless the
context indicates otherwise, references herein to
the Collection Account include each of the
subaccounts contained therein. Withdrawals from
and deposits to these subaccounts will be made as
described under "Security for the Notes --
Allocations; Payments" in the Prospectus.
Credit Enhancement . . . . The Offered Notes will benefit from the following
forms of credit enhancement:
OVERCOLLATERALIZATION. The Overcollateralization
Amount established in connection with the issuance
of the Offered Notes will be [ $4,320,000], which
is 0.50 percent of the initial aggregate Class
Principal Balance for all of the Offered Notes.
The IFC Charges will be set and adjusted at a rate
that is intended to recover, among other
things, the Overcollateralization Amount over the
life of the Offered Notes according to the
schedule set forth under "Description of the
Offered Notes -- Overcollateralization Amount"
herein. Collections allocated to the
Overcollateralization Amount for all Series of
Notes, including the Offered Notes, will be held
in the Overcollateralization Subaccount, as
described further under "Security for the
Notes -- Description of Indenture Accounts
-- Overcollateralization Subaccount" in the
Prospectus and any such amounts will be available
to pay interest and make Scheduled Payments on all
Series of Notes, including the Offered Notes, to
the extent of any shortfalls in current IFC
Collections and the Reserve Subaccount available
for such payment. The amount required to be on
deposit in the Overcollateralization Subaccount
with respect to the Offered Notes as of any
Payment Date, as specified in the schedule set
forth under "Description of the Offered Notes --
Overcollateralization Amount" herein, is referred
to herein as the "Required Overcollateralization
Level."
RESERVE SUBACCOUNT. IFC Collections available
with respect to any Payment Date in excess of
amounts necessary to make the Specified Payments
(all as described under "Security for the Notes --
Allocations; Payments" in the Prospectus), will be
allocated to the
S-15
<PAGE>
Reserve Subaccount. On each Payment Date, the
Indenture Trustee will draw on amounts in the
Reserve Subaccount, to the extent amounts
available in the General Subaccount are
insufficient to pay expenses of the Trust and the
Grantee and to pay interest and make Scheduled
Payments on the Notes and to make other payments
and transfers in accordance with the terms of the
Indenture.
CAPITAL SUBACCOUNT. Upon the issuance of the
Offered Notes, the Trust will retain proceeds in
the amount of [$4,220,000], which is 0.50 percent
of the initial aggregate Class Principal Balance
for all of the Offered Notes less $100,000 in the
aggregate for all Series of Notes, which will be
transferred to the Grantee. Such amount is the
Required Capital Level with respect to the Offered
Notes and, together with the Required Capital
Level with respect to any other Series of Notes,
will be deposited into the Capital Subaccount.
Withdrawals from and deposits to the Capital
Subaccount will be made as described under
"Security for the Notes -- Allocations; Payments"
in the Prospectus.
Allocations and Payment. . On each Payment Date, amounts on deposit in the
Collection Account will be applied in the manner
described under "Security for the Notes --
Allocations; Payments" in the Prospectus [, as
modified to incorporate the inclusion of the terms
of the Swap Agreement, as set forth in the
following chart:]
S-16
<PAGE>
[ [GRAPHIC]
]
Servicing Compensation . . The Servicer will be entitled to receive a
servicing fee on each Payment Date (the "Servicing
Fee"), in an amount equal to (a) $540,000, for so
long as IFC Charges are billed concurrently with
charges otherwise billed by the Servicer to
Customers and (b) not to exceed $3,240,000, if IFC
Charges are not billed concurrently with charges
otherwise billed by the Servicer to Customers.
(Under the Servicing Agreement, Illinois Power or
any successor thereto is required to bill IFC
Charges concurrently with charges for electric
service or Applicable Rates so long as Illinois
Power or such successor is billing Customers for
such electric service or Applicable Rates.) The
Servicing Fee will be paid prior to the payment of
any amounts in respect of interest on and
principal of the Offered Notes. The Servicer will
be entitled to retain as additional compensation
net investment income on IFC Payments received by
the Servicer prior to remittance thereof to the
Collection Account and the portion of late fees,
if any, paid by Customers relating to the IFC
Payments. See
S-17
<PAGE>
"Servicing -- Servicing Compensation" herein and
in the Prospectus.
No Servicer Advances . . . The Servicer will not be obligated to make any
advances of interest or principal on the Offered
Notes.
Maturity, Weighted Average
Life and Yield
Considerations . . . . . . The actual Payment Dates on which principal is
paid on each Class of Offered Notes and,
therefore, the weighted average life and yield to
maturity on the Offered Notes may be affected by
various factors, including principally the rate
and timing of receipt of IFC Collections and
amounts available in the Overcollateralization
Subaccount, Capital Subaccount and Reserve
Subaccount. In addition, because principal will be
paid at a rate not faster than that contemplated
in the Expected Amortization Schedule, except in
the event of an optional redemption or the
acceleration of maturity of the Offered Notes
after an Event of Default, the Offered Notes are
not expected to mature earlier than scheduled.
See "Risk Factors -- Potential Servicing Issues --
Possible Payment Delays or Losses Caused by
Inaccurate Usage and Credit Projections" and " --
Possible Payment Delays Caused by Reliance on
Alternative Retail Electric Suppliers,"
"Uncertainties Related to the Electric Utility
Industry Generally," and "Possibility of Shrinking
Customer Base;" "Uncertain Payment Amounts and,
Weighted Average Life ," and "Description of the
Intangible Transition Property -- Adjustments to
Instrument Funding Charges" in the Prospectus.
Denominations. . . . . . . Each Class of Offered Notes will be issued in
minimum initial denominations of $1,000 and in
integral multiples thereof.
Book-Entry Notes . . . . . The Offered Notes will initially be represented by
one or more notes registered in the name of Cede &
Co. ("Cede") (each, a "Book-Entry Note"), the
nominee of DTC, and available only in the form of
book-entries on the records of DTC, its
Participants and its Indirect Participants.
Holders may also hold Book-Entry Notes of a Series
through CEDEL or Euroclear (in Europe), if they
are participants in such systems or indirectly
through organizations that are participants in
such systems. For a more complete discussion of
the Book-Entry Notes, see
S-18
<PAGE>
"Risk Factors -- Nature of the Notes" and
"Description of the Notes -- Book-Entry
Registration" in the Prospectus.
Ratings. . . . . . . . . . It is a condition of issuance of the Offered Notes
that the Offered Notes be rated [____] by Duff &
Phelps Credit Rating Company, [____] by Fitch
IBCA, Inc., [____] by Moody's Investors Service,
Inc. and [____] by Standard & Poor's, a division
of The McGraw-Hill Companies, Inc. (each of such
rating agencies, a "Rating Agency").
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any Offered
Note and, accordingly, there can be no assurance
that the ratings assigned to any Class of Offered
Notes upon initial issuance thereof will not be
revised or withdrawn by a Rating Agency at any
time thereafter. If a rating of Class of Offered
Notes is revised or withdrawn, the liquidity of
such Class of Offered Notes may be adversely
affected. In general, the ratings address credit
risk and do not represent any assessment of the
rate of principal payments on the Offered Notes.
See "Risk Factors -- Nature of the Notes --
Limited Nature of Ratings" and "Certain Payment,
Weighted Average Life and Yield Considerations" in
the Prospectus and "Ratings" herein and in the
Prospectus.
Taxation of the Notes. . . Illinois Power has received a ruling from the
Internal Revenue Service (the "IRS") holding that,
among other things, the Offered Notes will be
obligations of Illinois Power for federal income
tax purposes. In the opinion of Mayer, Brown &
Platt, interest paid on the Offered Notes
generally will be taxable to a United States
Noteholder as ordinary interest income at the time
it accrues or is received in accordance with such
United States Noteholder's method of accounting
for United States federal income tax purposes.
Such opinion assumes, based on the ruling from the
IRS described above, that the Notes will
constitute indebtedness of Illinois Power for
federal income tax purposes. See "Material United
States Federal Income Tax Consequences" herein
and in the Prospectus.
ERISA Considerations . . . The Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of
the Internal Revenue Code of 1986, as amended (the
"Code") impose
S-19
<PAGE>
various requirements on employee benefit plans
and certain other plans and arrangements subject
to ERISA, and on persons who are fiduciaries with
respect to such plans and arrangements, in
connection with the investment of assets which
are deemed to be "plan assets" for purposes of
ERISA or Section 4975 of the Code, unless a
statutory or administrative exemption is
available. A fiduciary of any employee benefit
plan or other plan or arrangement that is subject
to ERISA or Section 4975 of the Code, before
purchasing the Notes, should therefore determine
that an investment in the Notes is consistent with
the fiduciary duties of ERISA and does not
violate the prohibited transaction provisions of
ERISA or the Code.
S-20
<PAGE>
DESCRIPTION OF THE OFFERED NOTES
GENERAL
The Offered Notes, together with any Notes of any other Series which may
hereafter be issued by the Trust (collectively, the "Notes"), will be issued by
the Trust pursuant to the Indenture and a Trust issuance certificate or a series
supplement, if any, thereto. Pursuant to the Indenture, further Trust issuance
certificates or series supplements may be executed in order for the Trust to
issue additional Series of Notes. In connection with the issuance of any
additional Series of Notes pursuant to a subsequent Transitional Funding Order,
the IFC Charges will be increased to a level calculated to be sufficient over
time to provide for, among other things, payment of all interest and principal
in respect of all outstanding Notes. This summary should be read together with
the material under the heading "Description of the Notes" in the Prospectus.
The Offered Notes will be comprised of the following [eight] Classes:
<TABLE>
<CAPTION>
Note
Initial Expected Interest
Class Principal Maturity Date Final Maturity Date Rate
----- Amount -------------- ------------------- --------
---------
<S> <C> <C> <C> <C>
A-1...... %
A-2...... %
A-3...... %
A-4...... %
A-5...... %
A-6...... %
A-7...... %
A-8...... %
</TABLE>
[FLOATING RATE NOTES
DETERMINATION OF FLOATING INTEREST RATE ON FLOATING RATE NOTES. The
initial Floating Rate on the Floating Rate Notes will be ___%. Following the
initial Interest Accrual Period ending _____ the Floating Rates applicable from
time to time to the Floating Rate Notes will be determined by _________________
(together with any successor Agent, the "Agent Bank") in accordance with the
following provisions:
(a) On the second day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market (a "London Banking Day")
immediately preceding the first day of each Interest Accrual Period (as
defined below) and on the Closing Date with respect to the first Interest
Accrual Period (each such day, an "Interest Determination Date"), the Agent
Bank will determine "LIBOR" based on the offered rate for deposits in U.S.
dollars for a period of three months commencing on the first day of such
Interest Accrual Period that currently appears on display page 3750 of the
Dow Jones Telerate Service for the purpose of displaying the London
interbank offered rate of major banks for U.S. dollars as of 11:00 a.m.,
London time, on such Interest Determination Date (such display page being
the "Telerate Page").
S-21
<PAGE>
Notwithstanding the foregoing, if no offered rate appears, LIBOR for such
Interest Accrual Period will be determined as if the parties had specified
the rate described in clause (b) below. The Floating Rate applicable to
the Floating Rate Notes for the Interest Accrual Period relating to an
Interest Determination Date shall be the sum of LIBOR as determined by
the Agent Bank on the most recent Interest Determination Date plus ___%.
(b) With respect to an Interest Determination Date on which no
offered rate appears on the Telerate Page, the Agent Bank will request the
principal London office of each of four major banks in the London interbank
market, selected by the Agent Bank, to provide the Agent Bank with its
offered quotation for deposits in U.S. Dollars for a period of three
months, commencing on the second London Banking Day immediately following
such Interest Determination Date, to prime banks in the London interbank
market at approximately 11:00 a.m., London time, on such Interest
Determination Date and in a principal amount not less than $1 million that
is representative for a single transaction in U.S. dollars in such market
at such time. If at least two such quotations are provided, LIBOR for the
relevant Interest Accrual Period will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR for such
Interest Accrual Period will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m. in the City of New York, on such Interest
Determination Date by the three major banks in the City of New York
selected by the Agent Bank for loans in U.S. dollars to leading European
banks, for the period of three months, commencing on the second London
Banking Day immediately following such Interest Determination Date and in a
principal amount not less than $1 million that is representative for a
single transaction in U.S. dollars in such market at such time; provided,
however, that if any of the banks so selected by the Agent Bank are not
quoting as mentioned in this sentence, the Floating Rate in effect for such
Interest Accrual Period will be the Floating Rate in effect on such
Interest Determination Date.
(c) There will be no maximum or minimum Floating Rate.
Notwithstanding the foregoing, in the event that the Swap Agreement has been
terminated, the interest rate with respect to the Floating Rate Notes will
automatically convert to a fixed interest rate equal to the fixed interest rate
payable by the Swap Counterparty under the Swap Agreement (____% per annum),
effective as of the first day of the Interest Accrual Period in which the
termination of the Swap Agreement occurs or in the case of a termination
resulting from the failure of the Swap Counterparty to pay a Net Trust Swap
Receipt, effective as of the first day of the Interest Accrual Period preceding
such termination.
CALCULATION OF QUARTERLY INTEREST. The Agent Bank will, as soon as
practicable after 11:00 a.m. (London time) on each Interest Payment Date,
determine the Floating Rate applicable to, and calculate the amount of interest
payable on, each of the Floating Rate Notes for the relevant Interest Accrual
Period. Interest payments will be made in an amount equal to the product of
(a)(1) the actual number of days in the related Interest Accrual Period divided
by 360, multiplied by (2) the applicable Floating Rate and (b) the Floating Rate
Principal Balance (as defined herein) as of the close of business on the
preceding Payment Date after giving
S-22
<PAGE>
effect to all payments of principal made to the holders of Floating Rate
Notes on such preceding Payment Date (or, in the case of the first Payment
Date, as of the Closing Date) (such amount, the "Quarterly Interest" with
respect to such Class). The "Interest Accrual Period" with respect to any
Payment Date shall be the period from and including the preceding Payment
Date (or, in the case of the first Payment Date, from and including the
Closing Date) to and excluding such Distribution Date. The determination of
the Floating Rate and the Quarterly Interest by the Agent Bank shall (in the
absence of manifest error) be final and binding upon all parties.
NOTICE OF FLOATING RATE AND INTEREST PAYMENTS. The Agent Bank will notify
the [Indenture] Trustee and any Paying Agents of the Floating Rate and the
Quarterly Interest due on the Floating Rate Notes for each Interest Accrual
Period and the relevant Distribution Date as soon as possible after their
determination but in no event later than the first Business Day of any Interest
Accrual Period.
DETERMINATION OR CALCULATION BY [INDENTURE] TRUSTEE. If the Agent Bank
fails to determine a Floating Rate or calculate Quarterly Interest as described
under " -- Calculation of Quarterly Interest" above at any time or for any
reason, the Indenture Trustee shall determine the Floating Rate and calculate
the Quarterly Interest as described under " -- Calculation of Quarterly
Interest" above, and each such determination or calculation shall be deemed to
have been made by the Agent Bank. The determination by the Agent Bank or the
[Indenture] Trustee (as the case may be) of any Floating Rate and calculation
thereby of any Quarterly Interest shall (in the absence of manifest error) be
final and binding on all parties.
AGENT BANK. The initial Agent Bank will be _________________
_____________, upon written notice to the Agent Bank and the Indenture Trustee,
may terminate the appointment of the Agent Bank for any reason. Notice of any
such termination will be given by the Indenture Trustee to Noteholders within
ten days of such termination. If (a) any person is unable or unwilling to
continue to act as the Agent Bank, (b) the appointment of the Agent Bank is
terminated or (c) the Agent Bank fails duly to determine the Floating Rate under
and/or the Quarterly Interest for any Interest Accrual Period, then
_______________ will appoint a successor Agent Bank to act as such in its place
and give notice of such appointment to the [Indenture] Trustee, provided that
neither the resignation nor removal of the Agent Bank shall take effect until a
successor has been appointed. Notice of any appointment of a successor Agent
Bank will be given by the [Indenture] Trustee to the Noteholders within ten days
of such appointment. Any successor Agent Bank will be a banking institution
organized under the laws of any state or of the United States with capital and
surplus of at least $50 million and which is an active dealer in LIBOR-based
securities.]
SECURITY
To secure the payment of principal of and interest on the Offered Notes,
the Trust has granted to the Indenture Trustee, for the benefit of the
Noteholders, a security interest in all of the Trust's right, title and
interest in and to the 1998 ITP, any subsequent Intangible Transition
Property created under any subsequent Transitional Funding Order, and the
other Note Collateral. If additional Notes (other than the Offered Notes) are
subsequently issued, the
S-23
<PAGE>
Offered Notes will be at least PARI PASSU with such other notes as to all of
the Intangible Transition Property and the other Note Collateral. The Note
Collateral is described more specifically under "Security for the Notes --
Pledge of Note Collateral" in the Prospectus.
PAYMENTS OF INTEREST
Interest on each Class of the Offered Notes will accrue from the Series
Issuance Date at the rates set forth on the cover page and above (each, a "Note
Interest Rate"), in each case payable quarterly on each Payment Date of each
year, commencing _____________, 1999.
On each Payment Date, Noteholders of each Class of Offered Notes will be
entitled to receive pro rata any unpaid interest payable on any prior Payment
Dates (together with, to the extent permitted by applicable law, interest on
such unpaid interest at the applicable Note Interest Rate), and[, in the case
of the Offered Notes other than the Floating Rate Notes,] interest in an amount
equal to one-fourth of the product of (a) the applicable Note Interest Rate and
(b) the applicable Class Principal Balance as of the close of business on the
preceding Payment Date after giving effect to all payments of principal made to
the Noteholders on such preceding Payment Date; provided, however, that with
respect to the initial Payment Date, interest on each outstanding Class
Principal Balance will accrue from and including the Series Issuance Date to but
excluding such first Payment Date. Interest will be calculated on the basis of
a 360-day year of twelve 30-day months. [With respect to the Floating Rate
Notes, interest will be calculated as described under " -- Determination of
Floating Interest Rate on Floating Rate Notes" herein.] See "Description of the
Notes -- Interest and Principal" in the Prospectus.
PAYMENTS OF PRINCIPAL
Unless an Event of Default has occurred and is continuing and the Offered
Notes have been declared due and payable, on each Payment Date, each Class of
the Offered Notes will be entitled to receive Scheduled Payments of principal as
follows, in each case until the Class Principal Balance for such class has been
reduced to zero:
[(1) to the holders of the Class A-1 Notes;
(2) to the holders of the Class A-2 Notes;
(3) to the holders of the Class A-3 Notes;
(4) to the holders of the Class A-4 Notes;
(5) to the holders of the Class A-5 Notes;
(6) to the holders of the Class A-6 Notes;
(7) to the holders of the Class A-7 Notes; and
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<PAGE>
(8) to the holders of the Class A-8 Notes;]
provided, however, that, unless an Event of Default has occurred and is
continuing and the Offered Notes have been declared due and payable, in no event
shall the principal payment on any Class on a Payment Date be greater than the
Scheduled Payment for such Class and Payment Date.
Principal will be payable at the Corporate Trust Office of the Indenture
Trustee in the City of Chicago, Illinois or at the office or agency of the
Indenture Trustee maintained for such purposes in the Borough of Manhattan, the
City of New York.
The following Expected Amortization Schedule sets forth the scheduled
outstanding Class Principal Balance for each Class of the Offered Notes at each
Payment Date from the Series Issuance Date to the Expected Maturity Date for
such Class. In preparing the following table, it has been assumed, among other
things, that (a) the Offered Notes are issued on __________, 1998, (b) payments
on the Offered Notes are made on each Payment Date, commencing ________, 1999,
[(c) the Swap Agreement remains in full force and effect and payments are made
with its terms], (d) the Servicing Fee equals $540,000 per quarter, (e) there
are no net earnings on amounts on deposit in the Collection Account, (f)
Operating Expenses, Administration Fees, and amounts owed to the Delaware
Trustee and the Indenture Trustee are in the aggregate [$_______] per quarter,
and all such amounts are payable in arrears, and (f) all IFC Collections are
deposited in the Collection Account in accordance with Illinois Power's
forecasts.
<TABLE>
<CAPTION>
Expected Amortization Schedule
Outstanding Principal Balance
Offered Notes
Date Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class A-6 Class A-7 Class A-8 Total
- ----- --------- --------- --------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series Issuance $
-------
Date
</TABLE>
[INFORMATION TO BE PROVIDED]
There can be no assurance that the Class Principal Balances of the Offered
Notes will be reduced as indicated in the foregoing table, and the actual
reductions in such Class Principal Balances may be slower (or, if an Event of
Default occurs and is continuing and the Offered Notes have been declared due
and payable, faster) than those indicated in the chart. See "Risk Factors" in
the Prospectus for a discussion of various factors which may, individually or in
the aggregate, affect the rate of reductions of the Class Principal Balances of
the Offered Notes.
Each Class becomes due on its Final Maturity Date. The entire unpaid
principal amount of the Offered Notes will be due and payable on the date on
which an Event of Default has occurred and is continuing, if the Indenture
Trustee or holders of not less than a majority in principal amount of the
Notes of all Series then outstanding have declared the Offered Notes
S-25
<PAGE>
to be immediately due and payable. See "Security for the Notes -- Events of
Default; Rights Upon Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Offered Notes may be redeemed on any Payment Date commencing with the
Payment Date on which the outstanding principal balance of the Offered Notes
(after giving effect to payments that would otherwise be made on such date) has
been reduced to less than five percent of the initial principal balance of the
Offered Notes. Notice of such redemption will be given by the Trust to the
Indenture Trustee and the Rating Agencies not less than 25 days nor more than 50
days prior to the date of redemption, and written notice shall also be given to
each holder of Offered Notes to be redeemed by first-class mail, postage
prepaid, mailed not less than five days nor more than 25 days prior to the
applicable date of redemption.
OVERCOLLATERALIZATION AMOUNT
The 1998 TFO provides that the Trust, as the assignee of the Intangible
Transition Property, is entitled to collect an additional amount (for the
Offered Notes, the "Overcollateralization Amount"), which is intended to enhance
the likelihood that payments on the Offered Notes will be made in accordance
with their respective Expected Amortization Schedules. The
Overcollateralization Amount established in connection with the issuance of the
Offered Notes will be [$4,320,000], which is 0.50 percent of the initial
aggregate principal amount of the Offered Notes. The Overcollateralization
Amount is scheduled to be collected over the life of the Offered Notes in
accordance with the Schedule set forth hereinbelow. The Required
Overcollateralization Level for the Offered Notes on each Payment Date is as
follows:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
Required Required
Overcollateralization Overcollateralization
Payment Date Level Payment Date Level
------------ --------------------- ------------ ---------------------
<S> <C> <C> <C>
[INFORMATION TO BE PROVIDED]
</TABLE>
OTHER CREDIT ENHANCEMENT
RESERVE SUBACCOUNT. IFC Collections available with respect to any
Payment Date in excess of amounts necessary to make the Specified Payments
(all as described under "Security for the Notes -- Allocations; Payments" in
the Prospectus), will be allocated to the Reserve Subaccount. On each
Payment Date, the Indenture Trustee will draw on amounts in the Reserve
Subaccount, to the extent amounts available in the General Subaccount are
insufficient to pay
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<PAGE>
expenses of the Trust and pay interest and make Scheduled Payments on the
Notes and to make other payments and transfers in accordance with the terms
of the Indenture.
CAPITAL SUBACCOUNT. Upon the issuance of the Offered Notes, the Trust will
retain proceeds in the amount of [$4,220,000], which is 0.50 percent of the
initial aggregate Class Principal Balance for all of the Offered Notes less
$100,000 in the aggregate for all series of Notes. Such amount is the Required
Capital Level with respect to the Offered Notes and, together with the Required
Capital Level with respect to any other Series of Notes, will be deposited into
the Capital Subaccount. Withdrawals from and deposits to the Capital Subaccount
will be made as described under "Security for the Notes -- Allocations;
Payments" in the Prospectus.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will, at the direction of the
Servicer, apply all amounts on deposit in the Collection Account in the manner
described under "Security for the Notes -- Allocations; Payments" in the
Prospectus.
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
1998 TFO
The Funding Law authorizes the ICC to issue the 1998 TFO in favor of the
Grantee at the request of Illinois Power to create and establish the 1998 ITP
and to permit the Trust to issue the Offered Notes secured by the 1998 ITP. The
total dollar amount of 1998 ITP authorized by the 1998 TFO is $1.634 billion,
which represents the maximum dollar amount of IFC Charges which may be applied
and invoiced over time by the Servicer on behalf of the Trust without further
action by the ICC. In its application for the 1998 TFO, based on certain
assumptions set forth therein, including an assumption that the Notes will bear
interest at a rate of 7.5% per annum [and that any Swap Agreement entered into
in connection with the issuance of Floating Rate Notes will set a fixed interest
rate payable by the Trust of 7.5% per annum], Illinois Power estimated $1.277
billion as the amount of IFC Charges which would be necessary to be billed
through the Expected Maturity Date of all Classes of Offered Notes in order to
pay interest and principal on the Offered Notes. The 1998 TFO also permits the
sale of the Offered Notes in an aggregate principal amount not to exceed $864
million. The 1998 TFO is final and is no longer subject to appeal.
The 1998 TFO creates and establishes, among other things, the 1998 ITP and
authorizes the imposition and collection of the IFC Charges, which constitute
separate nonbypassable usage-based charges expressed in cents per kilowatt-hour
payable by Customers in an aggregate amount sufficient to repay in full the
Offered Notes, fund the Overcollateralization Subaccount and pay all related
fees and expenses. The 1998 TFO entitles the Trust, as the assignee of the 1998
ITP from the Grantee, to receive the payments made pursuant to the IFC Charges
from all Customers through December 31, 2008 or, if later, until the Trust has
received IFC Collections sufficient to retire all the outstanding Offered Notes
and cover related fees and expenses. Subsequent Transitional Funding Orders may
authorize and create additional Intangible Transition Property and additions to
the IFC Charges in order
S-27
<PAGE>
to pay interest and principal on other Series of Notes to be issued in
connection therewith, together with related fees, expenses and the Required
Overcollateralization Level and Required Capital Level established with
respect to such Series of Notes.
The 1998 Authorized IFC Charges set forth in the 1998 TFO (which may be
increased by the ICC in connection with the issuance of a subsequent
Transitional Funding Order), which Illinois Power believes are higher than will
actually be required, based on certain assumptions contained in its application
for the 1998 TFO, are as follows:
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER kWh)
------------------ --------------
<S> <C>
Residential 1.74
Small Commercial 1.64
Large Commercial 1.32
Municipal 1.54
Industrial Firm 1.00
Industrial High Load Factor Firm 0.45
Industrial Non-Firm 0.26
</TABLE>
As required by the Funding Law, any increase in the amount of the IFC
Charges for any of the IFC Customer Classes beyond the level of the 1998
Authorized IFC Charges for such IFC Customer Class set forth in the immediately
preceding table shall require Illinois Power or any successor Utility thereto to
file an amendatory tariff adjusting the amounts otherwise billable by Illinois
Power or such successor Utility for Applicable Rates to offset the amount of
such excess (or, if Illinois Power or such successor Utility shall have
previously filed any such amendatory tariffs, the incremental amount of such
excess).
In connection with the issuance and pricing of the Offered Notes, Illinois
Power filed the 1998 IFC Tariff with the ICC which provides for, among other
things, certain revisions to the IFC Charges. The actual initial cents per
kilowatt-hour IFC Charge payable by each of the seven (7) IFC Customer Classes
beginning on the Series Issuance Date is as follows:
S-28
<PAGE>
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER kWh)
------------------ ---------------
<S> <C>
Residential
Small Commercial
Large Commercial [TO BE PROVIDED]
Municipal
Industrial Firm
Industrial High Load Factor Firm
Industrial Non-Firm
</TABLE>
ADJUSTMENTS TO INSTRUMENT FUNDING CHARGES
The Servicing Agreement and the 1998 TFO require the Servicer to calculate
and implement Adjustments to the IFC Charges which are designed to enhance the
likelihood that the IFC Collections which are remitted to the Collection Account
will be sufficient to make the Specified Payments. In addition, the IFC
Charges will be increased in connection with the issuance of additional Notes
pursuant to any subsequent Transitional Funding Order, to a level calculated to
be sufficient over time to provide for, among other things, payment of all
interest and principal in respect of all outstanding Notes.
Each Adjustment will be calculated by the Servicer within the
one-month period following the end of each Reconciliation Period. The
Reconciliation Periods for the Offered Notes will be January 1 through June
30 and July through December 31. The changes in IFC Charges, if any,
resulting from an Adjustment will take effect on the first day of the second
month following the Reconciliation Period (each, an "Adjustment Date"). The
initial Adjustment Date for the Offered Notes will be August 1, 1999.
See "Description of the Intangible Transition Property -- Adjustments to
Instrument Funding Charges" in the Prospectus.
S-29
<PAGE>
THE SERVICER
The following information supplements that provided under the heading "The
Servicer" in the Prospectus. For a more complete discussion of the Servicer,
see "The Servicer" in the Prospectus.
[SUPPLEMENTAL FINANCIAL INFORMATION, IF ANY]
SERVICING
GENERAL
The Servicer will manage, service and administer, and make collections
in respect of, the Intangible Transition Property pursuant to the Servicing
Agreement between the Servicer and the Grantee. The Servicer may not resign
from its obligations and duties under the Servicing Agreement unless certain
requirements are met. The 1998 TFO does not require approval by the ICC of such
resignation. For a detailed discussion of the Servicer's procedures, the manner
in which payments from Customers are remitted to the Collection Account, and
related matters, see "Servicing" in the Prospectus.
The Servicer will be required by law to allow an Alternative Retail
Electric Supplier ("ARES") who chooses to do so to bill customers for the
services provided by the ARES and the services provided by the Servicer,
including the IFC Charges, and thus will be required to allow such ARES to
collect and remit IFC Charges. The Servicer will have certain rights and
remedies with respect to such ARES as provided by the Amendatory Act and the
1998 TFO. See "Risk Factors -- Potential Servicing Issues -- Possible Payment
Delays Caused by Reliance on Alternative Retail Electric Suppliers" and
"Servicing -- Alternative Retail Electric Suppliers and Other Third-Party
Collectors" in the Prospectus.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or principal on
the Offered Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive a servicing fee on each
Payment Date, in an amount equal to (a) $540,000, for so long as IFC Charges are
billed concurrently with charges otherwise billed by the Servicer to Customers
and (b) not to exceed $3,240,000 if IFC Charges are not billed concurrently with
charges otherwise billed by the Servicer to Customers. (Under the Servicing
Agreement, Illinois Power or any successor thereto is required to bill IFC
Charges concurrently with charges for electric service or Applicable Rates, so
long as Illinois Power or such successor is billing Customers for such electric
service or Applicable Rates.) The Servicing Fee (together with any portion of
the Servicing Fee that remains unpaid from prior Payment Dates) will be paid
solely to the extent funds are available
S-30
<PAGE>
therefor as described under "Security for the Notes -- Allocations; Payments"
in the Prospectus. The Servicing Fee will be paid prior to the payment of
any amounts in respect of interest on and principal of the Offered Notes.
The Servicer will be entitled to retain as additional compensation net
investment income on IFC Payments received by the Servicer prior to
remittance thereof to the Collection Account and the portion of late fees, if
any, paid by Customers relating to the IFC Payments.
STATEMENTS BY SERVICER
For each Remittance Date and each Payment Date, the Servicer will provide
the statements and reports described under "Servicing -- Statements by Servicer"
in the Prospectus.
[SUMMARY OF CERTAIN PROVISIONS OF THE SWAP AGREEMENT
Pursuant to the Swap Agreement, on each Payment Date, the Trust will be
obligated to pay to the Swap Counterparty the Net Trust Swap Payment (solely
from IFC Collections), or the Swap Counterparty will be obligated to pay to the
Trust an amount equal to the Net Trust Swap Receipt.
The Swap Agreement requires that in the event of a downgrading of the Swap
Counterparty's credit rating by either of Moody's or S&P below "___" (or the
equivalent rating) (a "Downgrade Event"), the Swap Counterparty must attempt to
assign its rights, and obligations made pursuant to the Swap Agreement to a
replacement counterparty (a "Replacement Counterparty") rated "___" by such
Rating Agencies.
If (a) the Swap Counterparty does not successfully make such an assignment
within 90 days of such a Downgrade Event, or (b) prior thereto the rating of the
Swap Counterparty is reduced below "___" by either of Moody's or S&P and a
Replacement Counterparty rated "___" by both Moody's and S&P has not assumed the
Swap Counterparty's rights and obligations under the Swap Agreement within 30
days, then the Trust may attempt to assign the Swap Agreement as further
described below. If the Swap Counterparty certifies to the Trust that a
Replacement Counterparty rated "___" by both Moody's and S&P will not bid to
replace the Swap Counterparty, and such certification is reviewed and confirmed
by a recognized International Swaps and Derivatives Association, Inc. (the
"ISDA") swap dealer appointed by the Trust with capital and surplus of at least
$50 million (the "Swap Agent"), then the Swap Counterparty may assign the Swap
Agreement to a Replacement Counterparty that is rated "___" by either of Moody's
or S&P, and not rated below "___" by the other Rating Agency. This process will
continue until the highest rated Replacement Counterparty can be identified,
which, in any event, will be rated not lower than "___" by Moody's and S&P.
If, upon conclusion of the above-referenced 90-day or 30-day period, the
Swap Counterparty's rights and obligations under the Swap Agreement have not
been successfully assigned by the Swap Counterparty, then the Swap Agent shall
independently solicit a Replacement Counterparty using the process described
above for a period not exceeding 90
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<PAGE>
days, but in no event later than the date the Swap Counterparty is no longer
rated at least "___" by both Moody's and S&P. If the Swap Agent is successful
in identifying a Replacement Counterparty, the Trust will execute an
agreement (substantially in the form of the Swap Agreement) with the
Replacement Counterparty and the Swap Agreement and the Swap Counterparty's
rights and obligations shall be deemed to have been assigned to such
Replacement Counterparty effective as of the Payment Date immediately
succeeding such execution, without any further action by the Swap
Counterparty. If, upon conclusion of such 90-day period (or, if earlier, upon
the downgrading of the Swap Counterparty below "___" by either Moody's or
S&P), a qualified Replacement Counterparty has not entered into a swap
agreement with the Trust, an event of default will be deemed to have occurred
with respect to the Swap Agreement, with the Swap Counterparty as the
defaulting party. In addition, an event of default will also occur upon the
failure by either the Trust or the Swap Counterparty to make, when due, any
payment under the Swap Agreement if such failure is not remedied on or before
the fifth Business Day after the occurrence of such failure. Upon the
occurrence of any event of default by the Swap Counterparty, the Trust is
required under the Agreement to terminate the Swap Agreement, and upon the
occurrence of an event of default by the Trust, the Swap Counterparty may
terminate the Swap Agreement.
A "Floating Rate Event of Default" under the Swap Agreement, in addition to
the Downgrade Event discussed above, would also occur upon: (i) the failure of
the Trust or the Swap Counterparty to pay any amount when due under the Swap
Agreement after giving effect to the applicable grace period, if any; (ii) the
occurrence of certain events of insolvency or bankruptcy of the Trust or the
Swap Counterparty and (iii) certain other standard events of default (which are
applicable solely with respect to the Swap Counterparty) under the Swap
Agreement.
The Swap Agreement may also be terminated in the event of an "illegality,"
which would occur due to the adoption of, or any change in, any applicable law,
or due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction over any
applicable law, as a result of which it becomes unlawful for the Trust or the
Swap Counterparty to perform any obligation to make payment or to receive a
payment or to comply with any other material provision of the Swap Agreement.
If the Swap Agreement is terminated because of an "illegality" as described
above, neither the Trust nor the Swap Counterparty will be required to pay the
other party's resulting out-of-pocket expenses.
If the Swap Agreement is terminated because of an event of default as
described above and the Swap Counterparty is the defaulting party, the Swap
Counterparty is required to pay the Trust's resulting out-of-pocket expenses.
The Trust is not required to pay the Swap Counterparty's out-of-pocket expense
even if the Trust is the defaulting party. In addition, upon an assignment of
the Swap Agreement as a result of a Downgrade Event, the Swap Counterparty will
be responsible for the payment of all resulting fees and expenses with
respect thereto, including any Swap Agent's fees. In the event of an early
termination of the Swap Agreement for any reason, the Swap Counterparty is
required to make a marked-to-market payment of its obligations to the Trust,
but the Trust is not required to make any marked-to-market payment of its
obligations to the Swap Counterparty. Any such termination
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<PAGE>
payment will be distributed to the holders of Floating Rate Notes on a
pro-rata basis on the Payment Date so received, or if not received on a
Payment Date, on a Special Payment Date.
In the event that the Swap Agreement is terminated for any reason, the
interest rate payable with respect to the Floating Rate Notes will automatically
convert to a fixed interest rate equal to the fixed interest rate payable by the
Swap Counterparty under the Swap Agreement (____% per annum), effective as of
the first day of the Interest Accrual Period in which such termination event
occurs on, or in the case of a termination resulting from the failure of the
Swap Counterparty to pay a Net Trust Swap Receipt, effective as of the first day
of the Interest Accrual Period preceding such termination. Such fixed interest
rate may be substantially less than the rate that might otherwise be payable on
the Floating Rate Notes, and such conversion may adversely affect both the
liquidity and the market value of the Floating Rate Notes.
Under the Sale Agreement, the Grantee has covenanted to enforce the Trust's
rights under the Swap Agreement on behalf of the Trust, and to promptly identify
a successor Swap Agent during the continuance of a Downgrade Event.]
[THE SWAP COUNTERPARTY
___________________ (the "Swap Counterparty") is ___________________. As
of December 31, 1997, the consolidated balance sheet total assets of
___________________ were $_________ and its equity was $_______________. Upon
request additional information about the Swap Counterparty can be obtained from
_____________________ at ___________. ]
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Illinois Power has received a ruling from the IRS holding that, among other
things, (a) the Trust's issuance of the Offered Notes will not result in gross
income to Illinois Power and (b) the Offered Notes will be obligations of
Illinois Power for federal income tax purposes. See "Material United States
Federal Income Tax Consequences" in the Prospectus.
The Indenture provides that a Noteholder and any persons holding a
beneficial interest in the Offered Notes, by acquiring any Offered Note or
interest therein, agrees to treat the Offered Note as indebtedness of Illinois
Power secured by the Note Collateral for purposes of federal, state and local
income and franchise taxes, and any other taxes imposed upon, measured by, or
based upon gross or net income, unless otherwise required by appropriate taxing
authorities.
For a discussion of material United States federal income and estate tax
considerations relevant to the purchase, ownership and disposition of the Notes
by the initial beneficial owners thereof, see "Material United States Federal
Income Tax Consequences" in the Prospectus.
S-33
<PAGE>
TAXATION OF UNITED STATES NOTEHOLDERS OF FLOATING RATE NOTES
Payments of interest on a Floating Rate Note generally will be taxable to a
United States Noteholder as ordinary income at the time it is received or
accrued, in accordance with the United States Noteholder's method of accounting
for tax purposes. The Floating Rate Notes are expected to qualify as a
"variable rate debt instrument" for federal income tax purposes.
A "variable rate debt instrument" is defined in Treasury Regulation Section
1.1275-5(a) as a debt instrument that: (i) has an issue price that does not
exceed the total noncontingent principal payments by more than an amount equal
to the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity (or weighted average
maturity in the case of installment obligation) from the issue date and (z)
.015, and (2) 15 percent of the total noncontingent principal payments, and
(iii) provides for stated interest (compounded or paid at least annually) at the
current value of (1) one or more "qualified floating rates," (2) a single fixed
rate and one or more qualified floating rates, (3) a single "objective rate" or
(4) a single fixed rate and a single objective rate that is a "qualified inverse
floating rate." A "current value" of a qualified floating rate or objective
rate is the value of the rate on any day that is no earlier than 3 months prior
to the first day on which that value is in effect and no later than 1 year
following that first day. Finally, a variable rate debt instrument must not
provide for any contingent principal payments, except as otherwise provided in
this paragraph.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the debt
instrument is denominated or (ii) it is equal to the product of such a rate and
either (a) a fixed multiple that is greater than 0.65 but not more 1.35, or (b)
a fixed multiple greater than or equal to 0.65 but more than 1.35, increased or
decreased by a fixed rate. If a debt instrument provides for two or more
qualified floating rates that (i) are within 0.25 percent of each other on the
issue date or (ii) can reasonably be expected to have approximately the same
values throughout the term of the debt instrument, the qualified floating rates
together constitute a single qualified floating rate. A rate is not a qualified
floating rate, however, if the rate is subject to certain restrictions
(including caps, floors, governors, or other similar restrictions) unless such
restrictions are fixed throughout the term of the debt instrument or are not
reasonably expected to significantly affect the yield on the debt instrument.
An "objective rate" is a rate, other than qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information that is not withing the control of or
unique to the circumstances of the issuer or a related party. A variable
rate is not an objective rate, however, if it is reasonably expected that the
average value of the rate during the first half of the term of the debt
instrument will be either significantly less than or significantly greater
than the average value of the rate during the final half of the term of the
debt instrument. An objective rate is a "qualified inverse floating rate" if
(i) the rate is equal to a fixed rate minus a qualified floating rate, and
(ii) the variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the cost of newly borrowed funds.
S-34
<PAGE>
If interest on a debt instrument is stated at a fixed rate for an initial
period of one year or less followed by a variable rate that is either a
qualified floating rate or an objective rate for a subsequent period and (i) the
fixed rate and the qualified floating rate or objective rate have values on the
issue date of the debt instrument that do not differ by more than 0.25 percent
or (ii) the value of the qualified floating rate or objective rate is intended
to approximate the fixed rate, the fixed rate and the qualified floating rate or
the objective rate constitute a single qualified floating rate or objective
rate.
In general, if a variable rate debt instrument provides for stated interest
at a single qualified floating rate or an objective rate and the interest is
generally unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually, all stated interest on the debt
instrument is qualified stated interest and the amount of Original Issue
Discount (the "OID"), if any, is determined as described in "Original Issue
Discount-General" by using, in the case of a qualified floating rate or
qualified inverse floating rate, the value as of the issue date of the qualified
floating rate or qualified inverse floating rate, or, in the case of any other
objective rate (other than a qualified inverse floating rate), a fixed rate that
reflects the yield reasonably expected for the debt instrument. As discussed in
the Prospectus under "Material United States Federal Income Tax
Consequences--Tax Consequences to United States Noteholders--Original Issue
Discount", it is not expected that the Floating Rate Notes will be issued with
OID.
Although not expected to be the case, should a Floating Rate Note not
provide for stated interest at a single qualified floating rate or an objective
rate and also does not provide for interest payable at a fixed rate (other than
at a single fixed rate for an initial period) the amount of interest and OID
accruals on the Floating Rate Note are generally determined by (i) determining a
fixed rate substitute for each variable rate provided under the Floating Rate
Note (generally, the value of each variable rate as of the issue date or, in the
case of an objective rate that is not a qualified inverse floating rate, a rate
that reflects the reasonably expected yield on the Floating Rate Note), (ii)
constructing the equivalent fixed rate debt instrument (using the fixed rate
substitutes described above), (iii) determining the amount of qualified stated
interest and OID with respect to the equivalent fixed rate debt instrument, and
(iv) making the appropriate adjustments for actual variable rates during the
applicable accrual period.
If a Floating Rate Note provides for stated interest either at one or
more qualified rates or at a qualified inverse floating rate, and in addition
provides for stated interest at a single fixed rate (other than at a single
fixed rate for an initial period), the amount of interest and OID accruals
are determined as in the immediately preceding paragraph with the
modification that the Floating Rate Note is treated, for purposes of the
first three steps of the determination, as if it provided for a qualified
floating rate (or a qualified inverse floating rate, as the case may be)
rather than the fixed rate. The qualified floating rate (or qualified
inverse floating rate) replacing the fixed rate must be such that the fair
market value of the Floating Rate Note as of the issue date would be
approximately the same as the fair market value of an otherwise identical
debt instrument that provides for the qualified floating rate (or qualified
inverse floating rate) rather than the fixed rate.
S-35
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Trust has agreed to sell to each of the Underwriters named below
(the "Underwriters"), and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, ____________and ________________ are acting
as representatives, has severally agreed to purchase, the respective principal
amounts of the Offered Notes set forth opposite its name below.
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class A-6 Class A-7 Class A-8
Name Notes Notes Notes Notes Notes Notes Notes Notes
------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch,
Pierce, Fenner & --------- --------- --------- --------- --------- --------- --------- ---------
Smith Incorporated
Total .............. $ $ $ $ $ $ $ $
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and to pay for all of the Offered Notes
offered hereby, if any are taken.
The Underwriters propose to offer the Offered Notes in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement, and in part to certain securities dealers at such price
less a concession not in excess of _______ percent of the principal amount of
the Class A-1 Notes, ______ percent of the principal amount of the Class A-2
Notes, ______ percent of the principal amount of the Class A-3 Notes, ______
percent of the principal amount of the Class A-4 Notes, ______ percent of the
principal amount of the Class A-5 Notes, ______ percent of the principal amount
of the Class A-6 Notes,______ percent of the principal amount of the Class A-7
Notes, and ______ percent of the principal amount of the Class A-8 Notes. The
Underwriters may allow and such dealers may reallow a concession, not in excess
of _______ percent of the principal amount of the Class A-1 Notes, ______
percent of the principal amount of the Class A-2 Notes, ______ percent of the
principal amount of the Class A-3 Notes, ______ percent of the principal amount
of the Class A-4 Notes, ______ percent of the principal amount of the Class A-5
Notes, ______ percent of the principal amount of the Class A-6 Notes, ______
percent of the principal amount of the Class A-7 Notes and _______ percent of
the principal amount of the Class A-8 Notes. After the Offered Notes are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
The Offered Notes are a new issue of securities with no established trading
market. The Offered Notes will not be listed on any securities exchange. The
Trust has been advised by the Underwriters that they intend to make a market in
the Offered Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Offered Notes.
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<PAGE>
In connection with the offering, the Underwriters may purchase and sell the
Offered Notes in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Offered Notes; and syndicate short positions involve
the sale by the Underwriters of a greater number of Offered Notes than they are
required to purchase from the Trust in the offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Offered Notes sold in the offering for
their account may be reclaimed by the syndicate if such Offered Notes are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Offered Notes, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time.
Under the terms of the Underwriting Agreement, the Trust has agreed to
reimburse the Underwriters for certain expenses.
The Grantee and Illinois Power have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
RATINGS
It is a condition of issuance of the Offered Notes that the Offered Notes
be rated [___] by Duff & Phelps Credit Rating Company, [____] by Fitch IBCA,
Inc., [____] by Moody's Investors Service, Inc. and [____] by Standard & Poor's,
a division of The McGraw-Hill Companies, Inc.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Offered Note, and,
accordingly, there can be no assurance that the ratings assigned to any Class of
Offered Notes upon initial issuance will not be revised or withdrawn by a Rating
Agency at any time thereafter. If a rating of any Class of Offered Notes is
revised or withdrawn, the liquidity of such Class of Offered Notes may be
adversely affected. In general, ratings address credit risk and do not
represent any assessment of the rate of principal payments.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Notes will be
passed upon for the Trust by Schiff Hardin & Waite, Chicago, Illinois, counsel
to Illinois Power and for the Underwriters by Brown & Wood LLP, New York, New
York. Certain legal matters relating to the United States federal income tax
consequences of the issuance of the Offered Notes will be passed upon for the
Trust by Mayer Brown & Platt, Chicago, Illinois, counsel to Illinois
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<PAGE>
Power. Certain legal matters relating to the Trust will be passed upon for the
Trust by Richards, Layton & Finger, P.A., Wilmington, Delaware.
S-38
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Principal Definitions"
in the Prospectus.
<TABLE>
DEFINED TERM DEFINED ON PAGE
- ------------ ---------------
<S> <C>
1998 Authorized IFC Charges. . . . . . . . . . . . . . . . . . . . . . . S-10
1998 IFC Tariff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
1998 ITP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
1998 TF0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Adjustment Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-8
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Agent Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
ARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Book-Entry Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Capital Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Class Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . S-7
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Downgrade Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Expected Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Final Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Floating Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Floating Rate Event of Default . . . . . . . . . . . . . . . . . . . . . S-32
Floating Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
General Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
S-39
<PAGE>
Illinois Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Interest Accrual Period. . . . . . . . . . . . . . . . . . . . . . . . . S-23
Interest Determination Date. . . . . . . . . . . . . . . . . . . . . . . S-21
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
London Banking Day . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Net Trust Swap Payment . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Net Trust Swap Receipt . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Note Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Offered Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
OID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Original Note Principal Balance. . . . . . . . . . . . . . . . . . . . . S-7
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . . . . S-26
Overcollateralization Subaccount . . . . . . . . . . . . . . . . . . . . S-15
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Quarterly Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Replacement Counterparty . . . . . . . . . . . . . . . . . . . . . . . . S-31
Required Overcollateralization Level . . . . . . . . . . . . . . . . . . S-15
Reserve Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Series Issuance Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Specified Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Swap Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Swap Counterparty. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Telerate Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
</TABLE>
S-40
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1998.
PROSPECTUS
ILLINOIS POWER SPECIAL PURPOSE TRUST
TRANSITIONAL FUNDING TRUST NOTES
ISSUABLE IN SERIES
----------
ILLINOIS POWER COMPANY,
SERVICER
----------
The Illinois Power Special Purpose Trust Transitional Funding Trust
Notes (the "Notes") offered hereby in an aggregate principal amount of up to
$864,000,000 may be sold from time to time in series (each, a "Series"), each of
which may be comprised of one or more classes (each, a "Class"), as described in
the related Prospectus Supplement. Each Series of Notes will be issued by the
Illinois Power Special Purpose Trust (the "Trust"), a Delaware business trust to
be created under a Declaration of Trust (the "Trust Agreement"), by and among a
Delaware trustee (the "Delaware Trustee") and Beneficiary Trustees to be named
in the related Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE 36 HEREIN.
THE NOTES OFFERED HEREBY DO NOT CONSTITUTE A DEBT OR OTHER LIABILITY OF THE
STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION, AGENCY OR INSTRUMENTALITY
THEREOF AND DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ILLINOIS POWER
COMPANY OR ANY OF ITS AFFILIATES. NONE OF THE NOTES OR THE UNDERLYING
INTANGIBLE TRANSITION PROPERTY WILL BE GUARANTEED OR INSURED BY ILLINOIS POWER
OR ITS AFFILIATES.
----------
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY THE GRANTEE, CERTAIN
OTHER ASSETS OF THE TRUST AND PAYMENTS ON ANY RELATED SWAP AGREEMENT (SOLELY
WITH RESPECT TO CLASSES OF NOTES BEARING INTEREST AT FLOATING RATES), WILL BE
THE SOLE SOURCE
1
<PAGE>
OF PAYMENTS ON THE NOTES. NEITHER ILLINOIS POWER COMPANY NOR ANY OF ITS
AFFILIATES WILL HAVE ANY OBLIGATION IN RESPECT OF THE NOTES OR THE INTANGIBLE
TRANSITION PROPERTY, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE RELATED
PROSPECTUS SUPPLEMENT.
----------
TRANSITIONAL FUNDING ORDERS AUTHORIZING THE ISSUANCE OF THE NOTES DO NOT
CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF ILLINOIS OR OF
ANY OF ITS AFFILIATES OR OF ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF
THE NOTES UNDER THE FUNDING LAW SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY
OBLIGATE THE STATE OF ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR
TO PLEDGE ANY FORM OF TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR
PAYMENT.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES
OFFERED HEREBY UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
----------
Prospective investors should refer to the "Index of Principal
Definitions" which begins on page 159 herein for the location of the
definitions of capitalized terms that appear in this Prospectus.
_______________, 1998.
The Notes will be secured primarily by the Intangible Transition
Property, as described under "Prospectus Summary -- Intangible Transition
Property" and "Description of the Intangible Transition Property." The
Intangible Transition Property, among other things, will represent a current
right to receive certain nonbypassable usage-based per kilowatt-hour charges to
be imposed against certain customers of Illinois Power Company. Collection of
these charges will be the primary source of payment of principal and interest on
the Notes.
The Trust will issue to investors separate Series of Notes from
time to time upon terms determined at the time of sale and described in the
related Prospectus Supplement. Each Series may be issuable in one or more
Classes. A Series may include Classes which differ as to the interest rate,
timing, sequential order and amount of distributions of principal or interest
or both or otherwise. As more specifically described under "Security for the
Notes --Allocations; Payments," the Trust will use all payments made with
respect to Intangible Transition Property (including net investment earnings
thereon) to pay certain expenses described in this Prospectus, interest due
on the Notes and principal payable on the Notes, allocated among the Series
and Classes of Notes based on the priorities described in this Prospectus and
in the related Prospectus Supplement except that investment earnings on
amounts on deposit in the Collection Account shall, to the extent such
amounts are not otherwise required to make other payments described herein,
or in the related Prospectus Supplement, be paid to the Trust or as it
directs. All principal not previously paid, if any, on any Note will be due
and payable
2
<PAGE>
on the Final Maturity Date of such Note. While the specific terms of any
Series of Notes (and the Classes, if any, thereof) will be described in the
related Prospectus Supplement, the terms of such Series and any Classes
thereof will not be subject to prior review by, or consent of, the holders of
the Notes of any previously issued Series.
Offers of the Notes of a Series may be made through one or more
different methods, including offerings through underwriters, as described under
"Plan of Distribution" herein and "Underwriting" in the related Prospectus
Supplement. There will have been no secondary market for the Notes of any
Series prior to the offering thereof. There can be no assurance that a
secondary market for any Series of Notes will develop or, if one does develop,
that it will continue. It is not anticipated that any of the Notes will be
listed on any securities exchange.
No dealer, salesperson, or any other person has been authorized to
give any information, or to make any representations, other than those contained
in this Prospectus or the related Prospectus Supplement and, if given or made,
such information or representations must not be relied upon as having been
authorized by Illinois Power, the Trust or any dealer, salesperson, or any other
person. Neither the delivery of this Prospectus or the related Prospectus
Supplement nor any sale made hereunder or thereunder shall under any
circumstances create an implication that there has been no change in the
information herein or therein since the date hereof. This Prospectus and the
related Prospectus Supplement do not constitute an offer to sell or a
solicitation of an offer to buy any security in any jurisdiction in which it is
unlawful to make such offer or solicitation.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE RELATED SERIES OF NOTES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Grantee has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (as amended, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes. This Prospectus, which forms a part of the
Registration Statement, and any Prospectus Supplement describe all material
terms of each document filed as an exhibit to the Registration Statement;
however, this Prospectus and any Prospectus Supplement do not contain all of
the information contained in the Registration Statement and the exhibits
thereto. Any statements contained herein concerning the provisions of any
document filed
3
<PAGE>
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference. For further information, reference is made
to the Registration Statement and the exhibits thereto, which are available
for inspection without charge at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its regional offices located as follows: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of the Registration Statement and exhibits thereto may be
obtained at the above locations at prescribed rates. Information filed with
the Commission can also be inspected at the Commission's site on the World
Wide Web at http://www.sec.gov.
The Grantee will file with the SEC such periodic reports with respect
to each Series of Notes as are required by the Securities Exchange Act of 1934,
as amended (the "Exchange Act "), and the rules, regulations or orders of the
SEC thereunder. The Grantee may discontinue filing periodic reports under the
Exchange Act at the beginning of the fiscal year following the issuance of the
Notes of any Series if there are fewer than 300 holders of such Notes.
REPORTS TO HOLDERS
Unless and until the Notes are no longer issued in book-entry form,
the Servicer will provide to Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC") and registered holder of the Notes, and, upon request, to
Participants of DTC, periodic reports concerning the Notes. See "Security for
the Notes -- Reports to Noteholders." Such reports may be made available to the
holders of interests in the Notes (the "Noteholders") upon request to their
Participants. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The financial
information provided to Noteholders will not be examined and reported upon, nor
will an opinion thereon be provided, by any independent public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Grantee pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering made hereby
shall be deemed to be incorporated by reference in this Prospectus and to be
part hereof. Any statement contained herein or in a Prospectus Supplement,
or in a document incorporated or deemed to be incorporated by reference
herein or therein shall be deemed to be modified or superseded for purposes
of this Prospectus and any Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement.
4
<PAGE>
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus or any
Prospectus Supplement.
The Grantee will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should be
directed to the Grantee at Illinois Power Securitization Limited Liability
Company at 500 South 27th Street, Decatur, Illinois 62521, or by telephone at
(217) 450-2435, Attention: Daniel L. Mortland.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement for a Series of Notes will describe, among
other things, the following terms of such Series and, if applicable, the Classes
thereof: (a) the designation of the Series and, if applicable, the Classes
thereof, (b) the principal amount, (c) the annual rate at which interest
accrues, or if the Trust has entered into a Swap Agreement with respect to such
Series, the index on which a variable rate of interest will be based, (d) the
dates on which payments of interest and principal are scheduled to occur, (e)
the Expected Maturity Date and the Final Maturity Date of such Series, (f) the
initial Adjustment Date of, and the Reconciliation Period for such Series, (g)
the issuance date of the Series, (h) the place or places for the payment of
principal and interest, (i) the authorized denominations, (j) the provisions for
optional redemption of such Series or Class by the Trust, (k) the Expected
Amortization Schedule for principal of such Series and, if applicable, the
Classes thereof, (l) the initial IFC Charges authorized in connection with the
issuance of such Series by the related Transitional Funding Order, and the IFC
Charges imposed as of the date of issuance of such Series, (m) the total dollar
amount of Intangible Transition Property authorized by the related Transitional
Funding Order, (n) any other material terms of such Series and any Class thereof
that are not inconsistent with the provisions of the Notes and that will not
result in any Rating Agency reducing or withdrawing its then current rating of
any outstanding Series or Class of Notes, (o) the identity of the Indenture
Trustee, the Delaware Trustee and the Beneficiary Trustees, and (p) the terms of
any Swap Agreement executed solely to permit the issuance of any Floating Rate
Notes and the identity of any Swap Counterparty related thereto.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The disclosures in this Prospectus set forth in "The Servicer --
Year 2000 Issues," in the last paragraph of "Risk Factors -- Reduction in
Amount of Revenue from Applicable Rates" and in the third paragraph of
"Electric Industry Restructuring in Illinois -- Competitive Services" contain
forward-looking statements.
5
<PAGE>
<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Uncertainties Associated with Unusual Asset Type . . . . . . . . . . . . . . . . . . . . 36
Legal Challenges Which Could Adversely Affect Noteholders. . . . . . . . . . . . . . . . 36
Possible Payment Delays or Losses as a Result of Amendment or Repeal of
Amendatory Act or Breach of State Pledge . . . . . . . . . . . . . . . . . . . . . . 38
Limit on Amount of Intangible Transition Property Available to Pay Notes. . . . . . . . 39
Potential Servicing Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Reliance on Illinois Power as Servicer. . . . . . . . . . . . . . . . . . . . . . . 39
Possible Payment Delays Caused by Inaccurate Usage and
Credit Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Possible Payment Delays Caused by Changes in Payment Terms of Customers . . . . . . 40
Limited Information Regarding Customers . . . . . . . . . . . . . . . . . . . . . . 41
Possible Payment Delays Caused by Reliance on Alternative Retail
Electric Suppliers and Other Third-Party Collectors. . . . . . . . . . . . . . . 41
Possible Payment Delays Caused by Commingling of IFC Payments
With Servicer's Other Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Possible Payment Delays as a Result of Year 2000 Issues . . . . . . . . . . . . . . 42
Uncertainties Related to the Electric Industry Generally . . . . . . . . . . . . . . . . 43
Untried New Illinois Market Structure . . . . . . . . . . . . . . . . . . . . . . . 43
Shrinking Customer Base as a Result of Technological Change . . . . . . . . . . . . 43
Shrinking Customer Base as a Result of Municipalization. . . . . . . . . . . . . . 44
Possible Payment Delays Caused by Changes in General Economic
Conditions and Electricity Usage . . . . . . . . . . . . . . . . . . . . . . . . 45
Uncertainties Caused by Changing Regulatory and Legislative Environment. . . . . . . . . 46
Reduction in Amount of Revenue From Applicable Rates . . . . . . . . . . . . . . . . . . 46
Bankruptcy and Creditors' Rights Issues. . . . . . . . . . . . . . . . . . . . . . . . . 50
Possible Adverse Effect on Noteholders as a Result of the Bankruptcy of
Illinois Power or the Grantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Possible Adverse Effect on Noteholders as a Result of the Bankruptcy
of the Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Nature of the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Limited Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Restrictions on Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . 54
Limited Sources of Payment for the Notes and Limited Credit Enhancement . . . . . . 54
6
<PAGE>
Effect of Additional Series of Notes or Other Transitional Funding
Orders on Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Limited Nature of Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Uncertain Payment Amounts and Weighted Average Life. . . . . . . . . . . . . . . . . . . 56
Effect of Optional Redemption on Weighted Average Life and Yield. . . . . . . . . . 57
Additional Risks of Floating Rate Notes . . . . . . . . . . . . . . . . . . . . . . 57
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS. . . . . . . . . . . . . . . . . . . . . . . . . 59
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Amendatory Act Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Transition Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Transition Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Alternative Retail Electric Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . 63
Competitive Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Federal Initiatives; Increased Competition . . . . . . . . . . . . . . . . . . . . . . . 64
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY. . . . . . . . . . . . . . . . . . . . . . 65
Creation of Intangible Transition Property Under the Funding Law . . . . . . . . . . . . 65
Limitations on the Amounts of Transitional Funding Instruments, Intangible Transition
Property and Instrument Funding Charges Which Can Be Authorized; Permitted Use of
Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Imposition and Collection of Instrument Funding Charges; Adjustment Mechanism. . . . . . 69
The Transitional Funding Order Issued at the Request of Illinois Power . . . . . . . . . 71
Transactions Pursuant to the Transitional Funding Order. . . . . . . . . . . . . . . . . 73
Nonbypassable Instrument Funding Charges . . . . . . . . . . . . . . . . . . . . . . . . 74
Adjustments to Instrument Funding Charges. . . . . . . . . . . . . . . . . . . . . . . . 74
Sale and Assignment of Intangible Transition Property. . . . . . . . . . . . . . . . . . 76
Grant Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Representations and Warranties of Illinois Power . . . . . . . . . . . . . . . . . . . . 78
Covenants of Illinois Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Amendment of Grant Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Indemnification Obligations of Illinois Power. . . . . . . . . . . . . . . . . . . . . . 84
Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Representations and Warranties of Grantee . . . . . . . . . . . . . . . . . . . . . . . 85
Covenants of the Grantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Amendment of Sale Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Indemnification Obligations of the Grantee . . . . . . . . . . . . . . . . . . . . . . . 91
CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS. . . . . . . . . . . . . . . 92
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
THE GRANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Managers and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7
<PAGE>
THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Illinois Power Customer Base, Electric Energy Consumption and Base Rates . . . . . . . . 98
Forecasting Electricity Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . 102
Forecast Variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Credit Policy; Billing; Collections; Restoration of Service . . . . . . . . . . . . . .103
Collection Process .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Restoration of Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Loss and Delinquency Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Delinquencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Year 2000 Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
SERVICING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Servicing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Servicing Standards and Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Remittances to Collection Account. . . . . . . . . . . . . . . . . . . . . . . . . . . 112
No Servicer Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Alternative Retail Electric Suppliers and Other Third-Party Collectors . . . . . . . . 114
Servicer Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . 115
Statements by Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Evidence as to Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Certain Matters Regarding the Servicer . . . . . . . . . . . . . . . . . . . . . . . . 117
Servicer Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Rights Upon Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Successor Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Interest and Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Payments on the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Floating Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
No Third-Party Credit Enhancement. . . . . . . . . . . . . . . . . . . . . . . . . . . .124
Registration and Transfer of the Notes . . . . . . . . . . . . . . . . . . . . . . . . 124
Book-Entry Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Optional Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Conditions of Issuance of Additional Series and Acquisition of Subsequent
Intangible Transition Property. . . . . . . . . . . . . . . . . . . . . . . . . . . .130
List of Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
SECURITY FOR THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
8
<PAGE>
Pledge of Note Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Security Interest in Note Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 132
Creation and Perfection of Security Interest in Intangible Transition
Property Under the Funding Law . . . . . . . . . . . . . . . . . . . . . . . . 132
Right of Foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Filings Made With Respect to the Intangible Transition Property . . . . . . . . . 134
Description of Indenture Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Collection Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
General Subaccount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Reserve Subaccount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Overcollateralization Subaccount. . . . . . . . . . . . . . . . . . . . . . . . . 135
Capital Subaccount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Allocations; Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
State Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Reports to Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Certain Covenants of the Delaware Trustee and the Trust. . . . . . . . . . . . . . . . 140
Events of Default; Rights Upon Event of Default. . . . . . . . . . . . . . . . . . . . 143
Actions by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Annual Compliance Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . .146
Tax Consequences to United States Noteholders. . . . . . . . . . . . . . . . . . . . . 147
United States Noteholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Payments of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Original Issue Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Market Discount and Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Sale, Exchanges, Redemption or Retirement of the Notes. . . . . . . . . . . . . . 148
Tax Consequences to Non-United States Noteholders. . . . . . . . . . . . . . . . . . . 148
Backup Withholding and Information Reporting . . . . . . . . . . . . . . . . . . . . . 151
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
INDEX OF FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
</TABLE>
9
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING PROSPECTUS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND
BY REFERENCE TO THE INFORMATION WITH RESPECT TO EACH SERIES OF NOTES CONTAINED
IN THE RELATED PROSPECTUS SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED IN
THIS PROSPECTUS SUMMARY HAVE THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN
THIS PROSPECTUS. THE INDEX OF PRINCIPAL DEFINITIONS WHICH BEGINS ON PAGE 159
SETS FORTH THE PAGES ON WHICH THE DEFINITIONS OF CERTAIN PRINCIPAL TERMS APPEAR.
Transaction Overview . . . The Illinois Electric Utility Transitional Funding
Law of 1997 (the "Funding Law") permits Illinois
electric utilities (each, a "Utility", and
collectively, the "Utilities"), including Illinois
Power Company, an Illinois corporation ("Illinois
Power"), and other permitted issuers, including
the Trust, to issue transitional funding
instruments, such as the Transitional Funding
Trust Notes (the "Notes"). The Funding Law was
one portion of Public Act 90-561 (the "Amendatory
Act") which amended the Illinois Public Utilities
Act (as so amended, the "Act") and became law on
December 16, 1997.
Pursuant to the Funding Law, the Illinois
Commerce Commission (the "ICC") has issued and
may hereafter issue one or more Transitional
Funding Orders in favor of the Grantee at the
request of Illinois Power each of which
provides, or will provide, among other things,
for the creation of Intangible Transition
Property and the vesting thereof in the
Grantee. The Intangible Transition Property
created by each Transitional Funding Order,
among other things, represents the right to
impose and receive certain nonbypassable
usage-based charges (expressed in cents per
kilowatt-hour from Customers, and all related
revenues, collections, claims, payments, money
or proceeds thereof. These charges are
nonbypassable in that Customers cannot avoid
paying them regardless of from whom their
electricity is purchased; provided, however,
that such charges must be deducted from amounts
which could otherwise be billed by Illinois
Power (or its successor) or other provider of
electric service to such Customers on account
of its tariffed rates (or, in the case of
Customers not taking tariffed services on
account of private contracts, from the charges
and rates for the equivalent services provided
by Illinois Power). Illinois Power will
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<PAGE>
enter into one or more Agreements Relating to
Grant of Intangible Transition Property (each,
a "Grant Agreement" and collectively, the
"Grant Agreements"), relating to the grant by
the ICC to the Grantee of all of the rights in
and to the Intangible Transition Property
created by the related Transitional Funding
Order and containing certain representations,
warranties and covenants with respect to such
Intangible Transition Property.
Pursuant to one or more Intangible Transition
Property Sale Agreements between the and the
Trust (each, a "Sale Agreement" and collectively,
the "Sale Agreements"), the Grantee has assigned
or may further assign its rights in, to and under
the Intangible Transition Property created by the
related Transitional Funding Order, the Servicing
Agreement and certain other related assets to the
Trust. The Trust, whose primary asset will be all
of the Intangible Transition Property transferred
to the Trust pursuant to the Sale Agreements, will
issue the Notes, which will be sold to the
underwriters named in each Prospectus Supplement.
The Notes will be secured primarily by all of
the Intangible Transition Property. The Notes
also will be secured by the Grant Agreements,
the Sale Agreements and the Intangible
Transition Property Servicing Agreement between
the Servicer and the Grantee (the "Servicing
Agreement"); the Collection Account and all
amounts of cash or investment property on
deposit therein or credited thereto from time
to time; with respect to Floating Rate Notes
only, any interest rate exchange agreements
(each, a "Swap Agreement") entered into with
respect to the issuance of such Floating Rate
Notes; all rights to compel Illinois Power, as
Servicer (or any successor) to file for and
obtain adjustments to the IFC Charges in
accordance with Section 18-104(d) of the Act,
the Transitional Funding Orders and all tariffs
filed with the ICC in connection therewith
(each, an "IFC Tariff"); all present and future
claims, demands, causes and choses in action in
respect of any or all of the foregoing; and all
payments on or under and all proceeds in
respect of any or all of the foregoing. See
"Security for the Notes."
11
<PAGE>
The IFC Charges will be calculated and adjusted
from time to time to generate projected
revenues expected to be sufficient over time to
(a) pay interest and make Scheduled Payments on
the Notes, (b) pay all related fees and
expenses of the Trust and the Grantee,
including the Servicing Fee and any
Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level,
and (d) fund and maintain the
Overcollateralization Subaccount up to the
Required Overcollateralization Level. These
payments are collectively referred to herein as
the "Specified Payments."
To enhance the likelihood of timely recovery of
the amounts necessary to make the Specified
Payments, the IFC Charges may be adjusted from
time to time through Adjustments, as described
under "Description of the Intangible Transition
Property -- Adjustments to the Instrument Funding
Charges" over the term of each Series of Notes.
The following diagram represents a general summary
of the parties to the transactions contemplated
hereby, their roles and their various relationship
to the other parties.
12
<PAGE>
[GRAPHIC]
Risk Factors . . . . . . . Investors should consider the risks associated
with an investment in the Notes. For a discussion
of certain material risks associated therewith,
investors should
review the discussion under "Risk Factors" which
begins on page 36.
Servicer/Administrator . . Illinois Power, a subsidiary of Illinova
Corporation, an Illinois corporation ("Illinova"),
will act as the initial servicer (in such
capacity, and together with any successor
servicer, the "Servicer") of the Intangible
Transition Property pursuant to the terms of the
Servicing Agreement, and as the initial
administrator (in such capacity, and together with
any successor administrator, the "Administrator")
of the Grantee pursuant to the terms of an
Administration Agreement between the Grantee and
the Administrator (the "Administration
Agreement").
13
<PAGE>
Illinois Power is a public utility primarily
engaged in the business of generating,
transmitting and distributing electric energy to
customers in areas of central and southwestern
Illinois, including the cities of Bloomington,
Normal, Galesburg, Decatur, Champaign, Urbana,
Danville, Centralia, Belleville, Edwardsville and
Granite City. See "The Servicer."
Grantee. . . . . . . . . . The grantee of the Intangible Transition Property
will be Illinois Power Securitization Limited
Liability Company, a special purpose Delaware
limited liability company (the "Grantee"), whose
sole member is Illinois Power. In accordance with
the Funding Law and each Transitional Funding
Order, the Grantee shall be a grantee of the
Intangible Transition Property, authorized to
assign such Intangible Transition Property to the
Trust as an assignee. Pursuant to a Sale
Agreement, the Grantee will sell and assign all of
its right, title and interest in the Intangible
Transition Property, the Servicing Agreement and
certain other related assets to the Trust.
Trust . . . . . . . . . . . The issuer of the Notes will be the Illinois Power
Special Purpose Trust (the "Trust"), a Delaware
business trust. In accordance with the Funding
Law and the related Transitional Funding Order,
the Trust shall be entitled to receive the
Intangible Transition Property created by such
Transitional Funding Order as assignee of the
Grantee, and shall be authorized to issue Notes as
transitional funding instruments.
Trust Assets . . . . . . . The assets of the Trust will consist of the
Intangible Transition Property and the other Note
Collateral, including proceeds of the issuance
retained by the Trust in an amount specified in
each Prospectus Supplement which will be
sufficient to meet certain reserve requirements of
the Indenture (the "Indenture") between the Trust
and the Indenture Trustee.
Delaware Trustee . . . . . A Delaware entity (the "Delaware Trustee") shall
be named as trustee under the Declaration of
Trust (the "Trust Agreement"), as set forth in
each Prospectus Supplement. The Delaware
Trustee will, together with
14
<PAGE>
the Beneficiary Trustees, manage the Trust
pursuant to the Trust Agreement.
Beneficiary Trustees . . . The individuals named in the related Prospectus
Supplement as Beneficiary Trustees shall serve as
Beneficiary Trustees (each, a "Beneficiary
Trustee") of the Trust. The Beneficiary Trustees
will, together with the Delaware Trustee, manage
the Trust pursuant to the Trust Agreement.
The Notes. . . . . . . . . The Notes will be issued in series (each, a
"Series"), and each Series of Notes may be issued
in one or more classes (each, a "Class"). Each
Series and Class of Notes will be in an initial
aggregate principal amount, and will bear interest
at a rate described in the related Prospectus
Supplement and will be at least PARI PASSU in
right of payment with any subsequent Series and
Class of Notes. The Notes will be issued under
the Indenture.
The Indenture provides that collections received
with respect to the Intangible Transition Property
("IFC Collections") will be used, among other
things, to pay (a) fees payable to the Delaware
Trustee, the Indenture Trustee, the Servicer and
the Administrator ; (b) all other fees, costs,
expenses and indemnities of the Trust (together
with the fees described in (a) above, "Operating
Expenses"); and (c) interest (including amounts,
if any, payable with respect to any Swap Agreement
entered into with respect to the issuance of any
Floating Rate Notes) due on the Notes and
principal payable on the Notes, allocated among
the Series and Classes of Notes based on the
priorities described herein and in the related
Prospectus Supplement, until each outstanding
Series and Class of Notes is retired. However, as
described under "Description of the Notes --
Interest and Principal," unless an Event of
Default has occurred and is continuing and the
Notes have been declared due and payable,
principal on the Notes on any Payment Date will
only be paid until the outstanding principal
balance of the Notes has been reduced to the
principal balance specified in the Expected
Amortization Schedule for such Payment Date.
To the extent that, with respect to any Payment
Date, amounts on deposit in certain subaccounts
of the Collection Account are insufficient to
reduce the principal balance of the Notes
15
<PAGE>
to the amount required pursuant to the Expected
Amortization Schedule on such Payment Date, the
amount of such deficiency will be deferred to a
subsequent Payment Date without a default
occurring under the Indenture. All principal
not previously paid, if any, on a Note is due
and payable on the Final Maturity Date of such
Note.
Each Series of Notes is non-recourse and will be
secured only by and payable solely out of the
proceeds of Intangible Transition Property owned
by the Trust, together with the other Note
Collateral. If additional Notes are subsequently
issued, the previously issued and outstanding
Notes will be at least PARI PASSU with such
subsequently issued Notes as to all of the
Intangible Transition Property and the other Note
Collateral. Any and all funds or property
released by the Indenture Trustee pursuant to the
Indenture will cease to be Note Collateral and
will no longer be available for payment of the
Notes. See "Description of the Notes" and
"Security for the Notes."
A Series of Notes may include two or more Classes
of Notes that differ as to the interest rate,
timing, sequential order and amount of
distributions of principal or interest or both or
otherwise.
In addition, a Series of Notes may include one or
more Classes of Notes that accrue interest at a
variable rate based on the index described in the
related Prospectus Supplement (the "Floating Rate
Notes"). See "Description of the Notes --
Floating Rate Notes."
While the specific terms of any Series of Notes
(and the Classes thereof, if any) will be
described in the related Prospectus Supplement,
the terms of such Series and any Classes thereof
will not be subject to prior review by, or consent
of, the Noteholders of any previously issued
Series of Notes.
All Notes of the same Series will be identical in
all respects except for the denominations thereof,
unless such Series is comprised of two or more
Classes, in which case all Notes of the same Class
will be identical in all respects except for the
denominations thereof.
16
<PAGE>
No additional Notes will be issued or shall be
secured, directly or indirectly, by the Intangible
Transition Property and the other Note Collateral
unless, among other things, each Rating Agency
with respect to any outstanding Notes shall have
affirmed the then current rating of all such
outstanding Notes in connection with the issuance
of such additional Notes.
So long as any Notes are outstanding, the
Noteholders will direct the Indenture Trustee as
to matters in which the Noteholders are permitted
or required to take action; provided, however,
that the Indenture Trustee will be permitted to
take certain actions specified in the Indenture
without the direction of all of the Noteholders.
See "Security for the Notes -- Actions by
Noteholders."
None of the Notes or the underlying Intangible
Transition Property will be guaranteed or insured
by Illinois Power or any of its affiliates.
Transitional Funding Orders authorizing the
issuance of the Notes do not constitute a pledge
of the full faith and credit of the State of
Illinois or any of its political subdivisions.
The issuance of the Notes under the Funding Law
shall not directly, indirectly or contingently
obligate the State of Illinois or any political
subdivision thereof to levy or to pledge any form
of taxation therefor or to make any appropriation
for their payment. See "Description of the Notes."
Indenture. . . . . . . . . The Notes will be issued pursuant to the terms of
the Indenture, and Intangible Transition Property
and the other Note Collateral will be pledged
under the Indenture for the benefit of the
Noteholders.
Indenture Trustee. . . . . The entity named as trustee under the Indenture,
as set forth in each Prospectus Supplement (the
"Indenture Trustee"). The Indenture Trustee acts
for and on behalf of the Noteholders pursuant to
the Indenture.
Rating Agency. . . . . . . Each nationally-recognized securities rating
organization which rates any Series of Notes upon
request of the Trust (each, a "Rating Agency") as
set forth in the Prospectus Supplement related
thereto.
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<PAGE>
Transitional Funding
Orders . . . . . . . . . . The ICC has issued and may hereafter issue one or
more financing orders in favor of the Grantee at
the request of Illinois Power (each a
"Transitional Funding Order"). Each Transitional
Funding Order will provide for, among other
things, the creation of Intangible Transition
Property and the vesting thereof in the Grantee.
Although it is anticipated that all Transitional
Funding Orders will be identical in all material
respects, since the issuance thereof is subject to
the discretion of the ICC, there may be variations
between Transitional Funding Orders. If the
findings in any Subsequent Transitional Funding
Order differ materially from the findings in the
Transitional Funding Order disclosed in this
Prospectus, all of such differences will be
disclosed in the related Prospectus Supplement.
Intangible Transition
Property . . . . . . . . . Each Transitional Funding Order obtained by
Illinois Power from the ICC will create and
establish a certain dollar amount of Intangible
Transition Property. The Prospectus Supplement
related to an issuance of Notes will identify the
Transitional Funding Order and the total dollar
amount of Intangible Transition Property
authorized thereby, which will represent the
maximum dollar amount of IFC Charges which may be
imposed and collected under such Transitional
Funding Order over time by the Servicer on behalf
of the Trust without further action by the ICC.
The right to impose, and collect payments of, the
IFC Charges from the Customers (such payments,
whether collected directly from Customers or
through third-party collection agents, including
ARES, being the "IFC Payments") gives rise to a
separate property right as set forth in the
Funding Law. This property is created, and vested
in the Grantee, by a Transitional Funding Order
and, together with the related items described in
this paragraph, is referred to herein generally as
the "Intangible Transition Property." The
Intangible Transition Property includes the right,
title and interest to impose and receive IFC
Charges, and all related revenues, collections,
claims, payments, money, or proceeds thereof,
including all right, title, and interest under and
pursuant to the Transitional Funding Order which
created such Intangible Transition Property.
18
<PAGE>
IFC Charges. . . . . . . . Under the Act, each Transitional
Funding Order will provide for the establishment,
imposition and collection of nonbypassable,
usage-based, per kilowatt-hour charges on
designated consumers of electricity (the "IFC
Charges"). Each such order will provide that IFC
Charges will be imposed on each existing and
future retail customer or class of retail
customers in Illinois Power's service area (I.E.,
Illinois Power's geographic service area as of
January 1, 1998 and any other locations in which
it was then providing electric utility services to
Customers) in Illinois, or other person or group
of persons obligated, from time to time, to pay to
Illinois Power or any successor Applicable Rates.
In addition, each Transitional Funding Order will
specify that Illinois Power will not enter into
private contracts with any customers who, but for
such contracts, would otherwise have been
obligated to pay Applicable Rates unless the
customer agrees to pay amounts equal to the IFC
Charges the customers would have paid had the
servicer provided under the private contract been
subject to Applicable Rates, to the Trust or to
Illinois Power, as Servicer. (The customers
described in the preceding two sentences are,
collectively, the "Customers"). However,
Customers will not include retail customers of
Illinois Power not paying Applicable Rates as a
result of entering into a contract with Illinois
Power before the date the Notes are issued, unless
the customer has agreed in such contract to pay
the Grantee or its assigns, or Illinois Power as
Servicer, as applicable, an amount equal to the
amount of IFC Charges that would have been billed
if the services provided under such contract were
subject to Applicable Rates. Of amounts collected
from the Customers, only the portion of amounts
collected that comprise the IFC Charges or
equivalent amounts, as adjusted from time to time,
will be available to make payments on the Notes.
IFC Charges will be deducted and stated separately
from Applicable Rates.
"Applicable Rates" means any tariffed charges owed
to Illinois Power, including, without limitation,
charges for "base rates", "delivery services" or
"transition charges" (including lump-sum payments
for such charges) as each such term is defined in
the Act. Applicable Rates do not include late
charges or charges set forth in those
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tariffs which are filed specifically and
primarily to collect amounts related to
decommissioning expense, taxes, municipal
infrastructure maintenance fees, franchise fees
or other franchise cost additions, costs
imposed by local governmental units which are
allocated and charged to customers within the
boundaries of such governmental units'
jurisdictions, renewable energy resources and
coal technology development assistance charges,
energy assistance charges for the Supplemental
Low-Income Energy Assistance Fund,
reimbursement for the costs of optional or
non-standard facilities and reimbursement for
the costs of optional or non-standard meters,
or monies that will be paid to third parties
(after deduction of allowable administrative,
servicing or similar fees) (collectively,
"Excluded Amounts"). Payments owed to the
Grantee or the Trust in respect of IFC Charges
do not constitute Excluded Amounts.
To the extent any Applicable Rates reflect
compensation owed by Illinois Power for power or
energy supplied to customers by a person or entity
other than Illinois Power, the IFC Charges will be
deducted and stated separately from such
Applicable Rates without giving effect to such
compensation. Administrative, servicing and
similar fees referred to in the parenthetical
above means fees which Illinois Power is expressly
authorized under its current agreements with third
parties or by statute, tariff or otherwise to
deduct from monies owed to such parties to cover
its cost of processing such third-party payments.
Charges associated with Excluded Amounts are
generally the subject of separate riders to
Illinois Power's rates, such that increases in
such charges are collected through an increase in
the amount permitted to be collected under such
rider, rather than through an increased share of
the Applicable Rates. As a result, any increase
in Excluded Amounts should not result in a
material decrease in the amount of Applicable
Rates available to cover the amount of IFC
Charges.
Each Transitional Funding Order will further
provide that neither Illinois Power nor any
successor Utility may enter into any contract with
any Customer obligated (or who would, but for such
contract, be obligated) to pay IFC Charges if, as
a result thereof, the Customer would not
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<PAGE>
receive services subject to Applicable Rates,
unless the contract provides that the Customer
will pay an amount each billing period to the
Grantee or its assigns, or to Illinois Power as
Servicer, as applicable, equal to the amount of
IFC Charges that would have been billed if the
services provided under such contract were
subject to Applicable Rates. Each Transitional
Funding Order will further provide that any
revenues received by Illinois Power or a
successor Utility from any such contracts
shall, to the extent the IFC Charges would be
imposed on the customer if the services taken
by the customer pursuant to such contract were
subject to Applicable Rates, be deemed to be
proceeds of, and included in, the Intangible
Transition Property created by the related
Transitional Funding Order. See "Description
of the Intangible Transition Property -- The
Transitional Funding Order Issued at the
Request of Illinois Power."
The IFC Charges will be calculated, and adjusted
from time to time, to generate projected revenues
expected to be sufficient to make the Specified
Payments. In each case, the IFC Charges will be
assessed for the benefit of the Trust as assignee
of all of the Grantee's right, title and interest
in the Intangible Transition Property. Such IFC
Charges will be collected by the Servicer, either
directly from Customers or from an ARES or other
third-party collection agent that collects such
amounts from Customers, as part of its normal
collection activities and will be deposited into
the Collection Account under the terms of the
Indenture and the Servicing Agreement on each
Remittance Date or Daily Remittance Date, as the
case may be.
The Funding Law provides that, notwithstanding
any other provision of law, once a Transitional
Funding Order has become final and
nonappealable, none of such Transitional
Funding Order, the Intangible Transition
Property created and established thereby or the
IFC Charges authorized to be imposed and
collected thereunder shall be subject to any
reduction, postponement, impairment or
termination by any subsequent action of the ICC.
Adjustments to IFC Charges . The Servicing Agreement and each Transitional
Funding Order will require the Servicer to
calculate and
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<PAGE>
implement adjustments to the IFC Charges which
are designed to enhance the likelihood that the
IFC Collections which are remitted to the
Collection Account will be sufficient to make
the Specified Payments.
Each Transitional Funding Order will provide that
the changes in IFC Charges, if any, resulting from
an Adjustment ("Adjustments") will take effect on
the first day of the second month following the
end of each Reconciliation Period (each such date,
an "Adjustment Date," and each such period, a
"Reconciliation Period").
The IFC Charges will, subject to Adjustments as
provided herein, continue to be imposed and
collected until all interest on and principal of
all Series of the Notes have been paid in full,
subject only to the limitation of the maximum
amount of Intangible Transition Property
authorized by the Commission in the Transitional
Funding Order or Orders.
All Adjustments shall be implemented pursuant to
the IFC Tariff filed by Illinois Power in
connection with the related Transitional Funding
Order. As required by the Funding Law, if, as a
result of any Adjustment, the IFC Charge as so
adjusted will exceed the amount per kilowatt-hour
of the IFC Charge authorized by the ICC in any
Transitional Funding Order, then Illinois Power
shall be obligated to file amendatory tariffs or
revisions to existing tariffs (each, an
"Amendatory Tariff") adjusting the amounts
otherwise billable by Illinois Power for
Applicable Rates, to offset the amount of such
excess (or, if Illinois Power shall have
previously filed any such Amendatory Tariffs, the
incremental amount of such excess). However, the
failure of such Amendatory Tariff to become
effective for any reason shall not delay or impair
the effectiveness of any such Adjustments.
See "Description of the Intangible Transition
Property -- Adjustments to the Instrument Funding
Charges."
State Pledge . . . . . . . Pursuant to the Funding Law, the State of Illinois
pledges to and agrees with the holders of the
Notes that the State of Illinois will not in any
way limit, alter or reduce the value of the
Intangible Transition Property created by, or the
IFC Charges approved by, the
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<PAGE>
Transitional Funding Order so as to impair the
terms of any contract made by Illinois Power,
Grantee or Trust with such holders or in any
way impair the rights and remedies of such
holders until the Notes, together with the
interest thereon, and other fees, costs and
charges related thereto, are fully paid and
discharged (the "State Pledge"). The Funding
Law authorizes issuers, such as the Trust, to
include these pledges and agreements of the
State in any contract with the holders of the
transitional funding instruments, and the
pledges and agreements shall be so included in
the Indenture for the benefit of the
Noteholders. See "Security for the Notes --
State Pledge."
Payment Dates. . . . . . . The payment dates on Notes of each Series will be
the quarterly dates specified in the related
Prospectus Supplement (each, a "Payment Date").
If such specified date is not a Business Day, then
the Payment Date shall be the next succeeding
Business Day.
Record Dates . . . . . . . With respect to any Payment Date or date of any
redemption, the Business Day preceding such
Payment Date or other date if the Notes are
Book-Entry Notes or, if Definitive Notes are
issued, the last day of the preceding calendar
month (each, a "Record Date").
Expected Final Distribution
and Final Maturity Dates . For each Series or Class of Notes, the related
Prospectus Supplement will specify an Expected
Maturity Date and a Final Maturity Date. The
Expected Maturity Date will be the date when all
principal and interest on such Series or Class of
Notes is expected to be paid in full by the Trust,
based on various assumptions described herein.
The "Final Maturity Date" corresponds to the date
on which such Series or Class of Notes may be
accelerated for failure to pay outstanding
principal thereon, which may be up to two (2)
years after the Expected Maturity Date for such
Series or Class. The Funding Law provides that
the authority of the Trust to impose and collect
IFC Charges shall continue until such time as all
Notes have been paid in full.
Issuance of Additional
Series . . . . . . . . . . The Trust may issue additional Series of Notes
from time to time; provided, however, the Trust
may not
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<PAGE>
currently issue in excess of $864 million in
aggregate principal amount of Notes prior to
August 1, 1999, and thereafter may not issue in
excess of $1.728 billion of Notes (less the
initial amount of any previously issued Notes). A
subsequent Transitional Funding Order would
authorize additional Intangible Transition
Property and an increase in the authorized amount
of IFC Charges in connection with such issuance.
See "Description of the Intangible Transition
Property -- The Transitional Funding Order Issued
at the Request of Illinois Power." An additional
Series may be issued only upon satisfaction of the
conditions described under "Description of the
Notes -- Conditions of Issuance of Additional
Series and Acquisition of Subsequent Intangible
Transition Property." Each Series of Notes will
be solely secured by the Intangible Transition
Property and the other Note Collateral. An Event
of Default with respect to one Series of Notes (or
one or more Classes thereof) may adversely affect
other outstanding Classes and Series of Notes
since such event will be considered an Event of
Default with respect to all Series of Notes and
each such Class or Series will be entitled only to
its ratable portion of the Intangible Transition
Property and the other Note Collateral as
determined under the Indenture. In addition, all
Intangible Transition Property owned by the Trust
will secure all Series of Notes and any remedial
actions taken by Noteholders of one Series will
affect the other Series.
Interest . . . . . . . . . Unless otherwise specified in the related
Prospectus Supplement, interest on each Series of
Notes (and, if applicable, each Class thereof)
will accrue and be payable in arrears at the
interest rate for such Series (or Class), or
calculated in the manner, specified in the related
Prospectus Supplement.
Principal. . . . . . . . . Principal of each Series of Notes (and, if
applicable, each Class thereof) will be paid to
the Noteholders of such Series (or Class) in the
amounts and on the Payment Dates specified in the
related Prospectus Supplement, but only to the
extent that amounts in the Collection Account are
available therefor, and subject to the other
limitations described below. See "Security for
the Notes -- Allocations; Payments." The related
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<PAGE>
Prospectus Supplement will set forth a schedule of
the expected amortization of principal of the
related Series of Notes and, if applicable, the
Classes thereof (for any Series or Class, the
"Expected Amortization Schedule"). Unless an
Event of Default has occurred and is continuing
and the Notes have been declared due and payable,
on any Payment Date, subject to availability of
funds in the Collection Account, the Trust will
make principal payments on the Notes only until
the outstanding principal balances thereof have
been reduced to the principal balances specified
in the applicable Expected Amortization Schedules
for such Payment Date (each, a "Scheduled
Payment"). However, if insufficient IFC
Collections are received with respect to any
Payment Date, and amounts in the Collection
Account are not sufficient to make up the
shortfall, principal of any Series or Class of
Notes may be paid later than reflected in the
related Expected Amortization Schedule, as
described in this Prospectus and in the related
Prospectus Supplement. See "Risk Factors -- Nature
of the Notes -- Uncertain Payment Amounts and
Weighted Average Life" and "Certain Payment,
Weighted Average Life and Yield Considerations."
Events of Default. . . . . The Indenture provides that any of the following
events will constitute an "Event of Default" with
respect to any Series of Notes: (a) a default for
five days in the payment of any interest on any
Note; (b) a default in the payment of the then
unpaid principal of any Note on the Final Maturity
Date for such Note; (c) a default in the payment
of the optional redemption price for any Note on
the optional redemption date therefor; (d) a
default in the observance or performance in any
material respect of any covenant or agreement of
the Trust made in the Indenture and the
continuation of any such default for a period of
30 days after notice thereof is given to the Trust
by the Indenture Trustee or to the Trust and the
Indenture Trustee by the holders of at least 25
percent in principal amount of the Notes of such
Series then outstanding; (e) any representation or
warranty made by the Trust in the Indenture or in
any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a
material respect as of the time made, and such
breach not having been cured within 30 days after
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<PAGE>
notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the
Indenture Trustee by the holders of at least 25
percent in principal amount of the Notes of such
Series then outstanding; (f) certain events of
bankruptcy, insolvency, receivership or
liquidation of the Trust; (g) a breach by the
State of Illinois or any of its agencies
(including the ICC), officers or employees of the
State Pledge; and (h) any other event designated
as such in the Trust issuance certificate or
series supplement relating to such Series.
If an Event of Default (other than as specified in
clause (g) above) has occurred and is continuing
with respect to the Notes, the Indenture Trustee
may and, upon the written direction of the holders
of not less than a majority in principal amount of
the Notes then outstanding shall, declare the
unpaid principal amount of all the Notes of all
Series then outstanding to be immediately due and
payable. If an Event of Default as specified in
clause (g) above has occurred, then, as the sole
and exclusive remedy for such breach, the Servicer
shall be obligated to institute (and the Indenture
Trustee, for the benefit of the Noteholders, shall
be entitled and empowered to institute) any suits,
actions or proceedings at law, in equity or
otherwise, to enforce the State Pledge and to
collect any monetary damages as a result of a
breach thereof, and each of the Servicer and the
Indenture Trustee may prosecute any such suit,
action or proceeding to final judgment or decree.
See "Security for the Notes -- Events of Default;
Rights Upon Event of Default" and "Ratings."
Optional Redemption. . . . Pursuant to the terms of the Indenture, any Series
of Notes may be redeemed on any Payment Date if,
after giving effect to distributions that would
otherwise be made on such date, the outstanding
principal balance of such Series of Notes has been
reduced to less than five percent (5%) of the
initial principal balance thereof.
If specified in the Prospectus Supplement related
to any Series or Class of Notes, the Indenture may
also permit the redemption of any such Series or
Class of Notes in full for cash on any Payment
Date on or prior to December 31, 2004 using
proceeds received from the
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<PAGE>
issuance of any additional Series or Class of
Notes (the "New Notes"). The New Notes will be
payable solely out of the Intangible Transition
Property and the other Note Collateral and will
have no more than a PARI PASSU lien thereon
vis-a-vis all existing Series of Notes.
In addition, a Series of Notes shall be subject to
redemption if and to the extent provided in the
related Prospectus Supplement.
No redemption shall be permitted under the
Indenture unless each Rating Agency with respect
to any Notes that will remain outstanding after
such redemption shall have affirmed the then
current rating of all such outstanding Notes.
Upon any redemption of any Series or Class of
Notes, the Trust will have no further obligations
under the Indenture with respect thereto.
The Notes may be so redeemed upon payment of the
outstanding principal amount of the Notes and
accrued but unpaid interest thereon as of the date
of redemption.
See "Description of the Notes -- Optional
Redemption."
Establishment of Collection
Accounts and Subaccounts. . Pursuant to the Indenture, a Collection Account
will be established and held by the Indenture
Trustee for the benefit of the Noteholders. The
Collection Account will consist of four
subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve
Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount"), and a capital
subaccount (the "Capital Subaccount"). Unless the
context indicates otherwise, references herein to
the Collection Account include each of the
subaccounts contained therein. Withdrawals from
and deposits to these subaccounts will be made as
described under "Security for the Notes --
Allocations; Payments."
General Subaccount . . . . The General Subaccount will hold all funds held in
the Collection Account that are not held in the
other three subaccounts. The Servicer will remit
all IFC Collections to the General Subaccount on
each Remittance Date or Daily Remittance Date, as
required under the Servicing
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<PAGE>
Agreement. On each Payment Date, the Indenture
Trustee will draw on amounts in the General
Subaccount to pay expenses of the Trust and the
Grantee and to pay interest and make Scheduled
Payments on the Notes and to make other
payments and transfers in accordance with the
terms of the Indenture.
Reserve Subaccount . . . . IFC Collections available with respect to any
Payment Date in excess of amounts necessary to
make the Specified Payments will be allocated to
the Reserve Subaccount. On each Payment Date, the
Indenture Trustee will draw on amounts in the
Reserve Subaccount, to the extent amounts
available in the General Subaccount are
insufficient to pay expenses of the Trust and the
Grantee and to pay interest and make Scheduled
Payments on the Notes and to make other payments
and transfers in accordance with the terms of the
Indenture.
Overcollateralization
Subaccount . . . . . . . . In order to enhance the likelihood that payments
on the Notes will be made in accordance with their
Expected Amortization Schedules, each Transitional
Funding Order will permit the Servicer to set the
IFC Charges at levels that are expected to produce
IFC Collections in amounts that exceed the amounts
expected to be required to pay interest and make
Scheduled Payments on the Notes and to pay all
related fees and expenses of the Trust and the
Grantee, including the Servicing Fee and any
Administration Fee, in order to collect an
additional amount (for any Series, the
"Overcollateralization Amount") specified in the
related Prospectus Supplement. The
Overcollateralization Amount established in
connection with each Series of Notes will not be
less than 0.50 percent of the initial principal
balance of such Series of Notes, collected over
the expected life of the Notes of such Series
according to a schedule set forth in the related
Prospectus Supplement. The Overcollateralization
Amount for all Series of Notes will be held in the
Overcollateralization Subaccount, as described
further under "Security for the Notes --
Description of Indenture Accounts --
Overcollateralization Subaccount." The amount
required to be on deposit in the
Overcollateralization
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Subaccount as of any Payment Date with respect
to each Series, as specified in the schedule
set forth in the related Prospectus Supplement,
is referred to as the "Required
Overcollateralization Level." On each Payment
Date, the Indenture Trustee will draw on
amounts in the Overcollateralization
Subaccount, if any, to the extent amounts
available in the General Subaccount and the
Reserve Subaccount are insufficient to pay
expenses of the Trust and the Grantee and to
pay interest and make Scheduled Payments on the
Notes. If amounts on deposit in the
Overcollateralization Subaccount are used to
pay such expenses and make such payments, the
Overcollateralization Subaccount will be
replenished on subsequent Payment Dates to the
extent IFC Collections exceed amounts required
to make payments or transfers having a higher
priority of payment, as more fully described
under "Security for the Notes -- Allocations;
Payments."
Capital Subaccount . . . . Upon the issuance of each Series of Notes, the
Trust will retain proceeds equal to 0.50% of the
initial principal amount of such Series of Notes
less $100,000 in the aggregate for all Series of
Notes. Such amount (with respect to each Series,
the "Required Capital Level"), will be deposited
into the Capital Subaccount. On each Payment
Date, the Indenture Trustee will draw on amounts
in the Capital Subaccount, if any, to the extent
amounts available in the General Subaccount, the
Reserve Subaccount and the Overcollateralization
Subaccount are insufficient to pay expenses of the
Trust and the Grantee and to pay interest and make
Scheduled Payments on the Notes and to make other
payments and transfers in accordance with the
terms of the Indenture. If amounts on deposit in
the Capital Subaccount are used to make such
payments and transfers the Capital Subaccount will
be replenished on subsequent Payment Dates to the
extent IFC Collections exceed amounts required to
pay amounts having a higher priority of payment,
as more fully described under "Security for the
Notes -- Allocations; Payments."
Collections. . . . . . . . The IFC Tariff allows the Trust to begin to impose
and collect the IFC Charges concurrently with the
issuance
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of the Notes of any Series (each, a "Series
Issuance Date"). The IFC Charges will be
imposed and collected based upon the entire
electricity consumption of Customers included
in bills issued to Customers on and after such
Series Issuance Date, including that portion of
the applicable Billing Period during which
electric service was provided prior to such
Series Issuance Date.
The Servicing Agreement provides, among other
things, that the Servicer will collect the IFC
Payments on behalf of the Trust, as assignee of
the Grantee. The Servicer will remit to the
Collection Account on the tenth day of each month,
(or, if such day is not a Servicer Business Day,
on the next Servicer Business Day), (each such
monthly date, a "Remittance Date"), all IFC
Payments received by the Servicer during the
immediately preceding Billing Period unless the
Servicer fails to meet the Remittance Conditions,
in which case the Servicer will, within two
Servicer Business Days of receipt (each a "Daily
Remittance Date"), remit all IFC Payments to the
Collection Account. See "Servicing -- Remittances
to Collection Account."
A "Billing Period" is a period created by dividing
the calendar year into twelve consecutive periods
of approximately twenty-one (21) Servicer Business
Days each, and represents the period during which
the Servicer typically renders a bill for electric
service to each of its customers. A "Servicer
Business Day" is generally any day other than a
Saturday, Sunday or holiday on which the Servicer
maintains normal office hours and conducts
business.
The "Servicing Standard" will be set forth in the
Servicing Agreement and shall require the Servicer
to calculate, collect, apply, remit and reconcile
proceeds of the Intangible Transition Property,
including IFC Payments, and other Note Collateral
for the benefit of the Trust and the Noteholders
(a) with the same degree of care and diligence as
the Servicer applies with respect to payments owed
to it for its own account, (b) in accordance with
procedures and requirements established by the ICC
for collection of electric utility
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tariffs, and (c) in accordance with the other
terms of the Servicing Agreement.
Allocations; Payments . . On each Payment Date, amounts in the Collection
Account, including net earnings thereon, will be
allocated as shown in the following diagram,
which provides a general summary of the flow of
funds from the Customers through the Servicer to
the Collection Account and the various allocations
therefrom. For a more detailed discussion, see
"Security for the Notes -- Allocation; Payments."
[GRAPHIC]
Servicing. . . . . . . . . The Servicer is responsible for servicing,
managing and receiving IFC Payments in accordance
with the Servicing Standard. The Funding Law
provides that pending deposit into the Collection
Account, all IFC Payments received by the Servicer
may be invested by
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the Servicer at its own risk and for its own
benefit, and need not be segregated from other
funds of the Servicer. See "Servicing --
Servicing Procedures."
It is possible that certain third-party collection
agents may collect payments (including IFC
Charges) from Customers, and that certain ARES may
also bill charges for such payments. In the
latter case, the Servicer will bill each such ARES
for the full amount of IFC Charges and other
charges owed to the Servicer in its individual
capacity. In order to enhance the likelihood
that the collection of IFC Charges by the Servicer
will not be adversely affected as a result of the
collection of the IFC Charges by ARES and other
third-party collection agents, the ICC will
approve certain procedures in each Transitional
Funding Order regarding the remittance obligations
of such third parties. See "Servicing --
Alternative Retail Electric Suppliers and Other
Third-Party Collectors."
To the extent that there is a shortfall in the
amounts received by the Servicer from (a)
Customers it bills directly or (b) a
third-party collection agent, including an
ARES, such shortfall will be allocated by the
Servicer to the Trust and Illinois Power PRO
RATA, based on the amount of Customers' bills
constituting IFC Charges and the amount
constituting other fees and charges owed to
Illinois Power or any successor (including
charges for services other than electric
service, such as gas service, provided by
Illinois Power) or to a third party. In the
event that an ARES or another Utility provides
consolidated billing to Customers for both the
services provided by such ARES or other Utility
and services provided by Illinois Power,
partial payments made to an ARES by such
Customers are required by the Act to be
credited first to amounts due to Illinois
Power's tariffed services (including IFC
Charges collected on behalf of Noteholders),
and the Servicer will allocate such payments as
otherwise described above.
Servicing Compensation . . The Servicer will be entitled to receive a
Servicing Fee on each Payment Date (the "Servicing
Fee"), in the amount specified in the related
Prospectus Supplement. The Servicing Fee will be
paid prior to the distribution of any amounts in
respect of interest on and principal of
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the Notes. The Servicer will be entitled to
retain as additional compensation net
investment income on IFC Payments received by
the Servicer prior to remittance thereof to the
Collection Account and the portion of late
fees, if any, paid by Customers relating to the
IFC Payments. See "Servicing -- Servicing
Compensation."
No Servicer Advances . . . The Servicer will not make any advances of
interest or principal on the Notes.
Denominations. . . . . . . Each Series of Notes (and, if applicable, each
Class thereof) will be issued in the minimum
initial denominations set forth in the related
Prospectus Supplement and in integral multiples
thereof.
Book-Entry Notes . . . . . Each Series of Notes (and, if applicable, each
Class thereof) may be issued in definitive form or
initially may be represented by one or more notes
registered in the name of Cede (each, a "Book
Entry Note" and collectively, the "Book-Entry
Notes" ), the nominee of DTC, and available only
in the form of book-entries on the records of DTC,
participating members thereof ("Participants") and
other entities, such as banks, brokers, dealers
and trust companies, that clear through or
maintain a custodial relationship with a
Participant, either directly or indirectly
("Indirect Participants"). If so indicated in the
applicable Prospectus Supplement, Noteholders may
also hold Book-Entry Notes of a Series through
CEDEL or Euroclear (in Europe), if they are
participants in such systems or indirectly through
organizations that are participants in such
systems. Notes representing Book-Entry Notes will
be issued in definitive form only under the
limited circumstances described herein and in the
related Prospectus Supplement. With respect to the
Book-Entry Notes, all references herein to
"holders" reflect the rights of owners of the
Book-Entry Notes as they may indirectly exercise
such rights through DTC and Participants, except
as otherwise specified herein. See "Risk Factors"
and "Description of the Notes -- Book-Entry
Registration."
Ratings. . . . . . . . . . It is a condition of issuance of each Series of
Notes (and, if applicable, each Class thereof)
that at the time of issuance such Series (or
Class) receive the rating
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indicated in the related Prospectus Supplement,
which will be in one of the four highest
categories, from one or more of the Rating
Agencies specified therein. See "Ratings" in
the related Prospectus Supplement.
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time. No person is
obligated to maintain any rating on any Note and,
accordingly, there can be no assurance that the
ratings assigned to any Series (or Class) of Notes
upon initial issuance thereof will not be revised
or withdrawn by a Rating Agency at any time
thereafter. If a rating of any Series (or Class)
of Notes is revised or withdrawn, the liquidity of
such Series (or Class) of Notes may be adversely
affected. In general, the ratings address credit
risk and do not represent any assessment of the
rate of principal payments on the Notes. See "Risk
Factors -- Nature of the Notes -- Uncertain
Payment Amounts and Weighted Average Life,"
"Certain Payment, Weighted Average Life and Yield
Considerations" and "Ratings."
Taxation of the Notes. . . In the opinion of Mayer, Brown & Platt, interest
paid on the Notes generally will be taxable to a
United States Noteholder (as hereinafter defined)
as ordinary interest income at the time it accrues
or is received in accordance with such United
States Noteholder's method of accounting for
United States federal income tax purposes. Such
opinion assumes that, based on a ruling or tax
opinion described under "Material United States
Federal Income Tax Consequences," the Notes will
constitute indebtedness of Illinois Power for
federal income tax purposes.
See "Material United States Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA Considerations . . . The Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of
the Internal Revenue Code of 1986, as amended (the
"Code"), impose various requirements on employee
benefit plans and certain other plans and
arrangements subject to ERISA, and on persons who
are fiduciaries with respect to such plans and
arrangements, in connection with the
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investment of assets which are deemed to be
"Plan Assets" for purposes of ERISA or Section
4975 of the Code, unless a statutory or
administrative exemption is available. A
fiduciary of any employee benefit plan or other
plan or arrangement that is subject to ERISA or
Section 4975 of the Code, before purchasing the
Notes, should therefore determine that an
investment in the Notes is consistent with the
fiduciary duties of ERISA and does not violate
the prohibited transaction provisions of ERISA
or the Code. See "ERISA Considerations" herein
and in the related Prospectus Supplement.
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RISK FACTORS
THE RISK FACTOR DISCLOSURE IN THIS PROSPECTUS AND IN ANY PROSPECTUS
SUPPLEMENT, TO THE EXTENT DISCLOSURE IS INCLUDED THEREIN, SUMMARIZES ALL
MATERIAL RISK FACTORS. INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS
DISCLOSED IN THIS PROSPECTUS, THE FOLLOWING FACTORS IN CONNECTION WITH THE
PURCHASE OF THE NOTES.
UNCERTAINTIES ASSOCIATED WITH UNUSUAL ASSET TYPE
There is no historical performance data for an asset type such as
the Intangible Transition Property in the State of Illinois and the Servicer
does not have any historical experience administering this specific type of
asset. Although energy usage records are available, such records have limited
predictive value with respect to the cash flows expected to be available for
payment of the Notes because of the significant changes to electricity
markets in Illinois that are likely to result from the Amendatory Act. In
addition, although the Funding Law provides that the Noteholders or the
Indenture Trustee may foreclose or otherwise enforce the lien on the
Intangible Transition Property securing the Notes, in the event of a
foreclosure, there is likely to be a limited market, if any, for Intangible
Transition Property and, therefore, foreclosure upon the Intangible
Transition Property may not be a realistic or practical remedy for the
Noteholders.
LEGAL CHALLENGES WHICH COULD ADVERSELY AFFECT NOTEHOLDERS
The existence and grant of Intangible Transition Property, the
status of such Intangible Transition Property as a separate property right
and the regulatory authorization for Illinois Power's entering into the
transactions under the Basic Documents are generally dependent on relevant
provisions of the Funding Law and the related Transitional Funding Order.
The Amendatory Act (of which the Funding Law is a part) provides that if any
of its provisions are held invalid, all of its provisions shall be deemed
invalid. Thus, a judicial determination that any provision of the Amendatory
Act is invalid would, absent legislative intervention at that time, result in
the entirety of the Amendatory Act (including the Funding Law) being deemed
invalid. It is therefore possible that, although a Transitional Funding
Order has become final and no longer subject to appeal, a legal challenge to
the Amendatory Act could result in payment delays or losses to the
Noteholders. However, the Amendatory Act also provides that no presumption
as to the validity or invalidity of any contracts, transactions, order,
billings or payments pursuant to the Funding Law (such as the contracts,
transactions, orders, billings or payments related to the Transitional
Funding Orders) shall result from a determination of the invalidity of the
Amendatory Act.
Illinois Power will represent and warrant in each Grant Agreement
that the related Transitional Funding Order is valid, binding and
irrevocable. There can be no assurances, however, that a claim by a person
that a provision of the Amendatory Act is invalid would not result in the
invalidation of the entire Amendatory Act (including the Funding Law). If
the Amendatory Act were invalidated, a person could attempt to challenge such
Transitional Funding Order by arguing that such invalidation should be
applied
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retroactively with the result that there is no regulatory authorization for
the associated transactions. If such an argument were successful, such
Transitional Funding Order, the Intangible Transition Property created
thereby and the transactions entered into pursuant to its authorization,
could all be deemed invalid for lack of authorization, and Noteholders could
suffer a loss of their investment in the Notes.
The Issuance of Notes is conditioned upon the rendering of an
opinion by Schiff Hardin & Waite, counsel to Illinois Power, to the effect
that such Transitional Funding Order would remain in effect and the rights
thereunder would remain enforceable against Illinois Power in the event of a
judicial invalidation of the Amendatory Act unless a specific order or ruling
were obtained from a court or the ICC invalidating, amending or otherwise
modifying such Transitional Funding Order.
The issuance of Notes is further conditioned upon the rendering of
an opinion by Schiff Hardin & Waite to the effect that a judicial
determination that one or more provisions of the Amendatory Act is invalid
should not be applied so as to result in the Noteholders losing their rights
created pursuant to such Transitional Funding Order. Such opinion will be
based on a reasoned application of judicial decisions involving similar or
analogous circumstances (inasmuch as there are no reported controlling
precedents) which have recognized that judicial decisions should not be
applied retroactively where to do so would produce inequitable results,
re-open final judgments or impair vested rights, such as the rights created
pursuant to such Transitional Funding Order. Any judicial determination
would also involve the application of equitable principles. Although
Illinois Power has agreed in the Grant Agreement that a substantial
impairment of Noteholders' rights to payments on the Notes arising from a
judicial invalidation of the Amendatory Act is inequitable, such statement is
not binding on any court and any application of equitable principles would be
subject to the discretion of the court which is asked to apply them and the
court's evaluation of the facts and equities before it. In that connection,
a declaration of invalidity of the Funding Law itself, as opposed to an
invalidation solely as the result of an invalidation of another provision of
the Amendatory Act, would be a factor tending to reduce the strength of the
equitable principles and related considerations that otherwise would support
the continuing validity of the rights of the Noteholders. Accordingly, the
issuance of the Notes is further conditioned on the inclusion of a statement
in the opinion to be delivered by Schiff Hardin & Waite that nothing in their
research in connection with such opinion revealed any judicial decisions
which such firm believes would provide a basis on which a court would declare
the Funding Law to be invalid.
In light of the foregoing discussion, there can be no assurance
that a judicial invalidation of one or more provisions of the Amendatory Act
will not also result in the invalidation of a Transitional Funding Order or
Noteholders' rights with respect thereto. In this regard, investors should
be aware that a successful challenge under federal law of another state's
utility deregulation statute that is similar to the Amendatory Act could be
invoked as legal precedent for invalidating the Amendatory Act.
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POSSIBLE PAYMENT DELAYS OR LOSSES AS A RESULT OF AMENDMENT OR REPEAL OF
AMENDATORY ACT OR BREACH OF STATE PLEDGE
The Illinois Legislature could amend or repeal the Funding Law or
other provisions of the Amendatory Act or take actions in contravention of
the State Pledge which could impair the rights of the Noteholders and affect
the collection of IFC Charges and payments on the Notes. Such actions would
be subject to challenge under the United States and Illinois Constitutions,
and as a condition to the issuance of the Notes, Schiff Hardin & Waite will
render an opinion to the effect that, absent a demonstration by the State of
Illinois that an impairment is necessary to further a significant and
legitimate public purpose, the Noteholders could challenge successfully under
the Contract Clauses of such Constitutions the constitutionality of any law
subsequently enacted by the Illinois Legislature that purports to limit,
alter, impair or reduce materially the value of the rights of the Noteholders
or the IFC Charges so as to impair substantially the Indenture or the Notes
or the rights and remedies of the Noteholders until such time as the Notes
are fully paid and discharged. In addition, Illinois Power will represent
and warrant in the Grant Agreement that the State of Illinois may not reduce,
postpone, impair or terminate the Intangible Transition Property or related
Transitional Funding Order except to the extent that the State of Illinois
were to demonstrate that an impairment was necessary to advance a significant
and legitimate public purpose.
Illinois law does not permit citizens to initiate substantive
legislation through referendums. The Illinois Constitution does permit
citizen-initiative amendments; however, those amendments are constitutionally
limited to addressing "structural and procedural subjects" governing the
structure, composition and operation of
the Illinois Legislature. The Illinois Supreme Court has held attempts to
use those provisions to enact substantive legislation to be outside the scope
of the provisions. As a condition to the issuance of the Notes, Schiff
Hardin & Waite will render an opinion to the effect that , based on such
court decisions, an attempt by citizens of Illinois to use the initiative
power to enact legislation causing an impairment of the rights of
Noteholders would be held invalid.
Because the IFC Charges are to be deducted from Applicable Rates
and the right of Illinois Power to collect Applicable Rates is not solely
dependent on the provisions of the Amendatory Act, an amendment or repeal of
the Amendatory Act would not eliminate (although it could reduce) the sources
of cash flow from which the Notes are to be repaid. Illinois Power will
covenant in the Servicing Agreement that, so long as the relevant
Transitional Funding Order is in effect, it will continue to impose and
collect all IFC Charges (as adjusted from time to time) or equivalent
amounts, deduct IFC changes or equivalent amounts from Applicable Rates and
remit such amounts to the Trust (any such action unless otherwise prohibited
by applicable law or judicial or regulatory order in effect at such time)
notwithstanding any such repeal or any amendment of the Amendatory Act.
Nonetheless, no assurance can be given that a repeal or amendment of
provisions of the Amendatory Act might not impair the rights of the
Noteholders. If the Illinois Legislature were to repeal or amend the Funding
Law in a manner adverse to Noteholders in violation of the State Pledge, the
Servicer would be obligated to institute (and the Indenture Trustee,
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for the benefit of the Noteholders, shall be entitled and empowered to
institute) any necessary proceedings to seek to overturn such change in law,
to enforce the State Pledge and to collect any monetary damages which may
result therefrom; and each of the Servicer and the Indenture Trustee may
prosecute such proceedings to final judgment or decree. The Servicer would
be required to advance its own funds to cover the costs of prosecuting any
such proceedings, but would be entitled to reimbursement for such costs as an
Operating Expense under the Indenture. Any such proceedings might adversely
affect the price and liquidity of the Notes and the rate of repayment
thereof, and, accordingly, the weighted average lives thereof. Moreover,
given the lack of judicial precedent directly on point, and the novelty of
the security for the Notes, the outcome of any such proceedings cannot be
predicted with certainty; and, accordingly, Noteholders may suffer a loss of
their investment in the Notes.
LIMIT ON AMOUNT OF INTANGIBLE TRANSITION PROPERTY AVAILABLE TO PAY NOTES
The Funding Law requires that each Transitional Funding Order
authorize a specific dollar amount of Intangible Transition Property, which
represents the maximum dollar amount of IFC Charges which may be imposed and
collected over time without further action by the ICC. If for any reason
(e.g., because of increased servicing costs, operating expenses, changes in
technology, defaults by third-party collectors or any other factors), the
amount of IFC Charges necessary to amortize the Notes in full were to exceed
the maximum authorized dollar amount of IFC Charges which may be imposed by
more than the amount in the Capital Subaccount, then Illinois Power, as
Servicer, would be obligated, in good faith, to require the ICC to increase
the previously authorized dollar amount of Intangible Transition Property.
The ICC is not required under the Funding Law to approve any such increases,
however, except in connection with an issuance of additional Notes, and the
Noteholders could, accordingly, suffer a loss in such event. The Prospectus
Supplement related to each Series of Notes will set forth the maximum
aggregate dollar amount of IFC Charges which may be imposed. In its
application for the Initial TFO, Illinois Power estimated the amount of IFC
Charges which would be necessary to be billed through the Expected Maturity
Date of all Classes of Notes described in the related Prospectus Supplement
in order to pay interest and principal on the Notes.
POTENTIAL SERVICING ISSUES
RELIANCE ON ILLINOIS POWER AS SERVICER. The Trust will rely on the
Servicer for the determination of any Adjustments to the IFC Charges and for
the Customer billing and collection services that are necessary to recover
the IFC Payments and, ultimately, to make payments on the Notes. If, as a
result of its insolvency or liquidation or otherwise, Illinois Power were to
cease performing its functions as Servicer, it may be difficult to find a
substitute servicer, and there can be no assurance that a substitute servicer
will be engaged. In such an event, the timing of recovery of IFC Payments
could be delayed. Any Successor Servicer may have less experience than
Illinois Power and less capable systems than those employed by Illinois
Power, and, given the complexity of the tasks to be performed by the Servicer
and the expertise required, a Successor Servicer may
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experience difficulties in collecting IFC Payments and determining
appropriate adjustments to IFC Charges. Further, any Successor Servicer who
is not a provider of electric service may not be able to invoke a remedy of
shutting off service to a Customer for nonpayment of the IFC Charge. In
addition, the Servicing Agreement and, unless otherwise provided in the
related Prospectus Supplement, each Transitional Funding Order, permit a
higher Servicing Fee to be paid to the Servicer if IFC Charges are not
imposed and collected by the Servicer in conjunction with billing to, and
collecting charges from, the Customers for electric service. See "Servicing."
POSSIBLE PAYMENT DELAYS CAUSED BY INACCURATE USAGE AND CREDIT
PROJECTIONS. If the Servicer is unable to forecast accurately the
electricity usage of Customers, the related revenues from Applicable Rates,
and the delinquency and write-off experience relating to IFC Payments , the
timing and amount of IFC Collections may be significantly affected and
therefore Noteholders may fail to receive timely payments of interest on the
Notes or payments of principal in accordance with the Expected Amortization
Schedules or in full by the Expected or Final Maturity Dates. Actual energy
usage may differ from projections as a result of weather during the relevant
period that is warmer or cooler than expected. In addition, actual energy
usage, delinquencies and write-offs may differ from projections as a result
of general economic conditions, trends in demographics that are not precisely
as predicted, changes in technology that result in decreased purchases of
electricity, unexpected catastrophes, and other causes. Past accuracy of
the Servicer's historical forecasts is not necessarily indicative of the
accuracy of the Servicer's future forecasts and there can be no assurances
that actual usage, delinquencies and write-offs will not be significantly
different from future forecasts thereof. See "The Servicer -- Forecast
Variances."
POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN PAYMENT TERMS OF
CUSTOMERS. Because the Servicer is permitted (in accordance with the
Servicing Standard) to alter the terms of billing and collection arrangements
and modify amounts due from Customers , such alterations and modifications
could delay collections from Customers or result in lower collections, and
accordingly could adversely affect the timely payment of interest on the
Notes or the payment of the principal of the Notes pursuant to the Expected
Amortization Schedule therefor or in full by the applicable Expected or Final
Maturity Dates.
Although the Servicer does not have the right to change the amount
of an individual Customer's IFC Charge (unless the Customer's IFC Charge
exceeds the amount of Applicable Rates to be billed to the Customer, in which
case the Customer's IFC Charge will be limited to the amount of Applicable
Rates), the Servicer does have the right to take actions that in its judgment
will maximize actual collections from Customers with respect to any utility
bill. In addition, the Servicer has the right to write off outstanding bills
that it deems uncollectible in accordance with its customary practices. Such
actions might include, for example, agreeing to an extended payment schedule
or agreeing to write off a portion of an outstanding bill in order to recover
a portion thereof. In certain circumstances, Illinois Power is required by
provisions of the Public Utilities Act or regulations of the ICC to take such
actions, or to refrain from normal collection actions. While Illinois Power
has no
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current intention of taking actions that would change the billing and
collection arrangements in a manner which would affect adversely the
collection of IFC Payments, there can be no assurance that changes in
Illinois Power's customary and usual practices for comparable assets it
services for itself might not result in a determination to do so or that a
Successor Servicer may not make such a determination. Illinois Power could
also be required to modify its billing and collection arrangements due to
changes in ICC regulations governing such arrangements. See "The Servicer --
Credit Policy; Billing; Collections; Restoration of Service."
LIMITED INFORMATION REGARDING CUSTOMERS. The ability of the
Servicer to collect amounts billed to Customers, including the IFC Charges,
will depend in part on the creditworthiness of the Customers. If Illinois
Power evaluates the creditworthiness of a significant number of its Customers
incorrectly, resulting in significant increases in delinquencies and
write-offs, delays in distributions to Noteholders may occur. As a general
matter, Illinois Power is obligated to provide service to new Customers under
Illinois law and performs no outside credit investigations on new Customers.
Illinois Power's information regarding the credit status of new Customers is
limited to information regarding prior service, if any, by Illinois Power to
such Customers.
An important element of Illinois Power's policies and procedures
relating to credit and collections is its right to disconnect service on
account of nonpayment. Each Transitional Funding Order will expressly
provide that Illinois Power may disconnect service for nonpayment of IFC
Charges to the same extent as Illinois Power would be entitled to take such
action because of nonpayment of any other charge for tariffed services.
Nonetheless, Illinois Power's rights to disconnect service are subject to
and, to a material extent, controlled by Illinois statutory requirements and
the rules and regulations of the ICC which may change from time to time. See
"The Servicer -- Credit Policy; Billing; Collections; Restoration of Service."
POSSIBLE PAYMENT DELAYS CAUSED BY RELIANCE ON ALTERNATIVE RETAIL
ELECTRIC SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS. As part of the
restructuring of the Illinois electric industry, certain Customers will be
allowed, beginning October 1, 1999, and all Customers will be allowed as of
May 1, 2002, to purchase electricity and related services from ARES and from
other Utilities rather than from Illinois Power. See "Electric Industry
Restructuring in Illinois -- Alternative Retail Electric Suppliers." The
Amendatory Act requires Illinois Power to allow such ARES and other
Utilities, pursuant to a tariff filed by Illinois Power with and approved by
the ICC, to issue a single bill (which would include the applicable IFC
Charges) to any retail customer purchasing electricity or related services
from the ARES or other Utility and delivery services from Illinois Power for
both the services provided by the ARES or other Utility and the delivery
services provided by Illinois Power. The applicable IFC Charges included in
a single bill to a Customer are required to be remitted to the Servicer by
such ARES. If a substantial number of Customers elect to purchase their
electricity from ARES that elect to provide a single bill, the Servicer may
be relying on a small number of ARES, each of whom is responsible for a
substantial portion of the Servicer's total billings, to collect IFC Charges,
rather than the Servicer collecting IFC
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Charges directly from all Customers. In this circumstance, a default in the
collection and remittance of IFC Charges to the Servicer by a single ARES
that provides electricity to a large number of Customers may adversely affect
the Servicer's ability to make timely remittance of IFC Charges to the
Collection Account, resulting in shortfalls thereof. Such IFC Collection
shortfalls could adversely affect the timely payment of interest on the Notes
or the payment of principal of the Notes in accordance with the Expected
Amortization Schedules therefor or in full by the applicable Expected or
Final Maturity Dates.
In addition, there can be no assurance that any ARES will use the
same customer credit standards as the Servicer or that the Servicer will be
able to mitigate credit risks relating to ARES in the same manner in, or to
the same extent to, which it mitigates such risks relating to its Customers,
both of which may have the effect of causing shortfalls in IFC Collections.
Changes in Customer billing and payment practices caused by ARES billing may
result in misdirected or delayed payments due to customer confusion, which
could also have the effect of causing shortfalls in IFC Collections.
Furthermore, the Servicer will have no meaningful ability to control the
collection procedures of ARES or other third-party collection agents who
simply forward payments on behalf of Customers and not pursuant to
contractual arrangements with Illinois Power or pursuant to consolidated
billing procedures. Finally, any problems arising from new and untested
systems or any lack of experience on the part of any ARES or other third
parties with Customer billings and collections could cause delays in billing
and collecting the IFC Charges resulting in shortfalls in IFC Collections.
Such IFC Collection shortfalls could adversely affect the timely payment of
interest on the Notes or the payment of principal of the Notes in accordance
with the Expected Amortization Schedule therefor or in full by the applicable
Expected or Final Maturity Dates.
POSSIBLE PAYMENT DELAYS CAUSED BY COMMINGLING OF IFC PAYMENTS WITH
SERVICER'S OTHER FUNDS. Except as described under "Servicing -- Remittances
to Collection Account," on each Remittance Date the Servicer will remit to
the Collection Account IFC Payments received during the preceding Billing
Period. Accordingly, IFC Payments received by the Servicer will not be
segregated from the Servicer's general funds until they are remitted to the
Collection Account. A failure or inability of the Servicer to implement
Adjustments, or to remit the full amount of the IFC Payments on any
Remittance Date, whether voluntary or involuntary, might result in delays in
payments to Noteholders. Such retention of funds could also have adverse
consequences to Noteholders in the event of a bankruptcy of the Servicer.
See " -- Bankruptcy and Creditors' Rights Issues --Possible Adverse Effect on
Noteholders as a Result of the Bankruptcy of the Servicer."
POSSIBLE PAYMENT DELAYS AS A RESULT OF YEAR 2000 ISSUES. Illinois
Power is faced with the task of addressing the ability of computer hardware
and software to handle the date change on January 1, 2000. See "The Servicer
- --Year 2000 Issues." Illinois Power recently implemented a new computerized
billing system which it believes is Year 2000 compliant. Nonetheless, the
Year 2000 issues could affect, among other things, the ability of Illinois
Power, as Servicer, and any ARES to bill and collect the IFC Charges, both
because of problems with their own systems and problems that Customers may
have in
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processing bills, and the ability of the Servicer and ARES to meter usage.
The date change issues could also affect usage if there are problems with the
generation or distribution of electricity. There is no way to fully predict
the impact of the date change issue, but if there are significant
interruptions of service to Customers or significant business interruptions
in general caused by date change issues, there could be significant delays in
IFC Collections and, therefore, in payments to Noteholders.
UNCERTAINTIES RELATED TO THE ELECTRIC INDUSTRY GENERALLY
UNTRIED NEW ILLINOIS MARKET STRUCTURE. The Illinois electric
industry is expected to change dramatically in the near future, as a result
of enactment of the Amendatory Act. See "Electric Industry Restructuring in
Illinois." If difficulties are experienced in implementing the various
aspects of the new market structure in Illinois, electricity generation,
transmission and distribution may be adversely affected, IFC Payments may not
be made as expected, Illinois Power's business may be adversely affected, and
Noteholders may fail to receive payments of principal and interest.
Beginning October 1, 1999, under the new market structure, certain
retail customers will be eligible to purchase electricity from suppliers
other than the certificated local Utility, and by May, 2002, all retail
customers of investor-owned Utilities in Illinois will be entitled to
purchase electricity from other suppliers. Each local electric Utility, such
as Illinois Power, will be required to deliver the electricity sold by other
suppliers to retail customers in the Utility's service area. In addition, as
a result of both the Amendatory Act and federal initiatives, Utilities may be
required to turn over control and/or operation of their transmission systems
to an independent operating entity. Further, under the Amendatory Act,
Utilities, such as Illinois Power, will be entitled to enter into contracts
for service with customers which will not be subject to regulation by the ICC
as to prices, terms and conditions. The new electric market structure has
neither been tested or implemented on a scale represented by the State of
Illinois. Attempts to initiate operations under a similar market structure
in California, as mandated by statute, commencing January 1, 1998, resulted
in a series of delays in implementation due to difficulties in bringing the
necessary new systems and procedures to an acceptable state of readiness and
reliability. In addition, the impacts of the implementation of the new
market structure on the pricing of electricity services, Customer usage of
electricity, and the tariffed and other revenues received by Illinois Power,
cannot be predicted with certainty.
SHRINKING CUSTOMER BASE AS A RESULT OF TECHNOLOGICAL CHANGE. The
continuous processes of technological development may result in introduction
of economically-attractive alternatives to the purchase of electricity from
Utilities, such as Illinois Power, for increasing numbers of Customers.
Since the IFC Charges are based on electricity usage by the Customers of
Illinois Power, reductions in the amount of electricity sold or delivered by
Illinois Power to its Customers will result in higher IFC Charges than would
otherwise exist and could negatively impact the timing of IFC Payments and
may result in delays in payments on the Notes. For example, a Customer which
obtains its electricity from its own cogeneration or self-generation
facilities and does not purchase any
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electricity or take delivery services or any other tariffed services from
Illinois Power will not pay transition charges or other tariffed charges on
the electricity it obtains from such facilities and thus will not be
obligated to pay IFC Charges with respect to that electricity. Even if such
a Customer were to continue purchasing some but not all of its electricity
from Illinois Power, the amount of electricity which the Customer purchases
from Illinois Power, and therefore the amount of IFC Charges the Customer is
obligated to pay, would be less than if the Customer were purchasing all of
its electricity from Illinois Power.
Previously, only the largest industrial and institutional users
with large process steam requirements in Illinois Power's service area were
considered candidates for cost-effective cogeneration or self-generation
installations. However, manufacturers of self-generation facilities continue
to develop smaller-scale, more fuel-efficient generating units which can be
cost-effective options for customers with smaller electric energy
requirements. For example, Unicom Energy Services, Inc., an affiliate of
Commonwealth Edison, the largest Utility in Illinois, is engaged in a joint
venture with a major electrical equipment manufacturer to market smaller
electric generating units that may be suitable and cost-effective for
installation in smaller commercial establishments. Eventually, such units
may be produced in sizes, costs, and with operating efficiencies that make
them cost-effective for installation in residences. Other types of
distributed generation which could be purchased by customers in order to
bypass the local Utility include fuel cells. In addition, continuing
advances in the operating efficiencies of electricity-consuming devices are a
factor reducing the amount of electricity purchased by consumers from
Utilities.
Within the time period between issuance and maturity of the Notes,
there can be no assurances that the technological developments described
herein, and others, will not result in material reductions in the amount of
electricity sold or delivered by Illinois Power to its Customers. Reductions
in the amount of electricity sold or delivered by Illinois Power to its
Customers will result in higher IFC Charges than would otherwise exist and
could negatively impact the timing of IFC Payments.
SHRINKING CUSTOMER BASE AS A RESULT OF MUNICIPALIZATION. The
Amendatory Act expressly preserves the right of a municipality under certain
circumstances to form a municipal utility which can purchase electric power
and energy on a wholesale basis for resale to customers within the geographic
areas it is lawfully entitled to serve and also allows municipalities,
subject to certain conditions, to become ARES. In either the event of
municipalization or upon a municipality becoming an ARES, the number of
Illinois Power's Customers receiving power and energy from Illinois Power
would decline, resulting in the reduction in the amount of electricity sold
or delivered by Illinois Power to its Customers. Since the IFC Charges are
based on electricity usage by Customers of Illinois Power, such reductions
will result in higher IFC Charges than would otherwise exist and could
negatively impact the timing of IFC Payments.
A municipality within Illinois Power's service area which wanted
to operate a municipal utility would have to form its own distribution
system, either by building one or acquiring (through negotiated purchase or
appropriate condemnation proceedings) the
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portion of Illinois Power's distribution system related to such
municipality's service area. Under Order 888 of the Federal Energy
Regulatory Commission ("FERC"), Illinois Power would have the right to seek
recovery of its legitimate, prudent and verifiable stranded costs resulting
from a municipalization, with the amount of such recovery to be determined
through appropriate proceedings before FERC. If a municipalization were to
occur, a portion of any such condemnation award or other recoveries that was
made in respect of lost tariffed revenues would be allocable, in accordance
with the Servicing Agreement, to the IFC Charges and Illinois Power would be
required to pay such portion to the Trust as proceeds of the Intangible
Transition Property. Nonetheless, in the event of a municipalization, the
Customers within such municipal utility's service area would thereafter cease
to be Customers of Illinois Power obligated to pay IFC Charges and the loss
of such Customers could result in a material reduction in the amount of
electricity sold or delivered by Illinois Power. Moreover, unless the
municipality, in its capacity as a retail customer, elected to take tariffed
or contract services from Illinois Power, the municipality itself would not
be a Customer and would also not be obligated to pay IFC Charges. Reductions
in the amount of electricity sold or delivered by Illinois Power will result
in increased IFC Charges and could negatively impact the timing of the IFC
Payments.
As of September 1, 1998, there were only twelve municipal utilities
operating within Illinois Power's service area, the last of which was created
several decades ago. Although there can be no assurance that other
municipalities in Illinois Power's service area might not seek, prior to the
time the Notes are paid in full, to form a municipal utility, Illinois Power
does not believe there is any material risk of future municipalizations
having an adverse impact on the Noteholders.
In the event that a municipality becomes an ARES, the Customers
receiving power and energy from such municipality (or the municipality on
their behalf) would remain obligated to pay IFC Charges in connection with
Illinois Power's provisions of delivery services to such Customers and in
connection with any payments of transition charges owed by such Customers.
The loss of such Customers could nonetheless result in a material reduction
in the amount of electricity generated by Illinois Power and, therefore, in
the amount of revenues supporting payment of the IFC Charges. See " --
Possibility of Shrinking Customer Base."
POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN GENERAL ECONOMIC
CONDITIONS AND ELECTRICITY USAGE. General economic conditions and
technological changes that would significantly alter power consumption or
reduce the Customer base in Illinois Power's service area may affect payments
on the Notes. Changes in business cycles, departures of Customers from
Illinois Power's service area, other demographic changes, weather, occurrence
of natural disasters such as ice storms, tornados, windstorms, earthquakes
and floods, implementation of energy conservation efforts and increased
efficiency of equipment all affect energy usage. If a sufficient number of
Customers reduce significantly their electricity consumption or cease
consuming electricity altogether, revenues supporting payment of the IFC
Changes could decrease, and such decreases could negatively impact the timing
of the IFC Payments.
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UNCERTAINTIES CAUSED BY CHANGING REGULATORY AND LEGISLATIVE ENVIRONMENT
Although the Amendatory Act provides for comprehensive changes in
the legal and regulatory framework governing electric utilities, such as
Illinois Power, in Illinois, there can be no assurances that, during the term
to maturity of the Notes, the Illinois Legislature will not pass additional
laws materially changing the legal and regulatory framework to which Illinois
Power is subject. Any changes in the existing legal structure regulating the
electric industry might have an impact on the manner in which electricity is
distributed and payments therefor are collected, or on Illinois Power and its
business, and thus the likelihood that Noteholders will receive payments in
the amounts and at the times scheduled.
In addition to actions taken by the Illinois Legislature and
regulation by the ICC, the electric industry is also subject to federal law
and to regulation by the FERC. The National Energy Policy Act of 1992 was
designed to increase competition in the wholesale electric generation market
by easing regulatory restrictions on producers of wholesale power and by
authorizing the FERC to mandate access to electric transmission systems by
wholesale power generators. In addition, at least 14 bills (none of which
passed Committee) were introduced in the 105th Congress, affecting the
deregulation of the electric utility industry on the state level. Many, but
not all, of the bills contained provisions recognizing the validity of prior
state actions relating to deregulation. At least two of the bills, H.R. 1230
and H.R. 4798, however, would have prohibited the recovery of stranded costs
through charges such as the transition charges provided for in the Amendatory
Act. Although the IFC Charges do not constitute recoveries for stranded
costs, any prohibition on the imposition of transition charges under the
Amendatory Act could have a material adverse impact on the amount of
Applicable Rates from which the IFC Charges are deducted and on the timing of
IFC Charges. In any event, no prediction can be made as to whether these
bills, or any future proposed bills to deregulate the electric industry, will
become law or, if they become law, what their final form or effect will be.
REDUCTION IN AMOUNT OF REVENUE FROM APPLICABLE RATES
Each Transitional Funding Order will include determinations, with
which Illinois Power will concur, to the effect that (a) the imposition of
IFC Charges will not increase the total charges to Illinois Power's Customers
over those that the Customers would pay absent the imposition of IFC Charges
and (b) the IFC Charges will be deducted from and stated separately from the
Applicable Rates charged on each Customer's bill. Therefore, any decline in
revenues from Applicable Rates may have a negative impact on the timing and
amount of IFC Charges and may adversely affect Illinois Power's financial
condition and thereby its ability to provide electric service or to perform
its obligations as Servicer.
Under the Funding Law, the ICC is required to authorize in each
Transitional Funding Order and in each IFC Tariff, and Illinois Power is
entitled to implement, a procedure for periodic prospective adjustments to
the IFC Charges in respect of any over-
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collection or shortfall in collections of IFC Charges during prior periods.
See "Description of the Intangible Transition Property -- Adjustments to the
Instrument Funding Charges." The Funding Law provides that if, as a result
of any such adjustment, the IFC Charge, as so adjusted, will exceed the
amount per kilowatt-hour of the IFC Charge authorized by the ICC in any
Transitional Funding Order, then Illinois Power shall be obligated to file
Amendatory Tariffs adjusting the amounts otherwise billable by Illinois Power
for Applicable Rates, to offset the amount of such excess (or, if Illinois
Power shall have previously filed any such Amendatory Tariffs, the
incremental amount of such excess). However, although the Funding Law
specifically preserves the right of Illinois Power's Customers to bring
actions against Illinois Power for failure to file such Amendatory Tariff,
the failure of such Amendatory Tariff to become effective for any reason
shall not delay or impair the effectiveness of any such adjustments and the
obligation of Customers to pay the IFC Charges, as adjusted, shall not be
subject to any defense, counterclaim or right of set-off arising as a result
of either (a) the failure of Illinois Power to file such Amendatory Tariff or
(b) Illinois Power's failure to perform or provide past, future or present
services.
There are several provisions of the Amendatory Act (including the
provision requiring the filing of Amendatory Tariffs) which will result in
reductions to the amount of Applicable Rates which Illinois Power will be
allowed to bill and collect from Customers and from which Illinois Power is
required to deduct IFC Charges.
The Amendatory Act required Illinois Power to provide a 15%
reduction in base rates to its residential customers on August 1, 1998, and
requires an additional 5% reduction in base rates to its residential
customers on May 1, 2002, based on Illinois Power's rates in effect
immediately prior to January 1, 1998. The Amendatory Act also provides that,
with one limited exception, Illinois Power may not request an increase in the
base rates that it charges its retail customers until January 1, 2005.
Commencing January 1, 2005, the ICC may, pursuant to appropriate proceedings,
modify Illinois Power's base rates in accordance with cost of service, and
may set the components of any such rates that are intended to recover power
supply costs at the lower of cost of service or 110% of market price (which
modifications could reduce such base rates). In addition, under the
Amendatory Act, the ICC, at Illinois Power's request and subject to
satisfaction of statutory criteria, may declare tariffed services offered by
Illinois Power to be "competitive." If a tariffed service is declared
competitive, Illinois Power is obligated to continue to offer the service as
a tariffed service for three years to those customers who were served on the
tariff on the date the service is declared competitive, but is relieved of
the obligation to offer or provide the service as a tariffed service to any
new customers who otherwise would have been eligible for it. In addition,
the Amendatory Act allows Illinois Power to self-declare a tariffed service
(other than delivery service or the provision of electric power and energy)
"competitive," but only with respect to those customers not then taking the
tariffed service, subject to the authority of the ICC to thereafter review
and revoke such declaration. Charges for a competitive service are not
included in Applicable Rates, thereby reducing the amount of Applicable Rates
from which the IFC Charges must be deducted and available to Illinois Power
to offset against any increase in the IFC Charges as a result of any
Amendatory Tariff.
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The Amendatory Act allows certain non-residential customers of
Illinois Power to purchase their electricity from other suppliers commencing
October 1, 1999, allows all other non-residential customers to purchase their
electricity from other suppliers commencing December 31, 2000, and allows all
of Illinois Power's residential customers to purchase their electricity from
other suppliers commencing May 1, 2002. It is anticipated that most
Customers electing to purchase electricity from other suppliers will find it
necessary to purchase delivery services, which will be a tariffed service,
from Illinois Power, and may be required to pay a transition charge to
Illinois Power until December 31, 2006. The transition charge is calculated
according to a formula which is designed to allow Illinois Power to recover a
portion, but not all, of the revenue requirement associated with its
generation and power supply costs that are above market prices. The market
prices used in the calculation of the transition charge are redetermined from
year-to-year and it is possible that the transition charge for some Customers
may be zero, in which event the amount of Applicable Rates from which IFC
charges must be deducted and which are available to Illinois Power to offset
against any increase in the IFC Charges would be limited by the remaining
tariffed charges imposed on such Customers. Moreover, under the Amendatory
Act, the transition charges are designed to decrease over time, and such
reductions may further reduce the amount of such Applicable Rates. See
"Electric Industry Restructuring in Illinois -- Transition Charges."
The ICC, on petition by Illinois Power and based on application of
statutory criteria set forth in the Amendatory Act, is authorized to extend
the period during which transition charges may be collected until no later
than December 31, 2008. There can be no assurances that the ICC will grant
any such request for extension of the right to collect transition charges.
Based on the manner in which transition charges must be established, as
provided in the Amendatory Act, Illinois Power, until at least December 31,
2004, expects to receive less revenue from a retail customer who elects to
purchase electricity from another supplier than Illinois Power would receive
if the customer continued to purchase electricity from Illinois Power at base
rates. Prior to December 31, 2006, some customers who have elected to
purchase electricity from other suppliers, and after December 31, 2006, all
such customers (unless the ICC grants an Illinois Power request for an
extension of the authority to collect transition charges) will no longer pay
Illinois Power transition charges, and may pay Illinois Power only delivery
service charges as a rate for tariffed services. It has not been determined
at this time whether delivery service charges will be calculated on a cents
per kilowatt-hour basis. In any event, delivery service charges are expected
to be, on a per kilowatt-hour basis and in the aggregate, materially lower
than Illinois Power's current bundled charges for tariffed services.
In addition, under the Amendatory Act, Utilities (including
Illinois Power) will be required to offer, as a tariffed service, (a) to
their non-residential delivery service customers, certain power purchase
options pursuant to which such customers may purchase electric power and
energy from the Utility at the market-based prices used in the calculation of
transition charges and (b) to all customers, real-time pricing whereby
charges for delivered electric power and energy may vary on an hour-to-hour
basis for non-residential retail customers and that vary on a periodic basis
during the day for residential
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retail customers. See "Electric Industry Restructuring in Illinois
- --Amendatory Act Overview." Such pricing options have generally not existed
in the past and, accordingly, there can be no assurance as to how the
offering of such options might affect the amount of Applicable Rates from
which the IFC Charges must be deducted and which are available for Illinois
Power to offset against any increase in the IFC Charges as a result of an
Amendatory Tariff.
A Customer which obtains its electricity from its own cogeneration
or self-generation facilities and does not purchase any electricity or take
delivery services or any other tariffed services from Illinois Power will not
pay transition charges or other tariffed charges on the electricity it
obtains from such facilities and thus will not be obligated to pay IFC
Charges with respect to that electricity. Even if such a Customer were to
continue purchasing some but not all of its electricity from Illinois Power,
the amount of electricity which the Customer purchases from Illinois Power,
and therefore the amount of IFC Charges the Customer is obligated to pay,
would be less than if the Customer were purchasing all of its electricity
from Illinois Power. Certain electricity consumers in the State of Illinois
and certain entities involved in the sale, installation, operation and sale
of fuel for cogeneration and self-generation facilities have taken the
position that the phrase "Customer's own cogeneration or self-generation
facilities" for purposes of the Amendatory Act should be interpreted to
include, among other things (i) facilities which are not located on the
Customer's premises, (ii) facilities which are owned by a third party and
leased to the Customer, (iii) facilities which are operated for the Customer
by a third party, (iv) a Customer's ownership or leasehold interest in a
portion of a facility which, in its entirety, is larger than required to
serve the electrical needs of the Customer, and the remaining portion of
which is used to serve other Customers or to make wholesale or retail sales
of electricity to other Customers or third parties, and (v) facilities from
which sales of electricity not needed to serve the electricity requirements
of the particular Customer are made to other Customers or third parties.
Illinois Power and certain other entities have disagreed with this
interpretation as overbroad and contrary to the terms of the Amendatory Act.
Nonetheless, if the Illinois Legislature, a court, or the ICC were to agree
with such an interpretation, in whole or in part, and adopt a conforming
amendment to the Act or enter a binding decision to such effect, then the
number and extent of installation of cogeneration or self-generation
facilities (as so defined) may increase, and the amount of electricity usage
by Customers installing such facilities and the amount of Applicable Rates
from which IFC Charges must be deducted and which are available for Illinois
Power to offset against an increase in IFC Charges as a result of an
Amendatory Tariff, may be reduced. However, any electricity delivered to a
retail Customer by Illinois Power from a privately-owned generation facility,
using Illinois Power's transmission or distribution system, would be subject
to delivery charges and transition charges and therefore to IFC Charges.
As a result of the statutory provisions and the events described in
the preceding six paragraphs, the total amount of Applicable Rates which
Illinois Power will be entitled, and can expect, to collect from its
Customers may decline materially over the period between issuance and
maturity of the Notes. To the extent any decline in tariffed revenues is
supplanted by revenues from contracts between Illinois Power and Customers
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who would otherwise have been obligated to pay tariffed revenues and,
therefore, would have been obligated to pay IFC Charges, however, the
Transitional Funding Orders will prohibit Illinois Power from entering into
such contracts unless the Customers expressly agree to pay the Trust, or
Illinois Power as Servicer, an amount equal to the amount of IFC charges that
would have been billed if the services taken by such Customers under such
contracts had continued to be taken under tariff. In addition, each
Transitional Funding Order will provide that, if the IFC Charges to be
imposed on any IFC Customer Class in an Applicable Period exceed the total
projected revenues for such class in such Applicable Period, the deficiency
shall be allocated among all remaining IFC Customer Classes. There can
nonetheless be no assurance that any decline in revenues would not have a
negative impact on the amount and timing of IFC Payments, and on the ability
of Illinois Power to offset against any increase in the IFC Charges as a
result of an Amendatory Tariff, nor can there be any assurance that any
decline in overall revenues would not have a material adverse affect on
Illinois Power's financial condition and thereby its ability to provide
electric service or to perform its obligations as Servicer.
In addition, if the amount of Illinois Power's Applicable Rates has
been reduced to such a low level that Illinois Power cannot offset adjusted
IFC Charges against such Applicable Rates and fails to file an Amendatory
Tariff, Illinois Power may become subject to actions by Customers, as
described in the second paragraph in this section, and no assurance can be
given that such actions may not adversely affect the Noteholders.
Furthermore, under Illinois Power's servicing procedures, in the event that
total IFC Charges for a particular Customer during a particular Billing
Period were to exceed otherwise Applicable Rates for such Customer, the
Customer would only be billed IFC Charges for the amount of Applicable Rates
against which such IFC Charges could then be offset. If the above-described
circumstances occur, such a limitation on amounts billed to individual
Customers could result in payment delays on the Notes, notwithstanding the
ability of the Servicer to allocate any deficiency in IFC Charges with
respect to one IFC Customer Class to the remaining IFC Customer Classes, as
discussed above. See "Servicing."
Illinois Power does not expect, taking into consideration the
current authorized levels of IFC Charges and anticipated future issuances of
Notes, that any decline in revenues would result in a limitation on the
timing or the overall amount of the IFC Charges payable by Customers. See
"The Servicer --Illinois Power Customer Base, Electric Energy Consumption and
Base Rates" and "Servicing."
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE
BANKRUPTCY OF ILLINOIS POWER OR THE GRANTEE. If Illinois Power or the
Grantee were to become a debtor in a bankruptcy case, and a creditor or
bankruptcy trustee of Illinois Power or the Grantee, or Illinois Power or the
Grantee itself as debtor-in-possession, were to take the position that the
Intangible Transition Property constituted property of Illinois Power's or
the Grantee's bankruptcy estate, and a court were to adopt such a position,
then delays or reductions in
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payments on the Notes could result. Regardless of any specific adverse
determinations in an Illinois Power or Grantee bankruptcy proceeding, the
mere fact of an Illinois Power or Grantee bankruptcy proceeding could have an
adverse effect on the secondary market of the Notes, including an adverse
effect on the liquidity and market value of the Notes.
Illinois Power and the Grantee have taken steps to minimize the
risk that a creditor or bankruptcy trustee of Illinois Power or Illinois
Power itself would succeed on such a claim. For example, the Grantee will
represent and warrant in each Sale Agreement that the transfer of the
Intangible Transition Property by the Grantee to the Trust pursuant to such
Sale Agreement constitutes a sale and absolute transfer of such Intangible
Transition Property, including amounts deemed to be Intangible Transition
Property pursuant to the related Transitional Funding Order, from the Grantee
to the Trust. Illinois Power will also represent and warrant in the Basic
Documents that the vesting of the Intangible Transition Property in the
Grantee shall be irrevocable and enforceable against Illinois Power and that
it has no right, title and/or interest in the Intangible Transition Property
nor in the portion of the Applicable Rates otherwise to have been received by
Illinois Power to the extent such portion has become IFC Charges in
accordance with the terms and provisions of the related Transitional Funding
Order. Illinois Power and the Grantee will also represent and warrant in the
Basic Documents that they will each take all appropriate actions to perfect
the Indenture Trustee's security interest in the Intangible Transition
Property and the other Note Collateral. Further, the Funding Law provides
that a sale, assignment or other transfer of intangible transition property
in a transaction approved by a transitional funding order, which is expressly
stated in the documents governing the transaction to be a sale or other
absolute transfer, shall be treated as an absolute transfer of all the
transferor's right, title and interest in, to and under such intangible
transition property which places such transferred property beyond the reach
of the transferor or its creditors. Illinois Power and the Grantee will,
therefore, treat the transactions as an absolute transfer under applicable
law, although for financial reporting and federal income tax purposes the
transactions will be treated as debt of Illinois Power. See " -- Potential
Servicing Issues -- Possible Payment Delays Caused by Commingling of IFC
Payments with Servicer's Other Funds."
If Illinois Power were to become a debtor in a bankruptcy case and
a court were to order that the assets and liabilities of the Trust or the
Grantee should be consolidated with those of Illinois Power, delays or
reductions in payments on the Notes would likely result.
Illinois Power and the Grantee have taken steps to minimize the
risk of such a consolidation. The major step is that, instead of the
Intangible Transition Property being transferred directly from Illinois Power
to the Grantee, the Funding Law permits, and each Transitional Funding Order
will provide, that the Intangible Transition Property created by such
Transitional Funding Order is vested directly in the Grantee and is not
subject to defense, counterclaim or right of setoff as a result of Illinois
Power's failure to perform or provide past, present or future services.
Additional steps include the fact that the Grantee is a separate, special
purpose limited liability company, subject to the direction of a management
committee, at least one of whose members must be independent from Illinois
Power, and the organizational documents of which provide that it shall not
commence a
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voluntary bankruptcy case without the unanimous affirmative vote
of all of its managers. Nonetheless, those steps may not be completely
effective.
Should any transfer of the Intangible Transition Property to the
Trust be recharacterized in a bankruptcy proceeding as a borrowing by
Illinois Power or the Grantee, the Funding Law provides that, subject to
certain required filings with the ICC which Illinois Power must make at the
time the Notes are issued, there is a perfected first priority statutory lien
on the Intangible Transition Property that secures all obligations to the
holders of the Notes.
Pursuant to the Funding Law and each Transitional Funding Order,
upon any issuance of Notes, the Intangible Transition Property identified in
such Transitional Funding Order constitutes a current property right and it
thereafter continuously exists as property for all purposes. Nonetheless, no
assurances can be given that if Illinois Power or the Grantee were to become
the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee for,
Illinois Power or the Grantee, or Illinois Power or the Grantee itself as
debtor in possession would not attempt to take the position that, because the
payments based on the IFC Charges are usage-based charges, Intangible
Transition Property comes into existence only as Customers use electricity
or, in the case of Customers agreeing to pay amounts equivalent to IFC
Charges under contracts, as such Customers enter into such contracts. Any
such party might similarly argue, to the extent that any condemnation or FERC
stranded cost recoveries which include amounts for lost tariffed revenues are
awarded from and after commencement of a bankruptcy by or against Illinois
Power , that such amounts came into existence only as such recoveries were
awarded, notwithstanding the provisions of the Servicing Agreement which
provide that a portion of such awards should be allocable to the Trust as
proceeds of Intangible Transition Property. If a court were to adopt any of
the foregoing positions, no assurances can be given that the statutory lien
created by the Funding Law would attach to IFC Collections in respect of
electricity consumed after the commencement of a bankruptcy case by or
against Illinois Power or the Grantee or in respect of IFC Payments received
under contracts entered into after the commencement of such case. If it were
determined that the Intangible Transition Property has not been sold to the
Trust, and that the statutory lien created by the Funding Law does not attach
to collections of IFC Payments in respect of electricity consumed after the
commencement of a bankruptcy case for Illinois Power or the Grantee, then the
Indenture Trustee, as Trustee for the Noteholders, would be an unsecured
creditor of Illinois Power or the Grantee, as the case may be, and delays or
reductions in payments on the Notes could result. Whether or not the court
determined that the Intangible Transition Property had been sold to the
Trust, no assurances can be given that the court would not rule that any IFC
Payments relating to electricity consumed after the commencement of Illinois
Power's or the Grantee's bankruptcy cannot be transferred to the Indenture
Trustee, thus resulting in delays or reductions in payments on the Notes.
Because the IFC Charges are usage-based charges, if Illinois Power or
the Grantee were to become the debtor in a bankruptcy case, a creditor of, or a
bankruptcy trustee for, Illinois Power or the Grantee, or Illinois Power or the
Grantee itself as debtor in
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possession could take the position that the Trust should pay a portion of the
costs of Illinois Power associated with the generation, transmission, or
distribution by Illinois Power of the electricity whose consumption gave rise
to the IFC Collections that are used to make distributions on the Notes. If
a court were to adopt this position, the result could initially be a
reduction in the amounts paid to the Trust, and thus to the holders of the
Notes. Although the IFC Charges may be adjusted by the Servicer, delays in
implementation thereof may cause a delay in receipt of IFC Collections
sufficient to pay interest and make Scheduled Payments on the Notes.
In addition, if Illinois Power were to become the debtor in a
bankruptcy case, a creditor of, or a bankruptcy trustee for Illinois Power, or
Illinois Power itself as debtor-in-possession, could take the position that the
bankruptcy trustee is not bound prospectively by the provisions of a
Transitional Funding Order requiring that Illinois will not enter into any
contracts with any Customer obligated (or who would but for such contract, be
obligated) to pay IFC Charges if, as a result thereof, the Customer would not
receive services subject to Applicable Rates, unless such contract provides that
the Customer will pay an amount to the Grantee or its assigns, or to Illinois
Power, as Servicer, as applicable, equal to the amount of IFC Charges that would
have been billed if the Services provided under such contract were subject to
Applicable Rates. If a court were to adopt this position, the result could be
a further reduction in the amounts available to be paid to the Trust, and thus
to the holders of the Notes.
Regardless of whether Illinois Power or the Grantee is the debtor in a
bankruptcy case, if a court were to accept the arguments of a creditor of
Illinois Power or Grantee that Intangible Transition Property comes into
existence only as Customers use electricity, a tax or government lien or other
nonconsensual lien on property of Illinois Power arising before the Intangible
Transition Property came into existence may have priority over the Trust's
interest in such Intangible Transition Property, thereby possibly initially
resulting in a reduction of amounts paid to the holders of the Notes. Although
the IFC Charges may be adjusted by the Servicer, delays in implementation
thereof may cause a delay in receipt of IFC Collections sufficient to pay
interest and make Scheduled Payments on the Notes.
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE BANKRUPTCY
OF THE SERVICER. The bankruptcy or insolvency of the Servicer could result in
delays or reductions in the payments due on the Notes. For so long as the
Servicer either (a) maintains a short-term debt rating of at least "_____" by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
"_____" by Moody's Investors Service, Inc. ("Moody's"), or (b) meets certain
other financial conditions (collectively, the "Remittance Conditions"), the
Servicer is entitled to commingle IFC Payments with its own funds until the
relevant Remittance Date. In the event of a bankruptcy of the Servicer, under
normal principles of the Uniform Commercial Code in effect in the State of
Illinois (the "UCC"), the Indenture Trustee likely would not have a perfected
interest in such commingled funds and the inclusion thereof in the bankruptcy
estate of the Servicer may result in delays or reductions in payments due on the
Notes.
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Although (a) the Funding Law provides that both the property interest
of the Trust in the Intangible Transition Property and the security interest of
the Indenture Trustee in such Intangible Transition Property shall not be
defeated by the commingling of revenues arising from such Intangible Transition
Property with funds of Illinois Power or the Grantee and (b) each Transitional
Funding Order will provide that, in the case of any such commingled revenues,
collections, claims, payments, money or proceeds, the portion allocable to the
IFC Charges may be determined by such reasonable methods of estimation as are
set forth in the Servicing Agreement, if Illinois Power were unable to trace
or otherwise identify the IFC Collections held by it and were subsequently to
become a debtor in a bankruptcy case, a creditor or bankruptcy trustee of
Illinois Power or Illinois Power itself as debtor-in-possession could take
the position that the Noteholders' property interest in such commingled and
no longer identifiable IFC Collections had been lost and that the
Noteholders' sole claim in respect of such unidentifiable property would be
an unsecured claim against Illinois Power.
Furthermore, if the Servicer is in bankruptcy, it may stop performing
its functions as Servicer and it may be difficult to find a third-party to act
as Successor Servicer. See " -- Potential Servicing Issues -- Reliance on
Illinois Power as Servicer -- Possible Payment Delays Caused by Commingling of
IFC Payments with Servicer's Other Funds."
NATURE OF THE NOTES
LIMITED LIQUIDITY. There is no assurance that a secondary market for
any of the Notes will develop or, if one does develop, that it will provide the
Noteholders with liquidity of investment or that it will continue for the life
of such Notes. It is not anticipated that any Notes will be listed on any
securities exchange.
RESTRICTIONS ON BOOK-ENTRY REGISTRATION. The Notes will be initially
represented by one or more Notes registered in Cede's name, as nominee for DTC,
and will not be registered in the names of the Noteholders or their nominees.
Therefore, unless and until Definitive Notes are issued, Noteholders will not be
recognized by the Indenture Trustee as Noteholders. Hence, until such time,
Noteholders will only be able to receive distributions from, and exercise the
rights of Noteholders indirectly through, DTC and participating organizations,
and, unless a Noteholder requests a copy of any such report from the Indenture
Trustee or the Servicer, will receive reports and other information provided for
under the Servicing Agreement only if, when and to the extent provided to
Noteholders by DTC and its participating organizations. In addition, the ability
of Noteholders to pledge Notes to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Notes, may be
limited due to the lack of physical notes for such Notes. See "Description of
the Notes -- Book-Entry Registration."
LIMITED SOURCES OF PAYMENT FOR THE NOTES AND LIMITED CREDIT
ENHANCEMENT. The Notes are limited-recourse obligations, and the sole source of
payments thereon is the payments made with respect to the Intangible Transition
Property
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and the other Note Collateral (which is expected to be relatively small) and,
for Floating Rate Notes, the proceeds of any Swap Agreement. It is
anticipated that the Note Collateral, which is described under "Security for
the Notes -- Security Interest in Note Collateral" herein, will, with the
limited exceptions specified therein, constitute the Trust's only assets, and
there will be no forms of credit enhancement for the Notes except for amounts
held in the Overcollateralization Account and the Capital Subaccount and the
right of the Trust to compel Illinois Power, as Servicer, to make Adjustments
to the IFC Charges. It is not currently anticipated that the Notes will have
the benefit of any third-party credit enhancement, such as guarantees,
letters of credit, insurance or the like. If, however, any Series of Notes
is to be issued with any third-party credit enhancement, it will be set forth
in the related Prospectus Supplement. The Trust's organizational documents
will restrict its right to acquire other assets unrelated to the transactions
described herein.
The Notes will not constitute a debt, liability or other obligation
of the State of Illinois or of any political subdivision, agency or
instrumentality thereof and will not represent an interest in or obligation of
Illinois Power or its affiliates. None of the Notes or the underlying
Intangible Transition Property will be guaranteed or insured by Illinois Power
or its affiliates. Transitional Funding Orders authorizing issuance of the
Notes do not constitute a pledge of the full faith and credit of the State of
Illinois or of any of its political subdivisions. The issuance of the Notes
under the Funding Law shall not directly, indirectly or contingently obligate
the State of Illinois or any political subdivision thereof to levy or to pledge
any form of taxation therefor or to make any appropriation for their payment.
EFFECT OF ADDITIONAL SERIES OF NOTES OR OTHER TRANSITIONAL FUNDING
ORDERS ON OUTSTANDING NOTES. The issuance of additional Series of Notes may
have an adverse effect on the timing or amount of payments received by a
Noteholder of outstanding Notes. Under the Basic Documents, the Trust will have
the right, subject to Illinois Power's seeking and obtaining one or more
subsequent Transitional Funding Orders from the ICC, to issue one or more
subsequent Series of Notes on or after August 1, 1999 in an additional amount of
up to approximately $864 million in aggregate principal amount, less the initial
principal amount of previously issued Notes. Any such subsequent Series of
Notes which increases the cumulative amount of issued Notes above $864 million
would be issued in connection with the creation of additional Intangible
Transition Property under such subsequent Transitional Funding Order and such
subsequent Notes will have no more than a PARI PASSU lien on the Note
Collateral, including all additional Intangible Transition Property, vis-a-vis
all previously issued and outstanding Series of Notes. The terms of any such
Series of Notes will be specified in a supplement to the Indenture or a Trust
issuance certificate, and described in the related Prospectus Supplement. The
provisions of the supplement to the Indenture or Trust issuance certificate and
the terms of any additional Series of Notes will not be subject to the prior
review or consent of holders of the Notes or Notes of any previously issued
Series, including the Notes expected to be issued in 1998. The terms of an
additional Series of Notes may include, without limitation, the matters
described under "Description of the Notes -- General." The ability of the
Trust to issue any additional Series of Notes is subject to the condition,
among others, that such issuance will not result in any Rating Agency
reducing or withdrawing its then existing rating of the Notes
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of any outstanding Class (the "Rating Agency Condition"). There can be no
assurance, however, that the issuance of any other Series of Notes, including
any Series issued from time to time hereafter, might not have an impact on
the timing or amount of payments received by a Noteholder. See "Description
of the Notes -- Conditions of Issuance of Additional Series and Acquisition
of Subsequent Intangible Transition Property." In addition, various matters
relating to the Notes are subject to a vote of all Noteholders for all Series
and Classes of Notes, even though there may be differences in the interests
or positions among such Series or Classes which could result in voting
outcomes adverse to the interests of one or more Series or Classes of Notes.
Moreover, the Basic Documents do not prohibit Illinois Power from seeking
Transitional Funding Orders under the Funding Law which would create
intangible transition property in favor of a party other than the Grantee.
Issuance of an additional Series of Notes and/or creation of
additional intangible transition property will require imposition and collection
of additional Instrument Funding Charges from Customers. This may increase the
risks to Noteholders as described above, in particular those risks described
under " -- Reduction in Amount of Revenue From Applicable Rates," " -- Limit on
Amount of Intangible Transition Property Available to Pay Notes," " -- Potential
Servicing Issues," " -- Uncertainties Related to the Electric Industry
Generally," and " -- Bankruptcy and Creditors' Rights Issues."
LIMITED NATURE OF RATINGS. It is a condition of issuance of each
Class of Notes that they receive from the Rating Agencies the respective ratings
set forth in the applicable Prospectus Supplement. The ratings of the Notes
address the likelihood of the ultimate payment of principal and the timely
distribution of interest on the Notes. The ratings do not represent an
assessment of the likelihood that the rate of IFC Collections might differ from
that originally anticipated; as a result of such differences, any Series or
Class of Notes might mature later than scheduled, resulting in a weighted
average life of such Notes which is more than expected. A security rating is
not a recommendation to buy, sell or hold securities. There can be no assurance
that a rating will remain in effect for any given period of time or that a
rating will not be revised or withdrawn entirely by a Rating Agency if, in its
judgment, circumstances so warrant.
UNCERTAIN PAYMENT AMOUNTS AND WEIGHTED AVERAGE LIFE. The actual dates
on which principal is paid on each Class of Notes might be affected by, among
other things, the amount and timing of receipt of IFC Collections. Since each
IFC Charge will consist of a charge per kilowatt hour allocated to the
applicable class of Customers, the aggregate amount and timing of receipt of IFC
Collections (and the resulting amount and timing of principal amortization on
the Notes) will depend, in part, on actual usage of electricity by Customers and
the rate of delinquencies and write-offs. See " -- Potential Servicing Issues --
Possible Payment Delays Caused by Inaccurate Usage and Credit Projections" and "
- -- Possible Payment Delays Caused by Reliance on Alternative Retail
Electric Suppliers." Although the amount of the IFC Charges will be adjusted
from time to time based in part on the actual rate of IFC Collections, no
assurances can be given that the Servicer will be able to forecast accurately
actual Customer energy usage and the rate of delinquencies and write-offs and
implement adjustments to the IFC Charges that will
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cause IFC Payments to be made at any particular rate. If IFC Collections are
received at a slower rate than expected, payments on a Note may be made later
than expected. Because principal will only be paid at a rate not to exceed
that set forth in the Expected Amortization Schedules, except if an Event of
Default occurs and the Notes are declared due and payable or in the event of
an early optional redemption, the Notes are not expected to be retired
earlier than scheduled. A payment on a date that is earlier than forecasted
will result in a shorter weighted average life, and a payment on a date that
is later than forecasted will result in a longer weighted average life. See
"Certain Payment, Weighted Average Life and Yield Considerations" and
"Description of the Intangible Transition Property --Adjustments to
Instrument Funding Charges."
EFFECT OF OPTIONAL REDEMPTION ON WEIGHTED AVERAGE LIFE AND YIELD. As
described more fully under "Description of the Notes -- Optional Redemption,"
any Series of Notes may be redeemed on any Payment Date if, after giving effect
to payments that would otherwise be made on such date, the outstanding principal
balance of such Series of Notes has been reduced to less than five percent of
the initial outstanding principal balance thereof. In addition, if specified in
the Prospectus Supplement related to any Series or Class of Notes, such Series
or Class of Notes may be redeemed in full on any Payment Date on or prior to
December 31, 2004 using proceeds received from the refinancing of any other
Series or Class of Notes through the issuance of an additional Series of Notes.
Finally, a Series of Notes shall be subject to redemption if and to the extent
provided in the related Prospectus Supplement. Redemption will cause such Notes
to be retired earlier than would otherwise be expected, and if the payment
schedule otherwise does not differ from that originally anticipated, will result
in a shorter than expected weighted average life for such Notes. Such a
redemption may also adversely affect the yield to maturity of the Notes. There
can be no assurance as to whether the Trust will optionally redeem any Series of
Notes, or as to whether Noteholders will be able to receive an equally
attractive rate of return upon reinvestment of the proceeds resulting from any
such redemption.
ADDITIONAL RISKS OF FLOATING RATE NOTES. The liquidity and the market
value of any Floating Rate Notes may be adversely affected by a termination
event under the related Swap Agreement. As described herein under "Description
of the Notes -- Floating Rate Notes," in the event that any Floating Rate Notes
are issued, upon the occurrence of an Event of Default or termination event
under the Swap Agreement, the Swap Agreement pursuant to which interest will be
paid on any Floating Rate Notes will terminate or may be terminated. In
particular, the Swap Agreement will be terminated if the Swap Counterparty's
rating by either of Moody's or S&P falls below "AAA" (or the equivalent rating)
(a "Downgrade Event") and the Swap Agreement is not assigned to a replacement
Swap Counterparty satisfying such ratings criteria or such lower ratings
criteria as may be permitted by the Swap Agreement within the time period
specified in the related Prospectus Supplement. In no event will any successor
Swap Counterparty be rated below "A" (or the equivalent rating) by either of
the above-referenced Rating Agencies. Upon the occurrence of a Downgrade
Event and the failure to assign the Swap Agreement, a termination event will
have occurred under the Swap Agreement and, in such event or upon any other
swap termination, the interest rate payable with respect to the Floating Rate
Notes will convert
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permanently to the fixed swap rate payable to the Swap Counterparty, which
may be substantially less than the rate otherwise payable on the Floating
Rate Notes. In the event of such conversion to a fixed interest rate, both
the liquidity and the market value of the Floating Rate Notes may be
adversely affected.
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ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS
GENERAL
The electric utility industry is experiencing intensifying competitive
pressures, in both the wholesale generation market and, in many states,
including Illinois, in the retail market. Historically, electric utilities
operated as regulated monopolies in their service territories and were the
primary suppliers of electricity. In Illinois, Utilities' rates were set by the
ICC based on the Utilities' costs of providing services and a reasonable return
on their prudent capital investments. Changes to this traditional legal and
regulatory framework and market structure are occurring at both the federal and
State levels.
AMENDATORY ACT OVERVIEW
In Illinois, dramatic changes in the retail electricity market will be
occurring over the next ten years as a result of enactment of Public Act 90-561
(the "Amendatory Act"), which became law on December 16, 1997 after being
approved by a vote of 108-7 in the Illinois House of Representatives and 57-2 in
the Illinois Senate. Utilities, such as Illinois Power, will be required to
provide to customers in their service areas, on a regulated basis, delivery
services through which a customer can purchase electricity from other suppliers
and have it delivered by the local Utility to the customer's premises.
Beginning October 1, 1999, Utilities will be required to offer delivery services
to (a) all customers in a Utility's service area with electric loads at a single
site of 4 megawatts or greater, (b) commercial customers in the Utility's
service area with at least 10 sites under common ownership whose electric loads
total at least 9.5 megawatts, up to 3.5% of the Utility's peak load and (c)
customers in non-residential service classes whose usage constitutes one-third
of the Utility's remaining (I.E., excluding customers in groups (a) and (b))
kilowatt-hour sales in each such class, with the customers in groups (b) (if
necessary) and (c) to be selected by lottery or other random non-discriminatory
process. As of December 31, 2000, all non-residential customers in a Utility's
service area will be entitled to delivery services. All residential customers
in a Utility's service area will be entitled to delivery services beginning May
1, 2002. The local Utility will be required to provide delivery services to
eligible customers on a non-discriminatory basis regardless of the customer's
choice of electricity provider. The Utility will be compensated for providing
delivery services through rates set by the ICC to recover the costs of owning,
operating and maintaining the Utility's transmission and distribution
facilities. Under the Amendatory Act, Utilities also will be required to offer
as a tariffed service to their non-residential delivery service customers,
certain power purchase options pursuant to which such customers may purchase
electric power and energy from the Utility at market-based rates determined by
formulas set forth in the Amendatory Act. In addition, the Amendatory Act
requires Utilities, including Illinois Power, to offer, as a tariffed service,
real-time pricing to non-residential customers beginning October 1, 1998, and to
residential customers beginning October 1, 2000, pursuant to which tariff
kilowatt-hour charges for delivered electric power and energy may vary on an
hour-to-hour basis for non-residential retail customers and on a periodic basis
during the day for residential retail customers.
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TRANSITION CHARGES
Another change involves the ability of a Utility to collect
"transition charges" from those customers in its service area who obtain
electricity from an alternate provider. Until December 31, 2006, the Utility
will be entitled, pursuant to tariff, to collect transition charges from
delivery services customers and include such transition charges in its bills
to such customers. These periodic transition charges are only applicable to
customers obtaining electricity from an ARES or from another Utility, and are
not applicable to customers taking traditional tariffed service from the
Utility, or to a customer to the extent it obtains its electricity from its
own cogeneration or self-generation facility. Transition charges are to be
calculated annually for each customer class and, for larger customers, on an
individual customer basis. The per kilowatt-hour transition charge
applicable to a customer class or an individual customer is calculated as
follows using the class' or customer's usage during a three-year period prior
to the date the customer became eligible for delivery service: (1) the
revenues the Utility would receive based on the applicable tariffed base rate
(adjusted for specific changes set forth in the Amendatory Act including, in
the case of residential customers, for the mandated rate reductions described
below) or contract rate, less (2) the revenues the Utility would receive for
delivering the same amount of usage, based on its currently applicable
delivery service rates, less (3) the market value of the capacity and energy
of the Utility that it would have used to supply the class or customer's
electric power and energy requirements, with the "market value" determined
through an ICC-approved tariff using market-based data as determined through
a market index or by a neutral fact-finder retained annually by the ICC, less
(4) a further specific deduction, referred to as the "mitigation factor,"
which is set forth in the Amendatory Act for each year in the relevant period
and which increases over that period. If the foregoing calculation results
in a negative number, the transition charge will be zero. The product of the
foregoing calculation is divided by the class' or customer's kilowatt-hour
usage during the three-year base period to yield a transition charge
expressed in cents per kilowatt-hour, which is charged on every kilowatt-hour
delivered by the electric utility for the delivery services customer until
December 31, 2006. However, depending on the levels of "market prices" which
are determined from year-to-year and the relationship between a class' or
customer's existing base rates or contract rate and the "market prices," and
given the increases in the "mitigation factors" over the relevant period as
specified in the Amendatory Act, it is likely that for some customers, and
possible that for all customers, the transition charge will be zero prior to
December 31, 2006. A Utility may petition the ICC to allow it to collect
transition charges for an additional period not to extend beyond December 31,
2008. The ICC must apply criteria specified in the Amendatory Act to the
Utility's request, and may deny the request, may authorize the Utility to
collect transition charges for some or all of the additional two year period,
in which case the mitigation factor deductions are increased over those
applicable for the year 2006, or in granting such authority, may impose
additional reductions on the allowable transition charges. The reduction in
transition charge revenues which the Utility is likely to experience over the
period from 1999 to 2006 or 2008 will reduce the total revenues of the
Utility from which IFC Charges may be deducted. See "Risk Factors --
Reduction in Amount of Revenue From Applicable Rates."
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In addition to the periodic transition charge from delivery services
customers who obtain electricity from an alternate provider described above, a
Utility shall also be entitled, pursuant to tariff, to collect transition
charges from customers in such Utility's service area who obtain electricity
from an alternate provider and do not take delivery services from such Utility.
As with the periodic transition charges described above, these transition
charges are only applicable to customers in its service area obtaining
electricity from an alternate provider and not to customers who obtain their
electricity from their own cogeneration or self-generation facility. These
transition charges shall be calculated in the same manner set forth above for
the entire period of time that the customer would be obligated to pay transition
charges if it were taking delivery services, except that no deduction for
delivery services shall be made in such calculation, and usage data from such
customers' class shall be used where historical usage data is not available for
such customer. These customers are obligated to pay such transition charges on a
lump-sum basis on or before the date such customer begins to take electricity
from an alternate provider; provided, however, that the Utility is to offer such
customer the option of paying such transition charges to such Utility ratably
over the period in which the transition charges would otherwise have applied
pursuant to a contract between such customer and such Utility, in which case the
IFC Charges would be deducted and stated separately from the transition charges.
The transition charge formula is designed to allow the Utility to
recover a portion, but not all, of the revenue requirement associated with its
generation and power supply costs that are above market prices. Transition
charges for any customer or group of customers will be recalculated annually
based on changes in market prices, changes in delivery service rates and changes
in the "mitigation factor" specified in the Amendatory Act, and there will be no
retroactive adjustments to compensate the Utility if transition charge revenues
during any period were less than expected. In order to realize the same overall
revenue stream from a customer who switches to another electricity supplier as
it would have realized if the customer had not switched, the Utility must
successfully remarket the electrical capacity and energy that is no longer
needed to serve the customer, at a price at least as high as the "market price"
used to calculate the customer's transition charges; and must otherwise reduce
its costs by, or develop other revenue sources equal to, an amount at least as
high as the amount of the "mitigation factor" used in calculating the customer's
transition charge. Otherwise, the revenue received by the Utility from delivery
charges and transition charges, both of which are tariffed revenues from which
IFC Charges can be deducted, will be less than the revenue the Utility would
have received from the customer at existing tariffed rates for traditional
tariffed services. On and after the date that the Utility is no longer able to
collect transition charges from delivery services customers, and may only
collect delivery service charges, the Utility's tariffed revenues from customers
previously paying such transition charges will decline. In addition, beginning
in 1999, the ICC is authorized under the Amendatory Act to require a Utility to
unbundle components of its delivery service, such as metering services or
billing services, and offer the unbundled components to customers separately,
thereby enabling the customer to purchase the unbundled service from an
alternative provider. If alternative providers enter the service area to
compete for the provision of unbundled delivery service components, it is
likely that
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the Utility will be able to obtain an ICC declaration that the unbundled
service is "competitive" through the process described below. Unbundling of
delivery service components and the declaration of such components as
"competitive" may result in further declines in the Utility's tariffed
revenues. See "Risk Factors -- Reduction in Amount of Revenue From Applicable
Rates."
TRANSITION PERIOD
While Utilities are required under the Amendatory Act to offer
delivery services in accordance with the schedule and requirements described
above, they are also required to continue to offer each of their existing,
tariffed bundled services to customers in the Utility's service area until the
service is declared competitive by the ICC. A Utility may petition the ICC to
declare a service "competitive," but may not do so with respect to the provision
of power and energy service for residential and small commercial (defined as a
nonresidential using less than 15,000 kilowatt-hours per year) customers until
such customers are no longer paying transition charges, and may not do so for
any other customer class or segment until after such customers are eligible for
delivery services. The ICC is to evaluate the Utility's request based on
criteria, specified in the Amendatory Act, which are tied to the existence of
other providers of the service. If the ICC declares the provision of power and
energy to residential or small commercial customers "competitive," the Utility
must continue to offer tariffed, fully-bundled service to such customers, but
may provide the power and energy component of the fully bundled service on the
basis of market prices determined in a manner specified in the Amendatory Act.
If the ICC declares the provision of a tariffed service provided to any other
customer class or segment "competitive," the Utility (a) is no longer required
to offer the service on a tariffed basis to new customers, (b) must continue to
provide the service on a tariffed basis for three more years to those customers
who were taking the tariffed service on the date it was declared competitive,
and (c) after the three-year period, is no longer required to offer the service
on a tariffed basis to any customers. Accordingly, any such declaration may
diminish the amount of the Utility's tariffed revenues. See "Risk Factors --
Reduction in Amount of Revenue From Applicable Rates."
During the period that non-residential delivery service customers are
paying transition charges, a Utility is required to offer, by tariff, to sell
electricity to those customers at the same market prices that were used in
determining the customers' transition charges. This service must also be
offered, with some modifications, after payment of transition charges has
stopped, until the sale of electricity to these customers is declared
competitive. This service is a tariffed service, therefore, instrument funding
charges may be deducted from the charges for this service.
During the "mandatory transition period" provided by the Amendatory
Act (which lasts until December 31, 2004), Utilities are precluded, with one
limited exception, from requesting authority from the ICC to increase their
base rates; and the ICC is precluded from ordering on its own motion a
Utility to reduce its base rates. These prohibitions do not apply to
delivery service rates. However, Utilities are required to reduce
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their base rates to residential customers by specified amounts on specified
dates. For Illinois Power, the required reduction in residential base rates
is 15% effective August 1, 1998, and an additional 5% effective May 1, 2002.
The residential rate reductions are based on Illinois Power's base rates that
were in effect immediately prior to January 1, 1998, even though those base
rates were reduced on March 6, 1998, in connection with Illinois Power's
elimination of its fuel adjustment clause. Further, during the mandatory
transition period, a Utility is allowed to reduce any rate for tariffed
service by giving seven days notice to the ICC. In addition, during the
mandatory transition period, if a Utility's two-year average rate of return
on common equity exceeds the two-year average of the yields on 30-year U.S.
Treasury bonds plus, for the years 1998-1999, 550 basis points and for the
years 2000-2004, 650 basis points, the Utility must refund 50% of the dollar
amount of such excess earnings during the ensuing year through
cents-per-kilowatt hour credits on the bills of both its bundled tariff
service customers and its delivery services customers. Implementation of the
residential rate reductions required by the Amendatory Act, and of any other
reductions in tariffed rates voluntarily implemented by an electric utility,
will reduce the Utility's tariffed revenues. See "Risk Factors -- Reduction
in Amount of Revenue From Applicable Rates."
After December 31, 2004, a Utility may again request increases in its
base rates for bundled tariffed services, and the ICC is again authorized to
investigate and order reductions in the Utility's base rates, in each case based
on cost of service principles. However, if the ICC finds that the rates for the
generation component of a bundled tariffed service of a Utility exceed market
price by more than 10%, the ICC may order such rates reduced to no less than
110% of market price, even if the Utility's cost of service exceeds that level.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS
The Amendatory Act allows alternative retail electric suppliers,
referred to as ARES, to provide electricity to customers eligible for delivery
services, and other services to customers, in the Utility's service area,
thereby terminating the Utility's historical status as the sole electric
service provider. An ARES may be an electric utility from another state, an
affiliate of an out-of-state utility, an affiliate of a Utility, a non-utility
generator, or a power marketer, broker, reseller or aggregator unaffiliated with
any electric utility. An ARES must obtain a certificate of service authority
from the ICC based on satisfaction of statutory criteria. The prices which an
ARES charges to customers for electricity and other services are not regulated
by the ICC, but various other aspects of the ARES' relationship with incumbent
Utilities and with customers, including certain marketing and billing practices,
are regulated. In addition, the Amendatory Act allows other Utilities to sell
electricity to customers eligible for delivery services, and to sell other
services to customers, in each other's service areas. For these purposes,
Utilities are not required to obtain certificates of service authority as are
ARES, but are subject to many of the same requirements as are ARES with
respect to marketing and billing practices and other aspects of their
relationship with customers.
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COMPETITIVE SERVICES
The Amendatory Act allows a Utility to provide on a competitive basis
services that were formerly regulated, in three respects. First, with one
exception, a Utility and a customer in its service area may at any time enter
into a contract for the provision of services, at prices, terms and conditions
agreed to between the Utility and the customer. The exception is that a Utility
may not enter into such a contract to provide delivery services until such
services have been declared competitive by the ICC. Second, a Utility may
provide to customers in its service area, as a competitive service (and may
cease to offer as a tariffed service) a service which has been declared
competitive by the ICC through the procedure described under " -- Transition
Period", and may self-declare a tariffed service (other than delivery services
or the provision of electric power and energy) to be competitive for new
customers only (subject to the authority of the ICC to revoke such declaration).
Third, the provision of electric power and energy by a Utility to customers in
the service area of another Utility is a competitive service.
In addition, the Amendatory Act classifies as competitive services
those services, other than tariffed services, which are related to, but not
necessary for, the provision of electric power and energy or delivery services.
Under the Amendatory Act, competitive services are not tariffed services, and
are provided at the rates, terms and conditions agreed to between the Utility
and the customer. The contracts or terms agreed to between the Utility and the
customer do not have to be filed with or approved by the ICC; and the ICC is
precluded from altering the rates, terms or conditions in such contracts.
As a result of the changes imposed on the Illinois retail electric
markets by the Amendatory Act, it is highly possible that by 2007, if not
earlier, a significant portion of electricity purchased by customers in Illinois
Power's service area, whether obtained from Illinois Power, another Utility or
an ARES, will be purchased on a competitive basis and not pursuant to a tariff.
It is also likely that by 2008, Illinois Power will still be the primary
provider of delivery services in its service area.
FEDERAL INITIATIVES; INCREASED COMPETITION
In addition to the changes which are occurring at the Illinois level
discussed throughout this section, federal legislative efforts may also
significantly alter the national market for electricity. See "Risk Factors --
Uncertainties Caused by Changing Regulatory and Legislative Environment." The
changes at both the federal and Illinois levels will have a significant impact
on Illinois Power as well as on other entities in the industry. Illinois Power
faces increased competition for resources and for customers. Competitors
include other electric utilities; privately-owned independent power producers;
exempt wholesale generators; power marketers, brokers, resellers and
aggregators; customers with their own sources of generation and developers,
equipment manufacturers, lenders and investment bankers in the business of
promoting such generation sources; suppliers of natural gas and other fuels;
electric cooperatives; and municipally-owned utility systems.
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DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
CREATION OF INTANGIBLE TRANSITION PROPERTY UNDER THE FUNDING LAW
The Funding Law provides the basis and authority for the creation of
the Intangible Transition Property and the issuance of the Notes issued
hereunder. Under the Funding Law, "intangible transition property" is defined
as the right, title and interest of a Utility, grantee, or assignee, arising
pursuant to a "transitional funding order", to impose and receive instrument
funding charges and all related revenues, collections, claims, payments, money
or proceeds thereof, including all right, title and interest of a Utility,
grantee or assignee in, to, under and pursuant to such transitional funding
order. A "grantee" is defined as any party, other than a Utility or an
assignee which acquires its interest from a Utility, to whom or for whose
benefit the ICC creates, establishes and grants rights in, to and under
intangible transition property. The Funding Law defines "instrument funding
charge" as a nonbypassable charge expressed in cents per kilowatt-hour
authorized in a transitional funding order to be applied and invoiced to each
retail customer, class of retail customers of a Utility or other person or group
of persons obligated to pay any base rates, transition charges or other rates
for tariffed services from which the instrument funding charges have been
deducted and separately stated. Upon the effectiveness of tariffs filed with
the ICC to provide for the deduction and separate statement and collection of
instrument funding charges, instrument funding charges become intangible
transition property as specified in the transitional funding order.
The Funding Law authorizes the ICC, pursuant to an application filed
by a Utility and in accordance with specific limitations and restrictions which
are described in this section, to issue a transitional funding order or orders
establishing, creating, and granting rights in and to a specific amount of
intangible transition property to or for the benefit of the Utility, a grantee,
or an assignee. The Funding Law also empowers the ICC, in the transitional
funding order, to authorize the sale, pledge, assignment or other transfer of
the Utility's, grantee's or assignee's rights in and to the intangible
transition property, the issuance of a specific dollar amount of grantee
instruments and/or transitional funding instruments by or on behalf of the
grantee, an assignee or an issuer; and the imposition and collection of a
specific dollar amount of instrument funding changes. The total amount of
intangible transition property which may be created by, and instrument funding
charges which may be imposed pursuant to, the related transitional funding order
is projected to be sufficient to pay when due principal and interest on the
transitional funding instruments, and to provide for servicing costs and related
fees and expenses and the funding or maintenance of debt service and other
reserves as security to the holders of the transitional funding instruments.
The amount of transitional funding instruments which may be authorized for
issuance is subject to certain limitations and restrictions, and the total
amount of intangible transitional property which may be created may not
exceed specified limits, as described below. See " -- Limitations on the
Amounts of Transitional Funding Instruments, Intangible Transition Property
and Instrument Funding Charges Which Can Be Authorized; Permitted Use of
Proceeds."
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The Funding Law provides that the creation, establishment and granting
of rights in, to and under intangible transition property in and to any grantee,
Utility, issuer or assignee shall include a grant of the power to levy general
tariffs on retail customers of a Utility or other persons required to pay
instrument funding charges in order to collect the instrument funding charges
relating to the intangible transition property in which such party has been
granted rights and in order to facilitate the issuance of transitional funding
instruments by or on behalf of the Utility, grantee, issuer or assignee. The
Funding Law empowers the ICC to authorize the Utility to contract with the
grantee, issuer, assignee or holders to collect the applicable instrument
funding charges for the benefit and account of the grantee, issuer, assignee or
holder, and provides that the Utility will, except as otherwise specified in the
related transitional funding order, account for and remit the applicable
instrument funding charges, without the obligation to remit any investment
earnings thereon, to or for the account of the grantee, issuer, assignee or
holder. The Funding Law further provides that the obligation of the Utility to
collect and remit the applicable instrument funding charges shall continue
irrespective of whether such Utility is providing electric power and/or other
services to the retail customers and other persons obligated to pay the
instrument funding charges. In addition, the Funding Law states that if the
documents creating the transitional funding instruments so provide, the
Utility's obligations, in the event of a default by the Utility in performing
them, shall be undertaken and performed by any other entity selected by the
assignee or any holder, group of holders or trustee or agent on behalf of such
holder or holders, (i) which provides electric power or services to a person who
was a retail customer of the Utility, and (ii) from whom such Utility is
entitled to recover transition charges under the Amendatory Act.
The Funding Law provides that the interest of a Utility, assignee,
issuer or grantee in intangible transition property may be assigned, sold or
otherwise transferred, in whole or in part, and may, in whole or in part, be
pledged or assigned as security to or for the benefit of a holder or holders. A
"holder" is defined in the Funding Law as any holder of a transitional funding
instrument, including a trustee, collateral agent, nominee or other such party
acting for the benefit of such a holder. The Funding Law specifies that neither
intangible transition property nor any right, title or interest therein shall
constitute property in which a security interest may be created under the UCC,
that such rights shall not be deemed proceeds of any property which is not
intangible transition property, and that the terms "account" and "general
intangible" as defined under Section 9-106 of the UCC and the term "instrument"
as defined under Section 9-105 of the UCC shall, as used in the UCC, be deemed
to exclude any intangible transition property or any right, title or interest
therein. The Funding Law provides that the granting, perfection and enforcement
of security interests in intangible transition property are governed by the
provisions of the Funding Law rather than by Article 9 of the UCC. The Funding
Law further provides that a sale, assignment or other transfer of intangible
transition property which is expressly stated in the documents governing the
transaction to be a sale or other absolute transfer, in a transaction
approved in a transitional funding order, shall be treated as an absolute
transfer of all of the transferor's right, title and interest in, to and
under such intangible transition property which places the transferred
property beyond the reach of the transferor or its creditors, as in a true
sale, and not as a pledge or other financing of such intangible transition
property. The
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Funding Law states that the characterization of any such transfer as an
absolute transfer and the corresponding characterization of the transferee's
property interest shall not be defeated or adversely affected by, among other
things: (a) the commingling of revenues arising with respect to intangible
transition property with funds of the Utility or other funds of the assignee,
issuer or grantee; (b) granting to holders of transitional funding
instruments a preferred right to the intangible transition property, whether
direct or indirect; (c) the provision by the Utility, grantee, assignee or
issuer of any recourse, collateral or credit enhancement with respect to
transitional funding instruments; (d) the retention by the assigning party of
a partial interest in any intangible transition property, whether direct or
indirect, or whether subordinate or otherwise; or (e) the Utility's
responsibilities for collecting instrument funding charges and any retention
of bare legal title for the purpose of such collection activities. The
Funding Law further states that a sale, assignment or other transfer of
intangible transition property shall be deemed perfected as against third
persons, including any judicial lien creditors, when (a) the ICC has issued
the transitional funding order creating the intangible transition property,
and (b) a sale, assignment, or transfer of the intangible transition property
has been executed and delivered in writing. See "Security for the Notes --
Security Interest in Note Collateral."
LIMITATIONS ON THE AMOUNTS OF TRANSITIONAL FUNDING INSTRUMENTS, INTANGIBLE
TRANSITION PROPERTY AND INSTRUMENT FUNDING CHARGES WHICH CAN BE AUTHORIZED;
PERMITTED USE OF PROCEEDS
The Funding Law imposes several limitations and restrictions on the
power of the ICC to create intangible transition property and to authorize the
issuance of transitional funding instruments and the imposition and collection
of instrument funding charges.
Under the Funding Law, the ICC, in a transitional funding order, can
only create and establish intangible transition property in an amount (which is
the total dollar amount of instrument funding charges which may be applied and
invoiced over time) not to exceed the sum of: (a) the rate base established by
the ICC in the Utility's last rate case prior to December 16, 1997, plus (b) any
expenditures required to be undertaken by the Utility by the provisions of
Section 16-128 of the Act, including labor severance costs and employee
retraining costs, plus (c) amounts necessary to fund debt service and other
reserves, commercially reasonable costs and fees necessary in connection with
the marketing of the transitional funding instruments, plus (d) commercially
reasonable costs incurred from and after December 16, 1997 or to be incurred
which are associated with the issuance and collateralization of the transitional
funding instruments, plus (e) commercially reasonable costs incurred from and
after December 16, 1997 or to be incurred which are associated with the issuance
of the transitional funding instruments, including costs incurred on and after
such date, or to be incurred in connection with transactions to recapitalize,
refinance or retire stock and/or debt, any associated taxes and the costs
incurred to obtain, collateralize, issue, service and/or administer transitional
funding instruments, including interest and other related fees, costs and
charges, minus (f) the amount of any intangible transition property previously
created and established at the request of and for the benefit of the Utility in
a prior transitional funding order.
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The Funding Law provides that transitional funding instruments may not
be issued prior to August 1, 1998, or after December 31, 2004. The aggregate
dollar amount of transitional funding instruments which may be authorized, in a
transitional funding order, for issuance, together with the amounts authorized
for issuance in any prior transitional funding order, may not exceed (a) between
August 1, 1998 and July 31, 1999, the Utility's total capitalization at December
31, 1996, times a percentage equal to 25% multiplied by the ratio of the
Utility's revenues from Illinois retail electric customers during the year ended
December 31, 1996 to its total retail electric revenues for such year; and (b)
subsequent to August 1, 1999, the Utility's total capitalization at December 31,
1996, times a percentage equal to 50% multiplied by the ratio of the Utility's
revenues from Illinois retail electric customers during the year ended December
31, 1996 to its total retail electric revenues for such year.
The Funding Law requires as a condition to issuance of any
transitional funding order that the final date on which the Utility, grantee or
assignee shall be entitled to charge and collect instrument funding charges
related to the intangible transition property shall be set to occur no later
than December 31, 2008 (or December 31, 2010, if requested and approved by the
ICC as being in the public interest); provided, that the authority to impose and
collect instrument funding charges shall continue beyond such date until such
time as the related transitional funding instruments have been paid in full.
Transitional funding instruments may only be authorized if the ICC
finds, in the related transitional funding order, that the Utility seeking the
transitional funding order will use the proceeds from the sale and issuance of
the transitional funding instruments for one or more of the following purposes:
(a) to refinance debt or equity, or both, in a manner which the Utility
reasonably demonstrates will result in an overall reduction in its cost of
capital, taking into account the costs of financing, and provided that any
proceeds transferred to a parent company through a common stock repurchase
transaction shall be used to retire publicly-traded common stock of the parent
company or to pay commercially reasonable transaction costs associated with such
retirement; (b) to fund debt service and other reserves, commercially reasonable
costs and fees necessary or desirable in connection with the marketing of the
transitional funding instruments; (c) to pay for commercially reasonable costs
associated with issuance and collateralization of the transitional funding
instruments; (d) to pay for the commercially reasonable costs associated with
the issuance of the transitional funding instruments, including the costs
incurred since December 16, 1997, or to be incurred, in connection with
transactions to recapitalize, refinance or retire stock and/or debt, any
associated taxes, and the costs incurred or to be incurred to obtain,
collateralize, issue, service and administer the transitional funding
instruments including interest and other related fees, costs and charges;
and (e) to repay or retire fuel contracts or obligations related to nuclear
spent fuel incurred by the Utility in providing electric power or energy
services prior to December 16, 1997 and to pay any expenditures required to
be undertaken by the Utility by the provisions of Section 16-28 of the
Funding Law, including labor severance costs and employee retraining costs.
Moreover, the transitional funding order must require the Utility to use at
least 80% of the proceeds from issuance of the transitional funding order for
the purposes specified in
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(a) and (e) above, and to use no more than 20% of the maximum amount of
proceeds permitted for purposes other than those specified in (a) above. The
Funding Law prohibits a Utility from using the proceeds from issuance of
transitional funding instruments for the purpose of refinancing debt or
equity to such an extent that as of the date of application of such proceeds,
the common equity component of the Utility's capital structure, exclusive of
the portion that consists of obligations representing transitional funding
instruments, is reduced below the lesser of (1) 40% or (2) the common equity
percentage as of December 31, 1996, adjusted to reflect any write-off of
assets or common equity implemented or required to be implemented as a result
of the Amendatory Act. The Funding Law also prohibits the Utility from using
the proceeds from issuance of transitional funding instruments to repay or
retire obligations incurred by an affiliate of the Utility, other than in
connection with any refinancing of transitional funding instruments issued by
such affiliate, without consent of the ICC. Finally, the Funding Law
provides that any use of the proceeds from issuance of transitional funding
instruments, other than in accordance with the purposes specified in the
related transitional funding order, shall be void.
The Funding Law provides that the instrument funding charges imposed
on a customer or class of customers may not cause such customer's or class of
customers' rates for tariffed services, including delivery charges or
transition charges, to exceed the amounts which the customer otherwise would
have paid; and that the Utility may not, as the result of issuance of
transitional funding instruments, increase any of its rates for tariffed
services, including delivery charges, or its transition charges, above the
levels which the Utility would have been authorized to charge if the Utility
were not authorized to impose and collect instrument funding charges. See "Risk
Factors -- Reduction in Amount of Revenue From Applicable Rates."
IMPOSITION AND COLLECTION OF INSTRUMENT FUNDING CHARGES; ADJUSTMENT MECHANISM
The Funding Law empowers the ICC, in a transitional funding order, to
authorize the imposition and collection of a specific amount of instrument
funding charges projected to be sufficient to pay when due the principal of and
interest on the corresponding transitional funding instruments, together with
premium, servicing fees and other fees, costs and charges related thereto, and
to maintain any required reserves.
The Funding Law provides that concurrently with the issuance of a
transitional funding order and with the sale, pledge, assignment or other
transfer of, or the establishment, creation, and granting of a Utility's,
assignee's or grantee's rights in and to intangible transition property and the
issuance of transitional funding instruments, the Utility shall begin to impose
and collect the specified instrument funding charges from retail
customers, classes of retail customers, and any other person or group of
persons as set forth in the transitional funding order. However, as a
precondition to the imposition of any instrument funding charges authorized
in such transitional funding order, the Utility shall file tariffs directing
that the amount of the instrument funding charges be deducted, stated, and
collected separately from the amounts otherwise billable by the Utility for
base rates, transition charges and other rates for tariffed services as set
forth in the transitional funding
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order. The total amount of instrument funding charges authorized by the
transitional funding order are to be allocated among the customer classes of
the Utility on the basis of the ratio of each class' base rate revenues for
the year ended December 31, 1996 to the Utility's total base rate revenues
for that year, and are then to be expressed in a cents per kilowatt-hour
charge which is to be deducted and stated separately from the base rates,
transition charges and other rates for tariffed services paid by the
customers in each class. The Funding Law specifies that upon the
effectiveness of such tariffs, the amounts of instrument funding charges
thereby deducted and to be deducted shall become intangible transition
property as specified in the related transitional funding order. The Funding
Law expressly provides that the ICC has no authority to review the tariffs
filed by the Utility, except to confirm that the instrument funding charges
authorized in the transitional funding order have been deducted, stated, and
collected separately from base rates, transition charges and other rates for
tariffed services otherwise in effect at that time; and that the ICC may not
suspend such tariffs for any other reason.
The Funding Law requires the ICC to provide in any transitional
funding order for a procedure for periodic adjustments to the instrument funding
charges authorized in the transitional funding order in order to ensure the
repayment in accordance with projections set forth in such transitional funding
order of all transitional funding instruments authorized therein and to
reconcile the revenues received from instrument funding charges during the
applicable adjustment period with the revenues projected to be received from
such charges as set forth in the transitional funding order. Unless the
transitional funding order provides otherwise, the Funding Law requires such
adjustments whenever the instrument funding charges actually collected during an
adjustment period are greater or less that the instrument funding charges
projected in the related transitional funding order to be collected during that
period. The Funding Law states that the Utility is to determine, within 90 days
(or such shorter period as may be specified in the documents relating to the
transitional funding instruments) of the end of each adjustment period, whether
any such adjustments are required. If adjustments are required, they are to be
implemented by the Utility, grantee, issuer or assignee, as applicable, with
written notice to the ICC, within such 90-day (or shorter) period after the end
of the adjustment period. The Funding Law provides that any adjustment is to be
calculated to include amounts necessary for recovery of any additional costs
incurred by the grantee, Utility, assignee or issuer as a result of the delay in
collections of instrument funding charges. If, as a result of an adjustment,
the amount of the instrument funding charges per kilowatt-hour will exceed the
amount per kilowatt-hour initially authorized by the ICC in the related
transitional funding order, the Utility shall file amendatory tariffs with the
ICC correspondingly reducing, by the amount of such excess, the amounts
otherwise billable by the electric utility for base rates, transition charges
and other rates for tariffed services. The Funding Law provides that the ICC
has no authority to review any such amendatory tariffs except to confirm that
the instrument funding charges have been deducted, stated, and collected
separately from base rates, transition charges and other rates for tariffed
services otherwise in effect at that time; and that the ICC may not suspend
such amendatory tariffs for any other reason. The Funding Law further
specifies that the failure of such amendatory tariff to become effective for
any reason shall
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not delay or impair the effectiveness of the adjustments otherwise required
as described above.
THE TRANSITIONAL FUNDING ORDER ISSUED AT THE REQUEST OF ILLINOIS POWER
The Funding Law authorizes the ICC to issue one or more transitional
funding orders in favor of the Grantee at the request of Illinois Power (each, a
"Transitional Funding Order"), in order to create and establish the Intangible
Transition Property which may be financed through the issuance of transitional
funding instruments, such as the Notes. The ICC issued a Transitional Funding
Order (the "Initial TFO") on September 10, 1998. The Initial TFO permits the
sale of Notes in an aggregate principal amount not to exceed $864 million.
The Funding Law authorizes the ICC, in a transitional funding order,
to authorize imposition of instrument funding charges on retail customers,
groups of retail customers and certain other persons obligated to pay base
rates, transition charges and other rates for tariffed services from which such
instrument funding charges have been deducted and separately stated. The ICC is
further authorized to specify the manner in which the instrument funding charges
shall be collected, and to authorize the levying of general tariffs on retail
customers of a Utility for the collection of instrument funding charges.
Pursuant to this authority, each Transitional Funding Order will authorize and
require Illinois Power, as Servicer, to impose and collect IFC Charges on any
retail customer, class of retail customers or other person or group of persons
obligated to pay any Applicable Rates, from which IFC Charges have been
deducted. Each Transitional Funding Order will create and establish, among
other things, the related Intangible Transition Property and authorize the
imposition and collection of the related IFC Charges, which constitute separate
nonbypassable usage-based charges expressed in cents per kilowatt-hour payable
by Customers in an aggregate amount calculated to be sufficient to make the
Specified Payments. The Funding Law provides that the right to collect payments
based on the IFC Charges is a property right which may be pledged, assigned or
sold.
Customers who enter into private contracts with a Utility may no
longer be paying rates for tariffed services from which instrument funding
charges are to be deducted and therefore may not be subject to imposition of
such charges under the Funding Law. To address this situation,
each Transitional Funding Order will provide that neither Illinois Power nor
any successor Utility may enter into any contracts with any Customer
obligated (or who would, but for such contract, be obligated) to pay IFC
Charges if, as a result thereof, such Customer would not receive tariffed
services (I.E., services subject to Applicable Rates), unless the contract
provides that the Customer will pay an amount each billing period to the
Grantee or its assigns (i.e., the Trust), or to Illinois Power as Servicer,
as applicable, equal to the amount of IFC Charges that would have been billed
if the services provided under such contract were tariffed services. Each
Transitional Funding Order will further provide that any revenues received by
Illinois Power or a successor Utility from such contracts shall, to the
extent IFC Charges would be imposed on the Customer if the services
provided pursuant to such contract were subject to Applicable Rates, be
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deemed to be proceeds of, and included in, the Intangible Transition Property
created by the related Transitional Funding Order. However, Customers do not
include retail customers of Illinois Power not paying Applicable Rates as a
result of entering into a contract with Illinois Power before the Series
Issue Date, unless the customer has agreed in such contract to pay to the
Grantee or its assigns an amount equal to the amount of IFC Charges that
would have been billed if the services provided under such contract were
subject to Applicable Rates. Between the effective date of the Amendatory
Act and the issuance of the initial Transitional Funding Order, Illinois
Power entered into a number of private contracts with customers, the
aggregate expected total annual revenues from which currently total an amount
equal to approximately 0.32% of Illinois Power's total operating revenues for
sale to retail customers for the fiscal year ended December 31, 1997. Each
of these contracts generally provides that the applicable customer will pay
to Illinois Power, as Servicer, amounts for instrument funding charges
calculated in accordance with a transitional funding order issued by the ICC,
and that Illinois Power will deduct and state separately such amounts from
the amounts otherwise payable under these contracts.
Each Transitional Funding Order will entitle the Trust, as the
assignee of the Intangible Transition Property from the Grantee, to receive the
payments made pursuant to the IFC Charges from all Customers through December
31, 2008 or, if later, until the Trust has received IFC Collections sufficient
to retire all outstanding Series of Notes and cover related fees and expenses.
Such payments from the Customers are referred to herein as the "IFC Payments."
The Funding Law requires Illinois Power to submit a statement of the final terms
of any Series of Notes to the ICC within 90 days of the receipt of proceeds from
such issuance, and authorizes the ICC to require Illinois Power to file periodic
reports on its use of proceeds at intervals of not less than one year. Each
Transitional Funding Order will permit the Servicer to calculate and implement
adjustments of the IFC Charges from time to time, in order to enhance the
likelihood of retirement of each Series and Class of Notes on a timely basis.
See " -- Adjustments to Instrument Funding Charges."
The IFC Charges authorized in any Transitional Funding Order (which
may be increased by the ICC in connection with the issuance of any subsequent
Transitional Funding Order) will be set forth in the related Prospectus
Supplement. In connection with the issuance and pricing of any Series of
Notes, Illinois Power will file revisions to its IFC Tariff with the ICC to
provide for, among other things, revisions to the IFC Charges authorized in
the related Transitional Funding Order, based on the final terms of such
Series, which will also be set forth in the related Prospectus Supplement.
Each Transitional Funding Order will provide that as each Series of Notes is
issued, Illinois Power shall file revisions to its IFC Tariff deducting and
separately stating from other rates for tariffed services the sum of the
cents per kilowatt-hour charges relating to that Series (plus, in connection
with any subsequent Transitional Funding Order increasing the IFC Charges,
the cents per kilowatt-hour charges relating to previously-issued Series),
which shall be calculated using projected kilowatt-hour sales and deliveries
for the succeeding calendar year, from Illinois Power's Applicable Rates.
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"Applicable Rates" means any tariffed charges owed to Illinois Power,
including, without limitation, charges for "base rates", "delivery services" or
"transition charges" (including lump-sum payments of such charges) as each such
term is defined in the Act. Applicable Rates do not include late charges or
charges set forth in those tariffs specifically and primarily to collect amounts
related to decommissioning expense, taxes, municipal infrastructure maintenance
fees, franchise fees or other franchise cost additions, costs imposed by local
governmental units which are allocated and charged to customers within the
boundaries of such governmental units' jurisdictions, renewable energy resources
and coal technology development assistance charges, energy assistance charges
for the Supplemental Low-Income Energy Assistance Fund, reimbursement for the
costs of optional or non-standard facilities and reimbursement for the costs of
optional or non-standard meters, or monies that will be paid to third parties
(after deduction of allowable administrative, servicing or similar fees)
(collectively, "Excluded Amounts"). Payments owed to the Grantee or the Trust
in respect of IFC Charges do not constitute Excluded Amounts. To the extent any
Applicable Rates reflect compensation owed by Illinois Power for power or
energy supplied to customers by a person or entity other than Illinois Power,
the IFC Charges will be deducted and stated separately from such Applicable
Rates without giving effect to such compensation. Administrative, servicing and
similar fees referred to in the parenthetical above means fees which Illinois
Power is expressly authorized under its current agreements with third parties by
statute, tariff or otherwise to deduct from monies owed to such parties to cover
its cost of processing such third-party payments. Charges associated with
Excluded Amounts are generally the subject of separate riders to Illinois
Power's rates, such that increases in such charges are collected through an
increase in the amount permitted to be collected under such rider, rather than
through an increased share of the Applicable Rates. As a result, any increase
in Excluded Amounts should not result in a material decrease in the amount of
Applicable Rates available to cover the amount of IFC Charges.
TRANSACTIONS PURSUANT TO THE TRANSITIONAL FUNDING ORDER
Pursuant to the authority granted by the Transitional Funding
Order, the Grantee will assign its rights in the Intangible Transition
Property to the Trust. The Trust will thereafter, at the times and in the
amounts permitted by the Funding Law and authorized by each Transitional
Funding Order, issue the Notes, which shall be secured by the Intangible
Transition Property and the other Note Collateral, to the public. The Trust
will remit the proceeds from the issuance of the Notes, less the expenses of
issuance and such amounts of the proceeds necessary to fund the Capital
Subaccount, to the Grantee as consideration for the assignment to the Trust,
less $100,000 in the aggregate for all Series of Notes, of the Grantee's
rights in the Intangible Transition Property. The Grantee will distribute
the amount of the proceeds received from the Trust to the Grantee's sole
member, Illinois Power, in consideration for Illinois Power's actions
requesting that the Intangible Transition Property be created and vested in
the Grantee.
The Grantee will also enter into the Servicing Agreement with Illinois
Power as Servicer, pursuant to which the Servicer, in connection with and upon
the issuance of
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each series of Notes, will impose IFC Charges on Customers and will
thereafter collect and remit the IFC Charges to the Trust, as assignee of the
Grantee's ownership interest in the Intangible Transition Property. See
"Servicing." The Servicing Agreement provides that the Servicer will file
revisions to the IFC Tariff with the ICC in connection with each Series of
Notes providing for the deduction of the related IFC Charges.
NONBYPASSABLE INSTRUMENT FUNDING CHARGES
Each Transitional Funding Order will provide that the IFC Charges are
nonbypassable, meaning that Customers will still be required to make payments
with respect to the applicable IFC Charges even if a Customer elects to purchase
electricity from another supplier or another entity takes over a portion of
Illinois Power's existing service; provided, however, that the IFC Charges must
be deducted from Applicable Rates which could otherwise be charged by Illinois
Power to such Customers. If a Customer ceases to take any tariffed services
from Illinois Power or any successor Utility within Illinois Power's service
area, for example, by generating its own electricity or by moving outside of
Illinois Power's service area, then such Customer will not owe any IFC Charges,
except that if such Customer takes electric power or energy from an ARES or
another Utility, then such Customer may be obligated under the Act to pay
transition charges from which the IFC Charges would continue to be deducted and
stated separately. See "Electric Industry Restructuring in Illinois --
Transition Charges."
ADJUSTMENTS TO INSTRUMENT FUNDING CHARGES
The Servicing Agreement and each Transitional Funding Order will
require the Servicer to calculate and implement adjustments to the IFC Charges
which are designed to enhance the likelihood that the IFC Collections which are
remitted to the Collection Account will be sufficient to make the Specified
Payments.
The Servicing Agreement and each Transitional Funding Order also
require the Servicer to calculate the "Debt Service Requirement" and the "Debt
Service Billing Requirement" for each Applicable Period. The "Debt Service
Requirement" for any period means the total dollar amount of IFC Payments which
the Servicer calculates to be needed to be collected in such period to make the
Specified Payments. The "Debt Service Billing Requirement" for any period means
the total dollar amount of IFC Charges, taking into account write-offs and
delays in collections, which the Servicer calculates will need to be billed
during such period in order to generate IFC Collections in the full amount of
the Debt Service Requirement for such period. The calculation of the Debt
Service Requirement and the Debt Service Billing Requirement and the revised IFC
Charges take into account, to the extent available, among other things, (a) a
comparison of the IFC Charges calculated during the preceding Reconciliation
Period and the amount projected to be collected, and the resulting
overcollection or shortfall, and any interest costs resulting from any such
shortfall, (b) updated assumptions by the Servicer as to projected future usage
of electricity by Customers, (c) future fees and expenses relating to the
Intangible Transition Property and
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the Notes, (d) amounts available in the General Subaccount and Reserve
Subaccount, (e) amounts necessary to fund and replenish the
Overcollateralization Subaccount and Capital Subaccount to required levels,
(f) amounts payable on the Notes, and (g) expected delinquencies and
write-offs, including amounts necessary for recovery of any additional costs
incurred by the Trust as a result of the relevant delay in collections of IFC
Charges, all assuming that there will be no net earnings on any amounts in
the Collection Account. The Debt Service Requirement and the Debt Service
Billing Requirement will be calculated by the Servicer within the month
following the end of each Reconciliation Period and will be calculated for
the next Applicable Period commencing on the succeeding Adjustment Date, as
described below.
The resulting revised Debt Service Billing Requirement for the
succeeding Applicable Period will be allocated among the IFC Customer Classes of
the Servicer subject to IFC Charges on the basis of their 1996 base rate
revenues, as set forth in "The Servicer -- Illinois Power Customer Base,
Electric Energy Consumption and Base Rates." The amount so allocated to each
class will be divided by the number of kilowatt-hours projected to be sold and
delivered to customers in the class by the Servicer in the succeeding Applicable
Period to determine the IFC Charges to be billed during such Applicable Period.
If, in connection with the foregoing allocations, the forecasted revenues from
Applicable Rates for any IFC Customer Class during an Applicable Period is
projected to be less than the IFC Charges allocated to that class for the same
period, the deficiency shall be ratably allocated among the remaining IFC
Customer Classes based on their percentages of the 1996 base rate revenues,
recalculated to exclude such IFC Customer Class.
The Servicer will file corresponding revisions, if any, to the IFC
Tariff with the ICC by the third business day preceding the first day of the
second calendar month following the end of the Reconciliation Period, to be
effective on the first day of such second calendar month (the "Adjustment
Date"). The IFC Tariff will provide for the revised IFC Charges to be deducted
and separately stated from the Servicer's base rates, transition charges and
other rates for tariffed services, and for corresponding reductions in such base
rates, transition charges and other rates for tariffed services; however, the
IFC Tariff will not result in any increases in the amounts of any of such base
rates, transition charges and other rates for tariffed services.
All Adjustments shall be implemented pursuant to the IFC Tariff filed
by Illinois Power in connection with the related Transitional Funding Order. As
required by the Funding Law, if, as a result of any Adjustment, the IFC Charge,
as so adjusted, will exceed the amount per kilowatt-hour of the IFC Charge
initially authorized by the ICC in such Transitional Funding Order, then
Illinois Power shall be obligated to file Amendatory Tariffs adjusting the
amounts otherwise billable by Illinois Power for Applicable Rates, to offset
the amount of such excess (or, if Illinois Power shall have previously filed any
such Amendatory Tariffs, the incremental amount of such excess). However, the
failure of such Amendatory Tariff to become effective for any reason shall not
delay or impair the effectiveness of any such Adjustments.
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The Servicing Agreement will require the Servicer to deliver promptly
a written copy of all filings made with the ICC in connection with any
Adjustment, together with a copy of all material supporting documents, to the
Trust and the Indenture Trustee.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
On the initial Series Issuance Date, in accordance with the
requirements of the Funding Law and the terms of the Initial TFO and pursuant to
the initial Sale Agreement, the Grantee will sell, transfer and assign to the
Trust, without recourse, its entire right in, to and under the Intangible
Transition Property that is created by the Initial TFO (the "Initial Intangible
Transition Property") and in, to and under the related Basic Documents (such
sale, transfer and assignment to include all revenues, collections, claims,
rights, payments, money or proceeds, including, without limitation, any revenues
derived from lump-sum payments of transition charges, condemnation proceedings
or FERC stranded cost recoveries which are allocable to the IFC Charges under
the Servicing Agreement). The net proceeds received by the Trust from the sale
of the Notes, less the amount retained by the Trust to fund the Capital
Subaccount will be applied to the purchase of the Initial Intangible Transition
Property. Thereafter, the Grantee may agree with the Trust to sell additional
Intangible Transition Property ("Subsequent Intangible Transition Property") to
the Trust, subject to the satisfaction of certain conditions, including the
establishment and creation of such Subsequent Intangible Transition Property
(and the vesting thereof in the Grantee) pursuant to a subsequent Transitional
Funding Order. Such Subsequent Intangible Transition Property will be sold to
the Trust effective on a date (a "Subsequent Transfer Date") specified in a
subsequent Sale Agreement between the Grantee and the Trust. The Trust will
issue and sell additional Notes in connection therewith.
The Grantee's entire right in, to and under the Initial Intangible
Transition Property was granted to the Grantee by the ICC in accordance with
the Initial TFO. The Grantee's rights in, to and under any Subsequent
Intangible Transition Property will, subject to the satisfaction of certain
conditions, be granted to the Grantee by the ICC in accordance with a
subsequent Transitional Funding Order related thereto.
The Trust will appoint the Servicer as custodian of the
documentation relating to the Intangible Transition Property. Illinois
Power's data systems will reflect the sale and assignment of the Intangible
Transition Property from the Grantee to the Trust. Illinois Power's financial
statements will indicate that the Intangible Transition Property has been
sold by the Grantee to the Trust and will not be available to creditors of
Illinois Power, although, unless otherwise specified in the related
Prospectus Supplement, for financial reporting and Federal income tax
purposes Illinois Power intends to treat the Notes as representing debt of
Illinois Power.
Subsequent Intangible Transition Property may be sold by the
Grantee to the Trust from time to time, solely in connection with the
issuance and sale of additional Notes by the Trust. Any such conveyance of
Subsequent Intangible Transition Property is subject to the following
conditions, among others:
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(a) the Grantee shall have entered into a written sale agreement with
the Trust;
(b) Illinois Power shall have received a subsequent Transitional
Funding Order issued by the ICC relating to such Subsequent Intangible
Transition Property;
(c) as of the applicable Subsequent Transfer Date, the Grantee shall
not be insolvent and shall not be made insolvent by such conveyance;
(d) the Rating Agency Condition shall have been satisfied with
respect to such conveyance;
(e) Illinois Power shall have delivered to the Grantee, the Trust,
the Delaware Trustee and the Indenture Trustee an opinion of independent
tax counsel and/or a ruling from the IRS (as selected by, and in form and
substance reasonably satisfactory to, Illinois Power) to the effect that ,
for federal income tax purposes, (i) the ICC's issuance of the Transitional
Funding Order creating and establishing the Subsequent Intangible
Transition Property in the Grantee, and the assignment pursuant to such
conveyance of such Subsequent Intangible Transition Property will not
result in gross income to the Grantee, the Trust or Illinois Power, and the
future revenues relating to the Subsequent Intangible Transition Property
and the assessment of the IFC Charges (except for revenue related to
certain lump-sum payments) will be included in Illinois Power's gross
income in the year in which the related electrical service is provided to
consumers, and (ii) such conveyance will not adversely affect the
characterization of the then outstanding Notes as obligations of Illinois
Power;
(f) as of the applicable Subsequent Transfer Date, no breach by the
Grantee of its representations, warranties or covenants in the applicable
Sale Agreement and no Servicer Default shall exist;
(g) as of the applicable Subsequent Transfer Date, the Trust shall
have sufficient funds available to pay the purchase price for the
Subsequent Intangible Transition Property to be transferred on such date
and all conditions to the issuance of new series of Notes shall have been
satisfied; and
(h) the Grantee and the Trust shall have taken any action required to
perfect the ownership interest or security interest (as the case may be) of
the Trust in the Subsequent Intangible Transition Property and the proceeds
thereof, free and clear of any liens.
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GRANT AGREEMENT
Under each Grant Agreement, the Grantee will agree, in
consideration of Illinois Power filing an application with the ICC requesting
a Transitional Funding Order creating and vesting in the Grantee the related
Intangible Transition Property, to remit to Illinois Power the net proceeds
remitted to it by the Trust from the sale of the Notes. To the extent that,
notwithstanding the Funding Law and the related Transitional Funding Order,
applicable law provides that Illinois Power has any interest in the
Intangible Transition Property or any part thereof, Illinois Power will agree
to sell, transfer, assign, set over and otherwise convey to the Grantee
without recourse all of Illinois Power's right, title and interest, if any,
in, to and under the Intangible Transition Property (such sale, transfer and
assignment to include all revenues, collections, claims, rights, payments,
money or proceeds, including, without limitation, any revenues derived from
lump-sum payments of transition charges, condemnation proceedings or FERC
stranded cost recoveries which are allocable to the IFC Charges under the
Servicing Agreement). Such sale, transfer, assignment, set over and
conveyance by Illinois Power contemplated under each Grant Agreement will be
expressly stated to be an absolute transfer pursuant to Section 18-108 of the
Funding Law.
In each Grant Agreement, Illinois Power will also acknowledge and
consent to any transfer, pledge, assignment or grant of a security interest
by the Grantee to the Trust pursuant to the related Sale Agreement, and by
the Trust to the Indenture Trustee for the benefit of the Noteholders
pursuant to the Indenture, of all right, title and interest of the Grantee
in, to and under the Intangible Transition Property and the proceeds thereof,
and the assignment of any or all of the Grantee's rights and obligations
under such Grant Agreement to the Trust and the Indenture Trustee.
REPRESENTATIONS AND WARRANTIES OF ILLINOIS POWER
In each Grant Agreement, Illinois Power will make representations and
warranties to the Grantee to the effect, among other things, that:
(a) the information provided by Illinois Power to the Grantee with
respect to the applicable Intangible Transition Property is correct in all
material respects;
(b) immediately prior to the transactions contemplated by the Grant
Agreement, Illinois Power's right, title and interest in and to all of its
rights to payments under Applicable Rates is free and clear of all
encumbrances, and is not subject to any defenses or counterclaims nor have
any such encumbrances, defenses or counterclaims been asserted with respect
thereto;
(c) the applicable Intangible Transition Property has been validly
granted to and vested in the Grantee, and the Grantee owns all right,
title and interest to such Intangible Transitional Property free and clear
of all liens and rights of any other person (other than liens created
pursuant to the related Sale Agreement and the
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Indenture), and all filings to be made by Illinois Power (including
filings with the ICC under the Funding Law) necessary in any jurisdiction
to give the Grantee a first priority perfected ownership interest in such
Intangible Transition Property will have been made and no further action
is required under Illinois law to maintain such ownership interest in such
Intangible Transition Property;
(d) (i) Illinois Power was authorized to apply for each
Transitional Funding Order;
(ii) Illinois Power filed each such application in proper form
with the ICC;
(iii) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created and each related IFC
Tariff has established, created and granted rights in and to the
related Intangible Transition Property and is valid, binding and
irrevocable and such Intangible Transition Property (including
the right to impose and collect the related IFC Charges) constitutes
a current and original property right vested in the Grantee;
(iv) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered
by the ICC, is final and non-appealable and is in full force and
effect;
(v) no Transitional Funding Order nor any Intangible
Transition Property created and established thereby nor the related
IFC Charges shall be subject to reduction, postponement, impairment or
termination by any subsequent action of the ICC;
(vi) the State of Illinois may not reduce, postpone, impair or
terminate the related Intangible Transition Property or the related
Transitional Funding Order (except to the extent that the State of
Illinois were to demonstrate that an impairment was necessary to
advance a significant and legitimate public purpose);
(vii) a substantial impairment of the Noteholders' rights to
payments on the Notes, arising from a judicial invalidation of the
Amendatory Act, would be inequitable;
(viii) the process by which the related Transitional Funding
Order was adopted and approved and the related IFC Tariff was filed,
and such Transitional Funding Order and IFC Tariff themselves, comply
with all applicable laws, rules and regulations; and
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(ix) no other approval or filing with any other governmental
body is required in connection with the grant of the related
Intangible Transition Property, except those that have been obtained
or made;
(e) the assumptions used in calculating the related IFC Charges are
reasonable and made in good faith;
(f) upon the effectiveness of the applicable IFC Tariff:
(i) all of the related Intangible Transition Property
constitutes a current property right vested in the Grantee;
(ii) the related Intangible Transition Property includes,
without limitation, (A) the right, title and interest in the related
IFC Charges authorized under the related Transitional Funding Order,
as adjusted from time to time, (B) the right, title and interest in
all revenues, collections, claims, payments, money or proceeds of or
arising from the related IFC Charges set forth in such IFC Tariff and
(C) all rights to obtain adjustments to the related IFC Charges
pursuant to the related Transitional Funding Order; and
(iii) the Grantee is entitled to impose and collect the related
IFC Charges in an aggregate amount equal to the principal amount of
the Notes, all interest on the Notes, all amounts required to be
deposited in the Reserve Subaccount, the Overcollateralization
Subaccount and (to the extent payable from the proceeds of the related
IFC Charges) the Capital Subaccount, and all related fees, costs and
expenses in respect of the Notes until they have been paid in full
subject only to the limitation set forth in the Transitional Funding
Orders as the aggregate maximum dollar amount of Intangible Transition
Property;
(g) Illinois Power is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois, with power
and authority to own its properties and conduct its business as currently
owned or conducted and to execute, deliver and perform the terms of such
Grant Agreement and has (and has had at all relevant times) the requisite
power, authority and legal right to request that the ICC issue the related
Transitional Funding Order;
(h) the execution, delivery and performance of such Grant Agreement
have been duly authorized by Illinois Power by all necessary corporate
action;
(i) such Grant Agreement constitutes a legal, valid and binding
obligation of Illinois Power, enforceable against Illinois Power in
accordance with its terms, subject to customary exceptions relating to
bankruptcy and equitable principles;
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(j) the consummation of the transactions contemplated by such Grant
Agreement does not conflict with, or result in a default under, Illinois
Power's Articles of Incorporation, bylaws or any agreement to which
Illinois Power is a party or bound, result in the creation or imposition of
any lien upon Illinois Power's properties pursuant to any agreement or
violate any law or any order, rule or regulation applicable to Illinois
Power;
(k) no governmental approvals, authorizations or filings are required
for Illinois Power to execute, deliver and perform its obligations under
such Grant Agreement except those which have been previously obtained or
made (it being understood that Illinois Power nonetheless has ongoing legal
obligations to make future filings with the ICC relating to Illinois
Power's use of proceeds from and the final terms of the transactions
contemplated by such Grant Agreement); and
(l) except as disclosed in the Grant Agreement, no court or
administrative proceeding or investigation is pending or, to Illinois
Power's knowledge, threatened (i) asserting the invalidity of the Funding
Law, such Grant Agreement, any of the other related Basic Documents or the
related Notes, (ii) seeking to prevent the grant of the related Intangible
Transition Property to the Grantee or the consummation of any of the
transactions contemplated by such Grant Agreement or any of the other
related Basic Documents, (iii) seeking any determination or ruling that
could reasonably be expected to materially and adversely affect the
performance by Illinois Power of its obligations under, or the validity or
enforceability of, such Grant Agreement, any of the other related Basic
Documents or the related Notes, or (iv) which could reasonably be expected
to adversely affect the federal or state income tax attributes of the
related Notes.
COVENANTS OF ILLINOIS POWER
In each Grant Agreement, Illinois Power will covenant, among other
things, that:
(a) so long as any of the Notes are outstanding, it will keep in full
force and effect its existence, rights and franchises as a corporation
under the laws of its jurisdiction of incorporation and its qualification
to do business to the extent necessary to protect the validity
of the Basic Documents;
(b) it will not sell, pledge, assign or transfer to any other person,
or grant, create, incur, assume, suffer to exist or otherwise assert any
lien on or seek to limit, alter, impair, reduce or terminate any of the
related Intangible Transition Property or any interest therein;
(c) it shall defend the right, title and interest of the Grantee or
the Trust in, to and under the related Intangible Transition Property
against all claims of third parties claiming through or under Illinois
Power;
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(d) it will pay to the Servicer all payments received by it in
respect of the IFC Charges or the proceeds thereof no later than two
Business Days after such receipt by Illinois Power;
(e) it shall notify the Grantee, the Trust and the Indenture Trustee
promptly after becoming aware of any lien on any of the related Intangible
Transition Property other than the conveyances under the Grant Agreement,
the Sale Agreement and the Indenture;
(f) it shall comply with its organizational documents and all
applicable laws to the extent that failure to so comply would materially
adversely affect the Trust's or the Indenture Trustee's interests in the
Intangible Transition Property;
(g) it shall indicate in its financial statements that it is not the
owner of the Intangible Transition Property and it shall not own or
purchase any Notes;
(h) upon the creation and grant of the Intangible Transition Property
and, except with respect to taxes, it shall not make any statement or
reference in respect of the Intangible Transition Property that is
inconsistent with the ownership interest of the Grantee;
(i) it shall execute and file such filings, and cause to be executed
and filed such filings as may be required by law to fully preserve,
maintain, and protect the interests of the Grantee or the Trust in the
Intangible Transition Property, including all filings required under the
Funding Law relating to the grant of the related Intangible Transition
Property to the Grantee;
(j) it shall institute any action or proceeding necessary to compel
performance by the ICC or the State of Illinois of any of their obligations
or duties under the Funding Law, the related Transitional Funding Order and
related Tariff, and will take such legal or administrative actions as may
be reasonably necessary to protect the Grantee or the Trust from claims,
state actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any representation set
forth in such Grant Agreement;
(k) it shall not, prior to the date which is one year and one day
after the termination of the Indenture, acquire, petition or otherwise
invoke or cause any other Person to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case
against, or appointment of a receiver for, the Grantee or the Trust under
any Federal or state bankruptcy, insolvency or similar law; and
(l) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure
to pay any such taxes,
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assessments and governmental charges would, after any applicable grace
periods, result in a lien on the Intangible Transition Property;
(m) neither Illinois Power nor any successor will cause or permit the
Grantee or the Trust to elect to be classified as an association taxable as
a corporation for federal income tax purposes;
(n) neither Illinois Power nor any successor thereto will enter into
any contract with any Customer obligated (or who would, but for such
contract, be obligated) to pay IFC Charges if, as a result thereof, such
Customer would not receive tariffed services, unless the contract provides
that the Customer will pay an amount to the Grantee or its assigns, or to
Illinois Power as Servicer as applicable, equal to the amount such Customer
would pay in IFC Charges;
(o) it will not, except as required by applicable law, initiate any
material changes to its policies and procedures which are likely to
materially and adversely affect its timely recovery of amounts billed to
customers;
(p) if Illinois Power determines that the aggregate dollar amount of
IFC Charges to be imposed and collected is reasonably likely to exceed the
maximum dollar amount of Intangible Transition Property authorized by the
Transitional Funding Orders and any Notes remain outstanding, Illinois
Power shall make a good faith effort to take any and all subsequent
regulatory action with the ICC reasonably necessary to obtain an order
permitting the creation of additional Intangible Transition Property in an
amount sufficient to pay such Notes in full; and
(q) Illinois Power will take any and all actions reasonably necessary
to preserve the Noteholders' rights with respect to payments on the Notes
out of amounts represented by the IFC Charges or their equivalent,
including, but not limited to, (i) making appropriate filings with the
State of Illinois, the ICC or other regulatory bodies to defend, preserve
and create on behalf of Noteholders the right to receive payments as
provided in the Notes and (ii) continuing to deduct and pay over to the
Servicer for the benefit of the Trust all IFC Payments or equivalent
revenues received by Illinois Power notwithstanding any declaration of
invalidity of the Amendatory Act and/or the Funding Law.
AMENDMENT OF GRANT AGREEMENTS
Each Grant Agreement may be amended from time to time by Illinois
Power and the Grantee, with prior written notice given to the Rating Agencies
and the prior written consent of the Trust, but without the consent of any of
the Noteholders, to cure any ambiguity, to correct or supplement any provisions
in such Grant Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in such Grant
Agreement or of modifying in any manner the rights of the
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Noteholders; PROVIDED, HOWEVER, that such action shall not, as evidenced by
an officer's certificate delivered to the Trust, adversely affect in any
material respect the interests of any Noteholder.
Each Grant Agreement may also be amended from time to time by Illinois
Power and the Grantee, with prior written notice given to the Rating Agencies
and the prior written consent of the Trust, the Indenture Trustee and
Noteholders holding not less than a majority in principal amount of the then
outstanding Notes of all Series affected thereby, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Grant Agreement or of modifying in any manner the rights of the
Noteholders; PROVIDED, HOWEVER, that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of, IFC
Collections relating to the IFC Charges, or (b) reduce the percentage of the
outstanding principal amount of the Notes, the Noteholders of which are required
to consent to any such amendment, without the consent of the Noteholders of all
the outstanding Notes.
INDEMNIFICATION OBLIGATIONS OF ILLINOIS POWER
Each Grant Agreement will provide that Illinois Power will indemnify
the Grantee, the Trust, the Indenture Trustee, the Delaware Trustee and the
Noteholders, and each of their respective officers, directors, employees and
agents for, and defend and hold harmless each such person from and against, (a)
any and all taxes (other than any taxes imposed on the Noteholders) that may at
any time be imposed on or asserted against any such person as a result of the
grant of the Intangible Transition Property to the Grantee, or that may be
imposed on or asserted against any such person under existing law as of the
closing date as a result of the Grantee's ownership and assignment of the
Intangible Transition Property, the Trust's issuance and sale of the Notes, or
the other transactions contemplated herein, including, in each case, any sales,
gross receipt, general corporation, tangible personal property, privilege or
license taxes (but excluding any taxes imposed as a result of a failure of such
person to properly withhold or remit taxes imposed with respect to payments on
any Note); (b) any and all liabilities, obligations, losses, claims, actions,
suits, damages, payments, and reasonable costs or expenses, of any kind
whatsoever that may be imposed on, incurred by or asserted against any such
person as a result of Illinois Power's willful misconduct, bad faith or gross
negligence in the performance of (or reckless disregard of) its duties or
observance of its covenants under each Grant Agreement, or (c) Illinois Power's
breach of any of its representations or warranties contained in each Grant
Agreement. Such indemnification obligations will rank PARI PASSU with other
general unsecured obligations of Illinois Power. The indemnities described
above will survive the termination of such Grant Agreement and include
reasonable fees and expenses of investigation and litigation (including
reasonable attorneys' fees and expenses).
Notwithstanding the foregoing, but subject to Illinois Power's
covenant to fully preserve, maintain and protect the interests of the Grantee in
the Intangible Transition Property, Illinois Power shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
incidental to its obligations under each Grant Agreement.
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SALE AGREEMENT
Under each Sale Agreement, the Grantee will agree, in consideration of
the Trust remitting to it the net proceeds received from the issuance and sale
of the Notes, to sell, transfer, assign, set over or otherwise convey to the
Trust without recourse all of its right, title and interest in and to the
Intangible Transition Property created in connection with such issuance (such
sale, transfer and assignment to include all revenues, collections, claims,
rights, payments, money or proceeds, including, without limitation, any revenues
derived from lump-sum payments of transition charges, condemnation proceedings
or FERC stranded cost recoveries which are allocable to the IFC Charges under
the Servicing Agreement). Such sale, transfer, assignment, set over and
conveyance by the Grantee contemplated under each Sale Agreement will be
expressly stated to be an absolute transfer pursuant to Section 18-108 of the
Funding Law.
In the Sale Agreement, the Grantee will also acknowledge and consent
to any transfer, pledge, assignment or grant of a security interest by the Trust
to the Indenture Trustee for the benefit of the Noteholders pursuant to the
Indenture, of all right, title and interest of the Trust in, to and under the
related Intangible Transition Property and the related assets, and the
assignment of any or all of the Trust's rights and obligations under each Sale
Agreement to the Indenture Trustee.
REPRESENTATIONS AND WARRANTIES OF GRANTEE
In each Sale Agreement, the Grantee will make representations and
warranties to the Trust to the effect, among other things, that:
(a) the information provided by the Grantee to the Trust with respect
to the applicable Intangible Transition Property and related assets is
correct in all material respects;
(b) immediately prior to the sale of the Intangible Transition
Property to the Trust, the applicable Intangible Transition Property is
owned by the Grantee free and clear of all security interests, liens,
charges and encumbrances, and is not subject to any defenses or
counterclaims nor have any such encumbrances, defenses or counterclaims
been asserted with respect thereto;
(c) the applicable Intangible Transition Property has been validly
transferred and sold to the Trust and all filings to be made by the Grantee
(including filings with the ICC under the Funding Law) necessary in any
jurisdiction to give the Trust a first priority perfected ownership
interest in such Intangible Transition Property will have been made and
no further action is required under Illinois law to maintain such
ownership interest in such Intangible Transition Property;
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(d) (i) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered
by the ICC, and is final and non-appealable and is in full force and
effect;
(ii) no Transitional Funding Order nor any Intangible
Transition Property created and established thereby nor the related
IFC Charges shall be subject to reduction, postponement, impairment or
termination by any subsequent action of the ICC;
(iii) the State of Illinois may not reduce, postpone, impair or
terminate the related Intangible Transition Property or the related
Transitional Funding Order (except to the extent that the State of
Illinois were to demonstrate that an impairment was necessary to
advance a significant and legitimate public purpose);
(iv) the process by which the related Transitional Funding
Order was adopted and approved and the related IFC Tariff was filed,
and such Transitional Funding Order and IFC Tariff themselves, comply
with all applicable laws, rules and regulations; and
(v) no other approval or filing with any other governmental
body is required in connection with the grant of the related
Intangible Transition Property, except those that have been obtained
or made ;
(e) the assumptions used in calculating the related IFC Charges are
reasonable and made in good faith;
(f) upon the effectiveness of the applicable IFC Tariff;
(i) all of the related Intangible Transition Property
constitutes a current property right vested in the Grantee;
(ii) the related Intangible Transition Property includes,
without limitation, (A) the right, title and interest in the related
IFC Charges authorized under the related Transitional Funding Order,
as adjusted from time to time, (B) the right, title and interest in
all revenues, collections, claims, payments, money or proceeds of or
arising from the related IFC Charges set forth in such IFC Tariff, and
(C) all rights to obtain adjustments to the related IFC Charges
pursuant to the related Transitional Funding Order; and
(iii) the Grantee is entitled to impose and collect the related
IFC Charges in an aggregate amount equal to the principal amount of
the Notes, all interest on the Notes, all amounts required to be
deposited in the Overcollateralization Subaccount and the Capital
Subaccount, and all related fees, costs and expenses in respect of the
Notes until they have been paid in
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full subject only to the limitation set forth in the related
Transitional Funding Order as to the maximum dollar amount of
Intangible Transition Property;
(g) the Grantee is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Delaware, with power and authority to own its properties and conduct its
business as currently owned or conducted and to execute, deliver and
perform the terms of such Sale Agreement;
(h) the execution, delivery and performance of such Sale Agreement
have been duly authorized by the Grantee by all necessary company action;
(i) such Sale Agreement constitutes a legal, valid and binding
obligation of the Grantee, enforceable against the Grantee in accordance
with its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
(j) the consummation of the transactions contemplated by such Sale
Agreement does not conflict with or result in a default under the Grantee's
operating agreement or certificate of formation or any agreement to which
the Grantee is a party or bound, result in the creation or imposition of
any lien upon the Grantee's properties pursuant to any agreement or violate
any law or any order, rule or regulation applicable to the Grantee;
(k) no governmental approvals, authorizations or filings are required
for the Grantee to execute, deliver and perform its obligations under such
Sale Agreement except those which have been previously obtained or made;
and
(l) except as disclosed in such Sale Agreement, no court or
administrative proceeding or investigation is pending or, to the Grantee's
knowledge, threatened (i) asserting the invalidity of the Funding Law, such
Sale Agreement, any of the other related Basic Documents or the related
Notes, (ii) seeking to prevent the issuance of the related Notes or the
consummation of any of the transactions contemplated by such Sale Agreement
or any of the other related Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to materially and
adversely affect the performance by the Grantee of its obligations under,
or the validity or enforceability of, such Sale Agreement, any of the other
related Basic Documents or the related Notes, or (iv) which could
reasonably be expected to adversely affect the federal or state income tax
attributes of the related Notes.
COVENANTS OF THE GRANTEE
In each Sale Agreement, the Grantee will covenant, among other
things, that:
(a) so long as the Notes are outstanding, it will keep in full force
and effect its existence, rights and franchises as a limited liability
company under the laws of its
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jurisdiction of organization and its qualification to do business to the
extent necessary to protect the validity of the Basic Documents;
(b) it will not sell, pledge, assign or transfer to any other person,
or grant, create, incur, assume, suffer to exist or otherwise assert any
lien on any of the related Intangible Transition Property or related
assets;
(c) it shall defend the right, title and interest of the Trust and
Indenture Trustee in, to and under the related Intangible Transition
Property and related assets against all claims of third parties claiming
through or under the Grantee;
(d) it will hold all payments received by it in respect of the IFC
Charges or the proceeds thereof in trust for the Servicer and pay to the
Servicer all such payments no later than two Business Days after such
receipt by the Grantee;
(e) it shall notify the Trust and the Indenture Trustee promptly
after becoming aware of any lien on any of the related Intangible
Transition Property and related assets other than the conveyances under the
Sale Agreement and the Indenture;
(f) it shall comply with its organizational documents and all
applicable laws to the extent that failure to so comply would materially
adversely affect the Trust's or the Indenture Trustee's interest in the
Intangible Transition Property or related assets or under any Basic
Document to which it is party, or the Grantee's performance of its
obligations under the Sale Agreement or under the Basic Document to which
it is party;
(g) it shall indicate in its financial statements that it is not the
owner of the Intangible Transition Property and shall not own or purchase
any Notes and, except with respect to taxes, not make any statement or
reference in respect of the Intangible Transition Property and related
assets that is inconsistent with the ownership interest of the Trust;
(h) it shall execute and file such filings, and cause to be executed
and filed such filings as may be required by law to fully preserve,
maintain, and protect the interests of the Trust in the related Intangible
Transition Property and related assets, including all filings required
under the Funding Law relating to the transfer of the related Intangible
Transition Property to the Trust;
(i) it shall institute any action or proceeding necessary to compel
performance by the ICC or the State of Illinois of any of their obligations
or duties under the Funding Law, the related Transitional Funding Order and
related Tariff, and will take such legal or administrative actions as may
be reasonably necessary to protect the Trust and Noteholders from claims,
state actions or other actions or
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proceedings of third parties which, if successfully pursued, would result
in a breach of any representation set forth in such Sale Agreement;
(j) it shall not, prior to the date which is one year and one day
after the termination of the Indenture, acquiesce, petition or otherwise
invoke or cause any other person to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against, or appointment of a receiver for, the Trust under any Federal or
state bankruptcy, insolvency or similar law;
(k) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure
to pay any such taxes, assessments and governmental charges would, after
any applicable grace periods, result in a lien on the Intangible
Transition Property or related assets;
(l) except as otherwise expressly permitted, the Grantee shall not
waive, amend, modify, supplement or terminate any Basic Document or any
provision thereof without the written consent of the Trust;
(m) without derogating from the absolute nature of the assignment
granted to the Trust under the Sale Agreement or the rights of the Trust,
the Grantee will not, without the prior written consent of the Trust,
amend, modify, waive, supplement, terminate or surrender, or agree to any
amendment, modification, supplement, termination, waiver or surrender of,
the terms of any collateral securing the Notes or the Basic Documents, or
waive timely performance or observance by Illinois Power or the Servicer
under the Grant Agreement or the Servicing Agreement, respectively;
(n) it shall promptly notify the Trust, in writing, of each default
hereunder and each default on the part of Illinois Power or the Servicer of
their respective obligations under the Grant Agreement or the Servicing
Agreement;
(o) the Grantee will not elect, nor cause or permit the Trust to
elect, to be classified as an association taxable as a corporation for
federal income tax purposes; and
(p) the Grantee shall conduct its affairs separate from those of its
members or affiliates.
In addition, so long as any of the Notes are outstanding, the Grantee
will covenant in each Sale Agreement that it shall not, except as otherwise
permitted thereunder:
(a) sell, transfer, exchange or otherwise dispose of any of its
properties or assets;
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(b) take any action that would be inconsistent with the Trust's
absolute and first priority ownership interest in the Intangible Transition
Property or related assets;
(c) engage in any business other than acquiring, owning, financing,
transferring, assigning and otherwise managing the Intangible Transition
Property and related assets;
(d) incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness;
(e) make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, or any other interest in, or
make any capital contribution to, any other person; and
(f) make any expenditure (by long-term or operating lease or
otherwise) for capital assets (either realty or personalty) in an aggregate
amount not to exceed $25,000 in any calendar year.
AMENDMENT OF SALE AGREEMENTS
Each Sale Agreement may be amended from time to time by the Grantee
and the Trust, with prior written notice given to the Rating Agencies and the
prior written consent of the Indenture Trustee, but without the consent of any
of the Noteholders, to cure any ambiguity, to correct or supplement any
provisions in such Sale Agreement or for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions in such
Sale Agreement or of modifying in any manner the rights of the Noteholders;
PROVIDED, HOWEVER, that such action shall not, as evidenced by an officer's
certificate delivered to the Indenture Trustee, adversely affect in any
material respect the interests of any Noteholder.
Each Sale Agreement may also be amended from time to time by the
Grantee and the Trust, with prior written notice given to the Rating Agencies
and the prior written consent of the Indenture Trustee and Noteholders holding
not less than a majority in principal amount of the then outstanding Notes of
all Series affected thereby, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Sale
Agreement or of modifying in any manner the rights of the Noteholders; PROVIDED,
HOWEVER, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, IFC Collections relating to the
IFC Charges, or (b) reduce the percentage of the outstanding principal amount of
the
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Notes, the Noteholders of which are required to consent to any such
amendment, without the consent of the Noteholders of all the outstanding Notes.
INDEMNIFICATION OBLIGATIONS OF THE GRANTEE
Each Sale Agreement will provide that the Grantee will indemnify the
Trust, the Indenture Trustee, the Delaware Trustee and the Noteholders, and each
of their respective officers, directors, employees and agents for, and defend
and hold harmless each such person from and against, (a) any and all taxes
(other than any taxes imposed on the Noteholders) that may at any time be
imposed on or asserted against any such person as a result of the grant of the
Intangible Transition Property to the Grantee, or that may be imposed on or
asserted against any such person under existing law as of the closing date as a
result of the Grantee's ownership and assignment of the Intangible Transition
Property, the Trust's issuance and sale of the Notes, or the other transactions
contemplated herein, including, in each case, any sales, gross receipt, general
corporation, tangible personal property, privilege or license taxes (but
excluding any taxes imposed as a result of a failure of such person to properly
withhold or remit taxes imposed with respect to payments on any Note); (b) any
and all liabilities, obligations, losses, claims, actions, suits, damages,
payments, and reasonable costs or expenses, of any kind whatsoever that may be
imposed on, incurred by or asserted against any such person as a result of the
Grantee's willful misconduct, bad faith or gross negligence in the performance
of (or reckless disregard of) its duties or observance of its covenants under
each Sale Agreement, or (c) the Grantee's breach of any of its representations
or warranties contained in each Sale Agreement. The indemnities described above
will survive the termination of such Sale Agreement and include reasonable fees
and expenses of investigation and litigation (including reasonable attorneys'
fees and expenses).
Notwithstanding the foregoing, but subject to the Grantee's
covenant to fully preserve, maintain and protect the interests of the Trust
in the Intangible Transition Property, the Grantee shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not
be incidental to its obligations under each Sale Agreement.
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CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE
AND YIELD CONSIDERATIONS
The rate of principal payments on each Class of Notes, the aggregate
amount of each interest payment on each Class of Notes and the actual maturity
date of each Class of Notes might be related, in part, to the rate and timing of
receipt of IFC Collections. Accelerated receipts of IFC Collections will not
result in principal payments on the Notes earlier than the dates in the Expected
Amortization Schedule since receipts in excess of the amounts necessary to make
any Scheduled Payment on the Notes will be deposited in the Reserve Subaccount
for distribution in accordance with such schedule, except in the event of an
early redemption or the acceleration of the maturity of the Notes after an Event
of Default, in which event such amounts will be released to pay such accelerated
amounts. However, delayed receipts of IFC Collections may result in principal
payments on the Notes that occur later than the related Expected Maturity Dates.
The actual payments on each date for each Class of Notes and the
weighted average life thereof will be affected primarily by the rate of IFC
Collections and the timing of receipt of such IFC Collections, as well as
amounts available in the Reserve Subaccount, the Overcollateralization
Subaccount and the Capital Subaccount. Since each IFC Charge will consist of a
charge per kilowatt hour of usage by the applicable class of Customers, the IFC
Collections and the rate of principal amortization on the Notes might depend, in
part, on actual electricity usage by Customers and the rate of delinquencies and
write-offs, including any defaults or delays in remitting by ARES who are
allowed to collect IFC Charges from Customers on behalf of the Servicer.
Although the amounts of the IFC Charges will be adjusted from time to time based
in part on the actual rate of IFC Collections, no assurances are given that the
Servicer will be able to forecast accurately actual energy usage and the rate of
delinquencies and write-offs or implement adjustments to the IFC Charges that
will cause IFC Collections to be received at any particular rate. See "Risk
Factors -- Limit on Amount of Intangible Transition Property Available to Pay
Notes," " -- Potential Servicing Issues," " -- Uncertainties Related to
the Electric Industry Generally,"and " -- Possibility of Shrinking Customer
Base," and "Description of the Intangible Transition Property -- Adjustments to
Instrument Funding Charges." If IFC Collections are received at a slower rate
than expected, a Note may be retired later than expected. Because principal will
only be paid at a rate not faster than that contemplated in the Expected
Amortization Schedules, except in the event of an early redemption or the
acceleration of the maturity of the Notes after an Event of Default, the Notes
are not expected to mature earlier than scheduled. A payment on a date that is
earlier than forecasted will result in a shorter weighted average life, and a
payment on a date that is later than forecasted will result in a longer weighted
average life.
No assurances are given that the representations made herein and in
the Prospectus Supplement as to the particular factors that will affect the
rate of IFC Collections, the relative importance of such factors, the
percentage of the principal balance of the Notes that will be paid as of any
date or the overall rate of IFC Collections will be realized.
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<PAGE>
In addition, pursuant to the terms of the Indenture, any Series of
Notes may be redeemed on any Payment Date if, after giving effect to payments
that would otherwise be made on such date, the outstanding principal balance of
such Series of Notes has been reduced to less than five percent of the initial
principal balance thereof. If specified in the Prospectus Supplement related to
any Series or Class of Notes, the Indenture may also permit the redemption of
any such Series or Class of Notes in full on any Payment Date on or prior to
December 31, 2004 using proceeds received from the refinancing of any other
Series or Class of Notes, through the issuance of New Notes. The New Notes will
be payable solely out of the Intangible Transition Property and other Note
Collateral. Redemption will cause such Notes to be retired earlier than would
otherwise be expected and may adversely affect the yield to maturity of the
Notes. There can be no assurance as to whether any Series of Notes will be
redeemed, or as to whether Noteholders will be able to receive an equally
attractive rate of return upon reinvestment of the proceeds resulting from any
such redemption.
THE TRUST
The Trust will be a statutory business trust formed under the laws of
the State of Delaware pursuant to the Trust Agreement to be executed by the
Delaware Trustee and the Beneficiary Trustees (the Delaware Trustee and the
Beneficiary Trustees herein collectively referred to as the "Trustees"). The
Trust will not be an agency or instrumentality of the State of Illinois.
Pursuant to the terms of the Trust Agreement, the Trust will be created for the
specific purpose of acquiring and owning the Intangible Transition Property and
the other Note Collateral, issuing and registering the Notes, pledging its
interest in the Intangible Transition Property and other Note Collateral
pursuant to the terms of the Indenture, making payments on the Notes,
distributing amounts released to the Trust and performing other activities that
are necessary, suitable or convenient to accomplish these purposes. The Trust
Agreement will not permit the Trustees to engage in any activities not directly
related to the Note financing.
The assets of the Trust will consist of the Intangible Transition
Property, the other Note Collateral, and any money retained by the Delaware
Trustee on behalf of the Trust to fund the Capital Subaccount. For a
description of the Notes to be issued by the Trust, see "Description of the
Notes."
As of the date of this Prospectus, the Trust has not carried on
any business activities and has no operating history. Audited financial
statements of the Trust are included as an exhibit to this Prospectus. The
fiscal year of the Trust will be the calendar year.
The Trust's business will be managed by the Delaware Trustee. Under
the terms of the Trust Agreement, the Delaware Trustee must at all times be:
(1) a corporation satisfying the provisions of Section 3807(a) of the Delaware
Business Trust Act; (2)
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authorized to exercise corporate trust powers; (3) have a combined capital
and surplus of at least $50,000,000 and be subject to supervision or
examination by federal or state authorities; and (4) have, or have a
corporate parent which has, a long-term unsecured debt rating of at least
"BBB-" by S&P and at least "Baa3" by Moody's. If the Delaware Trustee at any
time fails to satisfy these provisions, if a receiver is appointed for it, if
it is adjudged bankrupt or if it is otherwise incapable of acting, it will be
removed by the Servicer and the Servicer will appoint a successor Delaware
Trustee, which must also meet the requirements described above.
The Delaware Trustee and the Servicer may jointly appoint a co-trustee
for the purpose of meeting any legal requirements of any state in which any part
of the estate of the Trust may be located. This co-trustee need not meet the
requirements described in the previous paragraph.
The authority of the Beneficiary Trustees under the Trust Agreement is
limited to the performance of the following duties: (1) to execute and file the
Registration Statement of which this Prospectus is a part, and to file any
supplements, amendments and exhibits to this Registration Statement; (2) to
register the Notes with applicable state securities commissions, and (3) to take
any necessary or appropriate related actions. The following two people have
been named as the Beneficiary Trustees in the Trust Agreement:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Cynthia G. Steward 40 Beneficiary Trustee
Eric B. Weekes 46 Beneficiary Trustee
</TABLE>
Cynthia G. Steward will be a Beneficiary Trustee of the Trust. Ms.
Steward has been employed by Illinois Power since 1980. She has held the
position of Controller since September 1995. Prior to being elected Controller,
Ms. Steward held positions as Manager of Employee Services and Director of
Accounting.
Eric B. Weekes will be a Beneficiary Trustee of the Trust. Mr. Weekes
is Treasurer of Illinois Power and has held that position since January 1997.
Prior to being employed by Illinois Power, Mr. Weekes was employed by a unit of
Kraft Foods as Director of Financial Analysis, Budgets and Controls. Prior to
being employed by Kraft Foods, Mr. Weekes was employed by General Foods and
subsidiary companies in several financial management positions.
As of the date of this Prospectus, none of the Trustees have received
any compensation for their services. The Beneficiary Trustees will not be
compensated by the Trust for their services on behalf of the Trust. The
Delaware Trustee will be paid from the assets of the Trust and will be
reimbursed for its reasonable expenses, including, without limitation, the
reasonable compensation, expense and disbursements of any agents,
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<PAGE>
representatives, experts and counsel the Delaware Trustee employs in connection
with performance of its duties under the Trust Agreement.
The Trust Agreement provides that neither the Beneficiary Trustees nor
the Delaware Trustee shall be liable under any circumstances except for
liabilities arising from: (1) such Trustee's grossly negligent action; (2) such
Trustee's negligent failure to act; (3) such Trustee's own willful misconduct;
or (4) the inaccuracy of any representation or warranty made by such Trustee in
its individual capacity to the Grantee. The Trust Agreement also provides that
the Servicer shall indemnify each of the Delaware Trustee, the Beneficiary
Trustee and their successors, assigns, agents and servants to the fullest extent
permitted by law against any liability incurred with respect to their services
under the Trust Agreement.
The Trust Agreement provides that the Trust shall terminate on the
earlier of: (1) final distribution of all money and other property of the Trust
in accordance with the Trust Agreement and other Note financing documents; (2)
December 31, 2020; or (3) if the Grantee elects, the day following the date when
the aggregate outstanding amount of the Notes is zero. The Grantee is not
entitled to revoke or terminate the Trust prior to this date. Any funds
remaining in the Trust after this termination date are to be distributed to the
Grantee.
Under the Trust Agreement, the Trust may not file a voluntary petition
for relief under the bankruptcy Code or under any other federal or state
bankruptcy or insolvency law, nor may the Grantee, Delaware Trustee or any
Beneficiary Trustee take such action on behalf of the Trust, prior to one year
after the termination of the Trust.
The principal place of business of the Trust is c/o First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801 and its telephone number is (302) 888-7532.
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<PAGE>
THE GRANTEE
The Grantee, Illinois Power Securitization Limited Liability Company,
a special purpose Delaware limited liability company, the sole member of which
is Illinois Power, was organized on September 10, 1998 for the principal
purposes of (a) initially owning the Intangible Transition Property established
by the Transitional Funding Orders, (b) entering into a Servicing Agreement with
the Servicer in respect of the Intangible Transition Property, (c) assigning all
of its right, title and interest in the Intangible Transition Property and the
Servicing Agreement to the Trust, and (d) engaging in only those other
activities incidental thereto and necessary, suitable or convenient thereto. In
addition, the Grantee's limited liability company agreement require it to
operate in a manner such that it should not be consolidated in the bankruptcy
estate of Illinois Power in the event Illinois Power becomes subject to such a
proceeding.
The executive offices of Grantee are located at 500 South 27th Street,
Decatur, Illinois 62521, and its telephone number is (217) 450-2435.
The Grantee is a recently formed special purpose limited liability
company and, as of the date of this Prospectus, the Grantee has not carried on
any business activities and has no operating history. Audited financial
statement of the Grantee are included as an exhibit to this Prospectus.
MANAGERS AND OFFICERS
In accordance with the Amended and Restated Limited Liability Company
Agreement of the Grantee, the management of the Grantee shall be vested entirely
in the Management Committee.
The following is a list of the managers of the Grantee. All such
persons have served in the capacities set forth below since _____________,
1998. The officers and managers will devote such time as is necessary to the
affairs of the Grantee. The Grantee will have sufficient officers, managers and
employees to carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Elizabeth S. Eldridge 32 Manager
Douglas K. Johnson 41 Manager
Daniel L. Mortland 49 Manager
Cynthia G. Steward 40 Manager
Eric B. Weekes 46 Manager
</TABLE>
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Elizabeth S. Eldridge is a Manager of the Grantee. From 1995 to the
present, Ms. Eldridge has held the position of Vice President of AMACAR Group,
LLC, a firm specializing in securitization consulting and services support.
Prior to that, from 1993 to 1995, Ms. Eldridge was an Assistant Vice President
at First Union National Bank specializing in securitization transactions.
Douglas K. Johnson is a Manager of the Grantee. From 1995 to the
present, Mr. Johnson has held the position of Chief Executive Officer of AMACAR
Group, LLC, a firm specializing in securitization consulting and services
support. From 1994 to 1995, Mr. Johnson was Managing Director of the Asset
Securitization Department of First Union Capital Markets. Prior to that, from
1990 to 1994, Mr. Johnson was Managing Director of the Asset-Backed Markets
Division of First Chicago NBD where he managed the distribution of asset-backed
transactions.
Daniel L. Mortland is a Manager of the Grantee. Mr.. Mortland has
been employed by Illinois Power since 1979. He has held the position of
Assistant Treasurer since January 1994. Prior to being appointed Assistant
Treasurer, he held positions as Director - Financial Planning and Administrator
- - Financial Planning.
Cynthia G. Steward is a Manager of the Grantee. Ms. Steward has been
employed by Illinois Power since 1980. She has held the position of Controller
since September 1995. Prior to being elected Controller, Ms. Steward held
positions as Manager of Employee Services and Director of Accounting.
Eric B. Weekes is a Manager of the Grantee. Mr.. Weekes is Treasurer
of Illinois Power and has held that position since January 1997. Prior to being
employed by Illinois Power, Mr.. Weekes was employed by a unit of Kraft Foods as
Director of Financial Analysis, Budgets and Controls. Prior to being employed
by Kraft Foods, Mr.. Weekes was employed by General Foods and Subsidiary
companies in several financial management positions.
No compensation has been paid by the Grantee to any officer or
manager of the Grantee since the Grantee was formed. The officers and
managers of the Grantee, other than the two managers who are independent
from Illinois Power (the "Independent Managers"), will not be compensated by
the Grantee for their services on behalf of the Grantee; however, pursuant to
the Administration Agreement, the Grantee will reimburse Illinois Power for
the services of those officers and managers who are also employees of
Illinois Power. The initial compensation for both of the Independent
Managers will be $7,500. Any officer will serve in such capacity at the
discretion of the Grantee's Management Committee. Illinois Power is an
affiliate of the Grantee. The Grantee's organizational documents limit, to
the extent permitted by Delaware law, the personal liability of each officer
and manager of the Grantee to the Grantee for monetary damages resulting from
breaches of such officer's or manager's duty of care. The Grantee's
organizational documents provide that officers and managers of the Grantee
shall be
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indemnified against liabilities incurred in connection with their
services on behalf of the Grantee.
THE SERVICER
GENERAL
Illinois Power is engaged principally in the production, purchase,
transmission, distribution and sale of electricity and the distribution,
transportation and sale of natural gas, in the State of Illinois. Its service
area comprises approximately 15,000 square miles in northern, central and
southern Illinois. Illinois Power provides electric service at retail in 310
incorporated municipalities, adjacent suburban areas and numerous unincorporated
areas having an estimated aggregate population of 1,265,000. Illinois Power
provides gas service at retail in 257 incorporated municipalities, adjacent
suburban areas and numerous unincorporated areas having an estimated aggregate
population of 920,000. The larger cities which Illinois Power serves are
Decatur, East St. Louis (gas service only), Champaign, Danville, Belleville,
Granite City, Bloomington (electric service only), Galesburg, Urbana and Normal
(electric service only).
Illinois Power is regulated by the ICC and by the FERC.
ILLINOIS POWER CUSTOMER BASE, ELECTRIC ENERGY CONSUMPTION AND BASE RATES
Illinois Power's retail customer base is comprised of four revenue
reporting classes (each, a "Reporting Customer Class"): residential,
commercial, industrial and municipal customers. Residential customers
(including farms) are served on Illinois Power's Service Classifications
("SC") 2 and 3. Small commercial customers are served on SC 10, 12 (grain
drying usage), 13 (unmetered service), 14 (schools) and 15 (religious
facilities). Larger commercial and small industrial customers are generally
served on SC 11, 19 and 21. Large industrial customers are generally served
on SC 24 and 26 (firm service) and SC 30 and 35 and Rider S (non-firm
service). Optional day-ahead Real-Time Pricing Service is available to
non-residential customers under Riders DA-RTP and DA-RTP-II. Outdoor
lighting service is provided under SC 39. Municipal customers are served on
SC 41, 42 and 45. Standby service for customer-owned generating facilities
is provided under SC 22. In addition, a number of commercial and industrial
customers take service under individually negotiated contracts, including
contracts entered into pursuant to SC 29 (Economic Development Service) and
Riders ECS and ECS Plus. Under Illinois law (and in contrast to "contract
service" and other competitive services as defined in Section 16-102 which
was added to the Act by the Amendatory Act), these contracts are considered
tariffs.
The Reporting Customer Classes are broad groups that include accounts
with a wide range of load characteristics served under a variety of rate
designs. In order to align the per-kilowatt-hour IFC Charges with the
electricity rate currently paid by a Customer more closely than would occur
using the Reporting Customer Classes or the current
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service classifications, each Transitional Funding Order will provide that
for purposes of billing IFC Charges, Illinois Power's customer base will be
divided into the following seven (7) customer classes (each, an "IFC Customer
Class") set forth below, and that the total IFC charges billed for each
Applicable Period shall be allocated among the IFC Customer Classes on the
basis of their respective percentages of the 1996 base rate revenues of
Illinois Power also set forth below. See "Description of the Intangible
Transition Property -- Adjustments to Instrument Funding Charges."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage of
1996 Base Rule
IFC Customer Class Description Revenues
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential SC 2 and 3 43.7%
- --------------------------------------------------------------------------------
Small Commercial SC 10, 11, 12, 13, 14 and
15 4.6%
- --------------------------------------------------------------------------------
Large Commercial SC 11 and 19 24.0%
- --------------------------------------------------------------------------------
Municipal SC 41, 42 and 45 3.0%
- --------------------------------------------------------------------------------
Industrial Firm SC 21, 22 and 29 8.0%
- --------------------------------------------------------------------------------
Industrial High Load SC 24 and 26 15.2%
Factor Firm
- --------------------------------------------------------------------------------
Industrial Non-Firm SC 30, 35 and 37 1.5%
- --------------------------------------------------------------------------------
</TABLE>
However, the IFC Tariff authorized by the Transitional Funding Order
will provide that if the IFC Charges for any Customer Class increase to an
amount such that the forecasted revenues from Applicable Rates for such IFC
Customer Class during an Applicable Period are projected to be less than the IFC
Charges allocated to such IFC Customer Class for the same period, the deficiency
shall be ratably allocated among the remaining IFC Customer Classes based on
their percentages of the 1996 base rate revenues, recalculated to exclude such
IFC Customer Class.
The table below shows the billed electricity sales in megawatt
hours, billed revenues, average number of customers and average billed
revenues per kilowatt-hour, for each of the four (4) Reporting Customer
Classes for the first six months of 1998 and each of the five (5) preceding
years. Any updated information relating to the table below will be set forth
in a Prospectus Supplement. There can be no assurances that the electricity
sales, billed revenues, number of customers, average billed revenues per
kilowatt hour or the composition of any of the foregoing will remain at or
near the levels reflected in the following table:
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BILLED ELECTRICITY SALES, BILLED REVENUES AND CUSTOMERS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ----------- ----------- ---------- ----------- -------------
(1st 6 months)
<S> <C> <C> <C> <C> <C> <C>
BILLED ELECTRICITY SALES (MW HOURS):
Residential. . . . . . . . . . . . . . 4,600,145 4,534,601 4,744,598 4,771,417 4,704,198 2,248,752
Commercial . . . . . . . . . . . . . . 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 1,936,192
Industrial . . . . . . . . . . . . . . 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 4,218,773
Municipal. . . . . . . . . . . . . . . 316,626 345,734 366,990 367,033 367,893 188,812
-------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 8,592,529
BILLED REVENUES ($000s):
Residential. . . . . . . . . . . . . . 442,611 467,777 497,669 483,708 490,035 222,162
Commercial . . . . . . . . . . . . . . 255,764 296,795 318,731 316,341 327,466 151,359
Industrial . . . . . . . . . . . . . . 340,957 370,824 387,966 356,985 381,339 175,690
Municipal. . . . . . . . . . . . . . . 23,954 25,014 25,553 25,151 25,863 12,079
-------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . 1,063,286 1,160,410 1,229,919 1,182,185 1,224,703 561,290
AVERAGE NUMBER OF CUSTOMERS:
Residential. . . . . . . . . . . . . . 499,366 494,156 490,727 495,855 497,085 505,440
Commercial . . . . . . . . . . . . . . 56,801 56,378 56,180 56,792 57,041 57,923
Industrial (1) . . . . . . . . . . . . 409 340 249 254 251 254
Municipal. . . . . . . . . . . . . . . 7,617 2,978 4,655 4,735 4,786 4,912
-------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . 557,293 553,852 551,811 557,636 559,163 568,529
AVERAGE BILLED REVENUE (CENTS PER KILOWATT-HOUR):
Residential. . . . . . . . . . . . . . 9.62 10.32 10.49 10.14 10.42 9.88
Commercial . . . . . . . . . . . . . . 7.83 8.28 8.42 8.16 8.36 7.82
Industrial . . . . . . . . . . . . . . 4.18 4.30 4.48 4.25 4.52 4.16
Municipal. . . . . . . . . . . . . . . 7.57 7.24 6.96 6.85 7.03 6.40
-------------------------------------------------------------------------------------
</TABLE>
(1) The decline in number of Industrial customers from 1993 to 1995 reflects a
change in Illinois Power's procedures for reporting number of customers.
Previously, each metered account was reported as a separate customer. Beginning
in 1994, separate metered accounts at the same premises are reported as a single
customer.
Principal factors influencing the number and electricity usage
of residential customers include population growth, weather (I.E., air
conditioning usage and, to a lesser extent, electric space heat usage),
price, increased saturation of electric appliances, the availability of more
energy-efficient appliances, changes in technology, and customer income.
Principal factors influencing the number and electricity usage of commercial
customers (which consist primarily of wholesale and retail trade
establishments) include population growth, service area economic growth,
commercial floor space and commercial employment. Principal factors
influencing industrial electricity usage include overall economic activity,
developments in processes and technologies using electricity, and increases
in the efficiency with which industrial processes use electric energy. The
principal factors influencing municipal electricity usage are similar to
those which influence commercial usage.
For the year ended December 31, 1997, the 10 largest Customers
represented approximately 11.6% of Illinois Power's billed revenues. There can
be no
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assurance that current Customers will remain Customers or that the levels
of Customer concentration in the future will be similar to those set forth
above.
The table below shows the average revenue in cents per
kilowatt-hour for the twelve months ended December 31, 1997 for fully bundled
services provided by Illinois Power to customers in each of the seven (7) IFC
Customer Classes, based on tariffs then in effect but taking into account the
fifteen percent (15%) reduction in base rates for services charged to
residential retail customers (based on Illinois Power's rates in effect
immediately prior to January 1, 1998), effective as of August 1, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE REVENUE IN CENTS
PER KILOWATT-HOUR FOR
IFC CUSTOMER CLASS FULLY-BUNDLED SERVICES(1)
- --------------------------------------------------------------------------------
<S> <C>
Residential 8.15 CENTS
- --------------------------------------------------------------------------------
Small Commercial 9.84 CENTS
- --------------------------------------------------------------------------------
Large Commercial 7.43 CENTS
- --------------------------------------------------------------------------------
Municipal 8.77 CENTS
- --------------------------------------------------------------------------------
Industrial Firm 5.78 CENTS
- --------------------------------------------------------------------------------
Industrial High Load Factor Firm 4.59 CENTS
- --------------------------------------------------------------------------------
Industrial Non-Firm 1.40 CENTS
- --------------------------------------------------------------------------------
</TABLE>
________________________
(1) Based on 1997 revenues excluding late charges, decommissioning charges,
add-on revenue taxes, charges for manufactured gas plant remediation costs,
and fuel adjustment charges and credits. In addition, the 1997 Residential
revenue per kilowatt-hour of 10.09 cents was reduced by 15% to represent
the rate reduction effective August 1, 1998. The resulting 1997 average
revenue per kilowatt-hour figures were further reduced by 0.31 cents per
kilowatt-hour to reflect the March 1998 base rate reduction associated with
elimination of Illinois Power's fuel adjustment clause.
Beginning October 1, 1999, Illinois Power will be required to offer
to certain non-residential customers in its service area delivery services
through which the customer can purchase electricity from other suppliers. By
May 1, 2002, Illinois Power will be required to offer delivery services to
all retail customers in its service area. Customers electing to take
delivery services and purchasing their electricity from other suppliers will
be required to pay Illinois Power delivery services charges and, until no
later than December 31, 2006 (unless extended by the ICC on petition by
Illinois Power), transition charges. The average charge per kilowatt-hour to
a customer taking only delivery services from Illinois Power is expected to
be significantly lower than the average revenue per kilowatt-hour shown in
the immediately preceding table. See "Electric Restructuring in Illinois --
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Amendatory Act Overview" and "Risk Factors -- Reduction in Amount of Revenues
from Applicable Rates."
FORECASTING ELECTRICITY CONSUMPTION
Illinois Power historically has prepared annual forecasts of electric
energy (kilowatt-hour) sales for the following year and several years
thereafter. The principal uses of the electric energy forecasts have been for
shorter-term budgeting and rate-setting purposes. Illinois Power has also
prepared longer-term forecasts of customer peak demand and energy consumption,
primarily for use in facilities planning. Illinois Power most recently updated
its electric energy forecasting models in 1997. Econometric models were
developed for use in forecasting electric energy sales to the residential,
commercial and industrial customer classes. These econometric models forecast
electric energy sales as a function of electricity price, income, employment,
weather and other economic factors that influence electricity sales. Known and
measurable industrial plant additions, expansions and closures are incorporated
into the electricity sales projections, based on information obtained by account
managers assigned to the larger customer accounts. Illinois Power uses economic
and demographic forecasts prepared by an independent economic forecasting and
consulting firm employed by Illinois Power separately from any transaction
contemplated by this Prospectus as inputs to its forecasting models. Weather
inputs to the forecasting models are based on "normal" weather conditions which
are based on twenty-year averages for heating and cooling degree days.
FORECAST VARIANCES
Illinois Power conducts sales forecast variance analyses on a regular
basis to monitor how well forecasts track recorded consumption. This is
important for short-term resource procurement functions as well as for budgeting
and financial reporting. In addition, Illinois Power will use its annual sales
forecast to determine the appropriate levels of IFC Charges from time to time.
As a result, Illinois Power's ability to accurately predict energy consumption
may affect the timing of IFC Payments.
Since Illinois Power updates its forecast on an annual basis, the
table below shows annual variances for forecasts prepared for one year in the
future. For example, the 1993 annual variance is based on a forecast prepared
in 1992. The annual variances for the aggregate combined Reporting Classes
referred to in the table below, which consist of all Reporting Customer Classes,
range from a low of 0.81% to a high of 2.64% in absolute terms. Any updated
information relating to the table below will be set forth in a Prospectus
Supplement. There can be no assurance that the future variance between
actual and expected consumption in the aggregate or by Reporting Customer
Class will be similar to the historical experience set forth below.
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<PAGE>
<TABLE>
<CAPTION>
ANNUAL FORECAST VARIANCES
-------------------------------------------------------------------------------------
ELECTRICITY SALES (MILLIONS
OF KILOWATT-HOURS) 1993 1994 1995 1996 1997 1998 (1)
- ----------------------------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Forecast . . . . . . . . . . 4,541,195 4,603,481 4,691,053 4,725,547 4,787,546 2,255,653
Actual . . . . . . . . . . . 4,600,145 4,534,601 4,744,598 4,771,417 4,704,198 2,248,752
Variance . . . . . . . . . . 1.30% -1.50% 1.14% 0.97% -1.74% -0.31%
COMMERCIAL
Forecast . . . . . . . . . . 3,170,922 3,306,498 3,709,448 3,832,250 3,930,531 1,831,251
Actual . . . . . . . . . . . 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 1,936,192
Variance . . . . . . . . . . 2.96% 8.38% 2.05% 1.15% -0.29% 5.73%
INDUSTRIAL
Forecast . . . . . . . . . . 8,725,107 8,651,994 8,541,865 8,359,181 8,515,235 4,206,599
Actual . . . . . . . . . . . 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 4,218,773
Variance . . . . . . . . . . -6.55% -0.35% 1.32% 0.47% -0.85% 0.29%
MUNICIPAL
Forecast . . . . . . . . . . 340,331 320,744 348,259 356,847 379,566 270,009
Actual . . . . . . . . . . . 316,626 345,734 366,990 367,033 367,893 188,812
Variance . . . . . . . . . . -6.97% 7.79% 5.38% 2.85% -3.08% -30.07%
TOTAL
Forecast . . . . . . . . . . 16,777,555 16,882,717 17,290,625 17,273,825 17,612,878 8,563,512
Actual . . . . . . . . . . . 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 8,592,529
Variance . . . . . . . . . . -2.64% 1.20% 1.51% 0.81% -1.02% 0.34%
</TABLE>
(1) First six months
Illinois Power's forecast understated actual electric energy sales in
three of the five years. During the five-year period, there was no discernible
trend in the annual forecast variance. Many factors can contribute to annual
variances between actual electricity sales and the amount of sales forecasted in
the preceding year, including weather conditions (I.E., if actual weather is
significantly hotter or cooler than "normal" weather) and economic conditions.
CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
Illinois Power's policies and procedures pertaining to credit
(including requirements for deposits from customers), billing, collections
(including procedures for disconnection of service for non-payment) and
restoration of service after disconnection, are subject to and controlled, to a
material extent, by Illinois statutory requirements, rules and regulations of
the ICC and Illinois Power's filed tariffs. These statutory provisions, ICC
regulations and tariffs may change from time to time. In addition, to the
extent permitted by statutory provisions and regulatory requirements, Illinois
Power may change its policies and procedures and seek approval of new tariffs
governing these activities from time to time. Therefore, there can be no
assurance that the policies and procedures described in the next four
subsections will not be changed during the period that Illinois Power is
acting as Servicer, either as a result of changes in statutory laws or
regulation or, to the extent permitted by law, by Illinois Power. Illinois
Power will agree, in each Grant Agreement and the Servicing Agreement, not to
initiate any such changes which are likely to adversely affect Illinois
Power's ability to make timely recovery of amounts billed to Customers,
except
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<PAGE>
for any such changes required by applicable law. Under the Servicing
Agreement, any such changes initiated by Illinois Power will also apply to
the servicing by Illinois Power, as the Servicer, of the Intangible
Transition Property.
CREDIT POLICY. Under Illinois law, Illinois Power is generally
required to provide service to all retail customers in its service area.
Illinois Power's review of the credit history of a new applicant for electric
service generally consists of a review to determine if the applicant has
previously received service from Illinois Power and, if so, whether there are
any delinquent billed amounts outstanding. Illinois Power relies on
information provided by the applicant, and on Illinois Power's customer
information system, to determine whether Illinois Power has previously served
the customer and whether any delinquent billed amounts are outstanding. In
accordance with ICC regulations, deposits may be required from certain
applicants for service or existing customer accounts to protect Illinois
Power against losses. Accounts from which deposits are most frequently
obtained are new commercial and industrial customers (I.E., applicants with
limited or no credit history), and residential customers with poor payment
histories (as defined in ICC regulations). However, under its current
policies and procedures, Illinois Power does not request a deposit from a
residential customer after the first 24 months of service. The maximum
allowable amount of the deposit is one-sixth of the projected annual billings
to the customer for residential and small business applicants or customers,
and one-third of projected annual billing for other non-residential
customers. One-third of a requested deposit must be paid by the customer
within 12 days and the balance within two billing periods. The deposit is
refunded to a new customer after one year if the customer has not been
disconnected for non-payment, and has not paid a bill after the due date more
than three times during the year. The deposit is refunded to an existing
customer after one year if the customer has not been disconnected for
non-payment, and has not paid a bill after the due date more than five times
during the year.
BILLING PROCESS. Illinois Power generally bills each customer once
every 27 to 33 days, with approximately an equal number of bills being
distributed each "Servicer Business Day" (any day other than a Saturday, a
Sunday or a day on which the Servicer's offices are not open for business).
Those customers receiving both electric service and gas service from Illinois
Power receive a combined bill for the charges incurred for both types of service
during the Billing Period. Approximately 58% of Illinois Power's electric
service customers also receive gas service from Illinois Power. For the year
ending December 31, 1997, Illinois Power mailed out an average of 32,000 bills
on each Servicer Business Day to customers in its various customer categories.
Certain larger customer accounts are billed at or near the end of the calendar
month.
For accounts with potential billing errors, exception reports are
generated for manual review. This review examines accounts that have
abnormally high or low bills, potential meter-reading errors, and possible
meter malfunctions.
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<PAGE>
Illinois Power may change its billing policies and procedures from
time to time. It is expected that any such changes would be designed to
enhance Illinois Power's ability to make timely recovery of amounts billed to
customers.
COLLECTION PROCESS. Illinois Power receives approximately 71% of
its total bill payments, by number of bills (both electric and gas), via the
United States mail. Approximately 25% of such bill payments are received
through third-party collection agents (such as currency exchanges, grocery
stores, banks and similar entities which offer payment of utility bills as a
convenience to their customers) and 4% are received electronically.
Bills are processed and mailed to customers one day after the
customer's meter is read. Bills are considered past due if not paid within
21 calendar days for residential accounts and within 14 calendar days for
commercial and industrial accounts. Payment is considered timely if received
by mail not more than two days after the due date. These payment periods are
established by ICC regulations. In accordance with statutory requirements
and regulations pertaining to procurement by governmental entities, certain
federal, State, county and municipal customers are allowed 62 days to make
net payment and, in addition, Illinois Power may be limited under Illinois
law in its ability to impose late payment charges on such Customers.
Customer payments are deposited in Illinois Power's bank accounts and posted
to customer accounts within one day after receipt by Illinois Power and
within two days after receipt by a third-party collection agent. Payments
are considered collected when posted to the customer's account.
Under Illinois law, Illinois Power must waive one late payment
charge incurred by a residential customer during each twelve-month period. A
reminder notice is mailed to the customer if payment has not been received on
the account by two days after the due date of the most recent bill. If
non-payment continues, a service disconnection notice may be sent to the
customer through operation of a scoring system calculated by Illinois Power's
customer information system. The scoring of an account for this purpose is
based on factors including the age of the arrearage and the customer's years
of service, non-sufficient funds payment history, and disconnection history.
When dictated by the scoring system, a service disconnection notice is mailed
to notify the customer of disconnection activity scheduled for seven days
(ten calendar days) after the date of the notice. If the scoring system does
not dictate initiation of a service disconnection notice, another reminder
notice is included with the customer's next bill.
Customers are entitled to enter into deferred payment arrangements
in accordance with statutory requirements, ICC regulations and Illinois
Power's filed tariffs. Such payment agreements allow the customer to make
partial payments, or to extend an arrearage, during periods of financial
hardship. Service disconnection is not implemented against a customer who has
entered into and is abiding by a payment agreement. In addition, Illinois
statutory law and ICC regulations prohibit electric utilities from
disconnecting service under certain conditions, such as when the temperature
is projected to be below 32 degrees Fahrenheit or on weekends and holidays.
Illinois Power may also
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<PAGE>
be subject to agreements with agencies administering the Low Income Home
Energy Assistance Fund which limits Illinois Power's ability to disconnect
service to customers with respect to whom Illinois Power is receiving payment
under that program.
Illinois Power sends an unpaid final account to an external collection
agency two days after the final bill due date. After 45 days with the collection
agency, an unpaid account is returned to Illinois Power and held for 15 days for
any possible delayed payments. An account is charged off as uncollectible if
payment is not received by 63 days after the final bill due date. The account
is then returned to a collection agency for a period of one year.
Illinois Power may change its collection policies and procedures from
time to time. It is expected that any such changes would be designed to enhance
Illinois Power's ability to make timely recovery of amounts billed to customers.
RESTORATION OF SERVICE. Before restoring service that has been
disconnected for non-payment, Illinois Power has the right to require payment of
all of the following charges: (a) the total amount owing on an account including
any past-due balances, and a credit deposit, if requested; (b) any miscellaneous
charges associated with the reconnection of service (I.E., reconnection charges
and/or returned check charges); (c) any charges assessed for unusual costs
incurred incidental to the disconnection or reconnection of service which have
resulted from the customer's actions or negligence; and (d) any unpaid amounts
from other accounts in the name of the customer of record.
Illinois Power may change its restoration of service policies and
procedures from time to time. It is expected that any such changes would be
designed to enhance Illinois Power's ability to make timely recovery of amounts
billed to customers.
LOSS AND DELINQUENCY EXPERIENCE
The following table sets forth information relating to Illinois
Power's total billed electric revenues and net write-off experience for each
Reporting Customer Class for the first six months of 1998 and each of the five
preceding years. Such historical information is presented herein because
Illinois Power's actual experience with respect to net write-offs and
delinquencies may affect the timing of IFC Payments. Any updated information
relating to the table below will be set forth in a Prospectus Supplement. There
can be no assurance that the future uncollectible experience in the aggregate or
by Customer Class will be similar to the historical experience set forth below.
In addition, to the extent that an ARES is providing consolidated billing for
Illinois Power, there is no assurance that such an ARES will apply the same
credit and collection policies to Customers as would be applied by Illinois
Power, as the Servicer.
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<PAGE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- --------------
(1st 6 months)
<S> <C> <C> <C> <C> <C> <C>
BILLED REVENUES ($000s):
Residential. . . . . . . . . . . . . . . . . . $442,611 $467,777 $497,669 $483,708 $490,035 222,162
Commercial . . . . . . . . . . . . . . . . . . 255,764 296,795 318,731 316,341 327,466 151,359
Industrial . . . . . . . . . . . . . . . . . . 340,957 370,824 387,966 356,985 381,339 175,690
Municipal. . . . . . . . . . . . . . . . . . . 23,954 25,014 25,645 25,151 25,863 12,079
-------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $1,063,286 $1,160,410 $1,229,919 $1,182,185 $1,224,703 $561,290
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- --------------
(1st 6 months)
<S> <C> <C> <C> <C> <C> <C>
NET ELECTRIC UNCOLLECTIBLES ($000s):
Residential. . . . . . . . . . . . . . . . . . $2,973 $5,267 $4,111 $5,135 $4,425 2,253
Commercial . . . . . . . . . . . . . . . . . . 426 859 461 621 557 248
Industrial . . . . . . . . . . . . . . . . . . 49 0 0 345 45 0
Municipal. . . . . . . . . . . . . . . . . . . 60 65 0 0 0 0
-------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $3,508 $6,191 $4,572 $6,101 $5,027 2,501
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- --------------
(1st 6 months)
<S> <C> <C> <C> <C> <C> <C>
NET ELECTRIC UNCOLLECTIBLES AS A PERCENTAGE
OF BILLED REVENUE
Residential. . . . . . . . . . . . . . . . . . 0.67% 1.13% 0.83% 1.06% 0.90% 1.01%
Commercial . . . . . . . . . . . . . . . . . . 0.17% 0.29% 0.14% 0.20% 0.17% 0.16%
Industrial . . . . . . . . . . . . . . . . . . 0.01% 0.00% 0.00% 0.10% 0.01% 0.00%
Municipal. . . . . . . . . . . . . . . . . . . 0.25% 0.26% 0.00% 0.00% 0.00% 0.00%
-------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . 0.33% 0.53% 0.37% 0.52% 0.41% 0.45%
</TABLE>
When accounts are billed final, most bills are due 21 days later. If
unpaid after such 21-day period, a series of letters will be issued and the
account reported to Illinois Power's skip tracing program for internal and
external matching. If still unpaid after 90 days since the bill issue date, the
account will be written off and automatically referred to a collection agency.
On a monthly basis, net write-offs are simply the gross write offs for
the month, less recoveries (payments and adjustments) for that month. Although
for the most part, the write-offs are accounts that have reached the 90-day
point during any particular month, recoveries, while received during such month,
could be for accounts charged off in any previous period.
During the five-year period 1993 through 1997, Illinois Power's net
electric uncollectible revenues and net electric uncollectible revenues as a
percentage of billed revenues showed no discernible trend.
DELINQUENCIES
The following table sets forth information relating to the delinquency
experience of Illinois Power for the residential, commercial and industrial
Reporting Customer Classes for the last six months of 1994, the years 1995
through 1997, and the first four months of 1988. The table shows the portion
of amounts billed in a calendar
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<PAGE>
month that was collected (a) within that same calendar month, (b) within the
next calendar month, and (c) within the second succeeding calendar month.
This historical information is presented because Illinois Power's actual
experience with respect to delinquent accounts may be indicative of the
delinquency experience for billings of IFC Charges. Any updated information
relating to the table below will be set forth in a Prospectus Supplement.
There can be no assurance that the future delinquency experience in the
aggregate or by Reporting Customer Class will be similar to the historical
experience set forth below.
RESIDENTIAL, COMMERCIAL, INDUSTRIAL DELINQUENCY DATA
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----------- --------- -------- --------- -----------
(Jun.-Dec.) (Jan.-Apr.)
<S> <C> <C> <C> <C> <C>
RESIDENTIAL:
Collected in:
Same Calendar Month 28.45% 30.40% 29.91% 30.38% 30.74%
Next Calendar Month 49.65% 46.65% 46.29% 45.84% 46.80%
2nd Calendar Month 7.50% 7.07% 7.17% 7.59% 7.22%
COMMERCIAL:
Collected in:
Same Calendar Month 38.68% 43.39% 43.19% 41.92% 40.92%
Next Calendar Month 47.64% 44.98% 44.04% 46.07% 46.16%
2nd Calendar Month 6.96% 6.53% 7.33% 7.34% 7.21%
INDUSTRIAL:
Collected in:
Same Calendar Month 41.81% 50.04% 46.63% 57.90% 60.37%
Next Calendar Month 36.81% 37.92% 38.47% 30.79% 31.53%
2nd Calendar Month 3.82% 2.03% 2.60% 2.62% 1.16%
AMOUNT ($)
RESIDENTIAL:
Total Amt. Billed 294,135,514 504,642,868 490,477,817 496,572,835 148,658,707
Collected in:
Same Calendar Month 83,681,648 153,416,246 146,725,159 150,877,723 45,697,963
Next Calendar Month 146,033,799 235,398,357 227,033,944 227,633,841 69,572,878
2nd Calendar Month 22,069,116 35,656,649 35,152,186 37,669,969 10,726,748
COMMERCIAL:
Total Amt. Billed 221,686,894 366,904,122 362,239,414 366,101,275 110,254,757
Collected in:
Same Calendar Month 85,759,238 159,201,104 156,443,822 153,481,825 45,121,365
Next Calendar Month 105,616,868 165,015,765 159,542,278 168,649,748 50,896,220
2nd Calendar Month 15,425,797 23,953,931 26,549,609 26,871,999 7,955,166
INDUSTRIAL:
Total Amt. Billed 269,362,403 425,420,064 415,788,855 447,190,755 122,456,875
Collected in:
Same Calendar Month 112,630,037 212,867,509 193,883,080 258,936,387 73,926,391
Next Calendar Month 99,160,362 161,332,079 159,967,091 137,668,954 38,608,755
2nd Calendar Month 10,302,459 8,650,908 10,810,301 11,724,623 1,421,795
</TABLE>
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<PAGE>
During the four-year period shown above, Illinois Power's delinquency
experience for electric billings showed no discernible trend.
YEAR 2000 ISSUES
Illinois Power uses various software, systems and technology
throughout its businesses that will be affected by the date change in the Year
2000, and any failure to address Year 2000 issues in a timely manner could
result in a material operational or financial risk. Illinois Power's approach to
addressing Year 2000 compliance issues is to upgrade or remediate software,
systems and technology that are not Year 2000 ready and that are not otherwise
being replaced in accordance with Illinois Power's business plans. Illinois
Power is in the process of replacing certain of its financial, human resources,
payroll, and customer service and billing software with new software that is
Year 2000 ready. In other cases, Illinois Power is upgrading or remediating
existing software to versions that are Year 2000 ready. Additionally, Illinois
Power is upgrading or remediating certain software and engineering systems in
its nuclear and fossil electricity generation facilities and in its electrical
gas transmission and distribution facilities. Illinois Power is also in the
process of evaluating whether Year 2000 compliance issues will affect any of its
key suppliers. The total cost of remediating or upgrading software and
engineering systems, that are not being replaced or upgraded in accordance with
business plans, is currently estimated to be approximately $19 million. The
schedule for the implementation of the Year 2000 ready software and systems
contemplates that such efforts will be over 50% complete by the end of 1998 and
that critical software and systems will be Year 2000 ready by the end of 1999.
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SERVICING
SERVICING PROCEDURES
The Servicer, on behalf of the Trust, will, among other things,
manage, service and administer, and make collections in respect of, the
Intangible Transition Property pursuant to the Servicing Agreement between the
Servicer and the Grantee. The Servicer's duties will also include filing IFC
Tariffs and revisions thereto with the ICC to provide for billing and collection
of the IFC Charges and the corresponding adjustments in other charges billed to
Customers, calculation and billing of all amounts based on the IFC Charges,
receipt and posting of all IFC Payments, responding to inquiries of Customers
and the ICC with respect to the Intangible Transition Property and the IFC
Charges, accounting for collections and furnishing monthly, quarterly and annual
statements to the Trust and the Indenture Trustee and taking action in
connection with periodic revisions to the IFC Charges as described below.
Pending deposit into the Collection Account, all IFC Payments received by the
Servicer may be invested by the Servicer at its own risk and for its own
benefit, and need not be segregated from other funds of the Servicer.
Each IFC Charge will be expressed as an amount per kilowatt-hour of
electricity sold or delivered to the applicable Customer, regardless of whether
the Customer purchases its electricity from Illinois Power or from another
electricity provider. However, in any Billing Period in which the total IFC
Charge to be billed to a Customer exceeds the amount of Applicable Rates for
which the Customer would otherwise be billed, the Servicer will only bill such
Customer an IFC Charge equal to the amount of Applicable Rates which the
Customer would otherwise be billed. The Servicer expects the aggregate amount
of the applicable IFC Charge to be separately identified on each Customer's bill
with an aggregate amount (which includes the applicable IFC Charges) to be paid
to the Servicer. Bills are sent to each Customer every 27 to 33 days.
Except as otherwise required by law with respect to taxes or similar
governmental charges included in bills and invoices to Customers, to the extent
that there is a shortfall in the amounts received by the Servicer from
(a) Customers it bills directly or (b) a third-party collection agent, including
an ARES, such shortfall will be allocated by the Servicer, in accordance with
the servicing standards set forth below, to the Trust and Illinois Power PRO
RATA, based on the amount of the Customer's bills constituting IFC Charges and
the amount constituting rates, other fees and charges not constituting IFC
Charges owed to Illinois Power or any successor (including charges for services
other than electric service, such as gas service, provided by Illinois Power),
or to a third party (such as taxes billed on behalf of the State of Illinois or
a municipality). If such amounts are billed and collected by Illinois Power for
an ARES pursuant to a consolidated billing arrangement, the total charges due to
the ARES will also be included in the proportional allocation of any partial
payment. In the event that an ARES or another Utility provides consolidated
billing to Customers for both the services provided by such ARES or other
Utility and delivery services provided by Illinois Power, partial payments made
to an ARES by such Customers are required by the Amendatory Act to be credited
first to amounts due to Illinois Power's tariffed services
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<PAGE>
(including IFC Charges collected on behalf of Noteholders), and the Servicer
will allocate such payments between the Trust and Illinois Power as otherwise
described above. Unless the Servicer is not the provider of electric service
to Customers, the Servicer will be entitled to disconnect service to any
Customer who fails to pay IFC Charges billed on behalf of the Trust in
accordance with the ICC's regulations and other applicable law pertaining to
disconnections, in the same manner as the Servicer may disconnect the
Customer for failure to pay any charges for tariffed service billed thereby.
In addition, the Servicer will agree to advance its own funds in order
to institute any action or proceeding necessary to compel performance by the ICC
or the State of Illinois of any of their obligations or duties under the Funding
Law, any Transitional Funding Order or any IFC Tariff, and to take such legal or
administrative actions, including defending against or instituting and pursuing
legal actions and appearing or testifying in hearings or similar proceedings, as
may be reasonably necessary to block or overturn any attempts to cause a repeal,
modification, reversal or supplement to the Amendatory Act, the Funding Law or
the Transitional Funding Order or the rights of holders of Intangible Transition
Property, by legislative enactment or otherwise, that would be adverse to the
Grantee, the Trust or any Noteholders. The Servicer would be entitled to
reimbursement of its expenses advanced by it in connection with such action or
proceeding as an operating expense of the Trust in accordance with the priority
of payments as described in "Security for the Notes -- Allocations; Payments."
SERVICING STANDARDS AND COVENANTS
The Servicing Agreement will require the Servicer, in servicing and
administering the Intangible Transition Property, to employ or cause to be
employed procedures and exercise the same care it customarily employs and
exercises in servicing and administering bill collections for its own account.
Consistent with the foregoing, in addition to certain requirements
described in "The Servicer -- Credit Policy; Billing; Collections; Restoration
of Service" above, the Servicer may, in its own discretion, waive any late
payment charge or any other fee or charge relating to delinquent payments, if
any, and may waive, vary or modify any terms of payment of any amounts payable
by a Customer, in each case, if such waiver or action (a) would be in accordance
with the Servicer's customary practices or those of any Successor Servicer with
respect to comparable assets that it services for itself, (b) would not
materially adversely affect the Noteholders and (c) would comply with applicable
law. In addition, the Servicer may write off any amounts that it deems
uncollectible in accordance with its customary practices.
In the Servicing Agreement, the Servicer will covenant that, in
servicing the Intangible Transition Property it will: (a) manage, service,
administer and make collections in respect of the Intangible Transition Property
with reasonable care and in accordance with applicable law, including all
applicable guidelines of the ICC, using the same degree of care and diligence
that the Servicer exercises with respect to bill collections for its own
account;
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(b) follow customary standards, policies and procedures for the industry in
performing its duties as Servicer; (c) use all reasonable efforts, consistent
with its customary servicing procedures, to enforce, and maintain rights in
respect of, the Intangible Transition Property; (d) comply with all laws
applicable to and binding on it relating to the Intangible Transition
Property; (e) make all required submissions and provide all required
notifications with the ICC with respect to adjustments to the IFC Charges as
described below herein; and (f) so long as the relevant Transitional Funding
Order is in effect, continue to impose and collect all IFC Charges (as
adjusted from time to time), deduct IFC Charges and equivalent amounts from
Applicable Rates and remit such amounts to the Trust (each such action unless
otherwise prohibited by applicable law or judicial or regulatory order in
effect at such time) notwithstanding any repeal or amendment of the
Amendatory Act; provided, however, that any breach of the State Pledge that
is being contested, or any subsequent invalidation of the Funding Law, any
Transitional Funding Order, and/or the related IFC Tariff filed in connection
therewith shall not act to excuse any breach of any covenant by the Servicer
under the Servicing Agreement.
In addition, the Servicer will covenant that it will deduct and remit
the applicable amounts paid by Customers under any contracts which provide that
such Customer is obligated thereunder to pay an amount equal to the amount of
IFC Charges that would be billed if the services provided under such contract
were services subject to Applicable Rates. See "Description of the Intangible
Transition Property -- The Transitional Funding Order Issued at the Request of
Illinois Power Company."
The Servicer will indemnify, defend and hold harmless the Grantee, the
Delaware Trustee, the Indenture Trustee and the Noteholders against any costs,
expenses, losses, claims, damages and liabilities that may be imposed on,
incurred by or asserted against any such person as a result of (a) the
Servicer's willful misconduct, bad faith or gross negligence in the performance
of its duties or observance of its covenants under the Servicing Agreement, or
(b) the Servicer's breach of any of its representations or warranties
thereunder.
REMITTANCES TO COLLECTION ACCOUNT
Under the terms of the IFC Tariff filed in connection with each
Transitional Funding Order, the Trust will begin to impose and collect the
related IFC Charges concurrently with the issuance of the Notes of any Series
(each, a "Series Issuance Date") and such right shall exist continuously
thereafter in accordance with the related Transitional Funding Order. The IFC
Charges shall be imposed and collected based upon the entire electricity
consumption of Customers included in bills issued to Customers on and after the
related Series Issuance Date, including that portion of the applicable Billing
Period during which electric service was provided prior to such Series Issuance
Date.
The Servicing Agreement provides, among other things, that the
Servicer will collect the IFC Payments on behalf of the Trust, as assignee of
the Grantee. The Servicer will remit to the Collection Account on the tenth
day of each month, or if such day is not a
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Servicer Business Day, on the next Servicer Business Day (each such monthly
date, a "Remittance Date"), all IFC Payments received by the Servicer during
the immediately preceding Billing Period (the "Monthly IFC Amount") unless
the Servicer fails to meet the Remittance Conditions, in which case the
Servicer will, within two Servicer Business Days of receipt (each, a "Daily
Remittance Date"), remit all IFC Payments to the Collection Account. For
these purposes, an IFC Payment will be deemed to be received by the Servicer
when it is posted by the Servicer to the customer's account. In accordance
with the Servicer's procedures for processing customer payments, such posting
occurs within one day after receipt if payment is received by Illinois Power,
and within two days after receipt if payment is received by a third-party
collection agent.
A "Billing Period" is a period created by dividing the calendar year
into twelve consecutive periods of approximately twenty-one (21) Servicer
Business Days each, and represents the period during which the Servicer
typically renders a bill for electric service to each of its Customers.
The Servicing Agreement will require the Servicer to monitor
Illinois Power's receipt of any lump-sum payments of transition charges under
Section 16-108(h) of the Funding Law, and, concurrently with such receipt, to
set aside and allocate for the benefit of the Trust, as proceeds of the
Intangible Transition Property, an amount equal to the product of (a) the IFC
Charge which is then in effect for such Customer at the time of receipt and
(b) the total number of kilowatt hours utilized to compute the amount of such
lump-sum payment of transition charges. The Servicing Agreement will also
require the Servicer to monitor Illinois Power's receipt of any revenues
derived from condemnation proceedings, FERC stranded cost recoveries or any
other amounts which reflect compensation for lost revenues which would
otherwise have been attributable to Applicable Rates (collectively, "Lost
Revenue Recoveries"), and, concurrently with the receipt thereof, to set
aside and allocate for the benefit of the Trust, as proceeds of the
Intangible Transition Property, an amount equal to the product of (a) the
total dollar amount of such Lost Revenue Recoveries and (b)
[a fraction, (1) the numerator of which equals the weighted average of the
IFC Charges applicable to all classes of Customers the revenues from which
are included in the calculation of such Lost Revenue Recoveries and (2) the
denominator of which equal the weighted average of the Applicable Rates
charged to such Customers, with such weighted averages to be in each case
calculated based on the respective IFC Charges and revenues applicable to
such classes for the most recent calendar year then ended.]
NO SERVICER ADVANCES
The Servicer will not be obligated to, and consequently will not make
any advances of interest or principal on the Notes.
SERVICING COMPENSATION
On each Payment Date, the Servicer will be entitled to receive the
Servicing Fee specified in the related Prospectus Supplement. The Servicing Fee
(together with any
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portion of the Servicing Fee that remains unpaid from prior Payment Dates)
will be paid solely to the extent funds are available therefor as described
under "Security for the Notes -- Allocations; Payments." The Servicing Fee
will be paid prior to the payment of any amounts in respect of interest on
and principal of the Notes. The Servicer will be entitled to retain as
additional compensation net investment income on IFC Payments received by the
Servicer prior to remittance thereof to the Collection Account and the
portion of late fees, if any, paid by Customers relating to the IFC Payments.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS
As part of the restructuring of the Illinois electric industry,
certain Customers will be allowed, beginning October 1, 1999, and all Customers
will be allowed as of May 1, 2002, to purchase electricity and related services
from ARES and from other Utilities rather than from Illinois Power. See
"Electric Industry Restructuring in Illinois -- Alternative Retail Electric
Suppliers." The Amendatory Act requires Illinois Power to allow such ARES and
other Utilities, pursuant to a tariff to be filed by Illinois Power with, and
approved by, the ICC, to issue a single bill to any retail customer purchasing
electricity or related services from the ARES or other Utility and delivery
services from Illinois Power for both the services provided by the ARES or other
Utility and the delivery services provided by Illinois Power. The Amendatory
Act provides that the tariff to be filed by Illinois Power shall (a) require
partial payments made by retail customers to be credited first to Illinois
Power's tariffed services (which would include the IFC Charges), (b) impose
commercially reasonable terms with respect to audit and collection, including
requests for deposits, (c) retain Illinois Power's right to disconnect retail
customers, if it does not receive payment for its tariffed services, in the same
manner that it would be permitted to if it had billed for the services itself,
and (d) require an ARES or other Utility that elects this billing option to
include on each bill to retail customers an identification of the Utility (I.E.
Illinois Power) providing the delivery services and a listing of the charges
applicable to these services.
In addition, under Illinois Power's current practices, customers are
allowed to pay their electricity bills indirectly through use of third-party
collection agents, such as currency exchanges, grocery stores, banks and similar
entities which offer payment of utility bills as a convenience to their
customers. The ICC will approve procedures in each Transitional Funding Order
that would (a) require any third party (including the collection agents
described above and any ARES that is required to collect IFC Charges) who bills
or collects IFC Charges on behalf of Customers to either (i) remit IFC
Collections to the Servicer within seven days of receipt or (ii) pay such IFC
Charges to the Servicer within fifteen days of billing by Illinois Power
irrespective of whether payments have been received from the ultimate customer,
(b) allow the Servicer, within ten days after a default by any such third-party
in remitting IFC Collections, to give notice thereof to the defaulting entity
and if it does not receive payment or other response initiating dispute
resolution within five days thereafter, to assume or transfer to another
third party that defaulting entity's billing and collection responsibilities,
(c) grant the Servicer access to information on total monthly kilowatt usage
by the applicable Customers not otherwise available to the Servicer to the
extent reasonably required for the Servicer to calculate and, if applicable,
bill the related IFC
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Charges owed by such Customers, and (d) allow the Servicer, pursuant to a
tariff subject to applicable regulatory approval, to impose such other terms
with respect to credit and collection policies as may be reasonably necessary
to prevent the then current rating of the Notes from being withdrawn or
downgraded. Each IFC Tariff filed in connection with the related
Transitional Funding Order will require a third-party collection agent,
including any ARES, which assumes payment responsibilities under clause
(a)(ii) above and which does not have investment-grade credit ratings (at
least BBB- or the equivalent) to post a deposit or comparable security equal
to one month's estimated IFC Collections collected by such third party
collector.
In addition, each Transitional Funding Order will provide that (a) a
third party collector who is or otherwise becomes obligated to remit payments to
Illinois Power on a more frequent basis than as set forth above, shall remit the
IFC Charges at the same time as such other payments and (b) a third-party
collector disputing payments shall pay the undisputed portion of its collections
to Illinois Power and shall pay the disputed amount under protest pending a
resolution of the matter, subject to refund with interest to the extent the
third-party collector is successful in the dispute. Such procedures will be
described in each Transitional Funding Order and in the related IFC Tariff filed
by Illinois Power under the Funding Law to authorize the imposition and
collection of the related IFC Charges. Nonetheless, there can be no assurance
that an ARES or other third-party collection agent will apply the same credit
and collection policies and procedures to Customers as would be applied by
Illinois Power. In addition, the Servicer will have no meaningful ability to
control the collection procedures of ARES or other third-party collection agents
who simply forward payments on behalf of Customers and not pursuant to
contractual arrangements with Illinois Power or pursuant to consolidated billing
procedures. See "Risk Factors -- Potential Servicing Issues -- Possible Payment
Delays Caused by Reliance on Alternative Retail Electric Suppliers and Other
Third-Party Collectors."
SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the Servicer will make representations and
warranties to the Grantee, which will be assigned to the Trust, to the effect,
among other things, that: (a) the Servicer is a corporation duly organized and
in good standing under the laws of the State of Illinois, with power and
authority to own its properties and conduct its business as currently owned or
conducted and to execute, deliver and carry out the terms of the Servicing
Agreement; (b) the execution, delivery and carrying out of the Servicing
Agreement have been duly authorized by the Servicer by all necessary corporate
action; (c) the Servicing Agreement constitutes a legal, valid and binding
obligation of the Servicer, enforceable against the Servicer in accordance
with its terms subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect, and to general
principles of equity; (d) the consummation of the transactions contemplated
by the Servicing Agreement does not conflict with the Servicer's articles of
incorporation or bylaws or any agreement to which the Servicer is a party or
bound, result in the creation or imposition of any lien upon the Servicer's
properties or violate any law or any order, rule or regulation applicable to
the
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Servicer; (e) the Servicer has all licenses necessary for it to perform its
obligations under the Servicing Agreement (except where the failure to have
such licenses would not be reasonably likely to have a material adverse
effect on the Servicer or an adverse effect on the Intangible Transition
Property); (f) no governmental approvals, authorizations or filings are
required for the Servicer to execute, deliver and perform its obligations
under the Servicing Agreement except those which have previously been
obtained or made, and those which the Servicer is required to make in the
future; or other than the tariff filings required by the Funding Law (which
the Servicer covenants to make in a timely fashion); (g) the calculations and
assumptions used by the Servicer in calculating the IFC Charges in effect
from time to time are reasonable and made in good faith; and (h) except as
disclosed in the Servicing Agreement, no court or administrative proceeding
or investigation is pending or, to the Servicer's knowledge, threatened (i)
asserting the invalidity of, or seeking to prevent the consummation of the
transactions contemplated by, the Servicing Agreement or, (ii) seeking a
determination that might materially and adversely affect the performance by
the Servicer of its obligations thereunder, or (iii) relating to the Servicer
which could reasonably be expected to adversely affect the federal or state
income tax attributes of the Notes.
In the event of a breach by the Servicer of any of its representations
and warranties described in the preceding paragraph, the Servicer will
indemnify, defend and hold harmless the Grantee, the Trust, the Indenture
Trustee, the Delaware Trustee and the Noteholders against any losses, claims,
damages, liabilities and reasonable costs or expenses incurred as a result
thereof.
STATEMENTS BY SERVICER
On or before each Remittance Date, the Servicer will prepare and
furnish to the Grantee, the Trust, the Delaware Trustee, the Indenture Trustee
and the Rating Agencies a statement for the applicable calendar month (the
"Monthly Servicer's Certificate") setting forth the aggregate amount of IFC
Payments remitted by the Servicer to the Collection Account. In addition, the
Servicer will prepare, and the Indenture Trustee will furnish to the Noteholders
on each Payment Date the quarterly Servicer's Certificate described under
"Security for the Notes -- Reports to Noteholders."
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of independent public
accountants retained by the Servicer at the Servicer's expense will furnish to
the Grantee, the Trust, the Indenture Trustee and the Rating Agencies on or
before September 30 of each year, beginning September 30, 1999, a statement as
to compliance by the Servicer during the preceding twelve months ended June 30
(or, in the case of the first such statement, the period from the Closing Date
to June 30, 1999), with certain standards relating to the servicing of the
Intangible Transition Property. This report (the "Annual Accountant's Report")
shall state that such firm has performed certain procedures in connection with
the Servicer's compliance with the servicing procedures of the Servicing
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Agreement, identifying the results of such procedures and including any
exceptions noted. The Annual Accountant's Report will also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
The Servicing Agreement will also provide for delivery to the Grantee,
the Trust, the Indenture Trustee and the Rating Agencies, on or before September
30 of each year, commencing September 30, 1999, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
in all material respects under the Servicing Agreement throughout the preceding
twelve months ended June 30 (or in the case of the first such certificate, the
period from the Closing Date to June 30, 1999) or, if there has been a default
in the fulfillment of any such material obligation, describing each such
default. The Servicer has agreed to give the Grantee, the Trust, the Indenture
Trustee and the Rating Agencies notice of certain Servicer Defaults under the
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement will provide that Illinois Power may not
resign from its obligations and duties as Servicer thereunder, except upon
(a) either (i) a determination that Illinois Power's performance of such duties
is no longer permissible under applicable law, disregarding any breach of the
State Pledge that is being contested, or any subsequent invalidation of the
Funding Law, any Transitional Funding Order and/or the related IFC Tariff filed
in connection therewith or (ii) satisfaction of the Rating Agency Condition and
(b) to the extent required under any Transitional Funding Order, the approval by
the ICC of such resignation. No such resignation will become effective until a
Successor Servicer has assumed Illinois Power's servicing obligations and duties
under the Servicing Agreement.
The Servicing Agreement will further provide that neither the Servicer
nor any of its directors, officers, employees, and agents will be under any
liability to Grantee, the Indenture Trustee, the Trust, the Delaware Trustee,
the Noteholders, or any other person, except as provided under the Servicing
Agreement, for taking any action or for refraining from taking any action
pursuant to the Servicing Agreement, or for errors in judgment; provided,
however, that neither the Servicer nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. In
addition, the Servicing Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under the Servicing Agreement
and that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in the Servicing Agreement, any
entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger
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or consolidation to which the Servicer is a party, or any entity succeeding
to the properties and assets of the Servicer substantially as a whole or,
with respect to its obligations as Servicer, which corporation or other
entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor of the Servicer under the Servicing Agreement.
SERVICER DEFAULTS
"Servicer Defaults" under the Servicing Agreement will include, among
other things, (a) any failure by the Servicer to make any required deposit into
the Collection Account, which failure continues unremedied for three Servicer
Business Days after written notice from the Grantee, the Trust or the Indenture
Trustee is received by the Servicer or after discovery by the Servicer; (b) any
failure by the Servicer or Illinois Power, as the case may be, duly to observe
or perform in any material respect any other covenant or agreement in the
Servicing Agreement, or any other Basic Document to which it is a party, which
failure materially and adversely affects the rights of Noteholders and which
continues unremedied for 30 days after the giving of notice of such failure (i)
to the Servicer or Illinois Power, as the case may be, by the Grantee, the Trust
or the Indenture Trustee or (ii) to the Servicer or Illinois Power, as the case
may be, by holders of Notes evidencing not less than 25 percent in principal
amount of the outstanding Notes of all Series; (c) any representation or
warranty made by the Servicer in the Servicing Agreement shall prove to have
been incorrect when made, which has a material adverse effect on the Grantee,
the Trust or the Noteholders and which material adverse effect continues
unremedied for a period of 60 days after the giving of notice to the Servicer by
the Grantee, the Trust or the Indenture Trustee; and (d) certain events of
insolvency, or similar proceedings with respect to the Servicer or the Grantee
and certain actions by the Servicer or the Grantee indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under the Servicing Agreement remains
unremedied, either the Indenture Trustee or holders of Notes evidencing not less
than 25 percent in principal amount of then outstanding Notes of all Series may
by written notice terminate all the rights and obligations of the Servicer
(other than the Servicer's indemnity obligation) under the Servicing
Agreement, whereupon a Successor Servicer appointed by the Grantee, with the
Trust's prior written consent, will succeed to all the responsibilities,
duties and liabilities of the Servicer under the Servicing Agreement and will
be entitled to compensation arrangements in accordance with the terms of the
Servicing Agreement, which compensation may be higher in amount than the
amount paid to the Servicer if the Successor Servicer is not able to bill IFC
Charges together with charges for electric utility services provided to
Customers. In addition, upon a Servicer Default, each of the following shall
be entitled to apply to the ICC for sequestration and payment of revenues
arising with respect to the Intangible Transition Property: (1) the
Noteholders and the Indenture Trustee as beneficiary of any statutory lien
permitted by the Funding Law; (2) the Grantee or its
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assignees; (3) the Trust; or (4) pledgees or transferees of the Intangible
Transition Property. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to
prevent the Indenture Trustee or the Noteholders from effecting a transfer of
servicing. See "Risk Factors -- Bankruptcy and Creditors' Rights Issues --
Possible Adverse Effect on Noteholders as a Result of the Bankruptcy of the
Servicer." The Indenture Trustee may appoint, or petition the ICC or a court
of competent jurisdiction for the appointment of, a successor servicer which
satisfies criteria specified by the Rating Agencies if, within 30 days after
notice of termination is given, the Grantee shall not have appointed a
Successor Servicer. The Indenture Trustee may make such arrangements for
compensation to be paid to any such Successor Servicer.
WAIVER OF PAST DEFAULTS
Noteholders holding at least a majority in principal amount of the
then outstanding Notes of all Series, on behalf of all Noteholders, may waive
any default by the Servicer in the performance of its obligations under the
Servicing Agreement and its consequences, except a default in making any
required deposits to the Collection Account in accordance with the Servicing
Agreement. The Servicing Agreement provides that no such waiver will impair the
Noteholders' rights with respect to subsequent defaults.
SUCCESSOR SERVICER
If for any reason a third party assumes the role of the Servicer under
the Servicing Agreement (in such role, the "Successor Servicer"), the Servicing
Agreement will require the Servicer being replaced to cooperate with the
Grantee, the Trust, the Delaware Trustee, the Indenture Trustee and the
Successor Servicer in terminating such replaced Servicer's rights and
responsibilities under the Servicing Agreement, including the transfer to the
Successor Servicer of all cash amounts then held by the Servicer for remittance
or subsequently acquired. The Servicing Agreement will provide that the
Servicer shall be liable for all reasonable out-of-pocket costs and expenses
(including attorneys' fees and expenses) incurred in transferring servicing
responsibilities to the Successor Servicer. Any Successor Servicer must satisfy
the requirements of the Act.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto, without
the consent of the Noteholders, but with five Business Days' prior written
notice to the Rating Agencies and the consent of the Indenture Trustee, to cure
any ambiguity, to correct or supplement any provision or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of that agreement or of modifying in any manner the rights of the
Noteholders, provided that such action will not, as certified in a certificate
of an officer of the Servicer delivered to the Indenture Trustee, the Grantee
and the Delaware Trustee, adversely affect in any material respect the interest
of any Noteholder. The Servicing Agreement may also be amended by the Servicer
and Grantee with the consent
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of the Indenture Trustee and the holders of Notes evidencing at least a
majority in principal amount of the then outstanding Notes of all Series and
Classes for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such agreement or of modifying in any
manner the rights of the Noteholders; provided, however, that no such
amendment may (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, IFC Collections or the timing of
adjustments to IFC Charges or (b) reduce the aforesaid percentage of the
Notes the holders of which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes.
TERMINATION
The obligations of the Servicer and Grantee pursuant to the Servicing
Agreement will terminate upon the payment to the Indenture Trustee, and
corresponding distribution to the Noteholders of all amounts required to be paid
or distributed to them pursuant to the Servicing Agreement, the Notes and the
Indenture.
DESCRIPTION OF THE NOTES
GENERAL
The Trust will issue the Notes pursuant to the terms of an Indenture
(the "Indenture") between the Trust and the Indenture Trustee. The particular
terms of the Notes of any Series will be established in a supplement to the
Indenture or a Trust issuance certificate and, in either case, the material
terms thereof will be described in the related Prospectus Supplement. Although
all material terms of the Notes and the Indenture have been disclosed in this
Prospectus, this summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the terms and provisions of the
Indenture and related supplements or Trust issuance certificates thereto, forms
of which are filed as exhibits to the Registration Statement.
The Notes may be issued in one or more Series, any one or more of
which may be comprised of one or more Classes. Classes of Notes may differ as
to the interest rate and the timing, sequential order and amount of
distributions of principal or interest, or both. Each Series of Notes may
include one or more Classes of Notes that accrue interest at a variable rate
based on the index described in the related Prospectus Supplement. Each such
series will be secured by a Swap Agreement, in addition to the security provided
under the Indenture. See " -- Floating Rate Notes" below. While the specific
terms of only the Series of Notes (and the Classes of such Series (if any)) in
respect of which this Prospectus is being delivered will be described in the
related Prospectus Supplement, the terms of such Series and any Classes thereof
will not be subject to prior review of or consent of the holders of outstanding
Notes. All Notes of the same Series will be identical in all respects except
for the denominations thereof, unless such Series is comprised of
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more than one Class, in which case all Notes of the same Class will be
identical in all respects except for the denominations thereof.
All Notes issued under the Indenture will be payable solely from, and
secured solely by, a pledge of and lien on the Intangible Transition Property
and certain other funds as provided in the Indenture. See "Security for the
Notes -- Pledge of Note Collateral." All Notes issued under the Indenture,
irrespective of when issued, shall have a parity lien on the Note Collateral,
although Floating Rate Notes shall also be secured by a Swap Agreement which
relates solely to such series. See " -- Conditions of Issuance of Additional
Series and Acquisition of Subsequent Intangible Transition Property."
The Prospectus Supplement for a Series of Notes will describe, among
other things, the following terms of such Series and, if applicable, the Classes
thereof: (a) the designation of the Series and, if applicable, the Classes
thereof, (b) the principal amount, (c) the annual rate at which interest accrues
(the "Note Interest Rate"), or if the Trust has entered into a Swap Agreement
with respect to such Series, the index on which a variable rate of interest will
be based, (d) the dates on which payments of interest and principal are
scheduled to occur (each such date, a "Payment Date"), (e) the scheduled
maturity date (the "Expected Maturity Date") and the final termination date of
the Series (the "Final Maturity Date"), (f) the initial Adjustment Date of, and
the Reconciliation Period for, such Series, (g) the issuance date of the Series
(the "Series Issuance Date"), (h) the place or places for the payment of
principal and interest, (i) the authorized denominations, (j) the provisions for
optional redemption of such Series or Class by the Trust, (k) the Expected
Amortization Schedule for principal of such Series and, if applicable, the
Classes thereof, (l) the initial IFC Charges authorized in connection with the
issuance of such Series by the related Transitional Funding Order, and the IFC
Charges imposed as of the date of issuance of such Series, (m) the total dollar
amount of Intangible Transition Property authorized by the related Transitional
Funding Order, (n) any other material terms of such Series and any Class thereof
that are not inconsistent with the provisions of the Notes and that will not
result in any Rating Agency reducing or withdrawing its then current rating of
any outstanding Series or Class of Notes (the notification in writing by each
Rating Agency to the Servicer, the Grantee, the Indenture Trustee and the
Delaware Trustee that any action will not result in such a reduction or
withdrawal is referred to herein as the "Rating Agency Condition"), (o) the
identity of the Indenture Trustee, the Delaware Trustee and the Beneficiary
Trustees, and (p) the terms of any Swap Agreement executed solely to permit
the issuance of any Floating Rate Notes and the identity of any Swap
Counterparty related thereto.
The Notes do not constitute a debt, liability or other obligation of
the State of Illinois or of any political subdivision, agency or instrumentality
thereof and do not represent an interest in or obligation of Illinois Power or
any of its affiliates. The Notes will not be guaranteed or insured by Illinois
Power or any of its affiliates. Transitional Funding Orders authorizing
issuance of the Notes do not constitute a pledge of the full faith and credit of
the State of Illinois or of any of its political subdivisions. The issuance of
the Notes under the Funding Law shall not directly, indirectly or contingently
obligate the State of Illinois or any
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political subdivision thereof to levy or to pledge any form of taxation
therefor or to make any appropriation for their payment.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a Class of Notes at
the per annum rate either specified in or determined in the manner specified in
the related Prospectus Supplement and will be payable on the Payment Dates
specified in the related Prospectus Supplement. IFC Collections, including such
amounts as are available in the Reserve Subaccount and the Overcollateralization
Subaccount and, if necessary, the amounts available in the Capital Subaccount,
will be used to make interest payments to the Noteholders of each Class on each
Payment Date with respect thereto. See "Security for the Notes -- Allocations;
Payments."
Principal of the Notes of each Class will be payable in the amounts
and on the Payment Dates specified in the related Prospectus Supplement, but
only to the extent that amounts in the Collection Account are available
therefor, and subject to the other limitations described below. See "Security
for the Notes -- Allocations; Payments." Each Prospectus Supplement will set
forth the Expected Amortization Schedule for each Series of Notes and, if
applicable, the Classes of such Series. On any Payment Date, unless an Event of
Default has occurred and is continuing and the Notes have been declared due and
payable, the Indenture Trustee will make principal payments on the Notes only
until the outstanding principal balances thereof have been reduced to the
principal balances specified in the applicable Expected Amortization Schedule
for such Payment Date (each, a "Scheduled Payment"). Any IFC Collections in
excess of amounts payable as (a) expenses of the Grantee, the Delaware Trustee
and the Indenture Trustee (including the Servicing Fee and Administration Fee),
(b) payments of interest on and principal of the Notes, (c) allocations to the
Capital Subaccount, and (d) allocations to the Overcollateralization Subaccount
(all as described herein under "Security for the Notes -- Allocations;
Payments") will be retained by the Indenture Trustee in the Reserve Subaccount
for payment on subsequent Payment Dates. However, if insufficient IFC
Collections are received with respect to any Payment Date, and amounts in the
Collection Account are not sufficient to make up the shortfall, principal of any
Class of Notes may be payable later than expected as described herein. See
"Risk Factors -- Uncertainties Associated with Asset Type" and "Risk Factors
- -- Nature of the Notes -- Uncertain Payment Amounts and Weighted Average
Life." The entire unpaid principal amount of the Notes of all Series will be
due and payable on the date on which an Event of Default (other than a breach
by the State of Illinois of the State Pledge) has occurred and is continuing,
if the Indenture Trustee or holders of not less than a majority in principal
amount of the Notes of all Series then outstanding have declared the Notes to
be immediately due and payable. See "Security for the Notes -- Events of
Default; Rights Upon Event of Default."
Unless the context requires otherwise, all references in this
Prospectus to principal of the Notes of a Series includes any premium that might
be payable thereon if Notes of such Series are redeemed, as described in the
related Prospectus Supplement.
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PAYMENTS ON THE NOTES
The Indenture Trustee will pay on each Payment Date to the holders of
each Class of Notes all principal and interest then due with respect thereto
(other than Special Payments, as defined in the Indenture) or, in the case of
Floating Rate Notes, in lieu of such interest, payments under any related Swap
Agreement with respect to interest. Each such payment other than the final
payment with respect to any Note will be made by the Indenture Trustee to the
holders of record of the Notes of the applicable Class on the Record Date in
respect of such Payment Date. The final payment on any Note, however, will be
made only upon presentation and surrender of such Note at the office or agency
of the Indenture Trustee specified in the notice given by the Indenture Trustee
with respect to such final payment.
If interest on the Notes of any Series is not paid when due, such
defaulted interest shall be paid (plus interest on such defaulted interest at
the applicable Note Interest Rate to the extent lawful) to the persons who are
Noteholders on a subsequent Special Record Date (as defined in the Indenture),
which date shall be at least five Business Days prior to the Special Payment
Date (as defined in the Indenture). The Trust shall fix or cause to be fixed any
such Special Record Date and Special Payment Date, and, at least 20 days before
any such Special Record Date, the Trust shall mail to each affected Noteholder a
notice that states the Special Record Date, the Special Payment Date and the
amount of defaulted interest (plus interest on such defaulted interest) to be
paid.
At such time, if any, as the Notes of any Series are issued in the
form of Definitive Notes and not to DTC or its nominee, payments by the
Indenture Trustee with respect to such Class on a Payment Date or a Special
Payment Date will be made by check mailed to each holder of a Definitive Note of
such Class of record on the applicable Record Date at its address appearing on
the register maintained with respect to the Notes of such Series, or, upon
application by a holder of any Class of Notes in the principal amount of
$10,000,000 or more to the Indenture Trustee not later than the applicable
Record Date, by wire transfer to an account maintained by the payee in New York,
New York. The final payment for each Class of Notes, however, will be made
only upon presentation and surrender of the Notes of such Class at the office
or agency of the Indenture Trustee specified in the notice given by the
Indenture Trustee of such final payment. The Indenture Trustee will mail
such notice of the final payment to the Noteholders of such Class, no later
than five days prior to such final payment date, specifying the date set for
such final payment and the amount of such payment.
If any Special Payment Date or other date specified herein for
distribution of any payments to Noteholders is not a Business Day, payments
scheduled to be made on such Special Payment Date or other date may be made on
the next succeeding Business Day and no interest shall accrue upon such payment
during the intervening period. "Business Day" means any day other than a
Saturday, a Sunday or a day on which banking institutions or trust companies in
New York, New York, Wilmington, Delaware, Chicago,
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Illinois, or Charlotte, North Carolina, are, or DTC is, authorized or
obligated by law, regulation or executive order to remain closed.
FLOATING RATE NOTES
If any Floating Rate Notes of any Class are offered, the Trust will
enter into one or more swap agreements (each, a "Swap Agreement") with a
counterparty (each, a "Swap Counterparty") identified and having the terms
described in the related Prospectus Supplement. Generally, pursuant to a Swap
Agreement, on each Payment Date, the Trust will be obligated to pay to the Swap
Counterparty, solely from IFC Collections, an amount equal to the interest due
on a notional amount equal to the principal amount of the Class of Notes
outstanding as of the close of business on the preceding Payment Date, after
giving effect to all payments of principal made to the Floating Rate Noteholders
on such preceding Payment Date calculated at a fixed swap rate (which rate will
be used to calculate IFC Payments), and the Swap Counterparty will be obligated
to pay to the Trust an amount equal to the product of (a) the floating rate on
the Floating Rate Notes and (b) the principal balance of the Floating Rate Notes
as of the close of business on the preceding Payment Date after giving effect to
all payments of principal made to the Floating Rate Noteholders on such
preceding Payment Date. See "Risk Factors -- Nature of the Notes -- Additional
Risks of Floating Rate Notes."
NO THIRD-PARTY CREDIT ENHANCEMENT
It is not currently anticipated that the Notes will have the benefit
of any third-party credit enhancement, such as guarantees, letters of credit,
insurance or the like. If, however, any Series of Notes is to be issued with
any third-party credit enhancement, it will be set forth in the related
Prospectus Supplement.
REGISTRATION AND TRANSFER OF THE NOTES
If so specified in the related Prospectus Supplement, one or more
Classes of Notes will be issued in definitive form and will be transferable
and exchangeable at the office of the registrar identified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, no service charge will be made for any such registration or
transfer of such Notes, but the owner may be required to pay a sum sufficient
to cover any tax or other governmental charge.
Each Class of Notes will be issued in the minimum initial
denominations set forth in the related Prospectus Supplement and, except as
otherwise provided in the related Prospectus Supplement, in integral
multiples thereof.
Payments of interest and principal will be made on each Payment
Date to the Noteholders in whose names the Notes were registered on the
related Record Date.
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BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, one or more
Classes of Notes initially may be Book-Entry Notes, which are initially
represented by one or more Notes registered in the name of Cede, as nominee
of DTC, or another securities depository, and are available only in the form
of book-entries. Any Book-Entry Notes will initially be registered in the
name of Cede, the nominee of DTC. Holders may also hold Notes of a Class
through Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") or the
Euroclear System ("Euroclear") (in Europe), if they are participants in such
systems or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Note or Notes. CEDEL
and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's names on
the books of their respective Depositaries (as defined herein) which in turn
will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Citibank, N.A. will act as
depositary for CEDEL and Morgan Guaranty Trust Company of New York will act
as depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act, as
amended. DTC was created to hold securities for its participating
organizations, which are the Participants, and facilitate the settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of securities. Participants include underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to Indirect Participants, which are others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
CEDEL Participants or Euroclear Participants, on the other, will be effected
in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary. Cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time).
The relevant European international clearing system will, if the transaction
meets its settlement requirements,
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deliver instructions to its Depositary to take action to effect final
settlement on its behalf by delivering or receiving Notes in DTC, and making
or receiving distributions in accordance with normal procedures for same-day
funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent settlement processing and dated the Business Day following the
DTC settlement date. Such credits or any transactions in such Notes settled
during such processing will be reported to the relevant Euroclear or CEDEL
Participant on such Business Day. Cash received in CEDEL or Euroclear as a
result of sales of Notes by or through a CEDEL Participant or a Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the Business Day following settlement in DTC.
Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all payments of principal of and interest on
the Notes from the Indenture Trustee through DTC and its Participants. Under a
book-entry format, Noteholders will receive distributions after the related
Payment Date, as the case may be, because, while payments are required to be
forwarded to Cede, as nominee for DTC, on each such date, DTC will forward such
distributions to its Participants, which thereafter will be required to forward
them to Indirect Participants or holders of beneficial interests in the Notes.
The Indenture Trustee, the Grantee, the Servicer and any paying agent, transfer
agent or registrar may treat the registered holder in whose name any Note is
registered (expected to be Cede) as the absolute owner thereof (whether or not
such Note is overdue and notwithstanding any notice of ownership or writing
thereon or any notice to the contrary) for the purpose of making payments and
for all other purposes.
Unless and until Definitive Notes (as defined below) are issued, it is
anticipated that the only "holder" of Book-Entry Notes of any Series will be
Cede, as nominee of DTC. Noteholders will only be permitted to exercise their
rights as Noteholders indirectly through Participants and DTC. All references
herein to actions by Noteholders thus refer to actions taken by DTC upon
instructions from its Participants, and all references herein to payments,
notices, reports and statements to Noteholders refer to payments, notices,
reports and statements to Cede, as the registered holder of the Notes, for
distribution to the beneficial owners of the Notes in accordance with DTC
procedures.
While any Book-Entry Notes of a Series are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Notes and is required to receive and transmit payments
of principal of, and interest on, the Book-
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Entry Notes. Participants with whom Noteholders have accounts with respect to
Book-Entry Notes are similarly required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Noteholders.
Accordingly, although Noteholders will not possess physical Notes, the Rules
provide a mechanism by which Noteholders will receive payments and will be
able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Notes, may be limited due to the lack of a Definitive Note for such Notes.
DTC has advised the Indenture Trustee that it will take any action
permitted to be taken by a Noteholder under the Indenture and the related
Prospectus Supplement only at the direction of one or more Participants to whose
account with DTC the Notes are credited. Additionally, DTC has advised the
Indenture Trustee that it may take actions with respect to the Noteholders'
interest that might conflict with other of its actions with respect thereto.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of securities. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any underwriters, agents or dealers with
respect to a Series of Notes offered hereby. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for
physical movement of securities and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of
29 currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to
the arrangements for cross-market transfers with DTC described above. The
Euroclear System is operated by Morgan
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Guaranty Trust Company of New York, Brussels, Belgium office (the "Euroclear
Operator"), under contract with Euroclear Clearance System S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear and receipts of payments with respect to securities
in Euroclear. All securities in Euroclear are held on a fungible basis
without attribution of specific securities to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants, and has no record of or relationship with
persons holding through Euroclear Participants.
Payments with respect to Notes held through CEDEL or Euroclear will
be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems' rules and procedures,
to the extent received by its Depositary. Such payments will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Material United States Federal ncome Tax Consequences."
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Noteholder under the Indenture or the
relevant Prospectus Supplement on behalf of a CEDEL Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
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DEFINITIVE NOTES
Notes of a Series will be issued in registered form to Noteholders,
or their nominees, rather than to DTC (such Notes being referred to herein as
"Definitive Notes") only under the circumstances provided in the Indenture,
which will include (a) the Administrator (initially, Illinois Power) advising
the Indenture Trustee in writing that DTC is no longer willing or able to
properly discharge its responsibilities as nominee and depository with respect
to the Book-Entry Notes of such Series and the Administrator being unable to
locate a qualified successor, (b) the Administrator (with written notice to the
Indenture Trustee), electing to terminate the book-entry system through DTC, or
(c) after the occurrence of a Servicer Default, holders of Notes representing
not less than 50 percent of the aggregate outstanding principal amount of the
Notes of any Series maintained as Book-Entry Notes advising the Indenture
Trustee, the Administrator, the Trust and DTC in writing that the continuation
of a book-entry system through DTC (or a successor thereto) is no longer in the
best interests of Noteholders of such Series. Upon issuance of Definitive Notes
of a Series, such Notes will be transferable directly (and not exclusively on a
book-entry basis) and registered holders will deal directly with the Indenture
Trustee with respect to transfers, notices and payments.
Upon surrender by DTC of the definitive securities representing the
Notes and instructions for registration, the Indenture Trustee will issue the
Notes in the form of Definitive Notes, and thereafter the Indenture Trustee will
recognize the holders of such Definitive Notes as Noteholders under the
Indenture.
Payment of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Noteholders in accordance with the procedures set
forth herein and in the Indenture and the related Prospectus Supplement.
Interest payments and principal payments will be made to Noteholders in whose
names the Definitive Notes were registered at the close of business on the
related Record Date. Payments will be made by check mailed to the address of
such Noteholder as it appears on the register maintained by the Indenture
Trustee or in such other manner as may be provided in the related Trust issuance
certificate or supplement to the Indenture and except that certain payments
will be made by wire transfer as described in the Indenture. The final payment
on any Note (whether Definitive Notes or Notes registered in the name of
Cede), however, will be made only upon presentation and surrender of such
Note on the final payment date at such office or agency as is specified in
the notice of final payment to Noteholders. The Indenture Trustee will
provide such notice to registered Noteholders not later than the fifth day
prior to the month of the Final Payment Date.
Definitive Notes will be transferable and exchangeable at the offices
of the transfer agent and registrar, which initially will be the Indenture
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
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OPTIONAL REDEMPTION
Pursuant to the terms of the Indenture, a Series of Notes may be
redeemed on any Payment Date if, after giving effect to payments that would
otherwise be made on such date, the outstanding principal balance of such Series
of Notes has been reduced to less than five percent of the initial principal
balance thereof. If specified in the Prospectus Supplement related to any
Series or Class of Notes, the Indenture may also permit the redemption of such
Series or Class of Notes in full for cash on any Payment Date on or prior to
December 31, 2004 using proceeds received from the issuance of any additional
Series or Class of Notes (the "New Notes"). The New Notes will be payable
solely out of the Intangible Transition Property and other Note Collateral and
will have no more than a PARI PASSU lien thereon vis-a-vis all existing Series
of Notes. In addition, a Series of Notes shall be subject to redemption if and
to the extent provided in the related Prospectus Supplement.
No redemption shall be permitted under the Indenture unless each
Rating Agency with respect to any Notes that will remain outstanding after such
redemption shall have affirmed the then current rating of all such outstanding
Notes. Upon any redemption of any Series or Class of Notes, the Trust will have
no further obligations under the Indenture with respect thereto. The Notes may
be so redeemed in all instances of optional redemptions permitted by the
Indenture upon payment of the outstanding principal amount of the Notes to be
redeemed and accrued but unpaid interest thereon as of the date of redemption.
Notice of such redemption will be given by the Trust to the Indenture Trustee
and the Rating Agencies not less than 25 days nor more than 50 days prior to the
date of redemption, and written notice shall also be given to each holder of
Notes to be redeemed, by first-class mail, postage prepaid, mailed not less than
five days nor more than 25 days prior to the applicable date of redemption.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES AND ACQUISITION OF SUBSEQUENT
INTANGIBLE TRANSITION PROPERTY
The Trust's acquisition of Subsequent Intangible Transition Property
and the issuance of any additional Series of Notes with respect thereto is
subject to the following conditions, among others:
(a) appropriate documentation required by the Indenture and Trust
Agreement, including supplements thereto, shall have been authorized,
executed and delivered by all parties required to do so by the terms of the
relevant documents;
(b) the Grantee shall have irrevocably assigned all of its right,
title and interest in such Subsequent Intangible Transition Property to
the Trust and a filing required by Section 18-107 of the Funding Law shall
have been made with respect to such assignment;
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(c) the Rating Agency Condition shall have been satisfied with
respect to such transactions;
(d) Illinois Power shall have delivered to the Grantee, the Trust,
the Delaware Trustee and the Indenture Trustee an opinion of independent
tax counsel and/or a ruling from the IRS (as selected by, and in form and
substance reasonably satisfactory to, Illinois Power) to the effect that,
for federal income tax purposes, (i) such issuance, and the transfer of the
Note proceeds to Illinois Power, will not result in gross income to the
Grantee, the Trust or Illinois Power and (ii) such issuance will not
adversely affect the characterization of the then outstanding Notes as
obligations of Illinois Power;
(e) no Event of Default shall have occurred and be continuing under
the Indenture;
(f) as of the date of issuance, the Trust shall have sufficient funds
available to pay the purchase price for such Subsequent Intangible
Transition Property, and all conditions to the issuance of a new series of
Notes shall have been satisfied or waived; and
(g) delivery by the Trust to the Indenture Trustee of certain
certificates and opinions specified in the Indenture.
LIST OF NOTEHOLDERS
Upon written request of any Noteholder or group of Noteholders of
any Series or of all outstanding Series of Notes evidencing not less than 10
percent of the aggregate outstanding principal amount of the Notes of such
Series or all Series, as applicable, the Indenture Trustee will afford such
Noteholder or Noteholders access during business hours to the current list of
Noteholders of such Series or of all outstanding Series, as the case may be,
for purposes of communicating with other Noteholders with respect to their
rights under the Indenture.
The Indenture does not provide for any annual or other meetings of
Noteholders.
SECURITY FOR THE NOTES
GENERAL
The Notes issued under the Indenture are payable solely from and
secured solely by a pledge of and lien of the Intangible Transition Property and
the other Note Collateral as provided in the Indenture. See "Description of the
Intangible Transition Property." As noted under the heading, "Description of
the Notes," the Trust will issue the Notes pursuant to the terms of the
Indenture. The particular terms of the Notes of any
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series will be established in a supplement to the Indenture or a Trust
issuance certificate and material terms thereof will be described in the
Prospectus Supplement for the related Series of Notes.
This summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the terms and provisions of the
Indenture and supplements or Trust issuance certificate related thereto, forms
of which are filed as exhibits to the Registration Statement.
PLEDGE OF NOTE COLLATERAL
To secure the payment of principal of and interest on the Notes,
the Indenture will grant to the Indenture Trustee a security interest in all
of the Trust's right, title and interest in and to (a) all of the Intangible
Transition Property and, to the fullest extent permitted by law, all proceeds
thereof, (b) the Grant Agreements, Sale Agreements and Servicing Agreements,
(c) the Collection Account and all amounts or investment property on deposit
therein or credited thereto from time to time, (d) with respect to any
Floating Rate Notes only, any Swap Agreement entered into with respect to the
issuance of such Floating Rate Notes, (e) all rights to compel Illinois
Power, as Servicer (or any successor) to file for and obtain adjustments to
the IFC Charges in accordance with Section 18-104(d) of the Funding Law, the
Transitional Funding Orders and all IFC Tariffs filed with the ICC in
connection therewith, (f) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and all payments
on or under the foregoing and (g) all proceeds in respect of any or all of
the foregoing; provided, however, that (1) the cash transferred to the Trust
by the Grantee which is not held in the Capital Subaccount, including cash
that has been released to the Grantee or as it directs following retirement
of any Series of Notes, (2) net investment earnings which have been released
to the Trust by the Indenture Trustee pursuant to the terms of the Indenture,
(3) the Overcollateralization Amount that has been released to the Grantee or
as it directs following retirement of any Series of Notes, and (4) amounts
deposited with the Trust on any Series Issuance Date for payment of costs of
issuance with respect to the related Series of Notes (together with any
interest earnings thereon) will not be covered by the foregoing security
interest. The foregoing assets to which the Trust, as assignee of Grantee,
will grant the Trustee a security interest are referred to collectively as
the "Note Collateral" herein.
SECURITY INTEREST IN NOTE COLLATERAL
CREATION AND PERFECTION OF SECURITY INTEREST IN INTANGIBLE
TRANSITION PROPERTY UNDER THE FUNDING LAW. Section 18-107 of the Funding Law
provides that neither Intangible Transition Property, nor any right, title or
interest in the Intangible Transition Property, shall constitute property in
which a security interest may be created under the UCC nor shall any such
rights be deemed proceeds of any property which is not Intangible Transition
Property. Rather, Section 18-107(c) of the Funding Law provides that a valid
and enforceable security interest in Intangible Transition Property shall
attach and be perfected only by the means set forth in that Section
18-107(c). Specifically, Section 18-
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107(c) provides that, to the extent that transitional funding instruments,
such as the Notes, are purported to be secured by Intangible Transition
Property, as specified in the applicable Transitional Funding Order, the lien
of the transitional funding instruments shall attach automatically to such
Intangible Transition Property from the time of issuance of the transitional
funding instruments. Section 18-107(c) of the Funding Law provides that such
lien shall be a valid and enforceable security interest in Intangible
Transition Property, securing the transitional funding instruments, and shall
be continuously perfected if, before the date of issuance of the applicable
transitional funding instruments, or within no more than 10 days thereafter,
a filing has been made by or on behalf of the holder with the Chief Clerk of
the ICC stating that such transitional funding instruments have been issued.
The liens provided under Section 18-107(c) are enforceable against the
electric utility, any assignee, grantee or issuer and all third parties,
including judicial lien creditors. Moreover, a perfected lien in Intangible
Transition Property is a continuously perfected security interest in all then
existing or thereafter arising revenues and proceeds arising with respect to
such Intangible Transition Property, whether or not the electric power and
energy included in the calculation of such revenues and proceeds have been
provided. The lien created by Section 18-107(c) is perfected and ranks prior to
any other lien, including any judicial lien, which subsequently attaches to the
Intangible Transition Property, and to any other rights created by the
Transitional Funding Order or any revenues or proceeds of the foregoing.
The relative priority of the lien created by Section 18-107(c) of the
Funding Law is not defeated or adversely affected by (a) changes to the
Transitional Funding Order or to the related instrument funding charges payable
by any retail customer, class of retail customers or other person or group of
persons obligated to pay such charges or (b) (subject to the tracing
requirements of federal bankruptcy law) the commingling of revenues arising with
respect to Intangible Transition Property or grantee instruments with funds of
the Utility or other funds of the assignee, issuer or grantee.
Section 18-107(c)(5) of the Funding Law provides that the ICC shall
maintain segregated records which reflect the date and time of receipt of all
filings made under Section 18-107(c). See " -- Filings Made With Respect to
Intangible Transition Property."
RIGHT OF FORECLOSURE. Section 18-107(c)(4) of the Funding Law
provides that, if an event of default occurs under the transitional funding
instruments, the holders thereof or their authorized representatives, as secured
parties, may foreclose or otherwise enforce the lien in the Intangible
Transition Property securing the transitional funding instruments, subject to
the rights of any third parties holding prior security interests therein
(perfected in the manner described in such subsection). Upon application by
such holders or their authorized representatives, the ICC shall order the
sequestration and payment to the holders or their authorized representatives of
revenues arising with respect to the Intangible Transition Property pledged to
the holders. Section 18-107(c)(4) of the Funding Law provides that any such
order shall remain in full force and effect notwithstanding any bankruptcy,
reorganization or other insolvency proceedings with respect to the Utility,
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grantee, assignee or issuer. See "Risk Factors -- Bankruptcy and Creditors'
Rights Issues -- Possible Adverse Effect on Noteholders as a Result of the
Bankruptcy of Illinois Power or the Grantee."
FILINGS MADE WITH RESPECT TO THE INTANGIBLE TRANSITION PROPERTY.
Illinois Power, as Servicer, will pledge in the Servicing Agreement to file with
the ICC on or before the date of issuance of any Series of Notes the filing
required by Section 18-107(c)(1) to perfect the lien of the Indenture Trustee in
the Intangible Transition Property. The Grantee will represent in the Sale
Agreement, at the time of issuance of any Series of Notes, that no prior filing
has been made under the terms of Section 18-107 of the Funding Law with respect
to such Intangible Transition Property, other than a filing which provides the
Indenture Trustee with a first priority perfected security interest in such
Intangible Transition Property on a parity basis with that securing any
outstanding Notes, if any. In addition, the Grantee will pledge in the Sale
Agreement to make any filings necessary under the UCC to perfect the lien of the
Indenture Trustee in the Note Collateral.
DESCRIPTION OF INDENTURE ACCOUNTS
COLLECTION ACCOUNT. Pursuant to the Indenture, a segregated trust
account (the "Collection Account") will be established by the Trust with an
Eligible Institution. The Collection Account will be held by the Indenture
Trustee for the benefit of the Noteholders and the Trust. The Collection
Account will consist of four subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve Subaccount"), a subaccount for
the Overcollateralization Amount with respect to each Series of Notes (the
"Overcollateralization Subaccount") and a capital subaccount (the "Capital
Subaccount"). All amounts in the Collection Account not allocated to any other
subaccount will be allocated to the General Subaccount. Unless the context
indicates otherwise, references herein to the Collection Account include each of
the subaccounts contained therein.
An "Eligible Institution" means (a) the corporate trust department
of the Indenture Trustee or (b) a depository institution organized under the
laws of the United States of America or any one of the states thereof or the
District of Columbia (or any domestic branch of a foreign bank), which (i)
has either (A) a long-term unsecured debt rating of "AAA" by S&P and "A2" by
Moody's or (B) a certificate of deposit rating of "A-l +" by S&P and "P-l" by
Moody's, or any other long-term, short-term or certificate of deposit rating
acceptable to the Rating Agencies and (ii) whose deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC").
Funds in the Collection Account may be invested in any of the
following (subject to additional restrictions in the Indenture): (a) direct
obligations of, or obligations fully and unconditionally guaranteed as to
timely payment by, the United States of America, (b) demand deposits, time
deposits, certificates of deposit or bankers' acceptances of Eligible
Institutions which are described in clause (b) of the preceding paragraph,
(c) commercial paper (other than commercial paper issued by Illinois Power or
any of its affiliates) having, at the time of investment or contractual
commitment to invest, a rating in
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the highest rating category from each Rating Agency from which a rating is
available, (d) money market funds which have the highest rating from each
Rating Agency from which a rating is available, (e) repurchase obligations
with respect to any security that is a direct obligation of, or fully
guaranteed by, the United States of America or certain agencies or
instrumentalities thereof, entered into with certain depository institutions
or trust companies, or (f) any other investment permitted by each Rating
Agency (collectively, the "Eligible Investments"), in each case which mature
on or before the Business Day preceding the next Payment Date. The Indenture
Trustee will have access to the Collection Account for the purpose of making
deposits in, and withdrawals from, the Collection Account in accordance with
the Indenture.
The Servicer will remit to the Collection Account, on each
Remittance Date, IFC Payments as described under "Servicing -- Remittances to
Collection Account."
GENERAL SUBACCOUNT. The General Subaccount will hold all funds held
in the Collection Account that are not held in the other three subaccounts. The
Servicer will remit all IFC Payments to the General Subaccount. On each Payment
Date, the Indenture Trustee will draw on amounts in the General Subaccount to
pay expenses of the Trust and the Grantee and to pay interest and make Scheduled
Payments on the Notes and to make other payments and transfers in accordance
with the terms of the Indenture, including any amounts payable by the Trust to a
Swap Counterparty under the terms of a Swap Agreement.
RESERVE SUBACCOUNT. IFC Collections available with respect to any
Payment Date in excess of amounts necessary to make the Specified Payments
will be allocated to the Reserve Subaccount.
OVERCOLLATERALIZATION SUBACCOUNT. Each Transitional Funding Order
will provide that the Trust, as the assignee of the Intangible Transition
Property created thereby, is entitled to collect an additional amount (for any
Series, the "Overcollateralization Amount") specified in the related Prospectus
Supplement which is intended to enhance the likelihood that payments on the
Notes will be made in accordance with their Expected Amortization Schedules.
Each Transitional Funding Order will permit the Servicer to set the IFC Charges
at levels that are expected to produce IFC Collections in amounts that exceed
the amounts expected to be required to pay interest and make Scheduled Payments
on the Notes, and to pay all related fees and expenses of the Trust and the
Grantee, including the Servicing Fee and any Administration Fee, in order to
collect the Overcollateralization Amount. The Overcollateralization Amount
established in connection with each Series of Notes will be specified in the
related Prospectus Supplement, but will not be less than 0.50 percent of the
initial principal balance of such Series of Notes, and will be collected over
the expected life of the Notes of such Series (I.E., over the period from the
Series Issuance Date of the Notes of such Series through the latest Expected
Maturity Date for any Note in such Series). The Overcollateralization Amount
for all Series of Notes will be held in the Overcollateralization Subaccount.
The amount required to be on deposit in the Overcollateralization Subaccount as
of any Payment Date with respect to each Series, as
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specified in the schedule set forth in the related Prospectus Supplement, is
referred to herein as the "Required Overcollateralization Level."
Amounts in the Overcollateralization Subaccount will be invested in
Eligible Investments, and the Trust will be entitled to earnings thereon,
subject to the limitations described under " -- Allocations; Payments." Amounts
in the Overcollateralization Subaccount are intended to cover any shortfall in
IFC Collections that might otherwise occur on any Payment Date or at the last
Scheduled Maturity Date for any Series or Class of Notes. Any amounts remaining
in the Overcollateralization Subaccount with respect to a particular Series of
Notes in excess of the amounts required to pay such Series of Notes in full at
the Final Maturity Date will be paid to the Grantee or as it directs.
CAPITAL SUBACCOUNT. Upon the issuance of each Series of Notes, the
Trust will retain proceeds in an amount which will be at least equal to 0.50
percent of the initial principal amount of such Series of Notes, less $100,000
in the aggregate for all Series of Notes. Such amount (with respect to each
Series, the "Required Capital Level") will be deposited into the Capital
Subaccount.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will apply, at the
direction of the Servicer, all amounts on deposit in the Collection Account
(including net earnings thereon), as of the most recent Remittance Date to pay
the following amounts in the following priority:
(a) all amounts owed by the Trust to the Delaware Trustee and the
Indenture Trustee will be paid to such persons;
(b) the Servicing Fee and all unpaid Servicing Fees from any prior
Payment Dates will be paid to the Servicer;
(c) the Administration Fee and all unpaid Administration Fees (or any
portions thereof), if any, from prior Payment Dates will be paid to the
Administrator;
(d) so long as no Default or Event of Default has occurred or would
be caused by such payment, all other accrued and unpaid Operating Expenses will
be paid to the persons entitled thereto, provided that the amount paid on each
Payment Date pursuant to this clause (d) may not exceed $100,000;
(e) any overdue Quarterly Interest (together with, to the extent
lawful, interest on such overdue Quarterly Interest at the applicable Note
Interest Rate) and then Quarterly Interest with respect to each Series of Notes
will be paid to the Noteholders together with any net payment due to a Swap
Counterparty;
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(f) principal on any Series of the Notes payable as a result of an
Event of Default or on the Final Maturity Date for such Series of Notes will be
paid to the Noteholders of the applicable Series;
(g) the Scheduled Payment for any Series of Notes based on priorities
described in each Prospectus Supplement will be paid to the Noteholders of the
applicable Series;
(h) unpaid Operating Expenses will be paid to the persons entitled
thereto;
(i) the amount, if any, by which the Required Capital Level with
respect to all outstanding Series of Notes exceeds the amount in the Capital
Subaccount as of such Payment Date will be allocated to the Capital Subaccount;
(j) the amount, if any, by which the Required Overcollateralization
Level with respect to all outstanding Series of Notes exceeds the amount in the
Overcollateralization Subaccount as of such Payment Date will be allocated to
the Overcollateralization Subaccount;
(k) funds up to the net earnings on amounts in the Collection Account
for the prior quarter without cumulation will be released to the Trust;
(l) if any Series of Notes has been retired as of such Payment Date,
the excess of the amount in the Overcollateralization Subaccount over the
aggregate Required Overcollateralization Level with respect to all Series of
Notes remaining outstanding will be released to the Grantee;
(m) if any Series of Notes has been retired as of such Payment Date,
the excess of the amount in the Capital Subaccount over the aggregate Required
Capital Level with respect to all Series of Notes remaining outstanding will be
released to the Grantee;
(n) the balance, if any, will be allocated to the Reserve Subaccount
for payment on subsequent Payment Dates; and
(o) following the payment in full of all outstanding Series of
Notes, the balance, if any, will be released to the Trust.
If on any Payment Date funds on deposit in the General Subaccount are
insufficient to make the payments contemplated by clauses (a) through (g)
above, the Indenture Trustee will (x) first, draw from amounts on deposit in the
Reserve Subaccount, (y) second, draw from amounts on deposit in the
Overcollateralization Subaccount, and (z) third, draw from amounts on deposit in
the Capital Subaccount, up to the amount of such shortfall, in order to make
such payments in full. If amounts on deposit in the Capital Subaccount or the
Overcollateralization Subaccount are used to pay such amounts or make such
transfers, as the case may be, subsequent Adjustments shall take into account,
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among other things, such amounts and on subsequent Payment Dates the Capital
Subaccount or the Overcollateralization Subaccount, as the case may be, will
be replenished to the extent IFC Collections exceed amounts required to pay
amounts having a higher priority of payment, as more fully described above.
In addition, if on any Payment Date funds on deposit in the General
Subaccount are insufficient to make the transfers described in clauses (i)
and (j) above, the Indenture Trustee will draw from amounts on deposit in the
Reserve Subaccount to make such transfers notwithstanding the fact that, on
such Payment Date, the allocation contemplated by clause (h) above may not
have been fully satisfied. If on any Payment Date when there is more than one
Series of Notes outstanding, funds on deposit in the Collection Account are
insufficient to make the payments contemplated by clauses (e), (f) and (g)
above, such funds will be allocated among the various Series and Classes pro
rata, as specified in the related Prospectus Supplement.
For purposes of the foregoing allocations:
"Administration Fee" means the fee payable each month to Illinois
Power (or any successor Administrator) as the Administrator under the
Administration Agreement between Illinois Power and the Grantee.
"Quarterly Interest" means, with respect to any Payment Date and any
Series of Notes, the quarterly interest for such date and Series as specified in
the related Prospectus Supplement.
Payments to the Noteholders of a Series will be made to such holders
as specified in the related Prospectus Supplement.
STATE PLEDGE
The Funding Law provides: "The State [of Illinois] pledges to and
agrees with the holders of any transitional funding instruments who may enter
into contracts with an electric utility, grantee, assignee or issuer pursuant
to this Article XVIII [I.E., the Funding Law] that the State will not in any
way limit, alter, impair or reduce the value of intangible transition property
created by, or instrument funding charges approved by, a transitional funding
order so as to impair the terms of any contract made by such electric utility,
grantee, assignee or issuer with such holders or in any way impair the rights
and remedies of such holders until the pertinent grantee instruments or, if the
related transitional funding order does not provide for the issuance of grantee
instruments, the pertinent transitional funding instruments and interest,
premium and other fees, costs and charges related thereto, as the case may be,
are fully paid and discharged. Electric utilities, grantees and issuers are
authorized to include these pledges and agreements of the State in any contract
with the holders of transitional funding instruments or with any assignees
pursuant to this Article XVIII [of the Funding Law] and any assignees are
similarly authorized to include these pledges and agreements of the State in any
contract with any issuer, holder or any other assignee. Nothing in this
Article XVIII [of the Funding Law] shall preclude the State of
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Illinois from requiring adjustments as may otherwise be allowed by law to the
electric utility's base rates, transition charges, delivery services charges,
or other charges for tariffed services, so long as any such adjustment does
not directly affect or impair any instrument funding charges previously
authorized by a transitional funding order issued by the [ICC]."
Each Transitional Funding Order will provide that the Noteholders and
the Indenture Trustee for the benefit of the Noteholders shall be entitled to
the benefit of the pledges and agreements of the State of Illinois set forth in
Section 18-105(b) of the Funding Law and that each of Illinois Power, the
Grantee and the Trust is authorized to include such pledges and agreements in
any contract with the Noteholders, the Indenture Trustee or with any assignees
pursuant to Section 18-105(b) of the Funding Law. The Grantee will include
these pledges and agreements of the State of Illinois in each Sale Agreement to
the Trust and the Trust, in turn, has included these pledges and agreements in
the Indenture for the benefit of the Indenture Trustee and Noteholders.
REPORTS TO NOTEHOLDERS
On or prior to each Payment Date, Special Payment Date or any other
date specified in the Indenture for payments with respect to any Class of Notes,
the Indenture Trustee will deliver to the Noteholders of such Class a statement
with respect to such payment to be made on such Payment Date, Special Payment
Date or other date, as the case may be, setting forth the following information:
(a) the amount of the payment to Noteholders allocable to
(i) principal and (ii) interest;
(b) the aggregate outstanding principal balance of the Notes, after
giving effect to payments allocated to principal reported under
(a) above; and
(c) the difference, if any, between the amount specified in (b) above
and the principal amount scheduled to be outstanding on such date
according to the Expected Amortization Schedule.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Notes, the Indenture
Trustee will mail to each person who at any time during such calendar year has
been a Noteholder and received any payment thereon, a statement containing
material information for the purposes of such Noteholder's preparation of
Federal and state income tax returns. See "Material United States Federal Income
Tax Consequences."
SUPPLEMENTAL INDENTURES
The Trust and the Indenture Trustee may, from time to time, and
without the consent of the Noteholders of any Series (but with prior notice to
the Rating Agencies), enter into one or more agreements supplemental to the
Indenture for various purposes
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described in the Indenture, including (1) to add to the covenants for the
benefit of the Noteholders; (2) to cure any ambiguity or correct or
supplement any provision in the Indenture or in any supplemental indenture
which may be inconsistent with any other provision in the Indenture or in any
supplemental indenture or to make any other provisions with respect to
matters or questions arising under the Indenture; provided that any such
action shall not adversely affect the interests of the Noteholders; (3) to
evidence the succession of another person to the role of the Indenture
Trustee in accordance with the terms of the Indenture; (4) to effect
qualification under the Trust Indenture Act of 1939, as amended; or (5) to
set forth the terms of any additional Series of Notes or to provide for the
terms of any Swap Agreement. The Trust and the Indenture Trustee may also,
without the consent of the Noteholders, enter into one or more other
agreements supplemental to the Indenture so long as such supplemental
agreement does not, as evidenced by an opinion of counsel, adversely affect
the interests of any Noteholders in any material respect and the Rating
Agency Condition shall have been satisfied with respect thereto.
In addition, the Trust and the Indenture Trustee may, with the
consent of Noteholders holding not less than a majority of the aggregate
outstanding principal amount of the Notes of all affected Series or Classes,
enter into one or more indentures supplemental to the Indenture for the
purpose of, among other things, adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture. No such
supplement, however, may, without the consent of each Noteholder of each
Series or Class affected thereby, take certain actions enumerated in the
Indenture, including (a) reduce in any manner the amount of, or delay the
timing of, deposits or payments on any Note, (b) reduce the aforesaid
percentage of the aggregate outstanding principal amount of the Notes the
holders of which are required to consent to any such supplement, (c) modify
the provisions in the Indenture relating to amendments with the consent of
Noteholders to decrease any minimum percentage of Noteholders required to
approve such amendments, (d) permit the creation of any lien on the Note
Collateral ranking prior to or on a parity with the lien of the Indenture, or
(e) cause any material adverse federal income tax consequences to Illinois
Power, the Grantee, the Trust, the Delaware Trustee, the Indenture Trustee or
the then existing Noteholders. Promptly following the execution of any such
supplement to the Indenture, the Indenture Trustee will furnish written
notice of the substance of such amendment to each Noteholder.
Any supplement to the Indenture or Trust issuance certificate executed
in connection with the issuance of one or more additional Series of Notes will
not be considered an amendment to the Indenture.
CERTAIN COVENANTS OF THE DELAWARE TRUSTEE AND THE TRUST
The Trust may not consolidate with or merge into, or convert into, any
other entity, unless (a) the entity formed by or surviving such consolidation or
merger or conversion is organized under the laws of the United States, any state
thereof or the District of Columbia, (b) such entity expressly assumes by an
indenture supplemental to the Indenture the performance or observance of every
agreement and covenant of the Trust
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under the Indenture, (c) no Default (as defined in the Indenture) or Event of
Default will have occurred and be continuing immediately after such merger or
consolidation or conversion, (d) the Rating Agency Condition will have been
satisfied with respect to such transaction, (e) Illinois Power shall have
delivered to the Grantee, the Trust, the Delaware Trustee and the Indenture
Trustee an opinion of independent tax counsel (as selected by, and in form
and substance reasonably satisfactory to, Illinois Power, and which may be
based on a ruling from the IRS) to the effect that, for federal income tax
purposes, such consolidation or merger or conversion will not result in an
adverse federal income tax consequence to Illinois Power, the Grantee, the
Trust, the Delaware Trustee, the Indenture Trustee or the then existing
Noteholders , (f) the Trust shall have delivered to the Indenture Trustee an
officer's certificate and an opinion of counsel, each stating that all
conditions precedent therein in the Indenture provided for relating to such
transaction have been complied with and (g) any action as is necessary to
maintain the lien and security interest created by the Indenture and the
Funding Law will have been taken.
The Trust may not sell, convey, exchange or transfer or otherwise
dispose of any of the properties or assets of the Trust to any person or
entity, unless (a) the person or entity acquiring the properties and assets
(i) is a United States citizen or an entity organized under the laws of the
United States, any state thereof or the District of Columbia, (ii) expressly
assumes by an indenture supplemental to the Indenture the performance or
observance of every agreement and covenant of the Trust under the Notes,
(iii) expressly agrees by such supplemental indenture that all right, title
and interest so conveyed or transferred will be subject and subordinate to
the rights of Noteholders, (iv) unless otherwise specified in the
supplemental indenture referred to in clause (ii) above, expressly agrees to
indemnify, defend and hold harmless the Delaware Trustee against and from any
loss, liability or expense arising under or related to the Indenture and the
Notes, and (v) expressly agrees by means of such supplemental indenture that
such person (or if a group of persons, then one specified person) shall make
all filings with the Commission (and any other appropriate person) required
by the Exchange Act in connection with the Notes, (b) no Event of Default
will have occurred and be continuing immediately after such transaction, (c)
the Rating Agency Condition will have been satisfied with respect to such
transaction, (d) Illinois Power shall have delivered to the Grantee, the
Trust, the Delaware Trustee and the Indenture Trustee an opinion of
independent tax counsel (as selected by, and in form and substance reasonably
satisfactory to, Illinois Power, and which may be based on a ruling from the
IRS) to the effect that such disposition will not result in a material
adverse federal income tax consequence to Illinois Power, the Grantee, the
Trust, the Delaware Trustee, the Indenture Trustee or the then existing
Noteholders, (e) the Trust shall have delivered to the Indenture Trustee an
officer's certificate and an opinion of counsel, each stating that such
conveyance or transfer complies with the Indenture and all conditions
precedent therein provided for relating to such transaction have been
complied with and (f) any action as is necessary to maintain the lien and
security interest created by the Indenture shall have been taken.
The Trust will not, among other things, for so long as any Notes are
outstanding (a) except as expressly permitted by the Indenture, sell, transfer,
exchange or
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otherwise dispose of any of the assets of the Trust, unless directed to do so
by the Indenture Trustee, (b) claim any credit on, or make any deduction from
the principal or interest payable in respect of, the Notes (other than
amounts properly withheld under the Code) or assert any claim against any
present or former Noteholder because of the payment of taxes levied or
assessed upon any part of the Intangible Transition Property and the other
Note Collateral, (c) terminate the existence of, or dissolve or liquidate in
whole or in part, the Trust, (d) permit the validity or effectiveness of the
Notes to be impaired, (e) permit the lien of the Indenture to be amended,
hypothecated, subordinated, terminated or discharged or permit any person to
be released from any covenants or obligations with respect to the Notes
except as may be expressly permitted by the Indenture, (f) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance,
other than the lien and security interest granted under the Indenture, to be
created on or extend to or otherwise arise upon or burden the Note Collateral
or any part thereof or any interest therein or the proceeds thereof (other
than tax liens arising by operation of law with respect to amounts not yet
due) or (g) permit the lien granted under the Indenture not to constitute a
valid first priority security interest in the Note Collateral.
The Trust may not engage in any business other than financing,
purchasing, owning and managing the Intangible Transition Property and the other
Note Collateral and the issuance of the Notes in the manner contemplated by the
Notes, the Sale Agreements, the Servicing Agreement, the Trust Agreement, the
Grant Agreements, or certain related documents (collectively, the "Basic
Documents") and activities incidental thereto.
The Trust will not issue, incur, assume, guarantee or otherwise become
liable for any indebtedness except for the Notes.
The Trust will not, except as contemplated by the Basic Documents,
make any loan or advance or credit to, or guarantee, endorse or otherwise become
contingently liable in connection with the obligations, stocks or dividends of,
or own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, or any other interest in, or make
any capital contribution to, any other person. The Trust will not, except as
contemplated by the Basic Documents, make any expenditure (by long-term or
operating lease or otherwise) for capital assets (either realty or personalty).
The Trust will not, directly or indirectly, make payments to or distributions
from the Collection Account except in accordance with the Basic Documents.
The Trust will not make any payments, distributions or dividends to
any holder of beneficial interests in the Trust in respect of such beneficial
interest for any calendar month unless no Event of Default shall have occurred
and be continuing and any such payments do not cause the book value of the
remaining equity in the Trust to decline below 0.50% of the initial principal
amount of all Series of Notes issued and outstanding pursuant to the Indenture.
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The Trust will cause the Servicer to deliver to the Indenture Trustee
the annual accountant's certificates, compliance certificates, reports regarding
distributions and statements to Noteholders required by the Servicing Agreement.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An "Event of Default" with respect to any Series of Notes is defined
in the Indenture as being: (a) a default for five days in the payment of any
interest on any Note; (b) a default in the payment of the then unpaid principal
of any Note on the Final Maturity Date for such Series; (c) a default in the
payment of the optional redemption price for any Note on the optional redemption
date therefor; (d) a default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default under
clauses (a) through (c) above) and the continuation of any such default for a
period of 30 days after written notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of at
least 25 percent in principal amount of the Notes of such Series then
outstanding; (e) any representation or warranty made by the Delaware Trustee in
the Indenture on behalf of the Trust or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect in a material respect
as of the time made, and such breach not having been cured within 30 days after
written notice thereof is given to the Trust by the Indenture Trustee or to the
Trust and the Indenture Trustee by the holders of at least 25 percent in
principal amount of the Notes of such Series then outstanding; (f) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust;
(g) a breach by the State of Illinois or any of its agencies (including the
ICC), officers or employees of the State Pledge; or (h) any other event
designated as such in a Trust issuance certificate or series supplement relating
to such Series.
If an Event of Default (other than as specified in clause (g) above)
should occur and be continuing with respect to any Series of Notes, the
Indenture Trustee or holders of not less than a majority in principal amount of
the Notes of all Series then outstanding may declare the principal of the Notes
of all Series to be immediately due and payable. Such declaration may, under
certain circumstances set forth in the Indenture, be rescinded by the holders of
a majority in principal amount of the Notes of all Series then outstanding. If
an Event of Default as specified in clause (g) above has occurred, then, as the
sole and exclusive remedy for such breach, the Servicer shall be obligated to
institute (and the Indenture Trustee, for the benefit of the Noteholders, shall
be entitled and empowered to institute) any suits, actions or proceedings at
law, in equity or otherwise, to enforce the State Pledge and to collect any
monetary damages as a result of a breach thereof, and each of the Servicer and
the Indenture Trustee may prosecute any such suit, action or proceeding to final
judgment or decree. The Servicer would be required to advance its own funds in
order to bring any such suits, actions or proceedings and, for so long as such
legal actions were pending, the Servicer would, unless otherwise prohibited by
applicable law or court or regulatory order in effect at such time, be required
to bill and collect the IFC Charges, perform Adjustments and discharge its
obligations under the Servicing Agreement. The Servicer would be entitled to
reimbursement of its expenses
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advanced by it in connection with such legal or administrative action as an
operating expense of the Trust under the Indenture.
If the Notes of all Series have been declared to be due and payable
following an Event of Default, the Indenture Trustee may, in its discretion,
either sell the Intangible Transition Property or elect to have the Trust
maintain possession of the Intangible Transition Property and continue to apply
IFC Collections as if there had been no declaration of acceleration. There is
likely to be a limited market, if any, for the Intangible Transition Property
following a foreclosure thereon, in light of the preceding default, the unique
nature of the Intangible Transition Property as an asset and other factors
discussed herein. In addition, the Indenture Trustee is prohibited from selling
the Intangible Transition Property following an Event of Default with respect to
any Series, other than a default in the payment of any principal or redemption
price or a default for five days or more in the payment of any interest on any
Note of any Series unless (a) the holders of all the outstanding Notes of all
Series consent to such sale, (b) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on the outstanding Notes of
all Series or (c) the Indenture Trustee determines that the proceeds of the Note
Collateral would not be sufficient on an ongoing basis to make all payments on
the Notes of all Series as such payments would have become due if the Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of the holders of 66 2/3 percent of the aggregate outstanding amount of the
Notes of all Series.
Subject to the provisions of the Indenture relating to the duties
of the Indenture Trustee, if an Event of Default occurs and is continuing,
the Indenture Trustee will be under no obligation to exercise any of the
rights or powers under the Notes at the request or direction of any of the
holders of Notes of any Series if the Indenture Trustee reasonably believes
it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to such provisions for indemnification and certain limitations
contained in the Indenture, the holders of not less than a majority in
principal amount of the outstanding Notes of all Series (or, if less than all
Series or Classes are affected, the affected Series, Class or Classes) will
have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the Indenture Trustee and the holders
of a majority in principal amount of the Notes of all Series then outstanding
may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all of the holders of the outstanding Notes of all
Series or Classes affected thereby.
With respect to the Notes, no holder of any Note of any Series will
have the right to institute any proceeding with respect to the Notes, unless (a)
such holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default with respect to such Series, (b) the holders of not
less than 25 percent in principal amount of the outstanding Notes of all Series
have made written request of the Indenture Trustee to institute such proceeding
in its own name as Indenture Trustee, (c) such holder or holders have offered
the Indenture Trustee satisfactory indemnity, (d) the Indenture Trustee has for
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60 days failed to institute such proceeding and (e) no direction inconsistent
with such written request has been given to the Indenture Trustee during such
60-day period by the holders of a majority in principal amount of the
outstanding Notes of all Series.
In addition, each of the Indenture Trustee, the Noteholders and the
Servicer will covenant that it will not prior to the date which is one year and
one day after the termination of the Indenture, institute against the Grantee,
the Trust or the Delaware Trustee any bankruptcy, reorganization or other
proceeding under any Federal or state bankruptcy or similar law, subject to the
right of the ICC to order sequestration and payment of revenues arising with
respect to the Intangible Transition Property.
Neither the Delaware Trustee in its individual capacity nor the
Indenture Trustee in its individual capacity, nor any holder of any ownership
interest in the Trust, nor any of their respective owners, beneficiaries,
agents, officers, directors, employees, successors or assigns will, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the Notes of any Series or for the
agreements of the Trust contained in the Indenture.
ACTIONS BY NOTEHOLDERS
Subject to certain exceptions, the holders of a majority of the
aggregate outstanding amount of the Notes of all Series (or, if less than all
Series or Classes are affected, the affected Series or Class or Classes)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee, or exercising
any trust or power conferred on the Indenture Trustee under the Indenture;
provided that: (1) such direction shall not be in conflict with any rule of
law or with the Indenture and would not involve the Indenture Trustee in
personal liability or expense; (2) the Indenture Trustee shall not have
determined that the action might materially adversely affect the rights of
any Noteholder not consenting to such actions; (3) the Indenture Trustee may
take any other action deemed proper by the Indenture Trustee which is not
inconsistent with such direction. In circumstances under which the Indenture
Trustee is required to seek instructions from the holders of the Notes of any
Class with respect to any such action or vote, the Indenture Trustee will
take such action or vote for or against any proposal in proportion to the
principal amount of the corresponding Class, as applicable, of Notes taking
the corresponding position. Notwithstanding the foregoing, each Noteholder
shall be allowed to institute suit for the non-payment of (a) the interest,
if any, on its Notes which remains unpaid as of the applicable due date and
(b) the unpaid principal, if any, of such Notes on the Final Maturity Date
therefor.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture Trustee
and the Rating Agencies a written statement as to the fulfillment of its
obligations under the Notes.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of material United States
federal income and estate tax consequences relevant to the purchase, ownership
and disposition of the Notes by the beneficial owners thereof ("Noteholders").
The discussion is limited to Noteholders and, except as specifically addressed
herein, does not address the tax consequences to subsequent purchasers of Notes.
This summary does not purport to be a complete analysis of all the potential
United States federal income and estate tax effects relating to the purchase,
ownership and disposition of the Notes. There can be no assurance that the
Internal Revenue Service (the "IRS") will take a similar view of such
consequences. Further, the discussion does not address all aspects of taxation
that might be relevant to particular purchasers in light of their individual
circumstances (including the effect of any state, local, non-United States or
other tax laws) or to certain types of purchasers (including dealers in
securities, insurance companies, financial institutions and tax-exempt entities)
subject to special treatment under United States federal tax law.
The discussion below is based on the Internal Revenue Code of 1986, as
amended (the "Code"), administrative pronouncements, judicial decisions,
existing, proposed and temporary United States Treasury Regulations, all in
effect as of the date hereof, all of which are subject to change at any time,
and any such change may be applied retroactively. Because individual
circumstances may differ, it is recommended that each prospective purchaser of a
Note consult its own tax advisor with respect to its particular tax situation
and the particular tax effects of any state, local, non-United States or other
tax laws and possible changes in the tax laws. The discussion below assumes
that the Notes are held as capital assets within the meaning of Section 1221
of the Code.
IT IS RECOMMENDED THAT PERSONS CONSIDERING THE PURCHASE OF NOTES
SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES TO THEM ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
NON-UNITED STATES TAXING JURISDICTION.
With respect to each Series of Notes, Illinois Power expects to
receive a ruling from the IRS to the effect that, among other things, (a) the
Trust's issuance of the Notes will not result in gross income to Illinois
Power and (b) because neither the Trust not the Grantee will elect to be
classified as an association taxable as a corporation for federal income tax
purposes, the Notes will be obligations of Illinois Power. For a given Series
of Notes, however, Illinois Power may decide that, in lieu of obtaining a ruling
from the IRS, Illinois Power will rely on an opinion from its tax counsel to the
effect that, among other things, the Notes will be obligations of Illinois
Power. The IRS ruling or the tax opinion will be discussed in the related
Prospectus Supplement. The following discussion assumes that, based on such
ruling or tax opinion, the Notes will constitute indebtedness of Illinois Power
for federal income and estate tax purposes.
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The discussions below under "Tax Consequences to United States
Noteholders," "Tax Consequences to Non-United States Noteholders" and "Backup
Withholding and Information Reporting" are accurate in all material respects as
to matters of law and legal conclusions and, to the extent such discussions
constitute matters of law or legal conclusions, they are based on the opinion of
Mayer, Brown & Platt.
TAX CONSEQUENCES TO UNITED STATES NOTEHOLDERS
UNITED STATES NOTEHOLDER. As used herein, the term "United States
Noteholder" means a Noteholder who or which is, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any State thereof (including the District of Columbia) , (c)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (d) a trust described in Section
7701(a)(30) of the Code (taking into account changes thereto and associated
effective dates, elections and transition rules). The term also includes
certain Noteholders who are former citizens or residents of the United States
whose income and gain from the Notes will be subject to United States taxation.
PAYMENTS OF INTEREST. Interest paid on a Note will generally be
taxable to a United States Noteholder as ordinary interest income at the time
it accrues or is received in accordance with the United States Noteholder's
method of accounting for United States federal income tax purposes. The
preceding sentence assumes that, in the case of Floating Rate Notes, the
Floating Rate Notes will qualify as "variable rate debt instruments" as
defined in Treasury Regulation Section 1.1275-5(a) and that interest on such
Floating Rate Notes will be unconditionally payable, or will be
constructively received under Section 451 of the Code, in cash or in property
at least annually at a single "qualified floating rate" or "objective rate".
If such assumption is incorrect with respect to a Floating Rate Note, the
taxation of interest on such Floating Rate Note will be addressed in the
related Prospectus Supplement.
ORIGINAL ISSUE DISCOUNT. Because it is expected that the stated
principal amount of the Notes will not exceed their issue price by more than a
statutory DE MINIMIS amount (I.E., 0.25% of the principal amount of a Note
multiplied by its weighted average maturity ), the Notes should not be issued
with "original issue discount." If the stated principal amount of a Note
exceeds its issue price by an amount that is less than or equal to such DE
MINIMIS amount, the excess generally will be taken into income by a United
States Noteholder as gain from the retirement of a Note (as described below
under " -- Sale, Exchanges, Redemption or Retirement of the Notes"), in
proportion to principal payments made on the Notes. A United States Noteholder
may elect to treat all interest on a Note as original issue discount. If such
an election is made, the excess of a Note's stated principal amount over its
issue price would not be treated as DE MINIMIS and would be taken into income on
a constant yield basis under the rules applicable to accrual of original issue
discount.
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MARKET DISCOUNT AND PREMIUM. A Noteholder attempting to sell a Note
in the secondary market should be aware that a subsequent Noteholder who
purchases a Note at a discount might be subject to the "market discount" rules
of the Code. Also, a subsequent Noteholder who purchases a Note at a premium
may elect to amortize and deduct the premium over the remaining term of the Note
in accordance with rules set forth in Section 171 of the Code.
SALE, EXCHANGES, REDEMPTION OR RETIREMENT OF THE NOTES. Upon the
sale, exchange, redemption or retirement of a Note, a United States Noteholder
will recognize taxable gain or loss equal to the difference between the amount
realized on such sale, exchange, redemption or retirement (not including any
amount attributable to accrued but unpaid interest) and such Noteholder's
adjusted tax basis in the Note. To the extent the amount realized is
attributable to accrued but unpaid interest, the amount recognized by the United
States Noteholder will be treated as a payment of interest. See " -- Payments
of Interest" above. A United States Noteholder's adjusted tax basis in a Note
generally will equal the cost of the Note to such Noteholder, increased by any
OID previously included by such Noteholder in income with respect to such Note
and reduced by any principal payments received by such Noteholder.
Gain or loss recognized on the sale, exchange, redemption or
retirement of a Note will be capital gain or loss. For non-corporate taxpayers,
capital gain recognized on the disposition of an asset (including a Note) held
for more than one year is subject to United States federal income tax at a
maximum rate of 20%. Recently enacted legislation eliminated the long-term
capital gain tax rate differential between capital assets held for more than 18
months and capital assets held for more than one year but not more than 18
months. Capital gain on the disposition of an asset (including a Note) held for
not more than one year is taxed at the rates applicable to ordinary income
(I.E., up to 39.6%). The distinction between capital gain or loss and ordinary
income or loss is relevant for purposes of, among other things, limitations on
the deductibility of capital losses.
TAX CONSEQUENCES TO NON-UNITED STATES NOTEHOLDERS
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
(a) payments of principal and interest (including original issue
discount, if any) on a Note by the Trust or any paying agent to a
Noteholder that is not a United States Noteholder, as defined above
(hereinafter, "Non-United States Noteholder"), will not be subject to
withholding of United States federal income tax, provided that, in the case
of interest, (i) such Noteholder does not own, actually or constructively,
10 percent or more of the total combined voting power of all classes of
stock of Illinois Power entitled to vote, (ii) such Noteholder is not, for
United States federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to Illinois Power through stock ownership,
(iii) such Noteholder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification
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requirements under Section 871(h) or Section 881(c) of the Code and
Treasury Regulations thereunder (summarized below) are met;
(b) a Non-United States Noteholder will not be subject to United
States federal income tax on gain recognized on the sale, exchange,
redemption, retirement or other disposition of such Note, unless (i) such
Noteholder is a non-resident alien individual who is present in the United
States for 183 days or more in the taxable year of disposition, and certain
conditions are met or (ii) such gain is effectively connected with the
conduct by such Noteholder of a trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident (as
defined for United States federal estate tax purposes) of the United States
at the time of his death will not be subject to United States federal
estate tax as a result of such individual's death, provided that, at the
time of such individual's death, (i) the individual does not own, actually
or constructively, 10 percent or more of the total combined voting power of
all classes of stock of Illinois Power entitled to vote and (ii) payments
with respect to such Note, if received at the time of the individual's
death, would not have been effectively connected with the conduct by such
individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and United States Treasury
Regulations thereunder require that, in order to obtain the exemption from
withholding tax described in paragraph (a) above, either (A) the beneficial
owner of a Note must certify, under penalties of perjury, to the Trust or paying
agent, as the case may be, that such owner is a Non-United States Noteholder and
must provide such owner's name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the Note on behalf of the beneficial owner thereof must
certify, under penalties of perjury, to the Trust or paying agent, as the case
may be, that such certificate has been received from the beneficial owner by it
or by a Financial Institution between it and the beneficial owner and must
furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying Non-United States Noteholder after issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
Under temporary United States Treasury Regulations, the foregoing certification
may be provided by the beneficial owner of a Note on IRS Form W-8.
Notwithstanding the foregoing, interest described in Section 871(h)(4)
of the Code is subject to United States withholding tax at a 30% rate (or such
lower rate as may be provided by an applicable treaty). In general, interest
described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest, the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distribution or
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similar payments made by the issuer or a related person. Interest described
in Section 871(h)(4) of the Code may include other types of contingent
interest identified by the IRS in future Treasury Regulations. The Trust
does not currently expect to issue Notes, the interest on which is described
in Section 871(h)(4) of the Code. However, if such Notes are issued, the
taxation of such Notes will be addressed in the related Prospectus Supplement.
On October 14, 1997, the IRS published in the Federal Register
final Regulations (the "1997 Final Regulations") which affect the United
States taxation of Non-United States Noteholders. As promulgated, the 1997
Final Regulations will be effective for payments after December 31, 1998,
regardless of the issue date of the instrument with respect to which such
payments are made, subject to certain transition rules. The IRS thereafter
announced its intention to amend the 1997 Final Regulations to extend this
date to December 31, 1999, subject to certain transition rules. The
discussion under this heading and under " -- Backup Withholding and
Information Reporting," below, is not intended to be a complete discussion of
the provisions of the 1997 Final Regulations or the subsequent IRS
announcement, and it is recommended that prospective purchasers of the Notes
to consult their tax advisors concerning the tax consequences of their
acquiring, holding and disposing of the Notes in light of the 1997 Final
Regulations.
The 1997 Final Regulations provide documentation procedures designed
to simplify compliance by withholding agents. The 1997 Final Regulations
generally do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. "Qualified Intermediaries" include: (a) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization) or
(b) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (a) and (b), have entered into withholding agreements with the IRS. In
addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised IRS Form W-8 (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a United
States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final
Regulations generally treat, as the beneficial owners of payments on a Note,
those persons that, under United States tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally will be required to provide the required
certifications to qualify for the withholding exemption described above. A
payment to a United States partnership, however, is treated for these purposes
as payment to a United
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States payee, even if the partnership has one or more foreign partners. The
1997 Final Regulations provide certain presumptions with respect to
withholding for Noteholders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including IRS Form W-8 and IRS Form 4224, discussed below) with a single,
revised IRS Form W-8 (which, in certain circumstances, requires information
in addition to that previously required). Under the 1997 Final Regulations,
this Form W-8 will remain valid, generally, until the last day of the third
calendar year following the year in which the certificate is signed. The 1997
Final Regulations contained detailed rules, which might be changed in light
of the recent IRS announcement that the effective date will be postponed,
governing tax certifications during the transition period prior to and
immediately following the effectiveness of the 1997 Final Regulations.
If a Non-United States Noteholder is engaged in a trade or business
in the United States, and if interest on the Note, or gain recognized on the
sale, exchange, redemption, retirement or other disposition of a Note, is
effectively connected with the conduct of such trade or business, the
Non-United States Noteholder, although exempt from withholding of United
States income tax, will generally be subject to regular United States income
tax on such interest or gain in the same manner as if it were a United States
Noteholder. See " -- Tax Consequences to United States Noteholders" above.
In lieu of the certificate described above, such a Noteholder must provide to
the withholding agent a properly executed IRS Form 4224 (or successor form)
in order to claim an exemption from withholding. In addition, if such
Non-United States Noteholder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable
year, subject to certain adjustments. For purposes of the branch profits
tax, interest on, and any gain recognized on the sale, exchange, redemption,
retirement or other disposition of, a Note will be included in the
effectively connected earnings and profits of such Non-United States
Noteholder if such interest or gain is effectively connected with the conduct
by the Non-United States Noteholder of a trade or business in the United
States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31 % backup
withholding tax and information reporting requirements apply to certain payments
of principal and interest made to, and to the proceeds of sale before maturity
by, certain Noteholders.
In the case of a non-corporate United States Noteholder, backup
withholding will apply only if (a) such Noteholder fails to furnish its Taxpayer
Identification Number ("TIN") (which, for an individual, is his or her Social
Security number) to the payor in the manner required, (b) such Noteholder
furnishes an incorrect TIN and the payor is so notified by the IRS, (c) the
payor is notified by the IRS that such Noteholder has failed properly to report
payments of interest or dividends or (d) under certain circumstances, such
Noteholder fails to certify, under penalties of perjury, that it has furnished a
correct TIN and
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has not been notified by the IRS that it is subject to backup withholding for
failure to report interest or dividend payments. Backup withholding does not
apply with respect to payments made to certain exempt recipients, such as a
corporation (within the meaning of Section 7701(a) of the Code) and
tax-exempt organizations. United States Noteholders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a United States
Noteholder will be allowed as a credit against such Noteholder's United States
federal income tax liability and may entitle such Noteholder to a refund,
provided that the required information is furnished to the IRS.
In the case of a Non-United States Noteholder, under currently
applicable United States Treasury Regulations, backup withholding and
information reporting will not apply to payments of principal or interest
made by the Trust or any paying agent thereof on a Note (absent actual
knowledge that the Noteholder is a United States Noteholder) if such
Noteholder has provided the required certification under penalties of perjury
that it is not a United States Noteholder (as defined above) or has otherwise
established an exemption. If such Noteholder does not provide the required
certification, such Noteholder may nevertheless avoid backup withholding or
information reporting in the circumstances described below, but might be
subject to withholding of United States federal income tax as described above
under " -- Tax Consequences to Non-United States Noteholders."
Under currently applicable United States Treasury Regulations, if
payments of principal or interest are collected outside the United States by a
foreign office of a custodian, nominee or other agent acting on behalf of a
beneficial owner of a Note, such custodian, nominee or other agent will not be
required to apply backup withholding to such payments made to such beneficial
owner, and generally will not be subject to information reporting requirements.
However, if such custodian, nominee or other agent is a United States person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50 % or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, information
reporting (but not backup withholding) will be required unless such custodian,
nominee or other agent has in its records documentary evidence that the
beneficial owner is not a United States Noteholder (which such agent does not
actually know to be false) and certain other conditions are met or the
beneficial owner otherwise establishes an exemption.
Under currently applicable United States Treasury Regulations,
payments on the sale, exchange, redemption, retirement or other disposition of a
Note made to or through a foreign office of a broker generally will not be
subject to backup withholding, and generally will not be subject to information
reporting requirements. Such payments, however, will be subject to information
reporting (but not backup withholding) if the broker is, for United States
federal income tax purposes, a United States person, a controlled foreign
corporation or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, unless
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the broker has in its records documentary evidence that the beneficial owner
is not a United States Noteholder (which such broker does not actually know
to be false) and certain other conditions are met or the beneficial owner
otherwise establishes an exemption. Payments made to or through the United
States office of a broker will be subject to backup withholding and
information reporting unless the Non-United States Noteholder certifies,
under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
In general, the 1997 Final Regulations do not significantly alter
the substantive backup withholding and information reporting requirements
described above. As under current law, backup withholding and information
reporting will not apply to (i) payments to a Non-United States Noteholder of
principal and interest and (ii) payments to a Non-United States Noteholder on
the sale, exchange, redemption, retirement or other disposition of a Note, in
each case if such Non-United States Noteholder provides the required
certification to establish an exemption from the withholding of United States
federal income tax or otherwise establishes an exemption. Similarly, even if
a Non-United States Noteholder does not provide such certification or
otherwise establish an exemption, unless the payor has actual knowledge that
the payee is a United States Noteholder, backup withholding will not apply to
(a) payments of interest made outside the United States to certain offshore
accounts and (b) payments on the sale, exchange, redemption, retirement or
other disposition of a Note effected outside the United States. However,
information reporting (but not backup withholding) will apply to (a) payments
of interest made by a payor outside the United States and (b) payments on the
sale, exchange, redemption, retirement or other disposition of a Note
effected outside the United States if payment is made by a broker that is,
for United States federal income tax purposes, (i) a United States person,
(ii) a controlled foreign corporation, (iii) a United States branch of a
foreign bank or foreign insurance company, (iv) a foreign partnership
controlled by United States persons or engaged in a United States trade or
business or (v) a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business
for a specified three-year period, in each case unless such payor or broker
has in its records documentary evidence that the beneficial owner is not a
United States Noteholder and certain other conditions are met or the
beneficial owner otherwise establishes an exemption (in which case neither
information reporting nor backup withholding will apply). As noted above, the
IRS has announced that the 1997 Final Regulations will be amended to be
effective generally for payments after December 31, 1999, subject to certain
transition rules.
Non-United States Noteholders should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a Non-United States Noteholder under the backup withholding
rules will be allowed as a credit against such Noteholder's United States
federal income tax liability and may entitle such Noteholder to a refund,
provided that the required information is furnished to the IRS.
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THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A NOTEHOLDER'S PARTICULAR SITUATION. IT IS
RECOMMENDED THAT PROSPECTIVE PURCHASERS CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL,
STATE, LOCAL, NON-UNITED STATES AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES
IN SUCH LAWS.
ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose certain requirements
on employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain
collective investment funds or insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject
to the fiduciary responsibility and prohibited transaction provisions of
ERISA and/or Section 4975 of the Code (collectively, "Plans"), and on persons
who are fiduciaries with respect to Plans, in connection with the investment
of assets that are treated as "plan assets" of any Plan for purposes of
applying Title I of ERISA and Section 4975 of the Code ("Plan Assets").
ERISA imposes on Plan fiduciaries certain general fiduciary requirements,
including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the
documents governing the Plan. Generally, any person who has discretionary
authority or control respecting the management or disposition of Plan Assets,
and any person who provides investment advice with respect to Plan Assets for
a fee or other consideration, is a fiduciary with respect to such Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan Assets and persons who have certain specified
relationship to a Plan or its Plan Assets ("parties in interest" under ERISA and
"disqualified persons" under the Code (collectively, "Parties in Interest")),
unless a statutory or administrative exemption is available. Parties in Interest
and Plan fiduciaries that participate in a prohibited transaction may be subject
to penalties imposed under ERISA and/or excise taxes imposed pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Certain transactions involving the purchase, holding or transfer of
the Notes might be deemed to constitute prohibited transactions under ERISA
and/or Section 4975 of the Code if assets of the Trust were deemed to be Plan
Assets. Regulations issued by the United States Department of Labor, set
forth in 29 C.F.R. Section 2510.3-101 (the "Plan Asset Regulations"), provide
rules regarding when assets of an entity, such as the Trust, would be treated
as Plan Assets. Under those rules, the assets of the Trust would be treated
as Plan Assets of a Plan for the purposes of ERISA and Section 4975 of the
Code only if the Plan acquires an equity interest in the Trust and none of
the exceptions contained in the Plan Asset Regulations is applicable. An
equity interest is defined under the Plan Asset
154
<PAGE>
Regulations as an interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no
substantial equity features. Although there is no authority directly on
point, it is anticipated that the Notes should be treated as indebtedness
under local law without any substantial equity features for purposes of the
Plan Asset Regulations. Accordingly, the assets of the Trust should not be
treated as Plan Assets.
Without regard to whether the Notes are treated as an equity
interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Plan or with Plan Assets could be considered to give rise to a
prohibited transaction if Illinois Power, the Trust, the Indenture Trustee,
the Delaware Trustee, the Grantee, the Administrator, the Servicer, any Swap
Counterparty, any Underwriter or any of their respective affiliates is or
becomes a Party in Interest with respect to such Plan. In this event,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the fiduciary making the decision
to acquire Notes. Included among these exemptions are Prohibited Transaction
Class Exemption ("PTCE") 75-1, which exempts certain transactions involving
Plans and certain broker-dealers, reporting dealers and banks, PTCE 90-1,
which exempts certain transactions between insurance company separate
accounts and Parties in Interest, PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties in
Interest, PTCE 84-14, which exempts certain transactions effected on behalf
of a Plan by a "qualified professional asset manager", PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties in Interest and PTCE 96-23, which exempts certain transactions
effected on behalf of a Plan by an "in-house asset manager" (collectively,
the "Exemptions"). Even if the conditions specified in one or more of the
Exemptions are met, the scope of the relief provided by the Exemptions might
or might not cover all acts which might be construed as prohibited
transactions.
Nevertheless, a Plan generally should not purchase Notes if Illinois
Power, the Indenture Trustee, the Delaware Trustee, the Grantee, the
Administrator, the Servicer, any Swap Counterparty, any Underwriter or any of
their respective affiliates either (a) has investment discretion with respect to
the investment of assets of such Plan; (b) has authority or responsibility to
give or regularly gives investment advice with respect to assets of such Plan
for a fee and pursuant to an agreement or understanding that such advice will
serve as a primary basis for investment decisions with respect to such assets
and that such advice will be based on the particular investment needs of such
Plan; or (c) is an employer maintaining or contributing to such Plan. A party
that is described in clause (a) or (b) of the preceding sentence is a fiduciary
under ERISA with respect to the Plan, and any such purchase might result in a
"prohibited transaction" under ERISA or the Code for which no exemption may be
available.
ANY FIDUCIARY OR OTHER PLAN INVESTOR CONSIDERING WHETHER TO PURCHASE
ANY CLASS OR SERIES OF NOTES ON BEHALF OF OR WITH PLAN ASSETS OF ANY PLAN SHOULD
CONSULT WITH ITS LEGAL ADVISORS.
155
<PAGE>
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(31) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, except as provided in the applicable Prospectus Supplement,
assets of such plans may be invested in the Notes of any Class or Series without
regard to the ERISA considerations described herein, subject to the provisions
of other applicable federal and state law. However, any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
USE OF PROCEEDS
The Trust will pay over the proceeds received from each sale of a
Series of Notes (net of the expenses of issuance and amounts required to fund
the Capital Subaccount) to the Grantee as the consideration for the Grantee's
assignment of its ownership rights in the Intangible Transition Property and
Related Assets (as defined in the Basic Documents) to the Trust. The Grantee
will declare distributions to its sole member, Illinois Power, in the amount
of the proceeds received from the Trust net of the expenses of issuance and
amounts required to fund the Capital Subaccount and thereby transfer such
proceeds to Illinois Power in consideration for Illinois Power's request in
each application for a Transitional Funding Order that the related Intangible
Transition Property be granted to and vested in the Grantee.
Subject to the limitations on the use of proceeds described in
"Description of the Intangible Transition Property -- Limitations on the Amounts
of Transitional Funding Instruments, Intangible Transition Property and
Instrument Funding Charges Which Can Be Authorized; Permitted Use of Proceeds,"
and to market conditions, Illinois Power anticipates using the aggregate net
proceeds which it receives from the Grantee to redeem, retire or refinance
mortgage bonds and notes, together with certain premia anticipated in connection
with such redemptions, to redeem preferred stock and securities, to repurchase
common equity from its parent company, including commissions in connection with
such repurchases, and to pay any transaction costs incurred in connection with
such redemptions, retirements, refinancings and repurchases. Illinois Power's
parent company will use the proceeds it receives from any repurchase of Illinois
Power common equity to repurchase the parent company's publicly-traded common
stock, including payment of commissions thereon.
PLAN OF DISTRIBUTION
The Notes of each Series may be sold to or through underwriters
named in the related Prospectus Supplement (the "Underwriters") by a
negotiated firm commitment underwriting and public reoffering by the
Underwriters or such other underwriting arrangement as may be specified in
the related Prospectus Supplement or may be offered
156
<PAGE>
or placed either directly or through agents. The Grantee and the Trust
intend that Notes will be offered through such various methods from time to
time and that offerings may be made concurrently through more than one of
such methods or that an offering of a particular Series of Notes may be made
through a combination of such methods.
The distribution of Notes may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or in negotiated transactions or otherwise at varying prices to be
determined at the time of sale.
In connection with the sale of the Notes, Underwriters or agents
may receive compensation in the form of discounts, concessions or
commissions. Underwriters may sell Notes to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession
to certain other dealers. Underwriters, dealers and agents that participate
in the distribution of the Notes of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Trust and any
profit on the resale of the Notes by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such Underwriters or
agents will be identified, and any such compensation received from the Trust
will be described in the related Prospectus Supplement.
Under agreements which may be entered into by the Grantee and the
Trust, Underwriters and agents who participate in the distribution of the Notes
may be entitled to indemnification by the Grantee and Illinois Power and against
certain liabilities, including liabilities under the Securities Act.
The Underwriters may, from time to time, buy and sell Notes, but there
can be no assurance that an active secondary market will develop and there is no
assurance that any such market, if established, will continue.
RATINGS
It is a condition of issuance of each Class of Notes that at the time
of issuance such Class receive the rating indicated in the related Prospectus
Supplement, which will be in one of the four highest categories, from at least
one Rating Agency.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. No person is obligated to maintain the rating on any
Note, and, accordingly, there can be no assurance that the ratings assigned to
any Class of Notes upon initial issuance will not be lowered or withdrawn by a
Rating Agency at any time thereafter. If a rating of any Class of Notes is
revised or withdrawn, the liquidity of such Class of Notes may be adversely
affected. In general, ratings address credit risk and do not represent any
assessment of the rate of principal payments on the Notes.
157
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes will be
passed upon for the Trust by Schiff Hardin & Waite, Chicago, Illinois and for
the Underwriters by Brown & Wood LLP, New York, New York. Certain legal matters
relating to the United States federal income tax consequences of the issuance of
the Notes will be passed upon for the Trust by Mayer, Brown & Platt, Chicago,
Illinois. Certain legal matters relating to the Trust will be passed upon for
the Trust by Richards, Layton & Finger, P.A., Wilmington, Delaware.
EXPERTS
The financial statements of Illinois Power Securitization Limited
Liability Company as of September 11, 1998 and for the period from September 10,
1998 (date of inception) through September 11, 1998 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
158
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------ ---------------
<S> <C>
1997 Final Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Adjustment Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 75
Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Agent Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Amendatory Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 59
Amendatory Tariff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Annual Accountant's Report . . . . . . . . . . . . . . . . . . . . . . . . . 116
Applicable Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 73
Basic Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
BCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Beneficiary Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Billing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30, 113
Book Entry Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Calculation of Registration Fee . . . . . . . . . . . . . . . . . . . . . . II-5
Capital Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 134
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CEDEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 15
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35, 146
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
contract service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Daily Remittance Date. . . . . . . . . . . . . . . . . . . . . . . . . . . .30, 113
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Delaware Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 15
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Downgrade Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31, 57
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
159
<PAGE>
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Excluded Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 73
Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Expected Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . 121
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
FERC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Final Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 121
Financial Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Floating Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Funding Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
General Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 134
Grant Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Grant Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ICC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IFC Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
IFC Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IFC Customer Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
IFC Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 72
IFC Tariff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Illinois Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, II-2
Illinova . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 120
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Independent Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Initial Intangible Transition Property . . . . . . . . . . . . . . . . . . 76
Initial TFO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
instrument funding charge. . . . . . . . . . . . . . . . . . . . . . . . . 65
Intangible Transition Property . . . . . . . . . . . . . . . . . . . . . . 19, 65
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
ISDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Lost Revenue Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . 113
Monthly IFC Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Monthly Servicer's Certificate . . . . . . . . . . . . . . . . . . . . . . 116
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
New Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 130
Non-United States Noteholder . . . . . . . . . . . . . . . . . . . . . . . 148
Note Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 146
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 10
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . . . . . 28, 135
Overcollateralization Subaccount . . . . . . . . . . . . . . . . . . . . . 27, 134
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
160
<PAGE>
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 121
Plan Asset Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Plan Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 154
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Qualified Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . 150
Quarterly Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Rating Agency Condition. . . . . . . . . . . . . . . . . . . . . . . . . . 56, 121
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Reconciliation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Remittance Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Remittance Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 113
Reporting Customer Class . . . . . . . . . . . . . . . . . . . . . . . . . 98
Required Capital Level . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 136
Reserve Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 134
Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
S&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sale Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Scheduled Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 122
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 15
Series Issuance Date . . . . . . . . . . . . . . . . . . . . . . . . . 30, 112, 121
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, F-9
Servicer Business Day. . . . . . . . . . . . . . . . . . . . . . . . . 30, 104
Servicer Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Servicing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Specified Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 12
State Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Subsequent Intangible Transition Property. . . . . . . . . . . . . . . 76
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . 76
Successor Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Swap Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 124
Swap Counterparty. . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 128
TIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Transitional Funding Order . . . . . . . . . . . . . . . . . . . . . . 18, 65, 71
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 14, II-4
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 15
161
<PAGE>
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
United States Noteholder . . . . . . . . . . . . . . . . . . . . . . . 147
Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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162
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INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . F-2
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . F-3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Changes in Member's Equity . . . . . . . . . . . . . . . F-5
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
[PricewaterhouseCoopers LLP Letterhead]
To the Member of Illinois Power
Securitization Limited Liability Company
September 15, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying balance sheet and the related statements of
operations and change in member's equity and of cash flows present fairly, in
all material respects, the financial position of Illinois Power
Securitization Limited Liability Company at September 11, 1998, and the
results of its operations and its cash flows for the period from September
10, 1998 (date of inception) through September 11, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
F-2
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
STATEMENT OF OPERATIONS
For the Period from September 10, 1998 (date of inception) to September 11, 1998
<TABLE>
<S> <C>
Revenues $ --
Expenses $ --
-------
Net Income (Loss) $ --
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
BALANCE SHEET
September 11, 1998
<TABLE>
<S> <C>
Assets
Total Assets $ --
-------
-------
Liabilities and Member's Equity
Member's Equity $ 1,000
Less: Equity Contribution Due from Illinois Power Company (1,000)
-------
Total Liabilities and Member's Equity $ --
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
STATEMENT OF CHANGES IN MEMBER'S EQUITY
For the period from September 10, 1998 (date of inception) to September 11, 1998
<TABLE>
<S> <C>
Member's Equity at Inception $ --
Add: Contributed Equity 1,000
Less: Equity Contribution Due from Illinois Power Company 1,000
-------
Member's Equity at End of Period $ --
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
STATEMENT OF CASH FLOWS
For the period from September 10, 1998 (date of inception) to September 11, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ --
----------
Net Cash Used in Operating Activities $ --
----------
Cash Flows from Investing Activities:
Equity Contribution in Illinois Power Special Purpose Trust: $
----------
Net Cash Used in Investing Activities $
----------
Cash Flows from Financing Activities:
Net Cash Provided by Financing Activities $
----------
Net Increase/(Decrease) in Cash $ --
Cash at Inception --
----------
Cash at End of Period
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements include the accounts of Illinois Power
Securitization Limited Liability Company (IPS), a special purpose Delaware
limited liability company, whose sole member is Illinois Power Company (IP).
IP, the principal subsidiary of Illinova Corporation (Illinova), is engaged
in the production, purchase, transmission, distribution and sale of
electricity to a diverse base of customers. IPS was formed on September 10,
1998, for the exclusive purposes of (i) initially owning the "intangible
transition property" (described below), (ii) assigning all of its right,
title and interest in the intangible transition property and the Intangible
Transition Property Servicing Agreement (Servicing Agreement) to Illinois
Power Special Purpose Trust (Trust) (described below), and (iii) entering
into the servicing agreement with IP (the Servicer) in respect to the
intangible transition property. The Trust is a special purpose Delaware
business trust which will issue Transitional Funding Trust Notes (Notes)
secured by the intangible transition property to investors and will remit the
proceeds to IPS in consideration for the transferring of its interest in the
intangible transition property. IPS, in turn, will remit the net proceeds to
IP in consideration for IP's actions in applying for and obtaining the
Transitional Funding Order from the Illinois Commerce Commission (ICC)
creating the intangible transition property in IPS. The Trust anticipates
that the Notes will be issued sometime in the fourth quarter of 1998.
IPS was organized solely to acquire, own, hold, administer, service or enter
into agreements regarding the receipt and servicing of, intangible transition
property, along with certain other related assets. The Trust will be
organized with the sole purpose of limited business activities as are
necessary or reasonably related to the issuance of the Notes. IPS and the
Trust are structured and are to be operated in a manner such that even in the
event of bankruptcy proceedings against IP, the assets of IPS and the Trust
will not be consolidated into the bankruptcy estate of IP.
The intangible transition property is the separate property right, as created
under the Transitional Funding Order issued by the ICC to IP on September 10,
1998, including, without limitation, the right, title and interest to impose
and collect instrument funding charges (IFC). IFC's are nonbypassable,
usage-based, per kilowatt-hour charges to be imposed on designated consumers
of electricity.
F-7
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF ACCOUNTING POLICIES
(a) GENERAL
IPS follows the accrual method of accounting. IPS will pay its own
operating expenses and liabilities from its own separate assets.
Administrative and general expenses incurred by IP on behalf of IPS
will be reimbursed by IPS in accordance with the Administration
Agreement approved by the ICC.
(b) RESIDUAL INTEREST IN THE TRUST
Certain proceeds derived from the sale of the Notes will be retained
for the benefit of the Trust in a Capital Subaccount. IPS will have
the residual interest in the Trust.
(c) INCOME TAXES
As a limited liability company, the member intends for IPS to be
treated as a partnership for tax purposes. Income and losses are
passed through to the member and, accordingly, there is no provision
for income taxes.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and 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. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, IP
(individually, as Servicer or otherwise) will be required under the
transaction documents (i) to make certain representations and warranties
with respect to, among other things, the validity of IPS and its assignees'
title to the intangible transition property and (ii) to observe certain
covenants for the benefit of IPS and its assignees. IP will also be
required to indemnify IPS and its assignees against any breaches of such
representations, warranties and covenants and to protect such parties
against certain other losses, which result from actions or inactions of IP.
F-8
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (Concluded)
IP will act as the initial servicer (in such capacity, together with any
successor-in-interest, the "Servicer") for IPS under the transaction documents.
IPS rights under the Servicing Agreement will be assigned to the Trust. The
transaction documents will contain provisions allowing the Servicer to be
replaced under limited circumstances. The Servicer will be paid a servicing fee
in consideration for billing and collecting the IFCs on behalf of the Trust,
calculating the reconciliation and true-up adjustments and performing related
services. Such servicing fees shall be paid to the Servicer from the IFC
collections.
F-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee. . . . . . . . $295
Blue sky fees and expenses . . . . . . . . . . . . . . . . . *
Printing and engraving expenses. . . . . . . . . . . . . . . *
Accountants' fees and expenses . . . . . . . . . . . . . . . *
Trustees' fees and expenses. . . . . . . . . . . . . . . . . *
Legal fees and expenses. . . . . . . . . . . . . . . . . . . *
Rating Agency fees . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous fees and expenses. . . . . . . . . . . . . . . *
----
Total. . . . . . . . . . . . . . . . . . . . . . . . $ *
----
----
</TABLE>
- ---------------
All of the fees, costs and expenses set forth above will be paid by the Trust.
*To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Title 12, Section 3817 of the Delaware Code (the "Delaware Act")
provides that subject to such standards and restrictions, if any, as are set
forth in its governing instrument, a Delaware Business Trust may and has the
power to indemnify and hold harmless any trustee or beneficial owner or other
person from and against any and all claims and demands. The Delaware Act also
provides that the absence of a provision for indemnity in the governing
instrument of a business trust shall not be construed to deprive any trustee
or beneficial owner or other person of any right to indemnity which is
otherwise available to such person under the laws of the State of Delaware.
Section 6.07 of the Indenture provides that the Trust shall indemnify
the Indenture Trustee and its officers, directors, employees and agents
against any loss, liability or expense incurred by it in connection with the
administration of the trust and the performance of its duties under the
Indenture, except for any loss, liability or expense incurred as a result of
the Indenture Trustee's own willful misconduct, negligence or bad faith.
Section 18-108 of the Delaware Limited Liability Company Act provides that
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has the
power to indemnify and hold harmless any member or manager or other person from
and against any and all claims and demands whatsoever. Section 10.1 of the
Amended and Restated Limited Liability Company Agreement of the Grantee provides
that the Grantee shall, to the fullest extent permitted by law, indemnify any
person who was or is a party or is threatened to be made a
II-1
<PAGE>
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Grantee) by reason of the fact that he is or
was a manager, officer, employee or agent of the Grantee, or is or was
serving at the request of the Grantee as a manager, director, officer,
employee or agent of another company, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Grantee, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Under Section 8.75 of the Illinois Business Corporation Act of 1983 (the
"BCA"), Illinois Power Company ("Illinois Power") is empowered, subject to the
procedures and limitations stated therein, to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding to which such person
is made a party or threatened to be made a party by reason of his being or
having been a director, officer, employee or agent of Illinois Power, or serving
or having served at the request of Illinois Power as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. Section 8.75 of the BCA further provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any by-law, agreement, vote of
stockholders or disinterested director, officer, employee or agent of Illinois
Power who has ceased to serve in such capacity, and shall inure to the benefit
of the heirs, executors and administrators of such a person.
The By-Laws of Illinois Power provide, in substance, that Illinois Power
shall indemnify any person against expense (including attorney's fees),
judgments, fines and amount paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
such person is made a party or threatened to be made a party by reason of his
being or having been a director, officer, employee, trustee or fiduciary of
Illinois Power, or serving or having served at the request of Illinois Power in
one or more of the foregoing capacities with another corporation, partnership,
joint venture, trust or other enterprise. The indemnification is not exclusive
of other rights and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his
heirs, executors and administrators. In addition, Illinois Power's Amended and
Restated Articles of Incorporation provide indemnification protection to the
full extent permitted by the BCA and further provide that a director of Illinois
Power shall not be personally liable to Illinois Power or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Illinois Power
or its shareholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) under
Section 8.65 of the BCA or (iv) for any transaction from which the director
derived an improper benefit.
II-2
<PAGE>
Illinois Power presently has an insurance policy which, among other things,
includes liability insurance coverage for officers and directors under which
officers and directors are covered against any "losses" arising from any claim
or claims made against them by reason of any "wrongful act" in their respective
capacities of directors or officers. "Loss" is specifically defined to exclude
fines and penalties as well as matters deemed uninsurable under the law pursuant
to which the insurance policy shall be construed. The policy also contains
other specific exclusions, including illegally obtained personal profit or
advantages, and dishonesty. The policy also provides for reimbursement to
Illinois Power, subject to certain deductibles, for loss incurred by having
indemnified officers or directors as authorized by state statute, Illinois
Power's By-Laws or any other agreement.
The indemnification provided by the Delaware Code, the Delaware Limited
Liability Company Act, the Grantee's Limited Liability Company Agreement and the
Indenture is not exclusive of any other rights to which the Delaware Trustee,
the Indenture Trustee, the members and managers of the Grantee, the officers and
directors of Illinois Power and any beneficial owner of the Trust may be
entitled.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<S> <C>
*1.1 Form of Underwriting Agreement.
**3.1 Certificate of Formation of the Registrant.
*3.2 Amended and Restated Limited Liability Company
Agreement of the Registrant.
**4.1 Form of Trust Agreement.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
5.1 Opinion of Schiff Hardin & Waite relating to
legality of the Transitional Funding Trust Notes.
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Form of Opinion of Mayer, Brown & Platt with
respect to material federal tax matters.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
**10.1 Form of Sale Agreement.
**10.2 Form of Grant Agreement.
**10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
23.1 Consent of Schiff Hardin & Waite (included in
Exhibit 5.1).
23.2 Consent of Richards, Layton & Finger, P.A.
(included in Exhibit 5.2).
23.3 Consent of Mayer, Brown & Platt (included in
Exhibit 8.1).
23.4 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on page II-5).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
*99.3 Internal Revenue Service Private Letter Ruling
pertaining to the Notes.
</TABLE>
*To be filed by amendment.
**Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant, on behalf of the Illinois Power Special Purpose Trust (the
"Trust") hereby undertakes as follows:
(a)(1) To do, or, pursuant to the Administration Agreement to cause
Illinois Power Company (the "Administrator") to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement: (i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement (notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
II-4
<PAGE>
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement); and (iii) to include any material
information with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such information in
the Registration Statement; provided, however, that (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof.
(3) To remove, or to cause the Administrator to remove, from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Trust's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934), with respect to the Trust that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities to be offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the Delaware Trustee, the
Indenture Trustee, the managers and members of the Grantee and the directors
and officers of the Administrator pursuant to the provisions described in
Item 15 above, or otherwise, the Registrant, the Grantee and the
Administrator have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Delaware
Trustee, Indenture Trustee, the managers or members of the Grantee, or the
directors or officers of the Administrator in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of each issue.
II-5
<PAGE>
(d) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the Securities Act of 1933, as amended, shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering hereof.
(f) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that the security rating
requirement of Form S-3 will be met by the time of sale, and has duly caused
this Amendment No. 1 of the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Decatur, State of
Illinois, on this ____ day of _______________, 1998.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By: /s/Elizabeth S. Eldridge
-------------------------------------
Elizabeth S. Eldridge, Manager
By: /s/Douglas K. Johnson
-------------------------------------
Douglas K. Johnson, Manager
By: /s/ Daniel L. Mortland
-------------------------------------
Daniel L. Mortland, Manager
By: /s/Cynthia A. Stewa
-------------------------------------
Cynthia A. Steward, Manager
By: /s/Eric B. Weekes
-------------------------------------
Eric B. Weekes, Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears above constitutes and appoints Eric B. Weekes as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any
Registration Statement filed pursuant to Rule 462(b) of the Securities Act
prepared in connection therewith, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as full to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
------- ------
<S> <C>
EXHIBIT DESCRIPTION
*1.1 Form of Underwriting Agreement.
**3.1 Certificate of Formation of the Registrant.
*3.2 Amended and Restated Limited Liability Company Agreement of
the Registrant.
**4.1 Form of Trust Agreement.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
5.1 Opinion of Schiff Hardin & Waite relating to the legality of
the Transitional Funding Trust Notes.
5.2 Opinion of Richards, Layton & Finger, P.A. relating to the
legality of the Transitional Funding Trust Notes.
8.1 Form of Opinion of Mayer, Brown & Platt with respect to material
federal tax matters.
**10.1 Form of Sale Agreement.
**10.2 Form of Grant Agreement.
**10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
23.1 Consent of Schiff Hardin & Waite (included in Exhibit 5.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit
5.2).
23.3 Consent of Mayer, Brown & Platt (included in Exhibit 8.1).
23.4 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on page II-5).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
*99.3 Internal Revenue Service Private Letter Ruling pertaining to the
Notes.
</TABLE>
*To be filed by amendment.
**Previously filed.
II-8
<PAGE>
EXHIBIT 5.1
[Schiff Hardin & Waite Letterhead]
October 23, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, IL 62521
Re: ILLINOIS POWER SPECIAL PURPOSE TRUST
Ladies and Gentlemen:
We have acted as counsel to Illinois Power Company, an Illinois
corporation (the "Company"), Illinois Power Securitization Limited Liability
Company, a special purpose Delaware limited liability company ("IPS") and
Illinois Power Special Purpose Trust, a to-be-formed Delaware business trust
(the "Trust") in connection with the Registration Statement on Form S-3, as
amended to the date hereof (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Trust's Transitional
Funding Trust Notes (the "Notes") to be offered and sold from time to time as
described in the form of preliminary Prospectus and preliminary Prospectus
Supplement (collectively, the "Prospectus") included as part of the
Registration Statement. Capitalized terms used in this letter and not
defined have the meanings given to them in the Prospectus.
We are familiar with the proceedings taken and proposed to be taken by
the Company, IPS and the Trust, in connection with the proposed
authorization, issuance and sale of the Notes by the Trust. In this
connection, we have examined and relied upon such records and other
documents, instruments and certificates and have made such other
investigation as we deemed appropriate as the basis for the opinions set
forth below. In our examination we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies
and the authenticity of such original documents. We have relied, as to
matters of Delaware law, upon the opinion of even date of Richards, Layton &
Finger, P.A., special Delaware counsel to the Company, the Trust and IPS,
which opinion is also being filed as an exhibit to the Registration Statement.
<PAGE>
Illinois Power Special Purpose Trust
October 23, 1998
Page Two
The opinions expressed below are based on the following assumptions:
(a) The Registration Statement will have become effective under the
Securities Act;
(b) The proposed transactions will have been carried out on the basis
set forth in the Registration Statement and in conformity with the
authorizations, approvals, consents or exemptions under the securities laws
of various states and other jurisdictions of the United States;
(c) Prior to the issuance of any Notes:
(i) all necessary orders, authorizations, approvals and consents
relating to the Intangible Transition Property will have been
obtained by the Company;
(ii) the Transitional Funding Order creating the Intangible
Transition Property and authorizing the issuance of the Notes
will have become a final, non-applicable order and will be
valid and in effect;
(iii) all tariffs required to be filed pursuant to the Funding Law
and the Transitional Funding Order relating to the IFC Charges
relating to the Intangible Transition Property will have been
filed with the ICC and become effective;
(iv) the Trust will have been duly created in accordance with the
requirements of the Delaware Business Trust Act;
(v) the Amended and Restated Declaration of Trust will have been
executed and delivered by the trustees named therein, and
acknowledged, accepted and agreed to by IPS;
(vi) the Indenture will have been executed and delivered by the
Trust's authorized representative and Harris Trust and Savings
Bank, as trustee;
(vii) the maturity dates, the interest rates, the redemption
provisions and the other terms of the Notes being offered will
have been fixed in accordance with the provisions of the
Indenture;
(viii) the Grant Agreement between the Company and IPS will have been
executed and delivered;
<PAGE>
Illinois Power Special Purpose Trust
October 23, 1998
Page Three
(ix) the Sale Agreement between the Trust and IPS will have been
executed and delivered; and
(x) the Servicing Agreement and the Administration Agreement, each
between the Company and IPS, will have been executed and
delivered.
(d) The Indenture will have been qualified in accordance with the
provisions of the Trust Indenture Act of 1939, as amended.
Based on and subject to the foregoing, we are of the opinion that the
Notes will be legally issued, valid and binding obligations of the Trust,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and to general
principles of equity, at such time as the Notes are properly executed,
authenticated, delivered and paid for as provided in the Indenture and upon
satisfaction of all conditions contained in the Indenture and the
Underwriting Agreement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to us under the captions "Risk
Factors -- Legal Challenges Which Could Adversely Affect Noteholders; --
Possible Payment Delays or Losses as a Result of Amendment or Repeal of
Amendatory Act or Breach of State Pledge" and "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /s/ Robert J. Regan
--------------------------------
Robert J. Regan
RJR:ck
<PAGE>
EXHIBIT 5.2
[Richards, Layton & Finger, P.A. Letterhead]
October 23, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
RE: ILLINOIS POWER SPECIAL PURPOSE TRUST
Ladies and Gentlemen:
We have acted as special Delaware counsel for Illinois Power Company, an
Illinois corporation (the "Company"), Illinois Power Special Purpose Trust, a
to be formed Delaware business trust (the "Trust"), and Illinois Power
Securitization Limited Liability Company, a Delaware limited liability
company (the "LLC"), in connection with the matters set forth herein. At
your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) A form of Certificate of Trust of the Trust (the "Certificate"), to
be filed in the office of the Secretary of State of the State of Delaware,
attached as an exhibit to the Registration Statement (as defined below);
(b) A form of Declaration of Trust of the Trust (the "Trust
Agreement"), to be entered into among the trustees of the Trust named
therein, and to be acknowledged, accepted and agreed to by the LLC, attached
as an exhibit to the Registration Statement;
(c) Amendment No. 1 to the Registration Statement (the "Registration
Statement") on Form S-3, including a preliminary prospectus (the
"Prospectus") and prospectus supplement (the "Prospectus Supplement"),
relating to the Transitional Funding Trust Notes, Series 1998-1 of the Trust
(the "Trust Notes"), as proposed to be filed by the LLC with the Securities
and Exchange Commission on or about October 23, 1998; and
<PAGE>
Illinois Power Special Purpose Trust
October 23, 1998
Page 2
(d) A form of Indenture, to be entered into between the Trust and the
trustee named therein, attached as an exhibit to the Registration Statement
pursuant to which the Trust Notes are to be issued.
Capitalized terms used herein and not otherwise defined are used as
defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (d) above. In
particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (d) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that
is inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather have relied solely
upon the foregoing documents, the statements and information set forth
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii)
the conformity with the originals of all documents submitted to us as copies
or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) that the Trust and each party to documents examined by us have
been duly created, organized or formed, as the case may be, and are validly
existing in good standing under the laws of the jurisdiction governing their
creation, organization or formation, (iii) the legal capacity of natural
persons who are parties to the documents examined by us, (iv) except to the
extent provided in paragraph 1 below, that each of the parties to the
documents examined by us has the power and authority to execute and deliver,
and to perform its obligations under, such documents, and (v) except to the
extent provided in paragraph 2 below, that each of the documents examined by
us has been duly authorized, executed and delivered by all parties thereto.
We have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered
only with respect to Delaware laws and rules, regulations and orders
thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to
<PAGE>
Illinois Power Special Purpose Trust
October 23, 1998
Page 3
the assumptions, qualifications, limitations and exceptions set forth herein,
we are of the opinion that:
1. Under the Business Trust Act and the Trust Agreement, the Trust has
all necessary trust power and authority to execute and deliver the Indenture
and to issue the Trust Notes, and to perform its obligations under the
Indenture and the Trust Notes.
2. Under the Business Trust Act and the Trust Agreement, the execution
and delivery by the Trust of the Indenture and the Trust Notes, and the
performance by the Trust of its obligations under the Indenture and the Trust
Notes, have been duly authorized by all necessary trust action on the part of
the Trust.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus and the Prospectus Supplement. We also consent to
Schiff Hardin & Waite's relying as to matters of Delaware law upon this
opinion in connection with its rendering of an opinion to be attached as an
exhibit to the Registration Statement. In giving the foregoing consents, we
do not thereby admit that we come within the category of Persons whose
consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by,
any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
BJK/MVP/mvp
<PAGE>
Exhibit 8.1
[Mayer Brown & Platt Letterhead]
FORM OF OPINION
___________ __, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
Re: Offering of $864,000,000 Transitional Funding Trust Notes, Series
1988-1 of Illinois Power Special Purpose Trust
Dear Ladies and Gentlemen:
We have acted as United States federal tax counsel to Illinois Power
Special Purpose Trust, a Delaware business trust ("Trust"), in connection with
the offer and sale by Illinois Power Special Purpose Trust of $864,000,000
Transitional Funding Trust Notes Series 1998-1. You have requested that we
provide an opinion regarding the accuracy of the tax disclosure in the
prospectus and the prospectus supplement (collectively, the "Prospectus")
included as part of the registration statement (the "Registration Statement") on
Form S-3 (file no. 33-3537).
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Prospectus, (ii) factual representations
provided by Illinois Power Company relating to its current and anticipated
operation, management, ownership and structure, (iii) factual representations
provided by the Trust relating to its current and anticipated operation,
management, ownership and structure, and (iv) factual representations provided
by Illinois Power Securitization Limited Liability Company relating to its
current and anticipated operation, management, ownership and structure.
Based upon and subject to the foregoing, it is our opinion that the
statements set forth in the Prospectus under the caption "Material United States
Federal Income Tax Consequences" insofar as it purports to describe the
provisions of the laws and documents referred to therein accurately and fairly
summarize the same in all material respects. In addition, based upon and
subject to the foregoing, we confirm our specific opinions in the Prospectus
under the captions "Tax Consequences to United States Noteholders," "Tax
Consequences to Non-United States Noteholders," "Backup Withholding and
Information Reporting" and "Taxation of United States Noteholders of Floating
Rate Notes."
<PAGE>
Illinois Power Special Purpose Trust
c/o Illinois Power Company
October __, 1998
Page 2
This opinion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
the interpretation of circumstances, with retroactive effect. A material change
that is made after the date hereof in any of the foregoing bases for our opinion
could adversely affect our conclusion.
Sincerely,
MAYER, BROWN & PLATT
2
<PAGE>
EXHIBIT 23.4
[PricewaterhouseCoopers LLP Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated September 15, 1998,
relating to the financial statements of Illinois Power Securitization Limited
Liability Company, which appears in such Prospectus. We also consent to the
references to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
October 23, 1998
