<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file number 333-74671
Massachusetts RRB Special Purpose Trust BEC-1
(Issuer of Securities)
BEC FUNDING LLC
(Depositor of the Trust)
(Exact name of registrant as specified in its charter)
Delaware 04-3454484
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, 30th Floor, Boston, Massachusetts 02199-8003
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-369-6000
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
----- -----
The Registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q as a wholly owned subsidiary and is therefore filing
this Form 10-Q with the reduced disclosure format.
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
BEC Funding LLC
(A Special Purpose Entity)
Statement of Operations
(Unaudited)
<CAPTION>
For the period from
January 29, 1999
Three Months Ended (date of inception) to
September 30, 1999 September 30, 1999
------------------ ----------------------
<S> <C> <C>
Interest income $37,485 $37,485
------- -------
Debt issuance expenses, net 278 278
Interest expense, net 4 23
Bank fees 51 173
------- -------
Net income $37,152 $37,011
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 3
<TABLE>
BEC Funding LLC
(A Special Purpose Entity)
Balance Sheet
(Unaudited)
<CAPTION>
September 30, 1999
<S> <C>
Assets
- ------
Current assets:
Cash $ 549
Restricted cash 3,625,000
Interest receivable 23,361
Transition property receivable due in one year, net 68,560,770
Total current assets 72,209,680
Other assets:
Long-term transition property receivable 641,568,707
Interest receivable 8,438,607
Unamortized debt issuance costs $ 5,162,729
Less: accumulated amortization (172,894) 4,989,835
------------ ------------
Total assets $727,206,829
============
Liabilities and Member's Equity
- -------------------------------
Current liabilities:
Due to affiliates $ 1,023
Current portion of long-term debt, net 68,560,770
Interest payable 8,438,607
------------
Total current liabilities 77,000,400
Long-term debt, less portion due in one year 646,558,542
Commitments and contingencies
Member's equity 3,647,887
------------
Total liabilities and member's equity $727,206,829
============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 4
<TABLE>
BEC Funding LLC
(A Special Purpose Entity)
Statement of Changes in Member's Equity
(Unaudited)
<CAPTION>
For the period from
January 29, 1999
(date of inception) to
September 30, 1999
----------------------
<S> <C>
Member's equity at January 29, 1999 $ 0
Initial member's contributions 3,625,000
----------
Subtotal 3,625,000
----------
Net income for the period from January 29, 1999
(date of inception) to September 30, 1999 37,011
Dividends declared (14,124)
----------
Retained earnings at September 30, 1999 22,887
----------
Member's equity at September 30, 1999 $3,647,887
==========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 5
<TABLE>
BEC Funding LLC
(A Special Purpose Entity)
Statement of Cash Flows
(Unaudited)
<CAPTION>
For the period from
January 29, 1999
(date of inception) to
September 30, 1999
----------------------
<S> <C>
Cash flows from operating activities:
Net income $ 37,011
Add back: non cash items
Amortization of debt issuance costs 172,894
Changes in current assets and liabilities
Accrued interest receivable (23,361)
Interest and debt issuance costs receivable from
Boston Edison Company (8,611,501)
Due to affiliate 1,023
Interest payable 8,438,607
Debt issuance costs (5,162,729)
-------------
Net cash used by operating activities (5,148,056)
-------------
Cash flows from financing activities:
Net transition property receivable from
Boston Edison Company (719,837,271)
Issuance of notes to trust 725,000,000
Dividends paid (14,124)
-------------
Net cash provided by financing activities 5,148,605
-------------
Net increase in cash 549
Cash at beginning of period 0
-------------
Cash at end of period $ 549
=============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 6
Notes to Unaudited Financial Statements
- ---------------------------------------
A) Overview
--------
Nature of Business
BEC Funding LLC is a special purpose, single member limited liability company
whose sole member is Boston Edison Company ("BECo"), a provider of electric
distribution services. BECo is a wholly owned subsidiary of BEC Energy, which
is a wholly owned subsidiary of NSTAR. NSTAR is a holding company that was
created through a merger between BEC Energy, headquartered in Boston,
Massachusetts, and Commonwealth Energy System, headquartered in Cambridge,
Massachusetts, effective August 25, 1999.
BEC Funding LLC was organized on January 29, 1999 under the laws of the State
of Delaware for the sole purpose of acquiring and holding transition property
which BEC Funding LLC acquired from BECo. The purchase price of the
transition property has been paid from proceeds of indebtedness secured by the
transition property and other collateral (the "Acquisition Indebtedness").
Transition property is the right to recover transition costs pursuant to a
non-bypassable reimbursable transition cost ("RTC") charge as authorized by a
financing order of the Commonwealth of Massachusetts Department of
Telecommunications and Energy (the "DTE") pursuant to certain provisions of
the "Electric Industry Restructuring Act" enacted in the Commonwealth of
Massachusetts in 1997. The assets of BEC Funding LLC consist primarily of
transition property acquired from BECo and other collateral for the
Acquisition Indebtedness. For accounting purposes, the transition property
purchased from BECo is reflected on the balance sheet as transition property
receivable. The liabilities of BEC Funding LLC consist primarily of notes
issued and sold to the Massachusetts RRB Special Purpose Trust BEC-1 in
exchange for the net proceeds from the issuance of certificates by the Trust
to the investing public.
Both its own organizational documents and debt covenants relating to
Acquisition Indebtedness restrict BEC Funding LLC's business activities to
financing, purchasing, owning and managing transition property. The
organizational documents and documentation related to the Acquisition
Indebtedness also require BEC Funding LLC to be operated in a manner intended
to reduce the likelihood that it would be consolidated into BECo's bankruptcy
estate if BECo ever became a debtor in a bankruptcy case.
BEC Funding LLC is legally separate from BECo. The assets and revenues of BEC
Funding LLC, including, without limitation, the transition property, are not
available to creditors of BECo nor NSTAR, and the transition property and
other debt collateral will not be an asset of BECo nor NSTAR.
Certain other restrictions apply with respect to BEC Funding LLC's ability to
consolidate with or merge into another entity, and/or transfer or convey
property to another entity.
<PAGE> 7
Basis of Presentation
The financial statements present BEC Funding LLC's results of operations and
its financial condition as it operates as a subsidiary of BECo. The financial
statements presented may not be indicative of the results that would have been
achieved had BEC Funding LLC operated as an unaffiliated entity.
B) Summary of Significant Accounting Policies
------------------------------------------
Income taxes
BEC Funding LLC is organized as a single member limited liability company.
For income tax or losses will be passed through to BECo. Therefore, there is
no provision for income taxes.
Deferred costs
Debt issuance costs associated with the debt issuance were deferred on the
accompanying financial statements and are being amortized ratably over the
life of the underlying securities. These deferred issuance costs include
similar costs associated with the issuance of debt certificates by the
Massachusetts RRB Special Purpose Trust BEC-1, pursuant to an agreement
between BEC Funding LLC and the Massachusetts RRB Special Purpose Trust BEC-1.
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.
C) Related Parties
---------------
BECo provides management, consulting and financial services to BEC Funding LLC
for a fee. Services are provided to BEC Funding LLC from BECo in accordance
with guidelines issued by the DTE relative to transactions between regulated
entities and unregulated affiliated entities. BECo also acts as servicer of
transition property pursuant to a contract with BEC Funding LLC. As of
September 30, 1999, transition property receivable and interest receivable,
due from BECo, amounted to $720,129,477 and $8,438,607, respectively.
<PAGE> 8
D) Long-Term Debt
--------------
On July 29, 1999, BEC Funding LLC issued notes in the principal amount of
$725,000,000, to the Massachusetts RRB Special Purpose Trust BEC-1 ("the
Trust") in exchange for the net proceeds from the sale of $725,000,000 of
certificates issued by the Trust on July 29, 1999. Each class of notes issued
by BEC Funding LLC secures the payment of a related class of certificates
issued by the Trust and has the same principal balance, interest rate,
amortization schedule and legal maturity date as the related class of
certificates issued by the Trust. The notes issued by BEC Funding LLC consist
of five classes, in the initial principal amounts and bearing the interest
rates and having the scheduled maturity and final maturity dates as set forth
in the table below:
<TABLE>
<CAPTION>
Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
- ----- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
------------
$725,000,000
============
</TABLE>
The scheduled maturity date for a class of notes is the date by which BEC
Funding LLC expects to distribute in full all interest on and principal of
that class of notes. The final maturity date for a class of notes is the
legal maturity date of that class.
Long-term debt redemptions due during the years ended September 30 in each of
the next five years are scheduled as follows:
<TABLE>
<S> <C>
2000 $68,560,770 (net)
2001 62,428,264
2002 70,225,942
2003 68,014,173
2004 68,740,411
</TABLE>
Interest
Interest on each class of notes accrues from its issuance date at the interest
rate set forth in the table above. Beginning March 15, 2000, BEC Funding LLC
is required to pay interest semiannually on March 15 and September 15 (or, if
the payment date is not a business day, the following business day) of each
year, to the Trust. BEC Funding LLC will pay interest on the notes prior to
paying principal of the notes.
On each interest payment date, BEC Funding LLC will pay interest as follows:
- if there has been a payment default, any unpaid interest payable on any
prior payment dates, together with interest on any of the unpaid
interest; and
<PAGE> 9
- accrued interest on the principal balance of each class of notes as of
the close of business on the preceding payment date, or the date of the
original issuance of the class of notes if applicable, after giving
effect to all payments made on the preceding payment date, or the date
of the original issuance of the class of notes if applicable.
If there is a shortfall in the amounts necessary to make these payments, the
note trustee will distribute interest pro rata to each class of notes based on
the outstanding principal amount of that class and the applicable interest
rate. BEC Funding LLC will calculate interest on the basis of a 360-day year
of twelve 30-day months.
Principal
BEC Funding LLC will pay any principal on each payment date as follows:
1. to the holders of the notes, until the principal balance of that class has
been reduced to zero;
2. BEC Funding LLC will not, however, pay principal on a payment date on any
class of notes if making the payment would reduce the principal balance of
a class to an amount lower than that specified in the expected amortization
schedule for that class on that payment date. If an event of default under
the note indenture has occurred and is continuing, the note trustee may
declare the unpaid principal amount of all outstanding notes and accrued
interest to be due and payable.
There can be no assurance that the principal balances of the classes of
notes receivable and the related classes of certificates outstanding will
be reduced at the rates indicated in the table above. The actual rates of
reduction in class principal balances may be slower (and cannot be faster)
than those indicated in the table.
The note trustee has established several collection accounts to hold
amounts remitted by the servicer of the property securing the notes. The
notes are secured by transition property of BEC Funding LLC, which is the
right to assess and collect all revenues arising from a portion, which may
become all, of the transition charge included in the bills of all classes
of retail customers of BECo' s electric distribution system within its
geographical service territory as in effect on July 1, 1997. This portion
of the transition charge, which is a usage-based, per kilowatt-hour charge,
is referred to as the RTC. The September 1999 RTC charge was 1.1017 cents
per kilowatt-hour.
To secure the payment of interest on and principal of the notes, BEC
Funding LLC has granted to the note trustee a security interest in all of
BEC Funding LLC's right, title and interest in the transition property and
certain related agreements. The notes also contain certain provisions and
or restrictions with respect to redemption and default.
3. On July 27, 1999, BECo provided $3,625,000 as a member contribution to BEC
Funding LLC. This amount is equal to 1/2 of 1% of the initial principal
amount of the notes and is the capital level required to be maintained
under the note indenture.
<PAGE> 10
<TABLE>
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A Special Purpose Entity)
STATEMENT OF NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(Unaudited)
September 30, 1999
ASSETS
<S> <C>
Current assets:
Due from BEC Funding LLC:
Interest receivable $ 8,438,607
Notes receivable - current portion due in one year 78,441,458
------------
Total current assets 86,880,065
Due from BEC Funding LLC:
Long-term notes receivable 646,321,230
------------
Total assets $733,201,295
============
LIABILITIES
Current liabilities:
Current portion of certificates outstanding $ 78,441,458
Interest payable on certificates outstanding 8,438,607
------------
Total current liabilities 86,880,065
Long-term certificates outstanding, net 646,321,230
------------
Total liabilities $733,201,295
============
Net assets available for trust activities $ 0
============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 11
<TABLE>
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A Special Purpose Entity)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(Unaudited)
for the period from July 28, 1999 (date of inception) to September 30, 1999
<S> <C>
Additions:
Proceeds from issuance of bonds $ 724,762,688
Interest income 8,438,607
-------------
Subtotal 733,201,295
-------------
Deductions:
Payment of bond proceeds to BEC Funding LLC (724,762,688)
Interest expense (8,438,607)
-------------
Subtotal (733,201,295)
-------------
Net assets available for trust activities
at September 30, 1999 $ 0
=============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE> 12
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A Special Purpose Entity)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
A) Overview
--------
Nature of Business
Massachusetts RRB Special Purpose Trust BEC-1 ("the Trust") was established on
July 28, 1999 as a Delaware business trust. The Massachusetts Development
Finance Agency and the Massachusetts Health and Educational Facilities
Authority formed the Trust to issue bonds pursuant to certain provisions of
Chapter 164 of the Acts of the Massachusetts General Court of 1997 (the
"Electric Industry Restructuring Act"). The Trust issued $725,000,000 of Rate
Reduction Certificates ("certificates") on July 29, 1999 for the purpose of
acquiring related notes from BEC Funding LLC (the "Note Issuer"). The
Massachusetts Development Finance Agency, the Massachusetts Health and
Educational Facilities Authority and The Bank of New York (Delaware), a
Delaware banking corporation, acting as the Delaware Trustee, entered into a
Declaration of Trust to form the Trust. The Trust is not an agency nor
instrumentality of The Commonwealth of Massachusetts. The Trust has minimal
assets other than the notes. The Declaration of Trust does not permit the
Trust to engage in any activities other than holding the notes, issuing the
certificates, and engaging in other related activities.
Each class of certificates represents a fractional undivided beneficial
interest in a related class of notes issued by BEC Funding LLC, including all
amounts due and to become due under the related class of notes, and represents
the right to receive the payments on the related class of notes.
The Note Issuer, the Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority, the Trust, the
Delaware Trustee and the certificate trustee have entered into a fee and
indemnity agreement under which the Note Issuer pays the Delaware trustee's
and the certificate trustee's reasonable compensation and reasonable fees and
expenses. The fee and indemnity agreement further provides that the Note
Issuer will indemnify the Trust, the Delaware trustee, the certificate
trustee, the Massachusetts Development Finance Agency, the Massachusetts
Health and Educational Facilities Authority and the Executive Office for
Administration and Finance of The Commonwealth of Massachusetts for, and hold
them harmless against, among other things, any loss, liability or expense
incurred by them arising from the failure of any party to perform its
obligations under various transaction documents. Neither the certificates,
the notes or the property securing the notes is an obligation of The
Commonwealth of Massachusetts or any governmental agency, authority or
instrumentality of The Commonwealth of Massachusetts or of Boston Edison
Company or any of its affiliates, except for BEC Funding LLC, which is an
affiliate of Boston Edison Company.
The fiscal year of the Trust is the calendar year.
Basis of Presentation
Substantially all expenses of the Trust are paid by the Note Issuer.
<PAGE> 13
B) Summary of Significant Accounting Policies:
------------------------------------------
Revenue Recognition
The Trust recognizes interest revenues on the notes, which are the only assets
of the Trust, on the accrual basis.
Income Taxes
The Trust is considered to be a grantor trust for income tax purposes and
accordingly there is no provision for income taxes.
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.
Concentration of Credit Risk
The Trust has exposure to credit risk for its notes receivable from the Note
Issuer. BEC Funding LLC is a wholly owned subsidiary of Boston Edison
Company, which is a wholly owned subsidiary of BEC Energy, which is a wholly
owned subsidiary of NSTAR. Neither the notes nor the property securing the
notes is an obligation of The Commonwealth of Massachusetts, or any
governmental agency, authority or instrumentality of The Commonwealth of
Massachusetts or of Boston Edison Company or any of its affiliates, except for
BEC Funding LLC.
C) Certificates
------------
The Trust issued $725,000,000 of Rate Reduction Certificates on July 29, 1999
(excluding debt discount in the amount of $244,858) pursuant to the
certificate indenture among the Trust, the Delaware trustee, and the
certificate trustee. The certificates were issued in minimum denominations of
$1,000 and in integral multiples of that amount. The certificates consist of
five classes as summarized in the table below:
<TABLE>
<CAPTION>
Scheduled
Initial Certificate Final Final
Principal Interest Distribution Termination
Class Amount Rate Date Date
- ----- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
</TABLE>
The scheduled final distribution date for a class of certificates is the date
by which the Trust expects to distribute in full all interest on and principal
of that class of certificates. The final termination date for a class of
certificates is the legal maturity date of that class. The failure to
distribute principal of any class of certificates in full by the final
termination date for that class is an event of default, and the certificate
trustee may, and with the written direction of the holders of at least a
<PAGE> 14
majority in principal amount of all outstanding certificates shall, declare
the unpaid principal amount of all outstanding notes and accrued interest to
be due and payable.
Interest on each class of certificates will accrue from its issuance date at
the interest rate set forth in the table above. Beginning March 15, 2000, the
trust is required to distribute interest semiannually on March 15 and
September 15 (or, if any distribution date is not a business day, the
following business day) of each year. On each distribution date, the
certificate trustee will distribute interest to the extent paid on the related
class of notes to the holders of each class of certificates as of the close of
business on the record date. The record date for any distribution of interest
on and principal of the certificates will be the business day immediately
before the distribution date. Each distribution date will also be a payment
date for interest on and principal of the notes.
On each distribution date, the certificate trustee will distribute principal
as paid on the related class of notes to the holders of each class of
certificates as of the close of business on the record date.
Long-term certificate redemptions due in the next five years are scheduled to
be $78,441,458, $62,428,264, $70,225,942, $68,014,173, and $68,740,411, for
the years ending September 30, 2000, 2001, 2002, 2003, and 2004, respectively.
D) Notes Receivable
----------------
BEC Funding LLC, the Note Issuer, has issued to the Trust notes in the
principal amount of $725,000,000, in exchange for the net proceeds from the
sale of the certificates by the Trust. Each class of notes secures the
payment of the related class of certificates and has the same principal
balance, interest rate, amortization schedule and legal maturity date as its
related class of certificates.
The notes consist of five classes, in the initial principal amounts and
bearing the interest rates and having the scheduled maturity and final
maturity dates set forth in the table below:
<TABLE>
<CAPTION>
Initial Note Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
- ----- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
</TABLE>
The scheduled maturity date for a class of notes is the date by which the note
issuer expects to distribute in full all interest on and principal of that
class of notes. The final maturity date for a class of notes is the legal
maturity date of that class.
<PAGE> 15
Interest
Interest on each class of notes accrues from its issuance date at the interest
rate set forth in the table above. Beginning March 15, 2000, the Note Issuer
is required to pay interest semiannually on March 15 and September 15 (or, if
any payment date is not a business day, the following business day) of each
year, to the Trust. The Note Issuer will pay interest due on the notes prior
to paying principal of the notes.
On each payment date, the Note Issuer will pay interest as follows:
- if there has been a payment default, any unpaid interest payable on any
prior payment dates, together with interest at the applicable note
interest rate on any of this unpaid interest; and
- accrued interest on the principal balance of each class of notes as of
the close of business on the preceding payment date, or the date of the
original issuance of the class of notes if applicable, after giving
effect to all payments made on the preceding payment date, or the date
of the original issuance of the class of notes if applicable.
If there is a shortfall in the amounts necessary to make these interest
payments, the note trustee will distribute interest pro rata to each class of
notes based on the outstanding principal amount of that class and the
applicable interest rate. The Note Issuer will calculate interest on the
basis of a 360-day year of twelve 30-day months.
Principal
The Note Issuer will pay principal on each payment date to the holders of the
notes in accordance with the expected amortization schedule as set forth in
the prospectus.
The Note Issuer will not, however, pay principal on a payment date on any
class of notes if making the payment would reduce the principal balance of a
class to an amount lower than that specified in the expected amortization
schedule for that class on that payment date. If an event of default under
the note indenture has occurred and is continuing, the note trustee may
declare the unpaid principal amount of all outstanding notes and accrued
interest to be due and payable.
The expected amortization schedule for the principal of each class of notes
gives effect to the payments expected to be made on each payment date and is
based upon the issuance date of the notes on July 29, 1999 and also the
following assumptions:
- payments on the certificates are made on each distribution date,
commencing March 15, 2000;
- the servicing fee equals 0.05 percent annually of the initial principal
amount of the notes, or $362,500;
- there are no net earnings on amounts on deposit in the collection
account;
- the administration fee (which is $75,000 per year, payable semiannually)
and other ongoing operating expenses are estimated to be approximately
$220,000 per annum, and these amounts are payable in arrears, and;
<PAGE> 16
- payments arising from the property securing the notes are deposited in
the collection account as expected.
There can be no assurance that the principal balances of the classes of notes
receivable and the related classes of certificates outstanding will be reduced
at the rates expected. The actual rates of reduction in class principal
balances may be slower (but cannot be faster) than those indicated in the
expected amortization schedule.
Unamortized Debt Discount
Unamortized debt discount in the amount of $237,312 as of September 30, 1999,
is included (net) in both Notes receivable and Certificates outstanding on the
accompanying Statement of Net Assets Available for Trust Activities.
The note trustee has established a collection account to hold amounts remitted
by the servicer of the property securing the notes. The notes are secured
primarily by transition property of the note issuer, which is the right to
assess and collect all revenues arising from a portion of the transition
charge included in the bills of all classes of retail users of Boston Edison
Company's electric distribution system within its geographic service territory
as in effect on July 1, 1997. This portion of the transition charge, which is
a usage-based charge, is referred to as the reimbursable transition costs
("RTC") charge. The September 1999 RTC charge was approximately $0.011017
cents per kilowatt-hour.
The Note Issuer
BEC Funding LLC is a special purpose, single member limited liability company
whose sole member is Boston Edison Company. BEC Funding LLC is a wholly owned
subsidiary of Boston Edison Company, which is a wholly owned subsidiary of BEC
Energy, which is a wholly owned subsidiary of NSTAR.
BEC Funding LLC was organized on January 29, 1999 under the laws of the State
of Delaware for the sole purpose of acquiring and holding transition property
which BEC Funding LLC acquired on July 29, 1999 from Boston Edison Company.
The purchase price of such transition property was paid from net proceeds of
the notes issued to the Trust. The assets of BEC Funding LLC consist
primarily of transition property acquired from Boston Edison Company.
Both BEC Funding LLC's organizational documents and covenants in the note
indenture restrict its business activities to financing, purchasing, owning
and managing transition property. The organizational documents and note
indenture covenants also require that BEC Funding LLC be operated in a manner
intended to reduce the likelihood that it would be consolidated in Boston
Edison Company's bankruptcy estate if Boston Edison Company became a debtor in
a bankruptcy case.
BEC Funding LLC is legally separate from Boston Edison Company. The assets
and revenues of BEC Funding LLC, including, without limitation, the transition
property, are not available to creditors of Boston Edison Company, BEC Energy
or NSTAR.
<PAGE> 17
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations for the Period January 29, 1999 (date of inception) to
- ----------------------------------------------------------------------------
September 30, 1999
- ------------------
The following analysis of BEC Funding LLC's financial condition and results
of operations is in an abbreviated format pursuant to Instruction H of Form
10-Q. Such analysis should be read in conjunction with the Financial
Statements included herein.
BEC Funding LLC is a special purpose, single member limited liability company
whose sole member is Boston Edison Company ("BECo"), a provider of electric
distribution services. BEC Funding LLC is a wholly owned subsidiary of BECo,
which is a wholly owned subsidiary of BEC Energy, which is a wholly owned
subsidiary of NSTAR. NSTAR is a holding company that was created through a
merger between BEC Energy, headquartered in Boston, Massachusetts, and
Commonwealth Energy System, headquartered in Cambridge, Massachusetts,
effective August 25, 1999. BEC Funding LLC had no significant activities in
the period January 29, 1999 to June 30, 1999.
BEC Funding LLC was organized on January 29, 1999 under the laws of the State
of Delaware for the sole purpose of acquiring and holding transition property
and issuing notes secured by the transition property. The transition
property is a property right created under Massachusetts law that includes
the right to access and collect a non-bypassable charge, called an RTC
charge, from customers of BECo. The acquisition of such transition property
was accomplished by BEC Funding LLC issuing $725,000,000 of notes to
Massachusetts RRB Special Purpose Trust BEC-1 on July 29, 1999. The notes
were issued under an indenture between BEC Funding LLC and The Bank of New
York, as note trustee (the "Note Trustee").
The financial statements present BEC Funding LLC's results of operations and
its financial condition as it operated as a subsidiary of BECo. The
financial statements presented may not be indicative of the results that
would have been achieved had BEC Funding LLC operated as an unaffiliated
entity.
The Massachusetts RRB Special Purpose Trust BEC-1 was formed on July 27,
1999, and issued certificates in the amount of $725,000,000 on July 29, 1999.
Upon receipt of the net proceeds from the issuance of such certificates from
Massachusetts RRB Special Purpose Trust BEC-1, BEC Funding LLC remitted net
proceeds of approximately $719,837,000 to BECo in exchange for the transition
property. As of September 30, 1999, BECo has remitted to BEC Funding LLC
approximately $9,880,688 of RTC charges collected. Such funds are held by
the Note Trustee and are restricted in their ultimate use for the debt
service of BEC Funding LLC.
BEC Funding LLC is limited by its organizational documents from engaging in
any activities other than owning the transition property, issuing the notes
secured by the transition property and other limited collateral, and
activities related thereto. Accordingly, income statement effects were
limited primarily to income generated from the transition property, interest
expense on the notes and incidental interest income. Massachusetts RRB
Special Purpose Trust BEC-1 is limited by its organizational documents from
engaging in any activities other than owning the notes, issuing the rate
<PAGE> 18
reduction certificates secured by the notes, and activities related thereto.
Accordingly, income statement effects were limited primarily to income
generated from the notes and interest expense on the certificates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Omitted with respect to the registrant pursuant to Instruction H of Form 10-Q.
<PAGE> 19
Part II - Other Information
Item 1. Legal Proceedings
- --------------------------
None.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Omitted with respect to the registrant pursuant to Instruction H of Form 10-Q.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Omitted with respect to the registrant pursuant to Instruction H of Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Omitted with respect to the registrant pursuant to Instruction H of Form 10-Q.
Item 5. Other Information
- --------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) The following designated exhibits are filed herewith:
Exhibit 1.1 - Underwriting Agreement (incorporated by reference
to the same titled exhibit to the registrant's
Form 8-K filed with the Commission on August 13,
1999)
Exhibit 3.1 - Certificate of Formation of the Registrant
(incorporated by reference to the same titled
exhibit to the registrant's Registration Statement
on Form S-3, File No. 333-74671)
3.2 - Limited Liability Company Agreement of the
Registrant (incorporated by reference to the same
titled exhibit to the registrant's Registration
Statement on Form S-3, File No. 333-74671)
Exhibit 4.1 - Note Indenture (incorporated by reference to the
same titled exhibit to the registrant's Form 8-K
filed with the Commission on August 13, 1999)
4.2 - Certificate Indenture (incorporated by reference to
the same titled exhibit to the registrant's Form 8-K
filed with the Commission on August 13, 1999)
4.3 - Declaration of Trust (incorporated by reference to
the same titled exhibit to the registrant's Form 8-K
filed with the Commission on August 13, 1999)
<PAGE> 20
4.4 - Notes (incorporated by reference to the same titled
exhibit to the registrant's Form 8-K filed with the
Commission on August 13, 1999)
4.5 - Rate Reduction Certificates (incorporated by
reference to the same titled exhibit to the
registrant's Form 8-K filed with the Commission on
August 13, 1999)
Exhibit 10.1 - Transition Property Purchase and Sale Agreement
(incorporated by reference to the same titled
exhibit to the registrant's Form 8-K filed with the
Commission on August 13, 1999)
10.2 - Transition Property Servicing Agreement
(incorporated by reference to the same titled
exhibit to the registrant's Form 8-K filed with the
Commission on August 13, 1999)
10.3 - Note Purchase Agreement (incorporated by reference
to the same titled exhibit to the registrant's Form
8-K filed with the Commission on August 13, 1999)
10.4 - Administration Agreement (incorporated by reference
to the same titled exhibit to the registrant's Form
8-K filed with the Commission on August 13, 1999)
10.5 - Fee and Indemnity Agreement (incorporated by
reference to the same titled exhibit to the
registrant's Form 8-K filed with the Commission on
August 13, 1999)
Exhibit 15.1 - Letter Re Unaudited Interim Financial Information
Exhibit 27.1 - Financial Data Schedule for the nine months ended
September 30, 1999
Exhibit 99.5 - Issuance Advice Letter (incorporated by reference to
the same titled exhibit to the registrant's Form 8-K
filed with the Commission on August 13, 1999)
99.6 - Report of Independent Accountants
b) Reports on Form 8-K:
BEC Funding LLC filed a Form 8-K on August 13, 1999 in order to
file executed copies of the agreements included as exhibits to its
registration statement on Form S-3.
<PAGE> 21
BEC Funding LLC filed a Form 8-K on September 13, 1999 in order to
(a) report the closing of the sale of $725 million of notes to
Massachusetts RRB Special Purpose Trust BEC-1, which in turn sold
$725 million of rate reduction bonds to the public and (b) file
audited financial statements of Massachusetts RRB Special Purpose
Trust BEC-1 as of July 29, 1999.
<PAGE> 22
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEC FUNDING LLC
---------------
(Registrant)
Date: November 15, 1999 /s/ R. J. Weafer, Jr.
------------------------------
Robert J. Weafer, Jr.
Vice President, Controller
and Chief Accounting
Officer
<PAGE> 23
Exhibit 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: BEC Funding LLC
Registration on
Form S-3
We are aware that our report dated November 15, 1999 on our review of the
interim financial information of BEC Funding LLC for the period ended
September 30, 1999 and included in this Form 10-Q is incorporated by
reference in BEC Funding LLC's registration statement on Form S-3 (File
No. 333-74671). Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of that
Act.
Hartford, Connecticut PricewaterhouseCoopers LLP
November 15, 1999
<PAGE> 24
Exhibit 99.6
Report of Independent Accountants
To the Directors
of BEC Funding LLC:
We have reviewed the accompanying balance sheet of BEC Funding LLC as of
September 30, 1999 and the related statements of operations for the three and
nine-month period ended September 30, 1999, changes in member's equity and
cash flows for the nine-month period ended September 30, 1999. These
financial statements are the responsibility of management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Hartford, Connecticut PricewaterhouseCoopers LLP
November 15, 1999
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