<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1999
REGISTRATION NO. 333-74671
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
(ISSUER OF SECURITIES)
BEC FUNDING LLC
(DEPOSITOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
<TABLE>
<S> <C>
DELAWARE 04-3454484
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
BEC FUNDING LLC
800 BOYLSTON STREET, 35TH FLOOR
BOSTON, MASSACHUSETTS 02199
TELEPHONE: (617) 369-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT J. WEAFER, JR.
BEC FUNDING LLC
800 BOYLSTON STREET, 35TH FLOOR
BOSTON, MASSACHUSETTS 02199
TELEPHONE: (617) 369-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
HEMMIE CHANG, ESQ. STANLEY KELLER, ESQ. ERIC TASHMAN, ESQ.
ROPES & GRAY PALMER & DODGE LLP BROWN & WOOD LLP
ONE INTERNATIONAL PLACE ONE BEACON STREET 555 CALIFORNIA STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02108 SAN FRANCISCO, CALIFORNIA 94104
(617) 951-7000 (617) 573-0100 (415) 772-1200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
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 the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(2) AGGREGATE PRICE PER UNIT PRICE(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rate Reduction Certificates... $725,000,000 100%(1) $725,000,000
- ---------------------------------------------------------------------------------------------------------------
Notes...... $725,000,000 (2) (2)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------ ------------------------
- ------------------------------------ ------------------------
AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Rate Reduction Certificates... $201,550(3)
- ---------------------------------------------------------------------------------------
Notes...... None
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No additional consideration will be paid by the purchasers of the Rate
Reduction Certificates for the Notes that secure the Rate Reduction
Certificates.
(3) $278 was paid with the initial filing of the Registration Statement on March
19, 1999; $201,272 is paid herewith.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED JULY 21, 1999.
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY , 1999.
$[ ] RATE REDUCTION CERTIFICATES
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
BEC FUNDING LLC
ISSUER OF THE NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
<TABLE>
<CAPTION>
INITIAL SCHEDULED FINAL FINAL
CERTIFICATE PRINCIPAL UNDERWRITING PROCEEDS TO DISTRIBUTION TERMINATION
RATE AMOUNT PRICE(%) PRICE($) DISCOUNT TRUST DATE DATE
----------- --------- -------- -------- ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A-1............
Class A-2............
Class A-3............
Class A-4............
Class A-5............
*The total price to the public is $ , the total amount of the underwriting discount is $ .
The total amount of proceeds before deduction of expenses is $ .
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THE ACCOMPANYING PROSPECTUS TO READ
ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE CERTIFICATES.
EACH CERTIFICATE REPRESENTS AN INTEREST IN THE RELATED CLASS OF BEC FUNDING LLC
NOTES, WHICH ARE OWNED BY THE TRUST.
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 OR OF BOSTON EDISON OR ANY OF
ITS AFFILIATES, EXCEPT FOR BEC FUNDING LLC, WHICH IS AN AFFILIATE OF BOSTON
EDISON.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF
MASSACHUSETTS NOR ANY POLITICAL SUBDIVISION, AGENCY, AUTHORITY OR
INSTRUMENTALITY OF THE COMMONWEALTH IS PLEDGED TO THE PAYMENT OF PRINCIPAL OF,
OR INTEREST ON, THE CERTIFICATES OR THE NOTES, OR THE PAYMENTS SECURING THE
NOTES. FURTHERMORE, NEITHER THE COMMONWEALTH OF MASSACHUSETTS NOR ANY POLITICAL
SUBDIVISION, AGENCY, AUTHORITY OR INSTRUMENTALITY OF THE COMMONWEALTH WILL
APPROPRIATE ANY FUNDS FOR THE PAYMENT OF ANY OF THE CERTIFICATES OR NOTES.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
BNY CAPITAL MARKETS, INC.
CIBC WORLD MARKETS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
STATE STREET CAPITAL MARKETS, LLC
[ ], 1999
<PAGE> 3
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors................................................ S-4
Description of the Certificates............................. S-4
Description of the Notes.................................... S-4
Transition Property......................................... S-7
Underwriting................................................ S-8
Ratings..................................................... S-9
PROSPECTUS
Prospectus Summary.......................................... 4
Risk Factors................................................ 16
Defined Terms............................................... 24
Available Information....................................... 24
Reports to Holders.......................................... 24
Incorporation of Documents by Reference..................... 24
Energy Deregulation and New Massachusetts
Market Structure.......................................... 26
Description of the Transition Property...................... 28
The Trust................................................... 38
The Agencies................................................ 38
The Note Issuer............................................. 39
The Seller and Servicer..................................... 41
Servicing................................................... 47
Description of the Notes.................................... 55
Description of the Certificates............................. 65
Federal Income Tax Consequences............................. 74
State Taxation.............................................. 78
ERISA Considerations........................................ 78
Use of Proceeds............................................. 80
Plan of Distribution........................................ 80
Legal Matters............................................... 81
Glossary.................................................... 82
Financial Statements........................................ F-1
</TABLE>
S-2
<PAGE> 4
This prospectus supplement does not contain all of the information that you
should know about this offering. You will find additional information in the
accompanying prospectus. The prospectus for this offering of certificates
consists of both this prospectus supplement and the accompanying prospectus. You
should read both of these documents in full before buying the certificates.
No dealer, salesperson, or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus
supplement and the accompanying prospectus is an offer to sell only the
securities offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so.
The underwriters expect to deliver the certificates through the facilities
of The Depository Trust Company against payment in New York, New York on [
], 1999.
----------------------------
S-3
<PAGE> 5
RISK FACTORS
You should consider carefully the risks of investing in the certificates.
The section entitled "Risk Factors," which begins on page 16 of the accompanying
prospectus, discusses material risks of investing in the certificates.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates in minimum denominations of $1,000
and in integral multiples of that amount. The certificates will consist of five
classes, in the initial principal amounts, bearing the interest rates and having
the scheduled final distribution dates and final termination dates listed below:
<TABLE>
<CAPTION>
SCHEDULED
INITIAL CERTIFICATE FINAL FINAL
PRINCIPAL INTEREST DISTRIBUTION TERMINATION
CLASS AMOUNT RATE DATE DATE
- ----- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
A-1
A-2
A-3
A-4
A-5
</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
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. See "Description of the Certificates -- Events of Default" in the
prospectus.
DISTRIBUTIONS OF INTEREST
Interest on each class of certificates will accrue from its issuance date
at the interest rate listed 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.
DISTRIBUTIONS OF PRINCIPAL
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.
DESCRIPTION OF THE NOTES
BEC Funding LLC, the note issuer, will issue and sell the BEC Funding LLC
notes to the trust 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 the related class of
certificates.
S-4
<PAGE> 6
The notes will consist of five classes, in the initial principal amounts
and bearing the interest rates and having the scheduled maturity dates and final
maturity dates listed below:
<TABLE>
<CAPTION>
INITIAL NOTE SCHEDULED FINAL
PRINCIPAL INTEREST MATURITY MATURITY
CLASS AMOUNT RATE DATE DATE
- ----- --------- -------- --------- --------
<S> <C> <C> <C> <C>
A-1
A-2
A-3
A-4
A-5
</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.
INTEREST
Interest on each class of notes will accrue from its issuance date at the
interest rate listed 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 on the notes prior to
paying principal of the notes. See "Description of the Notes -- Allocations and
Payments" in the prospectus.
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 of principal 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
After paying interest as described above, the note issuer will pay any
principal on each payment date as follows:
(1) to the holders of the A-1 notes, until the principal balance of that
class has been reduced to zero;
(2) to the holders of the A-2 notes, until the principal balance of that
class has been reduced to zero;
(3) to the holders of the A-3 notes, until the principal balance of that
class has been reduced to zero;
(4) to the holders of the A-4 notes, until the principal balance of that
class has been reduced to zero; and
(5) to the holders of the A-5 notes, until the principal balance of that
class has been reduced to zero.
S-5
<PAGE> 7
The note issuer will not, however, pay principal on a payment date of 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 following expected amortization schedule lists the scheduled
outstanding principal balance for each class of notes on each payment date from
the issuance date to the scheduled maturity date, after giving effect to the
payments expected to be made on the payment date. In preparing the following
table, we have assumed, among other things, that:
- the certificates are issued on [ ];
- 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;
- there are no net earnings on amounts on deposit in the collection
account;
- operating expenses, the administration fee (which will be $75,000 per
year, payable semiannually) and amounts owed to the note trustee, the
Delaware trustee and the certificate trustee are in the aggregate
$[ ] per [ ], and these amounts are payable in arrears; and
- payments arising from the property securing the notes are deposited in
the collection account as expected.
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PAYMENT CLASS
DATE BALANCE TOTAL
- ------- ------- -----
<S> <C> <C>
</TABLE>
We cannot assure you that the principal balances of the classes of notes
and the related classes of certificates 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.
COLLECTION ACCOUNT AND SUBACCOUNTS
The note trustee will establish a collection account to hold amounts
remitted by the servicer of the property securing the notes. The collection
account will consist of four subaccounts:
- a general subaccount;
- a reserve subaccount;
- an overcollateralization subaccount; and
- a capital subaccount.
Withdrawals from and deposits to these subaccounts will be made as described
under "Description of the Notes -- Allocations and Payments" in the prospectus.
S-6
<PAGE> 8
OVERCOLLATERALIZATION AMOUNT
The note trustee will collect amounts arising from the property securing
the notes exceeding those that are necessary to pay interest on and principal of
the notes and fees and expenses of servicing and retiring the notes and the
certificates, which are intended to enhance the likelihood that payments on the
notes will be made on a timely basis. These amounts will fund the required
overcollateralization amount. The overcollateralization amount for the notes
will be $[ ], which is 0.50 percent of the initial principal amount of
the notes. The note trustee will collect the overcollateralization amount
ratably over the life of the certificates in equal increments of $[ ]
and will deposit these amounts on each payment date into the
overcollateralization subaccount as set forth below:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED REQUIRED
PAYMENT OVERCOLLATERALIZATION PAYMENT OVERCOLLATERALIZATION
DATE LEVEL DATE LEVEL
- ------- --------------------- -------- ---------------------
<S> <C> <C> <C>
</TABLE>
OTHER CREDIT ENHANCEMENT
CAPITAL SUBACCOUNT. Before the issuance of the notes, Boston Edison
Company will contribute capital of $[ ] to the note issuer. This amount
is equal to 0.50 percent of the initial principal amount of the notes and is the
capital level required to be maintained under the note indenture. The note
trustee will deposit the capital into the capital subaccount. The note trustee
will draw on amounts in the capital subaccount, to the extent amounts available
in the general subaccount, reserve subaccount and overcollateralization
subaccount are insufficient to pay interest on and principal of the notes and
fees and expenses of servicing and retiring the notes and the certificates.
RESERVE SUBACCOUNT. The note trustee will allocate to the reserve
subaccount any amounts remitted to the collection account exceeding amounts
necessary to:
- pay fees and expenses related to the servicing and retirement of the
notes and certificates;
- pay interest on and principal of the notes;
- fund the capital subaccount to the required capital level; and
- fund the overcollateralization subaccount to the required
overcollateralization level.
The note trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above.
TRANSITION PROPERTY
The notes are secured primarily by the transition property, 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's 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 "RTC charge." The RTC charge will
initially constitute a portion of the transition charge as approved by the
Massachusetts Department of Telecommunications and Energy. The RTC charge may
increase, but will not exceed the transition charge, which is capped at 3.35
cents/kilowatt-hour.
As of the date of this prospectus supplement, the RTC charge is expected to
be approximately [ ] cents per kilowatt-hour.
S-7
<PAGE> 9
UNDERWRITING
The note issuer, Boston Edison and the underwriters for the offering named
below have entered into an underwriting agreement relating to the certificates.
Assuming that conditions in the underwriting agreement are met, each underwriter
has severally agreed to purchase the respective principal amount of certificates
indicated in the following table.
<TABLE>
<CAPTION>
NAME CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5
- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Lehman Brothers Inc.
Goldman, Sachs & Co.
Banc One Capital Markets, Inc.
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
BNY Capital Markets, Inc.
CIBC World Markets Corp.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PaineWebber Incorporated
Prudential Securities Incorporated
Salomon Smith Barney Inc.
State Street Capital Markets, LLC
Total
</TABLE>
Certificates sold by the underwriters to the public will be initially
offered at the initial public offering prices set forth on the cover of this
prospectus supplement. The trust has been advised that the underwriters propose
initially to offer the certificates to dealers at the initial public offering
prices, less a selling concession not to exceed the percentage of the
certificate denomination set forth below, and that the underwriters may allow
and dealers may reallow a discount not to exceed the percentage of the
certificate denomination set forth below:
<TABLE>
<CAPTION>
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
- ----- ------------------ --------------------
<S> <C> <C>
Class A-1..................................
Class A-2..................................
Class A-3..................................
Class A-4..................................
Class A-5..................................
</TABLE>
After the initial public offering, the public offering prices, selling
concessions and reallowance discounts may change as a result of market trading.
The certificates are a new issue of securities with no established trading
market. The trust has been advised by the underwriters that the underwriters
intend to make a market in the certificates 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 ability of holders of the certificates to resell the
certificates.
In connection with the offering, the underwriters may purchase and sell
certificates in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater principal
amount of certificates than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the certificates while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because these underwriters have repurchased certificates
sold by or for the account of an underwriter in stabilizing or short covering
transactions.
S-8
<PAGE> 10
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the certificates. As a result, the price of the
certificates may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These activities may be effected in the
over-the-counter market or otherwise.
The note issuer estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $[ ].
The note issuer and Boston Edison have agreed to indemnify the several
underwriters, the Massachusetts Development Finance Agency, the Massachusetts
Health and Educational Facilities Authority and the trust against certain
liabilities, including liabilities under the Securities Act of 1933.
Goldman, Sachs & Co., as financial advisor to Boston Edison, has rendered
certain financial advisory services to Boston Edison in respect of the note
issuer and the trust and has received from it a customary fee for such services.
RATINGS
The certificates will not be issued unless prior to closing at least two
nationally recognized statistical rating organizations have rated the
certificates in a category signifying investment grade (i.e., the equivalent of
BBB- or higher). Each nationally recognized statistical rating organization that
rates the certificates will give each class of notes the same rating as the
related class of certificates.
S-9
<PAGE> 11
[This page intentionally left blank]
<PAGE> 12
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED JULY 21, 1999.
PROSPECTUS
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
RATE REDUCTION CERTIFICATES
ISSUABLE IN CLASSES
BEC FUNDING LLC
ISSUER OF THE NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
SEE "RISK FACTORS" BEGINNING ON PAGE 16 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING THE CERTIFICATES.
THE TRUST MAY SELL ONE OR MORE CLASSES OF CERTIFICATES AS DESCRIBED IN THE
PROSPECTUS SUPPLEMENT. EACH CERTIFICATE REPRESENTS AN INTEREST IN THE RELATED
CLASS OF BEC FUNDING LLC NOTES. THE ASSETS OF THE TRUST WILL CONSIST SOLELY OF
THE NOTES.
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 OR OF BOSTON EDISON OR ANY OF
ITS AFFILIATES, EXCEPT FOR BEC FUNDING LLC, WHICH IS AN AFFILIATE OF BOSTON
EDISON.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF
MASSACHUSETTS NOR ANY POLITICAL SUBDIVISION, AGENCY, AUTHORITY OR
INSTRUMENTALITY OF THE COMMONWEALTH IS PLEDGED TO THE PAYMENT OF PRINCIPAL OF,
OR INTEREST ON, THE CERTIFICATES OR THE NOTES, OR THE PAYMENTS SECURING THE
NOTES. FURTHERMORE, NEITHER THE COMMONWEALTH OF MASSACHUSETTS NOR ANY POLITICAL
SUBDIVISION, AGENCY, AUTHORITY OR INSTRUMENTALITY OF THE COMMONWEALTH WILL
APPROPRIATE ANY FUNDS FOR THE PAYMENT OF ANY OF THE CERTIFICATES OR NOTES.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
[DATE]
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 16
DEFINED TERMS......................... 24
AVAILABLE INFORMATION................. 24
REPORTS TO HOLDERS.................... 24
INCORPORATION OF DOCUMENTS BY
REFERENCE........................... 24
ENERGY DEREGULATION AND NEW
MASSACHUSETTS MARKET STRUCTURE...... 26
Statutory Overview.................. 26
Settlement Agreement................ 26
Exit Charge......................... 27
Reconciliation...................... 27
Third Party Billing Options......... 28
Federal Initiatives................. 28
DESCRIPTION OF THE TRANSITION
PROPERTY............................ 28
Financing Order and Issuance Advice
Letter........................... 28
Transition Property................. 29
Transition Charge................... 29
Adjustments to the RTC Charge....... 30
Pledge by The Commonwealth of
Massachusetts.................... 32
Sale and Assignment of Transition
Property......................... 32
Seller Representations and
Warranties and Repurchase
Obligation....................... 32
Bankruptcy and Creditors' Rights
Issues........................... 36
THE TRUST............................. 38
THE AGENCIES.......................... 38
THE NOTE ISSUER....................... 39
Officers and Directors.............. 40
THE SELLER AND SERVICER............... 41
Boston Edison Revenues, Customer
Base and Energy Consumption...... 41
Estimated Consumption and Estimated
Variance......................... 42
Billing and Collections............. 43
Loss Experience..................... 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Days Revenue Outstanding............ 45
Aging of Receivables................ 45
Year 2000 Computer Issue............ 45
SERVICING............................. 47
Servicing Procedures................ 47
Servicing Standards and Covenants... 48
Remittances to Collection Account... 49
Servicing Compensation.............. 49
Third Party Suppliers............... 49
Servicer Representations and
Warranties....................... 50
Statements by Servicer.............. 51
Evidence as to Compliance........... 52
Matters Regarding the Servicer...... 52
Servicer Defaults................... 53
Rights When Servicer Defaults....... 53
Waiver of Past Defaults............. 54
Successor Servicer.................. 54
Amendment........................... 54
DESCRIPTION OF THE NOTES.............. 55
Security............................ 55
Collection Account.................. 56
Interest and Principal.............. 56
Optional Redemption................. 57
Mandatory Redemption................ 57
Overcollateralization Subaccount.... 57
Capital Subaccount.................. 58
Reserve Subaccount.................. 58
Allocations and Payments............ 58
Actions by Noteholders.............. 60
Note Events of Default; Rights Upon
note Event Of Default............ 60
Covenants of the Note Issuer........ 62
Reports to Noteholders.............. 64
Annual Compliance Statement......... 64
DESCRIPTION OF THE CERTIFICATES....... 65
Payments and Distributions.......... 65
Voting of the Certificates.......... 66
Events of Default................... 67
</TABLE>
2
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Redemption.......................... 69
Reports to Certificateholders....... 69
Supplemental Certificate
Indentures....................... 69
List of Certificateholders.......... 70
Registration and Transfer of the
Certificates..................... 70
Book-Entry Registration and
Definitive Certificates.......... 70
FEDERAL INCOME TAX CONSEQUENCES....... 74
General............................. 74
Treatment of the Certificates....... 74
Taxation of U.S.
Certificateholders............... 75
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Sale or Other Taxable Disposition of
Certificates..................... 76
Non-U.S. Certificateholders......... 76
Information Reporting and Backup
Withholding...................... 77
STATE TAXATION........................ 78
ERISA CONSIDERATIONS.................. 78
USE OF PROCEEDS....................... 80
PLAN OF DISTRIBUTION.................. 80
LEGAL MATTERS......................... 81
GLOSSARY.............................. 82
FINANCIAL STATEMENTS.................. F-1
</TABLE>
3
<PAGE> 15
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because this
is a summary, it does not contain all of the information that may be important
to you. You should read both this prospectus and the prospectus supplement
before you buy the certificates.
Transaction Overview............ Massachusetts law permits electric
companies, such as Boston Edison Company, to
recover the costs of investments and
obligations that cannot be recouped through
market-based rates in a competitive
electricity generation market. These costs
are known as "transition costs." An electric
company recovers transition costs through a
charge called a "transition charge" that is
assessed on ratepayers. Massachusetts law
permits special purpose entities formed by
electric companies to issue securities
secured by the right to receive a portion,
which may become all, of the revenues
arising from the transition charge, if doing
so would save money for the electric
company's ratepayers. This right is referred
to as the "transition property." See
"Description of the Transition Property."
The following sets forth the primary steps
of the transaction underlying the offering
of the certificates:
- Boston Edison will sell the transition
property to the note issuer in exchange
for the proceeds from the sale of the
notes.
- The note issuer will sell the notes to the
trust in exchange for the proceeds from
the sale of the certificates.
- The trust, whose sole assets are the
notes, will sell the certificates to the
underwriters named in the prospectus
supplement.
- Boston Edison will act as the servicer of
the transition property and as the
administrator of the note issuer.
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 or of
Boston Edison or any of its affiliates,
except BEC Funding LLC, which is an
affiliate of Boston Edison.
4
<PAGE> 16
The following diagram shows the parties to the transactions related to this
offering and summarizes their roles and their relationships to each other:
[The omitted graphic reflects the various
parties to the transaction, their
roles and their contractual relationships
to various other parties.]
LOGO
5
<PAGE> 17
Risk Factors................... You should consider, among other things, the
following material risks of investing in the
certificates. These risks may delay the
distribution of interest on and principal of
the certificates or cause you to suffer a
loss on your investment.
- Payments on the notes are the sole source
of distributions on the certificates.
- There may be challenges that attempt to
limit, alter or amend either the
Massachusetts Department of
Telecommunications and Energy's order
creating the transition property or the
provisions of Chapter 164 of the
Massachusetts Acts of 1997 that make the
order irrevocable.
- Since the rate of collections arising from
the transition property is based on the
amount of electricity consumed by
customers, these collections may be
insufficient to pay required distributions
on the certificates.
- The charge assessed to ratepayers to
collect amounts sufficient to pay required
distributions on the certificates may not
exceed the cap of 3.35 cents/kilowatt-hour
on Boston Edison's transition charge.
- If there is an event of default on the
notes and the certificates, the note
trustee is unlikely to be able to resell
the transition property.
- If Boston Edison were to cease servicing
the transition property, it may be
difficult to find a suitable successor
servicer.
- If Boston Edison were to become a debtor
in a bankruptcy case, a court may hold
that the transition property is Boston
Edison's property and may be reached by
its creditors.
For a more detailed discussion of the
material risks of investing in the
certificates, you should carefully read the
discussion under "Risk Factors," which
begins on page 16.
Seller and Servicer ........... Boston Edison is an electric company that
primarily distributes electric energy to
retail customers in the City of Boston and
39 surrounding cities and towns. See "The
Seller and Servicer."
6
<PAGE> 18
The Certificates................ Massachusetts RRB Special Purpose Trust
BEC-1 Rate Reduction Certificates.
The trust may issue the certificates in one
or more classes under the certificate
indenture between the trust and the
certificate trustee. Each class of
certificates will represent fractional
undivided beneficial interests in the
related class of notes and the proceeds of
that class of notes. Holders of each class
of certificates will receive payments
received by the trust on the related class
of notes. These payments will be the only
source of distributions on a class of
certificates.
Issuer of Certificates.......... Massachusetts RRB Special Purpose Trust
BEC-1.
Certificate Trustee............. The Bank of New York.
The Notes....................... BEC Funding LLC Notes.
Each class of notes and the related class of
certificates will have the same aggregate
principal amount, expected amortization
schedule and interest rate, as described in
the prospectus supplement. The notes will be
secured primarily by the transition
property.
See "Description of the Notes."
Note Issuer..................... BEC Funding LLC, 800 Boylston Street, 35th
floor, Boston MA 02199. (617) 369-6000.
Note Trustee.................... The Bank of New York.
Interest........................ Interest on each class of certificates will
accrue at the interest rate specified in the
prospectus supplement. The certificate
trustee will distribute interest accrued on
each class of certificates on each
distribution date, to the extent of interest
paid on the related class of notes.
Principal....................... The certificate trustee will distribute
principal of each class of certificates in
the amounts and on the distribution dates
specified in the expected amortization
schedule in the prospectus supplement, but
only to the extent of principal paid on the
related class of notes. See "Description of
the Notes -- Allocations and Payments" and
"Description of the Certificates -- Payments
and Distributions."
On any payment date, the note issuer will
pay principal of the notes only until the
outstanding principal balances of the
various classes of notes have been reduced
to the principal balances specified for
those classes in the expected amortization
schedule. If cash is not available, however,
the certificate trustee will pay principal
of a class of certificates later than set
forth in the expected amortization
7
<PAGE> 19
- --------------------------------------------------------------------------------
schedule. If an event of default under the
certificate indenture has occurred and is
continuing for any class of certificates,
the certificate trustee may, and with the
written direction of the holders of at least
a majority in principal amount of the
outstanding certificates will, declare the
unpaid principal amount of the outstanding
notes and accrued interest to be due and
payable. See "Description of the
Certificates -- Events of Default."
RTC charge..................... Boston Edison has obtained from the
Massachusetts Department of
Telecommunications and Energy, which
regulates electric companies in
Massachusetts, an order designating the
transition costs and approving the costs of
issuing, servicing and retiring the notes
and the certificates to be financed through
this transaction. This order is known as a
"financing order." To enable Boston Edison
to recover its transition costs and
associated costs, the financing order
authorizes the billing and collection of the
RTC charge (as defined in the glossary on
page 81).
The RTC charge is nonbypassable in that
customers must pay it whether or not they
purchase electricity from Boston Edison or a
third party supplier of electricity, and
whether or not their distribution system is
being operated by Boston Edison or a
successor distribution company. The RTC
charge will initially constitute a portion
of the transition charge as approved by the
Department. The RTC charge may increase, but
will not exceed the transition charge, which
is capped at 3.35 cents/kilowatt-hour.
See "Description of the Transition
Property -- Financing Order and Issuance
Advice Letter."
Customers...................... All classes of retail users of Boston
Edison's distribution system within its
geographic service territory as in effect on
July 1, 1997.
Adjustments to the RTC charge.. The servicer will calculate and set the RTC
charge at least annually at a level
estimated to generate sufficient revenues:
- to pay fees and expenses related to the
servicing and retirement of the notes and
certificates;
- to pay interest on the notes;
- to pay principal of each class of notes
according to its expected amortization
schedule; and
- --------------------------------------------------------------------------------
8
<PAGE> 20
- --------------------------------------------------------------------------------
- to fund the overcollateralization
subaccount to the required
overcollateralization level and to
replenish the capital subaccount to the
required capital level.
Adjustments to the RTC charge are limited by
Boston Edison's maximum permitted transition
charge. The transition charge may not exceed
3.35 cents/kilowatt-hour under the
settlement agreement. At the time of the
issuance of the certificates, Boston
Edison's transition charge is expected to be
[ ] cents/kilowatt-hour. This includes a
projected RTC charge of [ ]
cents/kilowatt-hour.
The servicer will base adjustments to the
RTC charge on updated assumptions as to
various factors, including electricity usage
by customers and the rate of charge-offs.
These adjustments will continue until
interest on and principal of all classes of
notes and related classes of certificates
have been paid or distributed in full. See
"Description of the Transition
Property -- Adjustments to the RTC Charge."
The servicer will file a request referred to
as a true-up advice letter, annually before
the anniversary date of the financing order,
for an increase or decrease in the RTC
charge. The servicer may also file true-up
advice letters before the end of any
calendar quarter or payment date to adjust
the RTC charge. In addition, the servicer
may file a non-routine true-up advice letter
to revise its method for calculating the RTC
charge.
See "Description of the Transition
Property -- Adjustments to the RTC Charge."
Commonwealth Pledge............ The Commonwealth of Massachusetts has
pledged and agreed with the note issuer, the
trust and the certificateholders that it
will not alter the provisions of the statute
that make the RTC charge irrevocable and
binding or limit or alter the transition
property or the financing order until the
certificates are fully paid and discharged.
Optional Redemption............ The note issuer may redeem the notes and
cause the trust to redeem the certificates
on any payment date if the outstanding
principal balance of the notes (after giving
effect to payments that would otherwise be
made on a payment date) is less than five
percent of the initial principal balance of
the notes. Upon redemption, the note issuer
will pay an aggregate amount equal to the
outstanding principal amount of the notes
and accrued but
- --------------------------------------------------------------------------------
9
<PAGE> 21
- --------------------------------------------------------------------------------
unpaid interest as of the redemption date.
See "Description of the Certificates --
Redemption."
Mandatory Redemption........... If the seller is required to, or elects to,
repurchase the transition property under the
circumstances described under "Description
of the Transition Property -- Seller
Representations and Warranties and
Repurchase Obligation," the note issuer will
be required to redeem the notes on or before
the fifth business day following the date of
repurchase and the trust will be required to
redeem the certificates on the same day.
Upon redemption, the note issuer will pay an
aggregate amount equal to the outstanding
principal amount of the notes and accrued
but unpaid interest as of the redemption
date.
Collection Account and
Subaccounts.................... The note issuer will establish a collection
account to hold payments arising from the
RTC charge as well as the capital
contribution to the note issuer. The
collection account will consist of four
subaccounts:
- a general subaccount;
- a reserve subaccount;
- an overcollateralization subaccount for
the overcollateralization amount; and
- a capital subaccount for capital
contributions to the note issuer.
All amounts in the collection account not
allocated to any other subaccount will be
allocated to the general subaccount.
Withdrawals from and deposits to these
subaccounts will be made as described under
"Description of the Notes -- Allocations and
Payments."
Overcollateralization
Subaccount..................... The note trustee will collect the
overcollateralization amount specified in
the prospectus supplement to enhance the
likelihood that payments on the notes will
be made on a timely basis.
The note trustee will hold the
overcollateralization amount for all classes
of notes in the overcollateralization
subaccount. The overcollateralization amount
will be available to pay any periodic
shortfalls in amounts available to pay the
fees and expenses of servicing and retiring
the notes and the certificates and to make
scheduled payments on the notes after
withdrawals from the general subaccount and
reserve subaccount.
- --------------------------------------------------------------------------------
10
<PAGE> 22
- --------------------------------------------------------------------------------
Capital Subaccount............. Prior to the issuance of the notes, Boston
Edison will contribute capital to the note
issuer in the amount specified in the
prospectus supplement. The note issuer will
deposit the capital into the capital
subaccount. The note trustee will draw on
amounts in the capital subaccount to the
extent amounts available in the general
subaccount, the reserve subaccount and the
overcollateralization subaccount are
insufficient to pay interest on and
principal of the notes and the fees and
expenses of servicing and retiring the notes
and the certificates. If the note trustee
uses amounts on deposit in the capital
subaccount, on subsequent payment dates the
capital subaccount will be replenished to
the extent the servicer remits payments
arising from the RTC charge exceeding the
amounts required to pay amounts having a
higher priority of payment. See "Description
of the Notes -- Allocations and Payments."
Reserve Subaccount............. The note trustee will allocate to the
reserve subaccount any amounts remitted to
the collection account exceeding the amounts
necessary to:
- pay fees and expenses related to the
servicing and retirement of the notes and
certificates;
- pay interest on and principal of the
notes;
- fund the capital subaccount to the
required capital level; and
- fund the overcollateralization subaccount
to the required overcollateralization
level.
The note trustee will draw on amounts in the
reserve subaccount, to the extent amounts
available in the general subaccount are
insufficient to pay the amounts listed
above.
Collections; Allocations;
Distributions.................. Starting with the first deemed collection
date after the closing, the servicer will
remit daily to the collection account an
amount equal to the actual RTC charges
billed, less an allowance for estimated
charge-offs, within two business days after
the day payments arising from the RTC charge
are deemed to be collected. See "Servicing
-- Remittances to Collection Account."
On each payment date, or for any amount
payable under clauses (1) through (4) below,
on any business day, the note trustee will
allocate amounts in the collection account,
including net earnings on
- --------------------------------------------------------------------------------
11
<PAGE> 23
- --------------------------------------------------------------------------------
these amounts (other than on amounts in the
capital subaccount), as follows:
(1) all amounts owed by the note issuer to
the note trustee, the Delaware trustee
and the certificate trustee will be
paid;
(2) the servicing fee and all unpaid
servicing fees from any prior payment
dates will be paid to the servicer;
(3) the administration fee and all unpaid
administration fees from any prior
payment dates will be paid to the note
issuer's administrator;
(4) so long as no event of default has
occurred or would be caused by payment,
all other fees, expenses and
indemnities payable by the note issuer
will be paid to the persons entitled
thereto, provided that the total amount
paid since the previous payment date
and on the current payment date may
not, in the aggregate, exceed $100,000;
(5) first, any overdue semiannual interest
and second, semiannual interest will be
transferred to the certificate trustee,
as noteholder, for distribution to the
certificateholders;
(6) first, funds necessary to pay any
principal in default or, on the final
maturity date of a class of notes, the
outstanding principal balance of such
class, and second, principal based on
priorities described in the prospectus
supplement will be transferred to the
certificate trustee, as noteholder, for
distribution to the applicable
certificateholders according to the
expected amortization schedule for each
class;
(7) unpaid operating expenses and
indemnities payable by the note issuer
will be paid to the persons entitled
thereto;
(8) allocate to the capital subaccount the
amount, if any, by which the capital
subaccount needs to be funded to equal
the required capital level as of that
payment date;
(9) allocate to the overcollateralization
subaccount the amount, if any, by which
the overcollateralization subaccount
needs to be
- --------------------------------------------------------------------------------
12
<PAGE> 24
- --------------------------------------------------------------------------------
funded to equal the required
overcollateralization level as of a
payment date;
(10) the balance, if any, will be allocated
to the reserve subaccount for
distribution on subsequent payment
dates; and
(11) following the repayment of all notes
and certificates, the balance, if any,
will be released to the note issuer.
If on any payment date, or for any amounts
payable under clauses (1) through (4) above,
on any business day, funds on deposit in the
general subaccount are insufficient to make
the transfers contemplated by clauses (1)
through (6) above, the note trustee will
first, draw from amounts on deposit in the
reserve subaccount, second, draw from
amounts on deposit in the
overcollateralization subaccount and third,
draw from amounts on deposit in the capital
subaccount, up to the amount of the
shortfall, in order to make the transfers
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 (8) and (9)
above, the note trustee will draw from
amounts on deposit in the reserve subaccount
to make the required transfers. See
"Description of the Notes--Allocations and
Payments."
- --------------------------------------------------------------------------------
13
<PAGE> 25
The following diagram provides a general summary of the flow of funds from
the customers through the servicer to the collection account, and the various
allocations from the collection account:
[The omitted graphic depicts the flow of funds
from the Customers through the Servicer to the collection
account, and the various allocations from the collection account.]
14
<PAGE> 26
Servicing....................... The servicer will service and manage the
transition property and receive payments
arising from the RTC charge in the same
manner that it services bill collections for
its own account and the accounts it services
for others, if any.
Servicing Compensation.......... The servicer will be entitled to receive an
annual servicing fee in an amount equal to:
- 0.05 percent of the initial principal
balance of the notes for so long as the
servicer bills the RTC charge concurrently
with other charges for services; or
- up to 1.25 percent of the initial
principal balance of the notes if the RTC
charge is billed separately to customers.
The note trustee will pay the servicing fee
semiannually on each payment date.
Tax Status of the
Certificates.................... For federal income tax purposes, the trust
will be treated as a "grantor trust," and
thus not taxable as a corporation, and each
class of certificates will be treated as
representing ownership of a fractional
undivided beneficial interest in the related
class of notes. Interest and original issue
discount, if any, on the certificates, and
any gain on the sale of the certificates,
generally will be included in gross income
of certificateholders for federal income tax
purposes. See "Federal Income Tax
Consequences." Interest on the certificates
and any profit on the sale of the
certificates are exempt from Massachusetts
personal income taxes, and the certificates
are exempt from Massachusetts personal
property taxes. See "State Taxation."
15
<PAGE> 27
RISK FACTORS
You should consider carefully the following factors before you decide
whether to buy the certificates:
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
LIMITED SOURCES OF PAYMENT FOR THE CERTIFICATES AND LIMITED CREDIT ENHANCEMENT.
You could experience payment delays or losses on the certificates because
payments on the notes are the sole source of distributions on the certificates.
The notes are the sole assets of the trust. The transition property and the
other note collateral, which is expected to be of relatively small value, are in
turn the only sources of payments on the notes.
There will be no forms of credit enhancement for the certificates except
for the right to adjust the RTC charge and amounts held in the
overcollateralization subaccount, capital subaccount and reserve subaccount. We
do not anticipate that the certificates will have the benefit of any liquidity
facility or of any third-party credit enhancement, such as guarantees, letters
of credit or insurance.
If distributions are not made on the certificates in a timely manner as a
result of nonpayment of the related notes, the holders of at least a majority of
the outstanding principal amount of the certificates may direct the certificate
trustee to bring an action against the note issuer to foreclose on the
transition property and the other note collateral securing the notes. There is
not likely to be a market, however, for the sale of the transition property and
the other note collateral.
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
AMENDMENT, REPEAL OR INVALIDATION OF THE RESTRUCTURING STATUTE OR BREACH OF THE
COMMONWEALTH PLEDGE.
Although, under the Massachusetts restructuring statute, The Commonwealth
of Massachusetts has pledged that it will not alter the provisions of the
statute that make the RTC charge irrevocable and binding, or limit or alter the
transition property or the financing order, it is possible that actions could be
taken (even if such actions were ultimately found to be unlawful) to alter the
transition property or the financing order.
LEGISLATIVE ACTIONS
Under Massachusetts law, citizens have the ability to submit laws enacted
by the Massachusetts legislature for approval or rejection directly by the
voters by means of referendum petitions. In November 1998, the voters approved
the restructuring statute by referendum. Massachusetts law does not provide for
any additional referendum on the restructuring statute.
In addition, under Massachusetts law, citizens have the ability to propose
laws (and constitutional amendments) for approval or rejection by the voters by
means of initiative petitions. Generally, any matter that is a proper subject of
legislation can become the subject of an initiative. Among other procedural
requirements, in order to qualify for submission to the electorate, an
initiative petition must be submitted to the Massachusetts Attorney General
signed by more than three percent of the total number of votes cast for governor
in the preceding election. Among other matters, the Attorney General must
certify that the initiative petition is not substantially the same as any
measure which has been qualified for submission or submitted to the voters at
either of the two preceding biennial state elections. The initiative petition
becomes law if it is approved by voters equal
16
<PAGE> 28
in number to at least thirty percent of the total number of ballots cast in the
election and also by a majority of voters voting on the petition.
We are not aware of any proposed or pending initiative petition or of any
proposed or pending legislation in the Massachusetts legislature that would
affect any of the provisions of the restructuring statute other than bills
proposing technical corrections, and we are not aware of any pending suit that
challenges any of the provisions of the statute, relating to the issuance by the
Massachusetts Department of Telecommunications and Energy of a financing order,
the creation or characterization of the transition property or the issuance of
"electric rate reduction bonds," such as the certificates.
In the opinion of Palmer & Dodge LLP, counsel to the trust, under
applicable constitutional principles relating to the impairment of contracts,
The Commonwealth of Massachusetts could not repeal or amend the restructuring
statute, either by means of the legislative process or the voter initiative
process, or take or refuse to take any action required under its pledge
described above if the repeal or amendment or the action or inaction would
substantially impair the rights of the owners of the transition property or the
certificateholders, absent a demonstration by The Commonwealth of Massachusetts
that an impairment is narrowly tailored and is necessary to advance an important
public interest, such as a "great public calamity."
There have been numerous cases in which legislative or popular concerns
with the burden of taxation or governmental charges have led to adoption of
legislation reducing or eliminating taxes or charges that supported bonds or
other contractual obligations entered into by public instrumentalities. Courts
have not considered these concerns by themselves to provide sufficient
justification for a substantial impairment of the pledged security provided by
the taxes or governmental charges for the bonds or obligations. Based on the
case law referred to above (which, however, does not address directly the
certificates and the pledge described above), it would appear unlikely that The
Commonwealth of Massachusetts could reduce, modify or alter the transition
property, or take or refuse to take any action regarding the transition property
in a manner that would substantially impair the rights of the owners of the
transition property or the certificateholders.
Nonetheless, we cannot assure you that a repeal or amendment of the
restructuring statute will not be adopted or sought or that any action or
refusal to act by The Commonwealth of Massachusetts will not occur, any of which
may constitute a violation of the Commonwealth's pledge with the owners of the
transition property and the certificateholders. If a violation of this pledge
occurred, costly and time consuming litigation might ensue. Any litigation might
adversely affect the price of the certificates and your ability to resell the
certificates and might delay the timing of distributions on the certificates.
Moreover, given the lack of controlling judicial precedent directly addressing
the certificates and the Commonwealth's pledge, we cannot predict the outcome of
any litigation with certainty, and, accordingly, you could experience a delay in
receipt of distributions on or incur a loss on your investment in the
certificates.
COURT DECISIONS
If a court were to determine that the relevant provisions of the
restructuring statute or the financing order are unlawful, invalid or
unenforceable in whole or in part, it could adversely affect the validity of the
certificates or the trust's ability to make distributions on the certificates.
In either case, you could suffer a loss on your investment in the certificates.
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<PAGE> 29
SHORTFALL IN RTC CHARGE PAYMENTS AS A RESULT OF INACCURATE FORECASTING OR
UNANTICIPATED DELINQUENCIES COULD LEAD TO PAYMENT DELAYS OR LOSSES.
Because the RTC charge is assessed based on kilowatt-hours of electricity
consumed by customers, a shortfall of payments arising from the RTC charge could
result if the servicer inaccurately forecasts electricity consumption or
underestimates customer delinquencies or charge-offs when setting the RTC
charge. A shortfall could cause distributions on the certificates to be made
later than expected or not at all. As a result, principal of the certificates
may not be paid according to the expected amortization schedule, which would
lengthen the weighted average life of the certificates. In addition, a change in
energy consumption by customers may also result in principal of the certificates
not being paid by the final maturity date of the certificates or not being paid
at all. For the same reasons, payments of interest on the certificates could
also be delayed or not made.
Inaccurate forecasting of electricity consumption by the servicer could
result from, among other things:
- warmer winters or cooler summers, resulting in less electricity
consumption than forecasted;
- general economic conditions being worse than expected, causing customers
to migrate from Boston Edison's or a successor distribution company's
service territory or reduce their electricity consumption;
- the occurrence of a natural disaster, such as a hurricane or blizzard,
unexpectedly disrupting electrical service and reducing consumption;
- problems with energy generation, transmission or distribution resulting
from a change in the market structure of the electric industry;
- large customers ceasing business or departing Boston Edison's or a
successor distribution company's service territory;
- customers consuming less electricity because of increased conservation
efforts; or
- large customers switching to self-generation or co-generation of electric
power without being required to pay an exit charge to mitigate the
revenues lost by their reduced consumption of electricity delivered by
Boston Edison or a successor distribution company. See "Energy
Deregulation and New Massachusetts Market Structure."
Inaccurate forecasting of delinquencies or charge-offs by the servicer
could result from, among other things:
- unexpected deterioration of the economy or the occurrence of a natural
disaster, causing greater charge-offs than expected or forcing Boston
Edison or a successor distribution company to grant additional payment
relief to more customers;
- a change in law that makes it more difficult for Boston Edison or a
successor distribution company to disconnect nonpaying customers, or that
requires Boston Edison or a successor distribution company to apply more
lenient credit standards in accepting customers; or
- the introduction into the energy markets of less creditworthy third party
energy suppliers who collect and remit payments arising from the RTC
charge to the servicer on behalf of customers.
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CAP ON RTC CHARGE MAY LEAD TO INSUFFICIENT REVENUES TO MAKE PAYMENTS.
You may experience payment delays or defaults on the certificates because
the servicer will not be able to increase the RTC charge above Boston Edison's
maximum permitted transition charge. The transition charge may not exceed 3.35
cents/kilowatt-hour under the settlement agreement. At the time of the issuance
of the certificates, Boston Edison's transition charge is expected to be [ ]
cents/kilowatt-hour. This includes a projected RTC charge of [ ]
cents/kilowatt-hour.
The financing order provides that the transition charge will not be reduced
below the RTC charge, although the RTC charge is still restricted by the
transition charge cap of 3.35 cents/kilowatt-hour. If the RTC charge needs to be
increased above the transition charge then in effect, the filing of a true-up
advice letter with the Department to increase the RTC charge will also effect an
increase in the transition charge, within the limits of the cap described above.
See "Description of the Transition Property -- Transition Charge."
LIMITED RIGHTS AND REMEDIES MAY IMPAIR ABILITY TO REALIZE ON COLLATERAL.
If there is an event of default on the notes and the note trustee elects to
foreclose on the transition property, the note trustee is unlikely to be able to
resell the transition property because of its unique nature. In addition,
although the seller is required to repurchase the transition property for a
price equal to the outstanding principal amount of the notes and accrued
interest under the limited circumstances described in "Description of the
Transition Property -- Seller Representations and Warranties and Repurchase
Obligation," we cannot assure you that the seller would be able to repurchase
the transition property if it were required to do so.
The requirement to repurchase the transition property would arise if, among
other things, there has been a breach of the seller's representations and
warranties as of the closing date that:
- the financing order under which the transition property has been created
is in full force and effect and the issuance advice letter has been filed
in accordance with the financing order;
- the process by which the financing order was adopted and approved, and
the financing order and issuance advice letter, comply with all
applicable laws, rules and regulations;
- the certificateholders are entitled to the protections of the statute
and, accordingly, the financing order is not revocable by the
Massachusetts Department of Telecommunications and Energy; or
- the transition property constitutes a property right,
but only if a breach continues beyond a 90-day grace period and has a material
adverse effect on certificateholders. See "Description of the Transition
Property -- Seller Representations and Warranties and Repurchase Obligation."
The seller will not be in breach of the representations and warranties in
the sale agreement as a result of a change in law by legislative enactment,
constitutional amendment or initiative petition. A repeal of the statute, an
amendment voiding the transition property or the adoption of a federal statute
prohibiting the recovery of transition costs are examples of changes in law. If
any change in law were to occur, the servicer, on behalf of the
certificateholders, would be required to bring legal action, at the note
issuer's expense, seeking to overturn the change. Any litigation may adversely
affect the price and the resale market for the certificates.
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ADDITIONAL ISSUANCES OF CERTIFICATES MAY AFFECT PAYMENTS ON OUTSTANDING
CERTIFICATES.
The issuance of other certificates by a separate trust might delay or
reduce the distributions that you receive on the certificates, because the
revenues arising from Boston Edison's transition charge will be shared among the
various issuances of certificates. As a result, if collections of the transition
charge are insufficient to pay interest on and principal of each series of
outstanding certificates, the certificates the trust is offering will only
receive their pro rata portion of the collections according to the ratio of the
RTC charges otherwise applicable to the separate series of certificates. The
terms of any new issuance of certificates secured by the remaining portion of
Boston Edison's transition charge will not require the prior review or consent
of certificateholders. The seller has, however, agreed in the transition
property sale agreement not to sell other transition property to secure another
issuance of notes and, in turn, another issuance of certificates if it would
cause the then existing ratings on the certificates to be downgraded. Further,
the servicer may not ultimately be able to increase the RTC charge for the
certificates to generate revenues sufficient to pay the fees and expenses of
servicing and retiring the notes and the certificates and interest on and
principal of the certificates.
LITIGATION AND OTHER EVENTS IN JURISDICTIONS OTHER THAN MASSACHUSETTS COULD
ADVERSELY AFFECT CERTIFICATEHOLDERS.
A legal action successfully challenging under the U.S. Constitution or
other federal law a state restructuring statute similar to the Massachusetts
restructuring statute adopted by a jurisdiction other than Massachusetts could
establish legal principles that would serve as a basis to challenge the
restructuring statute. Whether or not a subsequent court challenge to the
restructuring statute would be successful would depend on the similarity of the
other statute and the applicability of the legal precedent to the restructuring
statute. Although the restructuring statute would not become invalid
automatically as a result of a court decision invalidating another state's
statute, such a decision could establish a legal precedent for a successful
challenge to the restructuring statute that could adversely affect
certificateholders. Accordingly, the market value of the certificates could be
reduced. In addition, legal challenges, legislative, administrative, political
or other actions in other states challenging stranded cost recovery or
securitization of stranded cost recovery could adversely affect the market for
certificates. Legal challenges brought in jurisdictions other than Massachusetts
would not, however, directly affect the restructuring statute or the interests
of the certificateholders. Similarly, legislative, administrative, political or
other actions in other states (such as California which has already implemented
a competitive market structure for its electric generation industry) would not
directly impact the restructuring statute or the interests of certificateholders
but could heighten awareness of the political and other risks associated with
these types of securities as perceived by the capital markets, and in that way,
limit the ability of certificateholders to resell the certificates and impair
their value. We cannot assure you that future challenges to stranded cost
recovery or stranded cost securitizations in other states will not significantly
impair your ability to resell the certificates and the value of the
certificates.
PROBLEMS WITH THE SERVICING OF TRANSITION PROPERTY MAY CAUSE PAYMENT DELAYS OR
LOSSES.
CHANGE IN SERVICER MAY LEAD TO PAYMENT DELAYS OR LOSSES.
If, as a result of insolvency or liquidation or otherwise, Boston Edison
were to cease servicing the transition property, determining any adjustments to
the RTC charge or
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collecting payments arising from the RTC charge, it may be difficult to find a
suitable successor servicer. As a result, the timing of recovery of payments
arising from the RTC charge could be delayed. The note issuer will rely on the
servicer to determine any adjustments to the RTC charge and for customer billing
and collection. Any successor servicer may have less experience than Boston
Edison and less capable forecasting, billing and collection systems than those
employed by Boston Edison. Given the complexity of the tasks to be performed by
the servicer and the expertise required, a successor servicer may experience
difficulties in collecting payments arising from the RTC charge and determining
appropriate adjustments to the RTC charge.
The servicing fee would likely increase if the note issuer were to engage a
successor servicer. In addition, any successor servicer under current law may
not be able to invoke the remedy of shutting off service to a customer for
nonpayment of the RTC charge and thus may experience higher delinquencies. Also,
a change in the servicer will cause payment instructions to change, which may
lead to a period of disruption in which customers continue to remit payment
according to the former payment instructions, resulting in delays in collection
that could result in payment delays on the certificates.
BILLING OF THE RTC CHARGE BY THIRD PARTY SUPPLIERS MAY CAUSE DELAYS IN
REMITTANCES.
When a third party supplier bills, collects and remits the RTC charge to
the servicer, there is a greater risk that the servicer will receive payments
arising from the RTC charge later than it otherwise would. A third party
supplier is an entity that supplies energy to customers and has contracted with
the servicer to bill and collect the RTC charge. The risk of nonpayment due to
default, bankruptcy or insolvency of the third party supplier holding the funds
will increase the longer that the delay in receipt of payment lasts. Third party
supplier billing also places increased information requirements on the servicer.
The servicer has the responsibility of accounting for payments arising from the
RTC charge due to certificateholders regardless of which entity bills customers
for the RTC charge.
Any third party supplier that bills and collects payments arising from the
RTC charge will be required to pay these amounts, regardless of whether payments
are received from customers, within 15 days after the servicer's bill to the
third party supplier. The third party supplier will, in effect, replace the
customer as the obligor for these amounts, and the servicer, on behalf of the
note issuer, will have no right to collect the payments arising from the RTC
charge from the customer. Therefore, the servicer will be relying on the credit
of the third party supplier, rather than on the credit of the customers. In
addition, to the extent that a few third party suppliers bill and collect the
RTC charge, the note issuer may be relying on a small number of third party
suppliers, rather than a large number of customers, to remit payments arising
from the RTC charge. In this case, a default in the remittance of payments
arising from the RTC charge by a single third party supplier that bills and
collects the RTC charge from a large number of customers may adversely affect
the timing of distributions on the certificates. See "Servicing -- Third Party
Suppliers."
Neither Boston Edison nor the servicer will pay any shortfalls resulting
from the failure of any third party supplier to remit payments arising from the
RTC charge to the servicer. Although the servicer will take into account revenue
shortfalls arising from a default by a third party supplier when periodically
adjusting the RTC charge, any shortfalls that occur may cause delays in
distributions on the certificates.
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POSSIBLE PAYMENT DELAYS MAY RESULT FROM THE YEAR 2000 COMPUTER ISSUE.
The year 2000 computer issue could cause significant delays in
distributions to certificateholders. The year 2000 computer issue is the result
of computer programs that were written using two digits rather than four to
define an applicable year. Boston Edison uses various software applications and
embedded chip technology that could be affected by the year 2000 computer issue.
If computer programs with date-sensitive functions are not year 2000 compliant,
they may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in system failures or miscalculations causing disruptions of
operations. Possible disruptions to Boston Edison's operations, include, among
other things, the inability of Boston Edison, as servicer, to bill and collect
the RTC charge, and the inability of Boston Edison to meter electricity usage.
In addition, the year 2000 computer issue could cause Boston Edison or its
suppliers to fail to deliver electricity. In that event, revenues arising from
the RTC charge may decrease because the RTC charge is calculated based on
electricity usage by customers. This also could result in delays in
distributions on the certificates. See "The Seller and Servicer -- Year 2000
Computer Issue."
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
BANKRUPTCY OF SELLER COULD DELAY OR REDUCE PAYMENTS ON CERTIFICATES AND
ADVERSELY AFFECT THE ABILITY TO RESELL TRANSITION PROPERTY.
If the seller were to become a debtor in a bankruptcy case, and a creditor
or bankruptcy trustee of the seller or the seller itself as debtor in possession
were to take the position that the transition property constituted property of
the seller's bankruptcy estate, and a court were to adopt this position, then
delays or reductions in payments on the certificates could result. For example,
a creditor or bankruptcy trustee of the seller or the seller itself as debtor in
possession might argue that the sale of the transition property to the note
issuer was a loan to the note issuer from the seller, secured by a pledge of the
transition property. Regardless of any adverse determination in a seller
bankruptcy proceeding, the mere fact of a seller bankruptcy proceeding could
have an adverse effect on the resale market for the certificates and the market
value of the certificates.
Because the RTC charge is a usage-based charge, if the seller were to
become the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee
for, the seller, or the seller itself as debtor in possession could argue that
the note issuer should pay a portion of the costs of the seller associated with
the generation, transmission or distribution of the electricity the price of
which gave rise to the payments arising from the RTC charge that are used to
make distributions on the certificates. If a court were to adopt this position,
the amounts paid to the note trustee, and thus to the holders of the
certificates, could be reduced.
Regardless of whether the seller is the debtor in a bankruptcy case, if a
court were to accept the arguments of a creditor of the seller that transition
property comes into existence only as customers use electricity, a tax,
government lien or other lien on property of the seller arising before the
transition property came into existence may have priority over the note issuer's
interest in the transition property, which could reduce the amounts distributed
to certificateholders. See "Description of the Transition Property--Bankruptcy
and Creditors' Rights Issues."
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BANKRUPTCY OF THE SERVICER OR A THIRD PARTY SUPPLIER COULD ALSO DELAY OR
REDUCE PAYMENTS.
The bankruptcy or insolvency of the servicer or a third party supplier
could result in delays or reductions in distributions on the certificates. Each
of the servicer and any third party supplier will remit payments arising from
the RTC charge out of its general funds and will not segregate these amounts
from its general funds. In the event of a bankruptcy of the servicer or a third
party supplier, the note trustee likely will not have a perfected interest in
commingled funds and the inclusion of the commingled funds in the bankruptcy
estate of the servicer or third party supplier may result in delays in
distributions on the certificates. 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 "-- Problems
with the servicing of transition property may cause payment delays or
losses -- Change in servicer may lead to payment delays or losses."
POSSIBLE FEDERAL PREEMPTION OF THE RESTRUCTURING STATUTE MAY PROHIBIT RECOVERY
OF THE RTC CHARGE.
Federal preemption of the restructuring statute could prevent
certificateholders from receiving distributions on the certificates and cause a
loss on their investment in the certificates. The Massachusetts electric
industry is governed by federal law and regulated by the Federal Energy
Regulatory Commission. In the past, bills have been introduced in Congress to
prohibit the recovery of charges similar to the RTC charge. Although Congress
has not enacted any law that would prohibit the recovery of charges similar to
the RTC charge, it may do so in the future. Enactment of a federal law
prohibiting the recovery of charges similar to the RTC charge might have the
effect of preempting the statute and thereby prohibiting the recovery of the RTC
charge, which would cause delays and losses on the payment of the certificates.
NATURE OF THE CERTIFICATES
RESALE MARKET IS LIMITED.
We cannot assure you that you will be able to resell the certificates or
that a trading market for the certificates will develop or, if one does develop,
that it will continue for the life of the certificates. We do not expect to list
the certificates on any securities exchange.
HIGH RATINGS DO NOT MEAN THAT PAYMENTS WILL BE MADE ON TIME.
You should understand that the ratings of the certificates issued by
nationally recognized statistical rating organizations address only the
likelihood of the ultimate distribution of principal by the legal maturity date
and the timely distribution of interest on the certificates. A rating is not an
indication that these rating organizations believe that principal payments are
likely to be distributed on time according to the expected amortization
schedule. You should not rely on ratings for that purpose.
POSSIBILITY OF EARLY REDEMPTION MAY LEAD TO LOWER RETURN ON INVESTMENT.
The note issuer has the option to redeem all of the outstanding notes on
any payment date if, after giving effect to the payments that would otherwise be
made on that payment date, the outstanding principal balance of the notes would
be less than five percent of the initial principal balance of the notes. In
addition, the note issuer may be required to redeem the notes if the seller is
required to repurchase the transition property as a result of a breach of the
seller's representations and warranties in the sale agreement as described under
"Description of the Transition Property -- Seller Representations and Warranties
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and Repurchase Obligation." Redemption of the notes will require the certificate
trustee to redeem the certificates. Redemption will cause the certificates to be
retired earlier than would otherwise be expected. We cannot predict whether the
note issuer will redeem the notes, or whether you will be able to receive an
equivalent rate of return on reinvestment of the proceeds arising from any
redemption.
DEFINED TERMS
Capitalized terms used in this prospectus are defined in the glossary,
which begins on page 81.
AVAILABLE INFORMATION
BEC Funding LLC, the note issuer, has filed a registration statement
relating to the certificates and the notes with the Securities and Exchange
Commission. This prospectus is a part of the registration statement. This
prospectus, together with the prospectus supplement, describes the material
terms of each material document filed as an exhibit to the registration
statement. This prospectus and the prospectus supplement do not, however,
contain all of the information contained in the registration statement and
related exhibits. You can inspect the registration statement and the related
exhibits 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. You
may obtain copies of the registration statement and related exhibits at the
above locations at prescribed rates. You may obtain information on the operation
of the public reference facilities by calling the Commission at 1-800-SEC-0330.
You can also inspect information filed electronically with the Commission,
including reports and proxy and information statements, at the Commission's site
on the World Wide Web at http://www.sec.gov.
The note issuer will file annual, quarterly and special reports and other
information with the Securities and Exchange Commission. The note issuer may
stop filing periodic reports with the Commission at the beginning of any fiscal
year following the issuance of the certificates if there are fewer than 300
holders of the certificates.
REPORTS TO HOLDERS
During any period when the trust issues the certificates in book-entry
form, Boston Edison Company, acting as the servicer of the property securing the
notes, or a successor servicer, will provide periodic reports concerning the
certificates. You may obtain copies of the periodic reports by requesting them
from your broker or dealer. If you are the registered holder of the
certificates, you will receive the reports from the certificate trustee. See
"Description of the Notes -- Reports to Noteholders" and "Description of the
Certificates -- Reports to Certificateholders."
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by the note issuer with the
Securities and Exchange Commission after the date of this prospectus and prior
to the termination of this offering will be incorporated by reference in this
prospectus and considered to be part of
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this prospectus. Any statement in this prospectus or in the prospectus
supplement, or in a document incorporated or deemed to be incorporated by
reference, will be deemed to be modified or superseded if the note issuer files
a document that modifies that statement. Any statement as modified or superseded
shall constitute a part of this prospectus or the prospectus supplement.
You can request from the note issuer a free copy of any document
incorporated by reference in the registration statement (except exhibits) by
writing to BEC Funding LLC at 800 Boylston Street, 35th Floor, Boston
Massachusetts 02199, or by calling (617) 369-6000.
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ENERGY DEREGULATION AND NEW MASSACHUSETTS MARKET STRUCTURE
The electric utility industry is experiencing intensifying competitive
pressures in the electricity generation market. Historically, electric utilities
operated as regulated monopolies in their service territories and were the
primary suppliers of electricity. In Massachusetts, the Massachusetts Department
of Telecommunications and Energy (formerly the Department of Public Utilities)
set electric companies' rates based upon their costs of providing services and
allowing for a reasonable return on their prudent capital investments. Changes
to the traditional legal and regulatory framework and market structure are
occurring at both the state and federal levels.
STATUTORY OVERVIEW
At the state level, we expect that the Massachusetts electric industry will
change dramatically in the near future because of the enactment of Chapter 164
of the Massachusetts Acts of 1997, referred to as the "restructuring statute"
and the completion of related restructuring settlement agreements between the
Department and Massachusetts electric companies. The restructuring statute was
enacted in November 1997 and established a comprehensive framework for the
restructuring of the Massachusetts electric industry. The restructuring statute
required that on or before January 1, 1998, electric companies file a plan for
restructuring their operations to allow for retail competition in electricity
generation supply. See "-- Settlement Agreement."
Under the restructuring statute, approval of an electric company's
restructuring plan permits an electric company to recover transition costs
through a transition charge, which is a separate charge assessed to ratepayers
based on consumption of electricity. Generally, transition costs consist of the
costs of prudently incurred investments and obligations that an electric company
may not be able to recover through market-based rates in a competitive
electricity generation market. The restructuring statute requires that an
electric company take reasonable steps to mitigate to the maximum extent
possible the total amount of its transition costs. Approval of a restructuring
plan by the Department means, among other things, that the Department has found
reasonable mitigation of transition costs by the electric company submitting the
plan. The restructuring statute also permits an electric company to cause a
special purpose entity to issue securities, such as the certificates, secured by
the revenues arising from a portion, which may be adjusted to become all, of its
transition charge, if doing so will result in savings to ratepayers.
The restructuring statute also contemplates that an electric company's
customers will be permitted to contract with third party suppliers of
electricity and that the company will continue to distribute electricity whether
generated by itself or a third party supplier on a regulated basis. The
restructuring statute provides that retail customers may choose their
electricity supplier as of March 1, 1998. Customers who do not choose another
electricity supplier may continue to buy electricity from the utility.
SETTLEMENT AGREEMENT
In January 1998, the Department determined that Boston Edison's
restructuring settlement agreement substantially complied with the provisions of
the restructuring statute. The settlement agreement provides for, among other
things, an accounting of Boston Edison's transition costs, efforts to mitigate
the transition costs and rates for Boston Edison's electricity generation,
transmission, distribution and other services. To meet rate reduction
requirements in its settlement agreement and to mitigate the amount of its
transition costs, Boston Edison has divested its fossil generating assets and
its nuclear
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generation assets. As part of its settlement agreement, Boston Edison's rates
include a transition charge designed to recover its transition costs.
EXIT CHARGE
Although the RTC charge is nonbypassable, meaning that customers must pay
it whether or not they purchase energy from Boston Edison or a third party
supplier of energy, and whether or not their distribution system is being
operated by Boston Edison or a successor distribution company, customers may
reduce their electricity usage through the use of on-site generation or
cogeneration equipment. As a result, revenues generated by the RTC charge may
decrease. The restructuring statute contemplates that a customer that reduces
purchases of electricity through the operation of, or purchases from operators
of, on-site generation or cogeneration equipment may be required to pay an exit
charge. The servicer would remit to the note trustee a pro rata portion of the
exit charge based on the amount attributable to the RTC charge. However, a
customer will not have to pay an exit charge if:
- the customer provided less than or equal to ten percent of the annual
gross revenues collected by Boston Edison (or a successor distribution
company) in the year prior to the customer leaving the distribution
system; provided, that if two or more customers who, at any time within a
36-month period, leave the distribution system, represent in the
aggregate ten percent or more of the annual gross revenues collected by
Boston Edison (or a successor distribution company) in the year prior to
exit from the distribution system, these customers will pay an exit
charge based upon that portion of the annual gross revenues that is above
ten percent;
- the customer reduces purchases through the operation of, or purchases
from, on-site renewable energy technologies, fuel cells or cogeneration
equipment with a combined heat and power system efficiency of at least
50%; or
- the customer reduces purchases through the operation of, or purchases
from, an on-site generation or cogeneration facility of 60 kilowatts or
less.
Any exit charge may be equal to but no greater than the expected value of
the transition charge payments the customer would have paid but for the
operation of on-site generation or cogeneration equipment. If the Department
determines that on-site generation and cogeneration activities will cause a
decrease in future purchases of electricity and transition charge payments and
that a decrease will have a significant adverse impact on electric bills to be
paid by other customers in Boston Edison's or a successor distribution company's
service territory during the remaining period of transition cost recovery, then
the Department may order an exit charge to be paid upon terms and criteria as it
determines, notwithstanding the exceptions listed above.
RECONCILIATION
The restructuring statute also provides that the Department will review, at
intervals of not less than every 18 months from the date of the financing order,
each financing order creating an irrevocable right for an electric company to
recover a portion, which may become all, of its transition charge to pay
interest on and principal of electric rate reduction bonds, such as the
certificates. The review will be limited to a comparison of assumed transition
costs based on assumed mitigation to the actual transition costs determined
through actual mitigation. If the amount of transition costs authorized to be
recovered through a financing order exceeds the actual amount of those
transition costs, then the electric company will pay ratepayers with a uniform
rate credit based on usage that in total equals the amount of the excess. The
financing order provides that any reconciliation or adjustment will not affect
the RTC charge.
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THIRD PARTY BILLING OPTIONS
The restructuring statute authorizes and directs the Department to commence
an investigation and study of consolidated billing options starting on or after
January 1, 2000. The investigation would consider the manner in which metering,
meter maintenance and testing, customer billing and information services have
been provided by distribution companies, such as Boston Edison, since March 1,
1998 to analyze and determine, among other things, whether those services should
be unbundled from other distribution services and provided through a competitive
market. The study would also include an investigation and review of whether the
exclusivity of electric company distribution service territories should be
terminated or altered in any manner. If the Department determines that those
services should be unbundled and subjected to competition, or that territorial
exclusivity should be terminated or altered in any manner, the Department must,
no later than January 1, 2001, file its recommendations, along with drafts of
legislation necessary to implement its recommendations, with the Massachusetts
legislature. The Department's financing order issued to Boston Edison provides
credit and remittance criteria for third party suppliers to accommodate the
billing of the RTC charge by third party suppliers. A third party supplier is an
entity that supplies energy to customers and has contracted with the servicer to
bill and collect the RTC charge. See "Risk Factors -- Problems with the
servicing of transition property may cause payment delays or losses -- Billing
of the RTC charge by third party suppliers may cause delays in remittances."
FEDERAL INITIATIVES
In addition to the changes occurring in the Massachusetts market and
regulatory environment discussed throughout this section, federal legislative
efforts may also significantly alter the national market for electricity. For
example, at the federal level, 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 Federal Energy Regulatory Commission to mandate access to
electric transmission systems by wholesale power generators. See "Risk
Factors -- Possible federal preemption of the restructuring statute may prohibit
recovery of the RTC charge."
DESCRIPTION OF THE TRANSITION PROPERTY
The restructuring statute and Boston Edison's restructuring settlement
agreement with the Massachusetts Department of Telecommunications and Energy
permit Boston Edison to recover transition costs through the assessment of a
transition charge, although Boston Edison has a duty to mitigate its transition
costs. Examples of transition costs include the costs of electricity generation
facilities, power purchase contracts with third-party generators of electricity
and regulatory assets. Regulatory assets reflect incurred costs that otherwise
would have been expensed, but have been capitalized because those costs probably
would have been recovered in future rates under the traditional ratemaking
structure.
FINANCING ORDER AND ISSUANCE ADVICE LETTER
The restructuring statute authorizes the Department to issue a financing
order, which is a regulatory order that approves the amount of Boston Edison's
transition costs that it is permitted to finance through the issuance of
electric rate reduction bonds, such as the certificates. On December 3, 1998,
Boston Edison filed its application for a financing order with the Department.
The Department issued a financing order dated April 2, 1999, which
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authorizes the issuance of approximately $805 million aggregate principal amount
of the certificates, although Boston Edison must still demonstrate savings to
ratepayers.
The financing order, together with the issuance advice letter, establishes,
among other things, the RTC charge, to recover reimbursable transition costs
amounts specified in the financing order. The RTC charge is nonbypassable in
that customers must pay it whether or not they purchase energy from Boston
Edison or a third party supplier of energy, and whether or not their
distribution system is being operated by Boston Edison or a successor
distribution company. The restructuring statute provides that the right to
collect payments based on the RTC charge is a property right which may be
pledged, assigned or sold in connection with the issuance of the certificates.
Under the statute and the financing order, the owner of the transition property
is entitled to assess the RTC charge until it has received payments from
customers sufficient to retire all outstanding notes and certificates and to pay
fees and expenses of servicing and retiring the notes and the certificates. The
RTC charge, as adjusted from time to time, is a portion, which may become all,
of the transition charge and will be expressed as an amount per kilowatt-hour of
electricity usage by a customer. The RTC charge will not be separately
identified on customer bills, although customer bills will note that a portion
of the transition charge has been sold to the note issuer.
The financing order requires the seller to submit an issuance advice letter
relating to the certificates to the Department. The issuance advice letter will
establish the initial RTC charge and become effective when it is filed with the
Department. The financing order permits the Servicer to file requests, referred
to as true-up advice letters, to adjust up or down the RTC charge at various
times to enhance the likelihood of retirement of each class of certificates on a
timely basis. See "-- Adjustments to the RTC Charge."
TRANSITION PROPERTY
The transition property is a property right consisting of the right, title
and interest to all revenues, collections, claims, payments, money or proceeds
of or arising from the RTC charge. The notes will be secured by the transition
property, as well as the other note collateral described under "Description of
the Notes -- Security."
TRANSITION CHARGE
The transition charge is designed to recover on a fully reconciling basis
all of Boston Edison's transition costs. The transition charge is the rate
mechanism through which Boston Edison is allowed to recover its transition
costs. It is determined according to the methodology specified in Boston
Edison's settlement agreement and subsequent proceedings before the Department
under that settlement agreement. The transition charge may increase or decrease
as a result of the variable component described below, but may not exceed 3.35
cents/kilowatt-hour under the settlement agreement. The RTC charge will
initially constitute a portion of the transition charge as approved by the
Department. The RTC charge may increase, but will not exceed the transition
charge. See "Risk Factors -- Cap on RTC charge may lead to insufficient revenues
to make payments."
The transition charge consists of both a fixed and a variable component.
The fixed component consists of the portion of the transition costs whose
amounts have been set at the time of the settlement agreement or in subsequent
proceedings. In general, the dollar amounts of the fixed component do not
change. The following are examples of transition costs included in the fixed
component of the transition charge:
- the net balance of Boston Edison's unrecovered investment in its fossil
generation assets and related regulatory assets;
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- the retail share of the net balance of Boston Edison's unrecovered
investment in the Pilgrim nuclear power station and related regulatory
assets; and
- the prefunded balance of Boston Edison's portion of the decommissioning
trust being transferred to the buyer in connection with the sale of the
Pilgrim nuclear power station.
The financing order authorizes the recovery of the fixed component through the
RTC charge.
The variable component consists of the portion of the transition costs the
amount of which have been estimated in the settlement agreement. The amounts in
the variable component will be reconciled to the actual amounts and will vary
over time. The following are examples of transition costs included in the
variable component of the transition charge:
- Pilgrim nuclear power station fixed operating costs;
- above-market payments to power suppliers under Boston Edison's long-term
power purchase contracts;
- above-market fuel transportation costs;
- employee retraining and severance costs;
- damages, costs or net recoveries from claims associated with Boston
Edison's generating business that accrued prior to sale that were not
assigned to the buyers; and
- payments by Boston Edison in lieu of property taxes to the Town of
Plymouth, Massachusetts to compensate the town for the loss of property
tax revenues.
The transition charge may increase or decrease while the certificates are
outstanding because the amount of the variable component will fluctuate. In
addition, Boston Edison will make payments to the Town of Plymouth and for
employee retraining and severance costs the amounts of which cannot be estimated
at this time. These payments will constitute transition costs and will increase
the transition charge.
The financing order provides that the transition charge will not be reduced
below the RTC charge, although the RTC charge is still limited by the cap of
3.35 cents/kilowatt-hour. If the RTC charge needs to be increased above the
transition charge then in effect, the filing of a true-up advice letter with the
Department to increase the RTC charge will also effect an increase in the
transition charge, within the limits of the cap described above.
The Massachusetts restructuring statute provides that Boston Edison must
meet the required rate reduction on or before September 1, 1999 and that the
rate reduction, adjusted up or down for inflation, will remain in effect through
December 31, 2004. If Boston Edison's rates, including the transition charge,
exceed the maximum total rate permitted during the required rate reduction
period, then the Department will adjust Boston Edison's rates and charges, other
than the RTC charge, to the extent necessary to achieve the required rate
reduction. To the extent that the Department adjusts these other charges, and
Boston Edison is not allowed to collect on a current basis any rate or charge
that it would otherwise be entitled to collect, the portion of these rates or
charges not collected on a current basis shall be deferred at the carrying
charge in effect for those charges.
ADJUSTMENTS TO THE RTC CHARGE
Initially and during the life of the certificates, at least annually the
servicer will calculate and set the RTC charge at a level estimated to generate
revenues sufficient to pay fees and expenses of servicing and retiring the notes
and the certificates, to pay
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interest on and principal of the notes and certificates and to fund and
replenish other subaccounts as required for the upcoming year. The servicer will
increase or decrease the RTC charge over the life of the certificates as a
result of several factors, including:
- changes in electricity sales forecasts;
- changes in payment patterns and charge-off experience (including defaults
by third party suppliers);
- changes in any ongoing fees, costs and expenses related to the notes and
the certificates; and
- unpaid interest on or deferred principal of the notes.
If the servicer estimates that the RTC charge in effect at any given time will
collect payments in excess of that necessary to meet required payments, then the
servicer may, through an adjustment by filing a true-up advice letter, reduce
the RTC charge. The adjustments to the RTC charge will continue until all
interest on and principal of all classes of notes and related classes of
certificates have been paid or distributed in full.
The RTC charge will initially be a portion (which may be adjusted to be
all) of Boston Edison's transition charge as approved by the Department. As a
result, the RTC charge may be limited by Boston Edison's maximum permitted
transition charge, which may not exceed 3.35 cents/kilowatt-hour under the
settlement agreement. Therefore, the servicer may not always be able to increase
the RTC charge to meet anticipated payments of interest on and principal of the
notes and as a result distributions on the certificates may be delayed or you
may suffer a loss on your investment.
The financing order provides that the servicer will file true-up advice
letters periodically as follows:
- the servicer will file a routine true-up advice letter with the
Department annually prior to each anniversary of the financing order,
with resulting adjustments up or down to the RTC charge to become
effective on the first day of the next succeeding calendar month, or the
date as may be specified in the true-up advice letter, so long as the
effective date is at least 15 days after the filing of the true-up advice
letter;
- the servicer may file a routine true-up advice letter with the Department
before the end of any calendar quarter or payment date, with resulting
adjustments up or down to the RTC charge to become effective on the first
day of the next succeeding calendar month, or the date as may be
specified in the true-up advice letter, so long as the effective date is
at least 15 days after the filing of the true-up advice letter; and
- the servicer will file a non-routine true-up advice letter with the
Department if the method it uses to calculate the RTC charge requires
modifications to more accurately project and generate adequate revenues,
with the modifications to become effective when reviewed and approved by
the Department within 60 days after filing.
True-up advice letters will take into account amounts available in the general
subaccount and reserve subaccount, and amounts necessary to fund the
overcollateralization subaccount and to replenish the capital subaccount to
their required levels, in addition to amounts payable on the notes and the
certificates and related fees and expenses.
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PLEDGE BY THE COMMONWEALTH OF MASSACHUSETTS
The Commonwealth of Massachusetts has pledged and agreed with the note
issuer, the trust and the certificateholders that it will not alter the
provisions of the restructuring statute that make the RTC charge irrevocable and
binding or limit or alter the transition property or the financing order until
the certificates are fully paid and discharged.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
The seller has agreed in the transition property sale agreement not to sell
transition property to secure another issuance of notes, and, in turn,
certificates, if it would cause the then existing ratings on the certificates to
be downgraded.
On the issuance date of the certificates, the seller will sell and assign
to the note issuer, without recourse, its entire interest in the transition
property. The note issuer will apply the net proceeds from the sale of the notes
to the trust to purchase the transition property. The seller's financial
statements will indicate that it is not the owner of the transition property,
and for financial reporting and tax purposes the seller will treat the notes as
representing debt of the seller.
SELLER REPRESENTATIONS AND WARRANTIES AND REPURCHASE OBLIGATION
In the transition property sale agreement, the seller will represent and
warrant to the note issuer, as of the closing date, among other things, that:
(a) the information describing the seller in "The Seller and Servicer"
section of the prospectus is correct in all material respects;
(b) the seller has transferred the transition property, free and clear of
all security interests, liens, charges and encumbrances (other than any
created by Section 1H(e) of Chapter 164 of the Massachusetts General
Laws and any in favor of the note issuer);
(c) the transition property has been validly transferred and sold to the
note issuer and all filings (including filings with the Massachusetts
Department of Telecommunications and Energy under the statute)
necessary in any jurisdiction to give the note issuer an ownership
interest (subject to any lien created by Section 1H(e) of Chapter 164
of the Massachusetts General Laws) in the transition property have been
made;
(d) under the laws of The Commonwealth of Massachusetts (including the
statute) and the United States in effect on the closing date:
- the financing order pursuant to which the transition property has
been created is in full force and effect;
- the certificateholders are entitled to the protections of the statute
and, accordingly, the financing order is not revocable by the
Department;
- The Commonwealth of Massachusetts may not alter the provisions of
the restructuring statute that make the RTC charge irrevocable and
binding, limit or alter the transition property, the financing order
and all rights thereunder, in a manner that would substantially
impair the rights of certificateholders, absent a demonstration by
the Commonwealth that an impairment is narrowly-tailored and is
necessary to advance an important public interest, such as a "great
public calamity," until the certificates, together with accrued
interest, are fully met and discharged;
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- the process by which the financing order was adopted and approved,
and the financing order and issuance advice letter, comply with all
applicable laws, rules and regulations;
- the issuance advice letter has been filed in accordance with the
financing order;
- the Department may not, either by rescinding, altering or amending
the financing order, in any way reduce or impair the value of the
transition property either directly or indirectly by taking
reimbursable transition costs amounts into account when setting
other rates for the seller, in a manner that would substantially
impair the rights of certificateholders, absent a demonstration by
The Commonwealth of Massachusetts that an impairment is
narrowly-tailored and is necessary to advance an important public
interest, such as a "great public calamity," until the certificates,
together with accrued interest, are fully met and discharged; and
- no approval or filing with any other governmental body is required in
connection with the creation of the transition property, except those
that have been obtained or made;
(e) based on information available to the seller on the closing date, the
assumptions used in calculating the initial RTC charge are reasonable
and are made in good faith;
(f) on the effectiveness of the financing order and the issuance advice
letter:
- all of the transition property constitutes an existing property
right;
- the transition property consists of the right, title and interest in
and to all revenues, collections, claims, payments, money, or
proceeds of or arising from the RTC charge, as adjusted from time to
time, and all rights to obtain adjustments to the RTC charge
pursuant to the financing order; and
- the owner of the transition property is legally entitled to collect
payments arising from the RTC charge in the aggregate sufficient to
pay the interest on and principal of the notes, to pay the fees and
expenses of servicing the notes and the certificates, to replenish
the capital subaccount to the required capital level and to fund the
overcollateralization subaccount to the required
overcollateralization level until the notes and the certificates are
paid in full.
(g) the seller is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts, with
corporate power and authority to own its properties as owned on the
closing date and to conduct its business as conducted by it on the
closing date and to execute, deliver and perform the terms of the sale
agreement;
(h) the execution, delivery and performance of the sale agreement have been
duly authorized by all necessary corporate action on the part of the
seller;
(i) the sale agreement constitutes a legal, valid and binding obligation of
the seller, enforceable against it in accordance with its terms,
subject to applicable insolvency, reorganization, moratorium,
fraudulent transfer and other laws relating to or affecting creditors'
or secured parties' rights generally from time to time in effect and to
general principles of equity, regardless of whether considered in a
proceeding in equity or law;
(j) the consummation of the transactions contemplated by the sale agreement
do not conflict with the seller's articles of organization or by-laws
or any material agreement to which the seller is a party or bound,
result in the creation or
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imposition of any lien upon the seller's properties pursuant to the
terms of a material agreement (other than any that may be granted under
the transaction documents or any lien created by Section 1H(e) of
Chapter 164 of the Massachusetts General Laws) or violate any existing
law or any existing order, rule or regulation applicable to the seller;
(k) no governmental approvals, authorizations, consents, orders or other
actions or filings are required for the seller to execute, deliver and
perform its obligations under the sale agreement except those which
have previously been obtained or made; and
(l) except as disclosed to the note issuer, no court or administrative
proceeding is pending and, to the seller's knowledge, no court or
administrative proceeding is threatened and, to the seller's knowledge,
no investigation is pending or threatened:
- asserting the invalidity of, or seeking to prevent the consummation
of the transactions contemplated by, the sale agreement;
- seeking a determination that might materially and adversely affect
the performance by the seller of its obligations under the sale
agreement; or
- which might adversely affect the federal or state income tax
classification of the notes or the certificates as debt.
Notwithstanding the above, the seller makes no representation or warranty
that any amounts actually collected arising from the RTC charge will in fact be
sufficient to meet payment obligations on the notes or that assumptions made in
calculating the RTC charge will in fact be realized.
In the event of a breach by the seller of any representation specified in
clause (d) or clause (f) above that has a material adverse effect on the
certificateholders, the seller will be obligated to repurchase the transition
property from the note issuer at a purchase price equal to the outstanding
principal amount of the notes and all accrued and unpaid interest, excluding any
premium or penalty of any kind; provided, however, that the seller shall not be
obligated to repurchase the transition property if:
(a) within 90 days after the date of the occurrence of the breach, the
breach is cured or the seller takes remedial action so that there is
not and will not be a material adverse effect on the certificateholders
as a result of the breach; and
(b) the seller either:
- if the seller had, immediately prior to the breach, a long term debt
rating of at least "A3" by Moody's Investors Service, Inc. and "BBB"
by Standard & Poor's or the equivalent by each of the other
nationally recognized statistical rating organizations, enters into
a binding agreement with the note issuer to pay any amounts
necessary so that all interest payments due on the notes during the
90-day period will be paid in full; or
- if the seller does not have these long term debt ratings immediately
prior to the breach, and, within two business days after the
occurrence of the breach, deposits an amount in escrow with the note
trustee sufficient to pay all interest payments, taking into account
amounts available in the collection account, which will become due
on the notes during the 90-day period.
Any escrowed amounts will be used by the note trustee to make interest payments
if there are not sufficient funds otherwise available. The sale agreement
provides that any change in the law by legislative enactment, constitutional
amendment or initiative petition that
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renders any of the representations and warranties untrue would not constitute a
breach under the sale agreement.
In the event of a breach by the seller of any other representation or
warranty specified in clauses (b), (c), (g), (h), (i) or (j) above that has a
material adverse effect on the certificateholders, if, within 90 days after the
date of the breach, the breach has not been cured and the seller has not taken
remedial action so that there is not and will not be a material adverse effect
on the certificateholders as a result of the breach, then the seller shall be
required to repurchase the transition property for the repurchase price
described above. After the payment by the seller of the repurchase price, no
person or entity shall have any other claims, rights or remedies against the
seller under or arising from the sale agreement, except for the indemnity rights
of the indemnified persons described below.
In the event of the seller's willful misconduct or gross negligence in the
performance of its duties or observance of the covenants under the sale
agreement or a breach of any representation or warranty in the sale agreement
other than those that trigger the seller's repurchase obligation, the seller
shall be required to indemnify, defend and hold harmless the note issuer, the
noteholders and the certificateholders against any costs, expenses, losses,
claims, damages and liabilities incurred as a result of the breach; provided,
however, that the noteholders and the certificateholders may only enforce their
rights against the seller through an action brought by the note trustee or the
certificate trustee, as the case may be; and, provided, further, that the seller
may, at its election and in full satisfaction of its indemnity obligation,
repurchase the transition property at the repurchase price described above, in
which case no person or entity shall have any claims, rights or remedies against
the seller under or arising from the sale agreement, except for the indemnity
rights of the indemnified persons described below. The remedies provided for in
the sale agreement are the sole and exclusive remedies of the note issuer, the
note trustee (for the benefit of the noteholders) and the certificate trustee
(for the benefit of the certificateholders) against the seller for breach of its
representations and warranties in the sale agreement.
In addition, the seller shall indemnify and hold harmless the note trustee,
the Delaware trustee, the certificate trustee, the trust, the state agencies and
any of their respective affiliates, officers, directors, employees and agents
against any expenses (including legal fees and expenses), losses, claims, taxes,
damages and liabilities incurred by any of these persons as a result of the
seller's willful misconduct or gross negligence in the performance of its duties
or observance of the covenants under the sale agreement or a breach by the
seller of its representations and warranties in the sale agreement, except to
the extent of amounts either resulting from the willful misconduct or gross
negligence of the indemnified person or resulting from a breach of a
representation or warranty made by the indemnified person in the transaction
documents that gives rise to the seller's breach.
The seller will also agree to take any legal or administrative action,
including defending against or instituting and pursuing legal actions, as may be
reasonably necessary to protect the note issuer, the noteholders and the
certificateholders from claims, state actions or other actions or proceedings of
third parties which, if successfully pursued would result in a breach of any
representation described above. The seller shall be entitled to be reimbursed by
the note issuer for the costs and expenses of taking these actions. The seller
will also agree that it will not at any time assert any security interest, lien,
charge or encumbrance against the transition property.
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BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
TRUE SALE
The seller will represent and warrant in the sale agreement that the
transfer of the transition property to the note issuer is a valid sale and
assignment of the transition property from the seller to the note issuer. The
seller will also represent and warrant that it will take the appropriate actions
under the statute to perfect this sale. The restructuring statute provides that
the transactions described in the sale agreement shall constitute a sale of the
transition property to the note issuer, and the seller and the note issuer will
treat the transactions as a sale under applicable law, although for financial
reporting and federal income tax purposes the transactions will be treated as
debt of the seller.
Should the transfer of the transition property to the note issuer be
recharacterized as a borrowing by the seller, the restructuring statute provides
that there is a perfected first priority statutory lien on the transition
property that secures all obligations to the certificateholders. In addition, in
the sale agreement, the seller grants to the note issuer a security interest in
the transition property and covenants that it will take appropriate actions to
perfect the security interest, although the seller takes the position that it
has no rights in the transition property to which a security interest could
attach.
Under the statute and the financing order, on the effective date of the
issuance advice letter, the transition property identified in the issuance
advice letter constitutes a property right that continuously exists as property
for all purposes. Nonetheless, if the seller were to become the debtor in a
bankruptcy case, a creditor of, or a bankruptcy trustee for, the seller, or the
seller itself as debtor in possession, may attempt to take the position that,
because the payments based on the RTC charge are usage-based charges, transition
property comes into existence only as customers use electricity. If a court were
to adopt this position, we cannot assure you that either the statutory lien
created by the statute or the security interest granted in the sale agreement
would be valid as to electricity consumed after the commencement of a bankruptcy
case by or against the seller.
If a court were to determine that the transition property has not been sold
to the note issuer, and that the statutory lien created by the restructuring
statute and the security interest granted in the sale agreement are invalid
against payments arising from the RTC charge that become collectible as a result
of the consumption of electricity consumed after the commencement of a
bankruptcy case of the seller, then the certificate trustee, as noteholder and
for the benefit of holders of the certificates, would be an unsecured creditor
of the seller, and delays or reductions in distributions on the certificates
could result.
Whether or not the court determined that the transition property had been
sold to the note issuer, the court may rule that any payments arising from the
RTC charge that become collectible as a result of the consumption of electricity
after the commencement of the seller's bankruptcy cannot be transferred to the
note trustee or the certificate trustee, thus resulting in delays or reductions
of distributions on the certificates.
SUBSTANTIVE CONSOLIDATION
The seller and the note issuer have taken steps to reduce the risk that in
the event the seller or an affiliate of the seller were to become the debtor in
a bankruptcy case, a court would order that the assets and liabilities of the
note issuer be substantively consolidated with those of the seller or an
affiliate. These steps include the fact that the note issuer is a separate,
special purpose limited liability company, the organizational documents of which
provide that it shall not commence a voluntary bankruptcy case without the
unanimous affirmative vote of all of its directors, including two directors
independent of the seller. Nonetheless, these steps may not be completely
effective, and thus if the seller or an
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affiliate of the seller were to become a debtor in a bankruptcy case, a court
may order that the assets and liabilities of the note issuer be consolidated
with those of the seller or an affiliate, thus resulting in delays or reductions
in distributions on the certificates. Other factors that may tend to support
consolidation include the ownership of the note issuer by the seller, the
designation of officers or employees of the seller as directors, other than
independent directors, of the note issuer and the existence of indemnities by
the seller for some liabilities of the note issuer.
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THE TRUST
The Massachusetts Development Finance Agency and the Massachusetts Health
and Educational Facilities Authority will form the trust prior to the sale of
the certificates specifically for the purpose of acquiring the notes from the
note issuer. The trust will be a Delaware business trust. The Massachusetts
Development Finance Agency, the Massachusetts Health and Educational Facilities
Authority and The Bank of New York (Delaware), a Delaware banking corporation,
not acting in its individual capacity but acting as the Delaware trustee on
behalf of the trust, will enter into a declaration of trust to create the trust.
The trust will not be an agency or instrumentality of The Commonwealth of
Massachusetts. The trust will have no assets other than the notes. The
declaration of trust will 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 will represent a fractional undivided beneficial
interest in the related class of notes, including all amounts due and to become
due under the related class of notes, and will represent the right to receive
the payments on the related class of notes. See "Description of the
Certificates -- Payments and Distributions."
The note issuer, the Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority, the trust, the
Delaware trustee and the certificate trustee will enter into a fee and indemnity
agreement under which the note issuer will pay the Delaware trustee's and the
certificate trustee's reasonable compensation and reasonable fees and expenses.
The fee and indemnity agreement will further provide 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 of 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 the
various transaction documents.
The fiscal year of the trust will be the calendar year.
As of the date of this prospectus, because the trust has not yet been
formed, we have not included any financial statements or related information for
the trust.
THE AGENCIES
The Massachusetts Development Finance Agency is a body politic and
corporate and a public instrumentality of The Commonwealth of Massachusetts. It
is responsible for providing bond issuance, lending and real estate development
services to promote economic development throughout Massachusetts. This agency
was formally created in September 1998 by a legislative merger of the former
Massachusetts Industrial Finance Agency and the Massachusetts Government Land
Bank. The Massachusetts Health and Educational Facilities Authority is an
independent public authority created by the Massachusetts legislature in 1968 to
assist nonprofit health, educational and cultural institutions to borrow funds
at tax-exempt rates, providing access to low-cost capital for those
institutions.
The statute contemplates state sponsorship of individual utility rate
reduction bond issuances through the Massachusetts Development Finance Agency
and the Massachusetts Health and Educational Facilities Authority. These state
entities have participated in the structuring of the transaction relating to the
issuance of the certificates and related matters.
The certificates do not represent an interest in, or an obligation of, The
Commonwealth of Massachusetts, any governmental agency, authority or
instrumentality of the
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Commonwealth or Boston Edison Company or any of its affiliates, except for the
note issuer. None of these entities or the trust will guarantee or insure the
certificates, the notes or the property securing the notes.
Neither The Commonwealth of Massachusetts nor any governmental agency,
authority or instrumentality of the Commonwealth nor Boston Edison Company or
any of its affiliates, except for the note issuer, will have any obligation
relating to the certificates, the notes or the property securing the notes,
except for Boston Edison's duties and obligations as the seller and the servicer
of the transition property.
Neither the full faith and credit nor the taxing power of The Commonwealth
of Massachusetts nor any political subdivision, agency, authority or
instrumentality of the Commonwealth is pledged to the payment of principal of,
or interest on, the certificates or the notes, or the payments securing the
notes. Furthermore, neither The Commonwealth of Massachusetts nor any political
subdivision, agency, authority or instrumentality of the Commonwealth will
appropriate any funds for the payment of any of the certificates or the notes.
THE NOTE ISSUER
The note issuer is a limited liability company organized under the laws of
the State of Delaware. The seller is the sole member of the note issuer. The
principal executive office of the note issuer is located at 800 Boylston Street,
35th Floor, Boston, Massachusetts 02199. The telephone number of the note issuer
is (617)369-6000. The seller organized the note issuer for the limited purpose
of holding and servicing the transition property and issuing notes secured by
the transition property and the other note collateral and related activities.
The note issuer's organizational documents restrict it from engaging in other
activities. The note issuer does not have any employees, but Boston Edison will
provide it with administrative services and office space according to the terms
of an administration agreement. This agreement requires the note issuer to pay
Boston Edison an administrative fee of $75,000 per year, payable semi-annually,
for as long as Boston Edison provides these services. The assets of the note
issuer will consist primarily of the transition property and the other
collateral for the notes. In addition, the note issuer's organizational
documents require it to operate in a manner intended to reduce the likelihood
that it would be consolidated in the seller's bankruptcy estate if the seller
becomes involved in a bankruptcy proceeding.
The note issuer is a recently formed entity and, as of the date of this
prospectus, has not carried on any business activities. We have included audited
financial statements of the note issuer beginning at page F-1 of this
prospectus.
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OFFICERS AND DIRECTORS
The directors of the note issuer oversee the management of its property and
business. The following is a list of the officers and directors of the note
issuer upon the closing of the offering:
NAME AGE TITLE
- ---- --- -----
James J. Judge..................... 43 Director
Robert J. Weafer, Jr. ............. 52 President, Director
Emilie G. O'Neil................... 38 Vice President, Treasurer, Director
Theodora S. Convisser.............. 51 Secretary
Andrew L. Stidd.................... 42 Director
Kevin P. Burns..................... 30 Director
All of the note issuer's officers and directors, other than those directors
who are independent of Boston Edison and its affiliates, have served in their
capacities since February 11, 1999. The independent directors will begin to
serve effective immediately prior to the closing of the offering. The officers
and directors will devote as much time as is necessary to the affairs of the
note issuer. The note issuer will have sufficient officers, directors and
employees to carry on its business.
Robert J. Weafer, Jr. is President and a director of the note issuer. Mr.
Weafer has been the Vice President -- Finance and Controller of Boston Edison
since 1995, and he has been a Vice President, the Controller and the Chief
Accounting Officer of Boston Edison since 1991.
James J. Judge is a director of the note issuer. Mr. Judge has served as
Senior Vice President -- Corporate Services and Treasurer of Boston Edison since
1995. Previously, Mr. Judge served Boston Edison as Assistant Treasurer from
1990 to 1995 and as Director of Corporate Planning from 1993 to 1995.
Emilie G. O'Neil is Vice President, Treasurer and a director of the note
issuer. Ms. O'Neil has been the Manager of Corporate Finance for Boston Edison
since 1991.
Theodora S. Convisser is the Secretary of the note issuer. Ms. Convisser
has served as the Clerk of Boston Edison since 1986 and as Assistant General
Counsel since 1984.
Andrew L. Stidd will serve as an independent director of the note issuer.
Mr. Stidd has held the position of President of Global Securitization Services,
LLC since January 1998. He served as Managing Director of Global Securitization
Services, LLC between December 1996 and December 1997. Prior to joining Global
Securitization Services, LLC, Mr. Stidd was Vice President and Director of Lord
Securities Corporation, where he was employed since 1992.
Kevin P. Burns will serve as an independent director of the note issuer.
Mr. Burns has been a Vice President of Global Securitization Services, LLC since
December 1996. Prior to joining Global Securitization Services, LLC, Mr. Burns
served as a Director at Lord Securities Corporation from 1992 to 1996.
The note issuer will not compensate its officers and will not compensate
its directors, other than the two directors that are independent of Boston
Edison and its affiliates, for their services on behalf of the note issuer. The
initial aggregate annual compensation for both of the independent directors will
be $3,500. Any officer will serve at the discretion of the note issuer's
directors. The note issuer's organizational documents provide that it will
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indemnify its officers and directors against liabilities incurred in connection
with their services on behalf of the note issuer.
THE SELLER AND SERVICER
Boston Edison was incorporated under Massachusetts law in 1886. Boston
Edison is an electric company primarily engaged in the business of supplying
electricity at retail to an area of approximately 590 square miles, including
the City of Boston and 39 surrounding cities and towns. In 1998, Boston Edison
served an average of approximately 660,000 customers. Boston Edison comprises
the major portion of the assets and revenues of BEC Energy, its parent holding
company.
As an investor-owned electric company, Boston Edison is regulated by the
Massachusetts Department of Telecommunications and Energy and the Federal Energy
Regulatory Commission. The seller is also regulated by the Nuclear Regulatory
Commission because of its ownership of nuclear generation assets.
BOSTON EDISON REVENUES, CUSTOMER BASE AND ENERGY CONSUMPTION
Several factors influence the number of Boston Edison's retail customers
and their electric energy consumption. One of these factors is the general
economic climate in Boston Edison's service territory, which affects migration
of residential, commercial and industrial customers into or out of the service
territory. Another factor influencing sales of electricity is temperature.
Boston Edison's electricity sales are typically higher in the winter and summer
when heating or cooling demands are highest than in the spring and fall when
temperatures tend to be more moderate. The level of business activity of
commercial and industrial customers also tends to influence their electricity
consumption. Other factors affecting the electricity consumption of retail
customers, primarily over the longer term, include the availability of more
energy-efficient appliances and other products and retail customers' ability to
acquire these products.
The table below sets forth Boston Edison's total billed retail revenues
from retail sales of electrical energy for the years 1994 to 1998:
BILLED RETAIL REVENUES
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Billed Retail
Revenues ($ in 000's):
Residential.......... 425,591 441,088 454,393 473,450 437,032
Commercial........... 760,010 804,378 824,862 880,959 826,294
Industrial........... 142,538 147,739 148,111 148,453 137,818
Street Lighting...... 23,487 24,167 24,431 24,811 22,742
--------- --------- --------- --------- ---------
Total...... 1,351,626 1,417,372 1,451,797 1,527,673 1,423,886
</TABLE>
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The table below sets forth the number of Boston Edison's retail customers
by class for the years 1994-1998:
RETAIL CUSTOMERS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average Number of Retail
Customers:
Residential................. 570,340 569,710 572,816 576,576 576,535
Commercial.................. 80,756 79,313 79,964 81,006 78,835
Industrial.................. 1,634 1,599 1,552 1,527 1,492
Street lighting............. 2,951 3,094 3,131 3,219 3,144
------- ------- ------- ------- -------
Total............. 655,681 653,716 657,463 662,328 660,006
</TABLE>
The table below sets forth Boston Edison's billed retail energy sales for
the years 1994 to 1998:
BILLED RETAIL ENERGY SALES (GIGAWATT-HOURS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Billed Retail Energy Sales
(Gigawatt-hours):
Residential................. 3,524 3,516 3,590 3,590 3,624
Commercial.................. 7,451 7,578 7,798 8,038 8,267
Industrial.................. 1,537 1,534 1,539 1,474 1,493
Street lighting............. 131 132 131 131 132
------- ------- ------- ------- -------
Total............. 12,643 12,760 13,058 13,233 13,516
</TABLE>
ESTIMATED CONSUMPTION AND ESTIMATED VARIANCE
Boston Edison's calculation of the initial RTC charge and subsequent
adjustments are based on electricity sales estimates. The servicer will use
these estimates to calculate and set the RTC charge at a level intended to
generate revenues sufficient to pay interest on and principal of the
certificates, to pay fees and expenses of servicing and retiring the notes and
the certificates, to replenish the capital subaccount and to fund the
overcollateralization amount.
Boston Edison conducts sales estimate variance analyses on a regular basis
to monitor the accuracy of energy estimates against recorded consumption. The
table below presents the estimates of Boston Edison's billed retail energy sales
in gigawatt-hours for the years 1994 through 1998. There are 1,000,000
kilowatt-hours in a gigawatt-hour. Each estimate was made in the prior year. For
example, the 1994 estimate of 12,678 gigawatt-hours was prepared in 1993.
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<PAGE> 54
ANNUAL ESTIMATED VARIANCES
BILLED RETAIL ENERGY SALES (GIGAWATT-HOURS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Estimate......................... 12,678 12,732 12,635 13,152 13,427
Actual........................... 12,643 12,760 13,058 13,233 13,516
Variance......................... -35 28 423 81 89
Percentage Variance.............. -0.28% 0.22% 3.35% 0.62% 0.66%
</TABLE>
Actual usage depends on several factors, including temperatures and
economic conditions. For example, while Boston Edison's methodology for
estimating usage assumes normal conditions, abnormally hot summers can add an
extra 1.5 to 2.5% in electricity sales. Regional economic conditions can also
affect sales as retail customers curb electricity usage to save money,
businesses close and retail customers migrate from Boston Edison's service
territory. Accordingly, variations in conditions will affect the accuracy of any
estimate.
BILLING AND COLLECTIONS
CREDIT POLICY
Boston Edison's credit and collections policies are regulated by the
Massachusetts Department of Telecommunications and Energy. Under the
Department's regulations, Boston Edison is obligated to provide service to all
customers within its service territory.
On application for service, the identification and credit standing of all
residential customers is verified through the use of a major credit-reporting
bureau. In instances where nonresidential customers do not meet minimum credit
standards, credit must be established. This can be done through providing a
security deposit (normally twice the average monthly bill), furnishing a surety
bond and/or a bank letter of credit. The Department does not permit Boston
Edison to obtain security deposits from its residential customers.
According to the Department's regulations, Boston Edison may refuse to
provide service, at any location, to an applicant who is indebted to it for any
service previously furnished to the applicant. Boston Edison will commence
service, however, if a reasonable payment plan for the indebtedness is first
made between a residential applicant and Boston Edison, and it may likewise
commence service for an industrial or commercial applicant.
BILLING PROCESS
Boston Edison bills its customers once every 26 to 34 days, with
approximately an equal number of bills being distributed each business day. For
the year ending December 31, 1998, Boston Edison mailed out an average of 33,000
bills on each business day to customers in its various customer categories.
Approximately 7,200 residential and small business customers, which
constitute approximately one percent of Boston Edison's retail customers, choose
to be billed using Boston Edison's budget billing program. For these customers
Boston Edison determines and bills a monthly budget amount based on the last
twelve months of billing history for each account. The budget amount is
recalculated each March and September, if necessary. Overpayments or
underpayments for actual usage during the prior year are reconciled on each
customer's September bill.
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<PAGE> 55
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.
COLLECTION PROCESS
Boston Edison receives the majority of its payments via the U.S. mail;
however, other payment options are also available. These options include
electronic payments, electronic fund transfers, as well as direct payment at
Boston Edison's payment agency network and field office locations.
Boston Edison considers residential customer bills to be delinquent if they
are unpaid 45 days after the billing date. Boston Edison considers
nonresidential customer bills to be delinquent if they are unpaid 25 days after
the billing date. In general, Boston Edison's collection process begins when
balances are unpaid for 45 days or more from the billing date. At that time
Boston Edison begins collection activities ranging from delinquency notice
mailings, to telephone calls, to personal collection and ending with electricity
shut-off. Boston Edison also uses collection agencies and legal collection
experts as needed throughout this process.
RESTORATION OF SERVICE
Before restoring service that has been shut-off for non-payment, Boston
Edison has the right to require the payment of all of the following charges:
- amounts owing on an account including the amount of any past-due balance
for charges for which Boston Edison may disconnect service if they are
unpaid and legal noticing requirements were met prior to service
termination, the current billing and a credit deposit, if applicable;
- any miscellaneous charges associated with the reconnection of service
(i.e., reconnection charges, field collection charges and/or returned
check charges);
- any charges assessed for unusual costs incidental to the termination or
restoration of service which have resulted from the customer's action or
negligence; and
- any unpaid closing bills from other accounts in the name of the customer
of record.
LOSS EXPERIENCE
The following table sets forth information relating to Boston Edison's
annual net charge-offs for retail customers for the years 1994 to 1998 and net
charge-offs for the period beginning January 1, 1999 and ending May 31, 1999:
<TABLE>
<CAPTION>
MAY 31,
1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Charge-
Offs ($):.......... $14,797,853 $14,241,497 $14,168,852 $14,640,534 $15,093,674 $3,765,722
Percentage of Billed
Retail Revenues:... 1.1% 1.0% 1.0% 1.0% 1.1% 0.7%
</TABLE>
From 1994 to 1998 the annual net charge-offs for all retail customers have
remained relatively consistent. During this period, the annual ratios of net
charge-offs to billed retail revenues have been between 1.0% and 1.1%. We are
not aware of any material factors that caused these annual ratios to vary.
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<PAGE> 56
Boston Edison determines a customer's account to be inactive (or finaled)
on the date:
- the customer gives notice requesting discontinuance of service,
- a new customer applies for service at a location where the customer of
record has not yet discontinued service, or
- the customer's service has been shut off due to non-payment.
Boston Edison's policy is to charge-off a finaled account to bad debt
expense 120 days after the date the account is determined to be finaled if
payment has not been received.
DAYS REVENUE OUTSTANDING
The following table sets forth information relating to the average number
of days retail customer bills remained outstanding for the years 1994 to 1998
and for the period from January 1, 1999 to May 31, 1999:
<TABLE>
<CAPTION>
MAY 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Average number of days
outstanding............... 46 46 46 44 45 44
</TABLE>
AGING OF RECEIVABLES
The following table sets forth information relating to the aging of Boston
Edison's accounts receivable for all classes of customers on December 31st of
each year shown and as of May 31, 1999. This historical information is presented
because Boston Edison's actual accounts receivable aging experience may affect
the amounts charged-off, and consequently the total amounts remitted that arise
from the RTC charge.
<TABLE>
<CAPTION>
MAY 31,
1994 1995 1996 1997 1998 1999
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Percentage Outstanding After:
less than 30 days....... 50.07% 50.51% 49.31% 48.03% 46.42% 52.13%
30 days................. 13.28% 13.58% 14.07% 16.74% 15.66% 14.86%
60 days................. 4.82% 5.89% 5.67% 6.17% 6.34% 6.53%
90 days................. 2.67% 4.35% 3.86% 3.82% 4.30% 3.73%
120 days................ 29.16% 25.66% 27.09% 25.23% 27.28% 22.75%
</TABLE>
During the last five and a half years, the accounts receivable aging
experience for Boston Edison has remained relatively consistent with no
discernible trend upwards or downwards. We are not aware of any material factors
that caused the accounts receivable aging experience to vary.
YEAR 2000 COMPUTER ISSUE
The year 2000 computer issue is the result of computer programs that were
written using two digits rather than four to define an applicable year. If
computer programs with date-sensitive functions are not year 2000 compliant,
they may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions and engage in other normal business activities. Boston Edison has a
year 2000 program in place that has been addressing the risk of non-
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<PAGE> 57
compliant internal business software, internal non-business software and
embedded chip technology and external noncompliance of third parties.
Boston Edison is addressing the year 2000 issue on a coordinated basis.
Boston Edison has inventoried and assessed all date-sensitive information and
transaction processing computer systems and has determined that approximately
one-third of business critical systems software needs modification or
replacement. Boston Edison defines its business critical systems as those which
are necessary for the delivery of and billing and accounting for electricity to
its customers. Plans have been developed and are being implemented to correct
and test all affected systems, with priorities assigned based on the importance
of the supported activity. As systems are being remediated or replaced, they are
tested for operational and year 2000 compliance in their own environment. After
completion of implementation, the systems are then tested for their integration
and compliance with other interactive systems. Boston Edison completed the
efforts necessary to implement and test its critical computer systems to
alleviate the year 2000 issue as of the end of the second quarter of 1999. In
addition, all other non-critical systems have been inventoried and assessed.
Approximately one-third of these systems require modification or replacement.
Under the year 2000 plan, each non-critical system has a form of readiness
acceptance commensurate with its business importance. The more important and
complex systems are being tested as a means of acceptance. Less important and
non-complex systems may refer to industry test results, vendor test results
and/or vendor statements of readiness as a means of acceptance. Boston Edison
completed the remediation, replacement and testing of 99% of its non-critical
computer systems by the end of the second quarter of 1999. All non-critical
systems are scheduled for completion by the third quarter of 1999.
Boston Edison has also inventoried its non-information technology systems
that may be date-sensitive and that use embedded technology such as
micro-controllers or micro-processors. Approximately 27% of these systems
require modification or replacement. The three categories of these systems are
(1) telecommunications, (2) distribution system controls and (3) other
distribution equipment. Boston Edison is 55%, 100% and 80% complete,
respectively, with its efforts to resolve and remediate the systems that have
been identified as year 2000 non-compliant within each category. Boston Edison
expects completion of resolution and testing by the end of the second quarter of
1999.
In addition to its internal efforts, Boston Edison has initiated formal
communications with its significant suppliers, service providers and other
vendors to determine the extent to which Boston Edison may be vulnerable to
their failure to correct their own year 2000 issues. Boston Edison has received
responses from over 500 third party vendors including all business critical
vendors. Approximately 40% of the vendors indicated their systems would not be
adversely impacted by year 2000 issues. All of these vendors contacted have
indicated that they will be year 2000 compliant by the end of the fourth quarter
of 1999. In addition, Boston Edison has contacted all of its significant power
suppliers. Each has indicated that they either are or will be year 2000
compliant by the end of the fourth quarter of 1999. In addition to the risk
faced from its dependence on third party suppliers for year 2000 compliance,
Boston Edison has a risk that power will not be available from the New England
Power Pool (NEPOOL) for the purchase and distribution to Boston Edison's
customers. Should NEPOOL fail to resolve its year 2000 issues as planned, there
would be an adverse impact on Boston Edison and its customers. To mitigate this
risk, efforts are being coordinated with NEPOOL to establish inter-utility
testing guidelines to determine year 2000 readiness. Boston Edison is also a
participant in the NEPOOL/ISO New England Year 2000 Joint Oversight Committee
which has responsibility for the
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<PAGE> 58
operational reliability of NEPOOL. Overall regional activities, including those
of NEPOOL/ISO New England, will be coordinated by the Northeast Power
Coordinating Council, whose activities will be incorporated into the
interregional coordinating effort by the North American Electric Reliability
Council. The target for the completion of this effort is mid-1999.
In addition, parts of the global infrastructure, including national banking
systems, electrical power grids, gas pipelines, transportation facilities,
communications and government activities, may not be fully functional after 1999
due to the year 2000 issue. Infrastructure failures could significantly reduce
Boston Edison's ability to acquire energy and its ability to serve its customers
as effectively as they are now being served.
Boston Edison believes that its efforts to address the year 2000 issue will
allow it to successfully avoid any material adverse effect on its operations or
financial condition. However, it recognizes that failing to resolve year 2000
issues on a timely basis would, in a most reasonable worst case scenario,
significantly limit its ability to acquire and distribute energy or process its
daily business transactions for a period of time, especially if such failure is
coupled with third party or infrastructure failures. Similarly, Boston Edison
could be significantly affected by the failure of one or more significant
suppliers, customers or components of the infrastructure to conduct their
respective operations normally after 1999. Adverse effects on Boston Edison
could include, among other things, business disruption, increased costs, loss of
business and other similar risks.
Boston Edison's year 2000 program includes contingency plans. If required,
these plans are intended to address both internal risks as well as potential
external risks related to vendors, customer and energy suppliers. Plans have
been developed in conjunction with available national and regional guidance and
are based on system emergency plans that were developed and successfully tested
over the past several years. Included within its contingency plans are
procedures for the procurement of short-term power supplies and emergency
distribution system restoration procedures. The contract with ISO New England
requires that ISO New England dispatch at all times sufficient resources to meet
total New England load requirements. ISO New England has the responsibility and
authority to dispatch all regional generation sources including maintaining
sufficient operating reserves to respond to unanticipated system conditions. ISO
New England, in conjunction with the New England Power Pool has an extensive
year 2000 readiness program underway to ensure that it will have sufficient
generation and transmission resources to reliably serve load. In addition, ISO
New England plans to increase its operating reserves during the early year 2000
period from approximately 15% to 40%.
The foregoing discussion regarding year 2000 project timing, effectiveness,
implementation and costs includes forward-looking statements that are based on
Boston Edison's current evaluation using available information. Factors that
might cause material changes include, but are not limited to, the availability
of key year 2000 personnel, the readiness of third parties and Boston Edison's
ability to respond to unforeseen year 2000 complications.
SERVICING
SERVICING PROCEDURES
The servicer, on behalf of the note issuer, will manage, service and
administer, and bill and collect payments arising from, the transition property
according to the terms of the servicing agreement between the servicer and the
note issuer. The servicer's duties will
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include responding to inquiries of customers and the Massachusetts Department of
Telecommunications and Energy regarding the transition property and the RTC
charge, calculating electricity usage, accounting for collections, furnishing
periodic reports and statements to the note issuer, the note trustee and the
certificate trustee and periodically adjusting the RTC charge.
In addition, the servicer will take 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 of, modification
of or supplement to the restructuring statute or the financing order or the
rights of holders of transition property by legislative enactment, initiative
petition or constitutional amendment that would be adverse to
certificateholders. The cost of any action will be payable from payments arising
from the RTC charge as an expense of the note issuer.
SERVICING STANDARDS AND COVENANTS
The servicing agreement will require the servicer, in servicing and
administering the transition property, to employ or cause to be employed
procedures and exercise or cause to be exercised the same care it customarily
employs and exercises in servicing and administering bill collections for its
own account and for others.
Consistent with the foregoing, 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 the waiver or action:
- would comply with the servicer's customary practices or those of any
successor servicer for comparable assets that it services for itself and
for others;
- would not materially adversely affect the certificateholders; and
- would comply in all material respects with applicable law.
In addition, the servicer may write off any amounts that it deems uncollectible
according to its customary practices.
In the servicing agreement, the servicer will covenant that, in servicing
the transition property it will:
- manage, service, administer and make collections of payments arising from
the transition property with reasonable care and in compliance with
applicable law, including all applicable guidelines of the Massachusetts
Department of Telecommunications and Energy, using the same degree of
care and diligence that the servicer exercises for bill collections for
its own account and for others;
- follow customary standards, policies and procedures for the industry in
performing its duties as servicer;
- use all reasonable efforts, consistent with its customary servicing
procedures, to bill and collect the RTC charge;
- comply in all material respects with laws applicable to and binding on it
relating to the transition property; and
- submit at least annually a true-up advice letter to the Department
seeking an adjustment, if any, of the RTC charge.
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<PAGE> 60
REMITTANCES TO COLLECTION ACCOUNT
The servicer will remit daily to the note trustee an amount equal to the
actual RTC charges billed, less an allowance for estimated RTC charge
charge-offs, within two business days after the day payments arising from the
RTC charge are deemed to be collected. The deemed collection date for payments
arising from the RTC charge payments will be the weighted average number of
days, based on Boston Edison's historical collections experience, that a monthly
bill for services remains outstanding before payment. Currently, Boston Edison
estimates the deemed collection date to occur, on average, 45 days after the
date RTC charges are billed. The servicer expects to review the deemed
collection date not less than annually and may adjust the deemed collection date
based on actual payment patterns.
Each year, the servicer will reconcile remittances of estimated payments
arising from RTC charges with the note trustee to more accurately reflect the
amount of billed RTC charges that should have been remitted, based on the actual
system-wide charge-off percentage, as reduced for estimates of partially paid
bills (which are deemed to have paid the RTC charge in full). To the extent the
remittances of estimated payments arising from the RTC charge exceed the actual
payments arising from the RTC charge collected by the servicer, the servicer
will be entitled to receive a payment from the note trustee in an amount equal
to the excess remittance, or to withhold the excess amount from any subsequent
remittance to the note trustee. To the extent the remittances of estimated
payments arising from the RTC charge are less than the actual payments arising
from the RTC charge collected, the servicer will remit the amount of the
shortfall to the note trustee on the next remittance date following the
determination. Although the servicer will remit estimated payments arising from
the RTC charge to the note trustee, the servicer is not obligated to make any
payments on the notes or the certificates.
SERVICING COMPENSATION
The servicer will be entitled to receive an annual servicing fee in an
amount equal to:
- 0.05 percent of the initial principal amount of the notes for so long as
the servicer bills the RTC charge concurrently with other charges for
services; or
- up to 1.25 percent of the initial principal balance of the notes if the
RTC charge is being billed separately to customers.
The note trustee will pay the servicing fee semiannually (together with any
portion of the servicing fee that remains unpaid from prior payment dates) to
the extent of available funds prior to the distribution of any interest on and
principal of the notes. See "Description of the Notes -- Allocations and
Payments."
THIRD PARTY SUPPLIERS
As part of the deregulation of the Massachusetts electric industry, the
restructuring statute contemplates that electricity metering and billing
services may be unbundled from distribution services. See "Energy Deregulation
and New Massachusetts Market Structure -- Third Party Billing Options." As a
result, third party suppliers may bill, collect and remit the RTC charge in the
future. When a third party supplier bills, collects and remits billed amounts
arising from the RTC charge, there is a greater risk that the servicer will
receive payments arising from the RTC charge later than it otherwise would. The
greater the delay in receipt of payment, the larger the amount of payments that
bear the risk of non-payment due to default, bankruptcy or insolvency of the
third party supplier holding
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<PAGE> 61
the funds. Third party supplier billing also places increased information
requirements on the servicer. The servicer will have the responsibility of
accounting for payments arising from the RTC charge due to certificateholders
regardless of which entity provides a customer's electric power.
Any third party supplier that bills and collects the RTC charge will be
required to pay all amounts arising from the RTC charge billed by the third
party supplier, regardless of whether payments are received from customers,
within 15 days of the servicer's bill to the third party supplier for amounts
arising from the RTC charge. The third party supplier will, in effect, replace
the customer as the obligor for these amounts, and the servicer, on behalf of
the note issuer, will have no right to collect payments arising from the RTC
charge from the customer.
To mitigate the risks associated with a third party supplier, if and so
long as a third party supplier does not maintain at least a 'BBB' (or the
equivalent) long-term unsecured credit rating from Moody's and S&P, a third
party supplier will be required to maintain with the servicer, or as directed by
the servicer, a deposit or comparable security equal to one month's maximum
estimated collections of payments arising from the RTC charge, as agreed upon by
the servicer and the third party supplier. In the event of a default in the
remittance of payments arising from the RTC charge by a third party supplier,
the servicer will take these amounts into account in adjusting the RTC charge.
The servicer will also have access to information from the third party supplier
regarding kilowatt-hour billing and electricity usage by customers to provide
proper reporting and to fulfill its obligations under the servicing agreement.
The servicer will be entitled, within seven days after a default by a third
party supplier in remitting to the servicer any amounts arising from the RTC
charge, to assume responsibility for billing the RTC charge to the customers of
the third party supplier or to assign that responsibility to a third party.
Neither Boston Edison nor the servicer will pay any shortfalls resulting
from the failure of any third party supplier to remit payments arising from the
RTC charge to the servicer. The true-up adjustment mechanism for the RTC charge,
as well as the overcollateralization amount and the amounts deposited in the
capital subaccount, are intended to mitigate the risk of shortfalls. Any
shortfalls that occur will delay the distribution of interest on and principal
of the certificates.
SERVICER REPRESENTATIONS AND WARRANTIES
In the servicing agreement, the servicer will represent and warrant to the
note issuer, as of the closing of the issuance of the certificates, among other
things, that:
- the servicer is a corporation duly organized and in good standing under
the laws of The Commonwealth of Massachusetts, with corporate power and
authority to own its properties as owned by it on the issuance date and
to conduct its business as its business is conducted by it on the
issuance date and to execute, deliver and carry out the terms of the
servicing agreement;
- the execution, delivery and carrying out of the terms of the servicing
agreement have been duly authorized by all necessary corporate action on
the part of the servicer;
- the servicing agreement constitutes a legal, valid and binding obligation
of the servicer, enforceable against it in accordance with its terms,
subject to insolvency, reorganization, moratorium, fraudulent transfer
and other laws relating to or affecting creditors' rights generally from
time to time in effect and to general principles of equity, regardless of
whether considered in a proceeding in equity or at law;
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- the consummation of the transactions contemplated by the servicing
agreement does not conflict with the servicer's articles of organization
or by-laws or any material agreement to which the servicer is a party or
bound, result in the creation or imposition of any lien on the servicer's
properties pursuant to a material agreement or violate any existing law
or any existing order, rule or regulation applicable to the servicer;
- the servicer has all material licenses necessary for it to perform its
obligations under the servicing agreement;
- 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
- except as disclosed to the note issuer, no court or administrative
proceeding is pending and, to the servicer's knowledge, no court or
administrative proceeding is threatened and, to the servicer's knowledge,
no investigation is pending or threatened, asserting the invalidity of,
or seeking to prevent the consummation of the transactions contemplated
by, the servicing agreement or seeking a determination that might
materially and adversely affect the performance by the servicer of its
obligations under the servicing agreement.
In the event of willful misconduct or gross negligence by the servicer
under the servicing agreement or in the event of the servicer's breach in any
material respect of any of the representations and warranties in the preceding
paragraph, the servicer will indemnify, defend and hold harmless the note
issuer, the noteholders and the certificateholders against any costs, expenses,
losses, claims, damages and liabilities incurred as a result of these events;
provided, however, that the noteholders and the certificateholders may only
enforce their rights against the servicer through an action brought by the note
trustee or the certificate trustee, as the case may be; and, provided, further,
that the servicer shall not be liable for any costs, expenses, losses, claims,
damages or liabilities resulting from the willful misconduct or gross negligence
of the indemnified persons; and, provided, further, that the servicer shall not
be liable for any costs, expenses, losses, claims, damages or liabilities,
regardless of when incurred, after the notes and the certificates have been
discharged in full.
In the event of willful misconduct or gross negligence by the servicer
under the servicing agreement or in the event of the servicer's breach in any
material respect of any of the representations and warranties above, the
servicer will indemnify, defend and hold harmless the note trustee (for itself),
the certificate trustee (for itself), the Delaware trustee, the trust, the state
agencies and any of their respective affiliates, officers, directors, employees
and agents against any costs, expenses, losses, claims, damages and liabilities
incurred as a result of these events; provided, however, that the servicer shall
not be liable for any costs, expenses, losses, claims, damages or liabilities
resulting from the willful misconduct or gross negligence of the indemnified
person or resulting from a breach of a representation or warranty made by an
indemnified person in the transaction documents that gives rise to the
servicer's breach.
STATEMENTS BY SERVICER
On or before March 31 of each year, the servicer will prepare and furnish
annually to the note trustee, the certificate trustee and the note issuer a
statement for the previous year setting forth either the amount of any excess
payments arising from the RTC charge remitted by the servicer to the note
trustee or the amount of any shortfall in remittances.
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In addition, the servicer will prepare, and the note trustee will furnish
to the noteholders on each payment date the semiannual servicer's certificate
described under "Description of the Notes -- Reports to Noteholders." The
servicer will also prepare and the certificate trustee will furnish to the
certificateholders on a distribution date the report described under
"Description of the Certificates -- Reports to Certificateholders."
EVIDENCE AS TO COMPLIANCE
The servicing agreement will provide that a firm of independent public
accountants, at the note issuer's expense, will furnish to the note issuer, the
note trustee and the certificate trustee on or before March 31 of each year,
beginning March 31, 2000, a statement as to compliance by the servicer with
standards relating to the servicing of the transition property during the
preceding twelve months ended December 31 (or preceding period since the closing
date of the issuance of the certificates in the case of the first statement).
This report will state that the accounting firm has performed agreed upon
procedures in connection with the servicer's compliance with the servicing
procedures of the servicing agreement, identifying the results of the procedures
and including any exceptions noted. The report will also indicate that the
accounting firm providing the 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 note issuer,
the note trustee and the certificate trustee, on or before March 31 of each
year, beginning March 31, 2000, of a certificate signed by an officer of the
servicer stating that the servicer has fulfilled its obligations under the
servicing agreement throughout the preceding twelve months ended December 31 (or
preceding period since the closing date of the issuance of the certificates in
the case of the first certificate) or, if there has been a default in the
fulfillment of any obligation under the servicing agreement, describing each
default. The servicer has agreed to give the note issuer, the note trustee and
the certificate trustee notice of servicer defaults under the servicing
agreement.
You may obtain copies of the statements and certificates by sending a
written request addressed to the certificate trustee.
MATTERS REGARDING THE SERVICER
The servicing agreement will provide that Boston Edison may not resign from
its obligations and duties as servicer thereunder, except when either:
- Boston Edison determines that performance of its duties is no longer
permissible under applicable law; or
- Boston Edison receives notice from the nationally recognized statistical
rating organizations rating the certificates that Boston Edison's
resignation will not result in a reduction or withdrawal of the then
current ratings on any class of certificates and consent of the
Massachusetts Department of Telecommunications and Energy.
No resignation by Boston Edison as servicer will become effective until a
successor servicer has assumed Boston Edison'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 liable to the note
issuer, the note trustee, the trust, the noteholders, the certificate trustee,
the Delaware trustee, the certificateholders or any other person or entity,
except as provided under the servicing agreement, for taking any action or for
refraining from taking any action under the servicing agreement or
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for errors in judgment; provided, however, that neither the servicer nor any
person or entity will be protected against any liability that would otherwise be
imposed by reason of willful misconduct or gross negligence in the performance
of duties. In addition, the servicing agreement will provide that the servicer
is under no obligation to appear in, prosecute, or defend any legal action,
except as provided in the servicing agreement at the note issuer's expense.
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 or consolidation to which the servicer is a party, or any entity
succeeding to the business of the servicer or 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:
- any failure by the servicer to remit payments arising from the RTC charge
into the collection account as required under the servicing agreement,
which failure continues unremedied for five business days after written
notice from the note issuer or the note trustee is received by the
servicer;
- any failure by the servicer duly to observe or perform in any material
respect any other covenant or agreement in the servicing agreement, which
failure materially and adversely affects the rights of noteholders and
which continues unremedied for 60 days after the giving of notice of a
failure (a) to the servicer by the note issuer or (b) to the note trustee
or to the servicer by holders of notes evidencing not less than 25
percent in principal amount of the outstanding notes;
- any representation or warranty made by the servicer in the servicing
agreement shall prove to have been incorrect in a material respect when
made, which has a material adverse effect on 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 note issuer or the note
trustee; and
- events of bankruptcy, insolvency, receivership or liquidation of the
servicer.
RIGHTS WHEN SERVICER DEFAULTS
In the event of a servicer default that remains unremedied, either the note
trustee or holders of notes evidencing not less than 25 percent in principal
amount of then outstanding notes may 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 note
trustee will succeed to all the responsibilities, duties and liabilities of the
servicer under the servicing agreement. In addition, when a servicer defaults,
each of the following shall be entitled to apply to the Massachusetts Department
of Telecommunications and Energy for sequestration and payment of revenues
arising from the transition property:
- the certificateholders (subject to the provisions of the certificate
indenture) and the certificate trustee as beneficiary of any statutory
lien permitted by the statute;
- the note issuer or its assignees; or
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- pledgees or transferees, including transferees under the restructuring
statute of the transition property.
If, however, a bankruptcy trustee or similar official has been appointed for the
servicer, and no servicer default other than an appointment of a bankruptcy
trustee or similar official has occurred, that trustee or official may have the
power to prevent the note trustee or the noteholders from effecting a transfer
of servicing. The note trustee may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor servicer which satisfies
criteria specified by the nationally recognized statistical rating organizations
rating the certificates. The note trustee may make arrangements for compensation
to be paid to the successor servicer.
WAIVER OF PAST DEFAULTS
Holders of notes evidencing at least a majority in principal amount of the
then outstanding notes, 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 remittances to the
collection account under the servicing agreement. The servicing agreement
provides that no waiver will impair the noteholders' rights relating to
subsequent defaults.
SUCCESSOR SERVICER
If for any reason a third party assumes the role of the servicer under the
servicing agreement, the servicing agreement will require the servicer to
cooperate with the note issuer, the note trustee and the successor servicer in
terminating the 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 note issuer shall be liable for its reasonable
costs and expenses incurred in transferring servicing responsibilities (which
shall not include any set-up costs for the successor) to the successor servicer.
AMENDMENT
The servicing agreement may be amended by the parties thereto, without the
consent of the noteholders or the certificateholders, but with the consent of
the note trustee, 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 or the certificateholders, provided
that the action will not, as certified in a certificate of an officer of the
servicer delivered to the note trustee and the note issuer, materially and
adversely affect the interest of any noteholder. The servicing agreement may
also be amended by the servicer and the note issuer with the consent of the note
trustee and the holders of notes evidencing at least a majority in principal
amount of the then outstanding notes for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the agreement
or of modifying in any manner the rights of the noteholders; provided that an
amendment of the provisions of the servicing agreement relating to the
servicer's remittance and RTC charge adjustment obligations will not result in a
reduction or withdrawal of the then existing rating of the certificates by a
nationally recognized statistical rating organization that rates the
certificates.
Each nationally recognized statistical rating organization that rates the
certificates will be given 10 business days' prior notice of any amendment to
any of the note indenture and the other financing documents relating to the
issuance of the notes and certificates. Each
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rating organization will also receive a copy of any notice, filing or report
distributed by the servicer, the note issuer's independent accountants, the note
issuer, the note trustee or the certificate trustee.
DESCRIPTION OF THE NOTES
The note issuer will issue the notes to the trust under the terms of a note
indenture between the note issuer and The Bank of New York, a New York banking
corporation, acting as the note trustee. Each class of notes will be in an
aggregate principal amount equal to the initial aggregate principal amount of
the related class of certificates. The following summary describes the material
terms and provisions of the note indenture. The particular terms of the notes of
any class will be established in the note indenture. This summary is not
complete. You should read this summary together with the prospectus supplement
and the terms and provisions of the note indenture, a form of which is filed as
an exhibit to the registration statement relating to this prospectus, prior to
buying the certificates.
The note issuer may issue the notes in one or more classes. All notes of
the same class will be identical in all respects except for their denominations.
The note issuer may not issue any additional notes under the note indenture.
SECURITY
To secure the payment of interest on and principal of the notes, the note
issuer will grant to the note trustee a security interest in all of the note
issuer's right, title and interest in and to:
- the transition property;
- the transition property sale agreement;
- the transition property servicing agreement;
- the administration agreement;
- the collection account and all amounts or investment property on deposit
in the collection account;
- all other property of whatever kind owned from time to time by the note
issuer;
- all present and future claims, demands, causes and choses in action on
account of any or all of the foregoing and all payments on or under the
foregoing; and
- all proceeds on account of any or all of the foregoing.
We refer to the assets in which the note issuer will grant the note trustee a
security interest as the "note collateral."
The note collateral will not include, however, the following:
- amounts in the collection account released as permitted under the note
indenture including net investment earnings on the capital subaccount
that have been released to the note issuer by the note trustee under the
terms of the note indenture; and
- proceeds from the sale of the notes required to pay costs of issuance of
the notes and the certificates.
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COLLECTION ACCOUNT
The note issuer will establish, in the name of the note trustee, a
segregated identifiable account with an eligible institution (as described in
the next paragraph). The note trustee will hold the collection account for the
benefit of the noteholders. The collection account will consist of four
subaccounts:
- a general subaccount;
- a reserve subaccount;
- an overcollateralization subaccount for the overcollateralization amount;
and
- a capital subaccount for capital contributions to the note issuer.
All amounts in the collection account not allocated to any other subaccount will
be allocated to the general subaccount. Unless the context indicates otherwise,
all references to the collection account include each of the four subaccounts.
An "eligible institution" means (a) the corporate trust department of the
note trustee or (b) a depository institution organized under the laws of the
United States of America or any state or the District of Columbia (or any
domestic branch of a foreign bank), which has either a long-term unsecured debt
rating of 'AA' by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and 'Aa2' by Moody's Investors Service,
Inc. ("Moody's") or a certificate of deposit rating of 'A-1+' by S&P and 'P-1'
by Moody's, or any other long-term, short-term or certificate of deposit rating
acceptable to S&P and Moody's and whose deposits are insured by the Federal
Deposit Insurance Corporation.
Funds in the collection account may be invested in any of the following:
- direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
- demand deposits, time deposits, certificates of deposit or bankers'
acceptances of eligible institutions;
- commercial paper (other than commercial paper issued by Boston Edison)
having, at the time of investment, a rating in the highest investment
category from each of the rating agencies;
- money market funds having a rating in the highest investment category
from each of the ratings agencies;
- repurchase obligations for any security that is a direct obligation of,
or fully guaranteed by, the United States of America or its approved
agencies or instrumentalities, entered into with depository institutions;
or
- any other investment permitted by each of the rating agencies,
in each case which mature on or before the business day preceding the next
payment date. We refer to each of the investments listed above as the "eligible
investments." The note trustee will have access to the collection account for
the purpose of making deposits and withdrawals under the note indenture.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a class of notes at the
per annum rate specified in the prospectus supplement and will be payable on the
payment dates specified
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in the prospectus supplement. Collections arising from the RTC charge held by
the note trustee in the general subaccount and any amounts that are available in
the reserve subaccount, the overcollateralization subaccount and capital
subaccount (except interest earnings) will be used to make interest payments to
the noteholders of each class on each payment date.
Principal of each class of notes will be payable in the amounts and on the
payment dates specified in the prospectus supplement to the extent of available
cash, and with the other limitations described below. The prospectus supplement
will set forth the expected amortization schedule for the various classes of
notes. On any payment date, the note issuer will pay principal of a class of
notes only until the outstanding principal balance of that class has been
reduced to the principal balance specified in the expected amortization
schedule.
However, if insufficient collections arising from the RTC charge are in the
collection account on any payment date, principal of any class of notes may be
paid later than expected. The entire unpaid principal amount of the notes will
be due and payable on the date on which a note event of default has occurred and
is continuing, if the note trustee or the holders of at least a majority in
principal amount of the outstanding notes have declared the notes to be
immediately due and payable. See "-- Note Events of Default; Rights Upon Note
Event of Default."
OPTIONAL REDEMPTION
The note issuer may redeem the notes, at its option, on any payment date
and cause the trust to redeem the certificates on any payment date if the
outstanding principal balance of the notes (after giving effect to payments that
would otherwise be made on that payment date) is less than five percent of the
initial principal balance of the notes. In the case of redemption, the note
trustee will pay the outstanding principal amount of the notes and accrued but
unpaid interest as of the redemption date. Unless otherwise specified in the
prospectus supplement, the note issuer will give notice of the redemption to the
trust by first-class mail, postage prepaid, mailed not less than five days nor
more than 25 days prior to the redemption date.
MANDATORY REDEMPTION
If the seller is required to, or elects to, repurchase the transition
property as described under "Description of the Transition Property -- Seller
Representations and Warranties and Repurchase Obligation," the note issuer will
be required to redeem the notes on or before the fifth business day following
the date of repurchase at a price equal to the principal amount of the notes
together with any accrued but unpaid interest thereon.
OVERCOLLATERALIZATION SUBACCOUNT
The note trustee will collect amounts arising from the transition property
exceeding that necessary to pay interest on and principal of the notes and
related fees and expenses, which are intended to enhance the likelihood that
payments on the notes will be made in a timely manner. The servicer will
calculate and set the RTC charge at a level that is intended to collect the
overcollateralization amount ratably over the life of the notes according to a
schedule set forth in the prospectus supplement.
On each payment date, all payments arising from the RTC charge remitted to
the collection account will be deposited in the respective subaccounts,
including the
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overcollateralization subaccount, as described under "-- Allocations and
Payments." Amounts in the overcollateralization subaccount will be invested in
eligible investments.
The servicer will, through a separate non-cash memorandum account, account
for and ultimately credit to ratepayers, any amounts remaining in the collection
account after the certificates are paid in full, such as any
overcollateralization amounts, including interest earnings. These amounts will
be released to the note issuer when the certificates are retired. These amounts
will inure to the benefit of ratepayers through a credit to their transition
charge or if there is no transition charge, through a credit to other rates.
CAPITAL SUBACCOUNT
Before the issuance of the notes, Boston Edison will contribute capital to
the note issuer in the amount specified in the prospectus supplement. The note
trustee will deposit the capital into the capital subaccount. On each payment
date, the note 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 make
scheduled payments on the notes and pay fees and expenses. Deposits to the
capital subaccount will be made as described under "-- Allocations and
Payments." Amounts in the capital subaccount will be invested in eligible
investments. Boston Edison will be entitled to the earnings on amounts in the
capital subaccount.
RESERVE SUBACCOUNT
The note trustee will allocate to the reserve subaccount any amounts
remitted to the collection account exceeding amounts necessary to:
- pay fees and expenses related to the servicing and retirement of the
notes;
- pay interest on and principal of the notes;
- fund the capital subaccount up to the required capital level; and
- fund the overcollateralization subaccount up to the required
overcollateralization level.
The note trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above. Amounts in the reserve subaccount will be invested in eligible
investments.
ALLOCATIONS AND PAYMENTS
On any business day that the note trustee receives a written request from
the servicer requesting repayment for any excess remittances to the collection
account, the note trustee shall make payment of the amount due from amounts on
deposit in the general subaccount, the reserve subaccount, the
overcollateralization subaccount and the capital subaccount, in that order and
only to the extent required to make the payment. See "Servicing -- Remittances
to Collection Account."
On any business day that the note trustee receives a written request from
the note issuer's administrator stating that any fees, costs, expenses and
indemnities payable by the note issuer, as described in clauses (1) through (4)
below, will become due and payable prior to the next succeeding payment date,
and setting forth the amount and nature of the expense, as well as any
supporting documentation that the note trustee may reasonably request, the note
trustee, after receiving the information, will make payment of the expense on or
before the date the payment is due from amounts on deposit in the general
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subaccount, the reserve subaccount, the overcollateralization subaccount and the
capital subaccount, in that order and only to the extent required to make the
payment.
On each payment date, or for any amount payable under clauses (1) through
(4) below, on any business day, the note trustee will apply, all amounts on
deposit in the collection account, including net earnings on those amounts
(other than on amounts in the capital subaccount) to pay the following amounts
in the following priority:
(1) all amounts owed by the note issuer to the note trustee, the Delaware
trustee and the certificate trustee will be paid;
(2) the servicing fee and all unpaid servicing fees from any prior payment
dates will be paid to the servicer;
(3) the administration fee and all unpaid administration fees from prior
payment dates will be paid to the note issuer's administrator;
(4) so long as no event of default has occurred or would be caused by a
payment, all other fees, expenses and indemnities payable by the note
issuer will be paid to the persons entitled thereto, provided that the
total amount paid since the previous payment date and on the current
payment date may not, in the aggregate, exceed $100,000;
(5) first, any overdue interest after a payment default (together with, to
the extent lawful, interest on overdue interest at the applicable note
interest rate) and second, interest currently due and payable will be
transferred to the certificate trustee, as noteholder, for
distribution to the certificateholders;
(6) first, funds necessary to pay any principal payable as a result of a
note event of default or on the final maturity date of a class of
notes and second, principal based on priorities described in the
prospectus supplement will be transferred to the certificate trustee,
as noteholder, for distribution to the applicable certificateholders
according to the expected amortization schedule for each class;
(7) unpaid operating expenses and indemnities payable by the note issuer
will be paid to the persons entitled thereto;
(8) the amount, if any, by which the capital subaccount needs to be funded
to equal the required capital level as of a payment date will be
allocated to the capital subaccount;
(9) the amount, if any, by which the overcollateralization subaccount
needs to be funded to equal the required overcollateralization level
as of a payment date will be allocated to the overcollateralization
subaccount;
(10) the balance, if any, will be allocated to the reserve subaccount for
distribution on a subsequent payment date; and
(11) following the repayment of all notes and certificates, the balance, if
any, will be released to the note issuer.
If on any payment date, or for any amounts payable under clauses (1)
through (4) above, on any business day, funds on deposit in the general
subaccount are insufficient to make the transfers contemplated by clauses (1)
through (6) above, the note trustee will:
- first, draw from amounts on deposit in the reserve subaccount;
- second, draw from amounts on deposit in the overcollateralization
subaccount; and
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- third, draw from amounts on deposit in the capital subaccount,
up to the amount of the shortfall, in order to make the transfers 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 (8) and
(9)above, the note trustee will draw from amounts on deposit in the reserve
subaccount to make the required transfers. If on any payment date funds on
deposit in the collection account are insufficient to make the transfers
contemplated by clause (5) above, the note trustee will allocate the funds in
the collection account among the classes pro rata, as specified in the
prospectus supplement.
ACTIONS BY NOTEHOLDERS
The certificate trustee, on behalf of the trust as sole initial holder of
the notes, has the right to vote and give consents and waivers for modifications
to any class of notes and to the provisions of other agreements under the note
indenture. With some exceptions, the holders of a majority of the outstanding
principal amount of the notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the note
trustee, or exercising any trust or power conferred on the note trustee under
the note indenture, provided that:
- the direction shall not be in conflict with any rule of law or with the
note indenture;
- other than in the case of a default in the payment of any principal or
redemption price or a default in the payment of interest on any note, any
direction to the note trustee to sell or liquidate the note collateral
shall be by the holders of 100% of the outstanding principal amount of
the notes;
- if the note trustee elects to maintain possession of the note collateral
in compliance with the note indenture, then any direction to the note
trustee by holders of notes representing less than 100% of the
outstanding principal amount of the notes to sell or liquidate the note
collateral shall be of no force and effect; and
- the note trustee may take any other action deemed proper by the note
trustee that is not inconsistent with the direction.
NOTE EVENTS OF DEFAULT; RIGHTS ON NOTE EVENT OF DEFAULT
An event of default on the notes is defined in the note indenture as being:
- a default in the payment of interest on any note that is not cured within
five business days after the payment date;
- a default in the payment of the then unpaid principal of any note on the
final maturity date;
- a default in the payment of the redemption price for any note on a
redemption date;
- a default in the observance or performance in any material respect of any
covenant or agreement of the note issuer made in the note indenture, and
which continues unremedied for 30 days after notice is given to the note
issuer by the note trustee or to the note issuer and the note trustee by
the holders of at least 25 percent in principal amount of the notes then
outstanding;
- any representation or warranty made by the note issuer in the note
indenture or in any certificate delivered by the note issuer in
connection with the note indenture proving to have been incorrect in a
material respect when made and which continues unremedied for a period of
30 days after notice is given to the note issuer
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by the note trustee or to the note issuer and the note trustee by the
holders of at least 25 percent in principal amount of the notes then
outstanding; or
- events of bankruptcy, insolvency, receivership or liquidation of the note
issuer.
If a note event of default should occur and be continuing on the notes, the
note trustee or holders of not less than a majority in principal amount of the
notes then outstanding may declare the notes to be immediately due and payable.
Under circumstances set forth in the note indenture, the holders of a majority
in principal amount of notes then outstanding may rescind the declaration.
If the notes have been declared to be due and payable following a note
event of default, the note trustee may, in its discretion, either sell the
transition property or elect to maintain possession of the transition property
and continue to apply payments arising from the RTC charge remitted to the note
trustee as if there had been no declaration of acceleration. We expect that
there will be a limited resale market, if any, for the transition property
following a foreclosure because of the unique nature of the transition property
as an asset and other factors discussed in this prospectus.
In addition, the note trustee is prohibited from selling the transition
property following a note event of default, other than a default in the payment
of any principal or redemption price or a default in the payment of interest on
any note, unless:
- the holders of all the outstanding notes consent to the sale;
- the proceeds of the sale are sufficient to pay in full the accrued
interest on and the principal of the outstanding notes; or
- the note trustee determines that the proceeds of the transition property
would not be sufficient on an ongoing basis to make all payments on the
notes as those payments would have become due if the notes had not been
declared due and payable, and the note trustee obtains the consent of the
holders of 66 2/3 percent of the outstanding amount of the notes.
In case a note event of default occurs and is continuing, the note 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 if the note
trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities that it might incur in complying with the
request. The holders of a majority in principal amount of the outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the note trustee and the holders of a
majority in principal amount of the outstanding notes may, in some cases, waive
any default with respect thereto, except a default in the payment of principal
or interest or a default arising from a covenant or provision of the note
indenture that cannot be modified without the consent of all of the holders of
the outstanding notes of all classes affected.
No holder of any note will have the right to institute any proceeding on
the notes, unless:
- the holder previously has given to the note trustee written notice of a
continuing event of default;
- the holders of not less than 25 percent in principal amount of the
outstanding notes have made written request of the note trustee to
institute the proceeding in its own name as note trustee;
- the holder or holders have offered the note trustee reasonable indemnity;
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- the note trustee has failed for 60 days after receipt of notice to
institute a proceeding; and
- no direction inconsistent with the written request has been given to the
note trustee during the 60-day period by the holders of a majority in
principal amount of the outstanding notes.
In addition, the servicer will covenant that it will not at any time
institute against the note issuer or the trust any bankruptcy, reorganization or
other proceeding under any federal or state bankruptcy or similar law.
COVENANTS OF THE NOTE ISSUER
The note issuer may not consolidate with or merge into any other entity,
unless:
- the entity formed by or surviving a consolidation or merger of the note
issuer is organized under the laws of the United States, any state or the
District of Columbia;
- the entity expressly assumes by an indenture supplemental to the note
indenture the note issuer's obligation to make due and punctual payments
on the notes and the performance or observance of every agreement and
covenant of the note issuer under the note indenture;
- no event of default will have occurred and be continuing immediately
after the merger or consolidation of the note issuer;
- the transaction will not result in a reduction or withdrawal of the then
current ratings on any class of notes or certificates;
- the note issuer has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence to
the note issuer, the trust, any noteholder or any certificateholder and
the consolidation or merger complies with the note indenture and all
conditions precedent relating to the transaction have been complied with;
and
- any action as is necessary to maintain the lien and security interest
created by the note indenture will have been taken.
The note issuer may not convey or transfer any of its properties or assets
to any person or entity, unless:
(a) the person or entity acquiring the properties and assets:
- is a United States citizen or an entity organized under the laws of
the United States, any state or the District of Columbia;
- expressly assumes by an indenture supplemental to the note indenture
the note issuer's obligation to make due and punctual payments on the
notes and the performance or observance of every agreement and
covenant of the note issuer under the note indenture;
- expressly agrees by a supplemental indenture that all right, title and
interest so conveyed or transferred will be subject and subordinate to
the rights of noteholders;
- unless otherwise expressly waived by the note issuer, expressly agrees
to indemnify, defend and hold harmless the note issuer against and
from any loss, liability or expense arising under or related to the
note indenture and the notes; and
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- expressly agrees by means of a supplemental indenture that the person
(or if a group of persons, then one specified person) shall make all
filings with the Securities and Exchange Commission (and any other
appropriate person) required by the Securities Exchange Act of 1934 in
connection with the notes;
(b) no event of default under the note indenture will have occurred and be
continuing immediately after the transaction;
(c) the transaction will not result in a reduction or withdrawal of the
then current ratings on any class of certificates;
(d) the note issuer has received an opinion of counsel to the effect that
the transaction will not have any material adverse tax consequence to the note
issuer, the trust, any noteholder or any certificateholder and the conveyance or
transfer complies with the note indenture and all conditions precedent relating
to the transaction have been complied with; and
(e) any action as is necessary to maintain the lien and security interest
created by the note indenture shall have been taken.
The note issuer will not, among other things:
- except as expressly permitted by the note indenture, sell, transfer,
exchange or otherwise dispose of any of the assets of the note issuer,
unless directed to do so by the note trustee;
- claim any credit on, or make any deduction from the principal or interest
payable on, the notes (other than amounts properly withheld under the
Internal Revenue Code of 1986) or assert any claim against any present or
former noteholder because of the payment of taxes levied or assessed on
any part of the note collateral;
- terminate its existence, dissolve or liquidate in whole or in part;
- permit the validity or effectiveness of the note indenture to be
impaired;
- permit the lien of the note indenture to be amended, hypothecated,
subordinated, terminated or discharged or permit any person to be
released from any covenants or obligations arising from the notes except
as may be expressly permitted by the note indenture;
- permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than the lien and security interest created by
the note indenture or the statutory lien under the restructuring statute,
to be created on or extend to or otherwise arise on or burden the note
collateral or any part of it or any interest in it or the proceeds from
it; or
- except for the statutory lien under the statute, permit the lien of the
note indenture not to constitute a valid first priority security interest
in the note collateral.
The note issuer may not engage in any business other than financing,
purchasing, owning and managing the transition property in the manner
contemplated by the note indenture and the other financing documents relating to
the issuance of the notes and certificates and related activities. The note
issuer will not issue, incur, assume, guarantee or otherwise become liable for
any indebtedness except for the notes.
The note issuer will not, except for any eligible investments as
contemplated by the note indenture and the other financing documents relating to
the issuance of the notes and certificates, 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
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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 note issuer will not, other than
expenditures in an annual amount not to exceed $25,000, make any expenditure (by
long-term or operating lease or otherwise) for capital assets (either real or
personal property). The note issuer will not, directly or indirectly, make
payments to or distributions from the collection account except in compliance
with the note indenture and the other financing documents relating to the
issuance of the notes and the certificates.
The note issuer will not make any payments, distributions or dividends to
any owner of beneficial interests in the note issuer arising from the beneficial
interests in the note issuer if any note event of default has occurred and is
continuing or if distributions cause the book value of the remaining equity in
the note issuer to decline below 0.50 percent of the initial principal amount of
the notes outstanding under the note indenture.
The note issuer will deliver to, among others, the note trustee and the
certificate trustee the annual accountant's certificates, compliance
certificates, reports regarding distributions and statements to noteholders and
the certificateholders required by the servicing agreement.
REPORTS TO NOTEHOLDERS
On or prior to each payment date, the servicer will prepare and provide to
the note issuer, the note trustee and the certificate trustee a statement to be
delivered to the noteholders on the payment date. Each statement will include
(to the extent applicable) the following information for a payment date or the
period since the previous payment date, as applicable:
- the amount of the distribution to noteholders allocable to principal;
- the amount of the distribution to noteholders allocable to interest;
- the outstanding principal balance of the notes, after giving effect to
payments allocated to principal reported above; and
- the difference, if any, between the outstanding principal balance of the
notes and the principal amount scheduled to be outstanding on a payment
date according to the expected amortization schedule.
The note trustee will deliver to each holder of the notes information in
the note trustee's possession that may be required to enable the holder to
prepare its federal and state income tax returns. See "Federal Income Tax
Consequences" and "State Taxation."
ANNUAL COMPLIANCE STATEMENT
The note issuer will file annually with the note trustee, the certificate
trustee, the state agencies and the nationally recognized statistical rating
organizations rating the certificates a written statement as to whether it has
fulfilled its obligations under the note indenture.
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DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates under the certificate indenture
between the trust and The Bank of New York, a New York banking corporation,
acting as the certificate trustee. The following summary describes the material
terms and provisions of the certificate indenture. The particular terms of the
certificates of any class will be established in the certificate indenture. This
summary is not complete. You should read this summary together with the
prospectus supplement and the terms and provisions of the certificate indenture,
a form of which is filed as an exhibit to the registration statement relating to
this prospectus, before buying the certificates.
Each class of certificates will represent a fractional undivided beneficial
interest in the related class of notes and the proceeds thereof. Each
certificate will be issued in the minimum denominations specified in the
prospectus supplement. The trust may not issue any additional certificates under
the certificate indenture.
Each class of certificates will bear interest at the rate per annum borne
by the related class of notes. See "Description of the Notes -- Interest and
Principal." Payments of interest and principal made on any class of notes are
required to be passed through to holders of the related class of certificates at
the times and in the manner described below. See "-- Payments and Distributions"
below and "Description of the Notes -- Interest and Principal."
PAYMENTS AND DISTRIBUTIONS
The certificate trustee is scheduled to receive payments of interest on and
principal of the notes on each payment date. The note trustee will make payments
on the notes on any payment date as described under "Description of the Notes --
Allocations and Payments."
The certificate trustee will distribute on each distribution date to the
holders of each class of certificates all payments of interest on and principal
of the related class of notes, other than payments received following a payment
default on a class of notes, the receipt of which is confirmed by the
certificate trustee by 1:00 p.m. New York City time on a distribution date or,
if receipt is confirmed after 1:00 p.m. New York City time on a distribution
date, then on the following business day. Each distribution, other than the
final distribution for any certificate, will be made by the certificate trustee
to the holders of record of the certificates of the applicable class on the
record date for a distribution date. If a payment of principal or interest on
any class of the notes, other than a payment received following a payment
default on a class of notes, is not received by the certificate trustee on a
distribution date but is received within five days thereafter, it will be
distributed to the holders of record on the date receipt is confirmed by the
certificate trustee, if receipt is confirmed by the certificate trustee by 1:00
p.m. New York City time or, if receipt is confirmed after 1:00 p.m. New York
City time, then on the following business day. If payment is received by the
certificate trustee after the five-day period, it will be treated as a payment
received following a payment default on a class of notes and distributed as
described below.
Any payment received by the certificate trustee following a payment default
on any class of notes ("Special Payments") will be distributed on the later of
the date receipt is confirmed by the certificate trustee and the date on which
any Special Payment is scheduled to be distributed by the certificate trustee (a
"Special Distribution Date"). However, in the case of any Special Payment
receipt of which is confirmed after 1:00 p.m. New York City time, a Special
Payment will be distributed on the following business day.
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The certificate trustee will mail notice to the holders of record of
certificates of the applicable class as of the most recent record date not less
than 20 days prior to the Special Distribution Date on which any Special Payment
is scheduled to be distributed for certificates of a class stating the
anticipated Special Distribution Date. Each distribution of any Special Payment
will be made by the certificate trustee on the Special Distribution Date to the
holders of record of the certificates of a class as of the most recent record
date. See "-- Events of Default" below.
The certificate indenture requires the certificate trustee to establish and
maintain for each class of certificates, for the trust, and on behalf of the
certificateholders, one or more non-interest bearing certificate accounts for
the deposit of payments on the related class of notes. The certificate trustee
is required to deposit any payments received by it arising from the notes in the
appropriate certificate account. The certificate trustee will distribute all
amounts so deposited to holders of the certificates on a distribution date or a
Special Distribution Date, as appropriate, unless a different date for
distribution of the amount is specified in the certificate indenture.
At a time, if any, that the certificates are issued in registered form and
not to the Depository Trust Company ("DTC") or its nominee, distributions by the
certificate trustee from the certificate accounts on a distribution date or a
Special Distribution Date will be made by check mailed to each holder of record
of a certificate on the applicable record date at its address appearing on the
register maintained for the certificates, or, on application by a holder of any
certificates in the principal amount of $1,000,000 or more to the certificate
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 distribution
for the certificates, however, will be made only on presentation and surrender
of the certificates at the office or agency of the certificate trustee specified
in the notice given by the certificate trustee of the final distribution. The
certificate trustee will mail notice of the final distribution to the
certificateholders, specifying the date set for the final distribution and the
amount of the final distribution.
If any Special Distribution Date or other date specified in this prospectus
for distribution of any distributions to certificateholders is not a business
day, distributions scheduled to be made on a Special Distribution Date or other
date may be made on the following business day and no interest shall accrue on
the distribution during the intervening period.
VOTING OF THE CERTIFICATES
The nominee for DTC as sole initial holder of the certificates, has the
right to vote and give consents and waivers relating to any modifications to any
class of certificates. With some exceptions, the holders of at least a majority
of the outstanding principal amount of the certificates shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the certificate trustee, or exercising any trust or power conferred
on the certificate trustee under the certificate indenture, including any right
of the certificate trustee as holder of the notes, in each case unless a
different percentage is specified in the certificate indenture; provided,
however, that, among other things:
- the direction shall not be in conflict with any rule of law or with the
certificate indenture and would not involve the certificate trustee in
personal liability or expense;
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- the certificate trustee shall not have determined that the action so
directed would be unjustly prejudicial to the certificateholders not
taking part in the direction; and
- the certificate trustee may take any other action deemed proper by the
certificate trustee that is not inconsistent with the direction.
If the certificate trustee is required to seek instructions from the holders of
the certificates regarding any action or vote, the certificate trustee will take
the action or vote for or against any proposal in proportion to the principal
amount of the certificates taking the corresponding position.
EVENTS OF DEFAULT
An event of default on the certificates under the certificate indenture is
defined as the occurrence and continuance of a note event of default. For a
description of the note events of default, see "Description of the Notes -- Note
Events of Default; Rights On Note Event of Default."
The certificate indenture provides that, if a note event of default occurs
and is continuing, the certificate trustee may and, with the written direction
of holders representing not less than a majority of the outstanding principal
amount of the certificates, shall vote all the notes in favor of declaring the
unpaid principal amount of the notes and accrued interest to be due and payable.
In addition, the certificate indenture provides that, if a note event of default
occurs and is continuing, the certificate trustee may and, with the written
direction of holders representing not less than a majority of the outstanding
principal amount of the certificates, shall vote all the notes in favor of
directing the note trustee as to the time, method and place of conducting any
proceeding for any remedy available to the note trustee, including the sale of
any or all of the notes, without recourse to or warranty by the certificate
trustee or any certificateholder, to any person or entity, or of exercising any
trust or power conferred on the note trustee under the note indenture.
If, under the terms of the certificate indenture, the certificate trustee
so decides or is required to sell the notes, the certificate trustee may, but is
not obligated to, take action to complete the sale of the notes so as to provide
for the full payment of all amounts due on the certificates.
In addition, the certificate trustee is prohibited from selling any notes
following note events of default, other than payment defaults, unless (x) the
certificate trustee determines that the amounts receivable from the note
collateral are not sufficient to pay in full the principal of and accrued
interest on the notes and to pay all sums due to the certificate trustee and
other administrative expenses specified in the certificate indenture and the
certificate trustee obtains the written consent of holders of certificates
representing 66 2/3 percent of the outstanding principal amount of certificates
or (y) the certificate trustee obtains the written consent of holders of 100
percent of the outstanding principal amount of certificates. Any proceeds
received by the certificate trustee on any sale will be deposited in the
certificate account and will be distributed to the certificateholders on a
Special Distribution Date.
If a breach by The Commonwealth of Massachusetts of its pledge under the
statute has occurred, then the certificate trustee, in its own name and as
trustee of an express trust, as holder of the notes, shall be, to the extent
permitted by state and federal law, entitled and empowered to institute any
suits, actions or proceedings at law, in equity or otherwise, to enforce the
pledge and to collect any monetary damages as a result of a
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breach, and may prosecute any of these suits, actions or proceedings to final
judgment or decree.
Any funds (a) representing payments received arising from notes in default,
(b) representing the proceeds from the sale by the certificate trustee of any
notes or (c) otherwise arising from a certificate event of default, held by the
certificate trustee in the certificate account shall, to the extent practicable,
be invested and reinvested by the certificate trustee in eligible investments
permitted under the certificate indenture maturing in not more than 60 days or a
lesser time as is required for the distribution of any funds on a Special
Distribution Date, pending the distribution of the funds to certificateholders
as described in this prospectus.
The certificate indenture provides that, for the certificates of any class,
within 30 days after the occurrence of any event that is, or after notice or
lapse of time or both would become, a certificate event of default for a class
of certificates, the certificate trustee will give to the trust, note trustee
and the certificateholders notice, transmitted by mail, of all uncured or
unwaived defaults known to it. Except in the case of a default relating to the
payment of principal of or interest on any of the notes, however, the
certificate trustee will be protected in withholding notice if in good faith it
determines that the withholding of notice is in the interests of the
certificateholders.
The certificate indenture contains a provision entitling the certificate
trustee to be indemnified by the certificateholders before proceeding to
exercise any right or power under the certificate indenture at the request or
direction of certificateholders.
In some cases, the holders of certificates representing not less than a
majority of the outstanding principal amount of the certificates may waive any
certificate event of default and thereby annul any previous direction given by
the certificate trustee with respect thereto, except a default:
- in the deposit or distribution of any payment on the notes or Special
Payment required to be made on any class of certificates;
- in the payment of principal of or interest on any of the notes; or
- arising from any covenant or provision of the certificate indenture that
cannot be modified or amended without the consent of the holders of each
certificate affected by a default.
With this direction, the certificate trustee shall vote a corresponding
percentage of the notes in favor of the waiver. The notes provide that, with
some exceptions, the holders of not less than a majority of the outstanding
principal amount of the notes may waive any note event of default or any event
that is, or after notice or passage of time, or both, would be, a note event of
default.
The trust may hold two or more classes of notes, each of which may have a
different interest rate, a different or potentially different schedule for the
repayment of principal and different rights in the security for the notes.
Accordingly, the certificateholders of one class may have divergent or
conflicting interests from the certificateholders of other classes. As a result,
the note trustee and the certificate trustee may be required to seek the
appointment of additional trustee(s) to represent the interests of one or more
classes with divergent or conflicting interests.
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REDEMPTION
The trust will redeem the certificates if the notes are redeemed. The trust
will give notice of redemption to each certificateholder to be redeemed by
first-class mail, postage prepaid, mailed not less than five days nor more than
25 days prior to the redemption date.
REPORTS TO CERTIFICATEHOLDERS
On each distribution date, Special Distribution Date or any other date
specified in the certificate indenture for distribution of any payments on any
class of certificates, the certificate trustee will include with each
distribution a statement setting forth the following information, in each case,
to the extent received by the certificate trustee from the note trustee, no
later than two business days prior to a distribution date, Special Distribution
Date or other date specified herein for distribution:
- the amount of the distribution to certificateholders allocable to
principal and interest, in each case per $1,000 original principal amount
of each class of certificates;
- the aggregate outstanding principal balance of the certificates, after
giving effect to distributions allocated to principal reported above; and
- the difference, if any, between the aggregate outstanding principal
balance of the certificates and the principal amount scheduled to be
outstanding on a distribution date according to the expected amortization
schedule.
So long as the note trustee and the certificate trustee are the same, the note
trustee will agree to prepare and provide the statements to the certificate
trustee.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the notes, the certificate trustee
will mail to each person or entity who at any time during a calendar year has
been a certificateholder and received any distribution on the certificates, a
statement containing information for the purposes of a certificateholder's
preparation of federal and state income tax returns. See "Federal Income Tax
Consequences" and "State Taxation."
SUPPLEMENTAL CERTIFICATE INDENTURES
The certificate trustee and the Delaware trustee, on behalf of the trust,
will, from time to time, and without the consent of the certificateholders,
enter into one or more agreements supplemental to the certificate indenture to:
- add to the covenants of the trust for the benefit of the
certificateholders, or to surrender any right or power in the certificate
indenture conferred on the trust;
- correct or supplement any provision in the certificate indenture or in
any supplemental certificate indenture that may be defective or
inconsistent with any other provision in the certificate indenture or in
any supplemental agreement or to make any other provisions regarding
matters or questions arising under the certificate indenture; provided
that none of these actions shall adversely affect in any material respect
the interests of the certificateholders;
- cure any ambiguity or correct any mistake; or
- qualify, if necessary, the certificate indenture, including any
supplemental certificate indenture, under the Trust Indenture Act of
1939.
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In addition, the certificate trustee and the Delaware trustee, acting on
behalf of the trust, will, with the consent of certificateholders holding not
less than a majority of the outstanding principal amount of the certificates of
all affected classes, enter into one or more certificate indentures supplemental
to the certificate 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 certificate indenture. However, no supplemental certificate indenture may,
among other things, without the consent of each certificateholder affected
thereby:
- change any date of payment on any certificate, or change the place of
payment where, or the currency in which, any certificate is payable, or
impair the right to sue for the enforcement of any payment or
distribution on or after the distribution date, Special Distribution Date
or other date specified in the prospectus;
- permit the disposition of any note held by the trust except as permitted
by the certificate indenture, or otherwise deprive any certificateholder
of the benefit of the ownership of the related notes held by the trust;
- modify the provisions in the certificate indenture relating to amendments
with the consent of certificateholders, except to increase the percentage
vote necessary to approve amendments or to add further provisions which
cannot be modified or waived without the consent of all
certificateholders; or
- adversely affect the status of the trust as a grantor trust not taxable
as a corporation for federal income tax purposes.
Promptly following the execution of any amendment to the certificate indenture
(other than an amendment described in the preceding paragraph), the certificate
trustee will furnish written notice of the substance of an amendment to each
certificateholder.
LIST OF CERTIFICATEHOLDERS
With the written request of any certificateholder or group of
certificateholders of record holding certificates evidencing not less than ten
percent of the outstanding principal amount of the certificates, the certificate
trustee will give a certificateholder or certificateholders access during
business hours to the current list of certificateholders for purposes of
communicating with other certificateholders about their rights under the
certificate indenture.
Neither the declaration of trust nor the certificate indenture provides for
any annual or other meetings of certificateholders.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the prospectus supplement, the certificates will be
issued in definitive form and will be transferable and exchangeable at the
office of the registrar identified in the prospectus supplement. No service
charge will be made for any registration or transfer of the certificates, but
the owner may be required to pay a sum sufficient to cover any tax or other
governmental charge.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
One or more classes of the certificates will be issued as book-entry
certificates, and these classes will be represented by one or more certificates
registered in the name of a nominee for the depository, DTC.
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 Uniform Commercial Code and a "clearing
agency" registered under the
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provisions of Section 17A of the Securities Exchange Act. DTC was created to
hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include other organizations. Indirect access to the DTC system also is
available to others 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").
Investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
book-entry certificates may do so only through Participants and Indirect
Participants. In addition, these beneficial owners will receive all
distributions on the book-entry certificates through DTC and its Participants.
Under a book-entry format, beneficial owners will receive payments after a
distribution date because, while payments are required to be forwarded to Cede &
Co., as nominee for DTC, on a distribution date, DTC will forward the payments
to its Participants which thereafter will be required to forward them to
Indirect Participants or beneficial owners. The only registered
certificateholder will be Cede & Co., as nominee of DTC, and the beneficial
owners will not be recognized by the certificate trustee as certificateholders
under the certificate indenture. Beneficial owners will be permitted to exercise
the rights of certificateholders under the certificate indenture, only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among participants
on whose behalf it acts regarding the book-entry certificates and is required to
receive and transmit distributions of interest on and principal of the
book-entry certificates. Participants and Indirect Participants with which
beneficial owners have accounts for book-entry certificates similarly are
required to make book-entry transfers and receive and transmit the payments on
behalf of their respective beneficial owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and banks, the ability of a beneficial owner to
pledge its interest in the book-entry certificates to persons or entities that
do not participate in the DTC system, or otherwise take actions arising from its
interest in the book-entry certificates, may be limited due to the lack of a
physical certificate evidencing its interest.
DTC has advised the certificate trustee that it will take any action
permitted to be taken by a certificateholder under the certificate indenture
only at the direction of one or more Participants to whose account with DTC
interests in the book-entry certificates are credited.
CEDEL holds securities for the 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 certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its 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 regulated
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 other
organizations and may
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include the underwriters. 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.
The Euroclear System was created in 1968 to hold securities for 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 certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in Euroclear in any of 32 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. The
Euroclear System is operated by the Euroclear Operator (or Euroclear), under
contract with 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 the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System 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 which 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. The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments for
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates 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.
Distributions for certificates held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants in
compliance with the relevant system's rules and procedures. These distributions
will be subject to tax reporting in compliance with relevant United States tax
laws and regulations. See "Federal Income Tax Consequences." CEDEL will take any
other action permitted to be taken by a certificateholder under the certificate
indenture on behalf of a CEDEL Participant and the Euroclear Operator will take
any other action permitted to be taken by a certificateholder under the
certificate indenture on behalf of a Euroclear Participant only under its
relevant rules and procedures and limited by its depositary's ability to effect
these actions on its behalf through DTC.
Cede, as nominee for DTC, will hold the certificates. CEDEL will hold
omnibus positions in the certificates on behalf of the CEDEL Participants and
Euroclear will hold omnibus positions in the certificates on behalf of the
Euroclear Participants, in each case through customers' securities accounts in
their names on the books of their respective depositaries, which in turn will
hold positions in customers' securities accounts in the depositaries' names on
the books of DTC.
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Transfers between the Participants will comply with DTC rules. Transfers
between CEDEL Participants and Euroclear Participants will comply with their
applicable 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
under DTC rules on behalf of the relevant European international clearing system
by its depositary; however, these cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in the system according to its rules and procedures and
within its established deadlines. The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment under normal procedures for same-day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to their depositaries.
Because of time zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and the credit or any transactions in the
securities settled during the processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on that business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a 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.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
these procedures and these procedures may be discontinued at any time.
If any of DTC, Cedel or Euroclear should discontinue its services, the
certificate trustee would seek an alternative depository, if available, or cause
the issuance of definitive certificates to the owners of certificates or their
nominees in the manner described below.
Definitive certificates initially issued in book-entry form will be issued
to beneficial owners or their nominees, rather than to DTC or its nominee only
if:
- the DTC advises the certificate trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depository
for the certificates and the certificate trustee is unable to locate a
qualified successor; or
- after the occurrence of an event of default under the certificate
indenture, holders of certificates representing not less than 50 percent
of the outstanding principal amount of certificates advise DTC in writing
that the continuation of a book-entry system through DTC is no longer in
the best interests of certificateholders.
If either of the events described in the immediately preceding paragraph
occurs, DTC is required to notify all Participants of the availability through
DTC of definitive certificates for the beneficial owners. With the surrender by
DTC of the certificate or certificates representing the book-entry certificates,
together with instructions for reregistration, the certificate trustee will
issue (or cause to be issued) to the beneficial owners identified in the
instructions the definitive certificates to which they are entitled, and
thereafter the certificate trustee will recognize the holders of the Definitive
Certificates as certificateholders under the certificate indenture.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material federal income tax consequences
to certificateholders, and is based on the opinion of Palmer & Dodge LLP. Palmer
& Dodge LLP has advised the Trust that the description of those material federal
income tax consequences in this summary is accurate in all material respects.
The opinion of Palmer & Dodge LLP is based on some assumptions and is limited by
some qualifications stated in this discussion or in that opinion. This
discussion is based on current provisions of the Code, currently applicable
Treasury regulations, and judicial and administrative rulings and decisions.
Legislative, judicial or administrative changes could alter or modify the
statements and conclusions in this discussion. Any legislative, judicial or
administrative changes or new interpretations may be retroactive and could
affect tax consequences to certificateholders.
This discussion applies to certificateholders who acquire the certificates
at original issue for cash equal to the issue price of those certificates and
hold the certificates as capital assets. This discussion does not address all of
the tax consequences relevant to a particular certificateholder in light of that
certificateholder's circumstances, and some certificateholders may be subject to
special tax rules and limitations not discussed below (e.g., life insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, S corporations, taxpayers subject to the alternative minimum tax
provisions of the Code, broker-dealers, and persons who hold the certificates as
part of a hedge, straddle, "synthetic security", or other integrated investment,
risk reduction or constructive sale transaction). This discussion also does not
address the tax consequences to nonresident aliens, foreign corporations,
foreign partnerships or foreign trusts that are subject to U.S. federal income
tax on a net basis on income with respect to a certificate because that income
is effectively connected with the conduct of a U.S. trade or business. Those
holders generally are taxed in a manner similar to U.S. Certificateholders;
however, special rules not applicable to U.S. Certificateholders may apply. In
addition, except as described below, this discussion does not address any tax
consequences under state, local or foreign tax laws. CONSEQUENTLY, YOU ARE URGED
TO CONSULT YOUR TAX ADVISER TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CERTIFICATES.
In addition, as provided in Treasury regulations, some trusts in existence
on August 20, 1996, and treated as U.S. Persons prior to that date, may elect to
continue to be treated for federal income tax purposes as U.S. Persons.
This discussion assumes that each certificate is issued in registered form.
Moreover, this discussion assumes that any original issue discount on the
certificates (i.e., any excess of the stated redemption price at maturity of the
certificate over its issue price) is less than a statutory minimum amount (equal
to 0.25 percent of its stated redemption price at maturity multiplied by the
certificate's weighted average maturity), all as provided in the Treasury's
original issue discount regulations.
TREATMENT OF THE CERTIFICATES
The seller has received a ruling from the Internal Revenue Service holding
that the notes are obligations of the seller for federal income tax purposes.
Palmer & Dodge LLP will opine that the trust will not be a business entity
classified as a corporation or a publicly traded partnership treated as a
corporation, but will be treated as a grantor trust.
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Further, Palmer & Dodge LLP will opine that each class of certificates will
evidence ownership of a fractional undivided beneficial interest in the related
class of notes.
Based on the assumptions and subject to the qualifications stated herein,
it is the opinion of Palmer & Dodge LLP that the material federal income tax
consequences to certificateholders are as follows:
TAXATION OF U.S. CERTIFICATEHOLDERS
PAYMENTS OF INTEREST
Stated interest on the certificates will be taxable as ordinary interest
income when received or accrued by U.S. Certificateholders under their method of
accounting. Generally, interest received on the certificates will constitute
"investment income" for purposes of Code limitations on the deductibility of
investment interest expense.
ORIGINAL ISSUE DISCOUNT
As noted above, this discussion assumes that any original issue discount on
the certificates is less than the statutory minimum amount. Accordingly, unless
a special election is made to treat all interest on a certificate as original
issue discount, any original issue discount generally will be taken into income
by a U.S. Certificateholder as gain from the retirement of a certificate (as
described below under "-- Sale or Other Taxable Disposition of Certificates")
ratably as principal payments are made on the Certificates.
MARKET DISCOUNT AND PREMIUM
If a U.S. Certificateholder purchases (including a purchase at original
issuance for a price less than the issue price) a certificate for an amount that
is less than the principal balance of the certificate, the difference will be
treated as "market discount" unless it is less than a statutory minimum amount.
This market discount will generally be treated as accruing ratably on the
certificate during the period from the date of acquisition to the maturity date
of the certificate, unless the U.S. Certificateholder makes an election to
accrue the market discount on a constant yield to maturity basis. The U.S.
Certificateholder will be required to treat any principal payment on, or any
gain realized on the sale, exchange, retirement or other disposition of the
certificate as ordinary income to the extent of the lesser of:
- the amount of the payment or gain; or
- the market discount which is treated as having accrued on the Certificate
at the time of the payment or disposition and which has not previously
been included in income.
In addition, a U.S. Certificateholder may be required to defer the deduction of
all or a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a certificate with market discount, until the
maturity of the certificate or its earlier disposition in a taxable transaction.
In the alternative, a U.S. Certificateholder may elect to include market
discount in income currently as it accrues on either a ratable or semiannual
compounding basis, in which case the rules described above will not apply. The
election to include market discount in income as it accrues will apply to all
market discount instruments acquired by the U.S. Certificateholder on or after
the first day of the taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
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Generally, currently included market discount is treated as ordinary interest
for United States federal income tax purposes.
A purchaser who acquires a certificate at a premium (i.e., at a purchase
price greater than the principal balance) may elect to offset the premium
against interest income on the certificate on a constant yield to maturity
basis. Any amortized premium will reduce the adjusted basis of the certificate.
If the certificate is redeemed before maturity for a price less than the
adjusted basis of the certificate, a U.S. Certificateholder will be allowed an
ordinary loss deduction for the unamortized premium. An election to amortize
bond premium applies to all bonds acquired by a U.S. Certificateholder on or
after the first day of the taxable year to which the election applies and can be
revoked only with the consent of the Internal Revenue Service.
SALE OR OTHER TAXABLE DISPOSITION OF CERTIFICATES
If there is a sale, exchange, redemption, retirement or other taxable
disposition of a certificate, a U.S. Certificateholder generally will recognize
gain or loss equal to the difference between (a) the amount of cash and the fair
market value of any other property received (other than amounts attributable to,
and taxable as, accrued stated interest) and (b) the U.S. Certificateholder's
adjusted tax basis in the certificate. The adjusted tax basis in the certificate
generally will equal its cost, increased by any original issue discount or
market discount included in income with respect to the certificate prior to its
disposition and reduced by any payments reflecting principal or original issue
discount previously received with respect to the certificate and any amortized
premium. Although the market discount rules may apply, gain or loss generally
will be capital gain or loss if the certificate was held as a capital asset.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S.
federal income or withholding tax on interest (including original issue
discount) on a certificate unless:
- the non-U.S. Certificateholder is a controlled foreign corporation that
is related to the seller through stock ownership;
- the non-U.S. Certificateholder is a bank which receives interest as
described in Code Section 881(c)(3)(A); or
- the non-U.S. Certificateholder actually or constructively owns 10% or
more of the total combined voting power of all classes of stock of the
seller entitled to vote.
In order for interest payments to qualify for the exemption from U.S. taxation
described above, the Withholding Agent must have received (in the year in which
a payment of interest or principal occurs or in either of the two preceding
years) a statement that:
- is signed by the non-U.S. Certificateholder under penalty of perjury;
- certifies that the non-U.S. Certificateholder is not a U.S. Person; and
- provides the name and address of the non-U.S. Certificateholder.
The statement may be made on a Form W-8 or substantially similar substitute
form, and the non-U.S. Certificateholder must inform the Withholding Agent of
any change in the information on the statement within 30 days of the change. If
a certificate is held through a securities clearing organization or other
financial institution, the organization or institution may provide a signed
statement to the Withholding Agent certifying under
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penalties of perjury that the Form W-8 (or suitable substitute) has been
received by it from the Certificateholder or from another qualifying financial
institution. However, in that case, the signed statement must be accompanied by
a copy of the Form W-8 or substitute form provided by the non-U.S.
Certificateholder to the organization or institution holding the certificate on
behalf of the non-U.S. Certificateholder.
Generally, any gain or income realized by a non-U.S. Certificateholder from
the sale, exchange, redemption, retirement or other disposition of a certificate
(other than gain attributable to accrued interest or original issue discount,
which is addressed above) will not incur U.S. federal income tax liability,
provided, in the case of a certificateholder who is an individual, that the
certificateholder is not present in the United States for 183 or more days
during the taxable year in which a disposition of a certificate occurs.
Exceptions may be applicable, and non-U.S. Certificateholders should consult a
tax adviser regarding the tax consequences of a disposition of a certificate.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Some certificateholders may be subject to backup withholding at the rate of
31% on interest (including original issue discount) and proceeds received from
the disposition of a certificate. Generally, backup withholding will apply if
the certificateholder fails to provide identifying information (such as the
payee's taxpayer identification number) in the manner required, or if the payee
has failed to report properly the receipt of reportable interest or dividend
payments and the Internal Revenue Service has notified the payor that backup
withholding is required. Some certificateholders (including, among others,
corporations and some tax-exempt organizations) generally are not subject to
backup withholding.
Backup withholding and information reporting generally will not apply to a
certificate issued in registered form that is beneficially owned by a non-U.S.
Certificateholder if the certification of non-U.S. status is provided to the
Withholding Agent as described above in "-- Non-U.S. Certificateholders," as
long as the payor does not have actual knowledge that the certificateholder is a
U.S. Person. The Withholding Agent may be required to report annually to the
Internal Revenue Service and to each non-U.S. Certificateholder the amount of
interest paid to, and the tax withheld, if any, for each non-U.S.
Certificateholder.
If payments of principal and interest are made to the beneficial owner of a
certificate by or through the foreign office of a custodian, nominee or other
agent of that beneficial owner, or if the proceeds of the sale of certificates
are made to the beneficial owner of a certificate through a foreign office of a
"broker" (as defined in the pertinent Treasury regulations), the proceeds will
not be subject to backup withholding (absent actual knowledge that the payee is
a U.S. Person). Information reporting (but not backup withholding) will apply,
however, to a payment by a foreign office of a custodian, nominee, agent or
broker that:
- is a U.S. Person;
- is a controlled foreign corporation for U.S. federal income tax purposes;
or
- derives 50% or more of its gross income from the conduct of a U.S. trade
or business for a specified three-year period, unless the broker has in
its records documentary evidence that the holder is a non-U.S.
Certificateholder and other conditions are met (including that the broker
has no actual knowledge that the certificateholder is a U.S.
Certificateholder) or the certificateholder otherwise establishes an
exemption.
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Payment through the U.S. office of a custodian, nominee, agent or broker is
subject to both backup withholding at a rate of 31% and information reporting,
unless the certificateholder certifies that it is a non-U.S. Person under
penalties of perjury or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
certificateholder would be allowed as a refund or a credit against that
certificateholder's U.S. federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
Regulations regarding the withholding and information reporting rules
discussed above were issued by the Treasury Department in October 1997. In
general, the regulations did not significantly alter the substantive withholding
and information reporting requirements but rather unified the prior
certification procedures and forms and clarified reliance standards. In
addition, the regulations permit the shifting of primary responsibility for
withholding to financial intermediaries acting on behalf of beneficial owners.
The regulations are generally effective for payments made after December 31,
2000, although there are transition rules. Under the regulations, new forms
generally will have to be solicited from U.S. Certificateholders earlier than
replacements for expiring existing forms otherwise would have been solicited.
You should consult your tax adviser about the impact, if any, of the
regulations.
STATE TAXATION
In the opinion of Palmer & Dodge LLP, interest on the certificates and any
profit on the sale of the certificates are exempt from Massachusetts personal
income taxes, and the certificates are exempt from Massachusetts personal
property taxes. Palmer & Dodge LLP has not opined and will not opine as to other
Massachusetts tax consequences arising with respect to the certificates. You
should be aware, however, that the certificates are included in the measure of
Massachusetts estate and inheritance taxes and the certificates and the interest
on the certificates are included in the measure of Massachusetts corporate
excise and franchise taxes. This discussion does not address the taxation of the
trust or the tax consequences of the purchase, ownership or disposition of the
certificates under any state or local tax law other than that of The
Commonwealth of Massachusetts. You should consult your tax adviser regarding
state and local tax consequences.
ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose restrictions and requirements
on Plans, and on persons who are fiduciaries for Plans in connection with the
investment of Plan Assets. Generally, any person who has discretionary authority
or control over the management or disposition of Plan Assets, and any person who
provides investment advice about Plan Assets for a fee or other consideration,
is a fiduciary for those Plan Assets. For those Plans that are governed by
ERISA, ERISA imposes on Plan fiduciaries specific fiduciary responsibilities,
including investment prudence, diversification and investing according to the
documents governing the Plan.
PROHIBITED TRANSACTIONS
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and Parties in Interest, unless a statutory or
administrative exemption applies. Parties in Interest and Plan fiduciaries that
participate in a prohibited transaction may be
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liable for penalties under ERISA and/or excise taxes imposed under Section 4975
of the Code. These prohibited transactions generally are described in Section
406 of ERISA and Section 4975 of the Code.
Some governmental and church plans are not governed by ERISA or Section
4975 of the Code. The prohibited transaction provisions described above do not
apply to these plans. If a plan is exempt from taxation under Section 501(a) of
the Code as a plan described in Section 401(a) of the Code, however, it may lose
its tax exemption if it engages in a prohibited transaction described in Section
503 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
certificates on behalf of a Plan or with Plan Assets should determine whether
the purchase is consistent with its fiduciary duties and whether the purchase
would constitute or result in a non-exempt prohibited transaction under ERISA
and/or Section 4975 of the Code because Boston Edison, the certificate trustee,
the underwriters or any of their affiliates is a Party in Interest under the
investing plan and may be deemed to be benefiting from the issuance of the
certificates. In particular, the certificates may not be purchased with Plan
Assets if any of Boston Edison, the certificate trustee, the underwriters or any
of their affiliates:
- has investment or administrative discretion over the Plan Assets used to
effect the purchase;
- has authority or responsibility to give, or regularly gives, investment
advice regarding the Plan Assets, for a fee and under an agreement or
understanding that the advice will serve as a primary basis for
investment decisions for the Plan Assets, and will be based on the
particular investment needs of the Plan; or
- unless exemptive relief applies under a Department of Labor Prohibited
Transaction Exemption, is an employer maintaining or contributing to the
Plan.
Each purchaser of the certificates will be deemed to have represented and
warranted that its purchase of the certificates or any interest in the
certificates does not violate the limitations described above.
PLAN ASSET REGULATION
The certificates are likely to be treated as "equity interests" in the
trust under a plan asset regulation issued by the Department of Labor, which
provides that beneficial interests in a trust are equity interests. Generally,
the plan asset regulation provides that if Plans acquire a "significant" equity
interest in an entity, the entity may be considered to hold Plan Assets.
Therefore, if the certificates are purchased with Plan Assets, the assets of the
trust may be deemed Plan Assets of the investing Plans which, in turn, would
subject the trust and its assets to the fiduciary responsibility provisions of
ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the
Code. Even though only minimal administrative activity is expected at the trust
level, it is likely that the trust will interact with Boston Edison, the
certificate trustee, the underwriters and their affiliates. If Boston Edison,
the certificate trustee, the underwriters or any of their affiliates is a Party
in Interest to a Plan that purchases certificates, violations of the prohibited
transaction rules could occur at the trust level, unless a statutory or
administrative exemption applies or an exception applies under the plan asset
regulation.
Before purchasing any certificates, a Plan fiduciary, other Plan investor
or Party in Interest should consider whether a prohibited transaction might
arise by reason of any relationship between the investing Plan and Boston
Edison, the certificate trustee, the underwriters or any of their affiliates.
The Department of Labor has issued some class
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exemptions that may afford exemptive relief for otherwise prohibited
transactions arising from the purchase or holding of the certificates, including
Department of Labor Prohibited Transaction Exemptions 96-23 (Class Exemption for
Plan Asset Transactions Determined by In-House Investment Managers); 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts); 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds); 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts); and 84-14 (Class
Exemption for Plan Assets Transactions Determined by Independent Qualified
Professional Asset Managers). A purchaser of the certificates should be aware,
however, that even if the conditions specified in one or more of the above
exemptions are met, the scope of the relief provided by the exemption might not
cover all acts which might be construed as prohibited transactions.
Plans would not have a "significant" equity interest in the trust, and
application of the plan asset regulation would be avoided, if Benefit Plan
Investors (as defined in the plan asset regulation) own less than 25% of each
class of equity in the trust. However, there is no commitment to limit purchases
of certificates by Benefit Plan Investors in this manner.
CONCLUSION
In light of the foregoing, Plan fiduciaries or other Plan investors
considering whether to purchase the certificates with Plan Assets of any Plan
and Parties in Interest should consult their own legal advisors regarding
whether the trust assets would be considered Plan Assets, the consequences that
would apply if the trust assets were considered Plan Assets, and the
availability of exemptive relief from the prohibited transaction rules or an
exception under the Plan Asset Regulation. Fiduciaries and other Plan investors
should also consider the fiduciary standards under ERISA or other applicable law
in the context of the Plan's particular circumstances before authorizing an
investment of Plan Assets in the certificates. Among other factors, fiduciaries
and other Plan investors should consider whether the investment:
- satisfies the diversification requirement of ERISA or other applicable
law;
- complies with the Plan's governing instruments; and
- is prudent in light of the "Risk Factors" and other factors discussed in
this prospectus.
USE OF PROCEEDS
The trust will use the net proceeds received from the sale of the
certificates to purchase the notes from the note issuer. The note issuer will
use the net proceeds from the sale of the notes to purchase the transition
property from the seller and to pay the costs of issuing the notes and the
certificates. The seller will use the net proceeds from the sale of the
transition property for general corporate purposes and to repay outstanding debt
and reduce the amount of outstanding equity.
PLAN OF DISTRIBUTION
The trust may sell the certificates to or through the underwriters named in
the prospectus supplement by a negotiated firm commitment underwriting and
public reoffering by the underwriters or another underwriting arrangement that
may be specified in the prospectus supplement or the trust may offer or place
the certificates either directly or through agents. The note issuer and the
trust intend that certificates will be offered
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through these various methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
certificates may be made through a combination of these methods.
The distribution of certificates may be effected 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 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 certificates, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell certificates to dealers at prices less a concession.
Underwriters may allow, and the dealers may reallow, a concession to other
dealers. Underwriters, dealers and agents that participate in the distribution
of the certificates 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
certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act. We will identify any of these underwriters or agents,
and describe any compensation we give them, in the prospectus supplement.
LEGAL MATTERS
Certain legal matters relating to the notes will be passed on by Ropes &
Gray, Boston, Massachusetts, counsel to the seller and the note issuer. Certain
legal matters relating to the certificates and certain federal and state income
tax consequences of the issuance of the certificates will be passed upon by
Palmer & Dodge LLP, Boston, Massachusetts, counsel to the trust, and Krokidas &
Bluestein LLP, Boston, Massachusetts, co-counsel to the trust. Certain legal
matters relating to the certificates will be passed upon by Richards, Layton &
Finger, P.A., Wilmington, Delaware, Delaware counsel to the trust, and by Brown
& Wood LLP, San Francisco, California, counsel to the underwriters.
EXPERTS
The financial statements of BEC Funding LLC as of April 30, 1999 and for
the period from January 29, 1999 (date of inception) to April 30, 1999 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.
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GLOSSARY
As used in this prospectus the terms below have the following meanings:
CEDEL -- Cedel Bank, a societe anonyme incorporated under the laws of
Luxembourg as a professional directory
CEDEL Participants -- participating organizations in CEDEL
Code -- The Internal Revenue Code of 1986
Cooperative -- Euroclear Clearance System, S.C., a Belgium cooperative
corporation
Definitive Certificates -- certificates issued in fully registered,
certificated form
DTC -- The Depository Trust Company
ERISA -- the Employee Retirement Income Security Act of 1974
Euroclear Operator or Euroclear -- Morgan Guaranty Trust Company of New
York, Brussels, Belgium office
Euroclear Participants -- participants of the Euroclear System
Indirect Participants -- banks, brokers, dealers, trust companies and other
entities that clear through or maintain a custodial relationship with a DTC
participant either directly or indirectly
Moody's -- Moody's Investors Service, Inc.
Non-U.S. Certificateholder -- a beneficial owner of a certificate that is
not a U.S. Certificateholder
Participant -- an organization that participates in DTC
Parties in Interest -- "parties in interest" under ERISA and "disqualified
persons" under the Code
Plan Assets -- assets of Plans
Plans -- employee benefit plans and other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and some collective
investment funds and insurance company general or separate accounts in which the
assets of these plans, accounts or arrangements are invested
RTC charge -- a portion, which may become all, of Boston Edison's
transition charge, authorized by the financing order to recover the transition
costs specified in the financing order
Special Distribution Date -- the later of the date on which any Special
Payment is confirmed to be received by the certificate trustee, or the date the
Special Payment is scheduled to be delivered to the certificate trustee
Special Payment -- any payment received by the certificate trustee
following a payment default on any class of notes
S&P -- Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc.
Terms and Conditions -- the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgium law
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U.S. Certificateholder -- a beneficial owner of a certificate that is a
U.S. Person
U.S. Person --
- a citizen or resident of the United States;
- a corporation (or entity treated as a corporation for tax purposes)
created or organized in the United States, or under the laws of the
United States or of any state (including the District of Columbia);
- a partnership (or entity treated as a partnership for tax purposes)
organized in the United States, or under the laws of the United States
or of any state (including the District of Columbia) unless provided
otherwise by future Treasury regulations;
- an estate the income of which is includible in gross income for U.S.
Federal income tax purposes regardless of its source; or
- a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. Persons have the authority to control all substantial
decisions of the trust.
Withholding Agent -- the last U.S. Person in the chain of payment of
interest payments prior to payment to a non-U.S. Certificateholder
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants........................... F-2
Statement of Operations for the period from January 29, 1999
(date of inception) to April 30, 1999..................... F-3
Balance Sheet as of April 30, 1999.......................... F-4
Statement of Changes in Member's Equity for the period from
January 29, 1999 (date of inception) to April 30, 1999.... F-5
Statement of Cash Flows for the period from January 29, 1999
(date of inception) to April 30, 1999..................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Member of BEC Funding LLC:
In our opinion, the accompanying balance sheet and the related statements
of operations, changes in member's equity and cash flows present fairly, in all
material respects, the financial position of BEC Funding LLC (the "Company") at
April 30, 1999, and the results of its operations and its cash flows for the
period from January 29, 1999 (date of inception) to April 30, 1999, 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 on
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.
LOGO
June 7, 1999
F-2
<PAGE> 97
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 29, 1999 (DATE OF INCEPTION) TO APRIL 30, 1999
<TABLE>
<S> <C>
Revenues.................................................... $ 0
Operating expenses..................................... 0
----
Operating income (loss)................................ 0
Interest expense, net....................................... 10
Bank Fees................................................... 71
----
Net loss.......................................... $(81)
====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 98
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash................................................... $ 651
Members' contribution receivable -- due from
affiliate............................................. 1,000
----------
Total current assets.............................. 1,651
Debt issuance costs.................................... 1,223,069
----------
Total Assets...................................... $1,224,720
==========
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Due to affiliates...................................... 1,223,801
----------
Total current liabilities......................... 1,223,801
Commitments and contingencies (Note D)
Member's equity............................................. 919
----------
Total Liabilities and Member's Equity............. $1,224,720
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 99
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE PERIOD FROM JANUARY 29, 1999 (DATE OF INCEPTION) TO APRIL 30, 1999
<TABLE>
<S> <C>
Member's equity at January 29, 1999......................... $ 0
Initial member's contributions.............................. 1,000
Net loss.................................................... (81)
------
Member's equity at April 30, 1999........................... $ 919
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 100
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 29, 1999 (DATE OF INCEPTION) TO APRIL 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................... $ (81)
Changes in assets and liabilities
Members' contribution receivable - due from
affiliate............................................. (1,000)
Debt issuance costs.................................... (1,223,069)
Due to affiliates...................................... 1,222,801
-----------
Net cash used by operating activities.................. (1,349)
===========
Cash flows from investing activities:
Member's contributions................................. 1,000
-----------
Net cash used in investing activities.................. 1,000
-----------
Cash flows from financing activities:
Loan from BEC Energy........................................ 1,000
-----------
Net cash provided by financing activities................... 1,000
-----------
Net increase in cash........................................ 651
Cash at beginning of period................................. 0
-----------
Cash at end of period....................................... $ 651
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 101
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO 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 services. BEC Funding LLC is a wholly owned subsidiary of BECo, which
is a wholly owned subsidiary of BEC Energy.
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 will acquire from BECo. The purchase price of
such transition property will be 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
Chapter 164 of the Acts of the Massachusetts General Court of 1997 (the
"Electric Industry Restructuring Act"). Ultimately, the assets of BEC Funding
LLC will consist primarily of transition property acquired from BECo and other
collateral for the Acquisition Indebtedness.
It is expected that both its own organizational documents and debt
covenants relating to Acquisition Indebtedness, when incurred, will 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 will also require that BEC Funding LLC be operated
in a manner intended to reduce the likelihood that it would be consolidated in
BECo's bankruptcy estate if BECo 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 BEC Energy, and the transition property and
other debt collateral will not be an asset of BECo nor BEC Energy. BEC Funding
LLC has had no significant operations to date. BEC Funding LLC has not acquired
the transition property, nor has the Acquisition Indebtedness been issued to
date.
BASIS OF PRESENTATION
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.
As of April 30, 1999, BEC Funding LLC has relied on a $1,000 loan from BEC
Energy, an affiliated entity, to fund its initial operations. Alternative
sources of funding will need to be obtained either through external debt or
additional contributions by members for future operations. The DTE, as part of
the regulatory review process for this proposed issuance of debt, has approved
future funding by BECo of BEC Funding LLC.
F-7
<PAGE> 102
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INCOME TAXES
BEC Funding LLC is organized as a single member limited liability company.
Income or losses will be passed through to BECo, and accordingly there is no
provision for income taxes.
DEFERRED COSTS
Debt issuance costs associated with the proposed debt issuance incurred by
BECo and billed to BEC Funding LLC are deferred on the accompanying financial
statements and are expected to be amortized ratably over the life of the
underlying securities.
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 recent guidelines issued by the DTE relative to transactions between
regulated entities and unregulated affiliated entities, as specified in more
detail in DTE Order 98-118. BECo will also act as servicer of transition
property pursuant to a contract with BEC Funding LLC.
In February 1999, BEC Energy issued a $1,000 loan to BEC Funding LLC. The
note matures on December 31, 1999, with simple interest accruing on the
outstanding amount at the annual rate of 5.34%.
D. COMMITMENTS AND CONTINGENCIES
The issuance of the proposed debt and transfer of the transition property
from BECo to BEC Funding LLC is contingent upon BECo's sale of the Pilgrim
Nuclear Power Station generating facility. This sale is expected to take place
in July 1999.
F-8
<PAGE> 103
[This page intentionally left blank]
<PAGE> 104
[This page intentionally left blank]
<PAGE> 105
LOGO
$[ ] RATE REDUCTION CERTIFICATES
MASSACHUSETTS RRB
SPECIAL PURPOSE TRUST BEC-1
ISSUER OF THE CERTIFICATES
CLASS A-1 [$ ]
CLASS A-2 [$ ]
CLASS A-3 [$ ]
CLASS A-4 [$ ]
CLASS A-5 [$ ]
BEC FUNDING LLC
ISSUER OF NOTES
BOSTON EDISON COMPANY
SELLER AND SERVICER
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
BANC ONE CAPITAL MARKETS, INC.
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
BNY CAPITAL MARKETS, INC.
CIBC WORLD MARKETS
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
STATE STREET CAPITAL MARKETS, LLC
----------------------------
Through and including , 1999 (the 90th day after the date of
this prospectus supplement and the accompanying prospectus), all dealers
effecting transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus supplement and the
accompanying prospectus. This is in addition to a dealer's obligation to deliver
a prospectus supplement and the accompanying prospectus when acting as an
underwriter and when offering an unsold allotment or subscription.
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
Securities and Exchange Commission Registration
Fee.............................................. $ 201,550
Blue Sky Fees and Expenses......................... 5,000
Printing and Engraving Expenses.................... 325,000
Trustees' Fees and Expenses........................ 60,000
Accountants' Fees and Expenses..................... 75,000
Legal Fees and Expenses............................ 2,850,000
Rating Agency Fees................................. 510,000
Public Agency Fees................................. 145,000
Department of Telecommunications and Energy
filing........................................... 110,100
Miscellaneous Fees and Expenses.................... 250,000
----------
Total.................................... $4,531,650
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 other person from and against
any and all claims and demands whatsoever.
Sections 10.01 and 10.02 of the Limited Liability Company Agreement of the
note issuer provide that, to the fullest extent permitted by applicable law, the
note issuer shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
actions by or in the right of the note issuer to procure a judgment in its
favor) by reason of the fact that he is or was a director, manager, officer,
employee or agent of the note issuer, or is or was serving at the request of the
note issuer 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,
proceeding or in enforcing such person's right to indemnification hereunder, 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 note issuer, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the note issuer unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of
II-1
<PAGE> 107
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the Court of
Chancery or such other court shall deem proper. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the note issuer, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
BEC Funding LLC has directors' and officers' liability insurance policies
in force insuring directors and officers of BEC Funding LLC.
Section 67 of the Massachusetts Business Corporation Law provides that a
corporation may indemnify its directors, officers, employees and other agents
and persons who serve at its request as directors, officers, employees or other
agents of another organization to the extent specified in the corporation's
Articles of Organization, or in a Bylaw or vote adopted by a majority of the
stockholders.
Under Section 9 of its Bylaws, Boston Edison Company indemnifies, to the
extent legally permissible, each of its directors and officers (including
persons who serve at its request as directors, officers or trustees of another
organization in which it has any interest, as a shareholder, creditor or
otherwise) against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which such person may be involved or with which such person may be
threatened, while in office or thereafter, by reason of such person's being or
having been such a director, officer or trustee, except with respect to any
matter as to which such person shall have been adjudicated in any proceeding not
to have acted in good faith in the reasonable belief that his or her action was
in the best interests of the corporation. The note issuer believes that the
officers and the non-independent directors of the note issuer are serving at the
request of Boston Edison Company and are therefore entitled to such indemnity
from Boston Edison Company.
Boston Edison Company has directors' and officers' liability insurance
policies in force insuring directors and officers of Boston Edison Company and
its subsidiaries.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.+
3.1 Certificate of Formation of the Registrant.+
3.2 Limited Liability Company Agreement of the Registrant.+
4.1 Form of Note Indenture.+
4.2 Form of Certificate Indenture.+
4.3 Form of Declaration of Trust.+
4.4 Form of Note.+
4.5 Form of Rate Reduction Certificate.+
</TABLE>
II-2
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
5.1 Opinion of Ropes & Gray with respect to legality of the
Notes.
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to
legality of the Rate Reduction Certificates.
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to
due authorization of the Notes by the Registrant.
8.1 Opinion of Palmer & Dodge LLP with respect to federal and
state tax matters.
10.1 Form of Transition Property Purchase and Sale Agreement.+
10.2 Form of Transition Property Servicing Agreement.+
10.3 Form of Note Purchase Agreement.+
10.4 Form of Administration Agreement.+
10.5 Form of Fee and Indemnity Agreement.+
23.1 Consent of Ropes & Gray (contained in its opinion to be
filed as Exhibit 5.1).
23.2 Consent of Palmer & Dodge LLP (contained in its opinions to
be filed as Exhibits 8.1 and 99.3).
23.3 Consent of Richards, Layton & Finger, P.A. (contained in its
opinions to be filed as Exhibits 5.2 and 5.3).
23.4 Consent of PricewaterhouseCoopers LLP.
25.1 Statement of Eligibility and Qualification of Note Trustee
on Form T-1.+
25.2 Statement of Eligibility and Qualification of Certificate
Trustee on Form T-1.+
27.1 Financial Data Schedule.+
99.1 Application for Financing Order.+
99.2 Financing Order.+
99.3 Opinion of Palmer & Dodge LLP with respect to impairment of
contracts.
</TABLE>
- -------------------------
+ Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant, on behalf of Massachusetts RRB Special Purpose
Trust BEC-1, hereby undertakes as follows:
(a)(1) 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
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of 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 twenty percent change in the maximum
aggregate 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
II-3
<PAGE> 109
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (a)(1)(i) and (a)(1)(ii) will
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 the 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 from registration by means of a post-effective amendment any
of the securities 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 Registrant'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 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 directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has 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 director, officer or controlling
person 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 such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes 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 thereof.
II-4
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Pre-Effective
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, The Commonwealth
of Massachusetts, on this 21st day of July, 1999.
BEC FUNDING LLC,
as Registrant
By: EMILIE G. O'NEIL
---------------------------------------
Name: Emilie G. O'Neil
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ROBERT J. WEAFER, JR. President and Director (principal July 21, 1999
- ------------------------------------------ executive officer)
Robert J. Weafer, Jr.
EMILIE G. O'NEIL Vice President, Treasurer and Director July 21, 1999
- ------------------------------------------ (principal financial and accounting
Emilie G. O'Neil officer)
JAMES JUDGE Director July 21, 1999
- ------------------------------------------
James Judge
</TABLE>
II-5
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
5.1 Opinion of Ropes & Gray with respect to legality of the
Notes.
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to
legality of the Rate Reduction Certificates.
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to
due authorization of the Notes by the Registrant.
8.1 Opinion of Palmer & Dodge LLP with respect to federal and
state tax matters.
23.1 Consent of Ropes & Gray (contained in its opinion filed as
Exhibit 5.1).
23.2 Consent of Palmer & Dodge LLP (contained in its opinions
filed as Exhibits 8.1 and 99.3).
23.3 Consent of Richards, Layton & Finger, P.A. (contained in its
opinions filed as Exhibits 5.2 and 5.3).
23.4 Consent of PricewaterhouseCoopers LLP.
99.3 Opinion of Palmer & Dodge LLP with respect to impairment of
contracts
</TABLE>
<PAGE> 1
EXHIBIT 5.1
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
Fax: (617) 951-7050
July 20, 1999
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Re: BEC FUNDING LLC NOTES
Ladies and Gentlemen:
This opinion is delivered to you in connection with a registration
statement on Form S-3 (No. 333-74671) (the "REGISTRATION STATEMENT"), filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, for the registration of $725,000,000 aggregate principal amount of
notes (the "NOTES") of BEC Funding LLC, a Delaware limited liability company
(the "NOTE ISSUER"). The Notes will be issuable under a Note Indenture (the
"NOTE INDENTURE") to be entered into between you and the note trustee named
therein.
We have acted as your counsel in connection with your proposed issuance
and sale of the Notes. We have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents and records and have
made such investigation of fact and such examination of law as we have deemed
appropriate in order to enable us to render the opinions set forth herein. In
conducting such investigation, we have relied without independent verification
upon certificates of your officers, public officials and other appropriate
persons.
In rendering the opinion set forth below, we have relied without
independent investigation upon the opinion to you dated the date hereof of
Richards, Layton & Finger, P.A. with respect to certain matters governed by
Delaware law.
The opinion expressed herein is limited to matters governed by the laws
of The Commonwealth of Massachusetts.
Based upon the foregoing and subject to the additional qualifications
set forth below, we are of the opinion that when the Note Indenture has been
duly executed and delivered by the Note Issuer and each of the Notes has been
duly executed, authenticated and delivered in accordance with the provisions of
the Note Indenture against payment of the purchase price therefor, each of the
Notes will constitute (subject to the qualifications in the unnumbered
<PAGE> 2
paragraphs at the end hereof) the legal, valid and binding obligation of the
Note Issuer entitled to the benefits of the Note Indenture.
Our opinion set forth above that the each of the Notes will constitute
the legal, valid and binding obligation of the Note Issuer entitled to the
benefits of the Note Indenture, is subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application
affecting the rights and remedies of creditors and secured parties, and (ii)
general principles of equity, regardless of whether applied in proceedings in
equity or at law.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in connection
with the offer and sale of the Notes while the Registration Statement is in
effect.
Very truly yours,
/s/ ROPES & GRAY
Ropes & Gray
<PAGE> 1
Exhibit 5.2
[Letterhead of Richards, Layton & Finger]
July 20, 1999
Boston Edison Company
800 Boylston Street
Boston, MA 02199
BEC Funding LLC
800 Boylston Street
35th Floor
Boston, MA 02199
Massachusetts RRB Special Purpose
Trust BEC-1
c/o The Bank of New York (Delaware)
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Re: MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1 RATE REDUCTION
CERTIFICATES
Ladies and Gentlemen:
We have acted as special Delaware counsel for Massachusetts RRB
Special Purpose Trust BEC-1, a Delaware business trust (the "Trust"), 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:
<PAGE> 2
Boston Edison Company and
Massachusetts RRB Special Purpose
Trust BEC-1
July 20, 1999
Page 2
(a) A form of the Certificate of Trust of the Trust (the
"Certificate"), to be filed in the office of the
Secretary of State of the State of Delaware (the
"Secretary of State");
(b) A form of Declaration of Trust of the Trust (the
"Declaration"), among Massachusetts Development Finance
Agency and the Massachusetts Health and Educational
Facilities Authority, acting jointly thereunder as
settlors pursuant to Chapter 164 of the Massachusetts
Acts of 1997 (each, an "Agency," and, collectively, the
"Agencies") and The Bank of New York (Delaware), a
Delaware banking corporation, as trustee (the "Delaware
Trustee");
(c) The Registration Statement (the "Registration Statement")
on Form S-3, including a prospectus (the "Prospectus"),
relating to, among other things, the Massachusetts RRB
Special Purpose Trust BEC-1 Rate Reduction Certificates
of the Trust representing fractional undivided beneficial
interests in the corresponding class of Notes, all monies
due and to become due under such corresponding class of
Notes (each a "Security" and collectively the
"Securities"), filed by BEC Funding LLC, a Delaware
limited liability company, with the Securities and
Exchange Commission (the "SEC") on March 19, 1999, as
amended by Pre-Effective Amendment No. 1 thereto filed
with the SEC on May 27, 1999, as further amended by
Pre-Effective Amendment No. 2 thereto filed with the SEC
on July 14, 1999 and as further amended by Pre-Effective
Amendment No. 3 thereto to be filed with the SEC on or
about July 20, 1999; and
(d) A form of the Certificate Indenture, to be entered into
among the Trust, the Delaware Trustee and The Bank of New
York, as certificate trustee (the "Certificate Trustee"),
which supplements and forms a part of the Declaration,
relating to the issuance of the Securities (the
Declaration and the Certificate Indenture being
collectively referred to as the "Governing Instrument").
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Governing Instrument.
We have not reviewed any documents other than the documents listed
above, which we believe are all the documents necessary or appropriate for us to
have considered for purposes of rendering the opinions stated herein. We have
conducted no independent factual investigation of our own but rather have relied
solely upon the foregoing documents, the
<PAGE> 3
Boston Edison Company and
Massachusetts RRB Special Purpose
Trust BEC-1
July 20, 1999
Page 3
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 Governing
Instrument will constitute the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, that the Certificate will be in full
force and effect and will not be amended and that the Governing Instrument will
be in full force and effect and will not be amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, (iv) 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, (v)
the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Security is
to be issued by the Trust (collectively, the "Security Holders") of a
certificate for such Security and the payment for the Security acquired by it,
in accordance with the Governing Instrument and the Prospectus, and (vii) that
the Securities will be issued and sold to the Security Holders in accordance
with the Governing Instrument and the Prospectus. We have not participated in
the preparation of the Registration Statement or the Prospectus and assume no
responsibility for their 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 which 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 the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
<PAGE> 4
Boston Edison Company and
Massachusetts RRB Special Purpose
Trust BEC-1
July 20, 1999
Page 4
1. Upon the filing of the Certificate with the Secretary of State,
the Trust will be duly created and will be validly existing in good standing as
a business trust under the Delaware Business Trust Act, 12 Del. C. ss. 3801, et
seq..
2. When issued and sold in accordance with the terms of the
Governing Instrument, the Securities will represent valid, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust,
entitled to the benefits of the Governing Instrument. We note that the Security
Holders may be obligated, pursuant to the Declaration (i) to provide indemnity
and/or security in connection with and pay taxes or governmental charges arising
from transfers or exchanges of Securities certificates and the issuance of
replacement Securities certificates, and (ii) to provide security or indemnity
in connection with requests of or directions to the Trustees to exercise their
rights and powers under the Governing Instrument.
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 reference to us as local counsel under the heading "Legal
Matters". 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,
DKD/jmb /s/ RICHARDS, LAYTON & FINGER
<PAGE> 1
Exhibit 5.3
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
July 20, 1999
BEC Funding LLC
800 Boylston Street, 35th Floor
Boston, Massachusetts 02199
Re: BEC Funding LLC - Legality of Notes
-----------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Boston Edison Company, a
Massachusetts corporation ("Boston Edison"), and BEC Funding LLC, a Delaware
limited liability company (the "Company"), 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 executed or
conformed counterparts, or copies otherwise proved to our satisfaction, of the
following:
(a) The Certificate of Formation of the Company, dated January 29,
1999 (the "LLC Certificate"), as filed in the office of the Secretary of State
of the State of Delaware (the "Secretary of State") on January 29, 1999;
(b) The Limited Liability Company Agreement of the Company, dated as
of March 10, 1999 (the "LLC Agreement"), executed by Boston Edison, as the sole
member of the Company;
<PAGE> 2
BEC Funding LLC
July 20, 1999
Page 2
(c) The form of Management Agreement, to be executed by each member
of the Management Committee of the Company, including the Independent Directors;
(d) The Registration Statement (the "Registration Statement") on Form
S-3, including a prospectus (the "Prospectus"), filed by the Company with the
Securities and Exchange Commission (the "SEC") on March 19, 1999, as amended by
Pre-Effective Amendment No. 1 thereto filed by the Company with the SEC on May
27, 1999, as further amended by Pre-Effective Amendment No. 2 thereto filed by
the Company with the SEC on July 14, 1999, and as further amended by
Pre-Effective Amendment No. 3 thereto to be filed by the Company with the SEC on
or about July 20, 1999;
(e) The form of Note Indenture, to be executed by the Company and The
Bank of New York, as note trustee, attached as an exhibit to the Registration
Statement pursuant to which the Notes are to be issued;
(f) The form of Note Purchase Agreement, to be executed by the
Company and Massachusetts RRB Special Purpose Trust BEC-1, a Delaware business
trust; and
(g) A Certificate of Good Standing for the Company, dated July 20,
1999, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the LLC Agreement. The documents listed in paragraphs (e) and
(f) above are hereinafter collectively referred to as the "Transaction
Documents."
We have not reviewed any documents other than the documents listed
above, which we believe are all the documents necessary or appropriate for us to
have considered for purposes of rendering 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 that (i)
all signatures on documents examined by us are genuine, (ii) all documents
submitted to us as originals are authentic, and (iii) all documents submitted to
us as copies conform with the original copies of those documents.
<PAGE> 3
BEC Funding LLC
July 20, 1999
Page 3
For purposes of this opinion, we have assumed that the LLC Agreement
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the admission of members to,
and the creation, operation, management and termination of, the Company, and
that the LLC Agreement and the LLC Certificate have not been amended, except to
the extent provided in paragraph 1 below, the due organization, due formation or
due creation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its organization, formation or creation and the legal capacity of
natural persons who are signatories to the documents examined by us, except to
the extent provided in paragraph 2 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 except to the extent
provided in paragraph 3 below, the due authorization, execution and delivery by
all parties thereto of all documents examined by us. 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 which 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 the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Company has been duly formed and is validly existing in good
standing as a limited liability company under the laws of the State of Delaware.
2. Under the Delaware Limited Liability Company Act, 6 DEL. C. ss.
18-101, et seq. (the "LLC Act") and the LLC Agreement, the Company has all
necessary limited liability company power and authority to execute and deliver
the Transaction Documents and issue the Notes, and to perform its obligations
under the Transaction Documents and the Notes.
3. Under the LLC Act and the LLC Agreement, the execution and
delivery by the Company of the Transaction Documents and the Notes, and the
performance by the Company of its obligations under the Transaction Documents
and the
<PAGE> 4
BEC Funding LLC
July 20, 1999
Page 4
Notes, has been duly authorized by all necessary limited liability company
action on the part of the Company.
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. 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
<PAGE> 1
EXHIBIT 8.1
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
July 19, 1999
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York (Delaware), as Delaware Trustee
c/o The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention: Asset Backed Finance Unit
Re: Massachusetts RRB Special Purpose Trust BEC-1
Registration Statement on Form S-3 (File No. 333-74671)
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
preparation of the Registration Statement on Form S-3 (File No. 333-74671) (the
"Registration Statement") relating to your issuance of up to $725,000,000
aggregate principal amount of Rate Reduction Certificates (the "Certificates").
The Registration Statement has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act"). As set forth in the Registration Statement, the Certificates will
be issued pursuant to a Certificate Indenture (the "Certificate Indenture") to
be executed hereafter by and between you and The Bank of New York, as
Certificate Trustee (the "Certificate Trustee").
We have examined the prospectus and the form of prospectus supplement
contained in the Registration Statement (collectively, the "Prospectus") and
such other documents, records and instruments as we have deemed necessary for
the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that the
Certificate Indenture will be duly authorized by all necessary corporate action
on your part and on the part of each other party thereto and will be duly
executed and delivered by you and each other party thereto substantially in the
applicable form filed or incorporated by reference as an exhibit to the
Registration Statement, that the Certificates will be duly executed and
delivered in substantially the forms set forth in the Certificate Indenture
filed or incorporated by reference as an exhibit to the Registration Statement,
and that the Certificates will be sold as described in the Registration
Statement.
As your counsel, we are providing this opinion to advise you with
respect to certain federal income tax and Massachusetts state tax aspects of the
proposed issuance of the Certificates pursuant to the Certificate Indenture that
are described in the discussions of selected
<PAGE> 2
Massachusetts RRB Special Purpose Trust BEC-1
c/o The Bank of New York (Delaware), as Delaware Trustee
July 19, 1999
Page 2
federal income tax and Massachusetts state tax consequences for holders of the
Certificates that appear under the headings "Federal Income Tax Consequences"
and "State Taxation" in the Prospectus forming a part of the Registration
Statement. Such discussions do not purport to address all possible federal
income tax or Massachusetts state tax ramifications of the proposed issuance of
the Certificates.
Based upon and subject to the foregoing, the discussion contained in
the Prospectus forming part of the Registration Statement under the headings
"Federal Income Tax Consequences" and "State Taxation" expresses our opinion as
to the material federal income tax and Massachusetts state tax consequences to
holders of the Certificates.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion as
to the matters set forth herein relates only to the Certificates as of the date
hereof. This opinion does not address any issue of rate reduction bonds or
certificates or other securities, other than the Certificates, whether issued by
you or any other entity and whether or not issued for the benefit of Boston
Edison Company or any other utility or other entity.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Federal Income Tax Consequences" and "State Taxation" in the Prospectus forming
a part of the Registration Statement, without implying, admitting or conceding
that we are "experts" within the meaning of the 1933 Act or the Rules and
Regulations of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
We disclaim any obligation to update this opinion letter for events
occurring or coming to our attention after the date hereof.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to this inclusion in this registration statement of BEC
Funding LLC (BEC) on Pre-Effective Amendment No. 3 to Form S-3 (File No.
333-74671) of our report dated June 7, 1999, on our audit of the financial
statements of BEC as of April 30, 1999 and for the period from January 29, 1999
(date of inception) to April 30, 1999. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
July 21, 1999
<PAGE> 1
EXHIBIT 99.3
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
July 19, 1999
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
55 Water Street, 40th Floor
New York, New York 10041-0003
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Fitch IBCA, Inc.
1 State Street Plaza
New York, New York 10004
Re: Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction
Certificates
Ladies and Gentlemen:
We have acted as special counsel to Massachusetts RRB Special Purpose
Trust BEC-1 (the "Trust"), a business trust established under the Delaware
Business Trust Act (Chapter 38 of Title 12 of the Delaware Code, 12 DEL. C., ss.
3801 ET SEQ.) pursuant to a Declaration of Trust (the "Declaration of Trust") to
be executed hereafter, in connection with the proposed issuance by the Trust of
up to $725,000,000 principal amount of its Rate Reduction Certificates (the
"Certificates"). The Certificates will be issued pursuant to a Certificate
Indenture (the "Certificate Indenture") to be executed hereafter by and between
the Trust and The Bank of New York, as Certificate Trustee (the "Certificate
Trustee"). Upon issuance, the Certificates will represent fractional undivided
beneficial interests in corresponding Notes (the "Notes") purchased by the Trust
from BEC Funding LLC (the "SPE"), together with all payments on the Notes. The
Notes will be secured by a security interest in transition property (as
described below), together with certain other property of the SPE. Transition
property is a property right created under Chapter 164 of the Massachusetts Acts
of 1997 (the "Restructuring Legislation") pursuant to Financing Order, D.T.E.
98-118, issued by the Massachusetts Department of Telecommunications and Energy
(the "Department") on April 2, 1999, as supplemented by an Order on
Massachusetts Development Finance Agency's and Massachusetts Health and
Educational Facilities Authority's Motion for Clarification, D.T.E. 98-118-A,
issued by the Department on May 21, 1999, representing the irrevocable right of
Boston Edison Company ("BEC") or its assignee to receive a certain nonbypassable
charge (as adjusted from time to time)
<PAGE> 2
(the "RTC charge") from certain retail customers of BEC's distribution system.
We also have acted as special counsel to the Massachusetts Development Finance
Agency ("MassDevelopment") and the Massachusetts Health and Educational
Facilities Authority ("MHEFA," and, collectively with MassDevelopment, the
"Agencies"), as settlors of the Trust, in connection with the issuance of the
Certificates. The Trust has been designated by the Agencies as a "special
purpose trust" and the Certificates constitute "electric rate reduction bonds"
under the Restructuring Legislation. The holders of beneficial interests of the
Trust will be the Certificateholders. Capitalized terms used herein that are not
otherwise defined shall have the meanings assigned to them in the Certificate
Indenture.
We have assumed for the purpose of this opinion that the Certificates
and related documents are executed in substantially the form we have examined
and the transactions contemplated to occur under the Registration Statement
(referred to below) in fact occur in accordance with the terms thereof.
We have been asked whether the voters of The Commonwealth of
Massachusetts (the "Commonwealth"), through the exercise of their referendum or
initiative petition powers under the Massachusetts Constitution, could amend the
Restructuring Legislation or otherwise enact legislation that would have the
effect of substantially impairing the rights of the owners of the Certificates.
For the reasons and subject to the limitations set forth below, we do not
believe that the voters could do so.
The Restructuring Legislation provides, in pertinent part, that the
Commonwealth:
does hereby pledge and agree with the owners of transition property and
holders of electric rate reduction bonds that the commonwealth shall
not (i) alter the provisions of this chapter which make the transition
charges imposed by the financing order irrevocable and binding or (ii)
limit or alter the reimbursable transition costs amounts, transition
property, financing orders, and all rights thereunder until the
electric rate reduction bonds, together with the interest thereon, are
fully met and discharged. The financing entity as agent for the
commonwealth is hereby authorized to include this pledge and
undertaking for the commonwealth in these electric rate reduction
bonds.
M.G.L. c.164, ss. 1H(b)(3).
Section 10 of Article I of the United States Constitution provides, in
part, that "[n]o state shall ... pass any ... law impairing the obligation of
contracts" (the "Contract Clause"). The Contract Clause protects contractual
obligations from impairment by enactment of state law, including State
constitutional amendments. ALLIED STRUCTURAL STEEL CO. V. SPANNAUS, 438 U.S. 234
(1978); UNITED STATES TRUST CO. V. NEW JERSEY, 431 U.S. 1 (1977). Case law makes
clear that the principle precluding impairment of private contractual rights
applies equally to the state legislatures and to the electorate in the exercise
of its direct legislative powers. CONTINENTAL ILL. NAT'L BANK & TRUST CO. OF
CHICAGO V. WASHINGTON, 696 F.2d 692 (9th Cir. 1983). It is our opinion that,
upon issuance of the Certificates, by virtue of the statutory language quoted
above, the Restructuring Legislation will give rise to enforceable contractual
obligations for the benefit of the Certificateholders. Accordingly, any attempt
by the Commonwealth (or the voters) to repeal or amend the Restructuring
Legislation or enact other legislation that affects the transition property
2
<PAGE> 3
in a manner that prevents the payment of the Certificates on a timely basis in
our opinion would constitute a substantial impairment of the contractual rights
of the Certificateholders.
The courts, however, have held that the provisions of the Contract
Clause would not apply to state laws, the enactment of which constitute a
reasonable and necessary exercise of a state's sovereign power to serve an
important public purpose. SEE, E.G., UNITED STATES TRUST CO., SUPRA, 431 U.S. at
15, 19-20. There have been numerous cases in which legislative or popular
concerns with the burden of taxation or governmental charges have led to the
adoption of legislation reducing or eliminating taxes or charges that supported
bonds or other contractual obligations entered into by public instrumentalities.
Such concerns by themselves have not, however, been considered sufficient
justification for a substantial impairment of the security of such bonds or
obligations provided by the taxes or governmental charges involved. Instead,
case law demonstrates that the complete impairment of a municipal bond
obligation will not be tolerated, although a narrowly-tailored impairment may be
upheld if it can be shown to be necessary to advance an important public
interest, such as addressing the concerns of a "great public calamity." SEE,
E.G., HOME BLDG. & LOAN ASS'N V. BLAISDELL, 290 U.S. 398, 439-41 (1934). The
United States Supreme Court has consistently refused to permit complete
destruction of a governmental entity's obligation to repay a debt. As one
commentator has noted: "Despite the Supreme Court's general disinterest in the
Contract Clause, the Court has invalidated virtually every legislative
impairment of municipal or local indebtedness that has come before it in the
last fifty years." SEE Barton H. Thompson, Jr., "The History of the Judicial
Impairment `Doctrine' and Its Lessons for the Contract Clause," 44 Stan. L. Rev.
1373, 1463 (1992). Although the Certificates have certain characteristics not
found in more traditional municipal obligations, challenges to the Certificates
should nonetheless be treated by the courts with the same critical scrutiny
followed in prior binding precedent.
Based upon such case law, absent a demonstration by the Commonwealth
that an impairment is narrowly-tailored and is necessary to advance an important
public interest, such as a "great public calamity," it is our opinion that
neither the Commonwealth nor the electorate through its referendum or initiative
powers could repeal or amend the Restructuring Legislation or take any action,
or refuse to take any action required by the Commonwealth under its pledge and
agreement with the Certificateholders (described above), if such repeal or
amendment, or such action or inaction, would substantially impair the rights of
the Certificateholders.
The opinions expressed above are based upon existing case law (none of
which addresses the specific facts presented herein), and do not constitute a
guarantee of the outcome of any particular litigation. Moreover, there can be no
assurance that, through the legislative or initiative process, a repeal or an
amendment of the Restructuring Legislation would not be approved. In such an
event, costly and time consuming litigation may ensue, adversely affecting, at
least temporarily, the price and liquidity of the Certificates.
We consent to the filing of this opinion as an exhibit to the SPE's
Registration Statement on Form S-3 (Registration No. 333-74671), to the use of
our name wherever appearing in such Registration Statement and any amendment
thereto with respect to such opinion and to the disclosure regarding this
opinion in the related prospectus and any related prospectus supplement. In
giving the foregoing consent, however, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as
3
<PAGE> 4
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
We disclaim any obligation to update this opinion letter for events
occurring or coming to our attention after the date hereof.
Very truly yours,
/s/ Palmer & Dodge LLP
4
