<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999
REGISTRATION NO. 333-79619
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEST PENN FUNDING LLC
(EXACT NAME AS SPECIFIED IN REGISTRANT'S CERTIFICATE OF FORMATION)
<TABLE>
<S> <C>
DELAWARE 25-1843349
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
------------------------
WEST PENN FUNDING LLC
2325B-2 RENAISSANCE DRIVE
LAS VEGAS, NV 89119
(702) 895-6752
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KRISTINE W. EPPES
2325B-2 RENAISSANCE DRIVE
LAS VEGAS, NV 89119
(702) 895-6752
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
GREGORY M. SHAW, ESQ. THOMAS K. HENDERSON, ESQ. GEOFFREY K. HURLEY, ESQ.
CRAVATH, SWAINE & MOORE ALLEGHENY ENERGY, INC. LATHAM & WATKINS
WORLDWIDE PLAZA 10435 DOWNSVILLE PIKE 885 THIRD AVENUE
825 EIGHTH AVENUE HAGERSTOWN, MD 21740-1766 NEW YORK, NY 10022
NEW YORK, NY 10019 (301) 790-3400 (212) 906-1200
(212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, please 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 PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER UNIT* PRICE* REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transition Bonds................. $600,000,000 100% $600,000,000 $166,522**
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Estimated solely for the purposes of calculating the registration fee.
** Calculated pursuant to Rule 457(o) of the Securities Act. Aggregate fee of
$166,800 less fee of $278 paid in connection with original Registration
Statement filed on May 28, 1999.
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, AS AMENDED, OR UNTIL THE 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 AND THE ACCOMPANYING PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1999
PROSPECTUS SUPPLEMENT
(To Prospectus dated [ ], 1999)
West Penn Funding LLC
Issuer
West Penn Power Company
Originator and Servicer
Series 1999-A
$600,000,000 Transition Bonds
THE ISSUER WILL ISSUE:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Amount.......... $ $ $ $
Price..................... $ $ $ $
(%) (%) (%) (%)
Underwriter's Discounts
and Commission.......... $ $ $ $
(%) (%) (%) (%)
Proceeds to the Issuer.... $ $ $ $
Bond Rate................. % % % %
Interest Paid.............
First Payment Date........ March 27, 2000 March 27, 2000 March 27, 2000 March 27, 2000
Expected Final Payment
Date....................
Termination Date..........
</TABLE>
------------------------
BEFORE YOU PURCHASE THESE SECURITIES, YOU SHOULD CAREFULLY
CONSIDER THE RISK FACTORS BEGINNING ON PAGE 18
IN THE ACCOMPANYING PROSPECTUS.
------------------------
-- These securities are obligations of West Penn Funding LLC only and are
backed only by the assets of West Penn Funding LLC.
-- The issuer is a special purpose entity.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
There currently is no secondary market for the Series 1999-A Bonds, and there is
no assurance that one will develop.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO. PNC CAPITAL MARKETS, INC.
BANC OF AMERICA SECURITIES LLC PRYOR, McCLENDON, COUNTS & CO., INC.
The date of this prospectus supplement is [ ], 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE TO FIND INFORMATION IN THESE DOCUMENTS................ S-1
SUMMARY OF TERMS............................................ S-2
Securities Offered....................................... S-2
Introduction............................................. S-4
The Collateral........................................... S-6
Interest................................................. S-6
Principal................................................ S-6
Credit Enhancement....................................... S-7
Optional Redemption...................................... S-7
Intangible Transition Charge Adjustment Process.......... S-7
Tax Status............................................... S-8
ERISA Considerations..................................... S-8
Servicer's and Issuer's Mailing Address and Telephone
Number of Principal Executive Office................... S-8
THE SERIES 1999-A BONDS..................................... S-9
General.................................................. S-9
Distributions from the Collection Account................ S-9
Interest................................................. S-10
Principal................................................ S-10
Optional Redemption...................................... S-13
Overcollateralization.................................... S-13
Other Credit Enhancement................................. S-14
Reports to Holders of Series 1999-A Bonds................ S-15
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY............... S-15
The Intangible Transition Charges........................ S-15
Rate Schedule Descriptions............................... S-17
Adjustments to the Intangible Transition Charges......... S-18
DESCRIPTION OF WEST PENN'S BUSINESS......................... S-19
SERVICING................................................... S-19
Servicing Fee............................................ S-19
Servicer Advances........................................ S-19
UNDERWRITING THE SERIES 1999-A BONDS........................ S-20
RATINGS..................................................... S-21
GLOSSARY OF DEFINED TERMS................................... S-22
</TABLE>
<PAGE> 4
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
We provide information to you about the transition bonds in two separate
documents that progressively provide more detail:
(a) the accompanying prospectus, which provides general information, some
of which may not apply to your series of transition bonds; and
(b) this prospectus supplement, which describes the specific terms of your
series of transition bonds.
This prospectus supplement and the accompanying prospectus together contain
complete information about the offering of your series of transition bonds. You
are urged to read both documents. In particular, you should read the information
under the heading "Risk Factors," beginning on Page 18 of the accompanying
prospectus.
This supplement begins with several sections describing these securities:
-- Summary of Terms provides important amounts, dates and other terms of
your series;
-- The Series 1999-A Bonds describes the key structural features of your
series; and
-- Description of Intangible Transition Property describes the intangible
transition charges that provide the source for payment of your series
and refers you to the sections in the accompanying prospectus where
you can find further information about the intangible transition
charges and other collateral for the transition bonds.
As you read through these sections, cross-references will direct you to
more information in the accompanying prospectus. You can also directly reference
key topics by looking at the table of contents in this prospectus supplement and
the accompanying prospectus.
This prospectus supplement and the accompanying prospectus may be used by
the underwriters in connection with offers and sales related to market-making
transactions in your series of transition bonds. The underwriters may act as
principal or agent in those transactions. Those sales will be made at prices
related to prevailing market prices at the time of sale.
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS. THE ISSUER HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT.
TO UNDERSTAND THE STRUCTURE AND PAYMENT TERMS OF THESE SECURITIES, YOU MUST
CAREFULLY READ THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
THEIR ENTIRETY.
S-1
<PAGE> 5
SUMMARY OF TERMS
The following section is only a summary of selected information and does
not provide you with all the information you will need to make your investment
decision. There is more detailed information in this prospectus supplement and
in the accompanying prospectus. To understand all of the terms of the offering
of the transition bonds, carefully read this entire document and the
accompanying prospectus.
SECURITIES OFFERED
SERIES 1999-A TRANSITION BONDS
$600,000,000
<TABLE>
<CAPTION>
<S> <C>
ISSUER: WEST PENN FUNDING LLC
ORIGINATOR AND SERVICER: WEST PENN POWER COMPANY
SELLER: WEST PENN FUNDING CORPORATION
BOND TRUSTEE: BANKERS TRUST COMPANY
PRICING DATE: [ ], 1999
SERIES ISSUANCE DATE: [ ], 1999
CLEARANCE AND
SETTLEMENT: DTC/CEDEL/EUROCLEAR
</TABLE>
<TABLE>
<CAPTION>
INITIAL CLASS PRINCIPAL BALANCE BOND RATE % OF TOTAL SERIES PRINCIPAL
------------------------------- --------- ---------------------------
<S> <C> <C> <C>
Class A-1
Class A-2
Class A-3
Class A-4
</TABLE>
Servicing Fee: On each payment date, the issuer will pay the
servicer the quarterly servicing fee with respect
to all series of transition bonds, solely to the
extent that the issuer has funds available to pay
this fee. So long as West Penn acts as servicer,
this quarterly fee will be $312,500. If a successor
servicer is appointed, the quarterly servicing fee
will be based on an amount approved by the
Pennsylvania Public Utility Commission, but not in
excess of a per annum rate equal to 1.5% of the
outstanding principal balance of the transition
bonds. The servicer will be entitled to retain as
additional compensation net investment income it
receives on the intangible transition charges it
collects pending remittance to the bond trustee, as
well as any late fees paid by customers to the
servicer which are associated with the intangible
transition charges.
S-2
<PAGE> 6
Anticipated Ratings: S&P/Fitch IBCA AAA Moody's
Aaa
Credit Enhancement: Intangible transition charge adjustments;
overcollateralization, funded over the life of the Series 1999-A Bonds and
expected to reach 0.50% of the initial principal
balance of this series of transition bonds; capital
of the issuer, funded upon the issuance of each
series and expected to be 0.50% of the initial
principal balance of this series of transition
bonds.
Payment Dates: March 25, June 25, September 25 and December 26 of
each year or, if not a business day, the next
business day.
First Payment Date: March 27, 2000.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Expected Final Payment Date:*
Termination Date:
</TABLE>
*The expected final payment date is the date upon
which the issuer expects to make the final payment
on your Series 1999-A Bond. However, the final
payment on your Series 1999-A Bond may be made
after that date. Your Series 1999-A Bond will not
be in default unless it is not paid in full by its
termination date set forth above.
Optional Redemption: All Series 1999-A Bonds are subject to optional
redemption in whole once the outstanding principal
balance of the Series 1999-A Bonds has been reduced
to less than or equal to 5% of the initial
principal balance.
Record Date: Close of business on the business day prior to any
payment date.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CUSIP Numbers:
</TABLE>
S-3
<PAGE> 7
INTRODUCTION
The Pennsylvania Electricity Generation Customer Choice and Competition Act
was enacted in 1996 and provides for the restructuring of the electric industry
in Pennsylvania, including retail competition for generation beginning in 1999.
Prior to enactment of the Pennsylvania Competition Act, electric utilities, such
as West Penn Power Company, invested in various generation-related assets, such
as electric generating facilities and power purchase contracts with third-party
generators of electricity, to help fulfill their duties to serve the public as
regulated utilities. The electric utilities recovered these investments by
charging their customers the regulated rates approved by the Pennsylvania Public
Utility Commission.
One of the expected effects of the deregulation of electricity generation
is that rates will be determined by market forces. These market rates may not be
high enough to allow the utilities to recover their investments in
generation-related assets. Accordingly, the utilities may incur a loss in value
of their generation-related assets as a result of the transition from a
regulated environment to competition for electric generation services.
The Competition Act provides for utilities to recover the anticipated loss
in value of their generation-related assets, known as stranded costs, by
including a new type of charge in their customers' bills. These new charges are
known as competitive transition charges. Utilities are authorized to securitize
the right to recover all or a portion of these charges through the issuance of
transition bonds, such as the securities described in this prospectus
supplement. This right is known as intangible transition property. Once
intangible transition property is securitized, the utility's right to recover
its stranded costs through the competitive transition charges is replaced by the
intangible transition property holder's right to recover the costs associated
with the issuance, credit enhancing and servicing of the transition bonds
through intangible transition charges included in customers' electric bills.
Intangible transition charges will reduce the amount of competitive transition
charges.
Intangible transition property was created by the Pennsylvania Competition
Act and a qualified rate order issued by the Pennsylvania Public Utility
Commission to West Penn on November 19, 1998, as supplemented by a supplemental
qualified rate order issued by the Pennsylvania Public Utility Commission to
West Penn on August 12, 1999. Intangible transition property represents the
irrevocable right to collect intangible transition charges from customers to
recover:
-- the aggregate principal amount of transition bonds; and
-- an amount sufficient to provide for any credit enhancement to fund
any reserves, and to pay interest, premiums, if any, costs of
defeasance, servicing fees and other fees, costs and charges
relating to transition bonds.
Intangible transition charges are nonbypassable. Customers cannot avoid
paying them even if they purchase electricity from a supplier other than West
Penn Power Company.
S-4
<PAGE> 8
On the series issuance date, West Penn Power Company will contribute
intangible transition property to West Penn Funding Corporation, which will then
sell the intangible transition property to West Penn Funding LLC, which will
then pledge all its property, including the intangible transition property, to
the bond trustee as the collateral for the transition bonds. West Penn Funding
LLC's other property that makes up the collateral for these securities is
described in this summary under the subcaption "The Collateral."
S-5
<PAGE> 9
For more information on the Pennsylvania Competition Act, intangible
transition property and intangible transition charges, you should review the
material under the captions entitled "Risk Factors," "The Pennsylvania
Competition Act," "West Penn's Restructuring Plan" and "The Qualified Rate Order
and the Intangible Transition Charges" in the accompanying prospectus.
The following is a summary of other specific matters related to these
securities:
THE COLLATERAL
The Series 1999-A Bonds will be secured by the collateral, primarily consisting
of:
-- all the issuer's right, title and interest in and to the intangible
transition property transferred by West Penn Funding Corporation to
the issuer under the intangible transition property sale agreement;
-- collections of intangible transition charges that are remitted to the
issuer under the servicing agreement between the issuer and the
servicer;
-- the issuer's rights, except for provisions for indemnification of West
Penn Funding Corporation and the issuer, under the intangible
transition property transfer agreement between West Penn and West Penn
Funding Corporation;
-- the issuer's rights, except for provisions for indemnification of the
issuer, under the sale agreement;
-- the issuer's rights, except for provisions for indemnification of the
issuer, under the servicing agreement; and
-- specified bank accounts of the issuer and all amounts or investment
property in these accounts, other than cash amounts payable to West
Penn Funding Corporation or the servicer described in the accompanying
prospectus.
For a more detailed description of the collateral for the transition bonds, you
should review the material under the captions "The Qualified Rate Order and the
Intangible Transition Charges" and "The Indenture--Security" in the accompanying
prospectus. For a summary of the terms of the transfer agreement, see "The
Transfer Agreement" in the accompanying prospectus. For a summary of the terms
of the sale agreement, see "The Sale Agreement" in the accompanying prospectus.
For a summary of the terms of the servicing agreement, see "The Servicing
Agreement" in the accompanying prospectus.
INTEREST
Holders of each class of this series are expected to receive interest at the
bond rate for that class as set forth on the cover of this prospectus
supplement.
Interest on the Series 1999-A Bonds will be calculated on the basis of a 360-day
year of four 90-day periods. With respect to the first payment date, interest
will accrue from the issuance date.
You should also review the material under the caption "The Series 1999-A
Bonds--Interest" in this prospectus supplement.
PRINCIPAL
On each payment date, to the extent of available funds, the bond trustee will
make principal payments in accordance with the expected amortization schedule
S-6
<PAGE> 10
set forth under the caption "The Series 1999-A Bonds--Principal" in this
prospectus supplement. The actual amount of principal paid on any payment date
on your Series 1999-A Bond may be less than the amount set forth in the expected
amortization schedule for that payment date.
Other than in the event of a redemption or acceleration upon an event of
default, in no event will the principal paid to any class on any payment date be
greater than the amount necessary to reduce the principal balance of that class
to the amount specified in the expected amortization schedule for that class and
that payment date.
CREDIT ENHANCEMENT
Overcollateralization. Overcollateralization is the pledge by the issuer of
collateral, in this case intangible transition property, in excess of what is
expected to be needed to cover the repayment of your Series 1999-A Bond. The
overcollateralization for these securities will be funded over the life of the
Series 1999-A Bonds and is expected to reach 0.50% of the initial principal
balance of this series of transition bonds.
Additional Credit Enhancement. In addition, capital of the issuer (expected to
be 0.50% of the initial principal balance of this series of transition bonds) is
available to make payments on any series of transition bonds as described in the
accompanying prospectus. In addition, intangible transition charges will be
subject to periodic review and adjustment, as described below under "Intangible
Transition Charge Adjustment Process."
You should also review the material under the captions "The Transition
Bonds--Credit Enhancement" and "The Indenture--Allocations and Payment" in the
accompanying prospectus.
OPTIONAL REDEMPTION
The Series 1999-A Bonds may be redeemed in whole once the outstanding principal
balance of the Series 1999-A Bonds has been reduced to less than or equal to 5%
of the initial principal balance.
You should also review the material under the caption "The Series 1999-A
Bonds--Optional Redemption" in this prospectus supplement.
INTANGIBLE TRANSITION CHARGE ADJUSTMENT PROCESS
West Penn, as servicer of the intangible transition property on behalf of the
issuer, will make adjustments to the intangible transition charges it bills to
customers, upon approval by the Pennsylvania Public Utility Commission, if West
Penn:
(1) collects insufficient intangible transition charges, or
(2) collects excess amounts of intangible transition charges,
in order:
(1) to make timely payments on the Series 1999-A Bonds,
(2) to pay fees, costs and charges associated with the transition bonds, and
(3) to fund any of the subaccounts to its required level.
The following table summarizes the adjustment frequency of the intangible
transition charges with respect to the Series 1999-A Bonds:
<TABLE>
<CAPTION>
Adjustment Date
---------------
<S> <C>
Annual Adjustments... 1/1/01-1/1/07
Quarterly
Adjustments........ 1/1/08 and 4/1/08
Monthly
Adjustments........ 7/1/08-1/1/08
</TABLE>
S-7
<PAGE> 11
The first annual adjustment will become effective on January 1, 2001. No
adjustment will be made January 1, 2000.
If the last class of the Series 1999-A Bonds is not paid at its termination
date, the intangible transition charges will continue to be charged but not for
electricity delivered after December 31, 2008. In that case, the final
adjustment date will be November 1, 2008.
For a more detailed description of the intangible transition charge adjustment
process, you should review the material under the caption "Description of
Intangible Transition Property--Adjustments to the Intangible Transition
Charges" and the material under the caption "The Qualified Rate Order and the
Intangible Transition Charges--The Intangible Transition Charges--The Intangible
Transition Charge Adjustment Process" in the accompanying prospectus.
TAX STATUS
West Penn has received a ruling from the Internal Revenue Service that the
transition bonds will be classified as obligations of West Penn Funding
Corporation. Based on the ruling, for U.S. federal income tax purposes, the
transition bonds will be treated as debt of West Penn Funding Corporation
secured by a pledge of the collateral.
The issuer will be treated as a division of West Penn Funding Corporation and
will not be treated as a separate taxable entity.
Transition bondholders who are not United States taxpayers generally will not be
subject to United States federal income or withholding taxes on interest
received on the transition bonds.
For information regarding the application of U.S. federal income tax laws, you
should see the section captioned "United States Taxation" in the accompanying
prospectus.
In addition, in the opinion of Ballard Spahr Andrews & Ingersoll, LLP, special
Pennsylvania tax counsel to the issuer and West Penn, interest from the
transition bonds received by a person who is not otherwise subject to corporate
or personal income tax in Pennsylvania will not be subject to these taxes.
Transition bonds held by deceased Pennsylvania residents may be subject to
inheritance and estate taxes. Neither residents nor nonresidents of Pennsylvania
will be subject at the present time to an intangible personal property tax with
respect to the transition bonds. See "Material Commonwealth of Pennsylvania Tax
Matters" in the accompanying prospectus.
ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
You should also review the material under the caption "ERISA Considerations" in
the accompanying prospectus.
SERVICER'S AND ISSUER'S MAILING ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICE:
The mailing address of West Penn is West Penn Power Company, 800 Cabin Hill
Drive, Greensburg, PA 15601, and its telephone number is (724) 837-3000. The
mailing address of the issuer is West Penn Funding LLC, 2325B-2 Renaissance
Drive, Las Vegas, NV 89119, and its telephone number is (702) 895-6752.
S-8
<PAGE> 12
RISK FACTORS
For a discussion of the material risks associated with an investment in the
Series 1999-A Bonds, you should review the discussion under "Risk Factors,"
which begins on page 18 of the accompanying prospectus.
THE SERIES 1999-A BONDS
GENERAL
The Series 1999-A Bonds will be issued under and secured under a base
indenture dated as of [ ], 1999 between the issuer and Bankers
Trust Company, as bond trustee, as supplemented by the Series 1999-A
supplemental indenture to that base indenture.
Some terms used in this prospectus supplement are defined in the glossary
of defined terms, located on page S-22 of this prospectus supplement or in the
glossary of defined terms, located on page 150 of the accompanying prospectus.
The Series 1999-A Bonds will be issued on the series issuance date in
denominations of $1,000 and integral multiples of $1,000 and will be comprised
of the classes listed above under "Summary of Terms--Securities Offered."
Interest and principal relating to the Series 1999-A Bonds will be paid
through the Depository Trust Company or, if the Series 1999-A Bonds are no
longer in book-entry form, will be payable at the offices of Bankers Trust
Company at Four Albany Street, 10th Floor, New York, NY 10006. Generally,
payment will be made by check mailed first-class, postage prepaid to a holder's
address as it appears on the transition bond register on each record date. For
Series 1999-A Bonds registered on a record date in the name of the nominee of
Cede & Co., payments will be made by wire transfer in immediately available
funds to the account designated by that nominee, except as described below. The
final installment of principal and premium, if any, payable with respect to any
Series 1999-A Bond will be payable, after prior notice to the holder, only upon
presentation and surrender of the Series 1999-A Bond at a place specified in
that notice.
DISTRIBUTIONS FROM THE COLLECTION ACCOUNT
Amounts distributed from the collection account as described in "The
Indenture--Allocations and Payments" in the accompanying prospectus will be
applied among the classes of the Series 1999-A Bonds on each payment date as
follows:
(1) with respect to interest, to each class on a pro rata basis based
on the amount of interest payable to that class and
(2) with respect to principal, to each class as described under
"--Principal" in this section.
S-9
<PAGE> 13
INTEREST
Interest on each class of the Series 1999-A Bonds will accrue from the
series issuance date at the respective bond rates indicated in the section at
the beginning of this prospectus supplement entitled "Summary--Securities
Offered." The interest will be payable on each payment date, commencing March
27, 2000, to the persons in whose names the Series 1999-A Bonds of each class
are registered at the close of business on the applicable record date.
Interest on the Series 1999-A Bonds will be calculated on the basis of a
360-day year of four 90-day periods.
The interest accrual period for any payment date shall be the period from
and including the preceding payment date -- or, in the case of the first payment
date, from and including the series issuance date -- to and excluding that
payment date.
The record date for any payment date shall be the close of business on the
business day prior to that payment date.
PRINCIPAL
On each payment date, the bond trustee shall, as of the related record date
and subject to the availability of funds, make principal payments on each class
of transition bonds in accordance with the expected amortization schedule.
To the extent that more than one class of Series 1999-A Bonds is to receive
payments of principal in accordance with the expected amortization schedule on
any payment date, the applicable funds will be allocated in a sequential manner,
to the extent funds are available, as follows:
(1) To the holders of the Series 1999-A Bonds, Class A-1, until this
class is retired in full;
(2) To the holders of the Series 1999-A Bonds, Class A-2, until this
class is retired in full;
(3) To the holders of the Series 1999-A Bonds, Class A-3, until this
class is retired in full; and
(4) To the holders of the Series 1999-A Bonds, Class A-4, until this
class is retired in full.
The principal payment on any class on a payment date will not be greater
than the amount necessary to reduce the class principal balance of that class to
the amount specified in the expected amortization schedule for that class and
payment date unless an acceleration of payments following an event of default or
a redemption occurs.
Class principal balance means the initial principal balance of a class,
reduced by principal distributed to that class in accordance with the terms of
the indenture.
The entire unpaid principal amount for any class of the Series 1999-A Bonds
will be due and payable on the applicable class termination date.
S-10
<PAGE> 14
In the event of an acceleration of payments following a default on the
Series 1999-A Bonds, principal payments on each class of Series 1999-A Bonds
will be made on a pro rata basis based on the respective outstanding principal
balance for each class as of the prior payment date.
The following expected amortization schedule sets forth the scheduled
outstanding class principal balance for each class of the Series 1999-A Bonds at
each payment date, after giving effect to the payments made on that date, from
the series issuance date to the expected final payment date for that class. In
preparing the table, it has been assumed that:
(1) the Series 1999-A Bonds are issued on November [ ], 1999;
(2) payments on the Series 1999-A Bonds are made on each payment
date, commencing on March 27, 2000;
(3) the quarterly servicing fee for the Series 1999-A Bonds equals
$312,500;
(4) the quarterly fee paid to the bond trustee under the indenture
for the Series 1999-A Bonds equals $875;
(5) the quarterly fees paid to the independent directors of the
issuer equal $300;
(6) the monthly fee paid to the administrative agent for the issuer
equals $6,667 in the aggregate;
(7) there are no net earnings on amounts on deposit in the collection
account;
(8) operating expenses, including all other fees, costs and charges
of the issuer and amounts owed by the issuer to the bond trustee not noted
above are paid in the amount of $25,000 in the aggregate for all series on
each payment date; and
(9) all collections of intangible transition charges are deposited in
the collection account in accordance with West Penn's forecasts.
S-11
<PAGE> 15
TABLE 1
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING CLASS PRINCIPAL BALANCES
<TABLE>
<CAPTION>
ISSUANCE OR PAYMENT DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 SERIES 1999-A
- ------------------------ --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
series issuance date................
March 2000..........................
June 2000...........................
September 2000......................
December 2000.......................
March 2001..........................
June 2001...........................
September 2001......................
December 2001.......................
March 2002..........................
June 2002...........................
September 2002......................
December 2002.......................
March 2003..........................
June 2003...........................
September 2003......................
December 2003.......................
March 2004..........................
June 2004...........................
September 2004......................
December 2004.......................
March 2005..........................
June 2005...........................
September 2005......................
December 2005.......................
March 2006..........................
June 2006...........................
September 2006......................
December 2006.......................
March 2007..........................
June 2007...........................
September 2007......................
December 2007.......................
March 2008..........................
June 2008...........................
</TABLE>
For various reasons, the actual class principal balance of any class of the
Series 1999-A Bonds may not be reduced to the amounts indicated in the foregoing
table on any payment date. Accordingly, the actual reductions in class principal
balances may be delayed from those indicated in the table. See "Risk Factors" in
the accompanying prospectus for various factors which may, individually or in
the aggregate, affect the rates of reduction of the class principal balances of
any class of the Series 1999-A Bonds.
S-12
<PAGE> 16
OPTIONAL REDEMPTION
The Series 1999-A Bonds may be redeemed in whole on any payment date
commencing with the payment date on which the outstanding principal balance of
the Series 1999-A Bonds, after giving effect to payments that would otherwise be
made on that date, has been reduced to less than or equal to 5% of the initial
principal balance of the Series 1999-A Bonds. Notice of redemption will be given
by the issuer to the bond trustee and Standard & Poor's Rating Group, Moody's
Investors Service Inc. and Fitch IBCA, Inc. Standard & Poor's, Moody's and Fitch
are referred to as the rating agencies.
OVERCOLLATERALIZATION
The amount of overcollateralization for each series of transition bonds is
intended to be funded over the expected life of that series and is expected to
be 0.50% of the initial principal amount for this series of transition bonds.
The intangible transition charges will be calculated at, and periodically
adjusted to, a level that is designed to collect the overcollateralization
amount ratably over the expected life of each series of transition bonds.
Amounts of intangible transition charges collected in any period in order to
fund overcollateralization amounts will be available for all series of
transition bonds on a pro rata basis without any preference. The calculated
overcollateralization level for each payment date related to the Series 1999-A
Bonds, as of the date of this prospectus supplement, is set forth below. These
balances may change from time to time with the issuance of each new series and
the redemption or refunding of a class or series. If amounts payable in the
general subaccount and the reserve subaccount are not sufficient on any payment
date to make scheduled payments to the holders of the Series 1999-A Bonds, meet
credit enhancement funding requirements and pay expenses of the issuer, the bond
trustee, the independent directors of the issuer, the administrative agent, the
servicer and other specified fees and expenses, the bond trustee will draw on
amounts in the overcollateralization subaccount.
For a more detailed description of overcollateralization, see the material
under the captions "The Transition Bonds--Credit Enhancement" and "The
Indenture--Allocations and Payments" in the accompanying prospectus.
S-13
<PAGE> 17
TABLE 2
CALCULATED OVERCOLLATERALIZATION LEVEL
<TABLE>
<CAPTION>
CALCULATED
OVERCOLLATERALIZATION
PAYMENT DATE LEVEL
- ------------ ---------------------
<S> <C>
March 2000..............................................
June 2000...............................................
September 2000..........................................
December 2000...........................................
March 2001..............................................
June 2001...............................................
September 2001..........................................
December 2001...........................................
March 2002..............................................
June 2002...............................................
September 2002..........................................
December 2002...........................................
March 2003..............................................
June 2003...............................................
September 2003..........................................
December 2003...........................................
March 2004..............................................
June 2004...............................................
September 2004..........................................
December 2004...........................................
March 2005..............................................
June 2005...............................................
September 2005..........................................
December 2005...........................................
March 2006..............................................
June 2006...............................................
September 2006..........................................
December 2006...........................................
March 2007..............................................
June 2007...............................................
September 2007..........................................
December 2007...........................................
March 2008..............................................
June 2008...............................................
</TABLE>
OTHER CREDIT ENHANCEMENT
Reserve Subaccount. Collections of intangible transition charges
available on any payment date above that amount necessary to pay the:
(1) amounts payable for expenses of the bond trustee, the independent
directors of the issuer, the administrative agent and the servicer and
other fees and expenses,
S-14
<PAGE> 18
(2) amounts distributable to the transition bondholders for principal
and interest on that payment date,
(3) amounts required to replenish the capital subaccount,
(4) amounts required to fund and replenish the overcollateralization
subaccount and
(5) net investment earnings on amounts in the capital subaccount to
the issuer
will be allocated to the reserve subaccount.
On each payment date, the bond trustee will draw on amounts in the reserve
subaccount, if any, to the extent amounts available in the general subaccount
are insufficient to make scheduled payments to the transition bondholders, meet
credit enhancement funding requirements and pay expenses of the issuer, the bond
trustee, the independent directors of the issuer, the administrative agent, the
servicer and other specified fees and expenses. See "The Indenture--Allocations
and Payments" in the accompanying prospectus.
Capital Subaccount. Upon the issuance of the Series 1999-A Bonds, West
Penn Funding Corporation will deposit the required capital amount of $3 million
in the capital subaccount. On each payment date, the bond 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 to the transition
bondholders, meet credit enhancement funding requirements and pay expenses of
the issuer, the bond trustee, the independent directors of the issuer, the
administrative agent and the servicer and other specified fees and expenses.
REPORTS TO HOLDERS OF SERIES 1999-A BONDS
On or prior to each payment date, the bond trustee will prepare and provide
statements to the holders of record of the Series 1999-A Bonds. These statements
will be available to the beneficial owners of the Series 1999-A Bonds upon
request to the bond trustee or the servicer. The financial information provided
will not be examined or reported upon by any independent public accountant and
no independent public accountant will give an opinion on this financial
information.
For a more detailed description of the statements provided to the holders
of record of the Series 1999-A Bonds, you should review the material under the
caption "The Indenture--Reports to Transition Bondholders" in the accompanying
prospectus.
DESCRIPTION OF INTANGIBLE TRANSITION PROPERTY
THE INTANGIBLE TRANSITION CHARGES
West Penn's customers belong to one of three customer categories. These
categories are: residential, commercial and industrial, including street
lighting. Each customer category is further divided into rate schedules. The
Qualified Transition Expenses
S-15
<PAGE> 19
authorized in the Qualified Rate Order issued by the Pennsylvania Public Utility
Commission to West Penn are to be recovered from customers in each of West
Penn's separate rate schedules. All series and classes of transition bonds will
be secured by the collateral. The intangible transition charges initially will
be calculated by determining the total amount of intangible transition charges
required to be billed to each customer category, based on current estimates of
sales growth, in order to generate collections of intangible transition charges
sufficient to ensure timely recovery of Qualified Transition Expenses in
accordance with the expected amortization schedule. The amount determined for
each customer category will then be allocated to each rate schedule within that
customer category based on the allocation of stranded cost recovery borne by
each rate schedule through current electric rates approved by the Pennsylvania
Public Utility Commission. The intangible transition charges will reduce
competitive transition charges, as periodically adjusted, and will appear as a
separate line item on each customer's bill. See "The Qualified Rate Order and
the Intangible Transition Charges--The Intangible Transition Charges--The
Intangible Transition Charge Adjustment Process" in the accompanying prospectus.
Initially, the intangible transition charges, including gross receipts tax,
billed will average approximately $[ ] per month for residential customers,
approximately $[ ] per month for commercial customers and approximately
$[ ] per month for industrial customers. The average monthly bill,
including gross receipts tax, for each customer category of West Penn customers
during 1998 was $[ ], $[ ] and $[ ], respectively. The following
projected average intangible transition charges will be imposed on customers in
each customer category, and the rate schedules within each customer category,
beginning with the series issuance date for the Series 1999-A Bonds. The rates
in Table 3 below do not include gross receipts tax.
TABLE 3
PROJECTED AVERAGE INTANGIBLE TRANSITION CHARGES
FOR THE PERIOD THROUGH [ ], 1999
RESIDENTIAL CUSTOMERS
<TABLE>
<CAPTION>
AVERAGE ITC RATE
RATE SCHEDULE in cents per kWh
- ------------- ----------------
<S> <C>
Schedule 10...............................................
</TABLE>
COMMERCIAL CUSTOMERS
<TABLE>
<CAPTION>
AVERAGE ITC RATE
RATE SCHEDULE in cents per kWh
- ------------- ----------------
<S> <C>
Schedule 20...............................................
Schedule 22...............................................
Schedule 23...............................................
Schedule 24...............................................
</TABLE>
S-16
<PAGE> 20
INDUSTRIAL CUSTOMERS
<TABLE>
<CAPTION>
AVERAGE ITC RATE
RATE SCHEDULE in cents per kWh
- ------------- ----------------
<S> <C>
Schedule 30...............................................
Schedule 40...............................................
Schedule 41...............................................
Schedule 44...............................................
Schedule 46...............................................
Schedule 51...............................................
Schedule 52...............................................
Schedule 53...............................................
Schedule 54...............................................
Schedule 55...............................................
Schedule 56...............................................
Schedule 57...............................................
Schedule 58...............................................
Schedule 71...............................................
Schedule 86...............................................
</TABLE>
RATE SCHEDULE DESCRIPTIONS:
Rate schedules are created by the Pennsylvania Public Utility Commission
and are subject to change. These changes will be reflected in any Adjustment
Request filed with the Pennsylvania Public Utility Commission by the servicer.
The current rate schedules, as indicated above, have remained unchanged for
[ ] years. These rate schedules are:
Residential Rate Schedules:
Schedule 10 -- The only residential service schedule, available to all
residential customers in West Penn's service area.
Commercial Rate Schedules:
Schedule 20 -- For small-to-medium commercial and small industrial
customers.
Schedule 22 -- For churches, schools, non-profit colleges and universities.
Closed to new customers as of August 30, 1979.
Schedule 23 -- For athletic field lighting for schools, communities, civic
organizations, and other public institutions. Closed to new
customers as of August 28, 1985.
Schedule 24 -- For fairs, carnivals, and other similar temporary
enterprises.
Industrial Rate Schedules:
Schedule 30 -- For customers with demands in excess of 100 kilowatts,
generally large commercial and medium-sized industrial
customers.
S-17
<PAGE> 21
Schedule 40 -- For customers with demands in excess of 2,000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers.
Schedule 41 -- For customers with demands in excess of 2,000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers. Closed to new customers as of December
31, 1998.
Schedule 44 -- For customers with interruptible demands in excess of 5,000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally large industrial customers able to
withstand interruptions in service. Closed to new customers
as of December 31, 1998.
Schedule 46 -- For customers with demands in excess of 30,000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally very large industrial customers. Closed
to new customers as of December 31, 1998.
Schedules 51-56 -- For various types of street and outdoor lighting. Closed
to new customers as of June 6, 1997.
Schedules 57-58 -- For outdoor lighting of various types.
Schedule 71 -- For municipal street and highway lighting. Closed to new
customers as of August 26, 1978.
Schedule 86 -- For alternative generation.
ADJUSTMENTS TO THE INTANGIBLE TRANSITION CHARGES
The actual collections of intangible transition charges are intended to be
neither more nor less than the amount necessary to pay the principal of the
transition bonds of each series in accordance with the expected amortization
schedule, to pay interest on each series and to fund the related expenses and
reserves. In order to enhance the likelihood that the appropriate amount of
intangible transition charges will be collected, the servicing agreement
requires the servicer to seek, and the Pennsylvania Competition Act and the
Qualified Rate Order require the Pennsylvania Public Utility Commission to
approve, annual adjustments to the intangible transition charges on January 1 of
each year. These adjustments will be based on actual collections of intangible
transition charges and updated assumptions by the servicer as to projected
future usage of electricity by customers, expected delinquencies and write-offs
and future expenses relating to the Series 1999-A Bonds. In addition, the
Qualified Rate Order provides that, commencing twelve months prior to the
expected final payment date for the last series or class of transition bonds,
adjustments may be made quarterly or monthly. The final adjustment date for the
Series 1999-A Bonds will be December 1, 2008. See "The Servicing
Agreement--Servicing Procedures--Intangible Transition Charge Adjustment
Process" in the prospectus.
S-18
<PAGE> 22
DESCRIPTION OF WEST PENN'S BUSINESS
For a discussion of West Penn Funding Corporation and the servicer, you
should review the material under the captions "West Penn Power Company", "West
Penn Funding Corporation" and "The Servicer" in the accompanying prospectus.
SERVICING
SERVICING FEE
On each payment date, the issuer will pay the servicer the quarterly
servicing fee with respect to all series of transition bonds. So long as West
Penn acts as servicer, the servicing fee will be $312,500 per quarter. If a
successor servicer is appointed, the servicing fee will be based on an amount
approved by the Pennsylvania Public Utility Commission, but not in excess of a
per annum rate equal to 1.5% of the outstanding principal balance of the
transition bonds. The servicing fee, together with any portion of the servicing
fee that remains unpaid from prior payment dates, will be paid solely to the
extent funds are available for that payment as described under "The Indenture--
Allocations and Payments" in the accompanying prospectus. The servicing fee will
be paid prior to the distribution of any amounts in respect of interest on and
principal of the Series 1999-A Bonds. The servicer will be entitled to retain,
as additional compensation, net investment income on intangible transition
charges received by the servicer prior to remittance to the collection account
and the portion of late fees, if any, paid by customers relating to the
intangible transition charges.
SERVICER ADVANCES
The servicer will not make any advances of interest or principal on the
Series 1999-A Bonds.
S-19
<PAGE> 23
UNDERWRITING THE SERIES 1999-A BONDS
Subject to the terms and conditions set forth in the underwriting agreement
among West Penn, West Penn Funding Corporation, the issuer and the underwriters
named below, for whom Morgan Stanley & Co. Incorporated is acting as the
representative, the issuer has agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase, the principal amounts of the
Series 1999-A Bonds set forth opposite each underwriter's name below:
<TABLE>
<CAPTION>
NAME CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- ---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Morgan Stanley & Co. Incorporated..... $ $ $ $
Goldman, Sachs & Co. .................
Banc of America Securities LLC........
PNC Capital Markets, Inc. ............
Pryor, McClendon, Counts & Co.,
Inc. ..............................
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and to pay for all of the Series 1999-A Bonds
offered hereby, if any are taken.
The Underwriters' Sales Price for the Series 1999-A Bonds. The
underwriters propose to offer the Series 1999-A Bonds in part directly to retail
purchasers at the initial public offering prices set forth on the cover page of
this prospectus supplement, and in part to some securities dealers at a price
less a concession not in excess of [ ] percent of the principal amount of the
Series 1999-A Class A-1 Bonds, [ ] percent of the principal amount of the
Series 1999-A Class A-2 Bonds, [ ] percent of the principal amount of the
Series 1999-A Class A-3 Bonds and [ ]% of the principal amount of the Series
1999-A Class A-4 Bonds. The underwriters may allow and the dealers may reallow a
concession to some brokers and dealers not in excess of [ ] percent of the
principal amount of the Series 1999-A Class A-1 Bonds, [ ] percent of the
principal amount of the Series 1999-A Class A-2 Bonds, [ ] percent of the
principal amount of the Series 1999-A Class A-3 Bonds and [ ]% of the
principal amount of the Series 1999-A Class A-4 Bonds. After the Series 1999-A
Bonds are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the underwriters.
No Assurance as to Resale Price or Resale Liquidity for the Series 1999-A
Bonds. The Series 1999-A Bonds are a new issue of securities with no established
trading market. The Series 1999-A Bonds will not be listed on any securities
exchange. The issuer has been advised by the underwriters that they intend to
make a market in the Series 1999-A Bonds but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Series 1999-A Bonds.
Various Types of Underwriter Transactions Which May Affect the Price of the
Series 1999-A Bonds. The underwriters may engage in overallotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids with respect to the Series 1999-A Bonds in accordance with
Regulation M under the Securities Exchange Act of 1934. Overallotment
transactions involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit
S-20
<PAGE> 24
bids to purchase the Series 1999-A Bonds so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Series 1999-A Bonds in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
Series 1999-A Bonds originally sold by the syndicate member are purchased in a
syndicate covering transaction. These overallotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
prices of the Series 1999-A Bonds to be higher than they would otherwise be in
the absence of these transactions. None of West Penn, West Penn Funding
Corporation, the issuer or the bond trustee or any of the underwriters represent
that the underwriters will engage in any of these transactions or that these
transactions, once commenced, will not be discontinued without notice at any
time.
In the ordinary course of business, each underwriter and its affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the issuer and its affiliates, including West Penn. In
addition, each underwriter may from time to time take positions in the
transition bonds.
The issuer, West Penn and West Penn Funding Corporation have agreed to
indemnify the several underwriters against some liabilities, including
liabilities under the Securities Act.
Under the terms of the underwriting agreement, the issuer and West Penn
have agreed to reimburse the underwriters for some expenses. In addition, West
Penn has agreed to pay an advisory fee to Morgan Stanley & Co. Incorporated.
RATINGS
It is a condition of any underwriter's obligation to purchase that the
Series 1999-A Bonds be rated "AAA" by Standard & Poor's Rating Group, "AAA" by
Fitch IBCA, Inc. and "Aaa" by Moody's Investors Service Inc., which, in each
case, is in one of the four highest rating categories of that rating agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. No person is obligated to maintain the ratings on any of the Series
1999-A Bonds, and, accordingly, there can be no assurance that the ratings
assigned to any class of the Series 1999-A Bonds upon initial issuance will not
be revised or withdrawn by a rating agency at any time thereafter. If a rating
of any class of the Series 1999-A Bonds is revised or withdrawn, the liquidity
of that class of the Series 1999-A Bonds may be adversely affected. In general,
ratings address credit risk and do not represent any assessment of any
particular rate of principal payments on the Series 1999-A Bonds other than
payment in full of each class of the Series 1999-A Bonds by the applicable class
termination date and the ability to make timely interest payments.
S-21
<PAGE> 25
GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus
supplement.
"ADJUSTMENT REQUEST" means each request filed by the servicer with the
Pennsylvania Public Utility Commission for adjustments to the intangible
transition charges assessed to each rate schedule within any customer category
based on actual collections of intangible transition charges and updated
assumptions by the servicer as to the projected future usage of electricity by
customers on which intangible transition charges are assessed, expected
delinquencies and write-offs and future payments and expenses relating to the
intangible transition property and the transition bonds.
"QUALIFIED RATE ORDER" means the qualified rate order issued by the
Pennsylvania Public Utility Commission to West Penn on November 19, 1998, as
supplemented by a supplemental qualified rate order issued by the Pennsylvania
Public Utility Commission to West Penn on August 12, 1999.
"QUALIFIED TRANSITION EXPENSES", as set forth in the Qualified Rate Order,
means, collectively, the aggregate principal amount of the transition bonds and
an amount sufficient to provide for any credit enhancement to fund any reserves,
and to pay interest, premiums, if any, costs of defeasance, servicing fees and
other fees, costs and charges relating to transition bonds.
S-22
<PAGE> 26
PROSPECTUS
West Penn Funding LLC
Issuer
West Penn Power Company
Originator and Servicer
Up to $600,000,000 of Transition Bonds Issuable in Series
------------------------
THE ISSUER
-- MAY PERIODICALLY ISSUE TRANSITION BONDS IN ONE OR MORE SERIES WITH ONE
OR MORE CLASSES;
-- WILL OWN:
-- INTANGIBLE TRANSITION PROPERTY, WHICH IS THE RIGHT, CREATED BY
PENNSYLVANIA'S COMPETITION ACT, TO COLLECT INTANGIBLE TRANSITION
CHARGES IN AMOUNTS DESIGNED TO BE SUFFICIENT TO REPAY THE
TRANSITION BONDS, TO PAY OTHER EXPENSES SPECIFIED IN THE INDENTURE
AND TO FUND THE TRUST ACCOUNTS;
-- COLLECTIONS OF INTANGIBLE TRANSITION CHARGES;
-- ITS RIGHTS UNDER THE TRANSFER AGREEMENT, THE SALE AGREEMENT AND THE
SERVICING AGREEMENT;
-- TRUST ACCOUNTS HELD BY THE BOND TRUSTEE; AND
-- IF SO STATED IN THE APPLICABLE PROSPECTUS SUPPLEMENT, OTHER CREDIT
ENHANCEMENT.
THE TRANSITION BONDS
-- WILL BE PAYABLE ONLY FROM ASSETS OF THE ISSUER;
-- WILL BE SUPPORTED BY TRUST ACCOUNTS HELD BY THE TRUSTEE FOR THE
TRANSITION BONDS, AND, IF SO STATED IN THE APPLICABLE PROSPECTUS
SUPPLEMENT, OTHER CREDIT ENHANCEMENT; AND
-- WILL BE ISSUED IN SERIES, EACH OF WHICH THE ISSUER MAY ISSUE WITHOUT
THE CONSENT OF EXISTING TRANSITION BONDHOLDERS.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 18 OF THIS PROSPECTUS.
This prospectus may be used to offer and sell a series of transition bonds only
if accompanied by the prospectus supplement for that series.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999.
<PAGE> 27
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 18
Legal, Legislative or Regulatory Actions Could Adversely
Affect Transition Bondholders.......................... 18
Nature of Intangible Transition Property................. 22
Servicing................................................ 26
Bankruptcy; Creditors' Rights............................ 31
The Transition Bonds..................................... 36
AVAILABLE INFORMATION....................................... 40
GLOSSARY OF DEFINED TERMS................................... 40
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 40
WEST PENN POWER COMPANY..................................... 42
THE PENNSYLVANIA COMPETITION ACT............................ 44
The Pennsylvania Competition Act's General Effect on the
Electric Utility Industry in Pennsylvania.............. 44
Recovery of Stranded Costs............................... 44
Securitization of Stranded Costs......................... 45
Jurisdiction Over Disputes; Standing..................... 47
Possible Federal Preemption of the Competition Act....... 47
Possible Commonwealth Amendment or Repeal of the
Competition Act........................................ 48
WEST PENN'S RESTRUCTURING PLAN.............................. 50
The History of West Penn's Restructuring Plan............ 50
Provisions of the Settlement............................. 50
Provider of Last Resort.................................. 54
Prior Litigation......................................... 55
THE QUALIFIED RATE ORDER AND THE INTANGIBLE TRANSITION
CHARGES.................................................. 57
The Qualified Rate Order................................. 57
The Intangible Transition Charges........................ 59
Competitive Billing...................................... 62
THE SERVICER................................................ 65
Retail Electric Service Territory........................ 65
Customers and Operating Revenues......................... 65
Concentrations........................................... 69
Forecasting Customers and Usage.......................... 71
Billing Process.......................................... 74
Limited Information on Customers' Creditworthiness....... 74
Electric Generation Suppliers and Other Third-Party
Billers................................................ 80
Year 2000 Compliance..................................... 81
WEST PENN FUNDING CORPORATION............................... 83
THE ISSUER.................................................. 84
USE OF PROCEEDS............................................. 87
</TABLE>
i
<PAGE> 28
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE TRANSITION BONDS........................................ 87
General Terms of the Transition Bonds.................... 87
Interest and Principal................................... 89
Floating Rate Transition Bonds........................... 89
Redemption............................................... 90
Credit Enhancement....................................... 90
Book-Entry Registration.................................. 91
Definitive Transition Bonds.............................. 95
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS.............. 96
THE TRANSFER AGREEMENT...................................... 97
Contribution of Intangible Transition Property........... 97
Representations and Warranties of West Penn.............. 99
Matters Regarding West Penn.............................. 105
Governing Law............................................ 105
THE SALE AGREEMENT.......................................... 106
Sale and Assignment of Intangible Transition Property.... 106
Representations and Warranties of West Penn Funding
Corporation............................................ 108
Governing Law............................................ 111
THE SERVICING AGREEMENT..................................... 112
Servicing Procedures..................................... 112
Servicer Advances........................................ 114
Servicing Compensation; Releases......................... 114
Servicer Duties.......................................... 115
Servicer Representations and Warranties.................. 115
Servicer Indemnification................................. 116
Statements to Issuer and Bond Trustee.................... 117
Evidence as to Compliance................................ 118
Matters Regarding the Servicer........................... 118
Servicer Defaults........................................ 119
Rights Upon Servicer Default............................. 119
Successor Servicer....................................... 120
Governing Law............................................ 120
THE INDENTURE............................................... 121
Security................................................. 121
Issuance in Series or Classes............................ 122
Collection Account....................................... 122
Allocations and Payments................................. 126
Reports to Transition Bondholders........................ 128
Modification of Indenture................................ 128
Enforcement of the Transfer Agreement, the Sale Agreement
and the Servicing Agreement............................ 131
</TABLE>
ii
<PAGE> 29
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Modifications to the Transfer Agreement, the Sale
Agreement and the Servicing Agreement.................. 131
Events of Default; Rights Upon Event of Default.......... 132
Covenants................................................ 134
List of Transition Bondholders........................... 136
Annual Compliance Statement.............................. 136
Bond Trustee's Annual Report............................. 137
Satisfaction and Discharge of Indenture.................. 137
Legal Defeasance and Covenant Defeasance................. 137
The Bond Trustee......................................... 139
Governing Law............................................ 140
UNITED STATES TAXATION...................................... 141
General.................................................. 141
Taxation of the Issuer and of the Transition Bonds....... 141
Tax Consequences to U.S. Holders......................... 142
Tax Consequences to Non-U.S. Holders..................... 143
MATERIAL COMMONWEALTH OF PENNSYLVANIA TAX MATTERS........... 145
ERISA CONSIDERATIONS........................................ 146
PLAN OF DISTRIBUTION........................................ 147
RATINGS..................................................... 148
LEGAL MATTERS............................................... 149
EXPERTS..................................................... 149
GLOSSARY OF PRINCIPAL DEFINITIONS........................... 150
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
iii
<PAGE> 30
PROSPECTUS SUMMARY
This summary contains a brief description of the transition bonds that applies
to all series of transition bonds issued under this prospectus. Information that
relates to a specific series of transition bonds can be found in the prospectus
supplement related to that series. You will find a detailed description of the
terms of the offering of transition bonds following this summary. CONSIDER
CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 18 OF THIS PROSPECTUS.
Transaction Overview: The Pennsylvania Electricity Generation
Customer Choice and Competition Act was enacted
in 1996 and provides for the restructuring of
the electric industry in Pennsylvania,
including retail competition for generation
beginning in 1999. Prior to enactment of the
Pennsylvania Competition Act, electric
utilities, such as West Penn Power Company,
invested in various generation-related assets,
such as electric generating facilities and
power purchase contracts with third-party
generators of electricity, to help fulfill
their duties to serve the public as regulated
utilities. The electric utilities recovered
these investments by charging their customers
the regulated rates approved by the
Pennsylvania Public Utility Commission.
One of the expected effects of the deregulation
of electricity generation is that rates will be
determined by market forces. These market rates
may not be high enough to allow the utilities
to recover their investments in
generation-related assets. Accordingly, the
utilities may incur a loss in value of these
generation-related assets as a result of the
transition from a regulated environment to
competition for electric generation services.
The Pennsylvania Competition Act provides for
utilities to recover the anticipated loss in
value of their generation-related assets, known
as stranded costs, by including a new type of
charge in their customers' bills. These new
charges are known as competitive transition
charges. Utilities are authorized to securitize
the right to recover all or a portion of these
charges through the issuance of transition
bonds, such as the securities described in this
prospectus and any related prospectus
supplement. This right is known as intangible
transition property. Once intangible transition
property is securitized, the utility's right to
recover its stranded costs through the
competitive
1
<PAGE> 31
transition charges is replaced by the
intangible transition property holder's right
to recover the costs associated with the
issuance, credit enhancing and servicing of the
transition bonds through intangible transition
charges included in customers' electric bills.
Intangible transition charges will reduce the
amount of competitive transition charges.
Intangible transition property was created by
the Pennsylvania Competition Act and a
qualified rate order issued by the Pennsylvania
Public Utility Commission to West Penn Power
Company on November 19, 1998, as supplemented
by a supplemental qualified rate order issued
by the Pennsylvania Public Utility Commission
to West Penn Power Company on August 12, 1999.
Intangible transition property represents the
irrevocable right to collect intangible
transition charges from customers to recover:
-- the aggregate principal amount of
transition bonds; and
-- an amount sufficient to provide for any
credit enhancement to fund any reserves,
and to pay interest, premiums, if any,
costs of defeasance, servicing fees and
other fees, costs and charges relating
to transition bonds.
Intangible transition charges are
nonbypassable. Customers cannot avoid paying
them even if they purchase electricity from a
supplier other than West Penn Power Company.
On the issue date for each series, West Penn
Power Company will contribute intangible
transition property to West Penn Funding
Corporation under a transfer agreement. West
Penn Funding Corporation will then sell that
transferred intangible transition property to
West Penn Funding LLC under a sale agreement.
West Penn Funding LLC will then pledge this
property, along with its rights under the
transfer agreement, the sale agreement and the
servicing agreement, as well as the collection
account and related rights, to the bond trustee
as the collateral for the transition bonds
under an indenture.
2
<PAGE> 32
For a diagram depicting the parties to this
transaction, refer to page 16 of this
prospectus.
For more information on the Pennsylvania
Competition Act, intangible transition property
and intangible transition charges, you should
review the material under the captions entitled
"Risk Factors," "The Pennsylvania Competition
Act," "West Penn's Restructuring Plan" and "The
Qualified Rate Order and the Intangible
Transition Charges" in this prospectus.
Issuer: West Penn Funding LLC, a Delaware limited
liability company and, at the time the
transition bonds are issued, a wholly owned
subsidiary of West Penn Funding Corporation.
The issuer was formed on May 26, 1999, for the
purpose of purchasing and owning the
transferred intangible transition property,
issuing transition bonds from time to time and
pledging its interest in the collateral to the
bond trustee under the indenture to secure the
transition bonds. The issuer is a special
purpose entity whose only assets are expected
to be the collateral and whose only revenues
are expected to be collections of the
intangible transition charges. The collateral
is the sole source of payment for the
transition bonds. See "The Issuer" in this
prospectus.
Issuer's Address: 2325B-2 Renaissance Drive, Las Vegas, NV 89119
Issuer's Telephone Number: (702) 895-6752
Seller of the Transferred
Intangible Transition
Property: West Penn Funding Corporation, a Delaware
corporation.
West Penn Funding Corporation was incorporated
on October 20, 1999. West Penn Funding
Corporation is wholly owned by West Penn Power
Company, which will contribute the transferred
intangible transition property to West Penn
Funding Corporation in exchange for the
outstanding capital stock of West Penn Funding
Corporation under the transfer agreement. West
Penn Funding Corporation will sell intangible
transition property from time to time to the
issuer under the terms of the sale agreement.
See also "Risk Factors--Bankruptcy; Creditors'
Rights--Bank-
3
<PAGE> 33
ruptcy of West Penn or West Penn Funding
Corporation--True Sale or Financing" in this prospectus.
Seller's Address: 2325B Renaissance Drive, Las Vegas, Nevada
89119
Seller's Telephone Number: (702) 895-6751
Bond Trustee: Bankers Trust Company
The corporate trust office of the bond trustee
is located at Four Albany Street, 10th Floor,
New York, NY 10006 and its telephone number is
(212) 250-6137.
Originator and Servicer of the
Transferred Intangible
Transition Property: West Penn Power Company.
West Penn Power Company is referred to as West
Penn throughout this prospectus.
The intangible transition property was created
under the West Penn qualified rate order, as
supplemented, with respect to its stranded
costs and initially will belong to West Penn
before being transferred to the seller under
the transfer agreement.
West Penn will service the transferred
intangible transition property under the
servicing agreement between West Penn, as
servicer, and the issuer.
Incorporated in Pennsylvania in 1916, West Penn
is engaged as a public utility in the
transmission, distribution and sale of
electricity to residential, commercial,
industrial and governmental customers within
all or part of 24 counties in Pennsylvania.
West Penn's generation facilities have in the
past served those same customers. In the
future, those generation facilities, which will
continue to serve those customers and others in
the competitive generation market, may be
transferred to an affiliated or non-affiliated
entity. See "West Penn Power Company" in this
prospectus.
West Penn, as servicer of the transferred
intangible transition property, will collect
the intangible transition charges from
customers within its service territory on
behalf of the issuer for a fee specified in any
related prospectus supplement. Due to
provisions of the Pennsylvania Competition Act
and the settlement of restructuring issues,
West Penn customers have the
4
<PAGE> 34
opportunity to choose from several billing
source options as of September 1, 2000. One of
these options is consolidated billing from
third parties providing billing or metering
services, including electric generation
suppliers. Any of these third parties that
provides consolidated billing is required to
pay the servicer amounts billed by the third
party on behalf of the servicer, including the
intangible transition charges, regardless of
the third party's ability to collect those
amounts from its customers. In that event, the
third party effectively replaces the customer
as the obligor with respect to those intangible
transition charges. The servicer will have no
right to collect those intangible transition
charges from the customers, except following
payment defaults by a third party biller and
the expiration of the applicable grace period.
See "The Qualified Rate Order and the
Intangible Transition Charges--Competitive
Billing" and "Risk Factors--It May Be More
Difficult to Collect Intangible Transition
Charges Due to Billing by Third Parties" in
this prospectus.
The Assets of the Issuer: The issuer will own:
-- the intangible transition property
transferred to the issuer (see "The Sale
Agreement--Sale and Assignment of
Intangible Transition Property" in this
prospectus);
-- collections of intangible transition
charges;
-- its rights under the transfer agreement,
the sale agreement and the servicing
agreement;
-- trust accounts held by the bond trustee;
and
-- other credit enhancement acquired or
held to ensure payment of the transition
bonds as specified in the related
prospectus supplement.
The intangible transition property is described
in more detail under "The Transfer
Agreement--Contribution of Intangible
Transition Property" and "The Sale
Agreement--Sale and Assignment of Intangible
Transition Property" in this prospectus. The
trust accounts are described in more detail
under "The Indenture--Collection Account" in
this prospectus.
Customers: West Penn's customers belong to one of three
customer categories. These categories are:
residential,
5
<PAGE> 35
commercial, and industrial, including street
lighting. Each customer category is further
divided into rate schedules. These rate
schedules total 20. The customer categories and
rate schedules are described in greater detail
in "The Servicer of the Intangible Transition
Property--West Penn's Customers" in this
prospectus.
Payment Sources: On each payment date specified in the related
prospectus supplement, the bond trustee will pay amounts owed on all outstanding
series of transition bonds from:
-- amounts collected by the servicer--or
any third party electric generation
suppliers or other third parties
providing billing or metering
services--for the issuer with respect to
intangible transition charges during the
prior quarter; and
-- amounts available for withdrawal from
trust accounts held by the bond trustee,
including specified investment earnings
on amounts in the trust accounts, or
paid under contracts, such as the
transfer agreement, the sale agreement,
the bills of sale or the servicing
agreement, pledged to secure one or more
series of transition bonds. All accounts
referred to in this prospectus will be
held by the bond trustee in trust, and
are described in greater detail under
"The Indenture--The Collection Account
for the Transition Bonds" in this
prospectus.
State Pledge: The Commonwealth of Pennsylvania has pledged in
the Pennsylvania Competition Act that it will
not limit, alter, impair or reduce the value of
intangible transition property or the
intangible transition charges which were
approved by an order of the Pennsylvania Public
Utility Commission until the transition bonds
are fully repaid or discharged. However, the
Commonwealth of Pennsylvania may limit or alter
the value of intangible transition charges or
intangible transition property if adequate
compensation is made for the full protection of
the beneficial owners of the transition bonds.
The Pennsylvania Competition Act does not
define adequate compensation. Thus, the amount
of this compensation may not be sufficient to
pay the full amount of outstanding principal of
and
6
<PAGE> 36
interest on the transition bonds or compensate
transition bondholders for any reinvestment
risk.
Priority of Distributions: The bond trustee shall apply amounts on deposit
in the collection account to pay the monthly
fees owed by the issuer to Allegheny Energy
Service Corporation, an affiliate of West Penn,
under an administration agreement. In addition,
on each payment date specified in the related
prospectus supplement, the bond trustee will
pay or allocate remittances by the servicer of
collections of intangible transition charges
and investment earnings on amounts in the
collection account, to the extent funds are
available in the collection account, in the
following order of priority:
(1) payment of the bond trustee's fee,
expenses and indemnities, if any;
(2) payment of fees to the independent
directors of the issuer, which will be
fixed in an amount to be agreed upon by
the issuer and the independent
directors;
(3) payment of the servicing fee to the
servicer in the amount specified in the
related prospectus supplement;
(4) so long as no event of default has
occurred and is continuing or would be
caused by that payment, payment of
current operating expenses of the
issuer--up to an aggregate of $100,000
for each payment date for each series;
(5) payment of the interest then due on the
transition bonds;
(6) payment of any principal then payable on
the transition bonds:
(a) as a result of acceleration
triggered by an event of
default,
(b) on a series termination date or
class termination date, as
applicable, or
(c) on a redemption date;
(7) payment of the principal then scheduled
to be paid on the transition bonds in
accordance with the expected
amortization schedule;
7
<PAGE> 37
(8) payment of any remaining unpaid
operating expenses then owed by the
issuer;
(9) replenishment of any shortfalls in the
capital subaccount, which account is
described in detail under "--Accounts"
in this prospectus summary and "The
Indenture--"Collection Account" in this
prospectus;
(10) allocation of any required amount to the
overcollateralization subaccount, which
account is described in detail under
"--Accounts" in this prospectus summary
and "The Indenture"--"Collection
Account" in this prospectus;
(11) so long as no event of default has
occurred and is continuing, payment of
net investment earnings on amounts in
the capital subaccount to the issuer;
(12) allocation of the remainder, if any, to
the reserve subaccount, which account is
described in detail under "--Accounts"
in this prospectus summary and "The
Indenture--"Collection Account" in this
prospectus; and
(13) following repayment of all outstanding
series of transition bonds, the balance,
if any, will be released to the issuer
free from the lien of the indenture.
If, on any payment date, available collections
of intangible transition charges, together with
available amounts in the subaccounts, are not
sufficient to make the payments contemplated by
clauses (5) or (6) above with respect to a
series of transition bonds, then the payments
shall be made pro rata based on the respective
outstanding principal amounts of transition
bonds, unless, in the case of a series
comprised of two or more classes, the related
prospectus supplement specifies otherwise. All
payments to transition bondholders of a class
under clause (5) or (6) above shall be made pro
rata based on the respective outstanding
principal amounts of transition bonds of that
class held by those transition bondholders.
8
<PAGE> 38
For a diagram depicting how the intangible
transition charges and investment earnings will
be allocated, refer to page 17 in this
prospectus.
Credit Enhancement: Credit enhancement for the transition bonds
will be as follows:
-- The servicer of the intangible
transition property on behalf of the
issuer will make periodic adjustments to
the intangible transition charges it
bills to customers, once the
Pennsylvania Public Utility Commission
approves these adjustments. West Penn
will make these adjustments if it
determines that collections of
intangible transition charges are either
greater or lesser than the amount
necessary to make timely payments on the
transition bonds, to fund subaccounts to
required levels and to pay applicable
fees and expenses. The servicer can make
these changes, with the approval of the
Pennsylvania Public Utility Commission,
once a year. In addition, after the
period beginning on the date which is 12
months before the expected final payment
date for the last class or series of
transition bonds, the servicer can make
these adjustments as frequently as
monthly. See "The Qualified Rate Order
and the Intangible Transition
Charges--The Qualified Rate Order" in
this prospectus.
-- The amounts in the overcollateralization
subaccount, the capital subaccount and
the reserve subaccount will also provide
credit enhancement for the transition
bonds.
-- Additional credit enhancement for any
series may include surety bonds, letters
of credit, maturity guarantees, a
financial guaranty insurance policy, a
credit or liquidity facility, a
repurchase obligation, a third party
payment or cash deposit, each as
specified in the related prospectus
supplement. The credit enhancement for
the transition bonds is intended to
protect you against losses or delays in
scheduled payments on your transition
bonds.
Accounts: The bond trustee will hold the following trust
accounts:
-- Collection Account--Under the indenture,
the issuer will establish a single
collection account for
9
<PAGE> 39
all series of transition bonds which will
be held by the bond trustee. The collection
account will be divided into subaccounts
which will allocate the funds deposited in
the collection account to specific uses.
-- General Subaccount--Funds received from
collections of the intangible transition
charges will initially be allocated to
the general subaccount of the collection
account.
-- Overcollateralization Subaccount--Each
prospectus supplement will set a funding
level for the overcollateralization
subaccount that takes into account the
issuance of any previous series of
transition bonds. The
overcollateralization amount to be
funded by each series of transition
bonds will be equal to the percentage of
the initial principal amount of that
series stated in the related prospectus
supplement. That amount is intended to
be funded over the expected term of that
series of transition bonds through the
imposition of intangible transition
charges.
-- Capital Subaccount--The amount of
capital required to be held by the
issuer for a series of transition bonds,
which will be the amount specified in
the related prospectus supplement, will
be deposited into the capital subaccount
by West Penn Funding Corporation on the
date of issuance of that series.
-- Reserve Subaccount--If the issuer
collects intangible transition charges
in excess of:
(1) amounts then scheduled to be paid or
due on a series of transition bonds;
(2) related expenses;
(3) amounts needed to make required
deposits to the overcollateralization
subaccount and the capital
subaccount; and
(4) net investment earnings on amounts in
the capital subaccount released to
the issuer,
the excess will be held in the reserve
subaccount.
-- Other Accounts--If funds are remitted to
the bond trustee in connection with a
legal defeasance or covenant defeasance
under the indenture, a defeasance
subaccount will be established.
10
<PAGE> 40
Each of the overcollateralization subaccount,
the capital subaccount and the reserve
subaccount will be available to make payments
on a series of transition bonds on each payment
date as described in "The
Indenture--Allocations and Payments" in this
prospectus.
Interest and Principal: Interest will accrue on the outstanding
principal balance of transition bonds of a
series or class at the applicable rate of
interest specified in or determined in the
manner specified in the applicable prospectus
supplement.
On any payment date with respect to any series,
unless principal is payable:
(a) as a result of acceleration triggered by
an event of default,
(b) on a series termination date or class
termination date, as applicable, or
(c) on a redemption date,
the issuer will make principal payments on that
series only until the outstanding principal
balance of that series has been reduced to the
amount specified for that payment date in the
expected amortization schedule set forth in the
prospectus supplement for that series, and only
to the extent funds are available for that
payment as described in this prospectus.
Principal of that series or class of transition
bonds may be paid later than reflected in the
expected amortization schedule for that series
or class.
See "Risk Factors--The Transition
Bonds--Weighted Average Life on Payments of
Transition Bonds May be Affected by Rate of
Intangible Transition Charge Collections or
Optional Redemption" and "Weighted Average Life
and Yield Considerations" in this prospectus.
The entire unpaid principal amount of the
transition bonds will be due and payable if an
event of default under the indenture occurs and
is continuing and the bond trustee or the
holders of a majority in principal amount of
the transition bonds of all series then
outstanding have declared the transition bonds
to be immediately due and payable. See "The
Indenture--
11
<PAGE> 41
Events of Default; Rights Upon Event of
Default" in this prospectus.
Optional Redemption: A prospectus supplement may provide for
redemption of a series of transition bonds at
the option of the issuer.
Payment and Record Dates: The payment dates and record dates for each
series of transition bonds will be listed in
the corresponding prospectus supplement.
Expected Final Payment Dates,
Series Termination Dates and
Class Termination Dates: The expected final payment date for each series
or class of transition bonds will be the date
when all interest and principal of that series
or class is expected to be paid in full. The
series termination date for a series or, if
applicable, the class termination date for a
class of transition bonds will be on or after
the expected final payment date. Failure to pay
the entire outstanding amount of any class or
series by the expected final payment date will
not result in a default with respect to that
class or series unless there is still an
outstanding amount on the series termination
date or class termination date for the class or
series. The expected final payment date and the
series termination date or class termination
date of each series and class of transition
bonds will be specified in the corresponding
prospectus supplement.
Risk Factors: Prospective investors should consider the risks
associated with an investment in the transition bonds. These risks may cause
transition bondholders to suffer a loss of
their investment in transition bonds or may
adversely affect the timing of payments to
transition bondholders.
For a detailed discussion of the material risks
associated with an investment in transition
bonds, prospective investors should review the
discussion under "Risk Factors" which begins on
page 18 of this prospectus.
The Transition Bonds; Issuance
of New Series: The issuer may issue transition bonds in one or
more series, each comprised of one or more
classes. Each series of transition bonds will
be issued under the indenture. See "The
Indenture" in this prospectus.
12
<PAGE> 42
Any series of transition bonds may include one
or more classes which differ as to the bond
rate and amortization of principal. The terms
of all transition bonds of the same series will
be identical, unless that series is comprised
of more than one class, in which case the terms
of all transition bonds of the same class will
be identical. The particular terms of the
transition bonds of any series and, if
applicable, classes of that series, will be
described in the related prospectus supplement.
The terms of that series and any classes of
that series will not be subject to prior review
by, or consent of, the transition bondholders
of any previously issued series. A new series
may be issued under the indenture only upon
satisfaction of the conditions described in
this prospectus under "The Indenture--Issuance
in Series or Classes." See "Risk Factors--The
Transition Bonds--Issuance of Additional Series
May Adversely Affect Outstanding Transition
Bonds" and "The Transition Bonds" in this
prospectus.
Denominations: Each class of transition bonds will initially
be issued in the minimum denominations set
forth in the related prospectus supplement.
Form of the Transition Bonds: Each series and class of transition bonds will
initially be issued either only in book-entry
form through The Depository Trust Company or in
another form as specified in the applicable
prospectus supplement. See "The Transition
Bonds--Book-Entry Registration" in this
prospectus.
Tax Status: West Penn has received a ruling from the
Internal Revenue Service that the transition
bonds will be classified as obligations of West
Penn Funding Corporation. Based on this ruling,
for U.S. federal income tax purposes, the
transition bonds will be treated as debt of
West Penn Funding Corporation secured by a
pledge of the collateral.
The issuer will be treated as a division of
West Penn Funding Corporation and will not be
treated as a separate taxable entity.
Transition bondholders who are not United
States taxpayers generally will not be subject
to United
13
<PAGE> 43
States federal income or withholding taxes on
interest received on the transition bonds.
See "United States Taxation" in this
prospectus.
In addition, in the opinion of Ballard Spahr
Andrews & Ingersoll, LLP, special Pennsylvania
tax counsel to the issuer and West Penn,
interest from the transition bonds received by
a person who is not otherwise subject to
corporate or personal income tax in
Pennsylvania will not be subject to these
taxes. Transition bonds held by deceased
Pennsylvania residents may be subject to
inheritance and estate taxes. Neither residents
nor nonresidents of Pennsylvania will be
subject at the present time to an intangible
personal property tax with respect to the
transition bonds. See "Material Commonwealth of
Pennsylvania Tax Matters" in this prospectus.
ERISA Considerations: Employee benefit plans are permitted to
purchase transition bonds. A fiduciary of any
employee benefit plan or other plan or
arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal
Revenue Code of 1986, as amended, should
carefully review with its legal advisers
whether the purchase or holding of the
transition bonds of any class or series could
give rise to a transaction prohibited or not
otherwise permissible under ERISA or the
Internal Revenue Code. See "ERISA
Considerations" in this prospectus.
Ratings: It is a condition of any underwriter's
obligation to purchase each series or class of
transition bonds that, at the time of issuance,
that series or class receive the rating
indicated in the related prospectus supplement,
which will be in one of the four highest
categories, from one or more rating agencies
which have rated the transition bonds specified
in that prospectus supplement.
A security rating is not a recommendation to
buy, sell or hold securities and may be subject
to revision or withdrawal at any time. No
person is obligated to maintain any rating on
any transition bond and, accordingly, there can
be no assurance that the ratings assigned to
any series or class of transition bonds upon
initial issuance of that series or class will
not be
14
<PAGE> 44
revised or withdrawn by a rating agency at any
time thereafter without prior notification.
If a rating of any series or class of
transition bonds is revised downward or
withdrawn, the liquidity and the price of that
series or class of transition bonds may be
adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of any particular rate of principal
payments on the transition bonds other than the
payment in full of each series or class of
transition bonds by the applicable series
termination date or class termination date.
See "Risk Factors--The Transition Bonds--
Weighted Average Life of Payments on Transition
Bonds May be Affected by Rate of Intangible
Transition Charge Collections or Optional
Redemption" and "Ratings" in this prospectus.
15
<PAGE> 45
LOGO
16
<PAGE> 46
[Diagram of Allocations and Distributions]
17
<PAGE> 47
RISK FACTORS
You should consider the following risk factors in deciding to purchase
transition bonds:
LEGAL, LEGISLATIVE OR REGULATORY ACTIONS COULD ADVERSELY AFFECT TRANSITION
BONDHOLDERS
LEGAL CHALLENGES COULD
ADVERSELY AFFECT TRANSITION
BONDHOLDERS Intangible transition property and its adequacy
to pay principal of and interest on the
transition bonds depends on the Pennsylvania
Competition Act and the West Penn qualified
rate order, as supplemented. If the
Pennsylvania Competition Act or the West Penn
qualified rate order, as supplemented, were
challenged in a lawsuit and a court decided it
was invalid or unenforceable, West Penn would
have breached a representation in the transfer
agreement. In that case, West Penn would have
to indemnify the issuer and the bond trustee
for the losses resulting from that breach. See
"The Transfer Agreement--Representations and
Warranties of West Penn" in this prospectus.
Also, West Penn may not be able to meet its
indemnity obligations. As a result, if the
Pennsylvania Competition Act or the West Penn
qualified rate order, as supplemented, was
overturned, transition bondholders could suffer
a loss of their investment. Also, the time and
expense of enforcing rights against West Penn
could result in a loss to transition
bondholders or delay expected payments on the
transition bonds.
CHANGES IN LAW MAY RESULT IN
LOSSES TO TRANSITION
BONDHOLDERS West Penn will not breach a representation for
a change in law by legislative enactment or
constitutional amendment, including an
enactment or amendment that breaches the
Commonwealth of Pennsylvania's pledge not to
limit, alter or impair intangible transition
property or intangible transition charges.
Examples of a change in law are a repeal of the
Pennsylvania Competition Act, an amendment to
it voiding the existence of intangible
transition property or the adoption of a
federal statute prohibiting the recovery of
stranded costs.
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<PAGE> 48
Under the Pennsylvania Competition Act, the
Commonwealth of Pennsylvania may limit or alter
the value of intangible transition property or
intangible transition charges if "adequate
compensation is made by law" for the protection
of the intangible transition charges and of
transition bondholders. It is unclear if
"adequate compensation . . . by law" would be
sufficient to pay the full amount of the
outstanding principal of and interest on the
transition bonds or would compensate transition
bondholders for any reinvestment risk.
Under the United States and Pennsylvania
Constitutions, the Commonwealth of Pennsylvania
could not repeal or amend the Pennsylvania
Competition Act--by way of legislative
process--or take any action that violates its
pledge and agreement described in the first
paragraph of this subheading without paying
just compensation to the transition bondholders
if doing so would:
-- constitute a permanent taking of the
property interest of transition
bondholders in the intangible transition
property; and
-- deprive the transition bondholders of
their reasonable expectations arising
from their investments in the transition
bonds.
However, even if a court awarded just
compensation, it may not be enough to pay the
full amount of principal of and interest on the
transition bonds or compensate transition
bondholders for any reinvestment risk.
Also, if there were a change in law described
in the first paragraph of this subheading,
there might be costly and time-consuming
litigation. There is no judicial precedent
directly on point, and the security for the
transition bondholders is a new type of asset.
As a result, the outcome of any of this
litigation cannot be predicted with certainty.
FEDERAL LEGISLATION MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS Congress or a federal agency may pass a law or
adopt a rule or regulation prohibiting or
limiting the collection of intangible
transition charges. Congress considered in 1997
at least one bill prohibiting the recovery of
stranded costs, but the bill was not
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<PAGE> 49
enacted. The issuer cannot predict if any
future bills that prohibit the recovery of
stranded costs will become law or, if they
become law, what their final form or effect
will be. If the Pennsylvania Competition Act or
the West Penn qualified rate order, as
supplemented, was preempted by federal law, a
court may decide that it is not a taking for
which the government would have to pay the
estimated market value of the transferred
intangible transition property. Even if any
federal preemption were considered a taking,
for which the government had to pay this value,
that compensation may not be enough to pay the
full amount of principal of and interest on the
transition bonds. In that case, transition
bondholders could suffer a loss of their
investment. Also, in this case, West Penn would
not be required to indemnify the issuer or the
bond trustee. See "--Changes in Law May Result
in Losses to Transition Bondholders" above.
THE PENNSYLVANIA PUBLIC
UTILITY
COMMISSION MAY TAKE ACTIONS
THAT ADVERSELY AFFECT
TRANSITION
BONDHOLDERS The Pennsylvania Public Utility Commission will
continue to regulate some aspects of the electric industry in Pennsylvania and
it may take actions that adversely affect
transition bondholders. For example, it will
-- regulate all aspects of the business of
electric distribution companies;
-- set financial and other requirements for
electric generation suppliers and other
third parties; and
-- set customer billing guidelines and
collection, metering and disclosure
requirements for electric generation
suppliers and other third parties.
Also, subject to the Commonwealth of
Pennsylvania's pledge not to limit or alter the
value of intangible transition charges or
intangible transition property unless adequate
compensation is made for the full protection of
the transition bondholders, the Pennsylvania
Public Utility Commission could revise or
rescind any of its regulations. West Penn
cannot predict whether the Pennsylvania Public
Utility Commission will make new regulations or
the timing or content of any new Pennsylvania
Public Utility Commission regulations.
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<PAGE> 50
West Penn agrees to take legal or
administrative actions, including bringing
lawsuits, as may be reasonably necessary to
block or overturn:
-- any government attempt to repeal or
change the Pennsylvania Competition Act,
the West Penn qualified rate order, as
supplemented, or the intangible
transition property in a way that is
materially adverse to the holders of
transition bonds, or
-- lawsuits by third parties which, if
successful, would result in a breach of
West Penn's representations concerning
the intangible transition property, the
West Penn qualified rate order, as
supplemented, or the Pennsylvania
Competition Act.
West Penn, however, may not be able to take
those actions and any action West Penn is able
to take may not be successful.
Future Pennsylvania Public Utility Commission
regulations may affect the rating of the
transition bonds or their price. Those actions
may also affect the rate of collections of
intangible transition charges and, as a result,
the amortization of transition bonds and their
weighted average lives. As a result, transition
bondholders could suffer a loss of their
investment.
LITIGATION AND OTHER EVENTS IN
OTHER JURISDICTIONS COULD
ADVERSELY AFFECT TRANSITION
BONDHOLDERS A court decision based on the U.S. Constitution
or other federal law overturning a state
statute like the Pennsylvania Competition Act
adopted by another state could give rise to a
challenge to the Pennsylvania Competition Act.
That decision would not automatically
invalidate the Pennsylvania Competition Act. It
could, however, set a legal precedent for a
successful challenge to the Pennsylvania
Competition Act that could adversely affect
transition bondholders. As a result, the market
value of the transition bonds could be reduced.
Also, legal actions in other states challenging
stranded cost recovery or securitization of
stranded cost recovery could adversely affect
the market for transition bonds. Legal
challenges brought in jurisdictions other than
Pennsylvania based on state laws other than
Pennsylvania would not, however, directly
affect the
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<PAGE> 51
Pennsylvania Competition Act or the interests
of the transition bondholders. These actions,
however, could increase awareness of the
political and other risks associated with these
types of securities and limit the liquidity of
the transition bonds and impair their value.
NATURE OF INTANGIBLE TRANSITION PROPERTY
LACK OF CONTINUED OPERATION OF
EXISTING GENERATION FACILITIES
MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS
Under the Pennsylvania Competition Act,
recovery of stranded costs associated with
existing generating facilities depends on
continued operation of these facilities. There
is an exception if that operation is uneconomic
because of the transition to a competitive
market. Although the parts of the West Penn
qualified rate order, as supplemented,
providing for collection of intangible
transition charges are stated to be
irrevocable, the collection of intangible
transition charges could be challenged if some
generating facilities of West Penn ceased to
operate at reasonable levels. If the challenge
were successful, the issuer may not have funds
to make payments on the transition bonds. As a
result, transition bondholders could suffer a
loss of their investment. Also, in this case,
West Penn would not be required to indemnify
the issuer or the bond trustee.
FAILURE TO MAKE ADEQUATE
ADJUSTMENTS TO THE INTANGIBLE
TRANSITION CHARGES MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS The actual rate of collections of intangible
transition charges may vary from projections
used to set the intangible transition charges
due to a number of factors. These include
variations in electricity usage by customers
from projected electricity usage and
delinquencies and write-offs. The servicer must
seek an adjustment to the intangible transition
charges from the Pennsylvania Public Utility
Commission on each calculation date to reflect
shortfalls in or excesses of collections of
intangible transition charges for prior
periods, including shortfalls or excesses
resulting from inaccurate servicer forecasts.
The adjustments are intended to take into
account any projected trends in customers or
usage impacting billed revenue from which
intangible transition charges are allocated to
prevent shortfalls or excesses of collections
of intangible transition charges in future
periods.
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<PAGE> 52
If those forecasts or projected trends are not
accurate, adjustments to the intangible
transition charges may not result in the issuer
receiving funds sufficient to pay interest on
the transition bonds when due and principal of
the transition bonds in accordance with the
expected amortization schedule.
The Pennsylvania Competition Act and the West
Penn qualified rate order, as supplemented,
require the Pennsylvania Public Utility
Commission to approve annual adjustment
requests within 90 days of the applicable date
on which the servicer calculates the required
adjustment and files that adjustment request
with the Public Utility Commission. Also, the
West Penn qualified rate order, as
supplemented, provides that, during the period
commencing 12 months prior to the last
scheduled payment date for the payment of
principal on the last class of each series of
transition bonds, monthly or quarterly
adjustments will become effective on the first
day of the next calendar month or the first day
of the next quarterly period, respectively. If
the Pennsylvania Public Utility Commission
fails to approve these adjustments on a timely
basis or there is any litigation challenging
the approval of these adjustments or
methodology in calculating these adjustments,
the price and liquidity of the transition bonds
could be adversely affected.
Any of these factors could affect the
sufficiency of amounts available to pay the
principal of the transition bonds or the dates
of the payment of the principal of the
transition bonds. As a result, transition
bondholders could suffer a loss of their
investment or the weighted average lives of the
transition bonds could be adversely affected.
LIMITED TIME PERIOD FOR
IMPOSITION OR ADJUSTMENT OF
INTANGIBLE TRANSITION CHARGES
MAY RESULT IN LOSSES TO
TRANSITION BONDHOLDERS The intangible transition charges associated
with the issuance of transition bonds may not
be imposed for service periods after December
31, 2008. Also, after the final adjustment date
specified for each series, the intangible
transition charges may no longer be adjusted
for that series. After that date, any
shortfalls in collections of intangible
transition charges available to make payments
on the series are expected to be covered
through amounts, if any, on deposit in the
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<PAGE> 53
reserve subaccount, the overcollateralization
subaccount and the capital subaccount. If those amounts are not enough to cover
the shortfalls, the transition bonds may not be
paid in full by the applicable expected final
payment date or class or series termination
date, and transition bondholders would suffer a
loss of their investments.
LACK OF HISTORICAL INFORMATION
ABOUT, AND INEXPERIENCE
ADMINISTERING, INTANGIBLE
TRANSITION PROPERTY MAY RESULT
IN LOSSES TO TRANSITION
BONDHOLDERS The servicer does not have historical
information for intangible transition property,
although it does have customer and energy usage
records. Those usage records, however, do not
reflect customers' payment patterns or energy
usage in a competitive market. They also do not
reflect consolidated billing by electric
generation suppliers or other third parties. As
a result, these records may not be useful in
predicting payments of intangible transition
charges.
The servicer does not have any experience
administering this type of asset.
In the event of a foreclosure, there is likely
to be a limited market, if any, for the
transferred intangible transition property.
Therefore, foreclosure may not be a realistic
or practical remedy. See "--Bankruptcy;
Creditors' Rights" below.
These factors may result in delays or
shortfalls in scheduled payments on the
transition bonds.
ADJUSTMENTS TO INTANGIBLE
TRANSITION CHARGES BY RATE
SCHEDULE MAY RESULT IN
INSUFFICIENT COLLECTIONS The customers who will be responsible for
paying intangible transition charges are
divided into 20 rate schedules. These rate
schedules are grouped among three customer
categories. Intangible transition charges will
be assessed by rate schedule within each
customer class. Adjustments to the intangible
transition charges will also be made to each
rate schedule within each customer category. A
shortfall in collection in one rate schedule
must be made up by adjustments to that rate
schedule as well as the other rate schedules
within that customer category. However,
shortfalls in a customer category may not be
corrected by making adjustments to rate
schedules in any other customer category. Some
rate schedules in a particular category have a
significantly smaller number of customers than
other rate schedules in that customer category.
If customers in a rate schedule fail to pay
intangible transition charges, the servicer may
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<PAGE> 54
have to substantially increase the intangible
transition charges for the remaining customers
in that rate schedule and the other rate
schedules in that customer category. The
servicer may also have to take this action if
consumers representing a significant percentage
of a rate schedule cease to be customers. These
increases could lead to further failures by the
remaining customers in that customer category
to pay intangible transition charges, thereby
increasing the risk of a shortfall in funds to
pay the transition bonds.
ONE CUSTOMER CATEGORY CANNOT
COMPENSATE FOR THE FAILURE TO
COLLECT INTANGIBLE TRANSITION
CHARGES FROM ANOTHER CATEGORY The Pennsylvania Competition Act and the
qualified rate order, as supplemented, do not
permit costs to be shifted among customer
categories. As a result, a shortfall in
collections of intangible transition charges in
one customer category cannot be made up by
adjustments of intangible transition charges in
the other customer categories. See "The
Pennsylvania Competition Act" in the
prospectus.
THE AMOUNT OF GENERATION
CHARGES INCLUDING INTANGIBLE
TRANSITION CHARGES MAY NOT
EXCEED A STATUTORY CAP The Pennsylvania Competition Act and the
qualified rate order, as supplemented, set a
cap on generation charges including intangible
transition charges through December 31, 2008.
This generation rate cap applies to each rate
schedule within each customer category
separately. If there is a severe or persistent
shortfall in collections of intangible
transition charges in any rate schedule, the
rate cap applicable to that rate schedule may
prevent the servicer from adjusting intangible
transition charges for that rate schedule in
excess of the rate cap. If this occurs, the
servicer would have to adjust intangible
transition charges for the remaining rate
schedules within that customer category. These
adjustments may result in the assessment of
intangible transition charges on the remaining
rate schedules at a level that is limited by
their rate caps. This could reduce the amount
or the rate of collections of intangible
transition charges, which may result in a loss
to transition bondholders or delay expected
payments on the transition bonds. See "The
Pennsylvania Competition Act--The Pennsylvania
Competition Act's General Effect on the
Electric Utility Industry in Pennsylvania" in
this prospectus.
The qualified rate order, as supplemented,
gives West Penn the right to request relief
from the generation
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<PAGE> 55
rate cap if the combined total of the charges
subject to that cap exceeds the generation rate
cap. However, there is no assurance that the
Pennsylvania Public Utility Commission would
grant this request, or that the Pennsylvania
Public Utility Commission would grant the
request in a timely manner. West Penn also may
adjust the shopping credit to comply with the
generation rate cap, if necessary.
SERVICING
WEST PENN CEASING TO ACT AS
SERVICER MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS The servicer will be responsible for
calculating adjustments to the intangible
transition charges, submitting adjustment
requests to the Pennsylvania Public Utility
Commission and billing and collecting the
intangible transition charges. If West Penn
ceased servicing intangible transition
property, it may be hard to obtain a successor
servicer. Also, a transfer of servicing
functions will require cooperation by the
Pennsylvania Public Utility Commission. A
successor servicer may have difficulties in
collecting intangible transition charges and
determining appropriate adjustments to
intangible transition charges. Also, under
current law, a successor servicer may not be
able to shut off service to a customer that
fails to pay intangible transition charges.
If West Penn were replaced as servicer, any of
those factors and others could delay the timing
of payments on the intangible transition
property. As a result, transition bondholders
could incur a loss of their investment. See
"The Servicing Agreement" in this prospectus.
INACCURATE PROJECTIONS BY
SERVICER MAY RESULT IN LOSSES
TO TRANSITION BONDHOLDERS If the servicer incorrectly forecasts the
billed revenue from which intangible transition
charges are allocated and the delinquency and
write-off experience relating to intangible
transition charges, the timely receipt of
collections of intangible transition charges
could be adversely affected. A variety of risks
and uncertainties could cause actual results to
differ materially from those projected. They
include changes in political, social and
economic conditions, weather, unexpected
demographic trends, catastrophes, regulatory
initiatives, compliance with governmental
regulations and litigation. All of those events
and circumstances are
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<PAGE> 56
beyond the control of the servicer. Adjustments
to the intangible transition charges are
required to be made under the Pennsylvania
Competition Act if actual results differ from
projections. However, until the adjustments are
made, payments on the transition bonds could be
delayed, and the market value of the transition
bonds could be reduced. There can be no
assurance that, when made, adjustments will be
sufficient.
DELAYS IN PAYMENTS ON
TRANSITION BONDS MAY BE
CAUSED BY CHANGES IN PAYMENT
TERMS The servicer is permitted to alter the terms of
billing and collection arrangements and modify
amounts due from customers. The servicer cannot
change the amount of a customer's individual
intangible transition charges, but it can take
actions that it believes will increase
collections from a customer. These actions
might include, for example, agreeing to an
extended payment schedule or agreeing to
write-off the remaining portion of an
outstanding bill. The servicer can also
write-off outstanding bills that it deems
uncollectible in accordance with its usual
billing and collection practices. Additionally,
West Penn or a successor to West Penn as
servicer may change its billing and collection
practices, or the Pennsylvania Public Utility
Commission may require changes to these
practices. These changes could delay or reduce
collections of intangible transition charges
and, as a result, adversely affect the payment
of interest on the transition bonds on a timely
basis or the payment of principal of the
transition bonds in accordance with the
expected schedule. See "The Servicer--Customers
and Operating Revenues," "--Billing Process"
and "--Limited Information on Customers'
Creditworthiness" in this prospectus.
WEST PENN'S LIMITED
INFORMATION ON CUSTOMERS'
CREDITWORTHINESS MAY RESULT IN
INCREASED DELINQUENCIES AND
WRITE-OFFS The servicer's ability to collect intangible
transition charges will depend in part on the
creditworthiness of its customers. Under
Pennsylvania law, West Penn generally must
provide service to new customers in its service
area. Credit investigations of new customers by
West Penn have been limited. If the servicer
incorrectly determines the creditworthiness of
a large number of its customers, there may be
significant increases in delinquencies and
write-offs. This could result in delays in
payments to transition bondholders. See "--It
May Be More Difficult to Collect Intangi-
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<PAGE> 57
ble Transition Charges Due To Billing by Third
Parties" below.
IT MAY BE MORE DIFFICULT TO
COLLECT INTANGIBLE TRANSITION
CHARGES DUE TO BILLING BY
THIRD PARTIES Under the Pennsylvania Competition Act, after
September 1, 2000, intangible transition charges may be collected by third
parties providing billing or metering services,
including electric generation suppliers. Any
third party that provides consolidated billing
must pay the servicer amounts billed by the
servicer to the third party, including the
intangible transition charges. Third party
billing parties are required to make these
payments even if the third party fails to
collect those amounts from customers.
Billing by third parties as described in the
paragraph above could adversely affect the
timely payment of interest on the transition
bonds or the payment of principal of the
transition bonds in accordance with the
expected amortization schedule because:
-- any third party that collects intangible
transition charges may not use the same
customer credit standards as the
servicer;
-- problems may arise from new and untested
systems or any lack of experience on the
part of third parties with customer
billing and collections;
-- the servicer may not be able to reduce
credit risks relating to third parties
in the same manner in, or to the same
extent to which, it reduces those risks
relating to its customers;
-- the servicer generally will not have the
right to pursue customers of a third
party which provides consolidated
billing who defaults in the payment of
intangible transition charges; and
-- to the extent that customers choose
consolidated billing by electric
generation suppliers or other third
parties, the issuer may be relying on a
small number of electric generation
suppliers and other third parties rather
than a large number of individual
customers, to pay collections of
intangible transition charges. As a
result, a default in the payment of
intangible transition charges by a
single third party that provides billing
service to a large number of customers
may adversely affect
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<PAGE> 58
the timing of payments on the transition
bonds or could result in a loss of their
investment.
Neither West Penn nor the servicer will pay any
shortfalls resulting from the failure of any
third party to forward collections of
intangible transition charges to the servicer.
The adjustment mechanism for the intangible
transition charges, as well as the amounts on
deposit in the capital subaccount, the
overcollateralization subaccount and the
reserve subaccount are intended to address
delays in the timing of collections and
payments. However, delays in payments to
transition bondholders might occur as a result
of delays in obtaining adjustments, limitations
on rate adjustments or any lack of funds in the
reserve subaccount, the overcollateralization
subaccount and the capital subaccount after the
final adjustment date.
CUSTOMERS WITHIN WEST PENN'S
SERVICE AREA MAY STOP OR
DELAY MAKING INTANGIBLE
TRANSITION CHARGE PAYMENTS Customers within West Penn's service area may
stop or delay paying intangible transition
charges because:
-- they may be confused by the assessment
of a charge they have not seen before or
because of changes in billing and
payment arrangements, including billing
by third parties;
-- they may misdirect their payments as
they may owe amounts to several
different parties which may include both
West Penn and an electric generation
supplier or other third party;
-- if a large number of customers
self-generate, move out of West Penn's
service territory, significantly reduce
their electricity consumption or cease
consuming electricity altogether, the
intangible transition charges, as
periodically adjusted, required to be
paid by remaining customers may become
burdensome. Greater delinquencies and
write-offs or petitions to the
Pennsylvania Public Utility Commission
to reduce intangible transition charges
might result; and
-- the servicer may not be able to collect
intangible transition charges from
customers who partially self-generate
because the servicer may not know which
consumers are self-generating and will
not be able to exercise full shut-off
rights against a self-generator.
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<PAGE> 59
Any of these factors could result in delays or
shortfalls in scheduled payments on the
transition bonds.
THE COMMINGLING OF
COLLECTIONS OF INTANGIBLE
TRANSITION CHARGES WITH
SERVICER'S OTHER FUNDS MAY
RESULT IN PAYMENT DELAYS Until collections of intangible transition
charges are deposited with the bond trustee,
the servicer will not segregate them from its
general funds. If the servicer does not or
cannot remit the full amount of the collections
of intangible transition charges there may be
delays or reductions in payments to transition
bondholders. The adjustments to the intangible
transition charges and amounts, if any, on
deposit in the reserve subaccount, the
overcollateralization subaccount and the
capital subaccount are designed to reduce this
risk. However, there may be delays in payments
to transition bondholders if there are delays
in implementation of the adjustment mechanism
or a lack of funds in the reserve subaccount,
the overcollateralization subaccount and the
capital subaccount after the final adjustment
date.
POTENTIAL COMPUTER PROGRAM
PROBLEMS BEGINNING IN THE
YEAR 2000 MAY RESULT IN
PAYMENT DELAYS ON TRANSITION
BONDS There could be delays in principal and interest
payments on the transition bonds if West Penn, as servicer, or the bond trustee
experiences problems in its computer programs,
or those of vendors on whom they rely, relating
to the Year 2000. Many existing computer
programs use only two digits to identify a
year. These programs could fail or produce
erroneous results during the transition from
the Year 1999 to the Year 2000 and afterwards.
West Penn has evaluated the impact of preparing
its systems for the Year 2000. It has
identified areas of potential impact and is
implementing conversion efforts. On March 30,
1999, West Penn reported to the Pennsylvania
Public Utility Commission that, except for a
few items, its critical electricity production
and delivery systems were Year 2000 ready
pending final confirmation system testing of
its power stations in April and May. West Penn
has determined that as of June 30, 1999, all of
its critical components and systems related to
safety and the production and distribution of
electricity and nearly all of its important
business systems, including accounting and
billing, are Year 2000 ready. West Penn
anticipates that the remediation and testing
work on the remaining
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business and non-critical systems will be
completed by October 31, 1999. West Penn has
defined Year 2000 ready to mean that a
determination has been made by testing or other
means that a component or system will be able
to perform its critical functions, or that
contingency plans are in place to overcome any
inability to do so. See "The Servicer--Year
2000 Compliance" in this prospectus.
If West Penn, or a third party on whom West
Penn relies for collection of intangible
transition charges, does not have a computer
system that is Year 2000 compliant by January
1, 2000, West Penn's ability to service the
intangible transition property may be
materially and adversely affected.
If the bond trustee does not have a computer
system that is Year 2000 compliant by January
1, 2000, the bond trustee's ability to make
distributions on the transition bonds may be
materially and adversely affected.
The Year 2000 issue could also affect usage if
there are problems with the generation or
distribution of electricity.
There is no way to predict the impact of the
Year 2000 issue. However, if there are
significant interruptions of service to
customers or significant business interruptions
in general caused by Year 2000 issues, there
could be significant delays in collections of
intangible transition charges. In that case,
payments to transition bondholders could be
delayed.
BANKRUPTCY; CREDITORS' RIGHTS
BANKRUPTCY OF WEST PENN OR
WEST PENN FUNDING
CORPORATION MAY RESULT IN
LOSSES TO TRANSITION
BONDHOLDERS GENERAL. The bankruptcy of West Penn or West
Penn Funding Corporation could have several
adverse consequences for transition
bondholders, the most important of which are
briefly described below.
TRANSFER OF INTANGIBLE TRANSITION PROPERTY MAY
BE RECHARACTERIZED AS A FINANCING RATHER THAN A
TRUE SALE. The Pennsylvania Competition Act
provides that a transfer of intangible
transition property by an electric utility to
an assignee that is expressly stated to be a
sale or other absolute transfer in a
transaction approved in a qualified rate order,
will be treated as a
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sale, rather than a pledge or other financing,
of the intangible transition property. West
Penn will represent in the transfer agreement
that:
-- the transfer of the transferred
intangible transition property to West
Penn Funding Corporation is a capital
contribution; and
-- the transfer of the transferred
intangible transition property by West
Penn Funding Corporation to the issuer
is a sale.
West Penn and West Penn Funding Corporation
will also represent that they will take the
appropriate actions under the Pennsylvania
Competition Act, including filing an intangible
transition property notice, to perfect these
transfers.
However, if West Penn became a debtor in a
bankruptcy case, the bankruptcy trustee, West
Penn or another party could take the position
that the transfer of the transferred intangible
transition property to West Penn Funding
Corporation was a financing transaction and not
a capital contribution. Similarly, if West Penn
Funding Corporation became a debtor in a
bankruptcy case, the bankruptcy trustee, West
Penn Funding Corporation or another party could
take the position that the sale of the
transferred intangible transition property to
the issuer was a financing transaction and not
a true sale. If a court agreed with either of
these positions, delays or reductions in
payments on the transition bonds could result.
Regardless of a court's final decision on the
character of the transactions, the mere fact of
a West Penn or West Penn Funding Corporation
bankruptcy could result in delays in payments
on the transition bonds. A bankruptcy also
could have an adverse effect on the secondary
market for the transition bonds, including the
liquidity and market value of the transition
bonds.
To reduce the impact of the possible
recharacterization of a sale or other absolute
transfer of intangible transition property as a
financing transaction, the Pennsylvania
Competition Act and related regulations provide
that if an intangible transition property
notice is filed and the transfer is later held
to be a financing transaction, that notice will
be deemed to constitute a
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filing with respect to a security interest. The
Pennsylvania Competition Act also provides that
any such filing in respect of transition bonds
takes precedence over any other filings.
As a result of these filings, West Penn Funding
Corporation would be a secured creditor of West
Penn and the issuer would be a secured creditor
of West Penn Funding Corporation, entitled to
recover against the collateral. If, however,
intangible transition property notices are not
filed for any reason, West Penn Funding
Corporation or the issuer fails to otherwise
perfect its interest in the transferred
intangible transition property and the transfer
is thereafter deemed not to constitute a true
sale or other absolute transfer, West Penn
Funding Corporation would be an unsecured
creditor of West Penn or the issuer would be an
unsecured creditor of West Penn Funding
Corporation.
COURT MAY ORDER CONSOLIDATION OF THE ISSUER,
WEST PENN FUNDING CORPORATION AND WEST
PENN. If West Penn or West Penn Funding
Corporation became a debtor in a bankruptcy
case, the bankruptcy trustee, West Penn or West
Penn Funding Corporation or another party may
attempt to substantively consolidate the assets
of the issuer and West Penn or West Penn
Funding Corporation. West Penn, West Penn
Funding Corporation and the issuer have taken
steps to attempt to reduce this risk. However,
if a court ordered that the assets and
liabilities of the issuer be consolidated with
those of West Penn or West Penn Funding
Corporation, delays or reductions in payments
on the transition bonds would result.
COURT MAY MAKE LOW ESTIMATION OF CONTINGENT
CLAIMS; ENFORCEABILITY OF REMEDY PROVISIONS MAY
BE CHALLENGED. If West Penn became a debtor
in a bankruptcy case, claims, including
indemnity claims, by the issuer against West
Penn under the transfer agreement and the
related documents would be unsecured claims and
could be discharged. Also, the bankruptcy
trustee, West Penn or another party may request
that the bankruptcy court estimate any
contingent claims, including for West Penn's
indemnity obligation, of the issuer against
West Penn and take
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the position that the claims should be
estimated at zero or at a low amount because
the contingency giving rise to the claims is
unlikely to occur.
If West Penn became a debtor in a bankruptcy
case and West Penn were obligated under the
transfer agreement to indemnify the issuer and
the bond trustee, the bankruptcy trustee, West
Penn or another party might challenge the
enforceability of the indemnity provisions. If
a court decided that the indemnity provisions
were unenforceable, the issuer should have a
claim against West Penn for actual damages
based on breach of contract principles. The
amount of those actual damages would be subject
to estimation or calculation by the court.
As a result of any of the above-described
actions or claims, transition bondholders could
suffer delays in payment, reduction in the
investment value of their transition bonds or a
loss of their investment.
INTANGIBLE TRANSITION PROPERTY MAY NOT BE HELD
TO BE CURRENT PROPERTY, RESULTING IN UNSECURED
DEBT. The Pennsylvania Competition Act
provides that the transferred intangible
transition property constitutes a current
property right on and after the date that the
West Penn qualified rate order, as
supplemented, became effective. West Penn has
also made a representation to that effect.
However, if West Penn became a debtor in a
bankruptcy case, the bankruptcy trustee, West
Penn or another party could argue that, because
the payments based on the transferred
intangible transition property are indirectly
usage-based charges, the transferred intangible
transition property comes into existence only
as customers use electricity.
If a court adopted this position, a security
interest in favor of the transition bondholders
may not attach to intangible transition charges
in respect of electricity used after the
beginning of a bankruptcy case for West Penn.
If a court took this position and also
determined that the transferred intangible
transition property has not been sold or
transferred absolutely to West Penn Funding
Corporation or the issuer, the issuer would be
an unsecured creditor of West Penn Funding
Corporation and West Penn Funding Corporation
would be an unsecured creditor of West Penn
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and delays or reductions in payments on the
transition bonds could result.
Also, a court could rule that any intangible
transition charges relating to electricity
consumed after the commencement of West Penn's
bankruptcy cannot be transferred to the issuer
or the bond trustee. This could result in
delays or reductions of payments of the
transition bonds.
Payments based on the intangible transition
charges are indirectly usage-based charges.
Therefore, if West Penn became a debtor in a
bankruptcy case, the bankruptcy trustee, West
Penn or another party could argue that the
issuer should pay a portion of the costs of
West Penn associated with generating,
transmitting or distributing the electricity
use of which gave rise to the collections of
intangible transition charges related to the
transition bonds. If a court adopted this
position, there could be delays or reductions
in payments to the transition bondholders.
Whether or not West Penn is the debtor in a
bankruptcy case, if a court decided that the
transferred intangible transition property
comes into existence only as customers use
electricity, a tax or government lien or other
nonconsensual lien on property of West Penn
arising before the transferred intangible
transition property came into existence could
have priority over the issuer's interest in the
transferred intangible transition property.
This could result in a reduction of amounts
paid to the transition bondholders. Adjustments
to the intangible transition charges may be
available to reduce this risk, although delays
in implementation or challenges to those
adjustments may cause a delay in receipt of
payments.
AUTOMATIC STAY MAY PREVENT OR DELAY ENFORCEMENT
OF RIGHTS BY BOND TRUSTEE. If there is an
event of default under the indenture, the
Pennsylvania Competition Act permits the
Pennsylvania Public Utility Commission to order
the segregation and payment of all intangible
transition charges to transition bondholders.
The Pennsylvania Competition Act provides that
the order will be effective notwithstanding
bankruptcy or other insolvency proceedings with
respect to
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the utility or its assignee. The Pennsylvania
Public Utility Commission, however, may not
issue this order because of the automatic stay
provisions of the Bankruptcy Code. Also, a
bankruptcy court may not lift the stay to
permit this action by the Pennsylvania Public
Utility Commission. In that event, the bond
trustee may under the indenture seek an order
from the bankruptcy court lifting the automatic
stay with respect to the Pennsylvania Public
Utility Commission action and an order
requiring segregation of the revenues arising
from the transferred intangible transition
property. However, a court may not grant either
order.
BANKRUPTCY OF SERVICER MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The servicer can commingle collections of
intangible transition charges with its own
funds until they are deposited with the bond
trustee. The Pennsylvania Competition Act
provides that the priority of a lien created
under the Pennsylvania Competition Act is not
adversely affected by the commingling of funds
arising with respect to intangible transition
property with funds of the electric utility.
However, in the event of a bankruptcy of the
servicer, the bankruptcy trustee, the servicer
or another party might argue that collections
of intangible transition charges held by the
servicer were property of the servicer included
in its bankruptcy estate. If a court adopted
this position, there may be delays in payments
due on the transition bonds.
If the servicer became a debtor in a bankruptcy
case, the automatic stay may prevent the issuer
from effecting a transfer of servicing, even
though the servicing agreement provides that
the bond trustee appoint, or petition the
Pennsylvania Public Utility Commission or a
court to appoint, a successor servicer.
THE TRANSITION BONDS
ABSENCE OF SECONDARY MARKET
FOR TRANSITION BONDS COULD
LIMIT ABILITY TO RESELL
TRANSITION BONDS The underwriters for the transition bonds may
assist in resales of the transition bonds but
they are not required to do so. A secondary
market for the transition bonds may not
develop. If a secondary market for the
transition bonds does develop, it may not
continue or it may not be sufficiently liquid
to
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allow holders to resell any of the transition
bonds. See "Plan of Distribution for the
Transition Bonds" in this prospectus.
LIMITED SOURCES OF PAYMENTS
FOR THE TRANSITION BONDS MAY
RESULT IN LOSSES TO TRANSITION
BONDHOLDERS The transition bonds are obligations of the
issuer, a special purpose entity, only. The
transition bonds will not represent an interest
in or obligation of West Penn, West Penn
Funding Corporation, the bond trustee or any
entity other than the issuer. The issuer has no
property other than the collateral. The
collateral is the sole source of payment on the
transition bonds. None of the transition bonds
will be guaranteed or insured by West Penn,
West Penn Funding Corporation, the bond trustee
or any affiliates of those entities, other than
the issuer, or any other entity.
ISSUANCE OF ADDITIONAL SERIES
MAY ADVERSELY AFFECT
OUTSTANDING TRANSITION BONDS The issuer may from time to time issue new
series of transition bonds without the prior
review by or consent of the transition
bondholders of any previously issued series. A
new series of transition bonds may not be
issued if it would result in the credit ratings
on any outstanding series of transition bonds
being reduced or withdrawn, but the issuance of
any other series of transition bonds might have
an impact on the timing or amount of payments
received by transition bondholders. See "The
Transition Bonds" and "The Indenture--Issuance
in Series or Classes" in this prospectus.
In addition, various matters relating to the
transition bonds require a vote of all
transition bondholders of all series, even
though there may be differences in the
interests or positions among those series or
classes of those series. This could result in
voting outcomes adverse to the interests of one
or more series or classes of transition bonds.
SECURITIES RATINGS ARE LIMITED
AND DO NOT ASSESS TIMING OF
PRINCIPAL PAYMENTS The transition bonds will be rated by one or
more established rating agencies. The ratings
merely analyze the probability that the issuer
will repay the total principal amount of the
transition bonds at final maturity--the series
or class termination date, as applicable--and
will make timely interest payments. The ratings
do not assess the speed at which the Issuer
will repay the principal of the transition
bonds. As a result, any series or class of
transition bonds
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might be paid later than scheduled, resulting
in a weighted average life of those transition
bonds which is longer than expected. A security
rating is not a recommendation to buy, sell or
hold securities. There can be no assurance that
a rating will remain in effect for any given
period of time or that a rating will not be
revised or withdrawn entirely by a rating
agency if, in its judgment, circumstances so
warrant.
TRANSITION BONDHOLDERS MAY
RECEIVE PRINCIPAL PAYMENTS
LATER THAN EXPECTED The actual dates on which principal is paid on
each class of transition bonds might be
affected by the amount and timing of receipt of
collections of intangible transition charges.
Since the amount of intangible transition
charges collected from each customer will
depend upon the customer's usage of
electricity, the aggregate amount and timing of
collections of intangible transition
charges--and the resulting amount and timing of
principal payments on the transition
bonds--will depend, in part, on actual usage of
electricity and the rate of delinquencies and
write-offs. See "--Servicing--Inaccurate
Projections by Servicer May Result in Losses on
Transition Bonds" above.
Although the intangible transition charges will
be adjusted from time to time based in part on
the actual rate of collections of intangible
transition charges during prior billing
periods, the servicer may not be able to
forecast accurately actual customer energy
usage and the rate of delinquencies and
write-offs or implement adjustments to the
intangible transition charges. If collections
of intangible transition charges are received
at a slower rate than expected, payments on the
transition bonds may be made later than
expected, resulting in a longer weighted
average life. Because principal will generally
be paid at a rate not to exceed that reflected
in the expected amortization schedule, the
transition bonds are not expected to be retired
earlier than scheduled other than in the event
of a redemption or acceleration.
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TRANSITION BONDHOLDERS MAY
HAVE TO REINVEST THE PRINCIPAL
OF THEIR INVESTMENT AT A LOWER
RATE OF RETURN BECAUSE OF
OPTIONAL REDEMPTION OF THE
TRANSITION BONDS If so provided in a prospectus supplement,
there may be optional redemptions of the
transition bonds. Future market conditions may
require transition bondholders to reinvest the
proceeds of a redemption at a rate lower than
the rate received on the transition bonds. The
issuer cannot predict whether it will redeem
any series of transition bonds. See "Weighted
Average Life and Yield Considerations" and "The
Transition Bonds--Credit Enhancement" in this
prospectus.
WEST PENN'S OBLIGATION TO
INDEMNIFY THE ISSUER FOR A
BREACH OF A REPRESENTATION OR
WARRANTY MAY NOT BE
SUFFICIENT TO PROTECT YOUR
INVESTMENT The obligations of West Penn under the transfer
agreement to West Penn Funding Corporation have been assigned by West Penn
Funding Corporation to the issuer pursuant to
the sale agreement. If West Penn breaches a
representation or warranty in the transfer
agreement, West Penn is obligated to indemnify
the issuer and the bond trustee for any
liabilities, obligations, claims, actions,
suits or payments resulting from that breach,
as well as any reasonable costs and expenses
incurred. In addition, West Penn is obligated
to indemnify the issuer and the bond trustee
for principal and interest on the transition
bonds not paid when due in accordance with
their terms as a result of a breach of a
representation or warranty. West Penn will not
be obligated to repurchase the intangible
transition property in the event of a breach of
any of its representations and warranties
regarding the intangible transition property,
and neither the bond trustee nor the transition
bondholders will have the right to accelerate
payments on the transition bonds as a result of
the breach. West Penn is also obligated to
indemnify the issuer and the bond trustee for
the amount of any deposits to the issuer
required to have been made which are not made
when so required as a result of a breach of a
representation or warranty. However, the amount
of any indemnification paid by West Penn may
not be sufficient for you to recover your
transition bond investment. If West Penn
becomes obligated to indemnify transition
bondholders, the ratings on the transition
bonds will likely be downgraded since
transition bondholders will be unsecured
creditors of West Penn with respect to any of
these indemnification amounts. See "The
Transfer Agreement--Representations and
Warranties of West Penn" in this prospectus.
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GLOSSARY OF DEFINED TERMS
You can find a glossary of defined terms used in this prospectus beginning
on page 150 in this prospectus.
AVAILABLE INFORMATION
The issuer has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, with
respect to the transition bonds. This prospectus, which forms a part of the
registration statement, and any prospectus supplement describe the material
terms of some of the documents filed as exhibits to the registration statement;
however, this prospectus and any prospectus supplement do not contain all of the
information contained in the registration statement and its exhibits. Any
statements contained in this prospectus or any prospectus supplement concerning
the provisions of any document filed as an exhibit to the registration statement
or otherwise filed with the Securities and Exchange Commission are not
necessarily complete, and in each instance reference is made to the copy of the
document so filed. For further information, reference is made to the
registration statement and the exhibits to the registration statement, which are
available for inspection without charge at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of the registration statement and
exhibits to the registration statement may be obtained at the above locations at
prescribed rates. Information filed with the Securities and Exchange Commission
can also be inspected at the Securities and Exchange Commission site on the
World Wide Web at http://www.sec.gov.
The issuer will file with the Securities and Exchange Commission the
periodic reports as are required by the Securities Exchange Act of 1934, as
amended, and the rules, regulations or orders of the Securities and Exchange
Commission under the Exchange Act. The issuer may discontinue filing periodic
reports under the Exchange Act at the beginning of the fiscal year following the
issuance of the transition bonds of any series if there are fewer than 300
holders of the transition bonds.
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by the issuer under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus
and prior to the termination of the offering of the transition bonds will be
deemed to be incorporated by reference into this prospectus and to be a part of
this registration statement. Any statement contained in this prospectus, in a
prospectus supplement or in a document incorporated or deemed to be incorporated
by reference in this prospectus will be deemed to be modified or superseded for
purposes of this prospectus and any prospectus supplement to the extent that a
statement contained in this prospectus, in a prospectus
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supplement or in any separately filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes that
statement. Any of these statements so modified or superseded will not be deemed,
except as so modified or superseded, to constitute part of this prospectus or
any prospectus supplement.
The issuer will provide without charge to each person to whom a copy of
this prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated in this prospectus by
reference, except the exhibits to those documents--unless those exhibits are
specifically incorporated by reference in those documents. Written requests for
those copies should be directed to the issuer, c/o West Penn Funding LLC,
2325B-2 Renaissance Drive, Las Vegas, NV 89119. Telephone requests for those
copies should be directed to the issuer at (702) 895-6752.
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WEST PENN POWER COMPANY
Incorporated in Pennsylvania in 1916, West Penn is a public utility
corporation engaged in the transmission, distribution and sale of electricity to
approximately 665,000 customers throughout a 9,900 square mile service territory
covering all or portions of 24 counties in southwestern and central
Pennsylvania. West Penn's generation facilities have in the past served those
same customers. In the future, those generation facilities, which will continue
to serve those customers and others in the competitive generation market, may be
transferred to an affiliated or non-affiliated entity. See "The Servicer" in
this prospectus.
The electric and gas utility industries in Pennsylvania are both undergoing
fundamental restructuring. See "The Pennsylvania Competition Act" in this
prospectus. In addition, in 1996, the Federal Energy Regulatory Commission
issued Order No. 888 providing for competition in wholesale generation by
requiring that all public utilities file non-discriminatory, open-access
transmission tariffs.
None of Allegheny Energy, Inc., West Penn or West Penn Funding Corporation
is currently involved in any legal proceedings that could have a material impact
on the issuer, the collateral, the transition bonds or the transition
bondholders. For a detailed description of the prior litigation relating to the
approval of West Penn's restructuring plan, see "West Penn's Restructuring
Plan--Prior Litigation."
Allegheny Energy, Inc., the parent of West Penn, and DQE, Inc. (the parent
of Duquesne Light Company in Pittsburgh) have entered into an agreement under
which DQE, Inc. would merge into Allegheny Energy in a stock for stock
transaction. However, the proposed merger, which has been conditionally approved
by the Pennsylvania Public Utility Commission, is currently the subject of
litigation in the United States District Court for the Western District of
Pennsylvania. As described in "West Penn's Restructuring Plan--Provisions of the
Settlement--Authorization to Securitize up to $670 million", the outcome of the
DQE merger litigation will not affect the amount of West Penn's intangible
transition charges and is not expected to have any impact on the payment of
principal of, and interest on, the transition bonds.
West Penn will enter into the servicing agreement with the issuer under
which West Penn, as agent for the issuer, will manage, service and administer,
and make collections in respect of, the transferred intangible transition
property. See "The Servicing Agreement" in this prospectus. Allegheny Energy
Service Corporation, an affiliate of West Penn, will enter into an
administration agreement with the issuer and with West Penn Funding Corporation
to provide specified administrative services. See "The Issuer" and "West Penn
Funding Corporation" in this prospectus.
West Penn files periodic reports with the Securities and Exchange
Commission as required by the Exchange Act. Reports filed with the Securities
and Exchange Commission are available for inspection without charge at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices
located as follows: Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-
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2511; and New York Regional Office, 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of periodic reports and exhibits to those reports may be
obtained at the above locations at prescribed rates. Information filed with the
Securities and Exchange Commission can also be inspected at the Securities and
Exchange Commission site on the World Wide Web at http://www.sec.gov.
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THE PENNSYLVANIA COMPETITION ACT
THE PENNSYLVANIA COMPETITION ACT'S GENERAL EFFECT ON THE ELECTRIC UTILITY
INDUSTRY IN PENNSYLVANIA
The Pennsylvania Electricity Generation Customer Choice and Competition Act
was enacted in December 1996 and provides for the restructuring of the electric
utility industry in Pennsylvania. The Pennsylvania Competition Act requires the
unbundling of electric services into separate generation, transmission and
distribution services with open retail competition for generation services.
Generation services may be provided by electric generation suppliers licensed by
the Pennsylvania Public Utility Commission. Under the Pennsylvania Competition
Act, electric generation suppliers are subject to certain limited financial and
disclosure requirements but are otherwise unregulated by the Pennsylvania Public
Utility Commission. Electric distribution and transmission services will remain
regulated.
The Pennsylvania Competition Act requires utilities to submit restructuring
plans, including their stranded costs which will result from retail competition
for generation services. Stranded costs include regulatory assets and long-term
purchase power commitments for which full recovery is allowed and other costs,
including investment in generating plants, retirement costs and reorganization
costs, for which an opportunity for recovery is allowed in an amount determined
by the Pennsylvania Public Utility Commission as just and reasonable. Under the
Pennsylvania Competition Act, utilities are subject to a generation rate cap
through December 31, 2005 which provides that total charges to customers cannot
exceed rates in place at December 31, 1996, subject to certain exceptions. The
Pennsylvania Competition Act also caps transmission and distribution rates from
December 31, 1996 through June 30, 2001, subject to specified exceptions. Under
the Pennsylvania Competition Act, each regulated electric utility was required
to implement a retail access pilot program for customers representing 5% of the
peak load of each customer class for the period from November 1, 1997 through
December 31, 1998.
RECOVERY OF STRANDED COSTS
As a mechanism for utilities, including West Penn, to recover their allowed
stranded costs, the Pennsylvania Competition Act provides for the imposition and
collection of nonbypassable charges on customers' bills called competitive
transition charges. Competitive transition charges are assessed to and collected
from all retail customers who have been assigned stranded cost responsibility
and access the utilities' transmission and distribution systems and may be
collected over a maximum period of ten years, except as that period may be
extended by the Pennsylvania Public Utility Commission for good cause shown. As
the competitive transition charges are based on access to the utility's
transmission and distribution system, they will be assessed regardless of
whether that customer purchases electricity from the utility or an independent
electric generation supplier. The Pennsylvania Competition Act provides,
however, that the utility's right to collect competitive transition charges is
contingent on the continued operation at reasonable availability levels of the
assets for which the stranded costs were awarded,
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except where continued operation is no longer cost efficient because of the
transition to a competitive market. See "Risk Factors--Legal, Legislative or
Regulatory Actions Could Adversely Affect Transition Bondholders--Legal
Challenges Could Adversely Affect Transition Bondholders" and "Risk
Factors--Nature of Intangible Transition Property--Lack of Continued Operation
of Existing Generation Facilities May Result in Losses to Transition
Bondholders" in this prospectus.
SECURITIZATION OF STRANDED COSTS
The Pennsylvania Competition Act authorizes the Pennsylvania Public Utility
Commission to issue qualified rate orders approving the issuance of transition
bonds to facilitate the recovery or financing of qualified transition expenses
of an electric utility or its assignee. Transition bonds may be issued by a
utility, a finance subsidiary of a utility or a third-party assignee of a
utility. Under the Pennsylvania Competition Act, proceeds of transition bonds
are required to be used principally to reduce qualified transition expenses,
including stranded costs, and the related capitalization costs of the utility.
The transition bonds are secured by intangible transition property and payable
from the intangible transition charges and may have a maximum maturity of ten
years. Intangible transition charges can be imposed only when and to the extent
that transition bonds are issued.
The Pennsylvania Competition Act contains a number of provisions designed
to facilitate the securitization of stranded costs.
Irrevocability of Intangible Transition Property. Under the Pennsylvania
Competition Act, intangible transition property is created by the issuance by
the Pennsylvania Public Utility Commission of a qualified rate order and the
declaration by the Pennsylvania Public Utility Commission that the relevant
paragraphs of a qualified rate order are irrevocable. The Pennsylvania Public
Utility Commission is granted the power under the Pennsylvania Competition Act
to specify that all or a portion of that qualified rate order will be
irrevocable. The Pennsylvania Competition Act provides that to the extent that
the Pennsylvania Public Utility Commission declares all or a portion of a
qualified rate order irrevocable, the Pennsylvania Public Utility Commission may
not, by any subsequent action, reduce, postpone, impair or terminate either the
order or the intangible transition charge authorized in that order. In addition,
under the Pennsylvania Competition Act, the Commonwealth of Pennsylvania pledges
and agrees with the holders of the transition bonds, and with any assignee or
finance party, not to limit or alter or in any way impair or reduce the value of
intangible transition property or the intangible transition charges until the
related transition bonds are fully discharged. The Pennsylvania Competition Act
provides, however, that nothing precludes the Commonwealth of Pennsylvania from
limiting or altering intangible transition property or the qualified rate order,
provided that adequate compensation is made by law for the full protection of
the intangible transition charges collected under the qualified rate order and
of the holders of the transition bonds and any assignee or finance party. See
"Risk Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders" in this prospectus.
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Adjustments of the Intangible Transition Charges. The Pennsylvania
Competition Act requires the Pennsylvania Public Utility Commission to provide
in all qualified rate orders a procedure for expeditiously approving periodic
adjustments to the intangible transition charges. The Pennsylvania Competition
Act requires that these adjustments be made on at least an annual basis on each
anniversary of the issuance of the qualified rate order or at additional
intervals as specified in that order. The Pennsylvania Public Utility Commission
must approve these annual adjustments within 90 days of each request for
adjustment.
Nonbypassability. The Pennsylvania Competition Act provides that the
competitive transition charges and the intangible transition charges will be
imposed on customers accessing the utility's transmission and distribution
system even if those customers elect to purchase electricity from another
supplier or if the customer chooses to operate self-generation equipment in
tandem with accessing the utility's transmission and distribution system. The
Pennsylvania Competition Act further provides that to the extent that the
utility, or any assignee of intangible transition property, assigns, sells,
transfers or pledges any interest in intangible transition property, the
Pennsylvania Public Utility Commission authorizes the utility to contract with
that assignee for the utility:
(1) to continue to operate the system to provide electric services to
the utility's customers,
(2) to impose and collect the applicable intangible transition
charges for the benefit and account of the assignee,
(3) to make periodic adjustments of the intangible transition
charges, and
(4) to account for and remit the applicable intangible transition
charges to or for the account of the assignee free of any charge, deduction
or surcharge of any kind.
In addition, to the extent specified in the qualified rate order, the
obligations of the utility under any of these contracts:
(1) will be binding upon the utility, its successors and assigns, and
(2) will be required by the Pennsylvania Public Utility Commission to
be undertaken and performed by the utility and any other entity which
provides electric service to a person that is a customer of the utility
located within the utility's retail electric service territory, as a
condition to providing service to that customer or the municipal entity
providing those services in place of the utility.
Creation of a Statutory Lien on Intangible Transition Property. The
Pennsylvania Competition Act provides that a valid and enforceable security
interest in intangible transition property automatically attaches from the time
the related transition bonds are issued and is enforceable against all third
parties, including judicial lien creditors, if:
(1) value is given by purchasers of the transition bonds and
(2) a filing is made with the Pennsylvania Public Utility Commission
to perfect the security interest within 10 days from issuance of the
transition bonds.
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The Pennsylvania Competition Act also provides that security interests in
the intangible transition property are created and perfected only by means of a
separate filing with the Pennsylvania Public Utility Commission in accordance
with the provisions of the Pennsylvania Competition Act. Upon perfection, the
statutorily created lien attaches both to intangible transition property and to
all revenues and proceeds of intangible transition property, whether or not
accrued. The Pennsylvania Competition Act provides that this filing will take
precedence over any other filing and will be enforceable against the assignee
and all third parties, including judicial lien creditors, subject only to rights
of any third parties holding security interests in intangible transition
property previously perfected in accordance with the Pennsylvania Competition
Act. The Pennsylvania Competition Act provides that priority of security
interests in intangible transition property will not be defeated or adversely
affected by:
(1) commingling of revenues with other funds of the utility or
(2) changes to the qualified rate order or the intangible transition
charges.
Characterization of Transfer of Transferred Intangible Transition Property
as True Sale. The Pennsylvania Competition Act provides that a transfer by the
utility or an assignee of intangible transition property will be treated as a
true sale of the transferor's right, title and interest and not as a pledge or
other financing, other than for federal and state income and franchise tax
purposes, if:
(1) the parties expressly state in governing documents that a
transfer is to be a sale or other absolute transfer and
(2) the transaction is approved in a qualified rate order.
See "Risk Factors--Bankruptcy; Creditors' Rights" in this prospectus.
JURISDICTION OVER DISPUTES; STANDING
Actions against customers for nonpayment of the intangible transition
charges may only be brought by the utility, its successor or any other entity
providing electric service to the customers. In addition, the Pennsylvania
Competition Act grants to the Pennsylvania Public Utility Commission exclusive
jurisdiction over all disputes arising out of the obligations to impose and
collect the intangible transition charges by a utility, its successor or any
other entity which provides electric service to a customer.
POSSIBLE FEDERAL PREEMPTION OF THE PENNSYLVANIA COMPETITION ACT
At least one bill was introduced in the 105th Congress, First Session,
prohibiting the recovery of stranded costs such as West Penn's stranded costs
described in this prospectus, which could negate the existence of West Penn's
intangible transition property. That bill, H.R. 1230 (The Consumers Electric
Power Act of 1997), was introduced on April 8, 1997 but died at the end of that
Congressional session after having been referred to the House Commerce Committee
and the Subcommittee on Energy and Power. No prediction can be made as to
whether any future bills that prohibit the recovery of stranded costs will
become law or, if they become law, what their final form or effect will be.
There is no assurance that the courts would consider
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this preemption a taking. Moreover, even if a preemption of the Pennsylvania
Competition Act or the Qualified Rate Order by the federal government were
considered a taking, for which the government had to pay the estimated market
value of the transferred intangible transition property at the time of the
taking, there is no assurance that this compensation would be sufficient to pay
the full amount of principal of and interest on the transition bonds, and
transition bondholders could suffer a loss of their investment. See "Risk
Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders--Federal Legislation May Result in Losses to Transition
Bondholders" in this Prospectus and "--Possible Commonwealth Amendment or Repeal
of the Pennsylvania Competition Act" below.
POSSIBLE COMMONWEALTH AMENDMENT OR REPEAL OF THE PENNSYLVANIA COMPETITION ACT
Under the Pennsylvania Competition Act, the Commonwealth of Pennsylvania
has pledged to and agreed with transition bondholders that it will not limit or
alter or in any way impair or reduce the value of intangible transition property
or intangible transition charges approved by a qualified rate order, until the
transition bonds and interest thereon are fully paid and discharged. The
Pennsylvania Competition Act also provides, however, that subject to the
requirements of law, nothing contained in the Pennsylvania Competition Act
precludes this limitation or alteration by the Commonwealth if "adequate
compensation is made by law" for the full protection of the intangible
transition charges collected under a qualified rate order and of transition
bondholders. It is unclear what "adequate compensation . . . by law" would be
afforded to transition bondholders by the Commonwealth of Pennsylvania if it
attempts to limit or alter intangible transition property or intangible
transition charges. Accordingly, no assurance can be given that this provision
would fully compensate transition bondholders for their investment and would not
adversely affect the price of the transition bonds or the timing of payments
with respect to the transition bonds. See "Risk Factors--Legal, Legislative or
Regulatory Actions Could Adversely Affect Transition Bondholders--Changes in Law
May Result in Losses to Transition Bondholders" in this prospectus.
In the opinion of Cravath, Swaine & Moore, counsel to West Penn, under the
Contract Clause of the United States Constitution, the Commonwealth of
Pennsylvania could not repeal or amend the Pennsylvania Competition Act--by way
of legislative process--or take any other action that substantially impairs the
rights of the transition bondholders, unless that action is a reasonable
exercise of the Commonwealth's sovereign powers and of a character appropriate
to the public purpose justifying that action. To date, no cases addressing these
issues in the context of transition bonds have been decided. There have been
cases in which courts have applied the Contract Clause of the United States
Constitution and parallel state constitutional provisions to strike down
legislation, reducing or eliminating taxes or public charges which supported
bonds issued by public instrumentalities, or otherwise reducing or eliminating
the security for those bonds. Based upon such case law, in the opinion of
Cravath, Swaine & Moore, it would appear unlikely that the Commonwealth of
Pennsylvania could reduce, modify, alter or take any other action with respect
to intangible transition property which would
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substantially impair the rights of transition bondholders, unless the action is
reasonable and appropriate to further a legitimate public purpose.
Moreover, under the Taking Clause of the United States Constitution, the
Commonwealth of Pennsylvania could not repeal or amend the Pennsylvania
Competition Act--by way of legislative process--or take any action that violates
its pledge and agreement described in the first paragraph of this subheading
without paying just compensation to the transition bondholders if doing so would
constitute a permanent appropriation of the property interest of transition
bondholders in the intangible transition property and deprive the transition
bondholders of their reasonable expectations arising from their investments in
the transition bonds. There is no assurance, however, that, even if a court were
to award such just compensation, it would be sufficient to pay the full amount
of principal of and interest on the transition bonds.
In addition, there can be no assurance that a repeal of or amendment to the
Pennsylvania Competition Act will not be sought or adopted or that any action by
the Commonwealth of Pennsylvania may not occur, any of which might constitute a
violation of the Commonwealth's pledge and agreement with the transition
bondholders. If this occurs, costly and time-consuming litigation might ensue.
That litigation might adversely affect the price and liquidity of the transition
bonds and the dates of payments of principal of the transition bonds and,
accordingly, the weighted average lives of the transition bonds. Moreover, given
the lack of judicial precedent directly on point, and the novelty of the
security for the transition bondholders, the outcome of that litigation cannot
be predicted with certainty, and accordingly, transition bondholders could incur
a loss of their investment.
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WEST PENN'S RESTRUCTURING PLAN
THE HISTORY OF WEST PENN'S RESTRUCTURING PLAN
In accordance with the provisions of the Pennsylvania Competition Act, in
August 1997, West Penn filed with the Pennsylvania Public Utility Commission a
comprehensive restructuring plan detailing its proposal to implement full
customer choice of electric generation suppliers. West Penn's restructuring plan
identified $1.2 billion of recoverable retail electric generation-related
stranded costs.
On May 29, 1998, the Pennsylvania Public Utility Commission adopted an
Opinion and Order which modified West Penn's proposed restructuring plan. This
May 29th order authorized West Penn to recover stranded costs of $593 million
(or $524.2 million in the event of a merger of DQE, Inc. into Allegheny Energy).
In response to West Penn's petition on June 12, 1998 requesting reconsideration
of the May 29th order, the Pennsylvania Public Utility Commission entered an
order that increased the amount of stranded costs recoverable by West Penn by
$522,000. In response in part to these orders, West Penn and other parties filed
appeals to the Commonwealth Court of Pennsylvania and a civil complaint action
in the U.S. District Court for the Western District of Pennsylvania. In
addition, West Penn filed an original jurisdiction action for declaratory
judgment with the Commonwealth Court of Pennsylvania on September 2, 1998.
On November 3, 1998, West Penn and some of the parties who appealed West
Penn's Restructuring Plan filed a Joint Petition for Full Settlement of West
Penn's Restructuring Plan and Related Court Proceedings. On November 4, 1998,
the Joint Petition was tentatively approved by the Pennsylvania Public Utility
Commission. On November 19, 1998, the Pennsylvania Public Utility Commission
issued the Final Order, including the initial Qualified Rate Order, approving
the Joint Petition. The remaining appeals to West Penn's restructuring plan were
withdrawn. On August 12, 1999, the Pennsylvania Public Utility Commission issued
an order approving West Penn's petition for issuance of a supplemental qualified
rate order. On September 16, 1999, the supplemental order became non-appealable.
The settlement effected by the Joint Petition, as supplemented by the settlement
entered into in connection with the supplemental order, is referred to in this
prospectus as the Settlement.
PROVISIONS OF THE SETTLEMENT
Recovery of Stranded Costs. The Settlement authorizes West Penn to
recover $670 million of stranded costs ($630 million in the event that the
merger with DQE, Inc. is consummated), together with a return of 11.0% thereon.
For good cause shown, the Pennsylvania Public Utility Commission authorized the
recovery of stranded costs over a 10-year transition period beginning January 1,
1999 and ending December 31, 2008. Recovery of stranded costs and the allowed
return are to be through competitive transition charges designed to recover the
stranded costs. The competitive transition charges have been established
assuming a specified annual growth in sales and will be reconciled annually to
actual sales.
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The following table shows the estimated average levels of West Penn's
competitive transition charges for the years 1999 through 2008, based on the
annual sales growth assumed in the Settlement.
TABLE 1
ANNUAL STRANDED COST
AMORTIZATION AND RETURN
<TABLE>
<CAPTION>
REVENUES EXCLUDING
GROSS RECEIPTS TAX(3)
----------------------------------
ANNUAL CTC WITH CTC REVENUE RETURN
YEAR SALES GRT(2) WITH GRT TOTAL @11.0% AMORTIZATION
- ---- ---------- --------- ----------- --------- ------- ------------
MWH(1) cents/kWh $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C>
1999.................... 20,740,356 0.62 128,547 122,891 71,259 51,632
2000.................... 21,157,130 0.60 126,890 121,307 65,362 55,945
2001.................... 21,490,380 0.56 120,367 115,071 59,212 55,859
2002.................... 21,860,286 0.54 118,054 112,860 52,859 60,001
2003.................... 22,146,130 0.53 117,381 112,216 45,942 66,274
2004.................... 22,693,011 0.48 108,930 104,137 38,694 65,443
2005.................... 23,102,818 0.45 103,950 99,376 31,366 68,010
2006.................... 23,405,954 0.44 102,470 97,961 23,563 74,399
2007.................... 23,697,105 0.43 101,374 96,914 15,000 81,914
2008.................... 23,934,076 0.43 101,959 97,473 5,481 91,992
--------- --------- ------- -------
Total......... 1,129,923 1,080,206 408,736 671,470
========= ========= ======= =======
</TABLE>
- ------------
(1) Subject to reconciliation of actual sales and collections.
(2) Figures result in the recovery of approximately $670 million of stranded
costs plus the allowed return on those costs at projected usage levels in
the period during which the competitive transition charges will be collected
in accordance with the terms of the Settlement. The competitive transition
charges are subject to adjustment.
(3) The utilities gross receipts tax is imposed on public utilities (including
electric utilities) organized under the laws of, or doing business in, the
Commonwealth of Pennsylvania and is currently levied at the rate of 4.4% on
each dollar of the utility's gross receipts arising from some sales of
energy.
Authorization to Securitize up to $670 Million. As part of its approval
of the Settlement, the Pennsylvania Public Utility Commission issued the
Qualified Rate Order allowing West Penn to securitize up to $670 million of
stranded cost recovery through the issuance of transition bonds. If the merger
with DQE, Inc. is consummated, West Penn will not thereafter issue transition
bonds of an aggregate principal amount in excess of $630 million. If West Penn
has already at that time issued transition bonds in excess of $630 million in
accordance with the Qualified Rate Order, the costs of servicing the entire
amount of those transition bonds, including interest, principal and all other
related fees, costs, credit enhancements and charges will nevertheless
constitute Qualified Transition Expenses which thereafter will be recovered
through intangible transition charges. However, at the next date on which
adjustments to the intangible transition charges are implemented, West Penn will
establish a credit adjustment to customers' bills to account for the difference
between $630 million and the actual principal amount
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of the transition bonds outstanding, including a reduction for all associated
costs, fees and expenses attributable to the transition bonds issued in excess
of $630 million. This credit adjustment will not affect the amount of intangible
transition charges and is not expected to have any impact on the payment of
principal of, and interest on, the transition bonds.
The intangible transition charges associated with the issuance of
transition bonds may not be imposed for service periods after December 31, 2008.
Seventy-five percent of the annual net savings resulting from West Penn's
securitization of stranded costs will be returned to retail customers through a
reduction to the competitive transition charges. In addition, West Penn's
competitive transition charges will be reduced by the amount of the intangible
transition charges. See "The Qualified Rate Order and the Intangible Transition
Charges" in this prospectus.
Unbundling of Rates and Rate Reductions and Rate Caps. The Settlement
requires West Penn to unbundle its retail electric rates on January 1, 1999 into
the following components:
(1) distribution and transmission charges,
(2) competitive transition charges and, if applicable, intangible
transition charges and
(3) a shopping credit for generation.
The sum of the competitive transition charges and the shopping credit
equals the maximum amount West Penn can charge customers who do not or cannot
choose to purchase electricity from alternate electric generation suppliers
(referred to as serving as the "provider of last resort").
The Settlement required West Penn to reduce rates by 2.5% effective January
1, 1999, and that 2.5% rate decrease will continue in effect through December
31, 1999. The Settlement also extends the rate caps on generation rates at
higher levels than required by the Pennsylvania Competition Act, until December
31, 2008 and extends rate caps on transmission and distribution rates until
December 31, 2005. West Penn's unbundled rates, rate reductions and rate caps
are reflected in the schedule of system-wide average rates included in the
Settlement and are shown in Table 2 below.
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TABLE 2
SCHEDULE OF SYSTEM-WIDE AVERAGE RATES (PER KILOWATT-HOUR ("kWh"))(1)
<TABLE>
<CAPTION>
T&D SHOPPING GENERATION
EFFECTIVE DATE TRANSMISSION(2) DISTRIBUTION RATE CAP(3) CTC(4) CREDIT RATE CAP
- -------------- --------------- ------------ ----------- ------- -------- -----------
(a) (b) (c)=(a)+(b) (d) (e) (f)=(d)+(e)
$/kWh $/kWh $/kWh $/kWh $/kWh $/kWh
<S> <C> <C> <C> <C> <C> <C>
January 1, 1999....... $0.0041 $0.0118 $0.0159 $0.0062 $0.0316 $0.0378
January 1, 2000....... 0.0041 0.0132 0.0173 0.0060 0.0318 0.0378
January 1, 2001....... 0.0041 0.0132 0.0173 0.0056 0.0322 0.0378
January 1, 2002....... 0.0041 0.0132 0.0173 0.0054 0.0324 0.0378
January 1, 2003....... 0.0041 0.0132 0.0173 0.0053 0.0325 0.0378
January 1, 2004....... 0.0041 0.0132 0.0173 0.0048 0.0330 0.0378
January 1, 2005....... 0.0041(5) 0.0132(5) 0.0173(5) 0.0045 0.0333 0.0378
January 1, 2006....... (3) (3) N/A 0.0044 0.0362 0.0406
January 1, 2007....... (3) (3) N/A 0.0043 0.0363 0.0406
January 1, 2008....... (3) (3) N/A 0.0043 0.0391 0.0434
</TABLE>
- ------------
(1) All prices reflect average retail billing for all West Penn rate schedules
(including gross receipts tax). The average prices as presented in this
table reflect the profile of service contained in West Penn's proof of
revenue set forth in the West Penn restructuring plan.
(2) The transmission prices listed are for unbundled rates only. The
Pennsylvania Public Utility Commission does not regulate the rates for
transmission service.
(3) The T&D (Transmission & Distribution) Rate Cap under Section 2804(4) of the
Pennsylvania Competition Act will be extended until December 31, 2005.
(4) Figures result in the recovery of approximately $670 million of stranded
costs plus the allowed return on those costs at projected usage levels in
the period during which the competitive transition charges will be collected
in accordance with the terms of the Settlement. The competitive transition
charges are subject to adjustment. intangible transition charges will be
deducted from the competitive transition charges.
(5) Effective until December 31, 2005.
The Pennsylvania Competition Act authorizes electric distribution companies
to recover changes in their state tax liability resulting from the introduction
of competition in the electric market through adjustments in the rates charged
to customers, which in some circumstances set forth in the regulations adopted
by the Pennsylvania Public Utility Commission may result in rates exceeding the
applicable rate cap. West Penn may apply for this recovery of state tax
liability changes in accordance with the procedures outlined in the Pennsylvania
Public Utility Commission's regulations if West Penn in fact experiences adverse
consequences to its state tax liability as contemplated in the Pennsylvania
Competition Act.
Competitive Metering and Billing. As provided in the Settlement, on
September 1, 2000, West Penn will unbundle its retail electric rates for
metering, meter reading, and billing and collection services to provide credits
for those customers that have elected to have alternate suppliers perform these
services. Effective September 1, 1999, Pennsylvania Public Utility Commission
licensed entities, including electric generation suppliers, may act as agents to
provide a single bill and provide associated billing and collection services to
retail customers located in West Penn's retail electric service territory. In
accordance with the Settlement, this date was extended to September 1, 2000 for
West Penn. The Pennsylvania Public Utility Commission-licensed entities,
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including electric generation suppliers, may also finance, install, own,
maintain, calibrate and remotely read advanced meters for service to retail
customers located in West Penn's service territory. An electric generation
supplier or other third party that bills on behalf of West Penn must comply with
all applicable billing and disclosure requirements absent waiver by the
Pennsylvania Public Utility Commission, including the unbundling of transmission
and distribution rates. Only West Penn can physically disconnect or reconnect a
customer's distribution service. Physical termination of the service may only be
permitted for failure to pay for transmission and distribution service or
provider of last resort service. See also "The Qualified Rate Order and the
Intangible Transition Charges--The Intangible Transition Charges" in this
prospectus.
Customer Choice. Under the Settlement, customer choice of electric
generation suppliers is being phased in between January 1, 1999 and January 2,
2000 with one-third of each West Penn rate schedule entitled to choose their
electric generation supplier by January 1, 1999, an additional one-third by
January 2, 1999 and the remaining one-third by January 2, 2000.
PROVIDER OF LAST RESORT
Under the West Penn restructuring plan, West Penn will act as a provider of
last resort for all retail electric customers in its retail electric service
territory who do not choose or cannot choose to purchase power from alternative
suppliers through December 31, 2010, subject to specified terms, conditions and
qualifications. On January 1, 2001, 20% of all of West Penn's residential
customers, determined by random selection, including low-income and
inability-to-pay customers, and without regard to whether those customers are
obtaining generation service from an electric generation supplier, will be
assigned to a provider of last resort other than West Penn if there is a
qualifying bid. The service provided by this supplier is referred to as
competitive default service and this alternative supplier is referred to as the
competitive default supplier. The competitive default supplier will be selected
on the basis of an energy and capacity market price bidding process approved,
established and maintained by the Pennsylvania Public Utility Commission among
electric generation suppliers who meet specified qualifications. The right to
provide competitive default service will be rebid annually, unless an
alternative bidding term is approved by the Pennsylvania Public Utility
Commission. If, 30 days prior to the annual bid, the number of residential
customers served by competitive default service has fallen below 17%, a further
random selection of customers will be assigned to competitive default service to
restore the number of customers to the 20% level. The further random selection
will be made from the customers not already assigned to competitive default
service and customers served by electric generation suppliers other than West
Penn.
In February, 1999, some utilities, customer advocates and electric
generation suppliers convened to develop proposed regulations on competitive
default service. On Friday, February 26, the chairman of the group forwarded a
suggested procedure for choosing a competitive default supplier to the
Pennsylvania Public Utility Commission. Under those suggested procedures,
entities that desire to act as a competitive default supplier have until April
1, 2000 to submit both their qualifications to act as a
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competitive default supplier and their bid for providing this service.
Competitive default service will begin on January 1, 2001 for 20% of West Penn's
residential customers. The suggested procedures would require an electric
generation supplier to provide proof that it has received the requisite licenses
from the state and federal governments, proof that it meets specified
creditworthiness standards and assurances that it can acquire additional bonding
as necessary. The supplier of competitive default service will be required to
provide billing, including its payment of intangible transition charges and
other revenues, to West Penn on the terms and conditions set forth in West
Penn's tariff for those entities who currently provide competitive billing
services to customers.
The suggested procedures will not become final until the Pennsylvania
Public Utility Commission adopts them. The Pennsylvania Public Utility
Commission may choose to reject or modify the suggested procedures. The
Pennsylvania Public Utility Commission has no time deadline for rendering its
decision on this issue. The Pennsylvania Public Utility Commission may allow a
public comment period before reaching a final resolution of these issues.
Other Provisions. The Settlement also provides for flexible generation
service pricing for residential customers served by competitive default service,
authorization of West Penn to transfer its generation assets to a separate
subsidiary, inclusion under the capped transmission and distribution rates of
.01 cent per kilowatt-hour for a sustainable energy and economic development
fund and expansion of West Penn's program for low-income customers.
PRIOR LITIGATION
Prior litigation occurred with respect to the constitutionality of the
Pennsylvania Competition Act in another restructuring case. Indianapolis Power &
Light Company appealed the first qualified rate order granted to PECO Energy
Company by the Pennsylvania Public Utility Commission in May, 1997, filing an
action in the Commonwealth Court challenging the Pennsylvania Competition Act,
alleging that the Pennsylvania Competition Act's provision allowing PECO Energy
Company to recover stranded costs discriminates against interstate commerce in
violation of the Commerce Clause of the United States Constitution. In an
opinion dated May 7, 1998, the Commonwealth Court of Pennsylvania dismissed
Indianapolis Power & Light Company's action, holding, as a matter of law, that
the Pennsylvania Competition Act does not violate the Commerce Clause. Following
that dismissal, Indianapolis Power & Light Company petitioned the Pennsylvania
Supreme Court for allowance of appeal. In the petition, Indianapolis Power &
Light Company claimed that the payment of stranded costs to PECO Energy
discriminates against interstate commerce by favoring in-state electricity
producers over out-of-state electricity producers. On September 29, 1998, the
Pennsylvania Supreme Court denied Indianapolis Power & Light Company's petition
for allowance of appeal. On December 28, 1998, Indianapolis Power & Light
Company filed a petition for a writ of certiorari with the United States Supreme
Court to appeal the Commonwealth Court's decision on the claim described in this
paragraph. On March 8, 1999, the United States Supreme Court denied the
petition.
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Two additional actions, one filed by the Utility Workers Union of America
and one filed by a group of plaintiffs including State Senator Vincent J. Fumo
alleged that the adoption of the Pennsylvania Competition Act violated
provisions of the Pennsylvania Constitution governing legislative procedure. The
Pennsylvania Public Utility Commission filed preliminary objections seeking
dismissal of these actions at the pleading stage, on the ground that enactment
of the Pennsylvania Competition Act did not violate these Pennsylvania
constitutional provisions as a matter of law. The Commonwealth Court of
Pennsylvania upheld the Pennsylvania Public Utility Commission's preliminary
objections and dismissed both actions with prejudice. The appeal period has
expired without appeals being filed and the dismissal of these actions is final
and non-appealable.
On June 26, 1998, West Penn filed a complaint in the United States District
Court for the Western District of Pennsylvania seeking injunctive and monetary
relief on the grounds that the Pennsylvania Public Utility Commission's
implementation of the Pennsylvania Competition Act through its order entered on
May 29, 1998, was contrary to and preempted by federal statutory law, including
the Federal Power Act and the Public Utility Regulatory Policies Act of 1978,
and effected a taking of West Penn's property without just compensation,
impaired the obligation of West Penn's regulatory compact, deprived West Penn of
property without due process of law, and deprived West Penn of these and other
rights secured by the Civil Rights Act, 42 U.S.C. sec.1983, and the Constitution
of the United States.
On September 2, 1998, West Penn also filed a Petition for Review in the
Commonwealth Court of Pennsylvania, invoking that Court's original jurisdiction,
to enjoin the implementation of the Pennsylvania Competition Act by the
Pennsylvania Public Utility Commission as violative of law and as a deprivation
of West Penn's constitutional rights.
On June 26, 1998, West Penn filed a Petition for Review in the Commonwealth
Court of Pennsylvania appealing the Pennsylvania Public Utility Commission Order
entered May 29, 1998, as violative of law and contrary to the Constitution.
Numerous petitions for reconsideration, cross-appeals and interventions
were filed in the aforesaid West Penn proceedings, and numerous appeals were
taken by parties in their own right.
All the aforesaid proceedings resulting from West Penn's restructuring were
withdrawn with prejudice by the parties under the terms of the Joint Petition
and the settlement entered into in connection with the Supplemental Order. The
appeal period of the Pennsylvania Public Utility Commission's Final Qualified
Rate Order of November 19, 1998, as supplemented by the Supplemental Qualified
Rate Order, approving the Settlement has lapsed without appeal or request for
reconsideration. However, there can be no assurance that other parties will not
bring lawsuits related to the Settlement.
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THE QUALIFIED RATE ORDER AND THE INTANGIBLE TRANSITION CHARGES
THE QUALIFIED RATE ORDER
As part of its approval of the Settlement, the Pennsylvania Public Utility
Commission issued a qualified rate order to West Penn on November 19, 1998 which
was supplemented by a supplemental qualified rate order issued by the
Pennsylvania Public Utility Commission to West Penn on August 12, 1999
(collectively, the "Qualified Rate Order"). In the Qualified Rate Order, the
Pennsylvania Public Utility Commission determined that West Penn's recovery of
stranded costs as set forth in the Settlement is just and reasonable and in the
public interest and that securitization of up to $670 million of stranded costs
as set forth in the Settlement is just and reasonable and in the public
interest.
Authorization of Issuance of Transition Bonds. In the Qualified Rate
Order, the Pennsylvania Public Utility Commission authorized the issuance of
transition bonds in an aggregate principal amount not to exceed $670 million. If
the merger with DQE, Inc. is consummated, West Penn will not thereafter issue
transition bonds of an aggregate principal amount in excess of $630 million. If
West Penn has already at that time issued transition bonds in excess of $630
million in accordance with the Qualified Rate Order, the costs of servicing the
entire amount of those transition bonds, including interest, principal and all
other related fees, costs, credit enhancements and charges will nevertheless
constitute Qualified Transition Expenses which thereafter will be recovered
through intangible transition charges. However, at the next date on which
adjustments to the intangible transition charges are implemented, West Penn will
establish a credit adjustment to customers' bills to account for the difference
between $630 million and the actual principal amount of the transition bonds
outstanding, including a reduction for all associated costs, fees and expenses
attributable to the transition bonds issued in excess of $630 million. This
credit adjustment will not affect the amount of intangible transition charges
and is not expected to have any impact on the payment of principal of, and
interest on, the transition bonds.
West Penn, or any assignee of West Penn to whom intangible transition
property is sold, may issue and sell, in reliance on the Qualified Rate Order,
one or more series of transition bonds, each series in one or more classes,
secured by intangible transition property, provided that the final maturity of
any series of transition bonds may not be later than ten years from the date of
issuance and in no event after September 25, 2009. West Penn, or its assignee,
is also authorized to refinance transition bonds in a face amount not to exceed
the unamortized principal of the transition bonds.
The Qualified Rate Order provides that West Penn retains the sole
discretion whether to issue or cause the issuance of transition bonds. Within
120 days after each issuance of transition bonds, West Penn is required to file
with the Pennsylvania Public Utility Commission a description of the financing
structure of the transition bonds, including the principal amount, the price at
which each series or class of transition bonds was sold, payment schedules,
interest rate and other financing costs and the final plans for West Penn's use
of the proceeds of that offering. Notwithstanding that filing, the
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final structure of each issuance of transition bonds is not subject to change or
revision by the Pennsylvania Public Utility Commission after the date of that
issuance.
Authorization to Impose Intangible Transition Charges. Under the
Qualified Rate Order, the Pennsylvania Public Utility Commission determined that
it was just and reasonable and in the public interest for West Penn to recover
from its customers, through intangible transition charges, $670 million of
stranded costs. Under the Qualified Rate Order, the Pennsylvania Public Utility
Commission authorized West Penn to impose on and collect from customers, either
directly or through bills rendered by electric generation suppliers, intangible
transition charges in an amount sufficient to recover Qualified Transition
Expenses. In accordance with the Pennsylvania Competition Act, the Pennsylvania
Public Utility Commission found that good cause had been shown to extend the
payment period for assessing new intangible transition charges for service
rendered up to December 31, 2008.
In accordance with the Settlement, the rate reductions included as part of
the Settlement anticipated the benefits of securitization, and no rate
adjustment will be made upon issuance of any transition bonds. After January 1,
1999, competitive transition charges will be reduced by the sum of the amount of
intangible transition charges associated with the issuance of transition bonds
and 75% of the annual net savings resulting from West Penn's securitization of
stranded costs.
In the Qualified Rate Order, the Pennsylvania Public Utility Commission
approves the allocation and methodology for imposing competitive transition
charges and intangible transition charges on customers. The Qualified Rate Order
also authorizes West Penn to make annual adjustments to intangible transition
charges if collections of these intangible transition charges fall below or
exceed the amount necessary to ensure the receipt by the transition bond trustee
of revenues sufficient to fully recover the Qualified Transition Expenses in
accordance with the applicable expected amortization schedule, except that those
adjustments after the period commencing 12 months prior to the last scheduled
payment date for the payment of principal on the last class of each series of
transition bonds may be quarterly or monthly if necessary to ensure full
recovery of intangible transition charges. The Qualified Rate Order states that
the revenues received by the transition bond trustee through intangible
transition charges shall be determined to be sufficient for the foregoing
purpose if, and only if, the collections of intangible transition charges so
received are sufficient to amortize the transition bonds, fund any reserves and
to pay premiums, if any, on those transition bonds, after payment of accrued
interest, redemption premiums, if any, related credit enhancement, servicing
fees and other related costs and expenses, in accordance with the terms of the
transition bonds.
Authorization to Sell Intangible Transition Property. Under the Qualified
Rate Order, the Pennsylvania Public Utility Commission concluded that it is in
the public interest, and authorized West Penn and any assignee of West Penn, to
assign, sell, transfer or pledge intangible transition property in an amount
sufficient to recover all of West Penn's Qualified Transition Expenses. The
Pennsylvania Public Utility Commission
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directed West Penn to use the proceeds from the sale of intangible transition
property to reduce stranded costs and related capitalization.
The Qualified Rate Order provides that, to the extent that West Penn, or
any assignee, assigns, sells, transfers, or pledges any interest in intangible
transition property created by the Qualified Rate Order, the Pennsylvania Public
Utility Commission authorizes West Penn to contract, for a specified fee, with
that assignee for West Penn to continue to operate the system to provide
electric services to West Penn's customers, to impose and collect the applicable
intangible transition charges for the benefit and account of the assignee, to
make periodic adjustments of intangible transition charges contemplated under
the Qualified Rate Order and to account for and remit the applicable intangible
transition charges to or for the account of the assignee free of any charge,
deduction or surcharge of any kind, other than the specified contractual fee
referred to above. The Qualified Rate Order also authorizes West Penn to
contract with the issuers of transition bonds and an alternative party, which
may be a trustee, that the alternative party will replace West Penn under its
contract with those issuers and perform the obligations of West Penn
contemplated in the Qualified Rate Order. The obligations of West Penn:
(1) shall be binding upon West Penn, its successors and assigns and
(2) shall be required by the Pennsylvania Public Utility Commission
to be undertaken and performed only by West Penn and any other entity which
provides transmission and distribution services to a person who was a
customer of West Penn located within West Penn's certificated territory on
January 1, 1997, or who became a customer of electric services within such
territory after January 1, 1997, and is still located within that
territory.
Irrevocability of QRO. The Qualified Rate Order declares that the
paragraphs in the Qualified Rate Order concerning the recovery of $670 million
of West Penn's stranded costs through the issuance of transition bonds, the
imposition of intangible transition charges on customers in an amount sufficient
to recover Qualified Transition Expenses, the methodology and allocation and
timing of adjustments to the intangible transition charges and the sale of
intangible transition property, are irrevocable for purposes of the Pennsylvania
Competition Act, and the Pennsylvania Public Utility Commission accordingly
agrees that it will not, directly or indirectly, by any subsequent action,
reduce, postpone, impair or terminate the Qualified Rate Order or the intangible
transition charges. In the Qualified Rate Order, the Pennsylvania Public Utility
Commission further declared that the right, title and interest of West Penn and
any assignee in the Qualified Rate Order and the intangible transition charges,
the rates and other charges authorized by the Qualified Rate Order, and all
revenues, collections, claims, payments, money or proceeds of or arising from
the same constitute intangible transition property.
THE INTANGIBLE TRANSITION CHARGES
Calculation of the Intangible Transition Charges. The Qualified
Transition Expenses authorized in the Qualified Rate Order are to be recovered
from customers in
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<PAGE> 89
each of West Penn's separate rate schedules. The intangible transition charges
initially will be calculated by determining the total amount of intangible
transition charges required to be billed to each customer category, based on
current estimates of sales growth, in order to generate collections of
intangible transition charges sufficient to ensure timely recovery of Qualified
Transition Expenses in accordance with the expected amortization schedule. The
amount determined for each customer category will then be allocated to each rate
schedule within that customer category based on the allocation of stranded cost
recovery borne by each rate schedule through current electric rates approved by
the Pennsylvania Public Utility Commission.
The intangible transition charges will reduce competitive transition
charges, as periodically adjusted, and will appear as a separate line item on
each customer's bill. If the competitive transition charges have been reduced to
zero, West Penn may adjust the shopping credit, rather than the intangible
transition charges approved by the Qualified Rate Order, to bring the charges
into compliance with the applicable rate cap.
Collections of intangible transition charges will vary with changes in
usage, number of customers, rate of delinquencies and write-offs or other
factors. Variations in collections of intangible transition charges will be
addressed by recalculating the intangible transition charges on each calculation
date. See "The Intangible Transition Charge Adjustment Process" below.
Initial Billing and Termination of Collections Intangible Transition
Charges. Intangible transition charges for each series of transition bonds will
be assessed on all customer bills rendered on or after the effective date of the
rates for intangible transition charges associated with the relevant series
issuance date. For instance, if a particular series issuance date is January 1
and the rates for intangible transition charges are effective January 1, bills
rendered on or after January 1 will be assessed intangible transition charges
with respect to that series. Upon each adjustment of intangible transition
charges or issuance of additional series of transition bonds, the adjusted
intangible transition charges will be assessed in the same manner. The
imposition of intangible transition charges as a result of the issuance of
transition bonds will result in a reduction in any competitive transition
charges then in effect in an amount equal to the sum of such intangible
transition charges and 75% of the annual net savings resulting from West Penn's
securitization of stranded costs, so that the total amount billed to customers
generally will decrease from that which would have been billed if there had been
no securitization.
The servicer, or electric generation supplier or other third-party biller,
will continue to bill the intangible transition charges until the series
termination date or class termination date, if applicable, with respect to each
series or class, as applicable, but in no event will new intangible transition
charges be imposed for service periods later than December 31, 2008. Upon the
series termination date or class termination date, as applicable, relating to
the series or class, as applicable, of transition bonds having the latest series
termination date or class termination date, as applicable, the servicer will
cease assessing the intangible transition charges. However, the servicer, or
electric generation supplier or other third-party biller, will continue to
collect the intangible
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<PAGE> 90
transition charges previously billed to customers. To the extent that
collections of intangible transition charges exceed the amount necessary to
amortize fully all transition bonds and pay interest on the transition bonds and
applicable fees and expenses and to fund the overcollateralization subaccount
and capital subaccount, those collections of intangible transition charges will
be retained by the issuer.
The Intangible Transition Charge Adjustment Process. In order to enhance
the likelihood that the actual collections of intangible transition charges are
neither more nor less than the amount necessary to amortize the transition bonds
of each series in accordance with the expected amortization schedule for that
series, to replenish the capital subaccount up to the required capital amount
and to fund the overcollateralization subaccount to the calculated
overcollateralization level, the servicing agreement requires the servicer to
seek, and the Pennsylvania Competition Act and the Qualified Rate Order require
the Pennsylvania Public Utility Commission to approve, adjustments to the
intangible transition charges based on actual collections of intangible
transition charges and updated assumptions by the servicer as to projected
future sales from which intangible transition charges are allocated, expected
delinquencies and write-offs, and future expenses relating to intangible
transition property and the transition bonds. Adjustments will be made to the
intangible transition charges imposed upon customers to reflect shortfalls in or
excesses of collections of intangible transition charges for the period since
the last adjustment, including amounts of shortfalls or excesses resulting from
inaccurate forecasts by the servicer. For example, if actual electricity
consumption is less than the servicer forecasted because of an unusually mild
summer, and this resulted in a shortfall of intangible transition charge
collections, the servicer would be required to seek an adjustment from the
Pennsylvania Public Utility Commission to the intangible transition charges
imposed thereafter to compensate for that shortfall as described in this section
and in "The Servicing Agreement -- Servicing Procedures -- Intangible Transition
Charge Adjustment Process" in this prospectus.
In addition, the adjustments will take into account any projected trends in
customers or billed revenues from which intangible transition charges are
allocated in order to prevent shortfalls or excesses of collections of
intangible transition charges from arising in future periods so that if, for
example, usage is declining at an accelerating pace, that trend will be taken
into account in the calculation of the current adjustment. The Qualified Rate
Order provides for annual adjustments, except that adjustments after the period
commencing 12 months prior to the last scheduled payment date for the payment of
principal on the last class of each series of transition bonds may be made
quarterly or monthly. If at the time of issuance of a series, the servicer
determines that those additional adjustments are required, the dates for those
adjustments will be specified in the prospectus supplement for that series.
These adjustments will cease with respect to a series on the final date on which
adjustments to the intangible transition charges are implemented specified in
the related prospectus supplement for that series.
The Schedule for Making Adjustments to Intangible Transition Charges. The
servicer is required to file an Adjustment Request with the Pennsylvania Public
Utility Commission on October 1 of each year and on any other calculation date,
requesting
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<PAGE> 91
modifications to the intangible transition charges. These Adjustment Requests
are designed to result in:
(1) the outstanding principal balance of each series or class
equaling the amount provided for in the expected amortization schedule for
that series or class,
(2) the amount on deposit in the overcollateralization subaccount
equaling the calculated overcollateralization level,
(3) the amount in the capital subaccount equaling the required
capital amount, and
(4) the amount in the reserve subaccount equaling zero.
These Adjustment Requests are designed to achieve each of the above goals
by the payment date immediately preceding the next date on which adjustments to
the intangible transition charges are implemented or with respect to the period
in which monthly rate adjustments are utilized, generally the 25th day of the
calendar month immediately preceding the next monthly adjustment date, as
applicable, taking into account any amounts on deposit in the reserve
subaccount. The Pennsylvania Competition Act and the Qualified Rate Order
require the Pennsylvania Public Utility Commission to approve the annual
adjustments within 90 days of the Adjustment Request. The adjustment dates on
which adjustments to the intangible transition charges are to be made will be
set forth in the prospectus supplement for the related series.
In order to obtain approval of each annual adjustment as expeditiously as
possible, on October 1 of each year West Penn, as servicer, will file with the
Pennsylvania Public Utility Commission a schedule of actual collections of
intangible transition charges for the nine months ended August 31, together with
an estimate of collections of intangible transition charges for the three months
ending on the immediately following November 30, and the estimated intangible
transition charges for the following year. On December 15, West Penn will file a
schedule of actual collections of intangible transition charges as of November
30, replacing the estimates submitted on October 1, and the actual intangible
transition charges for the following year. Interim adjustments beginning twelve
months before the expected final payment date of the last series or class of the
transition bonds will not reflect updated assumptions of projected future usage
of electricity by customers, expected delinquencies and write-offs and future
expenses relating to intangible transition property and the transition bonds.
Beginning twelve months before the expected final payment date of the last
series or class of the transition bonds, the Pennsylvania Public Utility
Commission will permit each adjustment request to become effective within 15
days after filing. The adjustment process will continue until the earlier of the
final payment of all series of transition bonds and December 31, 2008.
COMPETITIVE BILLING
The West Penn restructuring plan and subsequent orders of the Pennsylvania
Public Utility Commission give customers who purchase electric generation from
electric generation suppliers or purchase billing and metering services from
other third parties the
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<PAGE> 92
opportunity to choose from several billing source options as of September 1,
2000: consolidated billing from the utility, consolidated billing from the
electric generation supplier or third party biller or separate billing from the
utility and from the electric generation supplier or third party biller
providing billing services. Any electric generation supplier or third party
biller that provides consolidated billing is required to pay the utility amounts
billed by the utility to the electric generation supplier or third party biller,
including the intangible transition charges, regardless of the electric
generation supplier's or third party biller's ability to collect those amounts
from its customers. In that event, the electric generation supplier or third
party biller will replace the customer as the obligor with respect to those
intangible transition charges, and the servicer, on behalf of the issuer, will
generally have no right to collect those intangible transition charges from the
customer. The servicer will have the right to bill and collect intangible
transition charges and other amounts payable to the servicer directly from all
of the electric generation supplier's or third party biller's consolidated
billing customers following payment defaults by an electric generation supplier
or third party biller and the expiration of the applicable grace period and can
disconnect electric service to those customers. See "Risk Factors--Servicing--It
May Be More Difficult to Collect Intangible Transition Charges Due to Billing By
Third Parties" in this prospectus.
The West Penn restructuring plan sets forth, and future orders of the
Pennsylvania Public Utility Commission will set forth, guidelines governing
metering, billing and other activities by electric generation suppliers and
third party billers. The Pennsylvania Public Utility Commission has determined
that if an electric generation supplier or third party biller provides
consolidated billing, the electric generation supplier or third party biller
must first establish its creditworthiness by either:
(1) demonstrating that it has an investment grade rating for its own
long-term debt or
(2) depositing with the Pennsylvania Public Utility Commission a
letter of credit or other mechanism sufficient to cover 30 days of its
expected collections from intangible transition charges.
While the West Penn restructuring plan and Pennsylvania Public Utility
Commission orders provide that an electric generation supplier or third party
biller that bills customers must comply with all billing, financial and
disclosure requirements applicable to electric generation suppliers or third
party billers, the Pennsylvania Public Utility Commission may waive any of those
requirements at any time in the future. See also "Risk
Factors -- Servicing -- It May Be More Difficult to Collect Intangible
Transition Charges Due to Billing By Third Parties" in this prospectus.
Termination Fees. The West Penn restructuring plan requires West Penn to
allow its customers to pay competitive transition charges, and perhaps
intangible transition charges, in a lump sum, based on a calculation that takes
into account each of those customer's last 12 months of demand and West Penn's
weighted average cost of capital. Only one customer has elected to exercise this
option to date, but that prepayment will not have any effect on West Penn's
intangible transition charges.
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<PAGE> 93
The recovery of both competitive transition charges and intangible
transition charges from industrial and commercial customers that significantly
reduce their purchases of electricity generation from West Penn through the
installation of onsite generation equipment will be governed by special rules
set forth in the West Penn restructuring plan. These special arrangements were
designed so that customers who operate generation equipment in parallel with
West Penn's transmission and distribution system pay their fully allocated share
of stranded costs through competitive transition charges and intangible
transition charges. For each self-generating customer, the servicer will
determine annually, after the end of each calendar year in which competitive
transition charges or intangible transition charges are assessed, whether that
customer purchased at least 10% fewer kilowatt-hours of electricity through the
transmission and distribution system than the customer purchased in the
applicable base year. For customers who began self-generation on or after
January 1, 1997, the base year is the immediately preceding calendar year. For
all others, the base year is 1996.
If the ratio between:
(1) the amount of usage difference caused by the onsite generation
and
(2) the base year usage is 10% or more,
the servicer will bill the customer separately in an amount equal to the
difference between:
(x) the total competitive transition charges and intangible
transition charges that the customer would have paid using usage and demand
data for the base year, as adjusted for any portion not related to
self-generation, and
(y) the total competitive transition charges and intangible
transition charges that the customer did pay in the preceding calendar
year.
There are other special rules for customers whose peak load during 1996 was
at least 4 megawatts and who can prove that they were actively self-generating
as of December 31, 1996 or earlier. West Penn does not expect the number of
customers who self-generate or the kilowatt-hours produced by self-generation to
be significant. The calculation of the intangible transition charges and any
adjusted intangible transition charges will reflect actual self-generation at
the time of that calculation and the servicer's projection with respect to
future self-generation.
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<PAGE> 94
THE SERVICER
WEST PENN POWER COMPANY
RETAIL ELECTRIC SERVICE TERRITORY
West Penn serves approximately 665,000 customers in an area of
approximately 9,900 square miles in 24 counties of southwestern and central
Pennsylvania. The service area is primarily rural and suburban, and its economy
is significantly industrial-based.
In order better to address the competitive environment for generation of
electricity, West Penn is in the process of establishing a separate subsidiary
to own its electric generation assets. Separation of the generation function
from transmission, distribution, and corporate services will allow for more
flexibility in West Penn's operations.
CUSTOMERS AND OPERATING REVENUES
West Penn's customer base is divided into three general customer
categories: residential, commercial and industrial. Individual rate schedules
are created by the Pennsylvania Public Utility Commission and are subject to
change. Those changes will be reflected in any Adjustment Request filed with the
Pennsylvania Public Utility Commission by the servicer. The rate schedules in
each customer category are:
Residential Rate Schedules:
Schedule 10 -- The only residential service schedule, available to all
residential customers in West Penn's service area.
Commercial Rate Schedules:
Schedule 20 -- For small-to-medium commercial and small industrial
customers.
Schedule 22 -- For churches, schools, non-profit colleges and universities.
Closed to new customers as of August 30, 1979.
Schedule 23 -- For athletic field lighting for schools, communities, civic
organizations, and other public institutions. Closed to new
customers as of August 28, 1985.
Schedule 24 -- For fairs, carnivals, and other similar temporary
enterprises.
Industrial Rate Schedules:
Schedule 30 -- For customers with demands in excess of 100 kilowatts,
generally large commercial and medium-sized industrial
customers.
Schedule 40 -- For customers with demands in excess of 2,000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers.
Schedule 41 -- For customers with demands in excess of 2,000 kilowatts and
service voltages in excess of 25 kilovolts, generally large
industrial customers. Closed to new customers as of December
31, 1998
Schedule 44 -- For customers with interruptible demands in excess of 5,000
kilovolt-amperes and service voltages in excess of 25
kilovolts,
65
<PAGE> 95
generally large industrial customers able to withstand
interruptions in service. Closed to new customers as of
December 31, 1998.
Schedule 46 -- For customers with demands in excess of 30,000
kilovolt-amperes and service voltages in excess of 25
kilovolts, generally very large industrial customers. Closed
to new customers as of December 31, 1998.
Schedules 51-56 -- For various types of street and outdoor lighting. Closed
to new customers as of June 6, 1997.
Schedules 57-58 -- For outdoor lighting of various types.
Schedule 71 -- For municipal street and highway lighting. Closed to new
customers as of August 26, 1978.
Schedule 86 -- For alternative generation.
Total Customers. The following tables show, for the last five years, the
number of retail electric customers and the percentage of all retail electric
customers by rate schedule (Table 3), retail electric usage by rate schedule
(Table 4), and retail electric revenues by rate schedule (Table 5). For the pro
forma intangible transition charges assessed to individual rate schedules as of
any series issuance date and any adjustment thereto, in each case giving effect
to the issuance of transition bonds on that date, see the related prospectus
supplement. There can be no assurance that total customers, the composition of
total customers by customer category and rate schedule or usage levels or
revenues for each customer category and rate schedule will remain at or near the
levels reflected in the following tables.
Rate Adjustment Among Rate Schedules Within the Three Customer Categories.
In general, each customer category is responsible for a fixed percentage of the
intangible transition charges. The Pennsylvania Public Utility Commission has
approved this allocation of intangible transition charges among customer
categories. The intangible transition charges will be determined for each rate
schedule within the three customer categories. The intangible transition charges
will be adjusted by rate schedule within each customer category, but not among
customer categories. The Pennsylvania Competition Act prohibits allocating
intangible transition charges to customer categories in a manner that results in
the interclass or intraclass shifting of costs. In prior decisions, the
Pennsylvania Public Utility Commission has concluded that performing rate
adjustments by customer categories does not constitute interclass or intraclass
shifting of costs.
Rate Schedules and Customer Categories. The rate schedules in the
commercial and industrial customer categories do not necessarily consist solely
of commercial customers or industrial customers, as the case may be. Instead, a
rate schedule placed in the commercial customer category indicates that this
rate schedule consists primarily of commercial customers. Similarly, a rate
schedule placed in the industrial customer category indicates that this rate
schedule consists primarily of industrial customers. Tables 3, 4 and 5 below
provide statistics by customer category.
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<PAGE> 96
In contrast, statistics provided in Tables 6, 7, 8 and 9 in this prospectus
relate solely to commercial customers and industrial customers, themselves,
rather than by aggregation of rate schedules into customer categories. In
addition, Pennsylvania State University is treated as a commercial customer for
the statistics provided in Tables 6, 7, 8 and 9 in this prospectus, but it is
not included in any rate schedule or customer category for purposes of Tables 3,
4, and 5 because the University entered into an agreement with West Penn to
prepay its competitive transition charges.
TABLE 3
RETAIL ELECTRIC CUSTOMERS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------ ------------------ ------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF NUMBER OF % OF
CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL CUSTOMERS TOTAL
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 564,940 86.98% 569,897 86.83% 571,928 86.69% 575,526 86.60% 579,194 86.54%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Sub-Total 564,940 86.98% 569,897 86.83% 571,928 86.69% 575,526 86.60% 579,194 86.54%
COMMERCIAL
Schedule 20 72,148 11.11% 73,837 11.25% 75,214 11.40% 76,485 11.51% 78,024 11.65%
Schedule 22 1,961 0.30% 1,858 0.28% 1,748 0.26% 1,724 0.26% 1,608 0.24%
Schedule 23 47 0.01% 44 0.01% 40 0.01% 38 0.01% 38 0.01%
Schedule 24 3 0.00% 5 0.00% 4 0.00% 5 0.00% 7 0.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Sub-Total 74,159 11.42% 75,744 11.54% 77,006 11.67% 78,252 11.78% 79,677 11.90%
INDUSTRIAL
Schedule 30 2,278 0.35% 2,256 0.35% 2,247 0.35% 2,291 0.35% 2,322 0.35%
Schedule 40 83 0.01% 88 0.01% 91 0.01% 97 0.01% 99 0.01%
Schedule 41 3 0.00% 2 0.00% 2 0.00% 2 0.00% 1 0.00%
Schedule 44 2 0.00% 2 0.00% 1 0.00% 1 0.00% 1 0.00%
Schedule 46 2 0.00% 2 0.00% 2 0.00% 2 0.00% 2 0.00%
Schedule 86 4 0.00% 4 0.00% 4 0.00% 4 0.00% 4 0.00%
Street
Lighting 8,049 1.24% 8,354 1.27% 8,444 1.28% 8,343 1.26% 8,017 1.20%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Sub-Total 10,421 1.60% 10,708 1.63% 10,791 1.64% 10,740 1.62% 10,446 1.56%
Total 649,520 100.00% 656,349 100.00% 659,725 100.00% 664,518 100.00% 669,317 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
<CAPTION>
FOR THE
SIX MONTHS
ENDED
------------------
6/30/99
------------------
AVERAGE
NUMBER OF % OF
CUSTOMERS TOTAL
--------- ------
<S> <C> <C>
RESIDENTIAL
Schedule 10 584,964 86.41%
------- ------
Sub-Total 584,964 86.41%
COMMERCIAL
Schedule 20 80,025 11.81%
Schedule 22 1,596 0.24%
Schedule 23 34 0.01%
Schedule 24 7 0.00%
------- ------
Sub-Total 81,662 12.06%
INDUSTRIAL
Schedule 30 2,369 0.35%
Schedule 40 113 0.02%
Schedule 41 2 0.00%
Schedule 44 1 0.00%
Schedule 46 2 0.00%
Schedule 86 4 0.00%
Street
Lighting 7,882 1.16%
------- ------
Sub-Total 10,373 1.53%
Total 676,999 100.00%
======= ======
</TABLE>
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<PAGE> 97
TABLE 4
ACTUAL RETAIL ELECTRIC USAGE (PER MEGAWATT-HOUR "MWh")
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------- ------------------- ------------------- ------------------- -------------------
% OF % OF % OF % OF % OF
MWH TOTAL MWH TOTAL MWH TOTAL MWH TOTAL MWH TOTAL
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 5,748,127 34.44% 5,767,542 33.48% 5,948,711 33.68% 5,766,850 32.61% 5,809,350 32.50%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Sub-Total 5,748,127 34.44% 5,767,542 33.48% 5,948,711 33.68% 5,766,850 32.61% 5,809,350 32.50%
COMMERCIAL
Schedule 20 2,018,381 12.10% 2,090,358 12.13% 2,153,748 12.20% 2,168,078 12.26% 2,216,039 12.41%
Schedule 22 98,538 0.59% 89,102 0.52% 81,534 0.46% 64,818 0.37% 52,501 0.29%
Schedule 23 511 0.00% 474 0.00% 470 0.00% 477 0.00% 499 0.00%
Schedule 24 33 0.00% 23 0.00% 22 0.00% 21 0.00% 27 0.00%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Sub-Total 2,117,463 12.69% 2,179,957 12.65% 2,235,774 12.66% 2,233,394 12.63% 2,269,066 12.70%
INDUSTRIAL
Schedule 30 3,857,797 23.11% 3,927,383 22.80% 3,971,239 22.49% 4,047,248 22.89% 4,071,011 22.78%
Schedule 40 3,077,059 18.44% 3,355,885 19.48% 3,540,235 20.04% 3,978,829 22.50% 3,820,137 21.37%
Schedule 41 106,216 0.64% 46,904 0.27% 46,300 0.26% 46,786 0.26% 19,068 0.11%
Schedule 44 118,103 0.71% 117,590 0.68% 72,775 0.41% 69,027 0.39% 78,958 0.44%
Schedule 46 1,583,201 9.49% 1,751,520 10.17% 1,766,040 10.00% 1,460,804 8.26% 1,723,975 9.65%
Schedule 86 9 0.00% 31 0.00% 182 0.00% 3 0.00% 15 0.00%
Street
Lighting 80,639 0.48% 80,951 0.47% 81,182 0.46% 81,181 0.46% 81,271 0.45%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Sub-Total 8,823,024 52.87% 9,280,264 53.87% 9,477,953 53.66% 9,683,878 54.76% 9,794,435 54.80%
Total 16,688,614 100.00% 17,227,763 100.00% 17,662,438 100.00% 17,684,122 100.00% 17,872,851 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
<CAPTION>
FOR THE
SIX MONTHS
ENDED
------------------
6/30/99
------------------
% OF
MWH TOTAL
--------- ------
<S> <C> <C>
RESIDENTIAL
Schedule 10 3,055,975 33.56%
--------- ------
Sub-Total 3,055,975 33.56%
COMMERCIAL
Schedule 20 1,138,248 12.50%
Schedule 22 32,693 0.36%
Schedule 23 150 0.00%
Schedule 24 3 0.00%
--------- ------
Sub-Total 1,171,094 12.86%
INDUSTRIAL
Schedule 30 2,039,918 22.41%
Schedule 40 1,837,720 20.18%
Schedule 41 26,080 0.29%
Schedule 44 34,908 0.38%
Schedule 46 899,018 9.87%
Schedule 86 33 0.00%
Street
Lighting 40,730 0.45%
--------- ------
Sub-Total 4,878,407 53.58%
Total 9,105,476 100.00%
========= ======
</TABLE>
TABLE 5
RETAIL ELECTRIC REVENUES (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
$(000S) TOTAL $(000S) TOTAL $(000S) TOTAL $(000S) TOTAL $(000S) TOTAL
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Schedule 10 $376,023 41.12% $395,209 40.56% $403,243 40.92% $389,460 40.13% $381,918 40.26%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Sub-Total 376,023 41.12% 395,209 40.56% 403,243 40.92% 389,460 40.13% 381,918 40.26%
COMMERCIAL
Schedule 20 $130,657 14.29% $140,314 14.40% $143,273 14.53% $143,473 14.78% $140,749 14.84%
Schedule 22 6,597 0.72% 6,518 0.67% 5,969 0.61% 4,810 0.50% 3,539 0.37%
Schedule 23 75 0.01% 76 0.01% 72 0.01% 71 0.01% 65 0.01%
Schedule 24 4 0.00% 4 0.00% 3 0.00% 3 0.00% 4 0.00%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Sub-Total 137,333 15.02% 146,912 15.08% 149,317 15.15% 148,357 15.29% 144,357 15.22%
INDUSTRIAL
Schedule 30 $194,859 21.30% $206,145 21.17% 205,646 20.88% $208,172 21.45% $203,325 21.44%
Schedule 40 121,857 13.32% 136,249 13.98% 140,287 14.23% 152,368 15.70% 142,684 15.04%
Schedule 41 4,713 0.52% 2,142 0.22% 2,204 0.22% 2,090 0.22% 756 0.08%
Schedule 44 4,305 0.47% 4,296 0.44% 2,582 0.26% 1,944 0.20% 2,207 0.23%
Schedule 46 64,478 7.05% 71,817 7.37% 70,653 7.17% 56,485 5.82% 61,748 6.51%
Schedule 86 33 0.00% 37 0.00% 42 0.00% 39 0.00% 38 0.00%
Street
Lighting 10,944 1.20% 11,494 1.18% 11,537 1.17% 11,554 1.19% 11,620 1.22%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Sub-Total 401,189 43.86% 432,180 44.36% 432,951 43.93% 432,652 44.58% 422,378 44.52%
Total $914,545 100.00% $974,301 100.00% $985,511 100.00% $970,469 100.00% $948,653 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
<CAPTION>
FOR THE SIX
MONTHS ENDED
-----------------
6/30/99
-----------------
% OF
$(000S) TOTAL
-------- ------
<S> <C> <C>
RESIDENTIAL
Schedule 10 $198,715 43.70%
-------- ------
Sub-Total 198,715 43.70%
COMMERCIAL
Schedule 20 $ 70,785 15.58%
Schedule 22 2,067 0.45%
Schedule 23 14 0.00%
Schedule 24 1 0.00%
-------- ------
Sub-Total 72,867 16.03%
INDUSTRIAL
Schedule 30 $ 88,991 19.57%
Schedule 40 58,905 12.96%
Schedule 41 573 0.13%
Schedule 44 976 0.21%
Schedule 46 28,019 6.16%
Schedule 86 21 0.00%
Street
Lighting 5,622 1.24%
-------- ------
Sub-Total 183,107 40.27%
Total $454,689 100.00%
======== ======
</TABLE>
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<PAGE> 98
CONCENTRATIONS. For the six-month period ended June 30, 1999, the largest
ten residential customers represented less than 1% of West Penn's total retail
electric revenues. For the six-month period ended June 30, 1999, the largest
commercial customer and the largest ten commercial customers represented
approximately 0.21% and 0.80%, respectively, of West Penn's retail electric
revenues from commercial customers. For the six-month period ended June 30,
1999, the largest industrial customer and the largest ten industrial customers
represented approximately 10.58% and 28.65%, respectively, of West Penn's retail
electric revenues from industrial customers. For the six-month period ended June
30, 1999, the largest ten residential customers represented less than 1% of West
Penn's total retail electric sales. For the six-month period ended June 30,
1999, the largest commercial customer and the largest ten commercial customers
represented approximately 0.24% and 0.89%, respectively, of West Penn's retail
electric sales from commercial customers. For the six-month period ended June
30, 1999, the largest industrial customer and the largest ten industrial
customers represented approximately 10.98% and 32.30%, respectively, of West
Penn's retail electric sales from industrial customers. There can be no
assurance that current customers will remain customers or that the levels of
customer concentration in the future will be similar to those set forth above.
See "Risk Factors--Servicing--Inaccurate Projections by Servicer May Result in
Losses to Transition Bondholders" in this prospectus.
Delinquency and Write-Off Experience. The following tables set forth the
delinquency and write-off experience with respect to payments to West Penn by
customer category for each of the periods indicated below. There can be no
assurance
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<PAGE> 99
that the future delinquency and write-off experience for West Penn or for the
intangible transition charges will be similar to the historical experience set
forth below:
TABLE 6
DELINQUENCIES AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE YEAR ENDED ENDED
---------------------------------------------------- ----------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 6/30/99
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
30-59 days............ 1.33% 1.23% 1.29% 1.23% 1.23% 1.07%
60-89 days............ 0.54 0.49 0.58 0.42 0.42 0.35%
90-119 days........... 0.17 0.16 0.26 0.15 0.15 0.14%
120+ days............. 0.10 0.10 0.26 0.17 0.16 0.26%
COMMERCIAL
30-59 days............ 0.21% 0.26% 0.38% 0.33% 0.41% 0.40%
60-89 days............ 0.05 0.04 0.11 0.07 0.05 0.07%
90-119 days........... 0.02 0.02 0.04 0.03 0.03 0.03%
120+ days............. 0.03 0.02 0.06 0.07 0.04 0.07%
INDUSTRIAL
30-59 days............ 0.08% 0.14% 0.19% 0.09% 0.14% 0.19%
60-89 days............ 0.02 0.08 0.03 0.04 0.02 0.02%
90-119 days........... 0.01 0.01 0.01 0.04 0.02 0.01%
120+ days............. 0.02 0.01 0.01 0.01 0.00 0.01%
</TABLE>
- ------------
For purposes of calculating the numbers in Table 6 for the six-month period
ended June 30, 1999, the billed revenues for that six-month period were doubled.
TABLE 7
NET WRITE-OFFS AS A PERCENTAGE OF BILLED RETAIL ELECTRIC REVENUES
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED
-------------------------------------------------------- ------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 6/30/99
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
RESIDENTIAL.......... 0.84% 0.92% 1.36% 1.57% 1.37% 0.69%
COMMERCIAL........... 0.07 0.06 0.09 0.21 0.19 0.14
INDUSTRIAL........... 0.05 0.05 0.28 0.18 0.12 0.09
TOTAL................ 0.38 0.41 0.68 0.74 0.64 0.36
</TABLE>
- ------------
Unless West Penn is unable to complete all of its follow-up procedures in a
timely manner, unpaid residential account balances are charged-off 141 days
after the initial bill is mailed. Unless West Penn is unable to complete all of
its follow-up procedures in a timely manner, unpaid commercial and industrial
account balances are charged-off 101 days after the initial bill is mailed. If
West Penn is delayed in completing its follow-up procedures, the 141-day and
101-day charge-off periods may increase by a few days. For a description of West
Penn's collection and write-off policy, see "--Limited
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<PAGE> 100
Information on Customers' Creditworthiness--Collection Process for Residential
Customers", "--Limited Information on Customers' Creditworthiness--Collection
Process for Commercial and Industrial Customers" and "--Limited Information on
Customers' Creditworthiness-- Collection Process for Governmental Customers" in
this prospectus.
During the last five years, an increased number of bankruptcy filings have
resulted in an increase in delinquencies and net write-offs in the residential
and industrial customer categories. In addition, all customer categories were
affected by Allegheny Energy's internal reorganization that occurred in 1996. As
part of that reorganization, credit and collection responsibilities, which had
been performed by field locations, were transferred to a centralized customer
call center. In the later part of 1996 and most of 1997, Allegheny Energy
focused primarily on answering customer calls on a timely basis with other
functions including credit and collection being a secondary concern. Beginning
in 1998, Allegheny Energy once again began to emphasize credit and collection
practices, which contributed to a 14% reduction in losses in 1998.
West Penn does not expect the delinquency or write-off experience with
respect to collections of intangible transition charges to differ substantially
from the experience that it will have with its other receivables.
FORECASTING CUSTOMERS AND USAGE
Accurate projections of the number of customers, usage and retail electric
revenue are important in setting and maintaining the intangible transition
charges or any adjusted intangible transition charges at levels sufficient to
recover interest on and principal of the transition bonds in accordance with the
expected amortization schedule, to fund the calculated overcollateralization
level, to maintain the required capital amount and to pay the bond trustee's
fee, the administrative agent's fee, the servicing fee and the other expenses
and costs included in Qualified Transition Expenses. See "The Qualified Rate
Order and the Intangible Transition Charges--The Intangible Transition Charges"
and "Risk Factors--Servicing--Inaccurate Projections by Servicer May Result in
Losses to Transition Bondholders" in this prospectus.
West Penn's customer and energy forecasts are a subset of the Allegheny
Power forecasts and are produced by employees of Allegheny Energy Service
Corporation using econometrics and end-use models based on demographic data,
historical sales and customer data, and projections of economic and employment
variables for West Penn's service territory produced by Data Resources Inc. Data
Resources Inc. is an independent, nationally-known economic forecasting firm.
West Penn's service area forecasts are derived from Data Resources Inc.'s
macroeconomic models of the U.S. economy. A set of disaggregated customer and
energy sales models use the national and service area economic forecasts and
end-use data as inputs to produce the detailed customer and sales forecasts.
Although the external economic projections form the foundation of the forecast,
judgment, assumptions and specific information about customer segments provided
by Allegheny Energy Service Corporation employees also play important roles in
the final forecast. West Penn's forecasts of customers and energy sales are
reviewed and approved internally by senior management executives.
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<PAGE> 101
Residential customer sales are forecasted using a combination of end-use
and econometric models. Separate forecasts of customers and average use per
customer are combined to produce the forecast of residential customer sales. The
customer forecasts are based primarily on service area demographics and
population forecasts. Average use per customer forecasts are based on
electricity price, weather and saturations of electric space heating and major
household appliances and their corresponding levels of energy use. The model for
total residential customers is driven by population and persons per household in
the service area. Historical and forecast values of the population series are
obtained through Data Resources Inc.'s Regional Information Service. Persons per
household are derived from Residential Appliance Saturation Surveys, and are
forecasted as a function of national persons per household, also obtained from
Data Resources Inc. The number of residential electric heat customers is
typically modeled as a function of real income per customer, total residential
customers and the price of electricity relative to the competing fuel. The
models for average use per customer are driven by use per appliance, number of
appliances, temperature and price of electricity. Regional personal income is
the primary driver in the appliance models. Some appliance models are
constrained so that the number of appliances will not exceed a pre-determined
percentage of total residential customers. The constraints are established in
cooperation with field contacts. The residential customer sales forecast is the
product of the forecast of the average use per customer and the number of
customers.
Service area employment, temperature and price of electricity drive the
models for commercial customer sales. Non-manufacturing employment is used as
the employment driver.
Industrial customer sales are forecasted by major two-digit Standard
Industrial Classification (SIC) codes. The primary specification for the
industrial models assumes that the sale of electricity is a function of
electricity price, employment and industrial production by SIC. Primary SICs
modeled are Mining; Cement, Clay and Stone; Chemicals; Glass; Steel; Fabricated
Metals; and Other Manufacturing.
Actual sales can deviate from forecasted sales for many reasons, including,
but not limited to, weather variations, changes in the general economic climate
and levels of business activity, customer's use of more energy efficient
appliances and technologies, and changes in laws and regulations which affect
energy use.
The temperature-sensitive nature of the residential, commercial and
wholesale loads in the West Penn service territory causes deviations from normal
weather to be potentially the largest contributor to load variances in the
near-term. As the number of electrically-heated and air conditioned buildings in
the service area increases, the sensitivity of demand to temperature also
increases. All West Penn forecasts are intended to represent loads most likely
to occur, given normal temperatures. Therefore, variances from the forecast due
to temperature deviations from normal are to be expected, but should offset over
time and have no effect on average growth.
Variations between actual and projected customers and energy sales are
shown in Table 8 and Table 9. Weather variation played a significant role in the
forecast variances experienced in 1997 and 1998, particularly for residential
and commercial customers.
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<PAGE> 102
The forecast variance for industrial customers in 1998 was due in large part to
an unanticipated decline in steel load and one large customer which began to
self-generate. This customer which began to self-generate nevertheless is
obligated to pay collections of intangible transition charges since the customer
continues to access West Penn's transmission and distribution grid. There can be
no assurance that the future variance between actual and projected customers and
sales in the aggregate, or by customer category, will be similar to the
historical experience set forth in the tables.
TABLE 8
VARIANCE FROM YEAR-AHEAD FORECAST: NUMBER OF CUSTOMERS
FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL CUSTOMERS
Forecasted............................. 570,494 576,399 581,899 584,460 586,512
Actual................................. 571,682 576,372 578,465 581,943 585,316
Variance............................... 0.2% 0.0% -0.6% -0.4% -0.2%
COMMERCIAL CUSTOMERS
Forecasted............................. 65,652 68,067 69,232 70,263 71,350
Actual................................. 65,896 67,720 68,764 69,941 71,158
Variance............................... 0.4% -0.5% -0.7% -0.5% -0.3%
INDUSTRIAL CUSTOMERS
Forecasted............................. 11,280 11,538 11,870 12,144 12,351
Actual................................. 11,398 11,666 11,940 12,076 12,307
Variance............................... 1.0% 1.1% 0.6% -0.6% -0.4%
STREETLIGHTING CUSTOMERS
Forecasted............................. 520 553 550 566 563
Actual................................. 547 557 558 561 539
Variance............................... 5.2% 0.7% 1.5% -0.9% -4.3%
</TABLE>
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<PAGE> 103
TABLE 9
VARIANCE FROM YEAR-AHEAD FORECAST: ENERGY SALES (GWH)
FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RESIDENTIAL CUSTOMERS
Forecasted....................................... 5,697 5,826 5,844 5,974 6,127
Actual........................................... 5,763 5,781 5,963 5,781 5,823
Variance......................................... 1.2% -0.8% 2.0% -3.2% -5.0%
COMMERCIAL CUSTOMERS
Forecasted....................................... 3,640 3,741 3,856 3,986 4,080
Actual........................................... 3,632 3,769 3,854 3,872 3,993
Variance......................................... -0.2% 0.7% -0.1% -2.9% -2.1%
INDUSTRIAL CUSTOMERS
Forecasted....................................... 7,604 7,659 8,204 8,256 8,608
Actual........................................... 7,442 7,834 8,006 8,191 8,226
Variance......................................... -2.1% 2.3% -2.4% -0.8% -4.4%
STREETLIGHTING CUSTOMERS
Forecasted....................................... 53 51 52 52 52
Actual........................................... 52 52 52 52 52
Variance......................................... -1.9% 2.0% 0.0% 0.0% 0.0%
</TABLE>
BILLING PROCESS
West Penn operates on a continuous billing cycle, with an approximately
equal number of bills being distributed each business day. For the year ended
December 31, 1998, West Penn mailed out an average of approximately 33,000 bills
daily. West Penn bills the majority of its customers monthly. Accounts with
potential billing errors are held by the computer system for review. This review
examines accounts that have abnormally high or low bills, potential
meter-reading errors, safety problems as identified by the meter-reading staff
and possible meter malfunctions. Subject to statutory and legal requirements,
West Penn may change its billing policies and procedures from time to time. It
is expected that any of these changes would be designed to enhance West Penn's
ability to make timely recovery of amounts billed to customers.
LIMITED INFORMATION ON CUSTOMERS' CREDITWORTHINESS
Under the servicing agreement, any changes instituted by West Penn will
apply to the servicing of intangible transition property so long as West Penn is
the servicer.
Under Pennsylvania law, West Penn is obligated to provide service to new
customers in the residential customer category. West Penn initiated a customer
verification process in May 1999. The primary purpose of this process is to
verify the social security number of new customers. If the customer is unwilling
to provide, or if West Penn is unable to verify, the provided social security
number, the customer will be required to complete a notarized service
application to obtain electric service. West Penn is currently reviewing options
that can be taken at the earliest stages to reduce the costs associated with
delinquent accounts. West Penn relies on the information provided by
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<PAGE> 104
the customer and its customer information system audits to indicate whether the
customer has been previously served by West Penn.
PAYMENT PLANS
As part of its obligation to provide universal service, West Penn will
continue the reduced payment program (the Low Income Payment and Usage Reduction
Program (LIPURP)) provided to certain low income customers who are currently
served under or otherwise qualify for Rate Schedule 10. Customers must be
referred to this program or request admittance and must demonstrate annual
household gross income below 150% of the federal poverty guidelines. Customers
in LIPURP will be placed on a payment plan based on a percentage of income or
annualized average payment. An additional $5.00 per month payment will be
required toward the pre-program arrearages. A LIPURP debt reduction incentive
will be awarded to those customers that reach yearly recertification and have
less than three late payments during their program year. If the customer meets
these criteria, 20% of their accounts receivable balance will be applied to any
existing pre-program arrearage. West Penn has established the following funding
levels through the year 2002: $1,750,000 for 1999; $3,130,000 for 2000;
$4,510,000 for 2001; and $5,880,000 for 2002. After 2002, West Penn expects the
annual costs of LIPURP to be $5.88 million. As of March 31, 1999, there were
approximately 300 customers enrolled in the LIPURP. By 2002, West Penn estimates
that approximately 3% of its customers will be enrolled in LIPURP. Under the
provisions of the Pennsylvania Competition Act, the PUC has adopted regulations
which establish reporting requirements for universal service programs, such as
LIPURP, that are applicable to all electric distribution companies, including
West Penn.
As of March 31, 1999, approximately 31,000 of West Penn's customers have
entered into payment plans with West Penn, including those customers enrolled in
LIPURP. The total amount of billings under these payment plans is approximately
$14 million. Under these payment plans, West Penn customers agree to pay
delinquent bills over a period of time negotiated between West Penn and each
customer. Once a payment plan is entered into, the amount covered under that
plan is no longer considered delinquent unless that customer subsequently fails
to make any payment required to be paid on the date specified under that
customer's payment plan.
Customer Assistance and Referral Evaluation Service Program Guidelines and
Procedures (CARES) is a special plan for West Penn customers who are
experiencing some type of special hardship with the ability to rectify the
situation. This program is for short-term problems only. Customers are not in
the CARES program for more than two years. For customers enrolled in CARES, West
Penn will:
(1) provide a West Penn advocate for special payment-troubled
customers confronted with severe hardships;
(2) provide information and guidance regarding energy usage;
(3) provide supportive budget counseling including a review of the
customer's income and expenses and a formulation of a workable budget; and
75
<PAGE> 105
(4) provide feedback to West Penn on the needs and circumstances of
low-income customers.
Less than 1% of West Penn customers are enrolled in the CARES Program.
In 1998, approximately 78% of total bill payments were received by West
Penn via the U.S. Mail. During the same period, approximately 14% of total
payments were paid in person at approximately 200 payment agencies -- which are
located in unaffiliated businesses or organizations, such as supermarkets and
convenience stores -- throughout the retail electric service territory. Other
payment methods include credit card payments and direct debits of customer
accounts through local banks, which accounted for approximately 8% of bill
payments collected in 1998.
COLLECTION PROCESS FOR RESIDENTIAL CUSTOMERS
Customer bills are due approximately 20 days after mailing. If the customer
does not pay the bill by the due date, the customer will not be considered for
termination until the next bill is rendered, which is approximately 30 days from
the last mailing date. West Penn's collection process is based on delinquent
balance and an internal credit score, which is derived from the customer's
credit history with West Penn. Each delinquent customer is scored for
approximate risk based on outstanding balance, payment habits, and previous
termination history. The score has been used since late 1996 to segment
customers into three specific collection strategies. The lowest risk customers
are sent a friendly reminder letter with no collection activity, since most
customers in this category usually pay late and pay the associated finance
charges. The next segment of customers are moved into a proactive collection
program which is a reminder letter and a collection call strategy designed to
remind the customer of the delinquency. Customers in the third segment are moved
into an aggressive service termination process that is initiated by mailing a
ten-day termination notice. If no payment is made within four business days of
the termination date, a 72-hour personal contact is attempted by telephone. If
the initial phone attempt is unsuccessful, a second attempt is made on the next
business day after 6 p.m. If two telephone attempts are not completed, a 72-hour
notice will be given at the property. If sufficient payment has not been
received by the termination date, the account is sent for service termination by
a designated West Penn employee. If the designated employee makes contact with a
responsible adult, the service is terminated. If the designated employee does
not make contact, a 48-hour deferred notice is left. Two days later, the service
is terminated with or without contact if sufficient payment has not been made.
However, termination is not permitted if the customer has filed a medical
certificate, a dispute or a complaint.
Power is not customarily disconnected if the delinquent customer is subject
to a Pennsylvania Public Utility Commission mandated winter moratorium, which
requires special approval from the Pennsylvania Public Utility Commission prior
to the disconnection of electricity of certain customers in the residential
customer category from December 1 through March 31 of each year. Currently,
these accounts are managed during the winter moratorium through a combination of
letters, proactive phone contacts and negotiated payment plans. Delinquencies
which accumulate during the
76
<PAGE> 106
winter moratorium continue to contribute to the credit scoring, which can lead
to termination after the winter moratorium.
Collection efforts continue after service is terminated. A field service
representative is again sent to collect payment and to check the status of the
situation. A final bill and two reminders are sent before the account is
charged-off. Once an account is charged-off, West Penn mails a charge-off
notification to the customer. If West Penn is able to complete all of its
follow-up procedures in a timely manner, unpaid residential account balances are
charged-off 141 days after the initial bill is mailed and then referred to a
collection agency at 169 days after the initial bill is mailed. Once written
off, the uncollected account is monitored for four years and may be collected at
any point during that time.
If a customer declares bankruptcy, a review is conducted to assess whether
the account is current. The accounts of bankrupt customers having delinquencies
are finaled, and efforts are initiated to submit claims in the bankruptcy of
these customers. Deposits are required for delinquent bankrupt customers for
which West Penn is required to continue services. These deposits are maintained
until the bankruptcy claimed is finaled and payment history is deemed
satisfactory.
COLLECTION PROCESS FOR COMMERCIAL AND INDUSTRIAL CUSTOMERS
Customer bills are due approximately 15 days after mailing. If the customer
does not pay the bill by the due date, collection action generally begins on the
19th day with a ten-day service termination notice delivered by mail. West
Penn's collection process is based on delinquent balance and an internal credit
score, which is derived from the customer's credit history with West Penn. In
addition, the collection process of selective large commercial and industrial
customers is based on providing special handling of accounts and attention to
detail because of the importance of each customer as a source of revenue. The
delinquency of individual customers may result from differing circumstances, and
it is the operational policy of West Penn in serving these accounts to have a
firm understanding of individual customers so that the collection strategy can
be matched to the particular account, while ensuring that regulations are
followed and collection actions are performed legally. Each delinquent customer
is scored for approximate risk based on outstanding balance, payment habits, and
previous termination history. The score has been used since late 1996 to segment
customers into three specific collection strategies. The lowest risk customers
are sent a friendly reminder letter with no collection activity, since most
customers in this category usually pay late and pay the associated finance
charges. The next segment of customers are moved into a proactive collection
program which is a reminder letter and a collection call strategy designed to
remind the customer of the delinquency. Customers in the third segment are moved
into an aggressive service termination process that is initiated by mailing a
ten-day termination notice. If no payment is made within four business days of
the termination date, a 72-hour personal contact is attempted by telephone. If
the initial phone attempt is unsuccessful, a second attempt is made on the next
business day after 6 p.m. If two telephone attempts are completed, a 72-hour
notice will be given at the property. If sufficient payment has not been
received by the termination date, the account is sent for
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<PAGE> 107
service termination by a designated West Penn employee. Service is terminated
with or without field contact if sufficient payment has not been made. However,
termination is not permitted if the customer has filed a medical certificate, a
dispute or a complaint.
Collection efforts continue after service is terminated. Ten days following
the termination of service, a field service representative is again sent to
collect payment and to check the status of the situation. Assuming no collection
is made, a final bill and two reminders are sent before the account is
charged-off. Once an account is charged-off, West Penn mails a charge-off
notification to the customer. If West Penn is able to complete all of its
follow-up procedures in a timely manner, unpaid commercial and industrial
account balances are charged-off 101 days after the initial bill is mailed and
then referred to a collection agency at 128 days after the initial bill is
mailed. Once written off, the uncollected account is monitored for four years
and may be collected at any point during that time.
If a customer declares bankruptcy, a review is conducted to assess whether
the account is current. The accounts of bankrupt customers having delinquencies
are finaled, and efforts are initiated to submit claims in the bankruptcy of
these customers. Deposits are required for delinquent bankrupt customers for
which West Penn is required to continue services. These deposits are maintained
until the bankruptcy claimed is finaled and payment history is deemed
satisfactory.
COLLECTION PROCESS FOR GOVERNMENTAL CUSTOMERS
Federal, state or local government customers or accounts are billed
according to the same standards as commercial and industrial accounts with the
exception that the due date for governmental accounts is 30 days. Service
termination is generally not used as a means of collection for governmental
accounts. Telephone contact is made before any reminder or service termination
notices are mailed.
RECONNECTION POLICY
For residential customers, service restoration generally requires either
payment of the full overdue balance or a payment agreement if the customer has
not previously defaulted on two payment agreements, a $30 reconnection fee
during business hours-$45 after business hours and $90 on weekends-and a
security deposit equal to two months of the average bill. A security deposit is
not required for low-income customers.
For non-residential customers, service restoration generally requires
payment of the full overdue balance, a reconnection fee and a security deposit
equal to the highest two consecutive month bills over the past 12-month period.
Payment arrangements are generally not available for non-residential customers.
APPLICATION OF CUSTOMER PAYMENTS
The Pennsylvania Competition Act provides that the Pennsylvania Public
Utility Commission require the unbundling of electric utility services, tariffs
and customer bills to separate the charges for generation, transmission and
distribution for billing cycles beginning in January, 1999. In the event that a
customer makes a partial payment
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<PAGE> 108
toward an outstanding balance, the payment will be applied first to intangible
transition charges, when implemented, then to the competitive transition
charges, then to transmission and distribution charges and finally to electric
generation charges.
West Penn offers two billing options to choice customers. A customer may
elect to receive a single bill from West Penn which would include charges
incurred from the electric supplier and West Penn or the customer may elect dual
billing. With dual billing, the customer will receive one bill from the electric
generation supplier for electric generation and one bill from West Penn for
intangible transition charges, competitive transition charges and transmission
and distribution charges. Under the Settlement, a third option, a single bill
from the electric generation supplier containing West Penn's charges will be
implemented on or after September 1, 2000.
West Penn's electric tariff approved by the Pennsylvania Public Utility
Commission in the West Penn restructuring plan provides that when West Penn is
providing dual billing and a customer remits a partial payment to West Penn, the
payment will be applied as follows:
(1) To the outstanding balance before direct access to electric
generation from electric generation suppliers or the installment amount for
a payment agreement on this balance;
(2) To the balance due for state tax charges;
(3) To the balance due or the installment amount for a payment
agreement for intangible transition charges, when implemented;
(4) To the balance due or the installment amount for a payment
agreement for competitive transition charges;
(5) To the balance due or the installment amount for a payment
agreement for fixed and variable utility distribution service charges;
(6) To the current state tax charges;
(7) To the current intangible transition charges, when implemented;
(8) To the current competitive transition charges;
(9) To the current fixed and variable utility distribution service
charges;
(10) To the balance due for prior charges for energy and capacity (if
West Penn is the provider of last resort);
(11) To the current charges for energy and capacity charges (if West
Penn is the provider of last resort); and
(12) To the non-basic service charges.
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If the customer elects the single bill option and remits a partial payment,
the payment is applied as follows using the allocation among the charges as
detailed under the dual bill option:
(1) West Penn's past due bills for basic service charges;
(2) West Penn's current bills for basic service charges;
(3) Suppliers' past due bills for basic service charges;
(4) Suppliers' current bills for basic service charges;
(5) West Penn's past due bills for non-basic service charges;
(6) West Penn's current bills for non-basic service charges;
(7) Suppliers' past due bills for non-basic service charges; and
(8) Suppliers' current bills for non-basic service charges.
ELECTRIC GENERATION SUPPLIERS AND OTHER THIRD-PARTY BILLERS
The servicer, on behalf of the issuer, will pursue any electric generation
supplier or other third party providing billing or metering services that fails
to remit the applicable intangible transition charges in a manner similar to
that by which the servicer will pursue any failure by a customer to remit
intangible transition charges. The servicer will have the right to bill and
collect intangible transition charges and other amounts payable to the issuer or
the servicer directly from all customers electing consolidated billing from an
electric generation supplier or other third party providing billing or metering
services as follows: if the servicer does not receive payment for undisputed
charges within 25 calendar days for customers in the residential customer
category or 20 calendar days for customers in the commercial and industrial
customer categories after the charges are communicated to the electric
generation supplier or other third party providing billing or metering services,
then the servicer may provide notice of breach to the electric generation
supplier or other third party providing billing or metering services at any time
thereafter, at the servicer's discretion. Upon notice of a breach, the electric
generation supplier or other third party providing billing or metering services
will have 20 calendar days to cure that breach. If the electric generation
supplier or other third party providing billing or metering services has not
cured that breach within 20 calendar days, the servicer may terminate
consolidated billing by the electric generation supplier or other third party
providing billing or metering services and take over billing functions for the
customer. In no event will these procedures result in a customer being sent two
bills covering the same service. Neither West Penn nor the servicer will pay any
shortfalls resulting from the failure of any electric generation suppliers or
other third parties providing billing or metering services to forward
collections of intangible transition charges to the servicer. See "Risk
Factors -- Servicing -- It May Be More Difficult to Collect Intangible
Transition Charges Due to Billing By Third Parties" in this prospectus.
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YEAR 2000 COMPLIANCE
West Penn is faced with the task of addressing the Year 2000 issue. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year and other programming
techniques which constrain date calculations or assign special meanings to some
dates. Any of West Penn's computer systems that have date-sensitive software or
microprocessors may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations of West Penn, in its capacity as servicer, or of any
successor servicer, electric generation suppliers or other third parties,
including a temporary inability to deliver electricity, measure usage, read
meters, process transactions, send bills or operate electric generation
stations. In addition, the Year 2000 issue could affect the ability of customers
to receive bills sent by West Penn or make payments on those bills. West Penn
has not investigated and has no intention of investigating the Year 2000 issue
as it relates to any customer's ability to receive bills sent by West Penn or
make payments on bills. See "Risk Factors--Servicing--Potential Computer Program
Problems Beginning In The Year 2000 May Result in Payment Delays on Transition
Bonds" in this prospectus.
To minimize problems related to the Year 2000 issue, West Penn is
proceeding with a comprehensive effort to continue operations without
significant problems in 2000 and beyond. An Executive Task Force is coordinating
the efforts of 24 separate Year 2000 teams, representing all business and
support units in West Penn.
In May 1998, the North American Electric Reliability Council (NERC), of
which West Penn is a member, accepted a request from the United States
Department of Energy to coordinate the industry's Year 2000 efforts. The
electric utility industry and West Penn have segmented the Year 2000 problem
into the following components:
-- Computer hardware and software;
-- Embedded chips in various equipment; and
-- Vendors and other organizations on which West Penn relies for
critical materials and services.
The industry's and West Penn's efforts for each of these three components
include assessment of the problem areas and remediation, testing and contingency
plans for critical functions for which remediation and testing are not possible
or which do not provide reasonable assurance. Contingency plans include
alternate methods of certain operations to help avoid electric service or
business interruptions, and the review and update of restoration of service
plans to mitigate the severity and length of interruptions in the unlikely event
that any should occur.
The NERC has established a goal of having the industry achieve a state of
Year 2000 readiness for critical systems by June 30, 1999, and, to monitor
progress, requires each utility to prepare and submit a monthly report showing
progress and dated plans. By order dated July 9, 1998, the Pennsylvania Public
Utility Commission initiated a proceeding requiring each utility that cannot
meet a Year 2000 readiness date of March 31, 1999, for mission critical systems
to file contingency plans by that date. On March 30, 1999, West Penn reported to
the Pennsylvania Public Utility Commission
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that, except for a few items, its critical electricity production and delivery
systems were Year 2000 ready pending final confirmation system testing of its
power stations in April and May. West Penn has determined that as of June 30,
1999, all of its critical components and systems related to safety and the
production and distribution of electricity and nearly all of its important
business systems, including accounting and billing, are Year 2000 ready. West
Penn anticipates that the remediation and testing work on the remaining business
and non-critical systems will be completed by October 31, 1999. West Penn has
defined Year 2000 ready to mean that a determination has been made by testing or
other means that a component or system will be able to perform its critical
functions, or that contingency plans are in place to overcome any inability to
do so.
Integrated electric utilities are uniquely reliant on each other to avoid,
in a worst case situation, cascading failure of the entire electrical system.
West Penn is working with the Edison Electric Institute, the Electric Power
Research Institute, the NERC and the East Central Area Reliability Agreement
Group to capitalize on industry-wide experiences and to participate in
industry-wide testing and contingency planning. The NERC, on January 11, 1999,
issued a press release stating, based on the individual NERC reports it had
received from 98% of the electrical industry, that "although there is clearly
much more work to be done, we have found that North America's electric power
supply and delivery systems are well on their way to being Y2K ready."
As part of the ongoing NERC program, West Penn participated in an
industry-wide Year 2000 drill on April 9, 1999, and a more extensive
industry-wide drill on September 9, 1999. During the April and September tests,
West Penn was able to maintain adequate communications under a simulated
failure of selected systems, and obtained valuable information for improvement
of its plans. NERC has reported that the industry-wide tests produced similar
results. On December 31, 1999, West Penn will have extra staff in critical
areas of the system to implement these and other contingency plans if they
are required.
It is West Penn's opinion that the "most reasonably likely worst case
scenario" is that there could be isolated problems at various West Penn
facilities or at the facilities of neighboring utilities that may have somehow
escaped discovery in the identification, remediation and testing process, and
that these problems may cause isolated disruptions of service. All utilities,
including West Penn, have experience in the implementation of existing emergency
plans and are currently expanding their emergency plans to include contingency
plans to respond quickly to any of these events. West Penn intends to review and
update these plans to minimize any Year 2000 problems.
West Penn is aware of the importance of electricity to its customers and is
using its best efforts to avoid any serious Year 2000 problems. Despite West
Penn's best efforts, including working with internal resources, external vendors
and industry associations, West Penn cannot guarantee that it will be able to
conduct all of its operations without Year 2000 interruptions. Any Year 2000
problems could have a material adverse impact on the operations and financial
condition of West Penn and on the collection of intangible transition charges.
The costs associated with the potential impact are speculative and not presently
quantifiable.
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WEST PENN FUNDING CORPORATION
West Penn Funding Corporation, a corporation organized under the laws of
the State of Delaware, was formed on October 20, 1999. West Penn Funding
Corporation is a wholly owned subsidiary of West Penn. West Penn Funding
Corporation is a recently formed corporation and, as of the date of this
prospectus, has not carried on any business activities and has no operating
history.
West Penn Funding Corporation has been created for the purpose of owning
the issuer, entering into the limited liability company agreement of the issuer
and the transfer agreement, selling the transferred intangible transition
property to the issuer under the sale agreement, receiving funds from the issuer
from the sale of the transferred intangible transition property under the sale
agreement, making loans to affiliates--including making loans, on an arms-length
basis, of the net proceeds from the transition bonds to West Penn or its
affiliates in exchange for interest-bearing notes--engaging in investing
activities and performing activities that are necessary, suitable or convenient
to accomplish these purposes. Following the sale of the transferred intangible
transition property to the issuer, West Penn Funding Corporation will have no
ownership or other interest in the transferred intangible transition property
and will have no right to collect any intangible transition charges.
The administrative agent, an affiliate of West Penn, will provide corporate
administrative services, such as providing notices and preparing financial
reports, for West Penn Funding Corporation under an administrative agreement
between West Penn Funding Corporation and the administrative agent. West Penn
Funding Corporation will reimburse the administrative agent for the cost of
services provided computed in accordance with the applicable provisions of the
Public Utility Holding Company Act of 1935.
West Penn Funding Corporation has no intent to file, and West Penn has
advised West Penn Funding Corporation that it has no intent to cause the filing
of, a voluntary petition for relief under the Bankruptcy Code with respect to
West Penn Funding Corporation so long as West Penn Funding Corporation is
solvent and does not reasonably foresee becoming insolvent.
The principal place of business of West Penn Funding Corporation is c/o
West Penn Funding Corporation, 2325B Renaissance Drive, Las Vegas, Nevada 89119,
and its telephone number is (702) 895-6751.
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THE ISSUER
West Penn Funding LLC, a special purpose, single member limited liability
company organized under the laws of the State of Delaware, was formed on May 26,
1999 under a limited liability company agreement. As of the issuance date of the
transition bonds, West Penn Funding Corporation is the sole member of the
issuer. The assets of the issuer will consist of the transferred intangible
transition property, the other collateral and any money distributed to the
issuer from the collection account in accordance with the indenture. The issuer
is a recently formed special purpose limited liability company and, as of the
date of this prospectus, has not carried on any business activities and has no
operating history. Audited financial statements of the issuer are included as an
integral part of this prospectus.
The issuer has been created for the purpose of purchasing and owning the
transferred intangible transition property, issuing transition bonds from time
to time, pledging its interest in the transferred intangible transition property
and other collateral to the bond trustee under the indenture in order to secure
the transition bonds and performing activities that are necessary, suitable or
convenient to accomplish these purposes, including but not limited to activities
relating to any necessary hedge or swap transaction or credit enhancement.
The issuer will enter into the servicing agreement with West Penn under
which West Penn, as agent for the issuer, will manage, service and administer,
and make collections in respect of, the transferred intangible transition
property. See "The Servicing Agreement" in this prospectus.
In addition, Allegheny Energy Service Corporation, an affiliate of West
Penn, will provide corporate administrative services, such as providing notices
and preparing financial reports, for the issuer under an administration
agreement between the issuer and the administrative agent. The issuer will
reimburse the administrative agent for the cost of services provided computed in
accordance with the applicable provisions of the Public Utility Holding Company
Act of 1935.
The limited liability company agreement requires that the issuer have at
least two independent directors. These independent directors must be natural
persons who, for the five-year period prior to his or her appointment as an
independent director has not been and during the continuation of his or her
service as independent director is not:
(1) an employee, director, stockholder, partner or officer of the
issuer or any of its affiliates--other than his or her service as
independent director;
(2) a customer or supplier of the issuer or any of its affiliates; or
(3) any member of the immediate family of a person described in (1)
or (2) above.
The following is a list of the principal officers and directors of the
issuer. All of these officers have served in the capacities set forth below
since October 20, 1999, unless otherwise indicated, and all directors have
served in such capacity since October 20, 1999. The officers and directors will
devote that time as is necessary to the affairs of the
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issuer. The issuer will have sufficient officers, directors and employees to
carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Michael P. Morrell.............. President
Anthony Wilson.................. Vice President
Keith L. Warchol................ Treasurer
Eileen Beck..................... Secretary
Robert W. Grier................. Vice President, Assistant
Treasurer and Assistant
Secretary
Kristine W. Eppes............... Vice President, Assistant
Treasurer and Assistant
Secretary
Bruce Sedlock................... Director
Terence A. Burke................ Director
Thomas C. Sheppard, Jr. ........ Assistant Secretary and Director
Mark A. Ferrucci................ Independent Director
Kim E. Lutthans................. Independent Director
</TABLE>
Michael P. Morrell, the President of the issuer, is the Senior Vice
President, Finance, of Allegheny Energy, Inc. Mr. Morrell also serves as either
a Director or Vice President of Allegheny Energy, Inc.'s direct and indirect
subsidiaries. Prior to holding these positions, Mr. Morrell served as Vice
President, Regulatory and Public Affairs, and Vice President, Materials
Services, of Jersey Central Power & Light Company. Prior to that, Mr. Morrell
served as Vice President and Treasurer of GPU, Inc. and subsidiaries.
Anthony Wilson, Vice President of the issuer, is a Senior Attorney at
Allegheny Power. Prior to holding this position, Mr. Wilson served as counsel
for the Securities and Exchange Commission. Prior to that, Mr. Wilson served as
Manager, State Regulatory Affairs, of Equitable Gas. Prior to that, Mr. Wilson
served as attorney-adviser to the Public Service Commission of the District of
Columbia and as energy counsel at the firm of Van Ness, Feldman, Sutcliffe and
Curtis.
Keith L. Warchol, the Treasurer of the issuer, is Director, Cash
Management, and Assistant Treasurer of Allegheny Energy, Inc. and its direct and
indirect subsidiaries, where he is responsible for managing bank relationships
and credit arrangements, company financings, daily cash flow, departmental
budgets, cash forecasting, leasing arrangements, electronic commerce activities
and processing of customer payments.
Eileen M. Beck, the Secretary of the issuer, is the Secretary of Allegheny
Energy, Inc. and its direct and indirect subsidiaries.
Robert W. Grier, Vice President, Assistant Treasurer and Assistant
Secretary of the issuer, is the Executive Vice President of Entity Services.
Prior to holding this position, Mr. Grier served as Senior Tax Manager of KPMG
Peat Marwick.
Kristine W. Eppes, Vice President, Assistant Treasurer and Assistant
Secretary of the issuer, is Administrative Manager, Nevada holding companies, of
Entity Services. Prior to holding this position, Ms. Eppes served as
administrative assistant to producers at Casino Resource Corporation and as a
legal secretary at Prickett, Jones, Elliot, Kristol & Schnee.
Thomas C. Sheppard, Jr., Assistant Secretary and a director of the issuer,
is the Assistant Secretary at Allegheny Energy, Inc. and its principal
subsidiaries. Prior to
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holding this position, Mr. Sheppard served as Assistant Secretary and Assistant
Treasurer at Monongahela Power Company.
Bruce M. Sedlock, a director of the issuer, is the Director of Taxes at
Allegheny Power, where he is responsible for all tax compliance, tax accounting
and corporate tax planning. Prior to holding this position, Mr. Sedlock served
as Team Leader of Income Tax and Tax Planning at Allegheny Power, where he was
responsible for income tax compliance, income tax accounting and corporate tax
planning. Prior to that, Mr. Sedlock served as Supervisor, System Taxes, at
Allegheny Power, where he was responsible for income tax compliance, income tax
accounting and corporate tax planning.
Terence A. Burke, a director of the issuer, is the Deputy General Counsel,
Corporate & Compliance, at Allegheny Power, where he is responsible for legal
aspects of corporate financial matters for unregulated subsidiary and securities
law filings. Prior to holding this position, Mr. Burke served as Chief Counsel,
Corporate Finance and Governance, at Niagara Mohawk Power Corporation and lead
in-house attorney for that company's financial restructuring. Prior to that, Mr.
Burke served as an attorney at the firm of Schiff Hardin & Waite.
Mark A. Ferrucci, one of the independent directors of the issuer, is
Assistant Vice President of The Corporation Trust Company and CT Corporation
System, and President of Corporate Trinity Company.
Kim E. Lutthans, one of the independent directors of the issuer, is
Assistant to the Division Head of the Corporate Staffing Division of CT
Corporation System.
No compensation has been paid by the issuer to any officer or director of
the issuer since the issuer was formed. The officers and directors of the
issuer, other than the independent directors, will not be compensated by the
issuer for their services on behalf of the issuer. The aggregate initial
compensation for the two independent directors will be $1,200 per year. Each
officer serves at the discretion of the issuer's board of directors. West Penn
is an affiliate of the issuer. The issuer's organizational documents limit the
personal liability of each officer and director of the issuer to the issuer for
monetary damages incurred by reason of any act or omission of the officers and
directors, except for damages incurred by reason of an officer's or director's
gross negligence or willful misconduct. The issuer's organizational documents
provide that officers and directors of the issuer shall be indemnified against
liabilities incurred in connection with their services on behalf of the issuer,
unless the liabilities were incurred by reason of an officer's or director's
gross negligence or willful misconduct.
The issuer has no intent to file, and West Penn Funding Corporation has
advised the issuer that it has no intent to cause the filing of, a voluntary
petition for relief under the Bankruptcy Code with respect to the issuer so long
as the issuer is solvent and does not reasonably foresee becoming insolvent.
The limited liability company agreement requires the issuer to take all
reasonable steps to continue its identity as a separate legal entity and to make
it apparent to third persons that it is an entity with assets and liabilities
distinct from those of West Penn,
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West Penn Funding Corporation, other affiliates of West Penn or any other
person, and that, except for financial reporting purposes--to the extent
required by generally accepted accounting principles--and for state and federal
income and franchise tax purposes, it is not a division of West Penn Funding
Corporation or any of its affiliated entities or any other person.
The principal place of business of the issuer is c/o West Penn Funding LLC,
2325B-2 Renaissance Drive, Las Vegas, NV 89119, and its telephone number is
(702) 895-6752.
USE OF PROCEEDS
The issuer will use the proceeds of the issuance of the transition bonds to
pay expenses of issuance and to purchase the transferred intangible transition
property from West Penn Funding Corporation. West Penn Funding Corporation
proposes using the proceeds it receives from the sale of the transferred
intangible transition property for general corporate purposes and may from time
to time loan, in an arms-length transaction, those net proceeds to West Penn or
its affiliates in exchange for interest-bearing notes. West Penn or that
affiliate would use the proceeds of any such loans principally to reduce
stranded costs and related capitalization and to reduce some of its existing
indebtedness.
THE TRANSITION BONDS
The transition bonds will be issued under and secured by a base indenture
between the issuer and the bond trustee substantially in the form filed as an
exhibit to the registration statement of which this prospectus forms a part. The
terms of each series of transition bonds will be provided in a separate
supplement to the base indenture. A form of this supplement is filed as an
exhibit to the registration statement of which this prospectus forms a part. The
following summary describes all material terms and provisions of the transition
bonds. The particular terms of the transition bonds of any series offered by any
prospectus supplement will be described in that prospectus supplement. Please
see the form of indenture and transition bonds and the related prospectus
supplement for a complete description of all terms and provisions of the
transition bonds, portions of which are summarized in this section.
GENERAL TERMS OF THE TRANSITION BONDS
The transition bonds may be issued in one or more series, each comprised of
one or more classes. The terms of all transition bonds of the same series will
be identical in all respects, unless that series is comprised of more than one
class, in which case the terms of all transition bonds of the same class will be
identical in all respects.
The supplemental indenture will specify the following terms of the related
series of transition bonds and, if applicable, the classes of that series:
(1) the designation of the series and, if applicable, the classes of
that series;
(2) the aggregate principal amount of the transition bonds of the
series and, if applicable, each class of that series;
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(3) the bond rate of the series and, if applicable, each class of
that series or the formula, if any, used to calculate the applicable bond
rate or bond rates;
(4) the payment dates for the series;
(5) the expected final payment date of the series and, if
applicable, each class of that series;
(6) the series termination date for the series and, if applicable,
the class termination dates for each class of that series;
(7) the issuance date for the series;
(8) the place or places for payments with respect to the series;
(9) the authorized initial denominations for the series;
(10) the provisions, if any, for redemption of the series by the
issuer;
(11) the expected amortization schedule for the series;
(12) the overcollateralization amount with respect to the series and
the amount anticipated to be on deposit in the overcollateralization
subaccount for all series of transition bonds as of each payment date for
each payment date;
(13) the amount of capital required to be deposited by the issuer
into the capital subaccount upon the issuance of each series of transition
bonds, which represents a capital contribution from West Penn Funding
Corporation;
(14) the calculation dates and dates on which adjustments to the
intangible transition charges are implemented for the series;
(15) the terms of any credit enhancement applicable to the series or
class;
(16) the terms of any hedge or swap transaction applicable to the
series or class; and
(17) any other terms of the series or class that are not inconsistent
with the provisions of the indenture.
The applicable prospectus supplement will set forth the procedure for the
manner of the issuance of the transition bonds of each series. Generally, each
series of transition bonds will initially be represented by one or more
transition bonds registered in the name of Cede & Co., as the nominee of the
Depository Trust Company. The transition bonds will be available for purchase in
initial denominations specified in the applicable prospectus supplement--which
denominations will be not less than $1,000. Unless and until definitive
transition bonds are issued under the limited circumstances described in this
prospectus, no transition bondholder will be entitled to receive a physical bond
representing a transition bond. All references in this prospectus to actions by
transition bondholders will refer to actions taken by the Depository Trust
Company upon instructions from the participants and all references in this
prospectus to payments, notices, reports and statements to transition
bondholders will refer to payments, notices, reports and statements to the
Depository Trust Company or Cede & Co., as the registered holder of each series
of transition bonds, for distribution to transition
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bondholders in accordance with applicable Depository Trust Company procedures.
See "--Book-Entry Registration" and "--Definitive Transition Bonds" below.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of transition bonds of a
series or class at the bond rate specified in or determined in the manner
specified in the applicable prospectus supplement and will be payable to the
transition bondholders of that series or class on each payment date, commencing
on the payment date specified in the related prospectus supplement.
On any payment date with respect to any series, the issuer will make
principal payments on that series only until the outstanding principal balance
of that series has been reduced to the principal balance specified for that
payment date in the expected amortization schedule for that series on that
payment date and only to the extent funds are available therefor as described in
this prospectus. Accordingly, principal of that series or class of transition
bonds may be paid later than reflected in the expected amortization schedule for
that series. See "Risk Factors--Nature of Intangible Transition Property,"
"--The Transition Bonds--Uncertain Weighted Average Life" and "Weighted Average
Life and Yield Considerations" in this prospectus.
The failure to make a scheduled payment of principal on the transition
bonds, other than upon redemption or on the series termination date or, if
applicable, class termination date, does not constitute an event of default
under the indenture. The entire unpaid principal amount of the transition bonds
will be due and payable if an event of default under the indenture occurs and is
continuing and the bond trustee or the holders of a majority in principal amount
of the transition bonds of all series then outstanding have declared the
transition bonds to be immediately due and payable. See "The Indenture--Events
of Default; Rights Upon Event of Default" and "Weighted Average Life and Yield
Considerations" in this prospectus.
FLOATING RATE TRANSITION BONDS
In connection with the issuance of a class or classes of floating rate
transition bonds, the issuer may arrange for one or more hedge or swap
transactions. If the issuer enters into or arranges for any hedge or swap
transaction, the applicable prospectus supplement will include a description of:
(1) the material terms of that transaction;
(2) the identity of the counterparty or counterparties;
(3) any payments under that hedge or swap transaction to be made by
or to the issuer or the bond trustee, as assignee of the issuer;
(4) deposits in and withdrawals from any subaccount of the collection
account with respect to that class or classes of floating rate transition
bonds and that transaction;
(5) the formula for calculating the floating rate of interest of that
class or classes prior to termination of that transaction; and
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(6) the rights of transition bondholders with respect to the
termination of or specified other events related to that transaction.
REDEMPTION
Redemption provisions, if any, for any series will be specified in the
related prospectus supplement, including the premiums, if any, payable upon
redemption. The redemption price in any event will not be less than the
principal balance of that series, plus interest at the applicable bond rate
accrued to the redemption date. Unless the context requires otherwise, all
references in this prospectus to principal of the transition bonds of a series
being redeemed includes any resulting premium that might be payable on those
transition bonds, as described in the applicable prospectus supplement.
Notice of redemption of any series of transition bonds will be given by the
bond trustee to each registered holder of a transition bond to be redeemed by
first-class mail, postage prepaid, mailed not less than five days nor more than
45 days prior to the date of redemption or in any other manner or at any other
time as may be specified in the related prospectus supplement. Notice of
optional redemption may be conditioned upon the deposit of moneys with the bond
trustee before the redemption date and that notice shall be of no effect unless
those moneys are so deposited.
All transition bonds called for redemption will cease to bear interest on
the specified redemption date, provided funds for their redemption are on
deposit with the bond trustee at that time, and shall no longer be considered
"outstanding" under the indenture. The transition bondholders of those
transition bonds will have no further rights with respect to those transition
bonds, except to receive payment of the redemption price of those transition
bonds and unpaid interest accrued to the date fixed for redemption, from the
bond trustee.
CREDIT ENHANCEMENT
Credit enhancement with respect to the transition bonds of all series will
be provided by adjustments to the intangible transition charges and amounts on
deposit in the reserve subaccount, the overcollateralization subaccount and the
capital subaccount. In addition, for any series of transition bonds or one or
more classes of that series, additional credit enhancement may be provided. The
amounts and types of credit enhancement, and the provider of credit enhancement,
if any, with respect to each series of transition bonds or one or more classes
of that series will be described in the applicable prospectus supplement. Credit
enhancement may be in the form of an additional reserve account, additional
overcollateralization, a financial guaranty insurance policy, letter of credit,
credit or liquidity facility, maturity guaranty, repurchase obligation,
third-party payment or cash deposit, or any combination of the foregoing, as may
be set forth in the applicable prospectus supplement. If specified in the
applicable prospectus supplement, credit enhancement for a series of transition
bonds may cover one or more other series of transition bonds.
If any additional credit enhancement is provided with respect to a series
by this prospectus, the applicable prospectus supplement will include a
description of:
(1) the amount payable under that credit enhancement;
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(2) any conditions to payment thereunder not otherwise described in
this prospectus;
(3) the conditions, if any, under which the amount payable under that
credit enhancement may be reduced and under which that credit enhancement
may be terminated or replaced; and
(4) any material provisions of any applicable agreement relating to
that credit enhancement.
Additionally, the applicable prospectus supplement may describe material
information with respect to the provider of any third-party credit enhancement,
including:
(1) a brief description of its principal business activities;
(2) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
(3) if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business; and
(4) its total assets and stockholders' equity or policyholders'
surplus, if applicable, as of a date specified in the applicable prospectus
supplement.
BOOK-ENTRY REGISTRATION
All classes of transition bonds will be book-entry transition bonds, which
are initially represented by one or more bonds registered in the name of Cede &
Co., as nominee of DTC, or another securities depository and are available only
in the form of book-entries; provided, however, the applicable prospectus
supplement relating to a series of transition bonds may provide that the
transition bonds of that series or a class of that series will be issued as
definitive transition bonds. Transition bondholders may also hold transition
bonds of a class through CEDEL or Euroclear (in Europe), if they are
participants in those systems or indirectly through organizations that are
participants in those systems.
Cede, as nominee for DTC, will hold the global bond or bonds representing
the transition bonds. CEDEL and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold those positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for CEDEL and
Morgan Guaranty Trust Company of New York will act as depositary for Euroclear.
In these capacities, Citibank, N.A. and Morgan Guaranty Trust Company of New
York are referred to as the Depositaries.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under Section 17A of the Exchange Act. DTC was
created to hold securities for its participants and to facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entries, thereby eliminating the need for physical movement of
bonds. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations, and may include other organizations,
including
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the underwriters. 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.
Transfers between participants will occur in accordance with DTC rules.
Transfers between CEDEL participants and Euroclear participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary. Cross-market transactions will require delivery of instructions
to the relevant European international clearing system by the counterparty in
that system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its Depositary to take action to effect final settlement
on its behalf by delivering or receiving transition bonds in DTC, and making or
receiving payments in accordance with normal procedures for same-day funds
settlement applicable to DTC. CEDEL participants and Euroclear participants may
not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent settlement processing and dated the business day following the DTC
settlement date. These credits or any transactions in those transition bonds
settled during that processing will be reported to the relevant Euroclear or
CEDEL participant on that business day. Cash received in CEDEL or Euroclear as a
result of sales of transition bonds by or through a CEDEL participant or a
Euroclear participant to a DTC participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC.
Transition bondholders that are not direct or indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, transition bonds may do so only through direct or indirect Participants. In
addition, transition bondholders will receive all payments of principal and
interest on the transition bonds, through the participants who in turn will
receive them from DTC. Under a book-entry format, transition bondholders will
receive payments after the related payment date, because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each of those dates,
DTC will forward such payments to its participants, which thereafter will be
required to forward them to indirect participants or holders of beneficial
interests in the transition bonds. The issuer and the bond trustee, and any
paying agent, transfer agent or registrar may treat the registered holder in
whose name any transition bond is registered--expected to be Cede--as the
absolute owner of that transition bond, whether or not that transition bond is
overdue and notwithstanding any notice of ownership or writing on that
transition bond or any notice to the contrary, for the purpose of making
payments and for all other purposes.
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Unless and until definitive transition bonds are issued, it is anticipated
that the only "holder" of transition bonds of any series will be Cede, as
nominee of DTC. Transition bondholders will only be permitted to exercise their
rights as transition bondholders indirectly through participants and DTC. All
references in this prospectus to actions by transition bondholders thus refer to
actions taken by DTC upon instructions from its participants, and all references
in this prospectus to payments, notices, reports and statements to transition
bondholders refer to payments, notices, reports and statements to Cede, as the
registered holder of the transition bonds, for payments to the beneficial owners
of the transition bonds in accordance with DTC procedures.
While any book-entry transition bonds of a series are outstanding, except
under the circumstances described below, 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 with
respect to the book-entry transition bonds and is required to receive and
transmit payments of principal of, and interest on, the book-entry transition
bonds. Participants with whom transition bondholders have accounts with respect
to book-entry transition bonds are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
transition bondholders. Accordingly, although transition bondholders will not
possess physical bonds, the governing rules of DTC provide a mechanism by which
transition bondholders will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and specified banks, the ability of holders of
beneficial interests in the transition bonds to pledge transition bonds to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of those transition bonds, may be limited due to the lack of
definitive transition bonds.
DTC has advised the bond trustee that it will take any action permitted to
be taken by a transition bondholder under the indenture only at the direction of
one or more Participants to whose account with DTC the transition bonds are
credited.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of securities.
Transactions may be settled in CEDEL in any of 28 currencies, including United
States dollars. CEDEL provides to CEDEL participants services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL participants are recognized
financial institutions around the world including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations and may include any underwriters, agents or dealers with respect
to a series of transition bonds offered by this prospectus. 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.
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Euroclear was created in 1968 to hold securities for participants of the
Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 29 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for crossmarket
transfers with DTC described in the fifth paragraph of this subheading. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York, out
of its Brussels, Belgium office, under contract with Euroclear Clearance System
S.C., a Belgian cooperative corporation. All operations are conducted by Morgan
Guaranty Trust Company of New York, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with Morgan Guaranty Trust
Company of New York, not Euroclear Clearance System S.C. Euroclear Clearance
System S.C. establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks -- including central
banks--securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The operator of the Euroclear System is the Belgian branch of a New York
banking corporation that is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the operator of the
Euroclear System are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of Euroclear and applicable
Belgian law. These governing terms and conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear and
receipts of payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
securities to specific securities clearance accounts. The operator of the
Euroclear System acts under these governing terms and conditions only on behalf
of Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Payments with respect to transition bonds held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL participants or Euroclear
participants in accordance with the relevant systems' rules and procedures, to
the extent received by its Depositary. These payments will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "United States Taxation" in this prospectus.
CEDEL or Morgan Guaranty Trust Company of New York, as the case may be,
will take any other action permitted to be taken by a transition bondholder
under the indenture on behalf of a CEDEL participant or Euroclear participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect those actions on its behalf through DTC.
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Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of transition bonds 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.
DEFINITIVE TRANSITION BONDS
Each series or class of transition bonds will be issued in fully
registered, certificated form to transition bondholders or their nominees,
rather than to DTC or its nominee, only if:
(1) the issuer advises the bond trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to that series or class of transition bonds and the
issuer is unable to locate a qualified successor;
(2) the issuer, at its option, elects to terminate the book-entry
system through DTC; or
(3) after the occurrence of an event of default under the indenture,
transition bondholders representing at least a majority of the outstanding
principal amount of the transition bonds of all series advise the bond
trustee through DTC in writing that the continuation of a book-entry system
through DTC, or a successor to DTC, is no longer in the transition
bondholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all affected transition bondholders
through participants of the availability of definitive transition bonds. Upon
surrender by DTC of the definitive bonds representing the applicable transition
bonds and receipt of instructions for re-registration, the bond trustee will
authenticate and deliver definitive transition bonds, and thereafter the bond
trustee will recognize the holders of these definitive transition bonds as
transition bondholders under the indenture.
Payments of principal of, and interest on, the applicable transition bonds
will thereafter be made by the bond trustee, as paying agent, in accordance with
the procedures set forth in the indenture directly to holders of definitive
transition bonds in whose names the definitive transition bonds were registered
at the close of business on the related record date. These payments will be made
by check mailed to the address of such holder as it appears on the register
maintained by the bond trustee. The final payment on any transition bond,
however, will be made only upon presentation and surrender of that transition
bond at the office or agency specified in the notice of final payment to
transition bondholders.
Definitive transition bonds will be transferable and exchangeable at the
offices of the transfer agent and registrar, which will initially be the bond
trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with that registration of transfer or exchange.
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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
The rate of principal payments on each series or class of transition bonds,
the aggregate amount of each interest payment on each series or class of
transition bonds and the actual final payment date of each series or class of
transition bonds will be dependent on the rate and timing of receipt of
collections of intangible transition charges. Accelerated receipts of
collections of intangible transition charges will generally not, however, result
in payment of principal on the transition bonds earlier than the related
expected final payment dates since receipts in excess of the amounts necessary
to amortize the transition bonds in accordance with the applicable expected
amortization schedule will be deposited in the overcollateralization subaccount
or reserve subaccount. However, delayed receipts of collections of intangible
transition charges may result in principal payments on the transition bonds
occurring more slowly than as reflected in the expected amortization schedule or
later than the related expected final payment dates. Redemption or acceleration
of any class or series of transition bonds in accordance with the terms of that
series or class will result in payment of principal earlier than the related
expected final payment dates.
The actual payments on each payment date for each series or class of
transition bonds and the weighted average life of that series or class will be
affected primarily by the rate of collections of intangible transition charges
and the timing of receipt of collections of intangible transition charges, as
well as amounts available in the reserve subaccount, the overcollateralization
subaccount and the capital subaccount. Because the intangible transition charges
will be calculated based on estimates of usage and revenue, the aggregate amount
of collections of intangible transition charges and the rate of principal
amortization on the transition bonds will depend, in part, on actual energy
usage by customers and the rate of delinquencies and write-offs. Although the
intangible transition charges will be adjusted from time to time based in part
on the actual rate of collections of intangible transition charges, no
assurances are given that the servicer will be able to forecast accurately
actual electricity usage impacting billed revenue from which intangible
transition charges are allocated and the rate of delinquencies and write-offs or
implement adjustments to the intangible transition charges that will cause
collections of intangible transition charges to be received at any particular
rate. See "Risk Factors -- Nature of Intangible Transition Property" and "The
Qualified Rate Order and the Intangible Transition Charges -- The Intangible
Transition Charges -- The Intangible Transition Charge Adjustment Process" in
this prospectus.
If collections of intangible transition charges are received at a slower
rate than expected, transition bonds may be retired later than expected. Because
principal will only be paid at a rate not faster than that contemplated in the
expected amortization schedule for each series or class, except in the event of
a redemption or the acceleration of the final payment date of the transition
bonds after an event of default as specified in the indenture, the transition
bonds are not expected to be paid earlier than scheduled. A payment on a date
that is earlier than forecasted will result in a shorter weighted average life,
and a payment on a date that is later than forecasted will result in a longer
weighted average life. In addition, if a larger portion of the delayed payments
on the transition bonds is received in later years, this will result in a longer
weighted average life of the transition bonds.
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THE TRANSFER AGREEMENT
The following summary describes all material terms and provisions of the
transfer agreement under which West Penn is contributing to West Penn Funding
Corporation intangible transition property. The transfer agreement may be
amended by the parties to that agreement, with the consent of the bond trustee,
provided that notice of the substance of that amendment is provided by West Penn
Funding Corporation to each rating agency. The form of the transfer agreement
has been filed as an exhibit to the registration statement of which this
prospectus forms a part. Please see that form of transfer agreement for a
complete description of all terms and provisions of the transfer agreement,
portions of which are summarized in this section.
CONTRIBUTION OF INTANGIBLE TRANSITION PROPERTY
On the series issuance date for the first series of transition bonds, under
the transfer agreement, West Penn will contribute to West Penn Funding
Corporation, without recourse, except as provided in that agreement, the initial
intangible transition property representing the irrevocable right to receive
through intangible transition charges amounts sufficient to recover Qualified
Transition Expenses with respect to that series of transition bonds. The date
that the initial intangible transition property is contributed by West Penn to
West Penn Funding Corporation is referred to in this prospectus as the initial
contribution date. In addition, West Penn may from time to time offer to
contribute additional intangible transition property to West Penn Funding
Corporation, subject to the satisfaction of some conditions. Each additional
contribution of intangible transition property is referred to in this prospectus
as a subsequent contribution. If any of these offers is accepted by West Penn
Funding Corporation, the subsequent contribution will be effective on a date, to
be referred to as a subsequent contribution date, specified in a written notice
provided by West Penn to West Penn Funding Corporation.
In accordance with the Pennsylvania Competition Act, upon the execution and
delivery of the transfer agreement and the related bill of sale, the
contribution of the initial intangible transition property will be perfected as
against all third persons, including judicial lien creditors, and upon the
execution of a subsequent bill of sale and an addition notice, a contribution of
subsequent intangible transition property will also be perfected against all
third persons, including judicial lien creditors.
Initial intangible transition property means intangible transition
property, as identified in the related bill of sale, contributed to West Penn
Funding Corporation on the initial contribution date under the transfer
agreement in connection with the issuance of the initial series of transition
bonds. Subsequent intangible transition property means intangible transition
property, as identified in the related bill of sale, contributed to West Penn
Funding Corporation on any subsequent contribution date under the transfer
agreement in connection with the subsequent issuance of a series of transition
bonds.
West Penn's accounting records and computer systems will reflect the
contribution and sale of intangible transition property to West Penn Funding
Corporation.
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Each contribution of intangible transition property under the transfer
agreement is subject to the satisfaction or waiver of each of the following
conditions:
(1) on or prior to the initial contribution date or subsequent
contribution date, as applicable, West Penn shall have delivered to West
Penn Funding Corporation a duly executed bill of sale identifying the
intangible transition property to be conveyed on that date, in the form
required by the transfer agreement;
(2) as of the initial contribution date or the subsequent
contribution date, as applicable, West Penn was not insolvent and will not
have been made insolvent by that sale, and West Penn is not aware of any
pending insolvency with respect to itself;
(3) as of the initial contribution date or the subsequent
contribution date, as applicable, no breach by West Penn of its
representations, warranties or covenants in the transfer agreement shall
exist, and no servicer default shall have occurred and be continuing;
(4) as of the initial contribution date or the subsequent
contribution date, as applicable, the issuer shall have sufficient funds
available to pay the purchase price for the transferred intangible
transition property to be conveyed on that date under the sale agreement,
and all conditions to the issuance of one or more series of transition
bonds intended to provide those funds set forth in the indenture shall have
been satisfied or waived;
(5) on or prior to the initial contribution date or subsequent
contribution date, as applicable, West Penn shall have taken all action
required to transfer to West Penn Funding Corporation ownership of the
transferred intangible transition property to be conveyed on that date,
free and clear of all liens other than liens created by the issuer under
the indenture, and West Penn Funding Corporation shall have taken any
action required for West Penn Funding Corporation to transfer to the issuer
ownership of the transferred intangible transition property to be conveyed
on that date, free and clear of all liens other than liens created by the
issuer under the indenture, and the issuer shall have taken, or the
servicer shall have taken on behalf of the issuer, any action required for
the issuer to grant the bond trustee a first priority perfected security
interest in the collateral and maintain that security interest as of that
date;
(6) in the case of a contribution of subsequent intangible transition
property only, West Penn shall have provided West Penn Funding Corporation,
the issuer and the rating agencies with a timely addition notice specifying
the subsequent contribution date for that subsequent intangible transition
property, on or prior to that subsequent contribution date;
(7) West Penn shall have delivered to the rating agencies, West Penn
Funding Corporation and the issuer the opinion of counsel specified in the
transfer agreement and other opinions of counsel to the bond trustee; and
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(8) West Penn shall have delivered to West Penn Funding Corporation,
the bond trustee and the issuer an officers' certificate confirming the
satisfaction of each condition precedent specified above.
REPRESENTATIONS AND WARRANTIES OF WEST PENN
In the transfer agreement, West Penn will make representations and
warranties to West Penn Funding Corporation--and acknowledge that those
representations and warranties are also for the benefit of the issuer, as
assignee of West Penn Funding Corporation, and the bond trustee, as collateral
assignee of the issuer--as of the initial contribution date and any subsequent
contribution date to the effect, that:
(1) all information provided by West Penn to West Penn Funding
Corporation with respect to the transferred intangible transition property
is correct in all material respects;
(2) the transfers and assignments contemplated by the transfer
agreement constitute outright transfers of the initial intangible
transition property or the subsequent intangible transition property, as
applicable, from West Penn to West Penn Funding Corporation, and the
beneficial interest in and title to the transferred intangible transition
property would not be part of the debtor's estate in the event of the
filing of a bankruptcy petition by or against West Penn under any
bankruptcy law;
(3) West Penn is the sole owner of the intangible transition property
being contributed to West Penn Funding Corporation on the initial
contribution date or subsequent contribution date, as applicable, the
transferred intangible transition property has been validly transferred to
West Penn Funding Corporation free and clear of all liens other than liens
created by the issuer under the indenture and all filings, including
filings with the Pennsylvania Public Utility Commission under the
Pennsylvania Competition Act, necessary in any jurisdiction to give West
Penn Funding Corporation a valid ownership interest in transferred
intangible transition property free and clear of all liens of West Penn or
anyone claiming through West Penn and to give West Penn Funding Corporation
a first priority perfected security interest in transferred intangible
transition property have been made, other than any such filings--except for
filings with the Pennsylvania Public Utility Commission under the
Pennsylvania Competition Act and filings under the Uniform Commercial Code
with the Secretary of State of the State of Delaware--the absence of which
would not have an adverse impact on:
(x) the ability of the servicer to collect intangible transition
charges with respect to the transferred intangible transition property or
(y) the rights of West Penn Funding Corporation with respect to the
transferred intangible transition property;
(4) the Qualified Rate Order has been issued by the Pennsylvania
Public Utility Commission in accordance with the Pennsylvania Competition
Act, the Qualified Rate Order and the process by which it was issued comply
with all
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applicable laws, rules and regulations and the Qualified Rate Order is in
full force and effect;
(5) as of the date of issuance of any series of transition bonds,
such transition bonds are entitled to the protections provided by the
Pennsylvania Competition Act and, accordingly, the provisions of the
Qualified Rate Order relating to the intangible transition property and
intangible transition charges are not revocable by the Pennsylvania Public
Utility Commission;
(6) (x) under the Pennsylvania Competition Act, neither the
Commonwealth of Pennsylvania nor the Pennsylvania Public Utility Commission
may limit, alter or in any way impair or reduce the value of intangible
transition property or intangible transition charges approved by the
Qualified Rate Order or any rights thereunder, except such a limitation or
alteration may be made by the Commonwealth of Pennsylvania or the
Pennsylvania Public Utility Commission if adequate compensation is made by
law for the full protection of the intangible transition charges and of
transition bondholders;
(y) under the Contract Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, neither the
Commonwealth of Pennsylvania nor the Pennsylvania Public Utility Commission
can take any action that substantially impairs the rights of the transition
bondholders unless such action is a reasonable exercise of the Commonwealth
of Pennsylvania's sovereign powers and appropriate to further a legitimate
public purpose; and
(z) under the Takings Clauses of the Constitutions of the
Commonwealth of Pennsylvania and the United States, if such action
constitutes a permanent appropriation of the property interest of
transition bondholders in the intangible transition property and deprives
the transition bondholders of their reasonable expectations arising from
their investments in transition bonds, just compensation, as determined by
a court of competent jurisdiction, must be provided to transition
bondholders;
(7) there is no order by any court providing for the revocation,
alteration, limitation or other impairment of the Pennsylvania Competition
Act, Qualified Rate Order, intangible transition property or the intangible
transition charges or any rights arising under any of them or which seeks
to enjoin the performance of any obligations under the Qualified Rate
Order;
(8) no other approval, authorization, consent, order or other action
of, or filing with any court, federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the creation of intangible transition property, except
those that have been obtained or made;
(9) except as disclosed by West Penn to West Penn Funding Corporation
there are no proceedings or investigations pending or, to the best of West
Penn's knowledge, threatened before any court, federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over West
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Penn or its properties challenging the Qualified Rate Order or the
Pennsylvania Competition Act;
(10) no failure on the initial contribution date or any subsequent
contribution date or any time after those dates to satisfy any condition
imposed by the Pennsylvania Competition Act with respect to the recovery of
stranded costs will adversely affect the creation or contribution under the
transfer agreement of the intangible transition property or the right to
collect intangible transition charges;
(11) the assumptions used in calculating intangible transition
charges are reasonable and made in good faith;
(12) (x) intangible transition property, other than intangible
transition property, if any, retained by West Penn, constitutes a current
property right;
(y) intangible transition property includes (A) the irrevocable right
of West Penn Funding Corporation and the issuer, as assignee of West Penn
Funding Corporation, to receive through intangible transition charges an
amount sufficient to recover all of West Penn's Qualified Transition
Expenses described in the Qualified Rate Order in an amount equal to the
aggregate principal amount of transition bonds plus an amount sufficient to
provide for any credit enhancement, including the overcollateralization
amount relating to each series of transition bonds, to fund any reserves
and to pay interest, premium, if any, servicing fees and other expenses
relating to the transition bonds, and (B) all right, title and interest of
West Penn or its assignee applicable to the transition bonds in the
Qualified Rate Order and in all revenues, collections, claims, payments,
money, or proceeds of or arising from the intangible transition charges
applicable to the transition bonds set forth in the Qualified Rate Order to
the extent that in accordance with the Pennsylvania Competition Act, the
Qualified Rate Order and the rates and charges authorized under the
Qualified Rate Order are declared to be irrevocable; and
(z) the Qualified Rate Order, including the right to collect
intangible transition charges, has been declared to be irrevocable by the
Pennsylvania Public Utility Commission;
(13) West Penn is a corporation duly organized and in good standing
under the laws of the Commonwealth of Pennsylvania, with corporate power
and authority to own its properties and conduct its business as currently
owned or conducted;
(14) West Penn has the corporate power and authority to execute and
deliver the transfer agreement and to carry out its terms, West Penn has
full corporate power and authority to own the intangible transition
property and transfer the initial intangible transition property, in the
case of the initial contribution date, and the subsequent intangible
transition property, in the case of each subsequent contribution date, as
applicable, and West Penn has duly authorized that transfer to West Penn
Funding Corporation by all necessary corporate action and the execution,
delivery and performance of the transfer agreement have been duly
authorized by West Penn by all necessary corporate action;
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(15) the transfer agreement constitutes a legal, valid and binding
obligation of West Penn, enforceable against West Penn in accordance with
its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
(16) the consummation of the transactions contemplated by the
transfer agreement and the fulfillment of the terms of that agreement do
not conflict with, result in any breach of any of the terms and provisions
of, nor constitute, with or without notice or lapse of time, a default
under, the articles of incorporation or by-laws of West Penn, or any
indenture, agreement or other instrument to which West Penn is a party or
by which it shall be bound; nor result in the creation or imposition of any
lien upon any of its properties--other than any rights under the transfer
agreement--under the terms of any indenture, agreement or other instrument;
nor violate any law or any order, rule or regulation applicable to West
Penn of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over West Penn or its properties;
(17) except for continuation filings under the Uniform Commercial
Code, no approval, authorization, consent, order or other action of, or
filing with, any court, federal or state regulatory body, administrative
agency or other governmental instrumentality is required in connection with
the execution and delivery by West Penn of the transfer agreement, the
performance by West Penn of the transactions contemplated by the transfer
agreement or the fulfillment by West Penn of the terms of the transfer
agreement, except those which have previously been obtained or made;
(18) there are no proceedings or investigations pending or, to West
Penn's best knowledge, threatened, before any court, federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over West Penn or its properties:
(x) asserting the invalidity of the transfer agreement, the
sale agreement, the servicing agreement, any bills of sale for
intangible transition property, the limited liability company
agreement, the indenture, the certificate of formation filed with the
State of Delaware to form the issuer or the Certificate of
Incorporation of West Penn Funding Corporation or the transition bonds;
(y) seeking to prevent the issuance of transition bonds or the
consummation of the transactions contemplated by the Basic Documents or
the transition bonds; or
(z) except as disclosed by West Penn to West Penn Funding
Corporation, seeking any determination or ruling that could be
reasonably expected to materially and adversely affect the performance
by West Penn of its obligations under, or the validity or
enforceability of, the Basic Documents or the transition bonds;
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(19) after giving effect to the contribution of any transferred
intangible transition property under the transfer agreement, West Penn
(v) is solvent and expects to remain solvent;
(w) is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business and
intended purposes;
(x) is not engaged nor does it expect to engage in a business
for which its remaining property represents unreasonably small capital;
(y) believes that it will be able to pay its debts as they
become due and that such belief is reasonable;
(z) is able to pay its debts as they mature and does not intend
to incur, or believe that it will incur, indebtedness that it will not
be able to repay at its maturity;
(20) West Penn is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of property
or the conduct of its business shall require those qualifications, licenses
or approvals, except where the failure to so qualify would not be
reasonably likely to have a material adverse effect on West Penn's
business, operations, assets, revenues, properties or prospects; and
(21) the representations and warranties made by West Penn Funding
Corporation under the sale agreement and described in "The Sale Agreement--
Representations and Warranties of West Penn Funding Corporation" are true
and correct in all material respects.
West Penn shall indemnify West Penn Funding Corporation, the issuer and the
bond trustee and specified related parties, against:
(1) all taxes, other than any taxes imposed on transition bondholders
solely as a result of their ownership of transition bonds, resulting from
the acquisition or holding of transferred intangible transition property by
West Penn Funding Corporation or the issuer or the issuance and sale by the
issuer of transition bonds;
(2) any and all amounts of principal of and interest on the
transition bonds not paid when due or when scheduled to be paid in
accordance with their terms and the amount of any deposits to the issuer
required to have been made in accordance with the terms of the Basic
Documents which are not made when so required, in either case as a result
of West Penn's breach of any of its representations, warranties or
covenants contained in the transfer agreement; and
(3) any liabilities, obligations, losses, damages, payments or
expenses which result from:
(x) West Penn's willful misconduct, bad faith or gross
negligence in the performance of its duties under the transfer
agreement,
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(y) West Penn's reckless disregard of its obligations and
duties under the transfer agreement, or
(z) West Penn's breach of any representations or warranties
under the transfer agreement.
These indemnification obligations will rank pari passu with other general
unsecured obligations of West Penn. The indemnities described above will survive
the termination of the transfer agreement and include reasonable fees and
expenses of investigation and litigation, including reasonable attorneys' fees
and expenses.
If an event like that occurs, upon receipt of written notice of the breach
by West Penn from West Penn Funding Corporation, the issuer or bond trustee,
West Penn will notify the servicer of the occurrence of that event so that the
servicer may calculate the amount of indemnification in accordance with the
provisions of the servicing agreement. Amounts on deposit in the reserve
subaccount, the overcollateralization subaccount and the capital subaccount
shall not be available to satisfy any indemnification amounts owed by West Penn
under the transfer agreement.
West Penn will not indemnify West Penn Funding Corporation, the issuer or
the bond trustee on behalf of the transition bondholders as a result of the
Commonwealth of Pennsylvania's exercise of its power under the Pennsylvania
Competition Act or a change in law by legislative enactment or constitutional
amendment or the Commonwealth's limitation, alteration, impairment or reduction
of the value of intangible transition property or intangible transition charges
after the issuance date of any series of transition bonds in breach of the
pledge of the Commonwealth under the Pennsylvania Competition Act. See "Risk
Factors--Legal, Legislative or Regulatory Actions Could Adversely Affect
Transition Bondholders--Legal Challenges Could Adversely Affect Transition
Bondholders" and "--Changes in Law May Result in Losses to Transition
Bondholders" in this prospectus.
In addition to the foregoing representations and warranties, West Penn has
also covenanted that it will deliver all collections of intangible transition
charges it receives or the proceeds of collections of intangible transition
charges, other than collections of intangible transition charges relating to
intangible transition property retained by West Penn, to the servicer and will
promptly notify the bond trustee of any lien on any intangible transition
property other than the conveyances under the transfer agreement, the sale
agreement or the indenture.
West Penn shall also be obligated to take those legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary:
(1) to protect West Penn Funding Corporation, the issuer and the
transition bondholders from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued, would result
in a breach of any of West Penn's representations and warranties in the
transfer agreement; or
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(2) to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Pennsylvania Competition Act, the
Qualified Rate Order or the rights of holders of intangible transition
property by legislative enactment or constitutional amendment that would be
adverse to the holders of intangible transition property.
In addition, West Penn is required to execute and file those filings,
including filings with the Pennsylvania Public Utility Commission under the
Pennsylvania Competition Act, as may be required to fully preserve, maintain and
protect the interests of West Penn Funding Corporation in the transferred
intangible transition property. Other than as described in the previous
paragraph, West Penn shall not be under any obligation to appear in, prosecute
or defend any legal action that shall not be incidental to its obligations under
the transfer agreement and that in its opinion may involve it in any expense or
liability.
MATTERS REGARDING WEST PENN
The transfer agreement provides that some persons which succeed to the
major part of the electric distribution business of West Penn shall be the
successor to West Penn if those persons execute an agreement of assumption to
perform every obligation of West Penn under the transfer agreement. The transfer
agreement further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made in the transfer agreement shall have been
breached and no servicer default, and no event that, after notice or lapse
of time, or both, would become a servicer default shall have occurred and
be continuing;
(2) the rating agencies shall have received prior written notice of
that transaction; and
(3) specified officers' certificates and opinions of counsel shall
have been delivered to West Penn Funding Corporation, the issuer and the
bond trustee.
GOVERNING LAW
The transfer agreement will be governed by and construed under the laws of
the State of New York.
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THE SALE AGREEMENT
The following summary describes all material terms and provisions of the
sale agreement under which West Penn Funding Corporation is selling and the
issuer is purchasing intangible transition property. The sale agreement may be
amended by the parties to that agreement, with the consent of the bond trustee,
provided notice of the substance of that amendment is provided by the issuer to
each rating agency. The form of the sale agreement has been filed as an exhibit
to the registration statement of which this prospectus forms a part. Please see
that form of sale agreement for a complete description of all terms and
provisions of the sale agreement, portions of which are summarized in this
section.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
On the series issuance date for the first series of transition bonds, under
the sale agreement, West Penn Funding Corporation will sell and assign to the
issuer, without recourse, except as provided in that agreement, the initial
intangible transition property contributed by West Penn to West Penn Funding
Corporation under the transfer agreement and all rights of West Penn Funding
Corporation under the transfer agreement. The date that the initial intangible
transition property is sold by West Penn Funding Corporation to the issuer is
referred to in this prospectus as the initial transfer date. The net proceeds
received from the sale of the transition bonds issued on the initial transfer
date will be applied to the purchase of that transferred intangible transition
property. In addition, West Penn Funding Corporation may from time to time offer
to sell any additional intangible transition property which may be contributed
to West Penn Funding Corporation by West Penn under the transfer agreement to
the issuer, subject to the satisfaction of some conditions. Each additional sale
of intangible transition property is referred to in this prospectus as a
subsequent sale. Each subsequent sale will be financed through the issuance of
an additional series of transition bonds. If any of these offers is accepted by
the issuer, the subsequent sale will be effective on a date, to be referred to
as a subsequent transfer date, specified in a written notice provided by West
Penn Funding Corporation to the issuer.
In accordance with the Pennsylvania Competition Act, upon the execution and
delivery of the sale agreement and the related bill of sale, the transfer of the
initial intangible transition property will be perfected as against all third
persons, including judicial lien creditors, and upon the execution of a
subsequent bill of sale and an addition notice, a transfer of subsequent
intangible transition property will also be perfected against all third persons,
including judicial lien creditors.
West Penn Funding Corporation's accounting records and computer systems
will reflect the sale and assignment of intangible transition property to the
issuer, and West Penn Funding Corporation shall treat the transition bonds as
debt of West Penn Funding Corporation for federal income tax purposes so long as
any of the transition bonds are outstanding.
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Each sale of intangible transition property under the sale agreement is
subject to the satisfaction or waiver of each of the following conditions:
(1) on or prior to the initial transfer date or subsequent transfer
date, as applicable, West Penn Funding Corporation shall have delivered to
the issuer a duly executed bill of sale identifying the intangible
transition property to be conveyed on that date, in the form required by
the sale agreement;
(2) as of the initial transfer date or the subsequent transfer date,
as applicable, West Penn Funding Corporation was not insolvent and will not
have been made insolvent by that sale, and West Penn Funding Corporation is
not aware of any pending insolvency with respect to itself;
(3) as of the initial transfer date or the subsequent transfer date,
as applicable, no breach by West Penn Funding Corporation of its
representations, warranties or covenants in the sale agreement shall exist,
no servicer default shall have occurred and be continuing and no breach by
West Penn of its representations and warranties in the transfer agreement
shall exist;
(4) as of the initial transfer date or the subsequent transfer date,
as applicable, the issuer shall have sufficient funds available to pay the
purchase price for the transferred intangible transition property to be
conveyed on that date, and all conditions to the issuance of one or more
series of transition bonds intended to provide those funds set forth in the
indenture shall have been satisfied or waived;
(5) on or prior to the initial transfer date or subsequent transfer
date, as applicable, West Penn Funding Corporation shall have taken all
action required to transfer to the issuer ownership of the transferred
intangible transition property to be conveyed on that date, free and clear
of all liens other than liens created by the issuer under the indenture,
and the issuer shall have taken, or the servicer shall have taken on behalf
of the issuer, any action required for the issuer to grant the bond trustee
a first priority perfected security interest in the collateral and maintain
that security interest as of that date;
(6) in the case of a sale of subsequent intangible transition
property only, West Penn Funding Corporation shall have provided the issuer
and the rating agencies with a timely addition notice specifying the
subsequent transfer date for that subsequent intangible transition
property, on or prior to that subsequent transfer date;
(7) West Penn Funding Corporation shall have delivered to the rating
agencies and the issuer the opinion of counsel specified in the sale
agreement and other opinions of counsel to the bond trustee; and
(8) West Penn Funding Corporation shall have delivered to the bond
trustee and the issuer an officers' certificate confirming the satisfaction
of each condition precedent specified above.
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REPRESENTATIONS AND WARRANTIES OF WEST PENN FUNDING CORPORATION
In the sale agreement, West Penn Funding Corporation will make
representations and warranties to the issuer as of the initial transfer date and
any subsequent transfer date to the effect that:
(1) all information provided by West Penn Funding Corporation to the
issuer with respect to the transferred intangible transition property is
correct in all material respects;
(2) the transfers and assignments contemplated by the sale agreement
constitute sales of the initial intangible transition property or the
subsequent intangible transition property, as the case may be, from West
Penn Funding Corporation to the issuer, and the beneficial interest in and
title to the transferred intangible transition property would not be part
of the debtor's estate in the event of the filing of a bankruptcy petition
by or against West Penn Funding Corporation under any bankruptcy law;
(3) West Penn Funding Corporation is the sole owner of the intangible
transition property being sold to the issuer on the initial transfer date
or subsequent transfer date, as applicable, the transferred intangible
transition property has been validly transferred and sold to the issuer
free and clear of all liens other than liens created by the issuer under
the indenture and all filings, including filings with the Pennsylvania
Public Utility Commission under the Pennsylvania Competition Act, necessary
in any jurisdiction to give the issuer a valid ownership interest in
transferred intangible transition property free and clear of all liens of
West Penn Funding Corporation or anyone claiming through West Penn Funding
Corporation and to give the bond trustee a first priority perfected
security interest in transferred intangible transition property have been
made, other than any filings--except for filings with the Pennsylvania
Public Utility Commission under the Pennsylvania Competition Act and
filings under the Uniform Commercial Code with the Secretary of State of
the State of Delaware--the absence of which would not have an adverse
impact on:
(x) the ability of the servicer to collect intangible
transition charges with respect to the transferred intangible
transition property or
(y) the rights of the issuer or the bond trustee with respect
to the transferred intangible transition property;
(4) West Penn Funding Corporation is a corporation duly organized and
in good standing under the laws of the State of Delaware, with corporate
power and authority to own its properties and conduct its business as
currently owned or conducted;
(5) West Penn Funding Corporation has the corporate power and
authority to execute and deliver the sale agreement and to carry out its
terms, West Penn Funding Corporation has full corporate power and authority
to own the intangible transition property and sell and assign the initial
intangible transition property, in
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the case of the initial transfer date, and the subsequent intangible
transition property, in the case of each subsequent transfer date, as
applicable, and West Penn Funding Corporation has duly authorized that sale
and assignment to the issuer by all necessary corporate action and the
execution, delivery and performance of the sale agreement have been duly
authorized by West Penn Funding Corporation by all necessary corporate
action;
(6) the sale agreement constitutes a legal, valid and binding
obligation of West Penn Funding Corporation, enforceable against West Penn
Funding Corporation in accordance with its terms, subject to customary
exceptions relating to bankruptcy and equitable principles;
(7) the consummation of the transactions contemplated by the sale
agreement and the fulfillment of the terms of the sale agreement do not
conflict with, result in any breach of any of the terms and provisions of,
nor constitute, with or without notice or lapse of time, a default under,
the articles of incorporation or by-laws of West Penn Funding Corporation,
or any indenture, agreement or other instrument to which West Penn Funding
Corporation is a party or by which it shall be bound; nor result in the
creation or imposition of any lien upon any of its properties under the
terms of any indenture, agreement or other instrument; nor violate any law
or any order, rule or regulation applicable to West Penn Funding
Corporation of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over West Penn Funding Corporation or its properties;
(8) except for continuation filings under the Uniform Commercial
Code, no approval, authorization, consent, order or other action of, or
filing with, any court, federal or state regulatory body, administrative
agency or other governmental instrumentality is required in connection with
the execution and delivery by West Penn Funding Corporation of the sale
agreement, the performance by West Penn Funding Corporation of the
transactions contemplated by the sale agreement or the fulfillment by West
Penn Funding Corporation of the terms of the sale agreement, except those
which have previously been obtained or made;
(9) there are no proceedings or investigations pending or, to West
Penn Funding Corporation's best knowledge, threatened, before any court,
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over West Penn Funding
Corporation or its properties:
(x) asserting the invalidity of the Basic Documents or the
transition bonds;
(y) seeking to prevent the issuance of transition bonds or the
consummation of the transactions contemplated by the Basic Documents or
the transition bonds; or
(z) except as disclosed by West Penn Funding Corporation to the
issuer, seeking any determination or ruling that could be reasonably
expected to materially and adversely affect the performance by West
Penn Funding
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Corporation of its obligations under, or the validity or enforceability
of, the Basic Documents or the transition bonds;
(10) after giving effect to the sale of any transferred intangible
transition property under the sale agreement, West Penn Funding
Corporation:
(v) is solvent and expects to remain solvent;
(w) is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business and
intended purposes;
(x) is not engaged nor does it expect to engage in a business
for which its remaining property represents an unreasonably small
capital;
(y) believes that it will be able to pay its debts as they
become due and that such belief is reasonable; and
(z) is able to pay its debts as they mature and does not intend
to incur, or believe that it will incur, indebtedness that it will not
be able to repay at its maturity; and
(11) West Penn Funding Corporation is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications, licenses or approvals, except where the failure to so
qualify would not be reasonably likely to have a material adverse effect on
West Penn Funding Corporation's business, operations, assets, revenues,
properties or prospects.
West Penn Funding Corporation shall indemnify the issuer and the bond
trustee and specified related parties, against:
(1) all taxes, other than any taxes imposed on transition bondholders
solely as a result of their ownership of transition bonds, resulting from
the acquisition or holding of transferred intangible transition property by
the issuer or the issuance and sale by the issuer of transition bonds; and
(2) any liabilities, obligations, losses, damages, payments or
expenses which result from:
(x) West Penn Funding Corporation's willful misconduct, bad
faith or gross negligence in the performance of its duties under the
sale agreement,
(y) West Penn Funding Corporation's reckless disregard of its
obligations and duties under the sale agreement, or
(z) West Penn Funding Corporation's breach of any
representations or warranties.
West Penn has also agreed to indemnify the issuer and the bond trustee and
specified related parties against any liabilities, obligations, losses, damages,
payments or expenses which result from the breach of any of West Penn Funding
Corporation's
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representations or warranties in any material respect. See "The Transfer
Agreement--Representations and Warranties of West Penn" in this prospectus.
If an event like that occurs, upon receipt of written notice of the breach
by West Penn Funding Corporation from the issuer or bond trustee, West Penn
Funding Corporation will notify the servicer of the occurrence of that event so
that the servicer may calculate the amount of indemnification in accordance with
the provisions of the servicing agreement. Amounts on deposit in the reserve
subaccount, the overcollateralization subaccount and the capital subaccount
shall not be available to satisfy any indemnification amounts owed by West Penn
Funding Corporation under the sale agreement.
In addition to the foregoing representations and warranties, West Penn
Funding Corporation has also covenanted that it will deliver all collections of
intangible transition charges it receives or the proceeds of those collections
of intangible transition charges, other than collections of intangible
transition charges relating to intangible transition property retained by West
Penn Funding Corporation, to the servicer and will promptly notify the bond
trustee of any lien on any intangible transition property other than the
conveyances under the sale agreement or the indenture.
West Penn Funding Corporation shall also be obligated to take those legal
or administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be reasonably necessary:
(1) to protect the issuer and the transition bondholders from claims,
state actions or other actions or proceedings of third parties which, if
successfully pursued, would result in a breach of any of West Penn Funding
Corporation's representations and warranties in the sale agreement; or
(2) to block or overturn any attempts to cause a repeal of,
modification of or supplement to the Pennsylvania Competition Act, the
Qualified Rate Order or the rights of holders of intangible transition
property by legislative enactment or constitutional amendment that would be
adverse to the holders of intangible transition property.
West Penn Funding Corporation is required to execute and file those
filings, including filings with the Pennsylvania Public Utility Commission under
the Pennsylvania Competition Act, as may be required to fully preserve, maintain
and protect the interests of the issuer in the transferred intangible transition
property. Other than as described in the previous paragraph, West Penn Funding
Corporation shall not be under any obligation to appear in, prosecute or defend
any legal action that shall not be incidental to its obligations under the sale
agreement and that in its opinion may involve it in any expense or liability.
GOVERNING LAW
The sale agreement will be governed by and construed under the laws of the
State of New York.
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THE SERVICING AGREEMENT
The following summary describes all material terms and provisions of the
servicing agreement under which the servicer is undertaking to service
intangible transition property. The form of the servicing agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part. Please see that form of servicing agreement for a complete description
of all terms and provisions of the servicing agreement, portions of which are
summarized in this section.
The servicing agreement may be amended by the parties to that agreement
with the consent of the bond trustee under the indenture.
SERVICING PROCEDURES
General. The servicer will manage, service and administer, and make
collections in respect of, the transferred intangible transition property. The
servicer's duties will include:
(1) calculating and billing the intangible transition charges and
collecting, from customers, electric generation suppliers and other third
parties, as applicable, all collections of intangible transition charges;
(2) responding to inquiries by customers, electric generation
suppliers and other third parties, the Pennsylvania Public Utility
Commission, or any federal, local or other state governmental authority
with respect to the transferred intangible transition property and
intangible transition charges;
(3) accounting for collections of intangible transition charges,
investigating delinquencies, processing and depositing collections and
making periodic remittances, furnishing periodic reports to the issuer, the
bond trustee and the rating agencies;
(4) selling, as agent for the issuer, defaulted or written-off
accounts in accordance with the servicer's usual and customary practices;
and
(5) taking action in connection with adjustments to the intangible
transition charges as described below under "--Intangible Transition Charge
Adjustment Process."
See also "The Qualified Rate Order and the Intangible Transition
Charges--Competitive Billing" in this prospectus.
The servicer shall notify the issuer, the bond trustee and the rating
agencies in writing of any laws or Pennsylvania Public Utility Commission
regulations promulgated after the execution of the servicing agreement that have
a material adverse effect on the servicer's ability to perform its duties under
the servicing agreement.
The servicer shall institute any action or proceeding necessary to compel
performance by the Pennsylvania Public Utility Commission or the Commonwealth of
Pennsylvania of any of their obligations or duties under the Pennsylvania
Competition Act or the Qualified Rate Order with respect to the intangible
transition property. The
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cost of any action like that shall be payable from collections of intangible
transition charges as an operating expense at the time those costs are incurred.
Intangible Transition Charge Adjustment Process. The servicing agreement
requires the servicer to seek, and the Pennsylvania Competition Act and the
Qualified Rate Order require the Pennsylvania Public Utility Commission to
approve, adjustments to the intangible transition charges charged to each rate
schedule within any customer category based on actual collections of intangible
transition charges and updated assumptions by the servicer as to projected
future sales from which intangible transition charges are allocated, expected
delinquencies and write-offs and future payments and expenses relating to the
intangible transition property and the transition bonds. The servicer is
required to file requests with the Pennsylvania Public Utility Commission for
those adjustments on October 1 of each year and on the additional date or dates
specified in the prospectus supplement for any series of transition bonds. In
accordance with the Pennsylvania Competition Act and the Qualified Rate Order,
the Pennsylvania Public Utility Commission has 90 days to approve annual
adjustments. In addition, the Qualified Rate Order provides that adjustments
after the period commencing 12 months prior to the last scheduled payment date
for the payment of principal on the last class of each series of transition
bonds may be implemented quarterly or monthly.
The servicer agrees to calculate these adjustments to result in:
(1) the outstanding principal balance of each series or class
equaling the amount provided for in the expected amortization schedule for
that series or class,
(2) the amount on deposit in the overcollateralization subaccount
equaling the calculated overcollateralization level,
(3) the amount in the capital subaccount equaling the required
capital amount, and
(4) the amount in the reserve subaccount equaling zero.
These Adjustment Requests are designed to achieve each of the above goals
by the payment date immediately preceding the next date on which adjustments to
intangible transition charges are implemented or with respect to the period in
which monthly rate adjustments are utilized, generally the 25th day of the
calendar month immediately preceding the next monthly adjustment date, as
applicable, taking into account any amounts on deposit in the reserve
subaccount. The Pennsylvania Competition Act and the Qualified Rate Order
require the Pennsylvania Public Utility Commission to approve the annual
adjustments within 90 days of the Adjustment Request.
The annual adjustments to the intangible transition charges are expected to
be implemented on or prior to January 1 of each year, and, with respect to each
series of transition bonds, after the period commencing 12 months prior to the
last scheduled payment date for the payment of principal on the last class of
each series of transition bonds on the date or dates specified in the related
prospectus supplement. Those adjustments to the intangible transition charges
will cease with respect to each series on the final adjustment date specified in
the prospectus supplement for that series.
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Intangible Transition Charge Collections. The servicer is required to
remit all collections of intangible transition charges, from whatever source,
and all proceeds of other collateral, if any, of the issuer received by the
servicer, to the bond trustee for deposit under the indenture on each Remittance
Date. As long as West Penn or any successor to West Penn's electric distribution
business is the servicer, the Remittance Date is the business day immediately
preceding the 25th day of each month--provided that:
(1) West Penn or its successor maintains a short-term rating of at
least "A-1" by S&P, "P-1" by Moody's and, if rated by Fitch IBCA, Inc.,
"F-1" by Fitch IBCA--and for five business days following a reduction in,
any such rating; or
(2) the Rating Agency Condition will have been satisfied with respect
to each of the rating agencies other than Moody's, to which notice will be
sent, and any conditions or limitations imposed by those rating agencies in
connection with that satisfaction of the Rating Agency Condition are
complied with.
Otherwise, the Remittance Date is two business days after any collections
of intangible transition charges or proceeds of other collateral are received by
the servicer. The monthly period represented by each of West Penn's 12 revenue
months each year is referred to in this prospectus as the collection period.
Until collections of intangible transition charges are remitted to the
collection account, the servicer will not segregate them from its general funds.
Remittances of collections of intangible transition charges will not include
interest on these collections prior to the Remittance Date or late fees from
customers, which the servicer will be entitled to retain.
SERVICER ADVANCES
If specified in the related annex to the servicing agreement, the servicer
will make advances of interest or principal on the related series of transition
bonds in the manner and to the extent specified in such annex.
SERVICING COMPENSATION; RELEASES
The issuer agrees to pay the servicer the servicing fees with respect to
their respective series of transition bonds. The servicing fee for each series,
together with any portion of that servicing fee that remains unpaid from prior
payment dates, will be paid solely to the extent funds are available for payment
as described under "The Indenture--Allocations and Payments" in this prospectus.
The servicing fee will be paid prior to the payment of or provision for any
amounts in respect of interest on and principal of the transition bonds.
In the servicing agreement, the servicer releases the issuer and the bond
trustee from any and all claims, subject to exceptions relating to the
transferred intangible transition property or the servicer's servicing
activities with respect to the transferred intangible transition property.
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SERVICER DUTIES
In the servicing agreement, the servicer has agreed that, in servicing the
transferred intangible transition property:
(1) except where the failure to comply with any of the following
would not adversely affect the issuer's or the bond trustee's interests in
intangible transition property;
(w) it will manage, service, administer and make collections in
respect of the transferred intangible transition property with
reasonable care and in material compliance with applicable law,
including all applicable Pennsylvania Public Utility Commission
regulations and guidelines, using the same degree of care and diligence
that the servicer exercises with respect to billing and collection
activities that the servicer conducts for itself and others;
(x) it will follow standards, policies and procedures in
performing its duties as servicer that are customary in the servicer's
industry;
(y) it will use all reasonable efforts, consistent with its
customary servicing procedures, to enforce and maintain rights in
respect of the transferred intangible transition property;
(z) it will calculate the intangible transition charges in
compliance with the Pennsylvania Competition Act, the Qualified Rate
Order and any applicable tariffs;
(2) it will keep on file, in accordance with customary procedures,
all documents related to intangible transition property and will maintain
accurate and complete accounts, records and computer systems pertaining to
the intangible transition property; and
(3) it will use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of intangible
transition property as they become due.
The duties of the servicer set forth in the servicing agreement are
qualified by any Pennsylvania Public Utility Commission regulations or orders in
effect at the time those duties are to be performed.
SERVICER REPRESENTATIONS AND WARRANTIES
In the servicing agreement, the servicer will make representations and
warranties as of each date that West Penn Funding Corporation sells or otherwise
transfers any intangible transition property to the issuer to the effect that:
(1) the servicer is a corporation duly organized and in good standing
under the laws of the state of its incorporation, with the corporate power
and authority to own its properties and conduct its business as those
properties are currently owned and that business is presently conducted and
to execute, deliver and carry out the
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terms of the servicing agreement and has the power, authority and legal
right to service the transferred intangible transition property;
(2) the servicer is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which it is required
to do so;
(3) the servicer's execution, delivery and performance of the
servicing agreement have been duly authorized by the servicer by all
necessary corporate action;
(4) the servicing agreement constitutes a legal, valid and binding
obligation of the servicer, enforceable against the servicer in accordance
with its terms, subject to customary exceptions relating to bankruptcy and
equitable principles;
(5) the consummation of the transactions contemplated by the
servicing agreement does not conflict with or result in any breach of the
terms and provisions of or constitute a default under the servicer's
articles of incorporation 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 upon the servicer's properties or violate any law or any order, rule
or regulation applicable to the servicer or its properties;
(6) except for filings with the Pennsylvania Public Utility
Commission for revised intangible transition charges and Uniform Commercial
Code continuation filings, no governmental approvals, authorizations,
consents, orders, or other actions 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
(7) no proceeding or investigation is pending or, to the servicer's
best knowledge, threatened before any court, federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the servicer or its properties:
(x) except as disclosed by the servicer to the issuer, seeking
any determination or ruling that might materially and adversely affect
the performance by the servicer of its obligations under, or the
validity or enforceability against the servicer of, the servicing
agreement or
(y) relating to the servicer and which might adversely affect
the federal or state income tax attributes of the transition bonds.
SERVICER INDEMNIFICATION
Under the servicing agreement, the servicer agrees to indemnify the issuer,
the bond trustee, on behalf of the transition bondholders, and specified related
parties, against any costs, expenses, losses, damages, claims and liabilities
that may be imposed upon, incurred by or asserted against that person as a
result of:
(1) the servicer's willful misfeasance, bad faith or gross negligence
in the performance of its duties or observance of its covenants under the
servicing
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agreement or the servicer's reckless disregard of its obligations and
duties under the servicing agreement; and
(2) the servicer's breach of any of its representations or warranties
under the servicing agreement.
STATEMENTS TO ISSUER AND BOND TRUSTEE
For each date on which adjustments to intangible transition charges are
implemented, the servicer will provide to the issuer, the bond trustee and each
of the rating agencies a statement indicating, with respect to the transferred
intangible transition property:
(1) the outstanding principal balance for each series and the amount
provided in the expected amortization schedule for each series as of the
immediately preceding payment date;
(2) the amount on deposit in the overcollateralization subaccount and
the calculated overcollateralization level as of the immediately preceding
payment date;
(3) the amount on deposit in the capital subaccount and the required
capital amount as of the immediately preceding payment date;
(4) the sum of the amounts provided in the expected amortization
schedule for each outstanding series for each payment date prior to the
next adjustment date and the servicer's projection of the aggregate
principal amount of all series as of each payment date prior to the next
adjustment date;
(5) the calculated overcollateralization level for each payment date
prior to the next adjustment date and the servicer's projection of the
amount on deposit in the overcollateralization subaccount as of each
payment date prior to the next adjustment date;
(6) the required capital amount for each payment date prior to the
next adjustment date and the servicer's projections of the amount on
deposit in the capital subaccount as of each payment date prior to the next
adjustment date; and
(7) the projected collections of intangible transition charges from
the payment date immediately preceding the adjustment date through the next
adjustment date.
Moreover, on or before each Remittance Date, the servicer will prepare and
furnish to the issuer and the bond trustee a statement setting forth the
aggregate amount remitted or to be remitted by the servicer to the bond trustee
for deposit on that Remittance Date under the indenture.
In addition, at least three business days before each payment date for each
series of transition bonds, the servicer will prepare and furnish to the issuer
and the bond trustee a statement setting forth the amounts to be paid to the
holders of transition bonds of that series. On the basis of this information,
the bond trustee will furnish to the
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transition bondholders on each payment date the report described under "The
Indenture--Reports to Transition Bondholders" in this prospectus.
EVIDENCE AS TO COMPLIANCE
The servicing agreement will provide that a firm of independent public
accountants will furnish to the issuer, the bond trustee and the rating
agencies, on or before March 31 of each year, beginning March 31, 2000, a
statement as to compliance by the servicer during the preceding calendar year,
or the relevant portion of that year, with standards relating to the servicing
of intangible transition property. This annual accountant's report will state
that the firm has performed specified procedures in connection with the
servicer's compliance with the servicing procedures of the servicing agreement,
identifying the results of those procedures and including any exceptions noted.
The annual accountant's report will also indicate that the accounting firm
providing that 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 issuer and
the bond trustee on or before March 31 of each year, a certificate signed by an
officer of the servicer to the effect that the servicer has fulfilled its
material obligations under the servicing agreement for the preceding calendar
year, or the relevant portion of that year, or, if there has been a material
default in the fulfillment of any such obligation, describing each material
default. The servicer has agreed to give the issuer, each rating agency and the
bond trustee notice of any servicer default under the servicing agreement.
MATTERS REGARDING THE SERVICER
Under the Qualified Rate Order, West Penn may assign its obligations under
the servicing agreement to any electric distribution company, as that term is
defined in the Pennsylvania Competition Act, which succeeds to the major part of
West Penn's electric distribution business. Prior to any assignment, the
servicer shall provide written notice of that assignment to each of the rating
agencies. Under the servicing agreement, persons which succeed to the major part
of the electric distribution business of the servicer, which persons assume the
obligations of the servicer, will be the successor of the servicer under the
servicing agreement. The servicing agreement further requires that:
(1) immediately after giving effect to that transaction, no
representation or warranty made by the servicer in the servicing agreement
shall have been breached and no servicer default, and no event which, after
notice or lapse of time, or both, would become a servicer default shall
have occurred and be continuing;
(2) specified officers' certificates and opinions of counsel shall
have been delivered to the issuer, the bond trustee and the rating
agencies; and
(3) prior written notice shall have been received by the rating
agencies.
The servicing agreement provides that, subject to the foregoing provisions,
West Penn shall not resign from the obligations and duties imposed on it as
servicer except upon a determination, communicated to the issuer, the bond
trustee and each rating agency and evidenced by an opinion of counsel, that the
performance of its duties under
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the servicing agreement are no longer permissible under applicable law. No such
resignation shall become effective until a successor servicer has assumed the
servicing obligations and duties of West Penn under the servicing agreement.
In addition, the Qualified Rate Order and the Pennsylvania Competition Act
require that the servicer's responsibility to collect the applicable intangible
transition charges and other obligations under the servicing agreement must be
undertaken and performed by any other entity that provides transmission and
distribution service to the customers.
Except as expressly provided in the servicing agreement, the servicer will
not be liable to the issuer for any action taken or for refraining from taking
any action under the servicing agreement or for errors in judgment, except to
the extent that liability is imposed by reason of the servicer's willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of obligations and duties under the servicing
agreement.
SERVICER DEFAULTS
Servicer defaults under the servicing agreement will include:
(1) any failure by the servicer to deliver to the bond trustee, on
behalf of the issuer, any required remittance that shall continue
unremedied for a period of three business days after written notice of that
failure is received by the servicer;
(2) any failure by the servicer, duly to observe or perform in any
material respect any other covenant or agreement in the servicing agreement
or any other Basic Document to which it is a party, which failure
materially and adversely affects intangible transition property and which
continues unremedied for 60 days after notice of that failure has been
given to the servicer, by the issuer or the bond trustee or after discovery
of that failure by an officer of the servicer, as the case may be;
(3) any representation or warranty made by the servicer in the
servicing agreement shall prove to have been incorrect when made, which has
a material adverse effect on any of the transition bondholders and the
issuer and which continues unremedied for 60 days after notice of that
failure has been given to the servicer by the issuer or the bond trustee;
and
(4) events of insolvency, readjustment of debt, marshaling of assets
and liabilities, or similar proceedings with respect to the servicer and
actions by the servicer indicating its insolvency, reorganization under
bankruptcy proceedings or inability to pay its obligations.
The bond trustee, with the consent of the holders of a majority of the
outstanding principal amount of the transition bonds of all series, may waive
any default by the servicer, except a default in making any required remittances
to the bond trustee.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under the servicing agreement remains
unremedied, the bond trustee, with the consent of the holders of a majority of
the outstanding principal
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amount of the transition bonds of all series, may terminate all the rights and
obligations of the servicer under the servicing agreement, other than the
servicer's indemnification obligation and obligation to continue performing its
functions as servicer until a successor servicer is appointed. After that, a
successor servicer appointed by the bond trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under the servicing
agreement and will be entitled to similar compensation arrangements. Upon a
servicer default based upon the commencement of a case by or against the
servicer under the Bankruptcy Code or similar laws, the bond trustee and the
issuer may be prevented from effecting a transfer of servicing. See "Risk
Factors--Bankruptcy; Creditors' Rights" in this prospectus.
The bond trustee may make arrangements for compensation to be paid to any
successor servicer, which in no event may be greater than the servicing
compensation paid to the servicer under the servicing agreement. See "Risk
Factors--Bankruptcy; Creditors' Rights" in this prospectus.
In addition, upon a servicer default because of a failure to make required
remittances, the issuer or its pledgees or transferees will have the right to
apply to the Pennsylvania Public Utility Commission for sequestration and
payment of revenues arising from the intangible transition property.
SUCCESSOR SERVICER
In accordance with the provisions of the Qualified Rate Order and under the
provisions of the servicing agreement, if for any reason a third party assumes
or succeeds to the role of the servicer under the servicing agreement, the
servicing agreement will require the servicer to cooperate with the issuer, the
bond 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 documentation pertaining to intangible transition
property and all cash amounts then held by the servicer for remittance or
subsequently acquired by the servicer. The servicing agreement will provide that
the servicer shall be liable for all reasonable costs and expenses incurred in
transferring servicing responsibilities to the successor servicer. A successor
servicer may not resign unless it is prohibited from serving by law. The
predecessor servicer is obligated, on an ongoing basis, to cooperate with the
successor servicer and provide whatever information is, and take whatever
actions are, reasonably necessary to assist the successor servicer in performing
its obligations under the servicing agreement.
GOVERNING LAW
The servicing agreement will be governed by and construed under the laws of
the State of New York.
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THE INDENTURE
The following summary describes all material terms and provisions of the
indenture under which transition bonds will be issued. The form of the
indenture, including the form of the supplemental indenture, has been filed as
an exhibit to the registration statement of which this prospectus forms a part.
Please see that form of indenture, including that form of supplemental
indenture, for a complete description of all terms and provisions of the
indenture and supplemental indenture, portions of which are summarized in this
section. See "West Penn Power Company" in this prospectus.
SECURITY
To secure the payment of principal of and premium, if any, and interest on,
and any other amounts owing in respect of, the transition bonds under the
indenture, the issuer will grant to the bond trustee for the benefit of the
transition bondholders a security interest in all of the issuer's right, title
and interest in and to the following collateral:
(1) the transferred intangible transition property sold by West Penn
Funding Corporation to the issuer from time to time under the sale
agreement and all proceeds of that property;
(2) the transfer agreement, except for provisions for indemnification
of West Penn Funding Corporation and the issuer;
(3) all bills of sale delivered by West Penn under the transfer
agreement;
(4) the sale agreement, except for provisions for indemnification of
the issuer;
(5) all bills of sale delivered by West Penn Funding Corporation
under the sale agreement;
(6) the servicing agreement, except for provisions for
indemnification of the issuer;
(7) the collection account and all amounts on deposit in that account
from time to time;
(8) any hedge or swap agreements to which the issuer is a party;
(9) all other property of whatever kind owned from time to time by
the issuer including all accounts, accounts receivable and chattel paper;
(10) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing; and
(11) all payments on or under, and all proceeds of every kind and
nature whatsoever in respect of, any or all of the foregoing;
provided that cash or other property distributed to the issuer from the
collection account in accordance with the provisions of the indenture will not
be subject to the lien of the indenture.
See "--Allocation and Payments" below.
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ISSUANCE IN SERIES OR CLASSES
Transition bonds may be issued under the indenture from time to time to
finance the purchase by the issuer of intangible transition property (a
"Financing Issuance") or to pay the cost of refunding, through redemption or
payment, all or part of the transition bonds (a "Refunding Issuance"). Any
series of transition bonds may include one or more classes which differ as to
interest rate and amortization of principal. The terms of all transition bonds
of the same series will be identical, unless that series is comprised of more
than one class, in which case the terms of all transition bonds of the same
class will be identical. The particular terms of the transition bonds of any
series and, if applicable, classes of that series, will be set forth in the
related prospectus supplement for that series. The terms of that series and any
classes of that series will not be subject to prior review by, or consent of,
the transition bondholders of any previously issued series. See "Risk
Factors--The Transition Bonds--Issuance of Additional Series May Adversely
Affect Outstanding Transition Bonds," "The Transition Bonds" and "West Penn
Power Company" in this prospectus.
Under the indenture, the bond trustee will authenticate and deliver an
additional series of transition bonds only upon receipt by the bond trustee of a
certificate of the issuer that no event of default has occurred and is
continuing, an opinion of counsel to the issuer and evidence of satisfaction
that the issuance of that additional series of transition bonds will not result
in any rating agency reducing or withdrawing its then-current rating of any
outstanding series or class of transition bonds. The notification in writing by
each rating agency to West Penn, West Penn Funding Corporation, the servicer,
the bond trustee and the issuer that any action will not result in such a
reduction or withdrawal is referred to in this prospectus as the Rating Agency
Condition.
In addition, in connection with the issuance of the each new series, the
bond trustee will have to provide a certificate or opinion of a firm of
independent certified public accountants of recognized national reputation to
the effect that, based on the assumptions used in calculating the initial
intangible transition charges with respect to the transferred intangible
transition property or, if applicable, the most recent revised intangible
transition charges with respect to the transferred intangible transition
property, after giving effect to the issuance of that series and the application
of the proceeds therefrom, that intangible transition charges will be sufficient
to pay all fees and expenses of servicing the transition bonds, interest on each
series of transition bonds when due and principal of each series of transition
bonds in accordance with the expected amortization schedule therefor and to fund
the calculated overcollateralization level and to replenish the capital
subaccount as of each payment date.
If the issuance is a Refunding Issuance, the amount of money necessary to
pay premiums, if any, and the outstanding principal balance of and interest on
the transition bonds being refunded shall be deposited into a separate account
with the bond trustee.
COLLECTION ACCOUNT
Under the indenture, the issuer will establish one or more segregated trust
accounts in the bond trustee's name, which collectively comprise the collection
account, with the
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bond trustee or at another Eligible Institution. The collection account will be
divided into subaccounts, which need not be separate bank accounts: the general
subaccount, the overcollateralization subaccount, the capital subaccount, the
reserve subaccount and, if required by the indenture, one or more defeasance
subaccounts. All amounts in the collection account not allocated to any other
subaccount will be allocated to the general subaccount. Unless the context
indicates otherwise, references in this prospectus to the collection account
include all of the subaccounts contained in the collection account. All monies
deposited from time to time in the collection account, all deposits in the
collection account under the indenture, and all investments made in Eligible
Investments with those monies, shall be held by the bond trustee in the
collection account as part of the collateral.
"Eligible Institution" means
(1) the corporate trust department of the bond trustee; or
(2) a depository institution organized under the laws of the United
States of America or any state (or any domestic branch of a foreign bank),
which
(x) has (A) a long-term unsecured debt rating of "AAA" by S&P
and "Aa3" by Moody's and (B) a short-term 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 the rating agencies and
(y) whose deposits are insured by the Federal Deposit Insurance
Corporation.
So long as no default or event of default under the indenture has occurred
and is continuing, all funds in the collection account may be invested in any of
the following Eligible Investments:
(1) direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the United States of America;
(2) demand deposits, time deposits, certificates of deposit, or
bankers' acceptances of Eligible Institutions which are described in clause
(x) of the preceding paragraph;
(3) commercial paper, other than commercial paper issued by West Penn
or the servicer or any of their affiliates, having, at the time of
investment or contractual commitment to invest, a rating in the highest
rating category from each rating agency;
(4) money market funds which have the highest rating from each rating
agency;
(5) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or agencies or instrumentalities of the United States of America the
obligations of which are backed by the full faith and credit of the United
States of America, entered into with an Eligible Institution; or
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(6) any other investment permitted by each rating agency,
in each case which mature no later than the business day prior to the
next payment date for that series or class.
The bond trustee will have access to the collection account for the purpose
of making deposits in and withdrawals from the collection account in accordance
with the indenture.
On each Remittance Date, the servicer will remit all collections of
intangible transition charges, from whatever source, and all proceeds of other
collateral received by the servicer to the bond trustee under the indenture for
deposit pursuant to the indenture. Further, the bond trustee will deposit all
Indemnity Amounts and investment earnings remitted to the bond trustee by West
Penn, West Penn Funding Corporation or the servicer or otherwise received by the
bond trustee into the General Subaccount of the Collection Account. "Indemnity
Amounts" means any amounts paid by West Penn, West Penn Funding Corporation or
the servicer to the bond trustee, for itself or on behalf of the transition
bondholders, in respect of the indemnification obligations under the transfer
agreement, the sale agreement and the servicing agreement. See "The Transfer
Agreement", "The Sale Agreement" and "The Servicing Agreement" in this
prospectus.
General Subaccount. Collections of intangible transition charges remitted
by the servicer to the bond trustee, as well as any Indemnity Amounts and
investment earnings remitted by West Penn or the servicer or otherwise received
by the bond trustee or the issuer, shall be deposited in the general subaccount.
On each payment date, the bond trustee will draw on available amounts in the
general subaccount to make the allocations and payments described in
"--Allocations and Payments" below.
Reserve Subaccount. Collections of intangible transition charges
available on any payment date above that necessary to pay:
(1) amounts payable in respect of fees and expenses of the bond
trustee, the independent directors of the issuer, the administrative agent
and the servicer and other fees and expenses,
(2) amounts distributable to the transition bondholders in respect of
principal of and interest paid on that payment date,
(3) amounts required to replenish the capital subaccount,
(4) amounts required to replenish and fund the overcollateralization
subaccount and
(5) net investment earnings on amounts in the capital subaccount
released to the issuer,
will be allocated to the reserve subaccount.
Amounts in the reserve subaccount will be invested in Eligible Investments,
and the issuer will be entitled to earnings on those amounts, subject to the
limitations described under "-- Allocations and Payments" below. On each payment
date, the bond trustee
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will draw on amounts in the reserve subaccount, if any, to the extent amounts
available in the general subaccount are insufficient to:
(1) make scheduled distributions to the transition bondholders,
(2) pay expenses of the issuer, the bond trustee, the independent
directors of the issuer, the administrative agent, the servicer and other
specified fees and expenses and
(3) fund the overcollateralization subaccount and replenish the
capital subaccount.
See "-- Allocations and Payments" below.
Overcollateralization Subaccount. Collections of intangible transition
charges to the extent available, as described under "-- Allocation and Payments"
below, will be deposited in the overcollateralization subaccount on each payment
date up to the calculated overcollateralization level for all series. Amounts in
the overcollateralization subaccount will be invested in Eligible Investments
and the issuer will be entitled to earnings on those amounts, subject to the
limitations described under "-- Allocations and Payments" below. On each payment
date, the bond trustee will draw on amounts in the overcollateralization
subaccount to the extent amounts on deposit in the general subaccount and the
reserve subaccount are insufficient to:
(1) make scheduled distributions to the transition bondholders, and
(2) to pay expenses of the issuer, the bond trustee, the independent
directors of the issuer, the administrative agent and the servicer and
other specified fees and expenses.
If any series or class of transition bonds is redeemed or any series is
fully amortized as of any payment date, the amount by which amounts on deposit
in the overcollateralization subaccount exceed the calculated
overcollateralization level for all series will be released to the issuer, free
of the lien of the indenture.
Capital Subaccount. Upon the issuance of each series of transition bonds,
West Penn Funding Corporation will make a capital contribution in the amount of
the required capital amount to the issuer, and the issuer will pay that amount
to the bond trustee for deposit into the capital subaccount which will be
invested in Eligible Investments, and the issuer will be entitled to earnings on
those amounts subject to the limitations described under "-- Allocations and
Payments" below. The bond 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:
(1) make scheduled distributions to the transition bondholders, and
(2) pay expenses of the issuer, the bond trustee, the independent
directors of the issuer, the administrative agent and the servicer and
other specified fees and expenses.
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If any series or class of transition bonds is redeemed or any series is
fully amortized as of any payment date, the amount by which amounts on deposit
in the capital subaccount exceed the required capital amount will be released to
the issuer, free of the lien of the indenture.
Defeasance Subaccount. In the event funds are remitted to the bond
trustee in connection with the exercise of the Legal Defeasance Option or the
Covenant Defeasance Option, the issuer shall establish a defeasance subaccount
for each series to be defeased into which those funds shall be deposited. All
amounts in the defeasance subaccount will be applied by the bond trustee, in
accordance with the provisions of the transition bonds and the indenture, to the
payment to the holders of the particular transition bonds for the payment or
redemption of which those amounts were deposited with the bond trustee,
including all sums due for principal, premium, if any, and interest. See
"-- Legal Defeasance and Covenant Defeasance" below.
ALLOCATIONS AND PAYMENTS
The bond trustee shall apply amounts on deposit in the general subaccount
of the collection account to pay the monthly fees owed by the issuer to the
administrative agent under the administration agreement on or before the 20th
day of the month following receipt of a statement from the administrative agent
showing the amount due. In addition, on each payment date, the bond trustee
shall apply all amounts on deposit -- after payment of the fees paid to the
administrative agent in accordance with the last sentence -- in the general
subaccount of the collection account, including any Indemnity Amounts, and any
investment earnings on each of the subaccounts of the collection account in the
following priority:
(1) all amounts owed to the bond trustee, including legal fees and
expenses and Indemnity Amounts owing to the bond trustee, will be paid to
the bond trustee so long as no event of default would result from the
payment of or failure to pay those amounts;
(2) all amounts owed to the independent directors will be paid to the
independent directors so long as no event of default would result from the
payment of or failure to pay those amounts;
(3) the servicing fee and all unpaid servicing fees from prior
payment dates will be paid to the servicer;
(4) so long as no event of default has occurred and is continuing or
would be caused by that payment, all operating expenses -- other than those
referred to in clauses (1), (2) and (3) above and other than the fees paid
to the administrative agent under the administration agreement -- will be
paid to the persons entitled to that payment, provided that the amount paid
on any payment date under this clause (4) may not exceed $100,000 in the
aggregate for all series;
(5) interest due and payable on the transition bonds, together with
any overdue interest at the applicable bond rate and, to the extent
permitted by law, interest on that overdue interest, will be paid to the
transition bondholders;
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(6) any principal of any series or class of the transition bonds
payable as a result of acceleration triggered by an event of default, any
principal of any series or class of transition bonds payable on a series
termination date or class termination date, as applicable, and any
principal of and premium on a series or class of transition bonds payable
on a redemption date will be paid to the transition bondholders;
(7) an amount up to the principal amount of the transition bonds that
is scheduled to be paid by that payment date in accordance with the
expected amortization schedule will be paid to the transition bondholders
in respect of principal on the transition bonds;
(8) all unpaid operating expenses will be paid to the persons
entitled to that payment;
(9) an amount, if any, necessary to fund the balance of the capital
subaccount up to the required capital amount will be transferred to the
capital subaccount;
(10) an amount necessary to cause the amount in the
overcollateralization subaccount to equal the calculated
overcollateralization level for that payment date will be allocated to the
overcollateralization subaccount;
(11) provided that no event of default has occurred and is
continuing, an amount equal to the net investment earnings on amounts in
the capital subaccount will be released to the issuer, free from the lien
of the indenture;
(12) the balance, if any, will be allocated to the reserve
subaccount; and
(13) following repayment of all outstanding series of transition
bonds, the balance, if any, will be released to the issuer free from the
lien of the indenture.
If on any payment date funds on deposit in the general subaccount are
insufficient to make the payments and transfers contemplated by clauses (1)
through (11) above, the bond trustee will draw from amounts on deposit in the
following subaccounts up to the amount of such shortfall, in order to make such
payments and transfers: from the reserve subaccount, then from the
overcollateralization subaccount and finally from the capital subaccount;
provided that amounts on deposit in the overcollateralization subaccount and the
reserve subaccount shall only be used for the payments contemplated by clauses
(1) through (8) above.
All payments to transition bondholders of a series under clauses (5) or (6)
of the first paragraph under "-- Allocation and Payments" shall be made pro rata
based on the respective outstanding principal amounts of transition bonds of
that series held by those transition bondholders, unless, in the case of a
series comprised of two or more classes, the applicable supplemental indenture
for that series specifies otherwise. All payments to transition bondholders of a
class under clause (5) or (6) of the first paragraph under "Allocation and
Payments" shall be made pro rata based on the respective outstanding principal
amounts of transition bonds of that class held by those transition bondholders.
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REPORTS TO TRANSITION BONDHOLDERS
With respect to each series of transition bonds, on or prior to each
payment date, the bond trustee will deliver a statement prepared by the bond
trustee to each transition bondholder of that series which will include, to the
extent applicable, the following information, and any other information so
specified in the applicable supplemental indenture, as to the transition bonds
of that series with respect to that payment date or the period since the
previous payment date, as applicable:
(1) the amount paid to those transition bondholders in respect of
principal;
(2) the amount paid to those transition bondholders in respect of
interest;
(3) the outstanding principal balance and the amount provided in the
expected amortization schedule, in each case for that series and as of the
most recent payment date;
(4) the amount on deposit in the overcollateralization subaccount and
the calculated overcollateralization level, in each case for all series and
as of the most recent payment date;
(5) the amount on deposit in the capital subaccount as of the most
recent payment date and the required capital amount; and
(6) the amount, if any, on deposit in the reserve subaccount as of
the most recent payment date.
MODIFICATION OF INDENTURE
Without the consent of any of the holders of the outstanding transition
bonds but with prior notice to the rating agencies, the issuer and the bond
trustee may execute a supplemental indenture for any of the following purposes:
(1) to correct or amplify the description of the collateral, or to
better assure, convey and confirm unto the bond trustee the collateral, or
to subject to the lien of the indenture additional property;
(2) to evidence the succession, in compliance with the applicable
provisions of the indenture, of another person to the issuer, and the
assumption by any such successor of the covenants of the issuer contained
in the indenture and in the transition bonds;
(3) to add to the covenants of the issuer, for the benefit of the
holders of the transition bonds, or to surrender any right or power in the
indenture conferred upon the issuer;
(4) to convey, transfer, assign, mortgage or pledge any property to
or with the bond trustee;
(5) to cure any ambiguity, to correct or supplement any provision of
the indenture or in any supplemental indenture which may be inconsistent
with any other provision of the indenture or in any supplemental indenture
or to make any other provisions with respect to matters or questions
arising under the indenture or in any supplemental indenture; provided,
however, that:
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(x) that action shall not, as evidenced by an officers
certificate, adversely affect in any material respect the interests of
any transition bondholder and
(y) the Rating Agency Condition shall have been satisfied with
respect to that action by all rating agencies other than
Moody's--however, notice of that action shall be provided to Moody's;
(6) to evidence and provide for the acceptance of the appointment
under the indenture by a successor bond trustee with respect to the
transition bonds and to add to or change any of the provisions of the
indenture as shall be necessary to facilitate the administration of the
trusts under the indenture by more than one bond trustee, under
requirements of the indenture;
(7) to modify, eliminate or add to the provisions of the indenture to
the extent as shall be necessary to effect the qualification of the
indenture under the Trust Indenture Act of 1939, as amended, or under any
similar federal statute hereafter enacted and to add to the indenture the
other provisions as may be expressly required by the Trust Indenture Act of
1939, as amended;
(8) to set forth the terms of any series that has not previously been
authorized by a supplemental indenture; or
(9) to provide for any hedge or swap transactions with respect to any
floating rate series or class of transition bonds or any series or class
specific credit enhancement; provided, however, that:
(x) that action shall not, as evidenced by an officers
certificate, adversely affect in any material respect the interests of
any transition bondholder and
(y) the Rating Agency Condition shall have been satisfied with
respect thereto by all rating agencies other than Moody's--however,
notice of such action shall be provided to Moody's.
Additionally, without the consent of any of the transition bondholders, the
issuer and bond trustee may execute a supplemental indenture to add provisions
to, or change in any manner or eliminate any provisions of, the indenture, or to
modify in any manner the rights of the transition bondholders under the
indenture; provided, however:
(1) that action shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any transition
bondholder and
(2) that the Rating Agency Condition shall have been satisfied with
respect to that action.
The issuer and the bond trustee also may, with prior notice to the rating
agencies and with the consent of the holders of not less than a majority of the
outstanding amount of the transition bonds of each series or class to be
affected, execute a supplemental indenture for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the indenture or modifying in any manner the rights of the transition
bondholders under the indenture; provided, however, that no such supplemental
indenture shall, without the consent of the holder of each
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outstanding transition bond of each series or class affected by that
supplemental indenture:
(1) change the date of payment of any installment of principal of or
premium, if any, or interest on any transition bond, or reduce the
principal amount of any transition bond, the interest rate specified on any
transition bond or the redemption price or the premium, if any, with
respect to any transition bond, change the provisions of the indenture and
the related applicable supplemental indenture relating to the application
of collections on, or the proceeds of the sale of, the collateral to
payment of principal of or premium, if any, or interest on the transition
bonds, or change any place of payment where, or the coin or currency in
which, any transition bond or any interest on a transition bond is payable;
(2) impair the right to institute suit for the enforcement of
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding
transition bonds, or of a series or class of transition bonds, the consent
of the holders of which is required for any supplemental indenture, or the
consent of the holders of which is required for any waiver of compliance
with specified provisions of the indenture or of specified defaults under
the indenture and their consequences provided for in the indenture;
(4) reduce the percentage of the outstanding amount of the transition
bonds required to direct the bond trustee to direct the issuer to sell or
liquidate the collateral;
(5) modify any provision of the section of the indenture relating to
the consent of transition bondholders with respect to supplemental
indentures, except to increase any percentage specified in the indenture or
to provide that specified additional provisions of the indenture or the
Basic Documents cannot be modified or waived without the consent of the
holder of each outstanding transition bond affected by that modification or
waiver;
(6) modify any of the provisions of the indenture in a manner as to
affect the amount of any payment of interest, principal or premium, if any,
payable on any transition bond on any payment date or to affect the rights
of transition bondholders to the benefit of any provisions for the
mandatory redemption of the transition bonds contained in the indenture or
change the redemption dates, expected amortization schedule or series
termination dates or class termination dates of any transition bonds;
(7) decrease the required capital amount with respect to any series,
the overcollateralization amount or the calculated overcollateralization
level with respect to any payment date;
(8) modify or alter the provisions of the indenture regarding the
voting of transition bonds held by the issuer, West Penn Funding
Corporation, an affiliate of either of them or any obligor on the
transition bonds;
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(9) decrease the percentage of the aggregate principal amount of the
transition bonds required to amend the sections of the indenture which
specify the applicable percentage of the aggregate principal amount of the
transition bonds necessary to amend the indenture or related agreements; or
(10) permit the creation of any lien ranking prior to or on a parity
with the lien of the indenture with respect to any of the collateral for
the transition bonds or, except as otherwise permitted or contemplated in
the indenture, terminate the lien of the indenture on any property at any
time subject to the lien of the indenture or deprive the holder of any
transition bond of the security provided by the lien of the indenture.
ENFORCEMENT OF THE TRANSFER AGREEMENT, THE SALE AGREEMENT AND THE SERVICING
AGREEMENT
The indenture will provide that the issuer will take all lawful actions to
enforce its rights under the transfer agreement, the sale agreement and the
servicing agreement in a commercially reasonable manner and to compel or secure
the performance and observance by West Penn, West Penn Funding Corporation and
the servicer of each of their respective material obligations to the issuer
under or in connection with the transfer agreement, the sale agreement and the
servicing agreement. So long as no event of default occurs and is continuing,
the issuer may exercise any and all rights, remedies, powers and privileges
lawfully available to the issuer under or in connection with the transfer
agreement, the sale agreement and the servicing agreement. However, if the
issuer and West Penn Funding Corporation or servicer propose to amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the process for
adjusting intangible transition charges, the issuer shall notify the bond
trustee and the bond trustee shall notify transition bondholders of that
proposal and the bond trustee shall consent to that amendment, modification,
supplement, termination, waiver or surrender only with the consent of the holder
of each outstanding transition bond of each series or class affected by that
amendment, modification, supplement, termination, waiver or surrender.
If an event of default occurs and is continuing, the bond trustee may, and,
at the direction of the holders of a majority of the outstanding principal
amount of the transition bonds of all series shall, exercise all rights,
remedies, powers, privileges and claims of the issuer against West Penn, West
Penn Funding Corporation or the servicer under or in connection with the sale
agreement and the servicing agreement, and any right of the issuer to take that
action shall be suspended.
MODIFICATIONS TO THE TRANSFER AGREEMENT, THE SALE AGREEMENT AND THE SERVICING
AGREEMENT
With the consent of the bond trustee, the transfer agreement, the sale
agreement and the servicing agreement may be amended at any time and from time
to time, without the consent of the transition bondholders, provided that the
amendment shall not, as evidenced by an officer's certificate, adversely affect
the interest of any transition
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bondholder or change the adjustment process for the intangible transition
charges. The bond trustee shall not withhold its consent to that amendment so
long as the Rating Agency Condition is satisfied in connection with that
amendment by each rating agency other than Moody's--and the issuer shall have
furnished Moody's with written notice of that amendment prior to the
effectiveness of that amendment--and the foregoing officer's certificate is
provided.
No amendment, modification, waiver, supplement, termination or surrender of
the terms of the transfer agreement, the sale agreement or servicing agreement,
or waiver of timely performance or observance by West Penn, West Penn Funding
Corporation or the servicer under the transfer agreement, sale agreement or
servicing agreement, respectively, in each case in a way as would adversely
affect the interests of transition bondholders is permitted nor shall the bond
trustee consent to any of these amendments, modifications, waivers, supplements,
terminations or surrenders. If the issuer, West Penn, West Penn Funding
Corporation or the servicer shall otherwise propose to amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
waiver, supplement, termination or surrender of the terms of the transfer
agreement, the sale agreement or the servicing agreement or waive timely
performance or observance by West Penn, West Penn Funding Corporation or the
servicer under the transfer agreement, the sale agreement or servicing
agreement, respectively, the issuer shall notify the bond trustee and the bond
trustee shall notify the transition bondholders. The bond trustee shall consent
to any of these amendments, modifications, waivers, supplements, terminations or
surrenders only with the consent of the holders of at least a majority of the
outstanding principal amount of the transition bonds of each series or class.
The issuer shall furnish to each of the rating agencies:
(1) prior to the execution of any such amendment or consent, written
notification of the substance of that amendment or consent and
(2) promptly after the execution of any such amendment or consent, a
copy of that amendment or consent.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An event of default is defined in the indenture as being:
(1) a default for five days or more in the payment of any interest on
any transition bond;
(2) a default in the payment of the then unpaid principal of any
transition bond of any series on the series termination date for that
series or, if applicable, any class on the class termination date for that
class;
(3) a default in the payment of the redemption price for any
transition bond on the redemption date for that transition bond;
(4) a default in the observance or performance of any covenant or
agreement of the issuer made in the indenture, other than those
specifically dealt with in (1),
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(2) or (3) above, or any representation or warranty of the issuer made in
the indenture or in any certificate or other writing delivered under or in
connection with the indenture proves to have been incorrect in any material
respect as of the time when made, and the continuation of any of these
defaults for a period of thirty days after notice of that default is given
to the issuer by the bond trustee or to the issuer and the bond trustee by
the holders of at least 25% in outstanding principal amount of the
transition bonds of any series; and
(5) events of bankruptcy, insolvency, receivership or liquidation of
the issuer.
If an event of default occurs and is continuing, the bond trustee or
holders of a majority in principal amount of the transition bonds of all series
then outstanding may declare the principal of all series of the transition bonds
to be immediately due and payable. That declaration may, under specified
circumstances, be rescinded by the holders of a majority in principal amount of
all series of the transition bonds then outstanding.
If the transition bonds of all series have been declared to be due and
payable following an event of default, the bond trustee may, in its discretion,
either sell the collateral or elect to have the issuer maintain possession of
the collateral and continue to apply distributions on the collateral as if there
had been no declaration of acceleration. The bond trustee is prohibited from
selling the collateral following an event of default other than a default in the
payment of any principal, a default for five days or more in the payment of any
interest on any transition bond of any series or a default on the payment of the
price set for redemption in the related supplemental indenture for any
transition bond on the date for redemption for that transition bond set in the
related supplemental indenture unless:
(1) the holders of 100% of the principal amount of all series of
transition bonds consent to that sale;
(2) the proceeds of that sale or liquidation are sufficient to pay in
full the principal of and premium, if any, and accrued interest on the
outstanding transition bonds; or
(3) the bond trustee determines that funds provided by the collateral
would not be sufficient on an ongoing basis to make all payments on the
transition bonds of all series as those payments would have become due if
the transition bonds had not been declared due and payable, and the bond
trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding amount of the transition bonds of each series.
Subject to the provisions of the indenture relating to the duties of the
bond trustee, in case an event of default occurs and is continuing, the bond
trustee will be under no obligation to exercise any of the rights or powers
under the indenture at the request or direction of any of the holders of
transition bonds of any series if the bond trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with that request. Subject to those
provisions for indemnification and limitations contained in the indenture, the
holders of a
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majority in principal amount of the outstanding transition bonds of all series
will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the bond trustee; provided that:
(1) that direction shall not conflict with any rule of law or with
the indenture;
(2) subject to provisions in the indenture, any direction to the bond
trustee to sell or liquidate the collateral shall be by the holders of 100%
of the principal amount of all series of transition bonds then outstanding;
and
(3) the bond trustee may take any other action deemed proper by the
bond trustee that is not inconsistent with that direction.
The holders of a majority in principal amount of the transition bonds of
all series then outstanding may, in some cases, waive any default with respect
to the transition bonds, except a default in the payment of principal of or
premium, if any, or interest on any of the transition bonds or a default in
respect of a covenant or provision of the indenture that cannot be modified
without the waiver or consent of all of the holders of the outstanding
transition bonds of all series and classes affected.
No transition bondholder of any series will have the right to institute any
proceeding, judicial or otherwise, or to avail itself of the remedies provided
in Section 2812(d)(3)(v) of the Pennsylvania Competition Act, with respect to
the indenture, unless:
(1) that holder previously has given to the bond trustee written
notice of a continuing event of default;
(2) the holders of not less than 25% in principal amount of the
outstanding transition bonds of each series have made written request of
the bond trustee to institute such proceeding in its own name as bond
trustee;
(3) that holder or holders have offered the bond trustee security or
indemnity reasonably satisfactory to the bond trustee against the costs,
expenses, and liabilities to be incurred in complying with that request;
(4) the bond trustee for 60 days after its receipt of such notice,
request and offer has failed to institute that proceeding; and
(5) no direction inconsistent with that written request has been
given to the bond trustee during that 60-day period by the holders of a
majority in principal amount of the outstanding transition bonds of all
series.
COVENANTS
The issuer will keep in effect its existence, rights and franchises as a
limited liability company under Delaware law, provided that the issuer may
consolidate with or merge into another entity or sell substantially all of its
assets to another entity and dissolve if:
(1) the entity formed by or surviving that consolidation or merger or
to whom substantially all of those assets are sold is organized under the
laws of the United States or any state of the United States and shall
expressly assume by a
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supplemental indenture the due and punctual payment of the principal of and
premium, if any, and interest on all transition bonds and the performance
of the issuer's obligations under the indenture;
(2) that entity expressly assumes all obligations and succeeds to all
rights of the issuer under the transfer agreement, the sale agreement and
the servicing agreement under an assignment and assumption agreement
executed and delivered to the bond trustee;
(3) no default or event of default will have occurred and be
continuing immediately after giving effect to that merger, consolidation or
sale;
(4) the Rating Agency Condition will have been satisfied with respect
to that consolidation or merger or sale by each rating agency, except
Moody's--and the issuer shall have furnished Moody's with prior written
notice of that consolidation, merger or sale;
(5) the issuer has received an opinion of counsel to the effect that
the consolidation or merger or sale of assets would have no material
adverse tax consequence to the issuer or any transition bondholder, that
consolidation or merger or sale complies with the indenture and all
conditions precedent in the indenture relating to that consolidation or
merger or sale and will result in the bond trustee maintaining a continuing
valid first priority security interest in the collateral;
(6) none of the intangible transition property, the Qualified Rate
Order or West Penn's, West Penn Funding Corporation's, the servicer's or
the issuer's rights under the Pennsylvania Competition Act or the Qualified
Rate Order are impaired by that consolidation or merger or sale; and
(7) any action that is necessary to maintain the lien and security
interest created by the indenture will have been taken.
The issuer will from time to time execute and deliver those documents, make
all filings and take any other action necessary or advisable to maintain and
preserve the lien and security interest--and priority of that lien and security
interest--of the indenture and will not permit the validity of the indenture to
be impaired, the lien to be amended, hypothecated, subordinated or terminated or
discharged, or any person to be released from any covenants or obligations
except as expressly permitted by the indenture, nor will it permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance, other
than the lien and security interest created by the indenture, to be created on
or extend to or otherwise arise upon or burden the collateral or any part of the
collateral or any interest in the collateral or the proceeds of the collateral,
or permit the lien of the indenture not to constitute a continuing valid first
priority security interest in the collateral.
The issuer may not:
(1) except as expressly permitted by the indenture, the sale
agreement or the servicing agreement sell, transfer, exchange or otherwise
dispose of any of the collateral unless directed to do so by the bond
trustee in accordance with the indenture; or
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(2) claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, the transition bonds,
other than amounts properly withheld under the Internal Revenue Code, or
assert any claim against any present or former transition bondholder
because of the payment of taxes levied or assessed upon the issuer.
The issuer may not engage in any business other than purchasing and
owning the transferred intangible transition property, issuing transition
bonds from time to time, pledging its interest in the collateral to the
bond trustee under the indenture in order to secure the transition bonds,
and performing activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental to the foregoing.
The issuer may not issue, incur, assume or guarantee any indebtedness
except for the transition bonds or guarantee or otherwise become
contingently liable in connection with the obligations, stocks or dividends
of, or own, purchase, repurchase or acquire -- or agree contingently to do
so -- any stock, obligations, assets or securities of, or any other
interest in, or make any capital contribution to, any other person, except
that the issuer may invest funds in Eligible Investments. The issuer may
not, except as contemplated by the indenture, the sale agreement, the
servicing agreement and related documents, including the limited liability
company agreement, make any loan or advance or credit to any person. The
issuer will not make any expenditure -- by long-term or operating lease or
otherwise -- for capital assets -- either realty or personalty -- other
than intangible transition property purchased from West Penn Funding
Corporation under, and in accordance with, the sale agreement. The issuer
may not make any payments, distributions or dividends to any holder of
beneficial interests in the issuer in respect of that beneficial interest,
except in accordance with the indenture.
The issuer will cause the servicer to deliver to the bond trustee the
annual accountant's report, compliance certificates and monthly reports
regarding distributions and other statements required by the servicing
agreement. See "The Servicing Agreement" in this prospectus.
LIST OF TRANSITION BONDHOLDERS
Any transition bondholder or group of transition bondholders -- each of
whom has owned a transition bond for at least six months -- may, by written
request to the bond trustee, obtain access to the list of all transition
bondholders maintained by the bond trustee for the purpose of communicating with
other transition bondholders with respect to their rights under the indenture or
the transition bonds. The bond trustee may elect not to afford the requesting
transition bondholders access to the list of transition bondholders if it agrees
to mail the desired communication or proxy, on behalf and at the expense of the
requesting transition bondholders, to all transition bondholders.
ANNUAL COMPLIANCE STATEMENT
The issuer will be required to file annually with the bond trustee a
written statement as to the fulfillment of its obligations under the indenture.
In addition, the issuer shall
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furnish to the bond trustee an opinion of counsel concerning filings made by the
issuer on an annual basis and before the effectiveness of any amendment to the
transfer agreement, the sale agreement or the servicing agreement.
BOND TRUSTEE'S ANNUAL REPORT
If required by the Trust Indenture Act of 1939, as amended, the bond
trustee will be required to mail each year to all transition bondholders a brief
report relating to its eligibility and qualification to continue as the bond
trustee under the indenture, any amounts advanced by it under the indenture, the
amount, interest rate and maturity date of indebtedness owing by the issuer to
it in the bond trustee's individual capacity, the property and funds physically
held by the bond trustee as such, any additional issue of a series of transition
bonds not previously reported and any action taken by it that materially affects
the transition bonds of any series and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The indenture will be discharged with respect to the transition bonds of
any series upon the delivery to the bond trustee for cancelation of all the
transition bonds of that series or upon the expected final payment date or the
date of redemption for that series, provided that the issuer has deposited funds
sufficient for the payment in full of all of the transition bonds of that series
with the bond trustee and the issuer has delivered to the bond trustee the
officer's certificate and opinion of counsel specified in the indenture. Those
deposited funds will be segregated and held apart solely for paying those
transition bonds, and those transition bonds shall not be entitled to any
amounts on deposit in the collection account other than amounts on deposit in
the defeasance subaccount for those transition bonds.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The issuer may, at any time, terminate:
(1) all of its obligations under the indenture with respect to the
transition bonds of any series ("Legal Defeasance Option") or
(2) its obligations to comply with specified covenants, including
some of the covenants described under "The Indenture -- Covenants" (the
"Covenant Defeasance Option").
The issuer may exercise the Legal Defeasance Option with respect to any
series of transition bonds notwithstanding its prior exercise of the Covenant
Defeasance Option with respect to that series.
If the issuer exercises the Legal Defeasance Option with respect to any
series, that series of transition bonds shall be entitled to payment only from
the funds or other obligations set aside under the indenture for payment of that
amount on the expected final payment date or redemption date for that series as
described below. That series of
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transition bonds shall not be subject to payment through redemption or
acceleration prior to that expected final payment date or redemption date, as
applicable. If the issuer exercises the Covenant Defeasance Option with respect
to any series, the transition bonds of that series may not be accelerated
because of an event of default relating to a default in the observance or
performance of any covenant or agreement of the issuer made in the indenture.
The issuer may exercise the Legal Defeasance Option or the Covenant
Defeasance Option with respect to any series of transition bonds only if:
(1) the issuer irrevocably deposits or causes to be deposited in
trust with the bond trustee cash or U.S. Government Obligations for the
payment of principal of and premium, if any, and interest on those
transition bonds to the expected final payment date or redemption date for
those transition bonds, as applicable, that deposit to be made in the
defeasance subaccount for that series of transition bonds;
(2) the issuer delivers to the bond trustee a certificate from a
nationally recognized firm of independent accountants expressing its
opinion that the payments of principal and interest when due and without
reinvestment will provide cash at the times and in the amounts as will be
sufficient to pay in respect of the transition bonds of that series:
(x) principal in accordance with the expected amortization
schedule for that series, or if that series is to be redeemed, the
redemption price of that redemption on the redemption date for that
series, and
(y) interest when due;
(3) in the case of the Legal Defeasance Option, 95 days pass after
the deposit is made and during the 95-day period no default relating to
events of bankruptcy, insolvency, receivership or liquidation of the issuer
occurs and is continuing at the end of the period;
(4) no default has occurred and is continuing on the day of that
deposit and after giving effect to that deposit;
(5) in the case of the Legal Defeasance Option, the issuer delivers
to the bond trustee an opinion of counsel stating that:
(x) the issuer has received from, or there has been published
by, the Internal Revenue Service a ruling; or
(y) since the date of execution of the indenture, there has
been a change in the applicable federal income tax law;
in either case to the effect that, and based on that ruling that opinion
shall confirm that, the holders of the transition bonds of that series will
not recognize income, gain or loss for federal income tax purposes as a
result of the exercise of that Legal Defeasance Option and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if that Legal Defeasance had not
occurred;
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(6) in the case of the Covenant Defeasance Option, the issuer
delivers to the bond trustee an opinion of counsel to the effect that the
holders of the transition bonds of that series will not recognize income,
gain or loss for federal income tax purposes as a result of the exercise of
that Covenant Defeasance Option and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if that Covenant Defeasance had not occurred; and
(7) the issuer delivers to the bond trustee a certificate of an
authorized officer of the issuer and an opinion of counsel, each stating
that all conditions precedent to the satisfaction and discharge of the
transition bonds of that series have been complied with as required by the
indenture.
There will be no other conditions to the exercise by the issuer of its
Legal Defeasance Option or its Covenant Defeasance Option.
U.S. Government Obligations means direct obligations, or certificates
representing an ownership interest in those obligations, of the United States of
America, including any agency or instrumentality of the United States of
America, for the payment of which the full faith and credit of the United States
of America is pledged and which are not callable at the issuer's option.
THE BOND TRUSTEE
Bankers Trust Company will be the bond trustee under the indenture. The
bond trustee may resign at any time by so notifying the issuer. The holders of a
majority in principal amount of the transition bonds of all series then
outstanding may remove the bond trustee by so notifying the bond trustee and may
appoint a successor bond trustee. The issuer will remove the bond trustee if the
bond trustee ceases to be eligible to continue as so under the indenture, the
bond trustee becomes insolvent, a receiver or other public officer takes charge
of the bond trustee or its property or the bond trustee becomes incapable of
acting. If the bond trustee resigns or is removed or a vacancy exists in the
office of bond trustee for any reason, the issuer will be obligated to appoint a
successor bond trustee eligible under the indenture. Any resignation or removal
of the bond trustee and appointment of a successor bond trustee will not become
effective until acceptance of the appointment by a successor bond trustee. The
issuer is required under the indenture to provide the rating agencies with
written notice of any successor bond trustee.
The bond trustee shall at all times satisfy the requirements of the Trust
Indenture Act and have a combined capital and surplus of at least $50 million
and a long term debt rating of "Baa3" or better by Moody's and "BBB-" by Fitch
IBCA--if currently rated by Fitch IBCA. If the bond trustee consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business or assets to, another entity, the resulting, surviving or
transferee entity shall without any further action be the successor bond
trustee.
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GOVERNING LAW
The indenture will be governed by and construed under the laws of the State
of New York, provided that the laws of the Commonwealth of Pennsylvania govern
the creation, attachment, perfection and enforcement of the security interest
under the indenture in the intangible transition property under the Pennsylvania
Competition Act.
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<PAGE> 170
UNITED STATES TAXATION
GENERAL
This section summarizes the material U.S. tax consequences to holders of
transition bonds. However, the discussion is limited in the following ways:
-- The discussion only covers you if you buy your transition bonds in
the initial offering.
-- The discussion only covers you if you hold your transition bonds as
a capital asset--that is, for investment purposes--and if you do not
have a special tax status.
-- The discussion does not cover tax consequences that depend upon your
particular situation in addition to your ownership of transition
bonds. We suggest that you consult your tax advisor about the
consequences of holding transition bonds in your particular
situation.
-- The discussion is based on current law. Changes in the law may
change the tax treatment of the transition bonds.
-- The discussion generally does not cover state, local or foreign law.
-- The discussion does not apply to you if you are a non-U.S. holder of
transition bonds and if you (a) own 10% or more of the voting stock
of Allegheny Energy, (b) are a "controlled foreign corporation" with
respect to Allegheny Energy, or (c) are a bank making a loan in the
ordinary course of its business.
TAXATION OF THE ISSUER AND OF THE TRANSITION BONDS
West Penn has received a ruling from the Internal Revenue Service that:
(1) the issuance of the Qualified Rate Order by the Pennsylvania
Public Utility Commission will not result in the recognition of gross
income by West Penn or West Penn Funding Corporation,
(2) the issuance of the transition bonds will not result in the
recognition of gross income by West Penn or West Penn Funding Corporation
and
(3) the transition bonds will be classified as obligations of West
Penn Funding Corporation.
Moreover, the issuer is a wholly owned subsidiary of West Penn Funding
Corporation and has not elected to be taxed as a corporation for federal income
tax purposes. In the opinion of our tax counsel, Cravath, Swaine & Moore, based
on the foregoing, for U.S. federal income tax purposes:
(1) the issuer will be treated as a division of West Penn Funding
Corporation and will not be treated as a separate taxable entity; and
(2) the transition bonds will be treated as debt of West Penn Funding
Corporation secured by a pledge of the collateral.
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<PAGE> 171
We have relied on the ruling and the opinion in preparing this section.
IF YOU ARE CONSIDERING BUYING TRANSITION BONDS, WE SUGGEST THAT YOU CONSULT
YOUR TAX ADVISORS ABOUT THE TAX CONSEQUENCES OF HOLDING THE TRANSITION BONDS IN
YOUR PARTICULAR SITUATION.
TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a "U.S. Holder". A "U.S. Holder" is:
-- an individual U.S. citizen or resident alien;
-- a corporation, or entity taxable as a corporation, that was created
under U.S. law (federal or state); or
-- an estate or trust whose worldwide income is subject to U.S. federal
income tax.
If a partnership holds transition bonds, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. We suggest that partners of partnerships holding transition bonds
consult their tax advisors.
INTEREST
-- If you are a cash method taxpayer, including most individual
holders, you must report that interest in your income when you
receive it.
-- If you are an accrual method taxpayer, you must report that interest
in your income as it accrues.
SALE OR RETIREMENT OF TRANSITION BONDS
On a sale or retirement of a transition bond:
-- You will have taxable gain or loss equal to the difference between
the amount received by you and your tax basis in the transition
bond. Your tax basis in the transition bond is your cost, subject to
adjustments.
-- Your gain or loss will generally be capital gain or loss, and will
be long term capital gain or loss if you held the transition bond
for more than one year.
-- If you sell the transition bond between interest payment dates, a
portion of the amount you receive reflects interest that has accrued
on the transition bond but has not yet been paid by the sale date.
That amount is treated as ordinary interest income and not as sale
proceeds.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules concerning information reporting to the Internal
Revenue Service:
-- Assuming you hold your transition bonds through a broker or other
securities intermediary, the intermediary is required to provide
information to the Internal
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Revenue Service concerning interest and retirement proceeds we pay
on transition bonds you own, unless an exemption applies.
-- Similarly, unless an exemption applies, you must provide the
intermediary with your Taxpayer Identification Number for its use in
reporting information to the Internal Revenue Service. If you are an
individual, this is your social security number. You are also
required to comply with other Internal Revenue Service requirements
concerning information reporting.
-- If you are subject to these requirements but do not comply, the
intermediary is required to withhold 31% of all amounts payable to
you on the transition bonds, including principal payments. If the
intermediary withholds payments, you may use the withheld amount as
a credit against your federal income tax liability.
-- All U.S. Holders that are individuals are subject to these
requirements. Some U.S. Holders, including all corporations,
tax-exempt organizations and individual retirement accounts, are
exempt from these requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a "Non-U.S. Holder." A "Non-U.S.
Holder" is:
-- an individual that is a nonresident alien;
-- a corporation organized or created under non-U.S. law; or
-- an estate or trust that is not taxable in the U.S. on its worldwide
income.
WITHHOLDING TAXES
Generally, payments of principal and interest on the transition bonds will
not be subject to U.S. withholding taxes.
However, in order for the exemption from withholding taxes to apply to you,
you must meet one of the following requirements:
-- You provide your name, address, and a signed statement that you are
the beneficial owner of the transition bond and are not a U.S.
Holder. This statement is generally made on Form W-8 or Form W-8BEN.
-- You or your agent claim an exemption from withholding tax under an
applicable tax treaty. This claim is generally made on Form 1001 or
Form W-8BEN.
-- You or your agent claim an exemption from withholding tax on the
ground that the income is effectively connected with the conduct of
a trade or business in the U.S. This claim is generally made on Form
4224 or Form W-8ECI.
We suggest that you consult your tax advisor about the specific methods to
satisfy these requirements. These procedures will change on January 1, 2001. In
addition, a claim for exemption will not be valid if the person receiving the
claim has actual knowledge that the statements on the applicable form are false.
143
<PAGE> 173
SALE OR RETIREMENT OF TRANSITION BONDS
If you sell a transition bond or it is redeemed, you will not be subject to
federal income tax on any gain unless one of the following applies:
-- The gain is connected with a trade or business that you conduct in
the U.S.
-- You are an individual, you are present in the U.S. for at least 183
days during the year in which you dispose of the transition bond,
and other conditions are satisfied.
-- The gain represents accrued interest, in which case the rules for
interest would apply.
U.S. TRADE OR BUSINESS
If you hold a transition bond in connection with a trade or business that
you are conducting in the U.S.:
-- Any interest on the transition bond, and any gain from disposing of
the transition bond, generally will be subject to income tax as if
you were a U.S. Holder.
-- If you are a corporation, you may be subject to the "branch profits
tax" on your earnings that are connected with your U.S. trade or
business, including earnings from the transition bond. This tax is
30%, but may be reduced or eliminated by an applicable income tax
treaty.
ESTATE TAXES
If you are an individual, the transition bonds will not be subject to U.S.
estate tax when you die. However, this rule only applies if, at the time of your
death, payments on the transition bond would not have been connected to a trade
or business that you were conducting in the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding are
described above under "Tax Consequences to U.S. Holders--Information Reporting
and Backup Withholding". Under these rules:
-- Principal and interest payments received by you will be
automatically exempt from the usual rules if you provide the tax
certifications needed to avoid withholding tax on interest, as
described above under "Tax Consequences to U.S. Holders--Information
Reporting and Backup Withholding". The exemption does not apply if
the recipient of the applicable form knows that the form is false.
However, interest payments made to you will be reported to the
Internal Revenue Service on Form 1042-S.
-- Sale proceeds you receive on a sale of your transition bonds through
a broker may be subject to information reporting or backup
withholding if you are not eligible for an exemption. In particular,
information reporting and backup
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<PAGE> 174
reporting may apply if you use the U.S. office of a broker, and
information reporting--but not backup withholding--may apply if you
use the foreign office of a broker if the broker has specified
connections to the U.S. We suggest that you consult your tax advisor
concerning information reporting and backup withholding on a sale.
MATERIAL COMMONWEALTH OF PENNSYLVANIA TAX MATTERS
In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, special
Pennsylvania tax counsel to the issuer and West Penn, interest from the
transition bonds received by a person who is not otherwise subject to corporate
or personal income tax in Pennsylvania will not be subject to these taxes.
Transition bonds held by deceased Pennsylvania residents may be subject to
Pennsylvania inheritance and estate taxes.
Due to the pendency of litigation involving the constitutionality of
personal property taxes heretofore in effect, none are currently imposed in
Pennsylvania. In the event enforcement of the personal property tax is resumed,
residents of Pennsylvania, other than corporations and specified other exempt
persons holding transition bonds, would be subject to these taxes. Nonresidents
would be exempt. The taxes referred to include the County Personal Property Tax
and the additional property taxes imposed on Pittsburgh residents by the School
District of Pittsburgh and the City of Pittsburgh.
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<PAGE> 175
ERISA CONSIDERATIONS
Employee benefit plans are permitted to purchase transition bonds.
ERISA and Section 4975 of the Internal Revenue Code impose specified
requirements on employee benefit plans and some other plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and some
collective investment funds or insurance company general or separate accounts in
which those plans, accounts or arrangements are invested (collectively,
"Plans"), and on persons who are fiduciaries with respect to Plans. ERISA
imposes on Plan fiduciaries certain general fiduciary requirements. In addition,
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit a
broad range of "prohibited transactions" involving assets of a Plan ("Plan
Assets") and persons who have certain specified relationships to the Plan
("parties in interest" under ERISA and "disqualified persons" under the Internal
Revenue Code), unless a statutory or administrative exemption is available.
Additional prohibited transactions could arise if assets of the issuer were
considered to be Plan Assets with respect to any Plan that acquired transition
bonds. However, the transition bonds are debt for state law purposes and should
not be considered to have "substantial equity features". As a result, a Plan's
acquisition of transition bonds should not cause assets of the issuer to be
considered to be Plan Assets.
If you are considering whether to purchase transition bonds with Plan
Assets, we suggest that you consult with your legal advisor and refer to the
related prospectus supplement for further guidance.
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<PAGE> 176
PLAN OF DISTRIBUTION
The transition bonds of each series may be sold to or through underwriters
named in the related prospectus supplement by a negotiated firm commitment
underwriting and public reoffering by the underwriters or any other underwriting
arrangement as may be specified in the related prospectus supplement or may be
offered or placed either directly or through agents. The issuer and the bond
trustee intend that transition bonds will be offered through 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 a particular series of transition
bonds may be made through a combination of these methods.
The distribution of transition bonds may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
The transition bonds may be offered through one or more different methods,
including offerings through underwriters. It is not anticipated that any of the
transition bonds will be listed on any securities exchange.
In connection with the sale of the transition bonds, underwriters or agents
may receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell transition bonds to particular dealers at prices less a
concession. Underwriters may allow, and these dealers may reallow, a concession
to other dealers. Underwriters, dealers and agents that participate in the
distribution of the transition bonds of a series may be deemed to be
underwriters, and any discounts or commissions received by them from the issuer
and any profit on the resale of the transition bonds by them may be deemed to be
underwriting discounts and commissions under the Securities Act. These
underwriters or agents will be identified, and any compensation received from
the issuer will be described, in the related prospectus supplement.
Under agreements which may be entered into by West Penn, West Penn Funding
Corporation, the issuer and the bond trustee, underwriters and agents who
participate in the distribution of the transition bonds may be entitled to
indemnification by West Penn, West Penn Funding Corporation and the issuer
against liabilities specified in those agreements, including under the
Securities Act.
The underwriters may, from time to time, buy and sell transition bonds, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
147
<PAGE> 177
RATINGS
It is a condition of any underwriter's obligation to purchase the
transition bonds that each class receive the rating indicated in the related
prospectus supplement, which will be in one of the four highest categories, from
at least one rating agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. No person is obligated to maintain the rating on any transition bonds,
and, accordingly, there can be no assurance that the ratings assigned to any
class of transition bonds upon initial issuance will not be lowered or withdrawn
by a rating agency at any time thereafter. If a rating of any class of
transition bonds is revised or withdrawn, the liquidity of that class of
transition bonds may be adversely affected. In general, ratings address credit
risk and do not represent any assessment of any particular rate of principal
payments on the transition bonds other than the payment in full of each series
or class of transaction bonds by the applicable series termination date or class
termination date.
148
<PAGE> 178
LEGAL MATTERS
Some legal matters relating to the issuance of the transition bonds will be
passed upon for the issuer by Cravath, Swaine & Moore, New York, New York and
for the underwriters by Latham & Watkins, New York, New York. Some legal matters
relating to the issuer and issuance of the transition bonds under the laws of
the State of Delaware will be passed upon for the issuer by Richards, Layton &
Finger, P.A., Wilmington, Delaware. Some legal matters relating to the federal
tax consequences of the issuance of the transition bonds will be passed upon for
the issuer by Cravath, Swaine & Moore. Some legal matters relating to the issuer
and the issuance of the transition bonds under the State of Pennsylvania,
including the state tax consequences of the issuance of the transition bonds,
will be passed upon for the issuer by Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania.
EXPERTS
The balance sheet of the issuer as of October 21, 1999, included in this
prospectus has been audited by PricewaterhouseCoopers LLP, independent public
accountants, as stated in their report included in this prospectus.
149
<PAGE> 179
GLOSSARY OF DEFINED TERMS
Set forth below is a glossary of defined terms used in this prospectus.
"ADJUSTMENT REQUEST" means each request filed by the servicer with the
Pennsylvania Public Utility Commission for adjustments to the intangible
transition charges assessed to each rate schedule within any customer category
based on actual collections of intangible transition charges and updated
assumptions by the servicer as to the projected future usage of electricity by
customers on which intangible transition charges are assessed, expected
delinquencies and write-offs and future payments and expenses relating to the
intangible transition property and the transition bonds.
"ADMINISTRATIVE AGENT" means Allegheny Energy Service Corporation, as
administrative agent under the administration agreements with the issuer and
with West Penn Funding Corporation, and its permitted successors and assigns
under that agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code, as the same may
be amended, modified or supplemented from time to time.
"BASIC DOCUMENTS" means, collectively, the transfer agreement, the sale
agreement, the servicing agreement, the administration agreement between the
issuer and the administrative agent, any bills of sale for intangible transition
property, the indenture, the limited liability company agreement, the
certificate of formation filed with the State of Delaware to form the issuer and
the certificate of incorporation of West Penn Funding Corporation.
"CALCULATED OVERCOLLATERALIZATION LEVEL" means the amount anticipated to be
on deposit in the overcollateralization subaccount for all series of transition
bonds as of each payment date, as specified in each prospectus supplement.
"CALCULATION DATE" means, with respect to any series of transition bonds,
each date on which the servicer is required to file an Adjustment Request, as
specified in the related prospectus supplement.
"CAPITAL SUBACCOUNT" means a subaccount of the collection account in which
the amount of capital required to be held by the issuer for a series of
transition bonds will be deposited by West Penn Funding Corporation on the date
of issuance of that series.
"CEDEL" means Cedel Bank, societe anonyme.
"COLLECTION ACCOUNT" means the single collection account for all series of
transition bonds established by the issuer and held by the bond trustee under
the indenture.
"DTC" means The Depository Trust Company.
"EUROCLEAR" means the Euroclear System.
"EXPECTED AMORTIZATION SCHEDULE" means, with respect to any series or class
of transition bonds, the expected amortization schedule for the principal
balance of that series or class, as set forth in the related prospectus
supplement.
"GENERAL SUBACCOUNT" means a subaccount of the collection account into
which funds received from collections of intangible transition charges will
initially be allocated.
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<PAGE> 180
"INDEMNITY AMOUNTS" means any amounts paid by West Penn, West Penn Funding
Corporation or the servicer to the bond trustee, for itself or on behalf of the
transition bondholders, in respect of the indemnification obligations pursuant
to the transfer agreement, the sale agreement and the servicing agreement.
"LIMITED LIABILITY COMPANY AGREEMENT" means the Amended and Restated
Limited Liability Company Agreement of the issuer, as amended and supplemented
from time to time.
"OVERCOLLATERALIZATION SUBACCOUNT" means a subaccount of the collection
account into which the overcollateralization amount will be deposited over the
expected life of a series of transition bonds.
"QUALIFIED RATE ORDER" means the qualified rate order issued by the
Pennsylvania Public Utility Commission to West Penn on November 19, 1998, as
supplemented by a supplemental qualified rate order issued by the Pennsylvania
Public Utility Commission to West Penn on August 12, 1999.
"QUALIFIED TRANSITION EXPENSES", as set forth in the Qualified Rate Order,
means, collectively, the aggregate principal amount of the transition bonds and
an amount sufficient to provide for any credit enhancement to fund any reserves,
and to pay interest, premiums, if any, costs of defeasance, servicing fees and
other fees, costs and charges relating to transition bonds.
"RATING AGENCY" means any rating agency rating the transition bonds of any
class or series at the time of issuance of that class or series at the request
of the issuer.
"RATING AGENCY CONDITION" means, with respect to any action, the
notification in writing by each rating agency to West Penn, West Penn Funding
Corporation, the servicer, the bond trustee and the issuer that any such action
will not result in a reduction or withdrawal of the then current rating by that
rating agency of any outstanding series or class of transition bonds.
"REQUIRED CAPITAL AMOUNT" means the amount of capital required to be
deposited by the issuer into the capital subaccount upon the issuance of a
series of transition bonds, which represents a capital contribution from West
Penn Funding Corporation.
"RESERVE SUBACCOUNT" means a subaccount of the collection account into
which will be deposited the excess, if any, of collections of intangible
transition charges over amounts then scheduled to be paid or due on a series of
transition bonds, plus related expenses, plus amounts needed to make required
deposits to the overcollateralization subaccount and the capital subaccount,
plus net investment earnings on amounts in the capital subaccount released to
the issuer.
"SALE AGREEMENT" means the Intangible Transition Property Sale Agreement
between the issuer and West Penn Funding Corporation, as amended and
supplemented from time to time.
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"SERVICER DEFAULT" means a default of the servicer under the servicing
agreement, including the defaults described under the "The Servicing
Agreement--Servicer Defaults."
"SERVICING AGREEMENT" means the Servicing Agreement between West Penn, as
servicer, and the issuer, as amended and supplemented from time to time.
"TRANSFER AGREEMENT" means the Intangible Transition Property Transfer
Agreement between West Penn and West Penn Funding Corporation, as amended and
supplemented from time to time.
"TRANSFERRED INTANGIBLE TRANSITION PROPERTY" means intangible transition
property which is transferred from West Penn to West Penn Funding Corporation
under the Transfer Agreement and the related bill of sale and then sold by West
Penn Funding Corporation to the issuer under the sale agreement and the related
bill of sale.
"WEST PENN" means West Penn Power Company, a Pennsylvania corporation.
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WEST PENN FUNDING LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statement:
Balance Sheet............................................... F-3
Notes to Financial Statement................................ F-4
</TABLE>
F-1
<PAGE> 183
REPORT OF INDEPENDENT ACCOUNTANTS
To West Penn Funding Corporation, the Sole Member of
West Penn Funding LLC:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of West Penn Funding LLC (the Company)
at October 21, 1999, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, 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.
[PricewaterhouseCoopers LLP (signed)]
October 21, 1999
F-2
<PAGE> 184
WEST PENN FUNDING LLC
BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 21,
1999
-------------
<S> <C>
ASSETS:
Cash and temporary cash investments....................... 3,000
------
Total Assets........................................... $3,000
======
LIABILITIES AND MEMBER'S EQUITY:
Member's equity........................................... 3,000
------
Total Liabilities and Member's Equity.................. $3,000
======
</TABLE>
See accompanying notes to financial statement.
F-3
<PAGE> 185
WEST PENN FUNDING LLC
NOTES TO FINANCIAL STATEMENT
1. FINANCIAL STATEMENT
This financial statement represents the assets and equity of West Penn
Funding LLC as of and at October 21, 1999, the date of initial capital
contribution from West Penn Funding Corporation.
2. NATURE OF OPERATIONS
West Penn Funding LLC (the Company), a limited liability company
established under the laws of the State of Delaware, was formed on May 26, 1999
pursuant to a limited liability company agreement. West Penn Funding Corporation
is the sole member of the Company. West Penn Funding Corporation is a wholly
owned subsidiary of West Penn Power Company (West Penn), an operating electric
utility. West Penn is a wholly-owned subsidiary of Allegheny Energy, Inc., a
public utility holding company.
The Company was organized for the sole purpose of purchasing and owning
Intangible Transition Property (ITP), issuing Transition Bonds (Bonds), pledging
its interest in ITP and other collateral to the bond trustee, and performing
activities that are necessary, suitable or convenient to accomplish these
purposes. ITP represents the irrevocable right of West Penn, or its successor or
assignee, to collect a non-bypassable Intangible Transition Charge (ITC) from
customers pursuant to a Qualified Rate Order (PUC Order) issued November 19,
1998 and supplemented by order dated August 12, 1999 by the Pennsylvania Public
Utility Commission (PUC) in accordance with the Pennsylvania Electricity
Generation Customer Choice and Competition Act (applicable law) enacted in
Pennsylvania in December 1996. The PUC Order authorizes the ITC to be sufficient
to recover the principal amount of Bonds issued by the Company, plus an amount
sufficient to provide for any credit enhancement, to fund any reserves and to
pay interest, redemption premiums, if any, servicing fees and other expenses
relating to the Bonds. The Company's organizational documents require it to
operate in a manner so that is should not be consolidated in the bankruptcy
estate of West Penn or West Penn Funding Corporation in the event West Penn or
West Penn Funding Corporation becomes subject to a bankruptcy proceeding.
West Penn will transfer the ITP to West Penn Funding Corporation which will
sell the ITP to West Penn Funding LLC. West Penn, West Penn Funding Corporation,
and the Company will treat the transfer of ITP to the Company as a sale under
applicable law.
The Company intends to issue Bonds in series (the Series) from time to
time, the maturities and interest rates of which will depend upon market
conditions at the time of issuance. The proceeds will be used to fund the
purchase of ITP. The ITP and other assets of the Company will collateralize the
Bonds. Under applicable law, the Bonds will be recourse to the Company and will
be collateralized on a pro rata basis by the ITP
F-4
<PAGE> 186
WEST PENN FUNDING LLC
NOTES TO FINANCIAL STATEMENT--(CONTINUED)
and the equity and assets of the Company. The source of repayment will be the
ITC authorized pursuant to a PUC Order, which charges will be collected from
West Penn customers by West Penn, as servicer.
ITC collections will be deposited by West Penn with the Company and used to
pay the expenses of the Company, to pay debt service on the Bonds and to fund
credit enhancement for the Bonds. The Company will also pledge the capital
contributed by West Penn Funding Corporation to collateralize the debt service
requirements of the Bonds. The debt service requirements will include an
Overcollateralization Account, a Capital Account and a Reserve Account which
will be available to Bondholders. Any amounts collateralizing the Bonds will be
returned to the Company upon payment in full of the Bonds.
The Company anticipates issuing Bonds in the fourth quarter of 1999.
The Bonds will be treated as debt obligations of the Company. The results
of operations of the Company will be consolidated with West Penn for financial
and federal income tax reporting purposes. The Bonds are non-recourse to West
Penn Funding Corporation, West Penn, and Allegheny Energy, Inc.
Under the Servicing Agreement to be entered into by the Company and West
Penn concurrently with the issuance of the first Series of Bonds, West Penn, as
servicer, will be required to manage and administer the ITP of the Company and
to collect the ITC on behalf of the Company. The Company will pay an annual
servicing fee to West Penn. West Penn will also invoice the Company for certain
other administrative expenses incurred.
Some of the debt issuance costs will be paid by West Penn and reimbursed by
the Company upon issuance of the Bonds.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions will affect the reported amount of
revenues, expenses, assets, and liabilities and disclosure of contingencies.
Actual results could differ from these estimates.
CASH AND TEMPORARY CASH INVESTMENTS
The Company considers all liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
F-5
<PAGE> 187
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- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1999.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS OF THESE SECURITIES AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THESE SECURITIES WILL DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS UNTIL 90 DAYS AFTER THE DATE OF THIS
PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 188
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................ $ 166,800
Printing and Engraving Expenses............................. 200,000
Trustees' Fees and Expenses................................. 20,000
Legal Fees and Expenses..................................... 1,000,000
Blue Sky Fees and Expenses.................................. 9,000
Accountants' Fees and Expenses.............................. 75,000
Rating Agency Fees.......................................... 500,000
Miscellaneous Fees and Expenses............................. 75,000
----------
Total.................................................. $2,045,800
==========
</TABLE>
- ------------
ITEM 15. INDEMNIFICATION OF MEMBERS AND MANAGERS
Section 18-108 of the Delaware Limited Liability Company Act provides that,
subject to specified standards and restrictions, if any, as are set forth in the
limited liability company agreement, a limited liability company shall have the
power to indemnify and hold harmless any member or manager or other person from
and against any and all claims and demands whatsoever.
The Amended and Restated Limited Liability Company Agreement (the "LLC
Agreement") of West Penn Funding LLC (the "Issuer") provides that, to the
fullest extent permitted by law, the Issuer shall indemnify its members and
managers against any liability incurred in connection with any proceeding in
which any member or manager may be involved as a party or otherwise by reason of
the fact that the member or manager is or was serving in its capacity as a
member or manager, unless this liability is based on or arises in connection
with the member's or manager's own willful misconduct or gross negligence.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1.1 Limited Liability Company Agreement of West Penn Funding
LLC.*
4.1.2 Form of Assignment of Limited Liability Company Interest and
Amendment to Limited Liability Company Agreement.*
4.1.3 Form of Amended and Restated Limited Liability Company
Agreement of West Penn Funding LLC.*
4.2 Certificate of Formation for West Penn Funding LLC.*
4.3 Form of Indenture.*
</TABLE>
II-1
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.4 Form of Transition Bonds.*
5.1 Opinion of Richards, Layton & Finger, P.A. relating to
legality of the Transition Bonds.
5.2 Opinion of Cravath, Swaine & Moore, relating to legality of
the Transition Bonds.
8.1.1 Opinion of Cravath, Swaine & Moore with respect to material
federal tax matters.
8.1.2 Opinion of Ballard Spahr Andrews & Ingersoll, LLP with
respect to material state tax matters.*
10.1 Form of Transfer Agreement.*
10.2 Form of Sale Agreement.*
10.3 Form of Servicing Agreement.*
10.4 Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Appeals and
Application for a Qualified Rate Order and Application for
Transfer of Generation Assets dated November 3, 1998.*
23.1 Consent of Cravath, Swaine & Moore (included in its opinions
filed as Exhibits 5.2 and 8.1.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in its
opinion filed as Exhibit 5.1).
23.3 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in its opinion filed as Exhibit 8.1.2).*
23.4 Consent of PricewaterhouseCoopers LLP.
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bankers Trust Company, as Bond Trustee
under the Indenture.
27.1 Financial Data Schedule.
99.1 Qualified Rate Order issued November 19, 1998.*
99.2 Supplemental Qualified Rate Order issued August 12, 1999.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.*
</TABLE>
- ------------
* Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant on behalf of West Penn Funding LLC (the
"Issuer") 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, as
amended; (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) of the Securities Act of 1933,
as amended, 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
II-2
<PAGE> 190
Registration Fee" table in the effective Registration Statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change in
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, as amended, that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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 being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(and, where applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended),
with respect to the Issuer 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, as amended, may be permitted to members, managers,
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, as amended, and is, theretofore, 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 member, manager, director, officer
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such member, manager, 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, as amended, and will be governed by the
final adjudication of such issue.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the
II-3
<PAGE> 191
Securities Act of 1933, as amended, shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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.
(f) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-4
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that the security rating
requirement of Form S-3 will be met by the time of sale, and has duly caused
this Amendment No. 3 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Greensburg,
Commonwealth of Pennsylvania, on October 21, 1999.
WEST PENN FUNDING LLC,
by /s/ MICHAEL P. MORRELL
------------------------------------
Name: Michael P. Morrell
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed on behalf of
West Penn Funding LLC on October 21, 1999 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MICHAEL P. MORRELL President (Principal Executive
- ----------------------------------------------------- Officer)
Michael P. Morrell
/s/ KEITH L. WARCHOL Treasurer (Principal Financial Officer
- ----------------------------------------------------- and Principal Accounting Officer)
Keith L. Warchol
/s/ BRUCE M. SEDLOCK Director
- -----------------------------------------------------
Bruce M. Sedlock
/s/ TERENCE A. BURKE Director
- -----------------------------------------------------
Terence A. Burke
/s/ THOMAS C. SHEPPARD, JR. Director
- -----------------------------------------------------
Thomas C. Sheppard, Jr.
</TABLE>
II-5
<PAGE> 193
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1.1 Limited Liability Company Agreement of West Penn Funding
LLC.*
4.1.2 Form of Assignment of Limited Liability Company Interest and
Amendment to Limited Liability Company Agreement.*
4.1.3 Form of Amended and Restated Limited Liability Agreement of
West Penn Funding LLC.*
4.2 Certificate of Formation for West Penn Funding LLC.*
4.3 Form of Indenture.*
4.4 Form of Transition Bonds.*
5.1 Opinion of Richards, Layton & Finger, P.A. relating to
legality of the Transition Bonds.
5.2 Opinion of Cravath, Swaine & Moore, relating to legality of
the Transition Bonds.
8.1.1 Opinion of Cravath, Swaine & Moore with respect to material
federal tax matters.
8.1.2 Opinion of Ballard Spahr Andrews & Ingersoll, LLP with
respect to material state tax matters.*
10.1 Form of Transfer Agreement.*
10.2 Form of Sale Agreement.*
10.3 Form of Servicing Agreement.*
10.4 Joint Petition for Full Settlement of West Penn Power
Company's Restructuring Plan and Related Appeals and
Application for a Qualified Rate Order and Application for
Transfer of Generation Assets dated November 3, 1998.*
23.1 Consent of Cravath, Swaine & Moore (included in its opinion
filed as Exhibits 5.2 and 8.1.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in its
opinion filed as Exhibit 5.1).
23.3 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in its opinion filed as Exhibit 8.1.2).*
23.4 Consent of PricewaterhouseCoopers LLP.
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bankers Trust Company, as Bond Trustee
under the Indenture.
27.1 Financial Data Schedule.
99.1 Qualified Rate Order issued November 19, 1998.*
99.2 Supplemental Qualified Rate Order issued August 12, 1999.*
99.3 Internal Revenue Service Private Letter Ruling pertaining to
Transition Bonds.*
</TABLE>
- ------------
* Previously filed
<PAGE> 1
[LETTERHEAD OF RICHARDS, LAYTON & FINGER P.A.]
October 21, 1999
West Penn Funding LLC
2325B-2 Renaissance Drive
Las Vegas, Nevada 89119
Re: West Penn Funding LLC -- Legality of Transition Bonds
Ladies and Gentlemen:
We have acted as special Delaware counsel for West Penn Funding
Corporation, a Delaware corporation ("Funding"), and West Penn 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 as of May 26,
1999, as filed in the office of the Secretary of State of the State of Delaware
(the "Secretary of State") on May 26, 1999;
(b) The Limited Liability Company Agreement of the Company, dated as of
May 26, 1999, executed by Carol G. Russ, as the sole member of the Company;
<PAGE> 2
(c) The Form of Assignment of Limited Liability Company Interest and
Amendment to Limited Liability Company Agreement of the Company, to be entered
into between Carol G. Russ, as the assignor, and Funding, as the assignee,
attached as an Exhibit to the Registration Statement (as hereinafter defined);
(d) The Form of Amended and Restated Limited Liability Company Agreement of
the Company (the "LLC Agreement"), to be executed by Funding, as the sole member
of the Company (the "Member"), and the Special Members (as defined in the LLC
Agreement), attached as an Exhibit to the Registration Statement (as hereinafter
defined);
(e) The form of Management Agreement, to be executed by each member of the
Board of Directors of the Company, including the Independent Directors (as
defined in the LLC Agreement);
(f) Amendment No. 2 to the Registration Statement (the "Registration
Statement") on Form S-3, including a related prospectus (the "Prospectus"),
filed by the Company with the Securities and Exchange Commission on or about
September 10, 1999;
(g) The form of Indenture, to be executed by the Company and the Bond
Trustee to be named therein, attached as an exhibit to the Registration
Statement pursuant to which the Transition Bonds are to be issued;
(h) The form of Series Supplement, to be executed by the Company and the
Bond Trustee (the "Series Supplement");
(i) The form of Transition Bonds, Series 1999-A, attached as an Exhibit to
the Series Supplement (the "Transition Bonds"); and
(j) A Certificate of Good Standing for the Company, dated October 5, 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 (g) and (h)
above are hereinafter referred to each as a "Transaction Document" and
collectively as the "Transaction Documents."
For purposes of this opinion, we have not reviewed any documents other than
the documents listed in paragraphs (a) through (j) above. In particular, we have
not reviewed any document (other than the documents listed in paragraphs (a)
through (j) above) that is referred to in or incorporated by reference into any
document reviewed by us. We have assumed that there exists no provision in any
document that we have not reviewed that is inconsistent with the opinions stated
herein. We have conducted no independent factual investigation of our own but
rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
<PAGE> 3
herein, all of which we have assumed to be true, complete and accurate in all
material respects. We note that we have examined such documents as we have
deemed necessary for purposes of the opinion.
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.
For purposes of this opinion, we have assumed (i) except to the extent
provided in paragraph 1 below, the 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
organization or formation and the legal capacity of natural persons who are
signatories to the documents examined by us, (ii) 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 (iii) 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; provided, however, we note that we have prepared this opinion letter
that constitutes a part of the Registration Statement.
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. Sections
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 Transition Bonds, and to perform its
obligations under the Transaction Documents.
3. Under the LLC Act and the LLC Agreement, the execution and delivery
by the Company of the Transaction Documents and the Transition Bonds, and the
performance by the Company of its obligations under the Transaction Documents,
have been duly authorized by all necessary limited liability company action on
the part of the Company.
<PAGE> 4
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. In giving the foregoing
consent, 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.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
<PAGE> 1
EXHIBIT 5.2
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
(212) 474-1000
October 21, 1999
West Penn Funding LLC
-----------------------------------
Registration Statement on Form S-3
-----------------------------------
(Registration No. 333-79619)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to West Penn Funding LLC, a Delaware
limited liability company (the "Issuer"), in connection with the preparation of
the registration statement on Form S-3 (Registration No. 333-79619) and the
amendments thereto (the "Registration Statement") initially filed with the
Securities and Exchange Commission (the "Commission") on May 28, 1999, for the
registration under the Securities Act of 1933, as amended (the "Act"), of up to
$670,000,000 aggregate principal amount of the Issuer's Transition Bonds, Series
1999-A (the "Transition Bonds"), to be sold in a proposed public offering (the
"Offering"), all as set forth in the Registration Statement. The Transition
Bonds will be issued under an Indenture in the form of Exhibit 4.3 to the
Registration Statement (the "Indenture") to be executed by the Issuer and
Bankers Trust Company, as Bond Trustee (the "Bond Trustee").
In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, limited
liability company records and other instruments as we have deemed necessary for
the purposes of this opinion, including the following: (a) the Certificate of
Formation of the Issuer dated May 26, 1999 (the "Certificate of Formation"), (b)
the Amended and Restated Limited Liability Company Agreement of the Issuer, (c)
the Registration Statement and (d) the Indenture.
<PAGE> 2
2
Based upon the foregoing and in reliance thereon, and subject to (i)
compliance with applicable state securities laws and (ii) receipt from the
Securities and Exchange Commission of an order declaring the Registration
Statement effective, it is our opinion that when (A) the Bond Trustee is
qualified to act as Bond Trustee under the Indenture, (B) the Bond Trustee has
duly executed and delivered the Indenture, (C) the Indenture has been duly
authorized and validly executed and delivered by the Issuer to the Bond Trustee,
(D) the Indenture has been duly qualified under the Trust Indenture Act of 1939,
as amended, (E) the Board of Directors of the Issuer or a duly constituted and
acting committee thereof (such Board of Directors or committee being hereinafter
referred to as the "Board") has taken all necessary action to approve the
issuance and terms of such Transition Bonds, the terms of the Offering thereof
and related matters, and (F) such Transition Bonds have been duly executed,
authenticated, issued and delivered in accordance with the provisions of the
Indenture, and the applicable definitive underwriting or similar agreement
approved by the Board upon payment of the consideration therefor provided for
therein, such Transition Bonds will be validly issued and will constitute valid
and binding obligations of the Issuer, enforceable against the Issuer in
accordance with their terms (subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting creditors' rights generally from time to time in effect and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law).
<PAGE> 3
3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of said Registration
Statement. We further consent to the incorporation of this opinion by reference
as an exhibit to any Rule 462(b) Registration Statement. In giving these
consents, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act or the Rules and
Regulations of the Commission.
Very truly yours,
/s/ Cravath, Swaine & Moore
Cravath, Swaine & Moore
West Penn Funding LLC
2325B-2 Renaissance Drive
Las Vegas, NV 89119
<PAGE> 1
EXHIBIT 8.1.1
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
(212) 474-1000
October 21, 1999
West Penn Funding LLC
-----------------------------------
Registration Statement on Form S-3
-----------------------------------
(Registration No. 333-79619)
-----------------------------------
Ladies and Gentlemen:
We have acted as special U.S. Federal income tax counsel to West
Penn Funding LLC, a Delaware limited liability company (the "Issuer"), in
connection with the preparation of the registration statement on Form S-3
(Registration No. 333-79619) and the amendments thereto (the "Registration
Statement") initially filed with the Securities and Exchange Commission (the
"Commission") on May 28, 1999, for the registration under the Securities Act of
1933, as amended (the "Act"), of up to $670,000,000 aggregate principal amount
of the Issuer's Transition Bonds, Series 1999-A (the "Transition Bonds"), to be
sold in a proposed public offering, all as set forth in the Registration
Statement. The Transition Bonds will be issued under an Indenture in the form of
Exhibit 4.3 to the Registration Statement (the "Indenture") to be executed by
the Issuer and the Bond Trustee named therein.
In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, limited
liability company records and other instruments as we have deemed necessary for
the purposes of this opinion, including the following: (a) the Certificate of
Formation of the Issuer dated May 26, 1999, (b) the Amended and Restated Limited
Liability Company Agreement of the Issuer, (c) the Registration Statement,
<PAGE> 2
2
(d) the Indenture and (e) the Internal Revenue Service ruling issued to West
Penn Power Company dated July 23, 1999.
Based upon the foregoing and subject to the qualifications
hereinafter set forth, we adopt and confirm the statements in the prospectus
(the "Prospectus") forming a part of the Registration Statement under the
headings "Prospectus Summary--Tax Status" and "United States Taxation" as our
opinion with respect to the material U.S. tax consequences of the purchase,
ownership and disposition of the Transition Bonds by holders of the Transition
Bonds.
Our opinion is based upon existing statutory, regulatory and
judicial authority, any of which may be changed at any time with retroactive
effect. Any change in applicable laws or the facts and circumstances surrounding
the issuance, or any inaccuracy in the statements upon which we have relied, may
affect the continuing validity of our opinion as set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention. Finally, our opinion is limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed, any other tax consequences to prospective investors of acquiring,
holding and disposing of the Transition Bonds.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
headings "United States Taxation" and "Legal Matters" in the Prospectus. We
further consent to the incorporation of this opinion by reference as an exhibit
to any Rule 462(b) Registration Statement. In giving these consents, we do not
hereby admit that we are within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission.
Very truly yours,
/s/ Cravath, Swaine & Moore
Cravath, Swaine & Moore
West Penn Funding LLC
2325B-2 Renaissance Drive
Las Vegas, NV 89119
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Form S-3 of our
report dated October 21, 1999, relating to the financial statements of West
Penn Funding, LLC, which appears in such Registration Statement.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
October 21, 1999
<PAGE> 1
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
<TABLE>
<S> <C> <C>
WEST PENN FUNDING LLC DELAWARE 25-1843349
(Exact name of (State or other jurisdiction (I.R.S. employer
Registrant as specified of Incorporation or identification no.)
in its Charter) organization)
</TABLE>
WEST PENN FUNDING LLC
2325B-2 RENAISSANCE DRIVE
LAS VEGAS, NV 89119
(702)895-6752
(Address, including zip code, and telephone number of
Registrants principal executive offices)
SERIES 1999-A TRANSITION BONDS
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising
authority to which it is subject.
NAME ADDRESS
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust
powers. Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 3. -15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of
Bankers Trust Company dated August 7,
1990, Certificate of Amendment of the
Organization Certificate of Bankers Trust
Company dated June 21, 1995 - Incorporated
herein by reference to Exhibit 1 filed
with Form T-1 Statement, Registration No.
33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust
Company dated March 20, 1996, incorporate
by referenced to Exhibit 1 filed with Form
T-1 Statement, Registration No. 333-25843
and Certificate of Amendment of the
Organization Certificate of Bankers Trust
Company dated June 19, 1997, copy
attached.
EXHIBIT 2 - Certificate of Authority to commence
business - Incorporated herein by
reference to Exhibit 2 filed with Form T-1
Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise
corporate trust powers Incorporated herein
by reference to Exhibit 2 filed with Form
T-1 Statement, Registration No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company,
as amended on November 18, 1997. Copy
attached.
-2-
<PAGE> 3
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required
by Section 321(b) of the Act. Incorporated
herein by reference to Exhibit 4 filed
with Form T-1 Statement, Registration No.
22-18864.
EXHIBIT 7 - The latest report of condition of Bankers
Trust Company dated as of March 31, 1999.
Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 16th day
of September, 1999.
BANKERS TRUST COMPANY
/s/ Louis Bodi
-------------------------
By: Louis Bodi
Vice President
-5-
<PAGE> 5
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated June 19, 1997, providing for an increase in
authorized capital stock from $1,601,666,670 consisting of 100,166,667 shares
with a par value of $10 each designated as Common Stock and 600 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,001,666,670 consisting of 100,166,667 shares with a par value of $10 each
designated as Common Stock and 1,000 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 27TH day of June in the Year of our Lord one thousand
nine hundred and ninety-seven.
Manuel Kursky
----------------------------------
Deputy Superintendent of Banks
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of march, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into
One Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (100,166,667) shares with a par value of $10 each
designated as Common Stock and 600 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
<PAGE> 7
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
19th day of June, 1997.
James T. Byrne, Jr.
--------------------------------
James T. Byrne, Jr.
Managing Director
Lea Lahtinen
--------------------------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an
Assistant Secretary of Bankers Trust Company, the corporation described in the
foregoing certificate; that she has read the foregoing certificate and knows the
contents thereof, and that the statements herein contained are true.
Lea Lahtinen
--------------------------------
Lea Lahtinen
Sworn to before me this 19th day of June, 1997.
Sandra L. West
- ---------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE> 8
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE> 9
BY-LAWS
OF
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
<PAGE> 10
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who shall have attained age 72 shall be eligible to be elected or
re-elected a director. Such director may, however, remain a director of the
Company until the next annual meeting of the stockholders of Bankers Trust New
York Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE> 11
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
<PAGE> 12
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of Directors
may require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records
<PAGE> 13
and premises of the Company and shall delegate such authority to his
subordinates. He shall have the duty to report to the Audit Committee on all
matters concerning the internal audit program and the adequacy of the system of
internal controls of the Company which he deems advisable or which the Audit
Committee may request. Additionally, the General Auditor shall have the duty of
reporting independently of all officers of the Company to the Audit Committee at
least quarterly on any matters concerning the internal audit program and the
adequacy of the system of internal controls of the Company that should be
brought to the attention of the directors except those matters responsibility
for which has been vested in the General Credit Auditor. Should the General
Auditor deem any matter to be of special immediate importance, he shall report
thereon forthwith to the Audit Committee. The General Auditor shall report to
the Chief Financial Officer only for administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE> 14
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company,
<PAGE> 15
evidenced by a written communication signed by the Chairman of the Board, the
Chief Executive Officer or the President, and (ii) only if and to the extent
that, after making such efforts as the Chairman of the Board, the Chief
Executive Officer or the President shall deem adequate in the circumstances,
such person shall be unable to obtain indemnification from such other enterprise
or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
<PAGE> 16
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE> 17
I, Louis Bodi, Vice President of Bankers Trust Company, New York, New York,
hereby certify that the foregoing is a complete, true and correct copy of the
By-Laws of Bankers Trust Company, and that the same are in full force and effect
at this date.
/s/ Louis Bodi
----------------
Louis Bodi
Vice President
DATED: September 16,1999
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/99 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
Dollar Amounts C400
in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS / / / / / / /
1. Cash and balances due from depository institutions (from Schedule RC-A):............ / / / / / / /
a. Noninterest-bearing balances and currency and coin (1) ........................ 0081 1,695,000 1.a.
b. Interest-bearing balances (2) ................................................. 0071 1,308,000 1.b.
2. Securities: / / / / / / / |
a. Held-to-maturity securities (from Schedule RC-B, column A) .................... 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)................... 1773 6,150,000 2.b.
3. Federal funds sold and securities purchased under agreements to resell.............. 1350 29,512,000 3.
4. Loans and lease financing receivables: / / / / / /
a. Loans and leases, net of unearned income (from Schedule RC-C) ................. RCFD 2122 18,869,000 4.a.
b. LESS: Allowance for loan and lease losses...................................... RCFD 3123 571,000 4.b.
c. LESS: Allocated transfer risk reserve ......................................... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) ........................... 2125 18,298,000 4.d.
5. Trading Assets (from schedule RC-D) ............................................... 3545 34,815,000 5.
6. Premises and fixed assets (including capitalized leases) ........................... 2145 916,000 6.
7. Other real estate owned (from Schedule RC-M) ....................................... 2150 88,000 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)................................................................ 2130 883,000 8.
9. Customers' liability to this bank on acceptances outstanding ....................... 2155 307,000 9.
10. Intangible assets (from Schedule RC-M) ............................................. 2143 302,000 10.
11. Other assets (from Schedule RC-F) .................................................. 2160 4,645,000 11.
12. Total assets (sum of items 1 through 11) ........................................... 2170 98,919,000 12.
- ------------------------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/99 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands / / / / / Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES / / / / / / / / / / /
13. Deposits: / / / / / / / / / / /
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200 17,829,000 13.a.
(1) Noninterest-bearing(1) .................................................. RCON 6631 2,939,000 13.a.(1)
(2) Interest-bearing ......................................................... RCON 6636 14,890,000 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E / / / / / / / / / /
part II) RCFN 2200 20,634,000 13.b.
(1) Noninterest-bearing ..................................................... RCFN 6631 1,878,000 13.b.(1)
(2) Interest-bearing ........................................................ RCFN 6636 18,756,000 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 13,513,000 14.
15. a. Demand notes issued to the U.S. Treasury ...................................... RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D)....................................... RCFD 3548 22,010,000 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases): / / / / / / / / / / /
a. With a remaining maturity of one year or less ................................. RCFD 2332 6,400,000 16.a.
b. With a remaining maturity of more than one year through three years........... A547 2,347,000 16.b.
c. With a remaining maturity of more than three years.............................. A548 2,321,000 16.c
17. Not Applicable. / / / / / / / / / / / 17.
18. Bank's liability on acceptances executed and outstanding ........................... RCFD 2920 307,000 18.
19. Subordinated notes and debentures (2)............................................... RCFD 3200 438,000 19.
20. Other liabilities (from Schedule RC-G) ............................................. RCFD 2930 6,129,000 20.
21. Total liabilities (sum of items 13 through 20) ..................................... RCFD 2948 91,928,000 21.
22. Not Applicable / / / / / / / / / / /
/ / / / / / / / / / / 22.
EQUITY CAPITAL / / / / / / / / / / /
23. Perpetual preferred stock and related surplus ...................................... RCFD 383 1,500,000 23.
24. Common stock ....................................................................... RCFD 3230 2,127,000 24.
25. Surplus (exclude all surplus related to preferred stock) ........................... RCFD 3839 541,000 25.
26. a. Undivided profits and capital reserves ........................................ RCFD 3632 3,291,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ........ RCFD 8434 (59,000) 26.b.
c. Accumulated net gains (losses) on cash flow hedges............................. RCFD 4336 0 26.c.
27. Cumulative foreign currency translation adjustments ................................ RCFD 3284 (409,000) 27.
28. Total equity capital (sum of items 23 through 27) .................................. RCFD 3210 6,991,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28)....................... RCFD 3300 98,919,000 29
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the Number
bank by independent external auditors as of any date during 1998............... RCFD 6724 1 M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and
savings deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<ARTICLE> 5 EXHIBIT 27.1
<LEGEND>
OTHER STOCKHOLDER'S EQUITY IN THIS CASE REPRESENTS MEMBER'S EQUITY. TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY IN THIS CASE REPRESENTS TOTAL LIABILITIES
AND MEMBER'S EQUITY.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-21-1999
<CASH> 3,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,000
<TOTAL-LIABILITY-AND-EQUITY> 3,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
