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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
Commission File Number: 333-79619
WEST PENN FUNDING LLC
(Exact name of registrant as specified in its charter)
2325B-2 Renaissance Drive, Las Vegas, NV 89119
Telephone Number - (702) 895-6752
Delaware 25-1843349
(State of Incorporation) (I.R.S. Employer Identification No.)
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 3 months and (2) has been subject to such filing
requirements for the past 90 days.
West Penn Funding LLC (the Registrant) is a Delaware limited
liability company, whose sole member is West Penn Funding
corporation.
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WEST PENN FUNDING LLC
Form 10-Q for Quarter Ended June 30, 2000
Index
Page
PART I--FINANCIAL INFORMATION: No.
Statement of Income - Three and six months
ended June 30, 2000 3
Statement of Member's Equity - June 30, 2000 3
Balance Sheet - June 30, 2000
and December 31, 1999 4
Statement of Cash Flows - Six months ended
June 30, 2000 5
Notes to Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
PART II--OTHER INFORMATION 12
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WEST PENN FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements
The Company's Notes to Financial Statements in its Annual
Report on Form 10-K for the year ended December 31, 1999 should be
read with the accompanying financial statements and the notes.
With the
exception of the December 31, 1999 balance sheet in the
aforementioned annual report on Form 10-K, the accompanying
financial statements appearing on pages 3 through 5 and these
notes to financial statements are unaudited. In the opinion of
the Company, such financial statements together with these notes
contain all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the Company's financial
position as of June 30, 2000 and the results of operations for the
three and six months ended June 30, 2000 and cash flows for the
six months ended June 30, 2000.
2. Nature of Operations
West Penn Funding LLC (the Company) is a Delaware limited
liability company whose sole member is West Penn Funding
Corporation, a wholly owned subsidiary of West Penn Power Company (West Penn).
The Company was organized in May 1999, for the sole purpose
of purchasing and owning Intangible Transition Property (ITP),
issuing Transition Bonds (the Bonds), pledging its interest in ITP
and other collateral to the Trustee under an Indenture between the
Company and the Trustee to collateralize the Bonds, and performing
activities necessary to accomplish these purposes. The Company's
organizational documents require it to operate in a manner so that
its assets would not be consolidated with the bankruptcy estate of
West Penn or West Penn Funding Corporation in the event that West
Penn or West Penn Funding Corporation becomes subject to a
bankruptcy proceeding.
The 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 the Qualified
Rate 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 Order and Competition Act enacted in Pennsylvania in
December 1996.
The Qualified Rate Order authorized West Penn to securitize
up to $670 million of its stranded costs and authorized any
assignee of West Penn to sell Bonds secured by ITP.
In November 1999, the Company acquired ITP from West Penn
Funding Corporation, issued $600 million of Bonds, and used the
proceeds to pay expenses of issuance and to purchase the ITP from West Penn
Funding Corporation.
The principal amount of the Bonds, interest, fees, and
overcollateralization for the Bonds will be recovered through ITC
payable by retail customers within West Penn's service territory
who receive electricity delivery service from West Penn.
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West Penn, as Servicer, collects the ITC from its retail
customers of electricity and deposits monthly collections into the
General Subaccount held by the Trustee. Each quarter, the Trustee
(Bankers Trust Company, a New York banking corporation) uses these
funds to make principal and interest payments on the Bonds and to
pay fees specified in the Indenture. The Reserve Subaccount
maintained by the Trustee consists of funds remaining after
required allocations on the quarterly payment dates. The
Overcollateralization Subaccount held by the Trustee will be
funded from collections of ITC over the term of the Bonds and is
expected to reach 0.5% of the initial principal balance. The
Capital Subaccount held by the Trustee was initially funded by a
contribution to West Penn Funding LLC by West Penn Funding
Corporation on the date of issuance of Bonds in an amount equal to
0.5% of the initial principal amount of the Bonds. The Capital
Subaccount is the last account the Trustee will draw if amounts in
the General Subaccount, Reserve Subaccount, and
Overcollateralization Subaccount are insufficient to make payments
specified in the Indenture. If the Capital Subaccount is used, it
will be replenished to its original level from ITC remittances
through the periodic ITC reconciliation process.
The Company has no employees. Under the Servicing Agreement,
West Penn is required to manage and administer the ITP of the
Company and to collect the ITC on behalf of the Company. The Servicing
Agreement also requires West Penn to file requests for annual
adjustments to the ITC, and the Competition Act and the Qualified
Rate Order require the PUC to act upon these requests within
specified time periods. These adjustment requests are based on
actual ITC collections and updated assumptions by West Penn of
projected customer use of electricity, expected delinquencies and
write-offs, and future expenses relating to the ITP and the Bonds.
West Penn has not yet filed an adjustment request.
3. Summary of Significant Accounting Policies
Management's Estimates
The preparation of financial statements in conformity with
generally accepted accounting principals requires management to
make estimates that affect the reported amounts of assets, liabilities,
revenues, expenses, and disclosures of contingencies during the
reported period, which in the normal course of business are
subsequently adjusted to actual results.
Cash and Temporary Cash Investments
For purposes of the Balance Sheet and Statement of Cash Flows,
temporary cash investments with original maturities of three
months or less are considered to be the equivalent of cash. Cash
and Temporary Cash Investments include amounts in the Subaccounts
held by the Trustee except for amounts in the Capital Subaccount
which are reported as Restricted Funds.
Restricted Funds
In November 1999, the Company deposited an amount equal to
0.5% of the initial principal amount of the Bonds into the Capital
Subaccount held by the Trustee. This account is the last account
drawn if funds in the General Subaccount, Reserve Subaccount, and
Overcollateralization Subaccount are insufficient to make payments
specified in the Indenture. If the Capital Subaccount is used, it
will be replenished from ITC remittances to its original level
through the periodic reconciliation process. Accordingly, the
Capital Subaccount is classified as Restricted Funds.
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Revenue
The Company recognizes ITC revenue in the period billed by
West Penn as Servicer and records interest income earned on the
Capital Subaccount maintained by the Trustee.
Amortization of Intangible Transition Property
The ITP was recorded at acquired cost and is being amortized
over the life of the Bonds, based on estimated ITC revenues,
interest accruals and other expenses.
Amortization of Debt Issuance Costs and Discount on Debt
The costs associated with the issuance of the Bonds are being
amortized over the life of the Bonds utilizing the effective
interest method.
Income Taxes
The Company joins with its Parents and affiliates in filing a
consolidated federal income tax return. The consolidated tax
liability is allocated among the participants generally in
proportion to the taxable income of each participant, except that
no subsidiary pays tax in excess of its separate return tax
liability.
4. Long-Term Debt
In November 1999, the Company issued $600.0 million of Bonds.
The Company used the proceeds from the Bonds to purchase ITP from
West Penn Funding Corporation. The ITP and other assets of the Company
collateralize the Bonds.
Scheduled maturities and interest rates for the Bonds at June 30,
2000 are:
Principal Expected Final Final
Class Bond Rate Balance Payment Date Maturity
Date
($ Thousands)
A-1 6.320% $54,345 June 25, 2001 June 25, 2003
A-2 6.630% 172,000 December 26, 2003 December 26,2005
A-3 6.810% 198,000 September 25,2006 September 25,2008
A-4 6.980% 156,000 June 25, 2008 December 26,2008
Total $580,345
Current Maturities (60,083)
Unamortized Discount (59)
Long-term Debt $520,203
The current maturities stated above are based on the expected
final payment dates rather than the final maturity dates.
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5. Significant Agreements and Related Party Transactions
Under the Servicing Agreement, West Penn as Servicer is
required to manage and administer the ITP of the Company and to
collect the ITC on behalf of the Company. The Company pays a
maximum annual service fee of $1.25 million to West Penn. For the
six month period ended June 30, 2000, the Company recorded
servicing fees of $0.62 million.
At June 30, 2000, the Balance Sheet includes a receivable from
West Penn of $14.85 million for ITC collections. The Balance
Sheet also includes a payable to West Penn of $1.42 million for
servicing fees and debt issuance costs it incurred for the Bonds.
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WEST PENN FUNDING LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Information
Management's discussion and analysis of financial condition
and results of operations contains forecast information items that
are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. All such forward-
looking information is necessarily only estimated. There can be
no assurance that actual results will not materially differ from
expectations. Actual results have varied from past expectations.
Factors that could cause actual results to differ materially
from those described in forward-looking statements include, among
other matters, ongoing state and federal activities, developments
in legislative, regulatory, and competitive environments,
regulatory changes, future economic conditions, and other
circumstances such as weather that could affect timing of
anticipated revenues and costs.
Review of Operations
West Penn Funding LLC, (the Company) is a Delaware limited
liability company whose sole member is West Penn Funding
Corporation, a wholly owned subsidiary of West Penn. In November 1999, the
Company issued the Bonds and transferred the proceeds in exchange
for all rights, title and interest in the ITP from West Penn
Funding Corporation.
Bond principal, interest, fees, and funding of
overcollateralization will be recovered through ITC payable by
retail customers within West Penn's service territory who receive
electric delivery service from West Penn.
During the three months ended June 30, 2000, the Company
recorded $23.05 million ITC revenue and $.10 million interest
income. The Company accrued $10.19 million interest expense on
the Bonds, amortized $.29 million debt issuance expenses and discounts,
incurred $.31 million servicing fees and $.02 million other
administrative expenses, and recorded $12.48 million ITP
amortization.
During the six months ended June 30, 2000, the Company
recorded $48.56 million ITC revenue and $.25 million interest
income. The Company accrued $20.41 million interest expense on
the Bonds, amortized $.55 million debt issuance expenses and
discounts, incurred $.62 million servicing fees and $.05 million
other administrative expenses, and recorded $27.21 million ITP
amortization.
West Penn as Servicer remitted to the Trustee $20.88 million
of ITC collections for the period December 1, 1999 to February 29,
2000 and $20.93 million of ITC collections for the period March 1, 2000
to May 31, 2000.
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On scheduled payment dates in March and June 2000, the Trustee
made quarterly payment of Bond principal, interest and related
expenses. ITC collections were sufficient to pay interest and a
portion of the scheduled principal payment on the Bonds. However,
due to the lag in ITC billed by West Penn to its customers and
collections from customers during the implementation of the ITC, the Trustee was
required to withdraw $3.00 million from the Capital Subaccount and
principal payments on the Bonds were $4.59 million less than
scheduled. This shortfall does not constitute an Event of Default
under the Indenture.
Under the Competition Act and the Qualified Rate Order,
withdrawals from the Capital Subaccount must be replenished and
shortfalls in the scheduled principal payments must be made up by
increases in the ITC. West Penn, as Servicer, intends to file its
initial annual reconciliation statement with the PUC on October 1,
2000 and request ITC adjustment to produce additional revenues
sufficient to replenish the Capital Subaccount and to make up shortfalls in
scheduled principal payments prior to the December 2001 quarterly
payment date. If approved, the adjustment will go into effect on
January 1, 2001.
The Company currently anticipates that there will be
sufficient ITC collection to pay interest and scheduled principal
payments on the Bonds.
Amortization of intangible transition property expense for
the three months ended June 30, 2000, and for the six months ended
June 30, 2000 were based on projected revenues and expenses
previously submitted to the PUC and not adjusted for the planned
request to adjust the ITC to produce additional revenue.
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WEST PENN FUNDING LLC
Part II - Other Information to Form 10-Q
for Quarter Ended June 30, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(99) Quarterly Servicer's Certificates
(b) No reports on Form 8-K were filed on behalf of the
company for the quarter ended June 30, 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WEST PENN FUNDING LLC
/s/ Keith L. Warchol
Keith L. Warchol, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
August 14, 2000
