AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 2001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
Registration Statement
Under
The Securities Act of 1933
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CONNECTICUT RRB
SPECIAL PURPOSE TRUST CL&P-1
(Issuer of Securities)
DELAWARE CL&P FUNDING LLC
(State or Other Jurisdiction of (Depositor of the Trust Described Herein)
Incorporation or (Exact Name of Registrant as Specified in Its
Organization) Certificate of Formation)
06-1603869
(I.R.S. Employer Indentification No.)
CL&P FUNDING LLC
107 SELDEN STREET
BERLIN, CONNECTICUT 06037-1616
TELEPHONE: (860) 665-5000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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RANDY A. SHOOP
PRESIDENT
CL&P FUNDING LLC
107 SELDEN STREET
BERLIN, CONNECTICUT 06037-1616
TELEPHONE: (860) 665-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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<S> <C> <C>
RICHARD J. WASSERMAN, ESQ. ERIC D. TASHMAN, ESQ. STANLEY KELLER, ESQ.
DAY, BERRY & HOWARD LLP BROWN & WOOD LLP PALMER & DODGE LLP
CITYPLACE I 555 CALIFORNIA STREET ONE BEACON STREET
HARTFORD, CONNECTICUT 06103-3499 SAN FRANCISCO, CALIFORNIA 94104 BOSTON, MASSACHUSETTS 02108
MASSACHUSETTS 02108
(860) 275-0100 (415) 772-1200 (617) 573-0100
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective as determined by market
conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]_____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Amount To Be Aggregate Price Aggregate Offering Amount of Registration
Title Of Shares To Be Registered Registered Per Unit (1) Price (1) Fee (1)
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<S> <C> <C> <C> <C>
Rate Reduction Certificates $1,000,000 100% $1,000,000 $250
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(1) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
The information in this prospectus supplement is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT TO COMPLETION DATED __________, 2001
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED __________, 2001
$1,000,000 RATE REDUCTION CERTIFICATES
CONNECTICUT RRB
SPECIAL PURPOSE TRUST CL&P-1
ISSUER OF THE CERTIFICATES
CL&P FUNDING LLC
ISSUER OF THE NOTES
THE CONNECTICUT LIGHT AND POWER COMPANY
SELLER AND SERVICER
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Scheduled
Certificate Initial Proceeds to Final Final
Interest Principal Underwriting Trust Payment Termination
Rate Amount Price (%) Price ($) Discount (%) (%)(1)(2) Date Date
------------------ -------------- ------------ ---------- ------------ -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A-1. . . . .
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Class A-2. . . . .
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Class A-3. . . . .
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Class A-4. . . . .
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Class A-5. . . . .
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(1) Before payment of fees and expenses.
(2) The total price to the public is $_______________ and the total amount
of the underwriting discount and other fees is $_____________. The
total amount of proceeds before deduction of expenses (estimated to be
$_________________) is $_________________
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</TABLE>
See "Risk Factors," which begins on page 17 of the accompanying prospectus,
to read about factors you should consider before buying the certificates.
Each certificate represents an interest in a related class of CL&P Funding LLC
notes and, in the case of any class of floating rate certificates, a swap
agreement. The assets of the trust will consist solely of the notes and each
swap agreement relating to a class of floating rate certificates. The notes are
secured primarily by the right to assess and collect all revenues arising from a
non-bypassable usage-based charge included in the bills of retail users of The
Connecticut Light and Power Company's electric distribution system.
Neither the certificates, the notes nor the property securing the notes is an
obligation of the State of Connecticut or any political subdivision,
governmental agency, authority or instrumentality of the State of Connecticut or
of The Connecticut Light and Power Company or any of its affiliates, except for
CL&P Funding LLC, which is an affiliate of The Connecticut Light and Power
Company.
Neither the full faith and credit nor the taxing power of the State of
Connecticut is pledged to the payment of principal of, or interest on, the
certificates or the notes. Furthermore, the issuance of the certificates and the
notes shall not directly, indirectly or contingently obligate the State of
Connecticut or any political subdivision thereof to levy or to pledge any form
of taxation thereof or to make any appropriation for their payment.
There currently is no secondary market for the certificates and there can be no
assurance that a secondary market will develop.
We will apply to have any class of floating rate certificates listed on the
Luxembourg Stock Exchange. We will not apply to have any other class of
certificates listed on any stock exchange.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
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LEHMAN BROTHERS SALOMON SMITH BARNEY
The date of this Prospectus Supplement is , 2001
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Where to Find Information in These Documents............................. S-3
Summary of Terms......................................................... S-4
Risk Factors ........................................................... S-5
Description of the Certificates.......................................... S-5
Description of the Notes................................................. S-12
Transition Property...................................................... S-16
Appeal of Financing Order................................................ S-16
Reopening of Proceedings Related to Buydown Payments to Independent
Power Producers........................................................ S-17
The Seller and Servicer.................................................. S-17
Underwriting ........................................................... S-18
Ratings.................................................................. S-19
Listing and General Information Related to Floating Rate Classes......... S-19
PROSPECTUS
Prospectus Summary....................................................... 4
Risk Factors............................................................. 17
Available Information.................................................... 26
Reports to Holders....................................................... 27
Incorporation of Documents by Reference.................................. 27
Energy Deregulation and New Connecticut Market Structure................. 27
Description of the Transition Property................................... 30
The Trust................................................................ 38
Office of the State Treasurer of the State of Connecticut................ 39
The Note Issuer.......................................................... 39
The Seller and Servicer.................................................. 41
Servicing................................................................ 46
Description of the Notes................................................. 53
Description of the Certificates.......................................... 62
Federal Income Tax Consequences.......................................... 72
State Taxation........................................................... 78
ERISA Considerations..................................................... 78
Use of Proceeds.......................................................... 80
Plan of Distribution..................................................... 80
Legal Matters............................................................ 81
Experts.................................................................. 81
Index to Financial Statements............................................ F-1
The underwriters expect to deliver the certificates through the
facilities of The Depository Trust Company against payment in New York, New York
on [_____________], 2001.
S-2
<PAGE>
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
We provide information about the certificates and the notes in:
o this prospectus supplement, which describes the
specific terms of each class of certificates and the
related class of notes and, in the case of a class of
floating rate certificates, a swap agreement, and
o the accompanying prospectus, which provides general
information concerning the documents under which the
certificates and the notes are being issued.
This prospectus supplement begins with several sections describing
these securities:
o "Summary of Terms" provides important amounts, dates
and other terms of each class of certificates and the
related class of notes and, in the case of a class of
floating rate certificates, a swap agreement,
o "Description of the Certificates" describes the key
features of each class of certificates, including, in
the case of a class of floating rate certificates, a
swap agreement,
o "Description of the Notes" describes the key features
of the notes underlying each class of certificates,
and
o "Transition Property" describes a portion of the
competitive transition assessment (referred to as the
"RRB charge") that provides the source for payment of
the notes and thus the source of payments with
respect to the certificates.
As you read through these sections, cross-references will direct you to
more information in the accompanying prospectus. You can also find information
on specific 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 the certificates. The underwriters may act as principal or agent
in those transactions. Those sales will be made at prices based on prevailing
market prices at the time of sale.
This prospectus supplement and the accompanying prospectus is an offer
to sell only the securities offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so.
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
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TO UNDERSTAND THE STRUCTURE AND PAYMENT TERMS OF THESE SECURITIES, YOU MUST
CAREFULLY READ THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
THEIR ENTIRETY.
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S-3
<PAGE>
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 certificates, carefully read this entire document and the
accompanying prospectus.
Securities Offered: $[ ] Rate Reduction Certificates
Issuer of the Certificates: Connecticut RRB Special Purpose Trust CL&P-1
Note Issuer: CL&P Funding LLC
Seller and Servicer: The Connecticut Light and Power Company
Certificate Trustee:
Note Trustee:
Delaware Trustee:
Pricing Date:
Issuance Date:
Certificates and Notes: Each certificate represents an interest in a
class of notes of CL&P Funding LLC, a
special purpose entity wholly owned by
Connecticut Light & Power and, with respect
to each class of floating rate certificates,
a swap agreement. The notes and the swap
agreement are the only assets of the trust.
Payments of principal of and interest on a
class of certificates will be made when
payments of principal and interest are made
on the related class of notes and, in the
case of any class of floating rate
certificates, payments are made on the
related swap agreement.
Collateral: The notes are secured primarily by the right
to assess and collect all revenues arising
from a portion of the competitive transition
assessment, a non-bypassable usage-based
charge included in the bills of retail users
of Connecticut Light & Power's distribution
system. This portion of the competitive
transition assessment is known as the "RRB
charge," and the right to assess and collect
this charge is the principal asset of the
note issuer.
Swap Agreement: The trust will enter into a swap agreement
with a swap counterparty for each class of
floating rate certificates, on or before the
date of issuance of that class. See
"Description of the Certificates - Floating
Rate Certificates," which begins on page
S-6.
Anticipated Ratings: S&P / Fitch / Moody's "AAA" /"AAA" /"Aaa"
Credit Enhancement: Periodic RRB charge adjustments,
overcollateralization amount included in the
RRB charge, and capital contributed to the
note issuer by Connecticut Light & Power in
an amount equal to 0.50 percent of the
initial principal amount of the notes
Payment Dates: [ ], [ ], [ ] and [ ] of each
year beginning [ ], 2001, or, if not a
business day, the next business day.
Optional Redemption: The notes are subject to optional redemption
in whole by the note issuer once the
outstanding principal balance of the notes
has been reduced to less than 5 percent of
the initial principal balance. The optional
redemption of the notes will result in the
redemption of the certificates in whole.
Record Date: Close of business on the business day prior
to any payment date.
Clearance and Settlement: DTC/Clearstream/Euroclear
S-4
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RISK FACTORS
You should consider carefully the risks of investing in the
certificates. The section entitled "Risk Factors," which begins on page 17 of
the accompanying prospectus, discusses material risks of investing in the
certificates. In addition, "Description of the Certificates - Floating Rate
Certificates - Risk Factors Relating to Floating Rate Certificates," which
begins on page S-12, discusses additional material risks of investing in the
floating rate certificates.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates in minimum denominations of
$1,000 and in integral multiples of $1.00 in excess thereof, although one
certificate of each class may be of a smaller denomination. The certificates
will consist of [ ] classes, in the initial principal amounts, bearing the
interest rates and having the scheduled final payment dates and final
termination dates listed below:
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Scheduled
Initial Certificate Final Final
Principal Interest Payment Termination
Class Amount Rate Date Date
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A-1
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A-2
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A-3
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A-4
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A-5
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The scheduled final payment date for a class of certificates is the
date by which the trust expects to pay in full all principal of and interest on
that class of certificates. The final termination date for a class of
certificates is the legal maturity date of that class. The failure to pay
principal of any class of certificates in full by the final termination date for
that class is an event of default, and the certificate trustee may, and upon the
written direction of the holders of at least a majority in principal amount of
all outstanding certificates will, vote all of the notes in favor of declaring
the unpaid principal amount of all outstanding notes and accrued interest to be
due and payable. See "Description of the Certificates - Events of Default,"
which begins on page 64 of the accompanying prospectus.
PAYMENTS OF INTEREST
Interest on each class of certificates will accrue from its issuance
date at the interest rate listed in the table above. Beginning [________ __],
2001, the trust is required to pay interest quarterly on [________ __],
[________ __], [________ __] and [________ __] (or, if any payment date is not a
business day, the following business day) of each year. On each payment date,
the certificate trustee will pay interest to the extent paid on each class of
notes or related swap agreement to the holders of the related class of
certificates as of the close of business on the record date. The record date for
any payment of principal of and interest on the certificates will be the
business day immediately before the payment date. Each payment date will also be
a payment date for principal of and interest on the notes and any swap
agreement.
PAYMENTS OF PRINCIPAL
On each payment date, the certificate trustee will pay principal as
paid on each class of notes to the holders of the related class of certificates
as of the close of business on the record date.
S-5
<PAGE>
FLOATING RATE CERTIFICATES
PAYMENTS OF INTEREST ON FLOATING RATE CERTIFICATES
Interest on each class of floating rate certificates, each referred to
as a floating rate class, will be paid, for all interest accrual periods other
than the first interest accrual period, at the rate equal to the London
interbank offered rate, referred to as LIBOR, for three-month United States
dollar deposits (except with respect to the period from and including the date
of issuance of that class until and including [ ], during which the rate will
be based on LIBOR for [ ]-month United States dollar deposits), in each case,
determined on the applicable floating rate interest determination date, as
described below, plus the percentage spread above LIBOR applicable to that
class. The spread above LIBOR for any floating rate class is referred to as the
floating rate spread. LIBOR plus the floating rate spread payable on each
floating rate class is referred to as the floating rate.
The floating rate spread for the class [ ] floating rate certificates
will be [ ] percent per annum and for the class [ ] floating rate certificates
will be [ ] percent per annum.
Interest on each floating rate class will be calculated on the basis of
the actual number of days from and including the preceding payment date, or, for
the first payment date, from and including the date of issuance of that class,
to but excluding the next payment date, divided by 360. The Luxembourg Stock
Exchange will be advised of the floating rate and the amount of the interest
payment on any floating rate class listed on that exchange for each payment
date.
For the first interest accrual period ending on [ ], 2001, interest
on each floating rate class will be paid based on (1) for the period from and
including the date of issuance of that class until and including [ ], 2001,
LIBOR determined two London banking days before the date of issuance of that
class, plus (2) for the period from and including [ ], 2001 until and
including [ ], 2001, LIBOR determined on [ ], 2001.
On or prior to each payment date, the certificate trustee, using LIBOR
as determined by the swap counterparty, will calculate the amount of interest
payable on each floating rate class for the relevant interest accrual period.
There will be no minimum or maximum interest rate on any floating rate
class.
With respect to any floating rate class, if the swap agreement relating
to that class is terminated for any reason, interest on that class will be paid
at the note fixed rate for that class, as described below, until alternate
arrangements can be made to pay the floating rate for that class. The swap
agreement may terminate automatically under the circumstances described below.
See "- Swap Agreements - Amounts Payable under Swap Agreements," which begins on
page S-7, "- Swap Agreements - Swap Agreement Events of Default and Termination
Events," which begins on page S-9, and "- Risk Factors Relating to Floating Rate
Certificates," which begins on page S-12.
FLOATING RATE INTEREST DETERMINATION
The interest determination date for each floating rate class and each
payment date will be (1) the day two London banking days prior to the preceding
payment date or (2) in the case of the first payment date, the dates specified
below. A London banking day is a day on which dealings in United States dollars
are transacted in the London interbank market.
Interest payable on the first interest payment date of [ ], 2001 for
each floating rate class will be determined as follows:
o From and including the date of issuance until and including
[ ], 2001, interest on each floating rate class will be
based on LIBOR as determined two London business days prior to
the date of issuance.
o From and including [ ], 2001 until but excluding the first
payment date, interest on each floating rate class will be
based on LIBOR as determined on [ ], 2001.
o Payment of the sum of the amounts calculated for these two
periods will be made on [ ], 2001, the first payment date.
S-6
<PAGE>
After the first payment date, interest on each floating rate class will
be paid at the rate equal to LIBOR as determined on each interest determination
date, plus the floating rate spread for that class.
The swap counterparty under the swap agreement relating to each
floating rate class will determine LIBOR for that class in accordance with the
following provisions:
(1) On each interest determination date, the swap counterparty
will determine LIBOR based on the offered rate for deposits in
United States dollars commencing on the first day of that
period that appears on the page, USD-LIBOR-BBA, of the Dow
Jones Telerate Services as of 11:00 a.m., London time, on that
interest determination date. That display page is referred to
as the Telerate page. If no offered rate appears on the
Telerate page, LIBOR for that period will be determined as
described in clause (2) below.
(2) With respect to an interest determination date on which no
offered rate appears on the Telerate page, the swap
counterparty will request the principal London office of each
of four major banks in the London interbank market, selected
by the swap counterparty, to provide the swap counterparty
with that bank's offered quotation for deposits in United
States dollars for the applicable period, commencing on the
second London banking day immediately following that interest
determination date, to prime banks in the London interbank
market at approximately 11:00 a.m., London time, on that
interest determination date and in a principal amount that is
representative for a single transaction in United States
dollars in that market at that time. If at least two such
quotations are provided, LIBOR will be the arithmetic mean of
those quotations. If fewer than two quotations are provided,
LIBOR for that period will be the arithmetic mean of the rates
quoted at approximately 11:00 a.m. in the City of New York on
that interest determination date by major banks in the City of
New York selected by the swap counterparty for loans in United
States dollars to leading European banks, for the period
commencing on the second London banking day immediately
following that interest determination date and in a principal
amount that is representative for a single transaction in
United States dollars in that market at that time.
If LIBOR cannot be determined in accordance with clause (1) or (2)
above, then that rate will be determined to be the same as the rate which
applied during the previous period (or in the case of a failure to determine
LIBOR for the first payment date, on the date of issuance).
On each interest determination date, the swap counterparty will notify
the servicer, the trust and the certificate trustee of LIBOR for the applicable
period as determined by the swap counterparty, and the trust will notify the
Luxembourg Stock Exchange of that rate to the extent any floating rate
certificates are listed on that exchange and the rules of that exchange so
require.
SWAP AGREEMENTS
The trust will enter into a swap agreement with a swap counterparty for
each floating rate class, on or before the date of issuance of that class. The
purpose of each swap agreement is to convert the cash flows on the related class
of fixed rate notes into cash flows that are sufficient to pay interest on the
related floating rate class.
Amounts Payable under Swap Agreements. Under each swap agreement, the
trust will be obligated to pay the related swap counterparty a fixed rate of
interest equal to the fixed rate of interest payable on the related class of
notes, and the swap counterparty will be obligated to pay the trust interest at
the floating rate for that class. Those obligations will then be netted on the
business day before each payment date. Therefore, for each interest period,
either the trust will pay the swap counterparty only the amount, if any, by
which interest at the note fixed rate exceeds interest at the floating rate,
referred to as the net swap payment, or the swap counterparty will pay the trust
only the amount, if any, by which interest at the floating rate exceeds interest
at the note fixed rate, referred to as the net swap receipt, as discussed below.
For each payment date with respect to each floating rate class, the
certificate trustee will allocate to the subaccount established for that class,
referred to as a class subaccount, an amount equal to the note fixed rate for
that class times the outstanding principal amount of that class as of the close
of business on the preceding payment date, referred to as the note fixed amount
for that class and that payment date. See "Description of the Certificates -
Payments," which begins on page 63
S-7
<PAGE>
of the accompanying prospectus. In addition, any net swap receipt under the
related swap agreement will be deposited in that class subaccount, and will be
available, together with the note fixed amount for that class, to pay interest
due on that class on that payment date. Any net swap payment will be paid to the
related swap counterparty only out of funds on deposit in that class subaccount
and the remaining amount in that class subaccount will be available to pay
interest due on that class.
Specifically, for the first payment date, the trust will pay a net swap
payment in an amount, if positive, equal to (1) the interest calculated on the
notional amount of the related floating rate class at the applicable note fixed
rate for the period from and including the issuance date of the related class of
certificates to and including [ ], 2001 minus (2) the sum of (a) the interest
calculated on the notional amount of that class at the applicable floating rate
for the period from and including that issuance date to and including [ ],
2001, plus (b) the interest calculated on that notional amount at the applicable
floating rate for the period from and including [ ], 2001 to and including
[ ], 2001. If this amount is a negative number, a net swap receipt in this
amount will be paid to the trust by the swap counterparty.
For each payment date after the first payment date, the trust will pay
a net swap payment in an amount, if positive, equal to (1) the interest
calculated on the notional amount of the related floating rate class at the
applicable note fixed rate for the period from and including the previous
payment date to but excluding that payment date minus (2) the interest
calculated on the notional amount of that class at the applicable floating rate
for that period. If this amount is a negative number, a net swap receipt in this
amount will be paid to the trust by the swap counterparty.
With respect to any payment date, the notional amount in effect under
each swap agreement prior to that payment date will equal the principal balance
of the related floating rate class as of the close of business on the preceding
payment date. With respect to the first payment date, the notional amount in
effect under each swap agreement prior to that payment date will be equal to the
initial outstanding principal balance of the related floating rate class.
The note fixed rate for the class [ ] floating rate certificates will
be [ ] percent per annum and for the class [ ] floating rate certificates will
be [ ] percent per annum.
Each swap agreement will terminate automatically under limited
circumstances, including a default by the swap counterparty in the payment of
net swap payments after the applicable cure period expires unless the holders of
certificates representing more than 50 percent of the outstanding principal
amount of the related class vote to waive such default. In other circumstances,
each swap agreement may terminate at the election of the trust, but only as
directed by the holders of certificates representing more than 50 percent of the
outstanding principal amount of the related class. See " - Swap Agreement Events
of Default and Termination Events," which begins on page S-9. In the event a
swap agreement terminates, the interest payable on the related floating rate
class will convert to the note fixed rate for that class. The note fixed rate
will be used to calculate interest payable on that class starting on the payment
date to which interest has been paid at the floating rate. See " - Risk Factors
Relating to Floating Rate Certificates," which begins on page S-12.
Swap Counterparty Ratings. The required long-term senior unsecured or
financial program ratings of each swap counterparty under each swap agreement
will be at least "Aa3" by Moody's and either at least "A+" or, for short-term
obligations, "A-1" by S&P. These ratings are referred to as the swap
counterparty minimum ratings.
Swap Counterparty Downgrade Event. An event referred to as a swap
counterparty downgrade event will occur if:
o the swap counterparty no longer meets the swap counterparty
minimum ratings or
o the swap counterparty fails to maintain in effect any
alternative arrangements sufficient to maintain the ratings of
the related floating rate class.
If a swap counterparty downgrade event occurs, the swap counterparty
will be required, within 30 days following that event, to either:
o re-establish the swap counterparty minimum ratings or
o establish alternative arrangements to maintain or restore the
ratings of the affected floating rate class that were in
effect prior to the swap counterparty downgrade event. These
alternative arrangements by the swap counterparty may include:
S-8
<PAGE>
o posting collateral, arranging for a guaranty or
taking similar action to maintain or restore the
ratings or
o assigning its rights and obligations under the swap
agreement to a replacement swap counterparty that
meets the swap counterparty minimum ratings, or that
has itself made arrangements which will maintain or
restore the ratings.
Posting collateral, arranging for a guaranty and other arrangements as described
above are referred to in this prospectus supplement as satisfactory arrangements
to maintain or restore the ratings prior to the swap counterparty downgrade
event.
At the end of that 30-day period, if the swap counterparty has failed
to take steps to maintain or restore the ratings of that floating rate class
that were in effect prior to the swap counterparty downgrade event, the trust
will appoint a recognized swap dealer that is a member of the International
Swaps and Derivatives Association, Inc. with capital and surplus of at least $50
million, referred to as the swap agent, to, within an additional 30 days,
either:
o find a replacement swap counterparty that meets the swap
counterparty minimum ratings or that has made satisfactory
arrangements to maintain or restore the ratings of the related
floating rate class, referred to as a qualified replacement
counterparty, or
o if a qualified replacement counterparty cannot be found, find
the available replacement swap counterparty with the highest
available long-term senior unsecured or financial program
credit rating assigned by Moody's or S&P that is higher than
that of the existing swap counterparty and which is approved
by the holders of certificates representing more than 50
percent of the outstanding principal amount of the related
class, referred to as an approved replacement counterparty.
In case of a qualified replacement counterparty or an approved replacement
counterparty, if there is more than one available replacement swap counterparty
with the same credit rating, the counterparty offering the interest rate swap
terms with the lowest overall cost to the trust will be selected by the trust as
the replacement swap counterparty. That replacement swap counterparty must be
willing to intermediate between the trust and the prior swap counterparty by
entering into a swap agreement with the prior swap counterparty that is
substantially the same as the prior swap agreement to hedge or offset the risk
that the replacement swap counterparty has to the trust.
If a qualified replacement counterparty or an approved replacement
counterparty has been found, the prior swap counterparty will be required to
assign its rights and obligations under the swap agreement to that replacement
swap counterparty and the replacement swap counterparty will enter into a new
swap agreement with substantially the same terms as the terminated agreement. If
a replacement swap counterparty satisfying the above criteria has not been found
within that second 30-day period, a termination event will occur under the swap
agreement and the swap agreement will terminate unless the holders of
certificates representing more than 50 percent of the outstanding principal
amount of the related class vote to continue the swap agreement with the
existing swap counterparty.
If the swap agreement is not terminated as described above, the swap
agent will be obligated every three months thereafter to renew the search for a
qualified replacement counterparty or an approved replacement counterparty
according to the above procedures. However, the replacement counterparty will
not be required to intermediate between the prior swap counterparty and the
trust, as described above. At the end of each of these three-month periods, if a
swap counterparty meeting the above criteria has not been found, the swap
agreement will terminate unless the holders of certificates representing more
than 50 percent of the outstanding principal amount of the related class vote to
continue the swap agreement with the existing swap counterparty.
All searches for replacement swap counterparties will be at the
reasonable cost of the swap counterparty being replaced.
Swap Agreement Events of Default and Termination Events. The events
referred to as swap events of default under each swap agreement are:
o the failure of the trust or the swap counterparty to pay any
amount when due under the swap agreement if that failure is
not remedied on or before the fifth business day after that
failure,
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o the failure of the swap counterparty to comply with the swap
agreement, other than as regards payments or the provision of
specified information,
o any misrepresentation made by the swap counterparty,
o certain events of bankruptcy of the trust or the swap
counterparty, or
o a merger of the trust or the swap counterparty without an
assumption of its obligations under the swap agreement.
The events referred to as termination events under each swap agreement
are:
o illegality, as described below,
o an acceleration of the related floating rate class, effective
upon the final date of payment for that class, or
o a swap counterparty downgrade event, as described above, that
is not cured within the applicable time periods.
Each swap agreement will terminate automatically upon an illegality, as
described below. The swap agreement will be deemed to terminate automatically
upon a failure by the swap counterparty to pay any amount when due under the
swap agreement, which failure is not cured within five business days, unless the
holders of certificates representing more than 50 percent of the outstanding
principal amount of the related class vote to waive that default within 30 days.
Upon acceleration of the related floating rate class, either party may
elect to terminate, effective upon the final date of payment for that series. In
addition, any other swap event of default or a termination event can lead to a
termination of the swap agreement by the party not responsible for that event.
Moreover, as described above, the swap agreement will terminate following a swap
counterparty downgrade event if that event is not cured, there is no replacement
swap counterparty and the holders of the related floating rate class do not vote
to continue with the existing swap counterparty. Except in the case of an
automatic termination or a swap counterparty downgrade event, the trust may
terminate only at the direction of the holders of certificates representing more
than 50 percent of the outstanding principal amount of the related class.
The trust will not be obligated to pay any termination payment or any
other breakage amounts to the swap counterparty under any swap agreement as a
result of any termination event, any swap event of default, any swap
counterparty downgrade event or for any other reason. Any payment made to a
replacement swap counterparty to enter into a replacement swap agreement will be
paid by the terminated swap counterparty.
Upon a termination of a swap agreement resulting from a swap event of
default, swap counterparty downgrade event or other termination event, the swap
counterparty may be liable to pay a termination payment to the trust, based on
the market value of the swap agreement determined in accordance with specified
procedures set forth therein. Any termination payment paid by the swap
counterparty, including interest thereon, will first be used to make any payment
required to be paid to any replacement swap counterparty and to the extent not
so used will be deposited into the applicable class subaccount. See "Description
of the Certificates - Payments," which begins on page 63 of the accompanying
prospectus. Any termination payment by the swap counterparty as a result of an
acceleration of the related floating rate class will be payable only upon
termination, and the proceeds of the termination payment will be available to
pay the amount due on the related floating rate class.
Illegality means that due to the adoption of, or any change in, any
applicable law after the date on which a swap transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any applicable
law after that date, it becomes unlawful for the trust or the swap counterparty:
o to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of that swap transaction or to comply with any other
material
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provision of the swap agreement or
o to perform, or for any credit support provider of that party
to perform, any contingent or other obligation which the party
or that credit support provider has under any credit support
document relating to that swap transaction.
The determination of an illegality will be predicated on the receipt of a
written opinion from an independent law firm experienced in swap transactions,
selected by the trust and the swap counterparty, that an illegality exists.
Replacement of Swap Agreement. Upon a termination or a swap event of
default under a swap agreement, the trust is required to appoint a swap agent.
Upon its appointment, the swap agent will either:
o find a replacement swap counterparty who meets the swap
counterparty minimum ratings or who has made such other
arrangements as will result in the related floating rate class
receiving ratings from the rating agencies not less than the
ratings that would be received if such replacement swap
counterparty met the swap counterparty minimum ratings, or
o if a replacement swap counterparty satisfying the requirements
of the clause above cannot be found, find the available
replacement swap counterparty with the highest available
long-term senior unsecured or financial program credit rating
which is approved by the holders of certificates representing
more than 50 percent of the outstanding principal amount of
the related class.
If there is more than one available replacement swap counterparty with
the same credit rating, the counterparty offering the interest rate swap terms
with the lowest overall cost to the trust will be selected by the trust as the
replacement swap counterparty. If a replacement swap counterparty satisfying the
above criteria has been found, upon the termination of the swap agreement, the
replacement swap counterparty will enter into a swap agreement with the trust
having terms substantially the same as the original swap agreement.
Assignment of Swap Agreements. Any swap counterparty may assign its
obligations under any swap agreement with the prior written consent of the trust
or, without that consent, either:
o in a consolidation or amalgamation with or merger with or
into, or transfer of all or substantially all of its assets to
another entity which expressly assumes in a written agreement
the obligations of the swap counterparty under the swap
agreement, so long as, upon that consolidation, amalgamation
or merger, a swap counterparty downgrade event has not
occurred, or
o to a replacement swap counterparty following a swap
counterparty downgrade event as described above.
Enforcement, Amendment, Modification or Waiver of Swap Agreements. If a
swap event of default or termination event occurs and is continuing, the
certificate trustee may, and at the direction of the holders of certificates
representing more than 50 percent of the outstanding principal amount of the
related class will, exercise all rights, remedies, powers, privileges and claims
of the trust against the related swap counterparty, and any right of the trust
to take this action will be suspended.
A swap agreement may be amended with the consent of the certificate
trustee and the related swap counterparty, as long as each of Moody's, S&P and
Fitch confirm that the amendment will not result in the reduction or withdrawal
of its then current rating of the related floating rate class, which
confirmation is referred to as satisfaction of the rating agency condition.
However, this amendment may not adversely affect in any material respect the
interests of the certificateholders of the related floating rate class unless
the holders of certificates representing more than 50 percent of the outstanding
principal amount of the related class direct the certificate trustee to consent
to the amendment. Moreover, that amendment may not adversely affect in any
material respect the interests of any other certificateholders or the
counterparty to any other hedge or other interest rate swap agreement without
the consent of the holders of certificates representing more than 50 percent of
the outstanding principal amount of the certificates of all of those other
series or classes, and each counterparty to any other hedge or other interest
rate swap agreement, materially and adversely affected thereby.
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<PAGE>
Except as described under " - Swap Counterparty Downgrade Event," which
begins on page S-8, or " - Swap Agreement Events of Default and Termination
Events," which begins on page S-9, with respect to any action proposed by the
trust to amend, modify, waive, supplement or surrender the terms of any swap
agreement, or waive timely performance or observance by the swap counterparty
under any swap agreement, in a way which would materially and adversely affect
the interests of certificateholders of the related class, the trust must satisfy
the rating agency condition. Thereafter, the certificate trustee will consent to
this proposed action only with the consent of (1) the holders of certificates
representing more than 50 percent of the outstanding principal amount of the
related class and (2) the consent of the holders of certificates representing
more than 50 percent of the outstanding principal amount of the certificates of
each other series or class, and each counterparty to any other hedge or other
interest rate swap agreement, materially and adversely affected thereby.
SWAP COUNTERPARTIES
Each initial swap counterparty shall be required to have a rating of at
least "Aa2" by Moody's and "AA" by S&P and will be selected by the trust upon
the pricing by the underwriters of the related floating rate class.
RISK FACTORS RELATING TO FLOATING RATE CERTIFICATES
The following risk factors apply to the floating rate certificates.
Additional risk factors apply to all of the certificates, including the floating
rate certificates. See "Risk Factors," which begins on page 17 of the
accompanying prospectus.
Termination of Swap Could Cause a Loss. Termination events, swap events
of default or swap counterparty downgrade events under any swap agreement may
result in termination of that swap agreement. Each swap agreement may terminate
automatically if the related swap counterparty defaults in its obligation to
make payments under the swap agreement and the holders of certificates
representing more than 50 percent of the outstanding principal amount of the
related class of floating rate certificates do not vote to waive that default.
If any swap agreement is terminated, the holders of the floating rate
certificates will receive a fixed rate of interest equal to the note fixed rate
for that class, which takes effect from the previous payment date. This rate
could be substantially less than the floating rate for the floating rate
certificates at the time of the termination, which could adversely affect the
yield to maturity, and holders of the floating rate certificates could suffer a
loss on their investment.
Ratings Downgrade of any Floating Rate Certificates Could Cause a Loss
for Holders of Those Certificates. If a swap counterparty downgrade event occurs
and (1) the swap counterparty fails to make satisfactory arrangements to
maintain or restore the prior ratings and (2) the holders of certificates
representing more than 50 percent of the outstanding principal amount of the
related class of floating rate certificates either approve a replacement swap
counterparty that does not maintain or restore the prior ratings or such holders
vote to continue the existing swap agreement, the floating rate certificates may
be downgraded by the rating agencies. In that event, the trading price of the
floating rate certificates may be reduced, and holders of floating rate
certificates could suffer a loss on their investment.
Interest Payments on Floating Rate Certificates are Dependent on Swap
Counterparties. If any swap counterparty defaults in its obligation to make any
net swap payment, the related swap agreement may terminate automatically in the
absence of the required waiver by the holders of the floating rate certificates,
and the holders of the floating rate certificates will receive interest at the
note fixed rate until alternate arrangements can be made to pay the floating
rate for the floating rate certificates. There can be no assurance that any
alternate arrangements will be made to obtain a suitable replacement swap
counterparty or otherwise to obtain payment of the floating rate for the
floating rate certificates. The note fixed rate for that class could be
substantially less than the floating rate for the floating rate certificates at
the time of that failure to pay, and holders of the floating rate certificates
could suffer a loss on their investment.
DESCRIPTION OF THE NOTES
CL&P Funding LLC, the note issuer, will issue and sell the CL&P Funding
LLC notes to the trust in exchange for the net proceeds from the sale of the
certificates by the trust. Each class of notes secures the payment of the
related class of certificates and has the same principal balance, interest rate,
amortization schedule and legal maturity date as the related class of
certificates.
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<PAGE>
The notes will consist of [ ] classes, in the initial principal amounts
and bearing the interest rates and having the scheduled maturity dates and final
maturity dates listed below:
--------------------------------------------------------------------------------
Initial Note Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
--------------------------------------------------------------------------------
A-1
--------------------------------------------------------------------------------
A-2
--------------------------------------------------------------------------------
A-3
--------------------------------------------------------------------------------
A-4
--------------------------------------------------------------------------------
A-5
--------------------------------------------------------------------------------
The scheduled maturity date for a class of notes is the date by which
the note issuer expects to pay in full all principal of and interest on that
class of notes. The final maturity date for a class of notes is the legal
maturity date of that class. The failure to pay principal of any class of notes
in full by the final maturity date for that class is a note event of default,
and the note trustee or the holders of at least a majority in principal amount
of all outstanding notes may declare the unpaid principal amount of all
outstanding notes and accrued interest to be due and payable. See "Description
of the Notes - Note Events of Default; Rights on Note Event of Default," which
begins on page 58 of the accompanying prospectus.
INTEREST
Interest on each class of notes will accrue from its issuance date at
the interest rate listed in the table above. Beginning [________ __], 2001, the
note issuer is required to pay interest quarterly on [________ __],
[__________], [________ __] and [________ __] (or, if any payment date is not a
business day, the following business day) of each year, to the trust. The note
issuer will pay interest on the notes prior to paying principal of the notes.
See "Description of the Notes - Allocations and Payments," which begins on page
56 of the accompanying prospectus.
On each payment date, the note issuer will pay interest as follows:
o if there has been a payment default, any unpaid interest
payable on any prior payment dates, together with interest at
the applicable interest rate on any of this unpaid interest;
and
o accrued interest on the principal balance of each class of
notes as of the close of business on the preceding payment
date after giving effect to all payments of principal made on
the preceding payment date, or, in the case of the first
payment date, as of the date of the original issuance of the
class of notes.
If there is a shortfall in the amounts necessary to make these interest
payments, the note trustee will allocate available amounts among each class of
notes pro rata based upon the respective amounts of interest owed on the notes
of each class, and will allocate and pay those amounts to holders within each
class pro rata based upon the respective principal amount of notes held. The
note issuer will calculate interest on the basis of a 360-day year of twelve
30-day months.
PRINCIPAL
After paying interest as described above, the note issuer will pay any
principal on each payment date as follows:
(1) to the trust as holder of the A-1 notes, until the principal
balance of that class has been reduced to zero;
(2) to the trust as holder of the A-2 notes, until the principal
balance of that class has been reduced to zero;
(3) to the trust as holder of the A-3 notes, until the principal
balance of that class has been reduced to zero;
S-13
<PAGE>
(4) to the trust as holder of the A-4 notes, until the principal
balance of that class has been reduced to zero; and
(5) to the trust as holder of the A-5 notes, until the principal
balance of that class has been reduced to zero.
The note issuer will not, however, pay principal on a payment date of
any class of notes if making the payment would reduce the principal balance of
the class to an amount lower than that specified in the expected amortization
schedule for that class on that payment date. If an event of default under the
note indenture has occurred and is continuing, the note trustee or the holders
of at least a majority in principal amount of all outstanding notes may declare
the unpaid principal amount of all outstanding notes and accrued interest to be
due and payable.
The following expected amortization schedule lists the scheduled
outstanding principal balance for each class of notes on each payment date from
the issuance date to the scheduled maturity date, after giving effect to the
payments expected to be made on the payment date. In preparing the following
table, we have assumed, among other things, that:
o the notes and the certificates are issued on [________ __],
2001;
o payments on the notes are made on each payment date, beginning
[________ __], 2001 and payments on the certificates are made
on the same dates;
o the servicing fee equals 0.05 percent annually of the initial
principal amount of the notes;
o there are no net earnings on amounts on deposit in the
collection account;
o the administration fee (which will be $75,000 per year,
payable quarterly) and other ongoing operating expenses will
be approximately $[ ] per annum, and these amounts are payable
in arrears; and
o payments arising from the property securing the notes are
deposited in the collection account as expected.
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
Date A-1 A-2 A-3 A-4 A-5
---- --- --- --- --- ---
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<PAGE>
We cannot assure you that the principal balances of the classes of
notes and the related classes of certificates will be reduced at the rates
indicated in the table above. The actual rates of reduction in class principal
balances may be slower (but, absent an event of default or an optional
redemption, cannot be faster) than those indicated in the table.
COLLECTION ACCOUNT AND SUBACCOUNTS
The note trustee will establish a collection account to hold amounts
remitted to it by the servicer of the property securing the notes. The
collection account will consist of four subaccounts:
o a general subaccount;
o a reserve subaccount;
o an overcollateralization subaccount; and
o a capital subaccount.
Withdrawals from and deposits to these subaccounts will be made as described
under "Description of the Notes - Allocations and Payments," which begins on
page 56 of the accompanying prospectus.
CREDIT ENHANCEMENT
PERIODIC ADJUSTMENT OF RRB CHARGE. The RRB charge will be subject to
periodic review and adjustment. This periodic review and adjustment, which
reconciles the actual RRB charges collected against the expected collections,
reduces certificateholders' exposure to losses due to shortfalls in projected
sales of energy, longer-than-expected delays in bill collections, and
higher-than-estimated write-offs. Consequently, the need for other forms of
credit enhancements is also reduced. See "Description of the Transition Property
- Adjustments to the RRB Charge," which begins on page 32 in the accompanying
prospectus.
RESERVE SUBACCOUNT. The note trustee will allocate to the reserve
subaccount any amounts remitted to the collection account exceeding amounts
necessary to:
o pay fees and expenses (including indemnities) related to
servicing and retiring the notes and certificates;
o pay principal of and interest on the notes;
o fund the capital subaccount to the required capital level; and
o fund the overcollateralization subaccount to the required
overcollateralization level.
The note trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above.
OVERCOLLATERALIZATION AMOUNT. The servicer will collect and remit to
the note trustee, and the note trustee will deposit into the
overcollateralization subaccount, amounts arising from the transition property
securing the notes that exceed the amount expected to be necessary to pay
scheduled payments of principal of and interest on the notes and fees and
expenses (including indemnities) related to servicing and retiring the notes and
the certificates. These amounts will fund the required overcollateralization
amount, which is intended to enhance the likelihood that payments on the notes
will be made on a timely basis. The required overcollateralization amount will
be $[ ], which is 0.50 percent of the initial principal amount of the notes. The
RRB charge will be set and adjusted at a rate that is intended to fund the
required overcollateralization amount ratably over the life of the notes. On
each payment date, the note trustee will deposit into the overcollateralization
subaccount the amount, if any, by which the required overcollateralization level
for that payment date exceeds the amount in the overcollateralization
subaccount. The required overcollateralization level for each payment date is as
follows:
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<PAGE>
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
Required Required
Payment Overcollateralization Payment Overcollateralization
Date Level Date Level
---- ----- ---- -----
The note trustee will draw on amounts in the overcollateralization subaccount to
the extent amounts available in the general subaccount and the reserve
subaccount are insufficient to pay scheduled payments of principal of and
interest on the notes and fees and expenses (including indemnities) related to
servicing and retiring the notes and the certificates.
CAPITAL SUBACCOUNT. Before the issuance of the notes, Connecticut Light
& Power will contribute capital of $[ ] to the note issuer. This amount is
equal to 0.50 percent of the initial principal amount of the notes and is the
capital level required to be maintained under the note indenture. The note
trustee will deposit the capital into the capital subaccount. The note trustee
will draw on amounts in the capital subaccount, to the extent amounts available
in the general subaccount, reserve subaccount and overcollateralization
subaccount are insufficient to pay scheduled payments of principal of and
interest on the notes and fees and expenses (including indemnities) related to
servicing and retiring the notes and the certificates. Funds withdrawn from the
capital subaccount will be replenished on subsequent payment dates if payments
arising from the RRB charge exceed amounts required for other uses having a
higher priority of payment.
TRANSITION PROPERTY
The notes are secured primarily by the transition property, which is
the right to assess and collect all revenues arising from a portion of the
competitive transition assessment included in the bills of all classes of retail
users of Connecticut Light & Power's distribution system. This portion of the
competitive transition assessment, which is a non-bypassable usage-based charge,
is referred to as the "RRB charge."
The average initial competitive transition assessment is expected to be
approximately 1.021 cents/kilowatt-hour. The average initial RRB charge (which
is a portion of the competitive transition assessment) is expected to be
approximately _____ cents/kilowatt-hour.
APPEAL OF FINANCING ORDER
The State of Connecticut Office of Consumer Counsel, which is the
statutory advocate for Connecticut ratepayers in utility matters, has filed an
appeal of the financing order. The appeal challenges certain of the amounts that
the Department of Public Utility Control authorized Connecticut Light & Power to
securitize. The challenge is based on the methodology used to compute the
amounts or the ability under the restructuring statute to securitize the costs
that give rise to the amounts. The appeal does not request a stay of the
financing order, although the Department of Public Utility Control or the
reviewing court could impose such a stay upon request of the Office of Consumer
Counsel. Unless a stay is imposed prior to the issuance of rate reduction bonds,
any rate reduction bonds issued or sold pursuant to a financing order will,
under the restructuring statute, be valid and binding in accordance with their
terms even if the appeal is ultimately successful. Connecticut Light & Power
currently expects that the appeal will be dismissed, settled, otherwise resolved
or limited in scope prior to issuance of the notes and certificates or that the
size of the transaction will be reduced to exclude the amounts being
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<PAGE>
challenged by the appeal. These excluded amounts may be securitized in a
subsequent transaction once the appeal has been resolved.
REOPENING OF PROCEEDINGS RELATED TO BUYDOWN PAYMENTS
TO INDEPENDENT POWER PRODUCERS
Prior to the issuance of the financing order and as a means to permit
Connecticut Light & Power to mitigate its stranded costs, the Department of
Public Utility Control approved buydown payments by Connecticut Light & Power to
independent power producers under several above-market long-term contracts. In
the financing order, the Department of Public Utility Control approved the
recovery of the buydown payments under these contracts through the RRB charge.
See "Energy Deregulation and New Connecticut Market Structure," which begins on
page 27 of the accompanying prospectus, and "Description of the Transition
Property," which begins on page 30 of the accompanying prospectus.
Since the issuance of the financing order, the Department of Public
Utility Control has reopened the separate proceedings in which it had previously
approved Connecticut Light & Power's buydown of two of these contracts. In each
case, Connecticut Light & Power and the independent power producer had requested
the reopening of the proceeding so that the Department of Public Utility Control
could approve minor modifications to the transactions that it had previously
approved. Connecticut Light & Power and the independent power producers had
hoped that the Department of Public Utility Control would approve the requested
modifications without conducting hearings. In each case, however, the Department
of Public Utility Control has indicated that it will conduct hearings with
respect to the proposed modification, and in one of the cases it has suggested
that it may reconsider matters beyond the requested modification.
As previously approved, the buydown payments under these two contracts
total approximately $822 million (subject to adjustment in accordance with the
contracts). If the Department of Public Utility Control withdraws its approval
of the buydown payments under these contracts or reduces the approved amount of
the buydown payments, the principal amount of the notes and certificates that
may validly be issued under the financing order will be reduced. Connecticut
Light & Power will either delay the issuance of the notes and certificates until
after the Department of Public Utility Control has issued decisions in both of
the reopened proceedings or will reduce the amount of the transaction to exclude
the amount of the buydown payments under these two contracts. These excluded
amounts may be securitized in a subsequent transaction once the Department of
Public Utility Control issues decisions in the reopened proceedings.
THE SELLER AND SERVICER
Connecticut Light & Power is a wholly owned subsidiary of Northeast
Utilities. Northeast Utilities has entered into a merger agreement with
Consolidated Edison, Inc. pursuant to which Northeast Utilities will become a
wholly owned subsidiary of Consolidated Edison. The merger agreement contains
various conditions to the completion of the merger, including the receipt of
approvals from state and federal regulatory bodies. Northeast Utilities and
Consolidated Edison have received regulatory approvals in Connecticut, Maine,
New Hampshire, New York, Pennsylvania and Vermont, and are awaiting review by
several federal agencies. The Connecticut regulatory approval of the merger
contained extensive conditions. These conditions included a 3 percent
distribution rate reduction and a $60 million pretax write-off for Connecticut
Light & Power immediately following the merger, a 50 percent/50 percent sharing
between customers and shareholders of Connecticut Light & Power earnings above a
return on equity of 11.3 percent through 2003, and various operational,
employment, land use and customer service conditions. Connecticut Light & Power
does not expect any of the conditions contained in the Connecticut regulatory
approval to materially adversely affect its financial condition or its ability
to service the transition property.
Consolidated Edison has publicly indicated that it will continue to
assess the Connecticut approval and the impact of the conditions imposed by the
Connecticut approval along with other regulatory orders as they are issued and
that it does not expect to make a final decision on whether to complete the
merger until receiving and reviewing all information required to make its
decision. The Attorney General of the State of Connecticut and the State of
Connecticut Office of Consumer Counsel each have filed appeals from the
Connecticut regulatory approval of the merger, claiming that the merger fails to
meet statutory standards and is inconsistent with the public interest and that
regulatory approval of the merger is unsupported by the record.
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<PAGE>
A transition team consisting of employees of both Northeast Utilities
and Consolidated Edison has been analyzing how best to combine the operations of
the companies following the completion of the merger. This analysis has been
directed at both efficiency concerns and also maintaining the present level of
service provided by all Northeast Utilities and Consolidated Edison companies
without interruption. Although mergers can affect the personnel, procedures,
systems and business functions of the merging companies, the analysis performed
by Northeast Utilities and Consolidated Edison to date does not indicate that
completion of their proposed merger will adversely impact the forecasting,
customer billing and collection functions at Connecticut Light & Power.
UNDERWRITING
The note issuer, Connecticut Light & Power and the underwriters for the
offering named below have entered into an underwriting agreement relating to the
certificates. Assuming that conditions in the underwriting agreement are met,
each underwriter has severally agreed to purchase the respective principal
amount of certificates indicated in the following table.
Name Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
---- --------- --------- --------- --------- ---------
Lehman Brothers Inc.
Salomon Smith Barney Inc.
Total
Certificates sold by the underwriters to the public will be initially
offered at the initial public offering prices set forth on the cover of this
prospectus supplement. The trust has been advised that the underwriters propose
initially to offer the certificates to dealers at the initial public offering
prices, less a selling concession not to exceed the percentage of the
certificate denomination set forth below, and that the underwriters may allow
and dealers may reallow a discount not to exceed the percentage of the
certificate denomination set forth below:
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
----- ------------------ --------------------
Class A-1....................
Class A-2....................
Class A-3....................
Class A-4....................
Class A-5....................
After the initial public offering, the public offering prices, selling
concessions and reallowance discounts may change as a result of market trading.
The certificates are a new issue of securities with no established
trading market. They will not be listed on any securities exchange, with the
exception of any floating rate class which may be listed on the Luxembourg Stock
Exchange. The trust has been advised by the underwriters that the underwriters
intend to make a market in the certificates but are not obligated to do so and
may discontinue market making at any time without notice. No assurance can be
given as to the ability of holders of the certificates to resell the
certificates.
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In order to facilitate the offering of the certificates, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the certificates. Specifically, the underwriters may
overallot in connection with the offering, creating a short position in the
certificates for their own account. In addition, to cover overallotments or to
stabilize the price of the certificates, the underwriters may bid for and
purchase the certificates in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the certificates in the offering, if the syndicate repurchases
previously distributed certificates in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the certificates above independent
market levels. The underwriters are not required to engage in these activities,
and if commenced, may end any of these activities at any time.
The note issuer and Connecticut Light & Power have agreed to indemnify
the several underwriters, the State of Connecticut, the finance authority, the
Treasurer of the State of Connecticut, the trustees and the trust against
certain liabilities, including liabilities under the Securities Act of 1933.
Lehman Brothers Inc., as financial advisor to the finance authority,
has rendered certain financial advisory services to the finance authority in
respect of this transaction and will receive a customary fee for such services.
Salomon Smith Barney Inc., as financial advisor to Connecticut Light & Power,
has rendered certain financial advisory services to Connecticut Light & Power in
respect of this transaction and will receive a customary fee for such services.
RATINGS
The certificates will not be issued unless prior to closing they have
been rated "AAA" / "AAA"/ "Aaa" by S&P, Fitch and Moody's, respectively.
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 any rating on any
certificates, and, accordingly, there can be no assurance that the ratings
assigned to any series or class of certificates upon the initial issuance will
not be revised or withdrawn by a rating agency at any time thereafter. If a
rating of any series or class of certificates is revised or withdrawn, the
liquidity of this series or class of certificates 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 certificates other than the payment
in full of each series or class of certificates by the applicable final
termination date for such series or class. Each rating of any series or class of
certificates should be evaluated independently of any other rating.
For so long as any floating rate class is listed on the Luxembourg
Stock Exchange and the rules of that exchange so require, the trust will notify
the Luxembourg Stock Exchange if any rating assigned to those certificates is
reduced or withdrawn and will cause this notice to be published in a daily
newspaper published in Luxembourg, which is expected to be the Luxemburger Wort.
LISTING AND GENERAL INFORMATION RELATED TO FLOATING RATE CLASSES
We will apply to list each floating rate class on the Luxembourg Stock
Exchange. We will not apply to have any other class of certificates listed on
any stock exchange. Purchasers of any class of floating rate certificates should
not rely on these certificates being listed on the Luxembourg Stock Exchange or
any other stock exchange. You should consult with [ ], the Luxembourg listing
agent for each floating rate class, [ ], Luxembourg, phone number [ ], referred
to as the listing agent, to determine whether or not a particular floating rate
class is listed on the Luxembourg Stock Exchange.
In connection with the listing application, the certificate of
incorporation and by-laws of Connecticut Light & Power, the certificate of
formation and the limited liability company agreement of the note issuer, and
the certificate of trust and the declaration of trust of the trust, as well as
legal notice relating to the issuance of the certificates, will be deposited
prior to listing with the Chief Registrar of the District Court of Luxembourg,
where copies thereof may be obtained, free of charge, upon request. Once any
floating rate class has been so listed, trading of those certificates may be
effected on the Luxembourg Stock Exchange. Each floating rate class will be
submitted for clearing through the facilities of DTC, Clearstream and Euroclear.
See "Description of the Certificates - Certificates Will Be Issued in Book-Entry
Form," which begins on page 68 of the accompanying prospectus.
S-19
<PAGE>
The International Securities Identification Number (ISIN), Common Code
number and the CUSIP number for each floating rate class are as follows:
CLASS ISIN COMMON CODE CUSIP
----- ---- ----------- -----
Class A-_....................
Class A-_....................
If any floating rate class is listed on the Luxembourg Stock Exchange,
copies of the note indenture, the certificate indenture, the sale agreement, the
servicing agreement, the note purchase agreement, the administration agreement,
the reports of independent certified public accountants described under
"Servicing - Evidence as to Compliance," which begins on page 50 of the
accompanying prospectus, the documents listed under "Available Information,"
which begins on page 26 of the accompanying prospectus, and the reports referred
to under "Reports to Holders," which begins on page 27 of the accompanying
prospectus, and "Description of the Certificates - Reports to
Certificateholders" which begins on page 66 of the accompanying prospectus, will
be available free of charge at the offices of the certificate trustee in the
City of New York and the listing agent in Luxembourg. Financial information
regarding Connecticut Light & Power is included in its annual report on Form
10-K for the fiscal year ended December 31, 1999, and in its quarterly reports
on Form 10-Q for the first three fiscal quarters of fiscal year 2000, and is
also available at the offices of the certificate trustee in the City of New York
and the listing agent in Luxembourg. For so long as any floating rate class is
outstanding and listed on the Luxembourg Stock Exchange, copies of each annual
report on Form 10-K and each quarterly report on Form 10-Q for subsequent fiscal
years and quarters will also be available at the offices of the certificate
trustee in the City of New York and the listing agent in Luxembourg.
In the event that any floating rate class is listed on the Luxembourg
Stock Exchange, certificated certificates are issued and the rules of the
Luxembourg Stock Exchange require a Luxembourg transfer agent, the Luxembourg
paying agent will be appointed as a transfer agent.
According to Chapter VI, Article 3, point A/II/2 of the Rules and
Regulations of the Luxembourg Stock Exchange, the floating rate certificates
will be freely transferable and therefore no transaction made on the Luxembourg
Stock Exchange will be cancelled.
S-20
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities nor is it seeking an offer to buy these securities in
any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED __________, 2001
PROSPECTUS
CONNECTICUT RRB
SPECIAL PURPOSE TRUST CL&P-1
ISSUER OF THE CERTIFICATES
RATE REDUCTION CERTIFICATES
ISSUABLE IN CLASSES
CL&P FUNDING LLC
ISSUER OF THE NOTES
THE CONNECTICUT LIGHT AND POWER COMPANY
SELLER AND SERVICER
See "Risk Factors," which begins on page 17, to read about factors you
should consider before buying the certificates.
The trust may sell one or more classes of certificates as described in the
prospectus supplement. Each certificate represents an interest in a related
class of CL&P Funding LLC notes and, in the case of any class of floating rate
certificates, a swap agreement. The assets of the trust will consist solely of
the notes and each swap agreement relating to any class of floating rate
certificates. The notes are secured primarily by the right to assess and collect
all revenues arising from a non-bypassable usage-based charge included in the
bills of retail users of The Connecticut Light and Power Company's electric
distribution system.
Neither the certificates, the notes nor the property securing the notes is an
obligation of the State of Connecticut or any political subdivision,
governmental agency, authority or instrumentality of the State of Connecticut or
of The Connecticut Light and Power Company or any of its affiliates, except for
CL&P Funding LLC, which is an affiliate of The Connecticut Light and Power
Company.
Neither the full faith and credit nor the taxing power of the State of
Connecticut is pledged to the payment of principal of, or interest on, the
certificates or the notes. Furthermore, the issuance of the certificates and the
notes shall not directly, indirectly or contingently obligate the State of
Connecticut or any political subdivision thereof to levy or to pledge any form
of taxation thereof or to make any appropriation for their payment.
There currently is no secondary market for the certificates and there can be no
assurance that a secondary market will develop.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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The date of this Prospectus is ___________, 2001
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary.................................. 4
Parties to Transactions............................. 5
Allocations and Payments From the Collection
Account........................................... 14
Risk Factors....................................... 17
Available Information.............................. 26
Reports to Holders................................. 27
Incorporation of Documents by Reference............ 27
Energy Deregulation and New Connecticut
Market Structure................................. 27
Statutory Overview................................. 27
Restructuring Decision............................. 28
Exit Fees.......................................... 28
Third Party Billing Options........................ 29
Federal Initiatives................................ 29
Description of the Transition Property............. 30
Financing Order and Issuance Advice Letter......... 30
Transition Property................................ 31
Competitive Transition Assessment.................. 31
Adjustments to the RRB Charge...................... 32
Pledge by the State of Connecticut................. 33
No Impairment by Department of Public
Utility Control.................................. 33
Sale and Assignment of Transition Property......... 34
Seller Representations and Warranties and
Repurchase Obligation............................ 34
Bankruptcy and Creditors' Rights Issues............ 37
The Trust.......................................... 38
Office of the State Treasurer of the State of
Connecticut...................................... 39
The Note Issuer.................................... 39
Officers and Directors............................. 40
The Seller and Servicer............................ 41
Connecticut Light & Power Revenues,
Customer Base and Energy Consumption............. 42
Estimated Consumption and Variances................ 43
Billing and Collections............................ 43
Loss Experience.................................... 45
Aging Receivables.................................. 45
Servicing.......................................... 46
Servicing Procedures............................... 46
Servicing Standards and Covenants.................. 46
Remittances to Collection Account.................. 47
Servicing Compensation............................. 47
Third Party Suppliers.............................. 48
Servicer Representations and Warranties............ 49
Statements by Servicer............................. 50
Evidence as to Compliance.......................... 50
Matters Regarding the Servicer..................... 50
Servicer Defaults.................................. 51
Rights When Servicer Defaults...................... 51
Waiver of Past Defaults............................ 52
Successor Servicer................................. 52
Amendment.......................................... 52
Description of the Notes........................... 53
Security........................................... 53
Collection Account................................. 53
Interest and Principal............................. 54
Optional Redemption................................ 55
Mandatory Redemption............................... 55
Overcollateralization Subaccount................... 55
Capital Subaccount................................. 56
Reserve Subaccount................................. 56
Allocations and Payments........................... 56
Actions by Noteholders............................. 58
Note Events of Default; Rights on Note Event
of Default....................................... 58
Covenants of the Note Issuer....................... 60
Reports to Noteholders............................. 62
Annual Compliance Statement........................ 62
Description of the Certificates.................... 62
Payments........................................... 63
Voting of the Certificates......................... 64
Events of Default.................................. 64
Redemption......................................... 66
Reports to Certificateholders...................... 66
Supplemental Certificate Indentures................ 67
List of Certificateholders......................... 68
Registration and Transfer of the Certificates...... 68
Certificates Will Be Issued in Book-Entry
Form............................................. 68
Certificated Certificates.......................... 71
Federal Income Tax Consequences.................... 72
General............................................ 72
Treatment of the Certificates...................... 73
Taxation of U.S. Fixed Rate
Certificateholders............................... 73
Taxation of U.S. Floating Rate
Certificateholders............................... 74
Sale or Exchange of Fixed Rate
Certificates..................................... 76
Sale or Exchange of Floating Rate
Certificates..................................... 76
Non-U.S. Certificateholders........................ 76
Information Reporting and Backup
Witholding....................................... 77
State Taxation..................................... 78
ERISA Considerations............................... 78
Prohibited Transactions............................ 79
Plan Asset Regulation.............................. 79
Conclusion......................................... 80
Use of Proceeds.................................... 80
Plan of Distribution............................... 80
Legal Matters...................................... 81
Experts............................................ 81
Index to Financial Statements..................... F-1
2
<PAGE>
IMPORTANT NOTICE
ABOUT INFORMATION IN THIS PROSPECTUS
This prospectus and the related prospectus supplement do not constitute
an offer to sell or a solicitation of an offer to buy any security in any
jurisdiction where it is not lawful to do so.
References to the "finance authority" refer to the State of
Connecticut, acting through the Office of the State Treasurer of the State of
Connecticut.
References to the "trust" refer to Connecticut RRB Special Purpose
Trust CL&P-l, the issuer of the certificates.
References to the "note issuer" refer to CL&P Funding LLC, the issuer
of the notes.
References to the "seller" refer to The Connecticut Light and Power
Company and any successor seller under the sale agreement described in this
prospectus.
References to the "servicer" refer to The Connecticut Light and Power
Company and any successor servicer under the servicing agreement described in
this prospectus.
References to the "Delaware trustee" refer to the trustee of the trust.
References to the "certificate trustee" refer to the trustee under the
certificate indenture. References to the "note trustee" refer to the trustee
under the note indenture.
References to the "swap agreement" refer to any interest rate exchange
agreement executed to permit the issuance of floating rate certificates.
References to the "swap counterparty" refer to the provider of any swap
agreement. The prospectus supplement indicates whether the trust will issue
floating rate certificates.
We include cross-references to sections where you can find additional
information. Check the table of contents to locate these sections.
3
<PAGE>
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because this is a
summary, it does not contain all of the information that may be important to
you. You should read both this prospectus and the prospectus supplement before
you buy the certificates.
Transaction Overview............ Connecticut law permits electric
companies, such as Connecticut Light &
Power, to recover the costs of
investments and obligations that cannot
be recouped through market-based rates
in a competitive electricity generation
market. These costs are known as
"stranded costs." An electric company
recovers stranded costs through a charge
called a "competitive transition
assessment," which is a non-bypassable
usage-based charge assessed on all
classes of retail users of the electric
company's distribution system (subject
to certain limited customer exemptions
described herein).
Connecticut law permits special purpose
entities formed by electric companies to
issue securities secured by the right to
receive the revenues arising from the
competitive transition assessment (or a
portion of the competitive transition
assessment), if doing so would save
money for the electric company's
ratepayers. This right is referred to as
the "transition property." See
"Description of the Transition
Property," which begins on page 30.
The following sets forth the primary
steps of the transaction underlying the
offering of the certificates:
o Connecticut Light & Power will sell
the transition property to the note
issuer in exchange for the net
proceeds from the sale of the
notes.
o The note issuer will sell the notes
to the trust in exchange for the
net proceeds from the sale of the
certificates.
o The trust, whose sole assets are
the notes and, in the case of a
class of floating rate
certificates, a swap agreement,
will sell the certificates to the
underwriters named in the
prospectus supplement.
o Connecticut Light & Power will act
as the servicer of the transition
property and as the administrator
of the note issuer.
Neither the certificates, the notes nor
the property securing the notes is an
obligation of the State of Connecticut
or any political subdivision,
governmental agency, authority or
instrumentality of the State of
Connecticut or of Connecticut Light &
Power or any of its affiliates, except
for CL&P Funding LLC, which is an
affiliate of Connecticut Light & Power.
Neither the full faith and credit nor
the taxing power of the State of
Connecticut is pledged to the payment of
principal of, or interest on, the
certificates or the notes. Furthermore,
the issuance of the certificates and the
notes shall not directly, indirectly or
contingently obligate the State of
Connecticut or any political subdivision
thereof to levy or to pledge any form of
taxation thereof or to make any
appropriation for their payment.
4
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<PAGE>
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The following diagram shows the parties to the transactions related to this
offering and summarizes their roles and their relationships to each other:
PARTIES TO TRANSACTIONS
<TABLE>
<S> <C> <C> <C>
Parties to note indenture ------------------- -------------------
--------------------- governing issuance of notes | CERTIFICATE | | FINANCE |
| NOTE TRUSTEE |------------------------------------ | TRUSTEE | | AUTHORITY |
--------------------- | ------------------- -------------------
| | |
Sale of transition | Parties to | |
--------------------- property for net | certificate | Parties to |
| SELLER |/ proceeds of sale of notes | indenture | declaration |
| Connecticut Light |------------------------------ | governing | of trust |
| & Power |\ | | issuance of | forming trust |
--------------------- | | certificates | |
\|/ | | -------------------
--------------------- --------------------- | | DELAWARE |
| SERVICER | | | | | TRUSTEE |
| Connecticut Light |-------------------| NOTE ISSUER | | -------------------
| & Power | Servicing of | CL&P Funding LLC | | |
--------------------- transition | | | |
property for | Sole Member: | | -------------------
servicing fee | Connecticut Light | ----------------| TRUST |
| & Power |/ \| Connecticut RRB |
| |-------------------------------| Special Purpose |
---------------------\ Sale of notes for /| Trust CL&P-1 |
| net proceeds of \\\\\\-------------------
| sale of \ /|\
| certificates \ |
| \ Sale of |
| \ certificates |
| \ for cash |
| \ |
| \\\\\\\\\\\\\\\\\\ \|/
--------------------- | \ -------------------
| ADMINISTRATOR | | \ | UNDERWRITERS |
| Connecticut Light |-------------------------- \ -------------------
| & Power | Administration of note issuer \ /|\
--------------------- for administration fee \ |
\ Sale of |
\ certificates |
\ for cash |
\\\\\\\\\\\\\\\\\\\\\\\\\ |
\ SWAP \ \|/
\ COUNTERPARTY \ -------------------
\ (to be named, if any) \ | INVESTORS |
\\\\\\\\\\\\\\\\\\\\\\\\\ -------------------
</TABLE>
5
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Risk Factors.................... You should consider, among other things,
the following material risks of
investing in the certificates. These
risks may delay the payment of principal
of and interest on the certificates or
cause you to suffer a loss on your
investment.
o Payments on the notes and, in the
case of any class of floating rate
certificates, payments on the
related swap agreement, are the
sole source of payments on the
certificates.
o There may be challenges that
attempt to limit, alter or amend
either the Department of Public
Utility Control's order creating
the transition property or the
provisions of the restructuring
statute that make the order
irrevocable.
o Because the rate of collections
arising from the transition
property is based on the amount of
electricity consumed by customers,
these collections may be
insufficient to make required
payments on the certificates.
o If there is an event of default on
the notes and the certificates, the
note trustee is unlikely to be able
to resell the transition property.
o If Connecticut Light & Power were
to cease servicing the transition
property, it might be difficult to
find a suitable successor servicer.
o If Connecticut Light & Power were
to become a debtor in a bankruptcy
case, a court could hold that the
transition property is Connecticut
Light & Power's property and may be
reached by its creditors.
For a more detailed discussion of these
and other material risks of investing in
the certificates, you should carefully
read the discussion under "Risk
Factors," which begins on page 17.
Seller and Servicer............. Connecticut Light & Power is an electric
distribution company that provides
electric service to retail customers in
149 cities and towns in Connecticut.
Connecticut Light & Power is a wholly
owned subsidiary of Northeast Utilities.
Northeast Utilities has entered into a
merger agreement with Consolidated
Edison, Inc. pursuant to which Northeast
Utilities will become a wholly owned
subsidiary of Consolidated Edison. The
merger agreement contains various
conditions to the completion of the
merger, including the receipt of
approvals from state and federal
regulatory bodies. The prospectus
supplement contains current information
about the status of the proposed merger.
See "The Seller and Servicer," which
begins on page 41.
The Certificates................ Connecticut RRB Special Purpose Trust
CL&P-1 Rate Reduction Certificates.
6
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<PAGE>
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The trust may issue the certificates in
one or more classes under the
certificate indenture between the trust
and the certificate trustee. One or more
classes of certificates may accrue
interest at floating rates. These
certificates are referred to as
"floating rate certificates." The
prospectus supplement indicates whether
the trust will issue floating rate
certificates. Each class of certificates
will represent fractional undivided
beneficial interests in the related
class of notes, the proceeds of that
class of notes and, in the case of
floating rate certificates, a related
swap agreement and its proceeds. Holders
of each class of certificates will
receive payments received by the trust
on the related class of notes or, in the
case of floating rate certificates,
payments on a related swap agreement.
These payments will be the only source
of payments on a class of certificates.
Issuer of Certificates.......... Connecticut RRB Special Purpose Trust
CL&P-1.
Certificate Trustee............. Named in the prospectus supplement.
Delaware Trustee................ Named in the prospectus supplement.
The Notes....................... CL&P Funding LLC Notes.
Each class of notes and the related
class of certificates will have the same
aggregate principal amount, expected
amortization schedule, maturity date and
interest rate, as described in the
prospectus supplement. The notes will be
secured primarily by the transition
property.
Note Issuer..................... CL&P Funding LLC, 107 Selden Street,
Berlin, Connecticut 06037-1616. The note
issuer's telephone number is (860)
665-5000.
Note Trustee.................... Named in the prospectus supplement.
Interest........................ Interest on each class of certificates
will accrue at the interest rate
specified in the prospectus supplement.
The certificate trustee will pay
interest accrued on each class of
certificates on each payment date, to
the extent of interest paid on the
related class of notes or, in the case
of floating rate certificates, payments
on any related swap agreement.
Principal....................... The certificate trustee will pay
principal of each class of certificates
in the amounts and on the payment dates
specified in the expected amortization
schedule in the prospectus supplement,
but only to the extent of principal paid
on the related class of notes. See
"Description of the Notes - Allocations
and Payments," which begins on page 56,
and "Description of the Certificates -
Payments," which begins on page 63.
On any payment date, the certificate
trustee will pay principal it has
received on the notes only until the
outstanding principal balances of the
various classes of certificates have
been reduced to the principal balances
specified for those classes in the
expected amortization schedule. If cash
is not available, however, the
certificate trustee will pay principal
of a class of certificates later than
set forth in the expected amortization
schedule. If a note event of default has
7
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<PAGE>
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occurred and is continuing, under the
certificate indenture the certificate
trustee may, and upon the written
direction of the holders of at least a
majority in principal amount of the
outstanding certificates will, vote all
of the notes in favor of declaring the
unpaid principal amount of the
outstanding notes and accrued interest
to be due and payable. See "Description
of the Certificates - Events of
Default," which begins on page 64.
RRB Charge...................... The restructuring statute allows
Connecticut Light & Power, as well as
other utilities providing electricity to
consumers in Connecticut, to recover
certain stranded costs through the
collection of a competitive transition
assessment included in the bills of all
classes of retail users of the utility's
retail distribution system (subject to
certain limited customer exemptions
described under "Description of the
Transition Property - Competitive
Transition Assessment," which begins on
page 31). Pursuant to the restructuring
statute, Connecticut Light & Power has
obtained from the Department of Public
Utility Control, which regulates
electric companies in Connecticut,
decisions that approve certain of
Connecticut Light & Power's stranded
costs for recovery through collection of
the competitive transition assessment.
These decisions are known collectively
as a "restructuring decision."
The restructuring statute also
authorizes electric utilities to
securitize certain stranded costs.
Pursuant to this authorization,
Connecticut Light & Power has obtained
from the Department of Public Utility
Control an order, known as a "financing
order," which establishes the stranded
costs (as well as the costs of issuing,
servicing and retiring the notes and the
certificates) that will be financed
through this transaction. Pursuant to
the financing order, the right to
collect and assess a portion of the
competitive transition assessment will
be sold to the note issuer in exchange
for the net proceeds of the notes. This
portion of the competitive transition
assessment is referred to as the "RRB
charge."
The RRB charge is non-bypassable in that
customers must pay it whether or not
they purchase electricity from
Connecticut Light & Power or a third
party supplier of electricity, and
whether or not their distribution system
is being operated by Connecticut Light &
Power or a successor distribution
company.
"Description of the Transition
Property," which begins on page 30.
Customers....................... All five classes of retail users of
Connecticut Light & Power's distribution
system - residential, commercial,
industrial, street lighting and
railroad.
Adjustment to the RRB Charge.... The servicer will calculate and set the
RRB charge at least annually and, in the
last year that the certificates are
scheduled to be outstanding, at least
quarterly at a level estimated to
generate sufficient revenues:
o to pay fees and expenses (including
indemnities) related to servicing
and retiring the notes and
certificates;
8
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<PAGE>
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o to pay interest on the notes;
o to pay principal of each class of
notes according to its expected
amortization schedule; and
o to fund the overcollateralization
subaccount to the required
overcollateralization level and to
replenish the capital subaccount to
the required capital level.
The servicer will file a request for an
increase or decrease in the RRB charge
at least 15 days before the beginning of
each calendar year and, in the last year
that the certificates are scheduled to
be outstanding, at least 15 days before
the end of each calendar quarter. This
request is referred to as a "routine
true-up letter." The servicer may also
file routine true-up letters, before the
last year that the certificates are
scheduled to be outstanding, quarterly
or, in the last year that the
certificates are scheduled to be
outstanding, monthly. In addition, the
servicer may file a non-routine true-up
letter to revise its method for
calculating the RRB charge.
Adjustments to the RRB charge will be
performed on a system-wide basis (i.e.,
across customer classes rather than on a
class-by-class basis) in accordance with
the restructuring statute.
See "Description of the Transition
Property - Adjustments to the RRB
Charge," which begins on page 32.
State Pledge.................... The State of Connecticut has pledged and
agreed with the owners of transition
property and holders of rate reduction
bonds (including the note issuer and the
holders of the certificates) that the
state will neither limit nor alter the
competitive transition assessment,
transition property, financing orders,
and all rights thereunder until the
obligations, together with interest
thereon, are fully met and discharged;
however, this pledge does not preclude
the limitation or alteration if and when
adequate provision shall be made by law
for the protection of the owners and
holders. See "Description of Transition
Property - Pledge by the State of
Connecticut," which begins on page 33.
Optional Redemption............. The note issuer may redeem the notes,
and cause the trust to redeem the
certificates, on any payment date if the
outstanding principal balance of the
notes (after giving effect to payments
that would otherwise be made on a
payment date) is less than 5 percent of
the initial principal balance of the
notes. Upon redemption, the note issuer
will pay an aggregate amount equal to
the outstanding principal amount of the
notes and accrued but unpaid interest as
of the redemption date. See "Description
of the Certificates - Redemption," which
begins on page 66.
Mandatory Redemption............ If the seller is required to, or elects
to, repurchase the transition property
as a result of the breach of seller
representations under the circumstances
described under "Description of the
Transition Property - Seller
Representations and Warranties and
Repurchase Obligation," which begins on
page 34, the note issuer will redeem the
notes on or
9
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<PAGE>
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before the fifth business day following
the repurchase of the transition
property. The trust will redeem the
certificates on the date the notes are
redeemed. The redemption price of the
certificates is the outstanding
principal balance of the certificates
plus accrued but unpaid interest as of
the redemption date.
Collection Account and
Subaccounts..................... The note issuer will establish a
collection account to hold payments
arising from the RRB charge as well as
the capital contribution to the note
issuer. The collection account will
consist of four subaccounts:
o a general subaccount;
o a reserve subaccount;
o an overcollateralization subaccount
for the overcollateralization
amount; and
o a capital subaccount for capital
contributions to the note issuer.
All amounts in the collection account
not allocated to any other subaccount
will be allocated to the general
subaccount. Withdrawals from and
deposits to these subaccounts will be
made as described under "Description of
the Notes - Allocations and Payments,"
which begins on page 56.
Overcollateralization
Subaccount..................... The servicer will collect, and the note
trustee will deposit into the
overcollateralization subaccount, the
overcollateralization amount specified
in the prospectus supplement to enhance
the likelihood that payments on the
notes will be made on a timely basis.
The note trustee will hold the
overcollateralization amount for all
classes of notes in the
overcollateralization subaccount. The
note trustee will draw on amounts in the
overcollateralization subaccount to the
extent amounts available in the general
subaccount and the reserve subaccount
are insufficient to pay scheduled
payments of principal of and interest on
the notes and fees and expenses
(including indemnities) related to
servicing and retiring the notes and the
certificates.
Capital Subaccount.............. Prior to the issuance of the notes,
Connecticut Light & Power will
contribute capital to the note issuer in
the amount specified in the prospectus
supplement. The note issuer will deposit
the capital into the capital subaccount.
The note trustee will draw on amounts in
the capital subaccount to the extent
amounts available in the general
subaccount, the reserve subaccount and
the overcollateralization subaccount are
insufficient to pay scheduled payments
of principal of and interest on the
notes and the fees and expenses
(including indemnities) relating to
servicing and retiring the notes and the
certificates. Funds withdrawn from the
capital subaccount will be replenished
on subsequent payment dates if payments
arising from the RRB charge exceed
amounts required for other uses having a
higher priority of payment. See
"Description of the Notes - Allocations
and
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Payments," which begins on page 56.
Reserve Subaccount.............. The note trustee will allocate to the
reserve subaccount any amounts remitted
to the collection account exceeding the
amounts necessary to:
o pay fees and expenses (including
indemnities) related to servicing
and retiring the notes and
certificates;
o pay principal of and interest on
the notes;
o fund the capital subaccount to the
required capital level; and
o fund the overcollateralization
subaccount to the required
overcollateralization level.
The note trustee will draw on amounts in
the reserve subaccount to the extent
amounts available in the general
subaccount are insufficient to pay the
amounts listed above.
Remittances to Collection
Account......................... Starting with collections that are
received on the first business day that
is at least 45 days after the first day
on which Connecticut Light & Power
imposes the RRB charge, the servicer
will remit daily to the note trustee,
within 2 business days after receipt, an
amount equal to the RRB charges
collected (calculated based on the
servicer's remittance methodology). See
"Servicing - Remittances to Collection
Account," which begins on page 47.
Allocations and Payments of
Amounts in the Collection
Account......................... On each payment date, or for any amount
payable under clauses (1) through (4)
below, on any business day, the note
trustee will apply all amounts on
deposit in the collection account,
including net earnings on those amounts
(other than on amounts in the capital
subaccount) to pay the following amounts
in the following priority:
(1) all amounts owed by the note issuer
to the note trustee, the Delaware
trustee, the certificate trustee,
the trust and the finance authority
will be paid, subject, in each
case, to any limitation on such
payment described in the note
indenture;
(2) the servicing fee and all unpaid
servicing fees from prior payment
dates will be paid to the servicer;
(3) the administration fee and all
unpaid administration fees from
prior payment dates will be paid to
the note issuer's administrator;
(4) so long as no note default or note
event of default has occurred and
is continuing or would result from
such payment, all fees and expenses
(including indemnities) payable by
the note issuer to persons other
than those specified in clauses (1)
through (3) above will be paid,
provided that the total amount paid
for such other fees and expenses
(including indemnities) since the
previous payment date and on the
current payment date may not,
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in the aggregate, exceed $100,000;
(5) (A) any overdue interest (together
with, to the extent lawful,
interest on such overdue interest
at the applicable note interest
rate) and (B) interest currently
due and payable, will be
transferred to the certificate
trustee, as noteholder, for payment
to the certificateholders or, in
the case of any floating rate
certificates, the related swap
counterparty;
(6) (A) principal due and payable (x)
as a result of a note event of
default or (y) on the final
maturity date of a class of notes
and (B) scheduled principal due and
payable on that payment date, will
be transferred to the certificate
trustee, as noteholder, for payment
to the certificateholders;
(7) unpaid fees and expenses (including
indemnities) payable by the note
issuer will be paid to the persons
entitled thereto;
(8) the amount, if any, by which the
capital subaccount needs to be
funded to equal the required
capital level as of that payment
date (disregarding for this purpose
any interest earnings held in the
capital subaccount) will be
allocated to the capital
subaccount;
(9) the amount, if any, by which the
overcollateralization subaccount
needs to be funded to equal the
required overcollateralization
level as of that payment date will
be allocated to the
overcollateralization subaccount;
and
(10) the balance, if any, will be
allocated to the reserve subaccount
for payment on subsequent payment
dates.
Following the repayment of all notes and
certificates, any amounts remaining in
the collection account will be released
to the note issuer.
In the case of any deficiency in the
amount required under clause (5) above,
amounts available to make payments under
clause (5) above will be allocated among
each class of notes pro rata based upon
the respective amounts of interest owed
on the notes of each class, and
allocated and paid to holders within
each class pro rata based upon the
respective principal amount of notes
held. In the case of any deficiency in
the amount required under clause (6)
above, amounts available to make
payments under clause (6) above will be
allocated among each class of notes pro
rata based upon the respective principal
amount of notes due (in the case of
clause (6)(A)(x)) or scheduled to be
paid (in the case of clauses (6)(A)(y)
and (6)(B), based on priorities
described in the prospectus supplement
and according to the expected
amortization schedule for such class),
and allocated and paid to the holders
within each class pro rata based upon
the principal amount of notes held.
If on any payment date, or for any
amounts payable under clauses (1)
through (4) above, on any business day,
funds on deposit in the general
subaccount are insufficient to make the
payments
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contemplated by clauses (1) through (6)
above, the note trustee will:
o first, draw from amounts on deposit
in the reserve subaccount
o second, draw from amounts on
deposit in the
overcollateralization subaccount;
and
o third, draw from amounts on deposit
in the capital subaccount;
up to the amount of the shortfall, in
order to make the payment described
above. In addition, if on any payment
date funds on deposit in the general
subaccount are insufficient to make the
allocations described in clauses (8) and
(9) above, the note trustee will draw
from amounts on deposit in the reserve
subaccount to make the required
allocations.
If the amount in the capital subaccount
on the last day of any month exceeds the
required capital level, the note trustee
will pay such excess amount to the note
issuer upon request. See "Description of
the Notes - Allocations and Payments,"
which begins on page 56.
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The following diagram provides a general summary of the flow of funds
from the customers through the servicer to the collection account, and the
various allocations from the collection account:
ALLOCATIONS AND PAYMENTS FROM THE COLLECTION ACCOUNT
<TABLE>
<S> <C> <C> <C> <C> <C>
-------------------------
| CUSTOMERS |
-------------------------
|
| Payments to the servicer in
| respect of the RRB charge
\|/
-------------------------
| SERVICER |
-------------------------
|
| Daily remittance of estimated payments
| arising from the RRB charge
\|/
-------------------------
| COLLECTION |
| ACCOUNT |
-------------------------
| Application of amounts in collection account, including
| net earnings (other than net earnings on the capital
| subaccount), as follows:
\|/
----------------------------------------------------------------------------------------------------------------------
| | | | | | |
\|/ \|/ \|/ \|/ \|/ \|/ |
----- ----- ----- ----- ----- ----- |
| 1 | | 2 | | 3 | | 4 | | 5 | | 6 | |
----- ----- ----- ----- ----- ----- |
|
----------------- ----------------- ---------------------- ----------------- ----------------- ----------------------- |
| NOTE | | SERVICER: | | ADMINISTRATOR: | | NOTE | | CERTIFICATE | | CERTIFICATE | |
| TRUSTEE, | | Servicing fee | | Administration fee | | ISSUER: | | HOLDERS OR | | HOLDERS: | |
| DELAWARE | ----------------- ---------------------- | Fees and | | SWAP | | o Principal | |
| TRUSTEE, | | expenses | | COUNTER- | | following | |
| CERTIFICATE | | (not to | | PARTY: | | event of | |
| TRUSTEE, | | exceed | | Interest | | default or | |
| TRUST, | | $100,000) | ----------------- | on final maturity | |
| FINANCE | ----------------- | date | |
| AUTHORITY: | | o Scheduled | |
| Fees and | | principal | |
| expenses | | payments | |
----------------- ----------------------- |
|
----------------------------------------------------------------------------------------------------------------------
| | | |
\|/ \|/ \|/ \|/
----- ----- ----- -----
| 10| | 9 | | 8 | | 7 |
----- ----- ----- -----
----------------- ------------------------- -------------------------- ------------------
| RESERVE | | OVER- | | CAPITAL | | NOTE |
| SUBACCOUNT: | | COLLATERALIZATION | | SUBACCOUNT: | | ISSUER: |
| All remaining | | SUBACCOUNT: | | Up to required capital | | Unpaid fees |
| amounts | | Up to required | | level (disregarding | | and expenses |
----------------- | overcollateralization | | any interest earnings | ------------------
| level | | held in the capital |
------------------------- | subaccount) |
--------------------------
</TABLE>
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Servicing....................... The servicer will service and manage the
transition property and receive payments
arising from the RRB charge in the same
manner that it services bill collections
for its own account and the accounts it
services for others, if any.
Servicing Compensation.......... The servicer will be entitled to receive
an annual servicing fee in an amount
equal to:
o 0.05 percent of the initial
principal balance of the notes; or
o up to 1.25 percent of the initial
principal balance of the notes if
the RRB charge is billed separately
to customers by a successor
servicer.
The note trustee will pay the servicing
fee in quarterly installments on each
payment date.
Tax Status of the
Certificates.................. For federal income tax purposes, the
trust will be treated as a "grantor
trust," and thus not taxable as a
corporation. Each class of certificates
bearing a fixed interest rate will be
treated as representing ownership of an
interest in the related class of notes
for federal income tax purposes. Each
class of floating rate certificates will
be treated as representing ownership of
an interest in the related class of
notes and related swap agreement.
Interest and original issue discount, if
any, on the certificates generally will
be included in gross income for federal
income tax purposes. All holders of
floating rate certificates, and all
individual holders in particular, should
seriously consider making an election to
"integrate" the related notes and
related swap agreement for tax purposes
by making a notation on their books and
records on or before the date the
floating rate certificates are acquired.
Interest and original issue discount, if
any, on the certificates, and any gain
on the sale of the certificates,
generally will be included in gross
income of certificateholders for federal
income tax purposes. See "Federal Income
Tax Consequences," which begins on page
72. Interest on the certificates is
exempt from Connecticut personal income
taxes. See "State Taxation," which
begins on page 78.
Ratings......................... The certificates will not be issued
unless prior to closing they have been
rated "AAA" / "AAA"/ "Aaa" by S&P, Fitch
and Moody's, respectively.
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 any rating on
any certificates, and, accordingly,
there can be no assurance that the
ratings assigned to any series or class
of certificates upon the initial
issuance will not be revised or
withdrawn by a rating agency at any time
thereafter. If a rating of any series or
class of certificates is revised or
withdrawn, the liquidity of this series
or class of certificates 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 certificates
other than the payment in full of each
series or class of certificates by the
applicable final termination date
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for such series or class. Each rating of
any series or class of certificates
should be evaluated independently of any
other rating.
For so long as any of the certificates
are listed on the Luxembourg Stock
Exchange and the rules of that exchange
so require, the trust will notify the
Luxembourg Stock Exchange if any rating
assigned to any class of certificates
listed on the Luxembourg Stock Exchange
is reduced or withdrawn and will cause
such notice to be published in a daily
newspaper published in Luxembourg, which
is expected to be the Luxemburger Wort.
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<PAGE>
RISK FACTORS
You should consider carefully the following factors before you decide
whether to buy the certificates:
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
LIMITED SOURCES OF PAYMENT FOR THE CERTIFICATES AND LIMITED CREDIT ENHANCEMENT
You could experience payment delays or losses on the certificates
because payments on the notes and any swap agreements are the sole source of
payments on the certificates. The notes and any swap agreements are the sole
assets of the trust. The transition property and the other note collateral,
which is expected to be of relatively small value, are in turn the only sources
of payments on the notes.
There will be no form of credit enhancement for the certificates except
for the right to adjust the RRB charge and amounts held in the
overcollateralization subaccount, capital subaccount and reserve subaccount. We
do not anticipate that the certificates will have the benefit of any liquidity
facility or of any third-party credit enhancement, such as guarantees, letters
of credit or insurance.
If payments are not made on the certificates in a timely manner as a
result of nonpayment of the related notes, the holders of at least a majority of
the outstanding principal amount of the certificates may direct the certificate
trustee to bring an action against the note issuer to foreclose on the
transition property and the other note collateral securing the notes. There is
not likely to be a market, however, for the sale of the transition property and
the other note collateral.
CERTIFICATEHOLDERS COULD EXPERIENCE PAYMENT DELAYS OR LOSSES AS A RESULT OF
AMENDMENT, REPEAL OR INVALIDATION OF THE RESTRUCTURING STATUTE OR BREACH OF THE
STATE PLEDGE
It is possible that legislative or judicial action could be taken, or
attempted, to alter the transition property or the financing order. Uncertainty
concerning the validity of the restructuring statute or the financing order or
any aspect of the actions taken by the Department of Public Utility Control
could result in delays in payment of the certificates, even if the validity of
the restructuring statute and the actions taken by the Department of Public
Utility Control were ultimately upheld. If legislative or judicial action were
ultimately taken to invalidate any aspect of the restructuring statute or the
financing order, you could suffer a loss on your investment in the certificates.
The State of Connecticut has pledged to the note issuer and the
certificateholders that it will not limit or alter the transition property or
the financing order until the certificates are fully paid and discharged. See
"Description of the Transition Property - Pledge by the State of Connecticut,"
beginning on page 33. The pledge does not, however, preclude the limitation or
alteration of the transition property or the financing order if adequate
provision is made by law for the protection of the note issuer and the
certificateholders. It is unclear what "adequate provision" would be afforded to
certificateholders by the state if such limitation or alteration were attempted.
Measures taken to satisfy the requirement of adequate provision might adversely
affect the price of the certificates, or the timing of receipt of payments with
respect to the certificates.
LEGISLATIVE ACTIONS
Legislative action could be taken or proposed that would affect the
restructuring statute or the financing order. We are not aware of any proposed
or pending actions in the Connecticut legislature that would affect any of the
provisions of the restructuring statute or the financing order.
In the reasoned opinion of Pullman & Comley, LLC, counsel to the trust,
under applicable constitutional principles relating to the impairment of
contracts, Connecticut could not repeal or amend the restructuring statute by
means of the legislative process, or take or refuse to take any action required
under its pledge described above if the repeal or amendment or the action or
inaction would substantially impair the rights of the owners of the transition
property or the certificateholders, absent a demonstration by Connecticut that
an impairment is narrowly tailored and is necessary to advance an important
public interest, such as responding to a "great public calamity."
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There have been numerous cases in which legislative or popular concerns
with the burden of taxation or government charges have led to adoption of
legislation reducing or eliminating taxes or charges that supported bonds or
other contractual obligations entered into by public instrumentalities. Courts
have not considered these concerns by themselves to provide sufficient
justification for a substantial impairment of the pledged security provided by
the taxes or governmental charges for the bonds or obligations. Based on the
case law referred to above (which, however, does not address directly the
certificates and the pledge described above), it would appear unlikely that
Connecticut could reduce, modify or alter the transition property, or take or
refuse to take any action regarding the transition property, in a manner that
would substantially impair the rights of the owners of the transition property
or the certificateholders.
Nonetheless, we cannot assure you that a repeal or amendment of the
restructuring statute will not be adopted or sought or that any action or
refusal to act by the state of Connecticut will not occur, any of which may
constitute a violation of the state's pledge with the owners of the transition
property and the certificateholders. If a violation of this pledge occurred,
costly and time-consuming litigation might ensue. Any litigation might adversely
affect the price of the certificates and your ability to resell the certificates
and might delay the timing of payments on the certificates. Moreover, given the
lack of controlling judicial precedent directly addressing the certificates and
the state's pledge, we cannot predict the outcome of any litigation with
certainty, and, accordingly, you could experience a delay in receipt of payments
on or incur a loss on your investment in the certificates.
None of the trust, the note issuer or Connecticut Light & Power will
indemnify you for any changes in the law that may affect the value of your
certificates.
COURT DECISIONS
It is possible that private litigation could be brought to challenge
the provisions of the restructuring statute relating to the issuance by the
Department of Public Utility Control of a financing order, the creation or
characterization of the transition property or the issuance of "rate reduction
bonds," such as the certificates. We are not aware of any such litigation that
is pending. If a court were to determine that the relevant provisions of the
restructuring statute or the financing order are unlawful, invalid or
unenforceable in whole or in part, it could adversely affect the validity of the
certificates or the trust's ability to make payments on the certificates. In
either case, you could suffer a loss on your investment in the certificates.
Although the seller may be required to repurchase the transition property for a
price equal to the outstanding principal amount of the notes and accrued
interest if a court were to determine that the relevant provisions of the
restructuring statute or the financing order are unlawful, invalid or
unenforceable in whole or in part, we cannot assure you that the seller would be
able to repurchase the transition property if it were required to do so. For a
description of the circumstances under which the seller will be required to
repurchase the transition property, see "Description of the Transition Property
- Seller Representations and Warranties and Repurchase Obligation," which begins
on page 34.
THE DEPARTMENT OF PUBLIC UTILITY CONTROL MAY TAKE ACTIONS THAT ADVERSELY AFFECT
CERTIFICATEHOLDERS
The Department of Public Utility Control will continue to regulate some
aspects of the electric industry in Connecticut and may take actions that
adversely affect certificateholders. For example, the Department of Public
Utility Control will:
o regulate electric distribution companies,
o set financial and other requirements for electric generation
suppliers and other third parties, and
o set customer billing guidelines and collection, metering and
disclosure requirements for electric generation suppliers and
other third parties.
Actions taken by the Department of Public Utility Control pursuant to
the regular exercise of its regulatory powers as described above could adversely
affect the ability of the servicer to collect the RRB charge on a full and
timely basis or impose financial constraints on the servicer that could lead it
to default on its obligations.
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Also, the Department of Public Utility Control could revise or rescind
any of its regulations or take other actions relating to the RRB charge or the
transition property. Any such change in regulations or other action would be
subject to the State of Connecticut's pledge not to limit or alter the RRB
charges or the transition property without making adequate provision for the
interests of the note issuer and the certificateholders. See "Description of the
Transition Property - Pledge by the State of Connecticut," which begins on page
33. Any such change in regulations or other action also would be subject to the
provision of the restructuring statute that prohibits the Department of Public
Utility Control from revaluing or revising stranded costs, determining that the
competitive transition assessment is unjust or unreasonable or in any way
reducing or impairing the value of the transition property or revenues arising
from its collection. See "Description of the Transition Property - No Impairment
by Department of Public Utility Control," which begins on page 33. Connecticut
Light & Power cannot predict whether the Department of Public Utility Control
will make new regulations, the timing or content of any new Department of Public
Utility Control regulations or any other actions relating to the RRB charge or
the transition property that the Department of Public Utility Control might take
in the future.
Future Department of Public Utility Control regulations may affect the
ratings of the certificates or their price. Those actions may also affect the
rate of collections of RRB charges and, as a result, the amortization of
certificates and their weighted average lives. As a result, certificateholders
could suffer a loss of their investment.
The servicer agrees, on behalf of the certificateholders, to take any
action or proceeding necessary to compel performance by the Department of Public
Utility Control or the State of Connecticut of any of their obligations or
duties under the restructuring statute, the financing order or any true-up
letter, including any actions reasonably necessary to block or overturn any
attempts to cause a repeal or modification of the restructuring statute or the
financing order or the rights of holders of the transition property by
legislative enactment or constitutional amendment that would be adverse to the
certificateholders. The servicer, however, may not be able to take those actions
and any action the servicer is able to take may not be successful.
Connecticut Light & Power, as servicer, is required to file with the
Department of Public Utility Control routine true-up letters and non-routine
true-up letters to adjust the RRB charge. See "Description of Transition
Property - Adjustments to the RRB Charge," which begins on page 32. These
adjustments are intended to provide, among other things, for timely payment on
the certificates. Although the financing order approves Connecticut Light &
Power's routine true-up methodology and indicates that routine RRB charge
adjustments are to take effect within a specified period of time after the
filing of the applicable routine true-up letter, the Department of Public
Utility Control might challenge an adjustment contained in a routine true-up
letter or may refuse to permit a routine adjustment to take effect, on the
ground that the adjustment contains an error or for some other reason. The
Department of Public Utility Control also might challenge an adjustment
contained in a non-routine true-up letter or might refuse to permit a
non-routine adjustment to take effect, on the ground that the adjustment
contains an error or for some other reason. Any such challenge or refusal by the
Department of Public Utility Control could cause a delay in the payments on the
certificates.
LITIGATION AND OTHER EVENTS IN JURISDICTIONS OTHER THAN CONNECTICUT COULD
ADVERSELY AFFECT CERTIFICATEHOLDERS
A legal action successfully challenging under the U.S. Constitution or
other federal law a state restructuring statute similar to the Connecticut
restructuring statute adopted by a jurisdiction other than Connecticut could
establish legal principles that would serve as a basis to challenge the
restructuring statute. Whether or not a subsequent court challenge to the
restructuring statute would be successful would depend on the similarity of the
other statute and the applicability of the legal precedent to the restructuring
statute. Although the restructuring statute would not become invalid
automatically as a result of a court decision invalidating another state's
restructuring statute, such a decision could establish a legal precedent for a
successful challenge to the restructuring statute that could adversely affect
certificateholders. Accordingly, the market value of the certificates could be
reduced. In addition, legal challenges or legislative, administrative, political
or other actions in other states challenging stranded cost recovery or
securitization as a means of stranded cost recovery could adversely affect the
market for certificates. Legal challenges brought in jurisdictions other than
Connecticut would not, however, directly affect the restructuring statute or the
interests of the certificateholders. Similarly, legislative, administrative,
political or other actions in other states (including such action in other
states that have implemented a competitive market structure for the electric
generation industry) would not directly impact the restructuring statute or the
interests of
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certificateholders but could heighten awareness of the political and other risks
associated with these types of securities as perceived by the capital markets,
and in that way, limit the ability of certificateholders to resell the
certificates and impair their value. We cannot assure you that future challenges
to stranded cost recovery or stranded cost recovery securitizations in other
states will not significantly impair your ability to resell the certificates and
the value of the certificates.
POSSIBLE FEDERAL PREEMPTION OF THE RESTRUCTURING STATUTE MAY PROHIBIT RECOVERY
OF THE RRB CHARGE
Federal preemption of the restructuring statute could prevent
certificateholders from receiving payments on the certificates and cause a loss
on their investment in the certificates. In the past, bills have been introduced
in Congress to prohibit the recovery of charges similar to the RRB charge.
Although Congress has not enacted any law that would prohibit the recovery of
charges similar to the RRB charge, it may do so in the future. Enactment of a
federal law prohibiting the recovery of charges similar to the RRB charge might
have the effect of preempting the restructuring statute and thereby prohibiting
the recovery of the RRB charge, which would cause delays and losses on the
payments on the certificates.
None of the trust, the note issuer or Connecticut Light & Power will
indemnify you for any changes in federal law that may affect the value of your
certificates.
A SHORTFALL IN RRB CHARGE PAYMENTS AS A RESULT OF INACCURATE FORECASTING OR
UNANTICIPATED DELINQUENCIES COULD LEAD TO PAYMENT DELAYS OR LOSSES
Because the RRB charge is assessed based on kilowatt-hours of
electricity consumed by customers, a shortfall of payments arising from the RRB
charge could result if the servicer inaccurately forecasts electricity
consumption or underestimates customer delinquencies or charge-offs when setting
the RRB charge, both initially and at the time of any periodic adjustment of the
RRB charge. See "Description of the Transition Property - Adjustments to the RRB
Charge," which begins on page 32. A shortfall could cause payments on the
certificates to be made later than expected or not at all. As a result,
principal of the certificates might not be paid according to the expected
amortization schedule, which would lengthen the weighted average life of the
certificates. In addition, a change in energy consumption by customers might
also result in principal of the certificates not being paid by the final
maturity date of the certificates or not being paid at all. For the same
reasons, payments of interest on the certificates could also be delayed or not
made. Although the RRB charge adjustment process is intended to mitigate these
risks over the life of the notes and the certificates, the process may not
prevent a temporary delay in payment.
Inaccurate forecasting of electricity consumption by the servicer could
result from, among other things:
o warmer winters or cooler summers, resulting in less
electricity consumption than forecasted;
o general economic conditions being worse than expected, causing
customers to migrate from Connecticut Light & Power's or a
successor distribution company's service territory or reduce
their electricity consumption;
o the occurrence of a natural disaster, such as a hurricane or
blizzard, unexpectedly disrupting electrical service and
reducing consumption;
o problems with energy generation, transmission or distribution
resulting from a change in the market structure of the
electric industry;
o customers accounting for a significant portion of Connecticut
Light & Power's revenues or sales ceasing to do business or
leaving Connecticut Light & Power's or a successor
distribution company's service territory;
o customers consuming less electricity because of increased
conservation efforts or technological change; or
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o customers accounting for a significant portion of Connecticut
Light & Power's revenues or sales switching to self-generation
or co-generation of electric power without being required to
pay an exit fee sufficient to mitigate the revenues lost by
their reduced consumption of electricity delivered by
Connecticut Light & Power or a successor distribution company.
See "Energy Deregulation and New Connecticut Market
Structure," which begins on page 27.
Inaccurate forecasting of delinquencies or charge-offs by the servicer
could result from, among other things:
o limitations under Connecticut regulations on the methods
Connecticut Light & Power is permitted to employ in
investigating and determining the creditworthiness of new
customers;
o unexpected deterioration of the economy or the occurrence of a
natural disaster, causing greater charge-offs than expected or
forcing Connecticut Light & Power or a successor distribution
company to grant additional payment relief to more customers;
o a change in law that makes it more difficult for Connecticut
Light & Power or a successor distribution company to
disconnect nonpaying customers, or that requires Connecticut
Light & Power or a successor distribution company to apply
more lenient credit standards in accepting customers; or
o the introduction into the energy markets of less creditworthy
third party energy suppliers who collect and remit payments
arising from the RRB charge to the servicer on behalf of
customers.
UNIQUE NATURE OF COLLATERAL MAY IMPAIR ABILITY TO REALIZE ON COLLATERAL
If there is an event of default on the notes and the note trustee
elects or is directed by the noteholders to foreclose on the transition
property, the note trustee is unlikely to be able to resell the transition
property because of its unique nature.
THE SELLER'S OBLIGATION TO PAY THE REPURCHASE PRICE UPON THE BREACH OF CERTAIN
REPRESENTATIONS AND WARRANTIES MAY NOT BE SUFFICIENT TO PROTECT YOUR INVESTMENT
Although the seller is required under certain limited circumstances to
repurchase the transition property for a price equal to the outstanding
principal amount of the notes and accrued interest, we cannot assure you that
the seller would be able to repurchase the transition property if it were
required to do so. In addition, if the seller becomes obligated to pay the
repurchase price, the rating agencies are likely to downgrade the ratings on the
certificates to reflect the greater uncertainty of payment and the fact that the
obligation of the seller to repurchase the transition property is unsecured. For
a description of the circumstances under which the seller will be required to
repurchase the transition property, see "Description of the Transition Property
- Seller Representations and Warranties and Repurchase Obligation," which begins
on page 34.
The requirement to repurchase the transition property would arise if,
among other things, there has been a breach of the seller's representations and
warranties as of the closing date that:
o the financing order under which the transition property has
been created is in full force and effect and the issuance
advice letter has been filed in accordance with the financing
order;
o the process by which the financing order was adopted and
approved, and the financing order and issuance advice letter,
comply with all applicable laws, rules and regulations;
o the certificateholders are entitled to the protections of the
restructuring statute and, accordingly, the financing order is
not revocable by the Department of Public Utility Control; or
o the transition property constitutes a property right.
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The requirement to repurchase the transition property will arise only if a
breach has a material adverse effect on certificateholders, and the breach:
o continues beyond a 90-day grace period, if the seller then has
an investment grade long term debt rating and agrees to pay
any interest payments which become due on the notes during the
90-day period; or
o continues beyond a 2 business day grace period, if the seller
does not then have an investment grade long term debt rating,
unless the seller deposits with the note trustee an amount
sufficient to pay all interest payments which become due on
the notes during the 90-day grace period.
The seller will not be in breach of the representations and warranties in the
sale agreement as a result of a change in law by legislative enactment or
constitutional amendment or (if such means become available in the future)
referendum or initiative petition. A repeal of the restructuring statute, an
amendment voiding the transition property or the adoption of a federal statute
prohibiting the recovery of stranded costs are examples of these changes in law.
If any of these changes in law were to occur, the servicer, on behalf of the
certificateholders, would be required to bring legal action, at the note
issuer's expense, seeking to overturn the change.
ADDITIONAL ISSUANCES OF CERTIFICATES MAY AFFECT PAYMENTS ON OUTSTANDING
CERTIFICATES
The issuance of other certificates by a separate trust might delay or
reduce the payments that you receive on the certificates, because the revenues
arising from Connecticut Light & Power's competitive transition assessment will
be shared among the various issuances of certificates. As a result, if
collections of the competitive transition assessment are insufficient to pay
principal of and interest on each series of outstanding certificates, the
certificates the trust is offering will only receive their pro rata portion of
the collections according to the ratio of the RRB charges otherwise applicable
to the separate series of certificates. The terms of any new issuance of
certificates secured by the remaining portion of Connecticut Light & Power's
competitive transition assessment will not require the prior review or consent
of certificateholders. The seller has, however, agreed in the sale agreement not
to sell other transition property to secure another issuance of notes and, in
turn, another issuance of certificates if it would cause the then existing
ratings on the certificates to be downgraded.
PROBLEMS WITH THE SERVICING OF TRANSITION PROPERTY MAY CAUSE PAYMENT DELAYS OR
LOSSES
LIMITATION ON RATES MAY ADVERSELY AFFECT SERVICER'S FINANCIAL CONDITION AND,
IN TURN, ITS ABILITY TO SERVICE TRANSITION PROPERTY
Limitations on the rates that Connecticut Light & Power is permitted to
charge its customers could adversely affect its financial condition and, in
turn, its ability to service the transition property or devote appropriate
resources to collecting and determining necessary adjustments to the RRB charge.
Generally, under the restructuring statute, Connecticut Light & Power's system
average standard offer rate may not exceed 9.351 cents/kilowatt-hour through
December 31, 2003. Under the restructuring statute, this rate limit may be
exceeded if necessary to establish, fix or revise the competitive transition
assessment (including the RRB charge) at a level sufficient to pay principal of
and interest on the certificates and related expenses, to pay stranded costs
that are not recovered through the issuance of rate reduction bonds, and to pay
capital costs specified in the restructuring statute. It also may be exceeded
under the restructuring statute upon the occurrence of specified changes in law
or accounting standards or the incurrence of extraordinary and unanticipated
expenses required to provide safe, adequate and reliable service. This rate
limitation may cause Connecticut Light & Power to collect insufficient revenues
to meet its operating expenses and other financial obligations. In particular,
this could occur if, for whatever reason, the RRB charge rose to levels higher
than currently anticipated, thereby absorbing a higher than anticipated
percentage of Connecticut Light & Power's total rates, as so limited.
The average initial competitive transition assessment is expected to be
approximately 1.021 cents/kilowatt-hour. The expected average initial RRB charge
(which is a portion of the competitive transition assessment) is set forth in
the prospectus supplement.
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CHANGE IN SERVICER MAY LEAD TO PAYMENT DELAYS OR LOSSES
If, as a result of insolvency or liquidation or otherwise, Connecticut
Light & Power were to cease servicing the transition property, determining any
adjustments to the RRB charge or collecting payments arising from the RRB
charge, it could be difficult to find a suitable successor servicer. As a
result, the timing of recovery of payments arising from the RRB charge could be
delayed. The note issuer will rely on the servicer to determine any adjustments
to the RRB charge and for customer billing and collection. A successor servicer
would have less experience with Connecticut Light & Power's customer base and
service territory than Connecticut Light & Power and might have less capable
forecasting, billing and collection systems than those employed by Connecticut
Light & Power or may experience temporary errors in converting to a new system
even if equal or more capable than the current system. Given the complexity of
the tasks to be performed by the servicer and the expertise required, a
successor servicer could experience difficulties in collecting payments arising
from the RRB charge and determining appropriate adjustments to the RRB charge.
The servicing fee would likely increase if the note issuer were to
engage a successor servicer. In addition, a successor servicer under current law
might not be able to invoke the remedy of shutting off service to a customer for
nonpayment of the RRB charge and thus might experience higher delinquencies.
Also, a change in the servicer will cause payment instructions to change, which
could lead to a period of disruption in which customers continue to remit
payment according to the former payment instructions, resulting in delays in
collection that could result in delays in payment on the notes and payments on
the certificates.
CHANGE IN SERVICING PERSONNEL, PROCEDURES OR SYSTEMS MAY LEAD TO PAYMENT
DELAYS
Changes could occur in the personnel who service the transition
property or in the procedures or systems employed in the servicing of the
transition property, which could affect the ability of the servicer to forecast,
bill and collect the RRB charge. Given the complexity of the tasks to be
performed by the servicer and the expertise required, any adverse change in the
servicer's personnel, procedures or systems could cause the servicer to
experience difficulties in collecting payments arising from the RRB charge and
result in delays in payments to certificateholders.
DELAYS IN PAYMENTS ON CERTIFICATES 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 RRB 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, Connecticut Light & Power
or a successor to Connecticut Light & Power, as servicer, may change its billing
and collection practices, or the Department of Public Utility Control may
require changes to these practices.
These changes could delay or reduce collections of RRB charges and, as
a result, adversely affect the payment of interest on the certificates on a
timely basis or the payment of principal of the certificates in accordance with
the expected amortization schedule. See "Servicing - Servicing Standards and
Covenants," which begins on page 46.
CONNECTICUT LIGHT & POWER'S LIMITED INFORMATION ON NEW CUSTOMERS'
CREDITWORTHINESS MAY RESULT IN INCREASED DELINQUENCIES AND WRITE-OFFS
Because Connecticut regulations limit the methods Connecticut Light &
Power is permitted to employ in investigating and determining the
creditworthiness of new customers, Connecticut Light & Power may employ remedial
measures and other collection procedures later with respect to new customers
than it would with respect to customers that have established a credit history
with Connecticut Light & Power. This delay may result in increases in
delinquencies and write-offs, which could cause delays in payments to
certificateholders.
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COMMINGLING OF COLLECTIONS OF RRB CHARGES WITH SERVICER'S OTHER FUNDS MAY
RESULT IN PAYMENT DELAYS
Until collections of RRB charges are deposited with the note 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 RRB charges,
there may be delays or reductions in payments to certificateholders. The
adjustments to the RRB 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
certificateholders 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.
BILLING OF THE RRB CHARGE BY THIRD PARTY SUPPLIERS MAY CAUSE DELAYS IN
REMITTANCES
When a third party supplier bills, collects and remits the RRB charge
to the servicer, there is a greater risk that the servicer will receive payments
arising from the RRB charge later than it would if the servicer were billing and
collecting the RRB charge itself. A third party supplier is an entity that
supplies energy to customers and has contracted with the servicer to bill and
collect the RRB charge. The risk of nonpayment due to default, bankruptcy or
insolvency of the third party supplier holding the funds will increase the
longer that the delay in receipt of payment lasts. Third party supplier billing
also places increased information requirements on the servicer. The servicer has
the responsibility of accounting for the RRB charge which is the source of the
payments for the notes and payments on the certificates regardless of which
entity bills customers for the RRB charge.
Any third party supplier that bills and collects payments arising from
the RRB charge will be required to pay these amounts, regardless of whether
payments are received from customers, within 15 days after the servicer's bill
to the third party supplier. The third party supplier will, in effect, replace
the customer as the obligor for these amounts, and the servicer, on behalf of
the note issuer, will have no right to collect the payments arising from the RRB
charge from the customer. Therefore, the servicer will be relying on the credit
of the third party supplier, rather than on the credit of the customers. In
addition, to the extent that a few third party suppliers bill and collect the
RRB charge, the note issuer may be relying on a small number of third party
suppliers, rather than a large number of customers, to remit payments arising
from the RRB charge. A default in the remittance of payments arising from the
RRB charge by a single third party supplier that bills and collects the RRB
charge from a large number of customers could adversely affect the timing of
payments on the certificates. See "Servicing - Third Party Suppliers," which
begins on page 48.
Neither Connecticut Light & Power nor any other servicer will pay any
shortfalls resulting from the failure of any third party supplier to remit
payments arising from the RRB charge to the servicer. Although the servicer will
take into account revenue shortfalls arising from a default by a third party
supplier when periodically adjusting the RRB charge, any shortfalls that occur
may cause delays in payments on the certificates.
As part of the deregulation of the Connecticut electric industry, the
restructuring statute contemplates that electricity metering and billing
services may be unbundled from distribution services. See "Energy Deregulation
and New Connecticut Market Structure - Third Party Billing Options," which
begins on page 29. As a result, while the restructuring statute continues to
reserve electricity metering and billing services to electric distribution
companies, third party suppliers may have the opportunity to bill, collect and
remit the RRB charge in the future. See "Servicing - Third Party Suppliers,"
which begins on page 48.
CUSTOMERS WITHIN CONNECTICUT LIGHT & POWER'S SERVICE AREA MAY STOP OR DELAY
MAKING RRB CHARGE PAYMENTS
Customers within Connecticut Light & Power's service area may stop or
delay paying the RRB charge because:
o they may misdirect their payments as they may owe amounts to
several different parties which may include both Connecticut
Light & Power and an electric generation supplier or other
third party,
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o the RRB charge, as periodically adjusted, required to be paid
by customers may become burdensome and may result in greater
delinquencies and write-offs or petitions to the Department of
Public Utility Control to reduce the RRB charge if customers
accounting for a significant portion of Connecticut Light &
Power's revenues or sales self-generate electricity, move out
of Connecticut Light & Power's service territory,
significantly reduce their electricity consumption, are
exempted by the Department of Public Utility Control from the
payment of the RRB charge or cease consuming electricity
altogether, or
o the servicer may not be able to collect the RRB charge from
customers who partially self-generate electricity because the
servicer may not know which consumers are self-generating
electricity and will not be able to exercise full shut-off
rights against a self-generator.
Any of these factors could result in delays or shortfalls in scheduled
payments on the certificates.
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
BANKRUPTCY OF THE SELLER COULD DELAY OR REDUCE PAYMENTS ON CERTIFICATES AND
ADVERSELY AFFECT THE ABILITY TO RESELL TRANSITION PROPERTY
If the seller were to become a debtor in a bankruptcy case, and a
creditor or bankruptcy trustee of the seller or the seller itself as debtor in
possession were to take the position that the transition property constituted
property of the seller's bankruptcy estate, and a court were to adopt this
position, then delays or reductions in payments on the certificates could
result. For example, a creditor or bankruptcy trustee of the seller or the
seller itself as debtor in possession might argue that the sale of the
transition property to the note issuer was a loan to the seller from the note
issuer, secured by a pledge of the transition property. Regardless of the
court's determination of the proper characterization of the transaction in a
seller bankruptcy proceeding, the mere fact of a seller bankruptcy proceeding
could have an adverse effect on the resale market for the certificates and the
market value of the certificates.
Because the RRB charge is a usage-based charge, if the seller were to
become the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee
for, the seller, or the seller itself as debtor in possession could argue that
the note issuer should pay a portion of the costs of the seller associated with
the generation, transmission or distribution of the electricity the price of
which gave rise to the payments arising from the RRB charge that are used to
make payments on the certificates. If a court were to adopt this position, the
amounts paid to the note trustee, and thus to the holders of the certificates,
could be reduced.
It could also be argued that because the RRB charge is a usage-based
charge, the transition property comes into existence only as customers use
electricity. If a court adopted this position and also recharacterized the
transfer of the transition property to the note issuer as a secured loan to the
seller, the note issuer might not have rights to any transition property deemed
to come into existence after the bankruptcy of the Seller. In such a case
reductions in payments on the certificates would likely result.
Regardless of whether the seller is the debtor in a bankruptcy case, if
a court were to accept the arguments of a creditor of the seller that transition
property comes into existence only as customers use electricity, a tax,
government lien or other lien on property of the seller arising before the
transition property came into existence may have priority over the note issuer's
interest in the transition property, which could reduce the amounts paid to
certificateholders. See "Description of the Transition Property-Bankruptcy and
Creditors' Rights Issues," which begins on page 37.
BANKRUPTCY OF THE SERVICER OR A THIRD PARTY SUPPLIER COULD ALSO DELAY OR
REDUCE PAYMENTS
The bankruptcy or insolvency of the servicer or a third party supplier
could result in delays or reductions in payments on the certificates. Each of
the servicer and any third party supplier will remit payments arising from the
RRB charge out of its general funds and will not segregate these amounts from
its general funds. In the event of a bankruptcy of the servicer or a third party
supplier, the note trustee likely will not have a perfected interest in
commingled funds and the inclusion of the commingled funds in the bankruptcy
estate of the servicer or third party
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supplier may result in delays in payments on the certificates. Furthermore, if
the servicer is in bankruptcy, it may stop performing its functions as servicer
and it may be difficult to find a third party to act as successor servicer.
NATURE OF THE CERTIFICATES
RESALE MARKET IS LIMITED
We cannot assure you that you will be able to resell the certificates
or that a trading market for the certificates will develop or, if one does
develop, that it will continue for the life of the certificates. We do not
expect to list the certificates on any securities exchange, except that any
floating rate certificates may be listed on the Luxembourg Stock Exchange.
HIGH RATINGS DO NOT MEAN THAT PAYMENTS WILL BE MADE ON TIME
You should understand that the ratings of the certificates issued by
rating agencies address only the likelihood of the ultimate payment of principal
by the legal maturity date and the timely payment of interest on the
certificates. A rating is not an indication that these rating organizations
believe that principal payments are likely to be paid on time according to the
expected amortization schedule. You should not rely on ratings for that purpose.
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.
POSSIBILITY OF EARLY REDEMPTION MAY LEAD TO LOWER RETURN ON INVESTMENT
The note issuer has the option to redeem all of the outstanding notes
on any payment date if, after giving effect to the payments that would otherwise
be made on that payment date, the outstanding principal balance of the notes
would be less than 5 percent of the initial principal balance of the notes. In
addition, the note issuer must redeem the notes if the seller is required to, or
elects to, repurchase the transition property as a result of a breach of the
seller's representations and warranties in the sale agreement as described under
"Description of the Transition Property - Seller Representations and Warranties
and Repurchase Obligation," which begins on page 34. Redemption of the notes
will require the certificate trustee to redeem the certificates. Redemption will
cause the certificates to be retired earlier than would otherwise be expected.
The redemption price will be the outstanding principal balance, plus accrued and
unpaid interest, on the certificates. We cannot predict whether the note issuer
will redeem the notes, or whether you will be able to receive an equivalent rate
of return on reinvestment of the proceeds arising from any redemption.
RISKS RELATING TO FLOATING RATE CERTIFICATES
The prospectus supplement indicates whether the trust will issue
floating rate certificates. Additional risks apply to floating rate
certificates. If the trust will issue floating rate certificates, these
additional risks are described in the prospectus supplement.
AVAILABLE INFORMATION
CL&P Funding LLC, the note issuer, has filed a registration statement
relating to the certificates and the notes with the Securities and Exchange
Commission. This prospectus is a part of the registration statement. This
prospectus, together with the prospectus supplement, describes the material
terms of each material document filed as an exhibit to the registration
statement. This prospectus and the prospectus supplement do not, however,
contain all of the information contained in the registration statement and
related exhibits. You can inspect the registration statement and the related
exhibits without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices located as follows: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048. You
may obtain copies of the
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registration statement and related exhibits at the above locations at prescribed
rates and, for so long as any certificates are listed on the Luxembourg Stock
Exchange and the rules of that exchange so require, will be available for
inspection by the holders of any listed certificates at the office of the
listing agent in Luxembourg. You may obtain information on the operation of the
public reference facilities by calling the Commission at 1-800-SEC-0330. You can
also inspect information filed electronically with the Commission, including
reports and proxy and information statements, at the Commission's site on the
World Wide Web at http://www.sec.gov.
The note issuer will file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. The note issuer
may stop filing periodic reports with the Commission at the beginning of any
fiscal year following the issuance of the certificates if there are fewer than
300 holders of the certificates.
REPORTS TO HOLDERS
Connecticut Light & Power, acting as the servicer of the property
securing the notes, or a successor servicer, will provide periodic reports
concerning the certificates. During any period when the trust issues the
certificates in book-entry form, you may obtain copies of the periodic reports
by requesting them from your broker or dealer. If you are the registered holder
of the certificates, you will receive the reports from the certificate trustee.
See "Description of the Notes - Reports to Noteholders," which begins on page
62, and "Description of the Certificates - Reports to Certificateholders," which
begins on page 66. In addition, for so long as any certificates are listed on
the Luxembourg Stock Exchange and the rules of that exchange so require, these
reports will be available for inspection by the holders of any listed
certificates at the office of the listing agent in Luxembourg.
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by the note issuer with the
Securities and Exchange Commission after the date of this prospectus and prior
to the termination of this offering will be incorporated by reference in this
prospectus and considered to be part of this prospectus. Any statement in this
prospectus or in the prospectus supplement, or in a document incorporated or
deemed to be incorporated by reference, will be deemed to be modified or
superseded if the note issuer files a document that modifies that statement. Any
statement as modified or superseded will constitute a part of this prospectus or
the prospectus supplement.
You can request from the note issuer a free copy of any document
incorporated by reference in the registration statement (except exhibits) by
writing to CL&P Funding LLC at 107 Selden Street, Berlin, Connecticut
06037-1616, or by calling (860) 665-5000.
ENERGY DEREGULATION AND NEW CONNECTICUT MARKET STRUCTURE
The electric utility industry is experiencing intensifying competitive
pressures in the electricity generation market. Historically, electric utilities
operated as regulated monopolies in their service territories and were the
primary suppliers of electricity. In Connecticut, the Department of Public
Utility Control set electric companies' rates based upon their costs of
providing services and allowing for a reasonable return on their prudent capital
investments. Changes to the traditional legal and regulatory framework and
market structure are occurring at both the state and federal levels.
STATUTORY OVERVIEW
At the state level, the Connecticut electric industry has changed
dramatically - and is expected to continue to change - as a result of the
enactment in July 1998 of Connecticut Public Act No. 98-28, referred to as the
"restructuring statute," and the approval in orders issued by the Department of
Public Utility Control of various plans related to the restructuring of
Connecticut electric companies. The restructuring statute established a
comprehensive framework for the restructuring of the Connecticut electric
industry. The restructuring statute required that on or before October 1, 1998,
electric companies file plans with the Department of Public Utility
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Control to achieve the separation of their generation service function so as to
allow for retail competition in electricity generation supply. Electric
utilities will continue to provide transmission and distribution service as
regulated electric distribution companies. See " - Restructuring Decision,"
which begins on page 28.
To facilitate the transition from a regulated system to a competitive
one, the restructuring statute permits an electric company that has divested
itself of its generation assets by January 1, 2000 to recover stranded costs
through the collection of a competitive transition assessment, which is a
separate usage-based charge included in the bills of all classes of retail users
of the electric company's retail distribution system (subject to certain limited
customer exemptions described under "Description of the Transition Property -
Competitive Transition Assessment," which begins on page 31). Generally,
stranded costs are costs that an electric company may not be able to recover
through market-based rates in a competitive electricity generation market. Prior
to the approval by the Department of Public Utility Control of any stranded
costs, an electric company must show to the satisfaction of the Department of
Public Utility Control that it has taken all reasonable steps to mitigate to the
fullest extent possible its stranded costs. The restructuring statute also
permits an electric company to cause a special purpose entity authorized by the
finance authority to issue rate reduction bonds, such as the certificates,
secured by the revenues arising from a portion of its competitive transition
assessment, if doing so will result in net savings to ratepayers.
The restructuring statute also contemplates that an electric company's
customers will be permitted to contract with third party suppliers of
electricity and that the company will continue to distribute electricity whether
generated by itself or a third party supplier on a regulated basis. The
restructuring statute provides that all retail customers may choose their
electricity supplier as of July 1, 2000. In addition, as an alternative for
customers, the restructuring statute requires electric distribution companies
such as Connecticut Light & Power to make available standard offer service from
January 1, 2000 until December 31, 2003, or until such customers choose an
alternative electricity supplier.
RESTRUCTURING DECISION
In decisions issued in 1999 and 2000 in proceedings relating to
Connecticut Light & Power's restructuring, the Department of Public Utility
Control approved approximately $3.6 billion as the total amount of Connecticut
Light & Power's stranded costs eligible for recovery through the collection of
the competitive transition assessment. These decisions are known, collectively,
as the "restructuring decision." The restructuring decision also approved
certain of these stranded costs as eligible to be securitized through the
issuance of rate reduction bonds.
In the restructuring decision, the Department of Public Utility Control
also approved a proposal regarding the procurement of the energy supply to meet
Connecticut Light & Power's obligation to provide standard offer service for
customers that do not choose an alternative energy supplier. Pursuant to the
proposal approved in the restructuring decision, Connecticut Light & Power has
procured one-half of its standard offer energy supply through a competitive
bidding process and the remaining one-half from an affiliate of Connecticut
Light & Power, with the rate for the portion provided by the affiliate set at
the weighted average of the winning competitive bids for the other portion of
such energy supply.
EXIT FEES
The RRB charge is non-bypassable, meaning that customers must pay it
whether or not they purchase energy from Connecticut Light & Power or a third
party supplier of energy, and whether or not their distribution system is being
operated by Connecticut Light & Power or a successor distribution company.
Customers may, however, reduce their electricity usage through the use of
self-generation equipment, and, as a result, revenues generated by the RRB
charge may decrease. The restructuring statute provides that a customer that
reduces or eliminates its purchases of electricity through the operation of
self-generation equipment may be required to pay an exit fee. A customer will
not have to pay an exit fee, however, if such customer has installed a
self-generation facility that:
o exclusively services the load of one to four residential
units; or
o is installed in conjunction with the expansion of an
industrial plant that began operation before July 1, 1998, if
the self-generation facility predominantly services the
industrial plant and the expansion of
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the industrial plant results in economic development, as
determined by the Department of Public Utility Control. This
exemption only applies to the exit fee payable with respect to
the increased usage of electricity to service the expansion.
In addition, the restructuring statute provides that Department of
Public Utility Control will develop criteria for further exemptions from exit
fees based on unit size or specialized use, balancing concerns of the potential
impact on small businesses, equity among customer classes, and the need to
offset losses to, among other rate components, the competitive transition
assessment. The Department of Public Utility Control conducted a proceeding
pursuant to this provision, and issued a report to the Connecticut legislature
recommending that exemption from the payment of exit fees be extended to:
o self-generators of 2 megawatts or less;
o self-generators that use renewable resources;
o facilities that are "qualifying facilities" under federal law;
and
o self-generation load that was not on the system prior to July
1, 1998.
As of the date of this prospectus, the Connecticut legislature has not acted
upon the Department of Public Utility Control's recommendations.
In the financing order, the Department of Public Utility Control
prohibits Connecticut Light & Power from imposing any exit fees. The financing
order also provides, however, that the Department of Public Utility Control will
consider whether to include the RRB charge as a component of any exit fees that
it may authorize in the future.
THIRD PARTY BILLING OPTIONS
The restructuring statute authorizes and directs the Connecticut Energy
Advisory Board, in consultation with the Department of Public Utility Control,
to conduct a study of the provision of metering, billing and collection services
by electric distribution companies, such as Connecticut Light & Power, and
consider whether customers would be better served if such services were
performed by electric suppliers. The board must also consider how reallocating
the performance of these services could affect reliability of collecting
payments from customers, including any potential impact on the security of funds
collected for the competitive transition assessment. The board was required to
submit its findings and legislative recommendations not later than January 1,
1999, to the Connecticut legislature. Pursuant to this requirement, in March
1999, the Connecticut Energy Advisory Board submitted a report to the Energy and
Public Utilities Committee of the Connecticut legislature recommending that the
Connecticut legislature analyze several operating and policy issues identified
in the report before determining whether to unbundle metering, billing and
collection services. However, no legislation has yet been enacted that would
authorize electric suppliers to engage in metering, billing and collection
services.
In its financing order issued to Connecticut Light & Power, the
Department of Public Utility Control states that it will not authorize a third
party supplier to bill and collect the RRB charge unless such third party
supplier meets specified creditworthiness criteria and complies with specified
billing, collection and remittance procedures and information access
requirements. See "Servicing - Third Party Suppliers," which begins on page 48.
A third party supplier is an entity that supplies energy to customers and has
contracted with the servicer to bill and collect the RRB charge. See "Risk
Factors - Problems with the servicing of transition property may cause payment
delays or losses - Billing of the RRB charge by third party suppliers may cause
delays in remittances," which begins on page 24, and "Risk Factors - Bankruptcy
and Creditors' Rights Issues - Bankruptcy of the servicer or a third party
supplier could also delay or reduce payments," which begins on page 25.
FEDERAL INITIATIVES
In addition to the changes occurring in the Connecticut market and
regulatory environment discussed throughout this section, federal legislative
efforts may also significantly alter the national market for electricity. For
example, at the federal level, the National Energy Policy Act of 1992 was
designed to increase competition in the
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wholesale electric generation market by easing regulatory restrictions on
producers of wholesale power and by authorizing the Federal Energy Regulatory
Commission to mandate access to electric transmission systems by wholesale power
generators. See "Risk Factors - Possible federal preemption of the restructuring
statute may prohibit recovery of the RRB charge," which begins on page 20.
DESCRIPTION OF THE TRANSITION PROPERTY
The restructuring statute and the restructuring decision permit
Connecticut Light & Power to recover stranded costs through the assessment of a
competitive transition assessment, although Connecticut Light & Power has a duty
to mitigate its stranded costs. Examples of stranded costs include the costs of
electricity generation facilities, power purchase contracts with third-party
generators of electricity and regulatory assets. Regulatory assets reflect
previously incurred costs that have been capitalized and deferred by the
Department of Public Utility Control for future recovery in rates consistent
with traditional ratemaking.
FINANCING ORDER AND ISSUANCE ADVICE LETTER
The restructuring statute authorizes the Department of Public Utility
Control to issue a financing order, which is a regulatory order that approves
the amount of Connecticut Light & Power's stranded costs that it is permitted to
finance through the issuance of rate reduction bonds, such as the certificates.
On May 31, 2000, Connecticut Light & Power filed its application for a financing
order with the Department of Public Utility Control. The Department of Public
Utility Control issued a financing order dated November 8, 2000 and supplemented
December 12, 2000, which authorizes the issuance of up to $1.551 billion in
aggregate principal amount of the certificates. In accordance with the
restructuring statute, the financing order became effective in accordance with
its terms on December 26, 2000, the date on which Connecticut Light & Power
filed with the Department of Public Utility Control its written consent to all
terms and conditions of the financing order.
The financing order establishes, among other things, the RRB charge, to
recover the stranded costs specified in the financing order. The RRB charge is
non-bypassable in that customers must pay it whether or not they purchase energy
from Connecticut Light & Power or a third party supplier of energy, and whether
or not their distribution system is being operated by Connecticut Light & Power
or a successor distribution company. The restructuring statute provides that the
right to collect payments based on the RRB charge is a property right which may
be pledged, assigned or sold in connection with the issuance of the
certificates. Under the restructuring statute and the financing order, the owner
of the transition property is entitled to assess the RRB charge until it has
received payments from customers sufficient to retire all outstanding notes and
certificates and to pay fees and expenses of servicing and retiring the notes
and the certificates. The RRB charge, as adjusted from time to time, is a
portion of the competitive transition assessment and will be expressed as an
amount per kilowatt-hour of electricity usage by a customer. The RRB charge will
not be separately identified on customer bills, although customer bills will
note that a portion of the competitive transition assessment has been sold to
the note issuer.
The financing order requires the seller to submit an issuance advice
letter relating to the certificates to the Department of Public Utility Control.
The issuance advice letter will establish the initial RRB charge and become
effective when it is filed with the Department of Public Utility Control. The
financing order permits the servicer to file requests, referred to as true-up
letters, to adjust up or down the RRB charge at various times to enhance the
likelihood of retirement of each class of certificates on a timely basis. See "
- Adjustments to the RRB Charge," which begins on page 32.
The State of Connecticut Office of Consumer Counsel, which is the
statutory advocate for Connecticut ratepayers in utility matters, has filed an
appeal of the financing order. Although the appeal does not, in and of itself,
preclude issuance, Connecticut Light & Power currently expects that the appeal
will be dismissed, settled, otherwise resolved or limited in scope prior to
issuance of the notes and certificates or that the size of the transaction will
be reduced to exclude the amounts being challenged by the appeal. The prospectus
supplement contains current information about the status of the appeal.
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TRANSITION PROPERTY
The transition property is a property right consisting of the right,
title and interest to all revenues, collections, claims, payments, money or
proceeds of or arising from the RRB charge. In accordance with the financing
order, transition property includes an allocated portion of the rates charged to
special contract customers, as described under " - Competitive Transition
Assessment," which begins on page 31. The notes will be secured by the
transition property, as well as the other note collateral described under
"Description of the Notes - Security," which begins on page 53.
COMPETITIVE TRANSITION ASSESSMENT
The competitive transition assessment is designed to recover on a fully
reconciling basis all of Connecticut Light & Power's stranded costs. The
competitive transition assessment is the rate mechanism through which
Connecticut Light & Power is allowed to recover its stranded costs. It is
determined according to the methodology specified in the restructuring decision.
The RRB charge will initially constitute a portion of the competitive transition
assessment as approved by the Department of Public Utility Control.
Under the financing order, the Department of Public Utility Control
approved the recovery of the following stranded costs and issuance costs through
the RRB charge:
o buydown and buyout payments to independent power producers
under above-market long-term contracts;
o generation-related regulatory assets;
o costs related to retiring capital; and
o transaction costs.
The restructuring statute provides that from January 1, 2000 until
December 31, 2003, Connecticut Light & Power must provide standard offer service
to customers at a system average rate that does not exceed 9.351
cents/kilowatt-hour, which is 10 percent less than rates in effect on December
31, 1996. Under the restructuring statute, this rate limit may be exceeded if
necessary to establish, fix or revise the competitive transition assessment
(including the RRB charge) at a level sufficient to pay principal of and
interest on the certificates and related expenses, to pay stranded costs that
are not recovered through the issuance of rate reduction bonds, and to pay
capital costs specified in the restructuring statute. It also may be exceeded
under the restructuring statute upon the occurrence of specified changes in law
or accounting standards or the incurrence of extraordinary and unanticipated
expenses required to provide safe, adequate and reliable service. See "Risk
Factors - Problems with the servicing of transition property may cause payment
delays or losses - Limitation on rates may adversely affect servicer's financial
condition and, in turn, its ability to service transition property," which
begins on page 22. The average initial competitive transition assessment is
expected to be approximately 1.021 cents/kilowatt-hour. The expected average
initial RRB charge (which is a portion of the competitive transition assessment)
is set forth in the prospectus supplement.
Under the restructuring statute, the competitive transition assessment
must be determined by the Department of Public Utility Control in a general and
equitable manner and must be imposed on all customers at a rate that is applied
equally to all customers of the same class in accordance with methods of
allocation that were in effect on July 1, 1998 (the effective date of the
restructuring statute). The competitive transition assessment (including the RRB
charge, which is a portion of the competitive transition assessment) may be
imposed at different rates on each of Connecticut Light & Power's customer
classes. In this prospectus, references to the average initial competitive
transition assessment are to the average of the rates at which the competitive
transition assessment is initially expected to be imposed on all of Connecticut
Light & Power's customer classes, and references to the average initial RRB
charge are to the average of the rates at which the RRB charge is initially
expected to be imposed on all of Connecticut Light & Power's customer classes.
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Under the restructuring statute, Connecticut Light & Power may not
impose the competitive transition assessment (including the RRB charge) on
customers that are receiving service under a special contract with CL&P that was
in effect on July 1, 1998 (the effective date of the restructuring statute).
During the 12 months ended September 30, 2000, service provided under exempt
special contracts accounted for approximately 0.52 percent of Connecticut Light
& Power's billed retail revenues and approximately 0.9 percent of Connecticut
Light & Power's billed retail energy sales (gigawatt-hours). Approximately 90
percent of such billed retail revenues was attributable to one special contract
customer whose contract expires on July 31, 2004.
The restructuring statute also provides that any exemption provided to
special contract customers may not cause an increase in rates charged to other
customers. CL&P will satisfy the requirements of the restructuring statute in
accordance with the financing order by allocating a portion of the rates charged
to special contract customers to the competitive transition assessment and the
RRB charge, while continuing to maintain total rates charged to special contract
customers at existing contract levels. The RRB charge that is allocated from the
rates charged to special contract customers will be adjusted in the same manner
as the RRB charge applicable to other customers, thereby maintaining the
consistent application of the RRB charge adjustment mechanism. See " -
Adjustments to the RRB Charge," which begins on page 32.
Connecticut law also permits the Department of Public Utility Control
to grant exemptions from payment of a portion of the competitive transition
assessment. Any such exemption would also apply to the RRB charge, which is a
component of the competitive transition assessment. A customer may apply to the
Department of Public Utility Control for an exemption if it:
o is an existing or proposed manufacturing plant,
o will add or create 100 or more jobs and
o will demand at least 50 kilowatts of additional load through
the construction or expansion of manufacturing facilities.
The Department of Public Utility Control is required to hold a hearing on any
application for an exemption. If the Department of Public Utility Control
approves the application, the customer is exempted from the payment of the
portion of the competitive transition assessment, including the RRB charge
component of the competitive transition assessment, that relates to the new or
incremental load created by the customer's construction or expansion. The
Department of Public Utility Control is permitted under law to adopt regulations
to implement the exemption, but has not yet done so.
ADJUSTMENTS TO THE RRB CHARGE
Initially and during the life of the certificates, at least annually
and, in the last year that the certificates are scheduled to be outstanding, at
least quarterly, the servicer will calculate and set the RRB charge at a level
estimated to generate revenues sufficient to pay the fees and expenses
(including indemnities) related to servicing and retiring the notes and the
certificates, to pay principal of and interest on the notes and related payments
on the certificates and to fund and replenish the overcollateralization
subaccount and replenish the capital subaccount as required for the upcoming
year. The servicer will increase or decrease the RRB charge over the life of the
certificates as a result of several factors, including:
o changes in actual electricity sales and forecasts;
o changes in payment patterns and charge-off experience
(including defaults by third party suppliers);
o changes in any ongoing fees and expenses (including
indemnities) related to the notes and the certificates; and
o deferred principal of or unpaid interest on the notes.
The financing order provides that the servicer will file true-up
letters periodically as follows:
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o the servicer will file a routine true-up letter with the
Department of Public Utility Control at least 15 days prior to
January 1 of each year, with resulting adjustments up or down
to the RRB charge to become effective on January 1 each year,
or the date as may be specified in the true-up letter;
o in the last year that the certificates are scheduled to be
outstanding the servicer will file a routine true-up letter
with the Department of Public Utility Control at least 15 days
prior to the end of each calendar quarter, with resulting
adjustments up or down to the RRB charge to become effective
15 days after the filing of the true-up letter;
o the servicer may file a routine true-up letter with the
Department of Public Utility Control quarterly or, in the last
year that the certificates are scheduled to be outstanding,
monthly, with resulting adjustments up or down to the RRB
charge to become effective 15 days after the filing of the
true-up letter; and
o with the consent of the note issuer accompanied by
confirmation by the rating agencies that the requested
modification will not cause the then existing ratings on the
certificates to be downgraded, the servicer will file a
non-routine true-up letter with the Department of Public
Utility Control if the method it uses to calculate the RRB
charge requires modifications to more accurately project and
generate adequate revenues, with the modifications to become
effective when reviewed and approved by the Department of
Public Utility Control within 60 days after filing.
True-up letters will take into account amounts available in the general
subaccount and reserve subaccount, and amounts necessary to fund the
overcollateralization subaccount and to replenish the capital subaccount to
their required levels, in addition to amounts payable on the notes and
distributable on the certificates and related fees and expenses (including
indemnities).
Adjustments to the RRB charge will be performed on a system-wide basis
(i.e., across customer classes rather than on a class-by-class basis) in
accordance with the restructuring statute.
PLEDGE BY THE STATE OF CONNECTICUT
The State of Connecticut has pledged and agreed with the note issuer
and the certificateholders that it will not limit or alter the competitive
transition assessment (which includes the RRB charge as adjusted from time to
time in accordance with the financing order), the transition property or the
financing order until the certificates are fully paid and discharged. The State
of Connecticut's pledge is set forth in the restructuring statute, which
provides:
. . . the State of Connecticut does hereby pledge and agree, with the
owners of transition property and holders of rate reduction bonds that
the state shall neither limit nor alter the competitive transition
assessment, transition property, financing orders, and all rights
thereunder until the obligations, together with the interest thereon,
are fully met and discharged, provided nothing contained in this
subsection shall preclude the limitation or alteration if and when
adequate provision shall be made by law for the protection of the
owners and holders. The finance authority as agent for the state is
authorized to include this pledge and undertaking for the state in
these obligations.
See "Risk Factors - Certificateholders could experience payment delays or losses
as a result of amendment, repeal or invalidation of the restructuring statute or
breach of the state pledge," which begins on page 17.
Under Connecticut law, citizens do not have the ability by means of
referendum to approve or reject directly laws adopted by the Connecticut
legislature. In addition, under Connecticut law, citizens do not have the
ability to propose laws for approval or rejection by the voters by means of
initiative petitions.
NO IMPAIRMENT BY DEPARTMENT OF PUBLIC UTILITY CONTROL
The restructuring statute provides that financing orders issued by the
Department of Public Utility Control and the competitive transition assessment
are irrevocable and that the Department of Public Utility Control may not
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revalue or revise for ratemaking purposes the stranded costs or the costs of
providing, recovering, financing or refinancing the stranded costs, determine
that the competitive transition assessment is unjust or unreasonable, or in any
way reduce or impair the value of the transition property or revenues arising
from its collection either directly or indirectly by taking the competitive
transition assessment into account when setting other electric company rates.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
The seller has agreed in the sale agreement not to sell transition
property to secure another issuance of notes, and, in turn, certificates, if it
would cause the then existing ratings on the certificates to be downgraded.
On the issuance date of the certificates, the seller will sell and
assign to the note issuer, without recourse, its entire interest in the
transition property. The note issuer will apply the net proceeds from the sale
of the notes to the trust to purchase the transition property. The seller's
financial statements will indicate that it is not the owner of the transition
property, and for financial reporting and tax purposes the seller will treat the
notes as representing debt of the seller.
SELLER REPRESENTATIONS AND WARRANTIES AND REPURCHASE OBLIGATION
In the sale agreement, the seller will represent and warrant to the
note issuer, as of the closing date, among other things, that:
(a) the information describing the seller in "The Seller and
Servicer," which begins on page 41, is correct in all material
respects;
(b) the seller has transferred the transition property, free and
clear of all security interests, liens, charges and
encumbrances (other than any created by the restructuring
statute and any granted under any of the transaction
documents);
(c) the transition property has been validly transferred and sold
to the note issuer and all filings (including filings with the
Department of Public Utility Control under the restructuring
statute) necessary in any jurisdiction to give the note issuer
an ownership interest (subject to any lien created by the
restructuring statute and any lien granted under any of the
transaction documents) in the transition property have been
made;
(d) under the laws of the State of Connecticut (including the
restructuring statute) and the United States in effect on the
closing date:
o the financing order pursuant to which the transition
property has been created is in full force and
effect;
o the certificateholders are entitled to the
protections of the restructuring statute and,
accordingly, the financing order is not revocable by
the Department of Public Utility Control;
o the State of Connecticut may neither limit nor alter
the competitive transition assessment, transition
property, the financing order and all rights
thereunder, in a manner that would substantially
impair the rights of certificateholders, absent a
demonstration by the state that an impairment is
narrowly-tailored and is necessary to advance an
important public interest, such as responding to a
"great public calamity," until the certificates,
together with accrued interest, are fully met and
discharged; provided that the State of Connecticut is
not precluded from such limitation or alteration if
and when adequate provision is made by law for the
protection of the note issuer and the
certificateholders;
o the process by which the financing order was adopted
and approved, and the financing order and issuance
advice letter, comply with all applicable laws, rules
and regulations;
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o the issuance advice letter has been filed in
accordance with the financing order;
o except for periodic adjustments to the RRB charge
required under the restructuring statute and
described under " - Adjustments to the RRB Charge,"
which begins on page 32, the Department of Public
Utility Control does not have authority, either by
rescinding, altering or amending the financing order
or otherwise, to revalue or revise for ratemaking
purposes the stranded costs or the costs of
providing, recovering, financing or refinancing the
stranded costs, to determine that the competitive
transition assessment is unjust or unreasonable or in
any way to reduce or impair the value of transition
property either directly or indirectly by taking the
competitive transition assessment into account when
setting other rates for the seller; nor are the
amount of revenues arising with respect thereto
subject to reduction, impairment, postponement or
termination;
o no approval or filing with any other governmental
body is required in connection with the creation of
the transition property, except those that have been
obtained or made; and
o under the restructuring statute, the limit contained
in the restructuring statute on standard offer
service rates may be exceeded if necessary to
establish, fix or revise the competitive transition
assessment (including the RRB charge) at a level
sufficient to pay principal of and interest on the
certificates and related expenses, to pay stranded
costs that are not recovered through the issuance of
rate reduction bonds, and to pay capital costs
specified in the restructuring statute;
(e) based on information available to the seller on the closing
date, the assumptions used in calculating the initial RRB
charge are reasonable and are made in good faith;
(f) on the effectiveness of the financing order and the issuance
advice letter:
o all of the transition property constitutes an
existing property right;
o the transition property includes the right, title and
interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from the
RRB charge (including the RRB charge included in
special contract rates), as adjusted from time to
time, and all rights to obtain adjustments to the RRB
charge pursuant to the financing order; and
o the owner of the transition property is legally
entitled to collect payments in respect of the RRB
charge in the aggregate sufficient to pay the
principal of and interest on the notes, to pay the
fees and expenses (including indemnities) of
servicing the notes and the certificates, to
replenish the capital subaccount to the required
capital level and to fund the overcollateralization
subaccount to the required overcollateralization
level until the notes and the certificates are paid
in full;
(g) the seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Connecticut, with corporate power and authority to own its
properties as owned on the closing date and to conduct its
business as conducted by it on the closing date and to
execute, deliver and perform the terms of the sale agreement;
(h) the execution, delivery and performance of the sale agreement
have been duly authorized by all necessary corporate action on
the part of the seller;
(i) the sale agreement constitutes a legal, valid and binding
obligation of the seller, enforceable against it in accordance
with its terms, subject to applicable insolvency,
reorganization, moratorium, fraudulent transfer and other laws
relating to or affecting creditors' or secured parties' rights
generally from time to time in effect and to general
principles of equity, regardless of whether considered in a
proceeding in equity or law;
(j) the consummation of the transactions contemplated by the sale
agreement do not conflict with the seller's articles of
organization or by-laws or any material agreement to which the
seller is a party or
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bound, result in the creation or imposition of any lien upon
the seller's properties pursuant to the terms of a material
agreement (other than any that may be granted under the
transaction documents or any lien created by the restructuring
statute) or violate any existing law or any existing order,
rule or regulation applicable to the seller;
(k) no governmental approvals, authorizations, consents, orders or
other actions or filings are required for the seller to
execute, deliver and perform its obligations under the sale
agreement except those which have previously been obtained or
made and post closing filings required in connection therewith
and those that the seller, in its capacity as servicer, is
required to make in the future under the servicing agreement;
and
(l) except as disclosed to the note issuer, no court or
administrative proceeding is pending and, to the seller's
knowledge, no court or administrative proceeding is threatened
and, to the seller's knowledge, no investigation is pending or
threatened:
o asserting the invalidity of the sale agreement, the
other transaction documents, the notes or the
certificates, or seeking to prevent the consummation
of the transactions contemplated by the sale
agreement or the other transaction documents;
o seeking a determination that might materially and
adversely affect the performance by the seller of its
obligations under, or the validity or enforceability
of, the sale agreement, the other transaction
documents, the notes or the certificates; or
o seeking to adversely affect the federal or state
income tax classification of the notes or the
certificates as debt.
In the sale agreement, the seller does not represent or warrant that
any amounts actually collected arising from the RRB charge will in fact be
sufficient to meet payment obligations on the notes or that assumptions made in
calculating the RRB charge will in fact be realized.
In the event of a breach by the seller of any representation specified
in clause (d) or clause (f) above that has a material adverse effect on the
certificateholders, the seller will be obligated to repurchase the transition
property from the note issuer at a repurchase price equal to the outstanding
principal amount of the notes and all accrued and unpaid interest, unless:
o within 90 days after the date of the occurrence of the breach,
the breach is cured or the seller takes remedial action so
that there is not and will not be a material adverse effect on
the certificateholders as a result of the breach; and
o either of the following alternative conditions are met:
o if the seller had, immediately prior to the breach, a
long term debt rating of at least "A3" by Moody's
Investors Service, Inc. and "BBB" (or the equivalent)
by Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc., or Fitch, Inc., and
the seller enters into a binding agreement with the
note issuer to pay any amounts necessary so that all
interest payments due on the notes during the 90-day
period will be paid in full; or
o if the seller does not have these long term debt
ratings immediately prior to the breach, but within 2
business days after the occurrence of the breach, the
seller deposits an amount in escrow with the note
trustee sufficient to pay all interest payments,
taking into account amounts available in the
collection account for such purpose, which will
become due on the notes during the 90-day period.
Any escrowed amounts will be used by the note trustee to make interest payments
if there are not sufficient funds otherwise available. The sale agreement
provides that any change in the law by legislative enactment or constitutional
amendment or (if such means become available in the future) referendum or
initiative petition that renders any of the representations and warranties
untrue does not constitute a breach under the sale agreement.
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In the event of a breach by the seller of any other representation or
warranty specified in clauses (b), (c), (g), (h), (i) or (j) above that has a
material adverse effect on the certificateholders, if, within 90 days after the
date of the breach, the breach has not been cured and the seller has not taken
remedial action so that there is not and will not be a material adverse effect
on the certificateholders as a result of the breach, then the seller will be
required to repurchase the transition property for the repurchase price
described above. After the payment by the seller of the repurchase price, no
person or entity will have any other claims, rights or remedies against the
seller under or arising from the sale agreement, except for the indemnity rights
of the indemnified persons described below.
In the event of the seller's willful misconduct or negligence in the
performance of its duties or observance of the covenants under the sale
agreement or a breach in any material respect of any representation or warranty
in the sale agreement other than those that trigger the seller's repurchase
obligation, the seller will be required to indemnify, defend and hold harmless
the note issuer, the noteholders and the certificateholders against any costs,
expenses, losses, claims, damages and liabilities incurred as a result of the
breach, except to the extent of amounts either resulting from the willful
misconduct or gross negligence of the indemnified person or resulting from a
breach of a representation or warranty made by the indemnified person in the
transaction documents that gives rise to the seller's breach. The noteholders
and the certificateholders, however, may only enforce their rights against the
seller through an action brought by the note trustee or the certificate trustee,
as the case may be. The seller may, at its election and in full satisfaction of
its indemnity obligation, repurchase the transition property at the repurchase
price described above, in which case no person or entity will have any claims,
rights or remedies against the seller under or arising from the sale agreement,
except for the indemnity rights of the indemnified persons described below. The
remedies provided for in the sale agreement are the sole and exclusive remedies
of the note issuer, the note trustee (for the benefit of the noteholders) and
the certificate trustee (for the benefit of the certificateholders) against the
seller for breach of its representations and warranties in the sale agreement.
In addition, the seller will indemnify and hold harmless the note
trustee, the Delaware trustee, the certificate trustee, the trust, the State of
Connecticut, the finance authority, the State Treasurer, agencies of the State
of Connecticut and any of their respective affiliates, officials, officers,
directors, employees, consultants, counsel and agents against any expenses
(including legal fees and expenses), losses, claims, taxes, damages and
liabilities incurred by any of these persons as a result of the seller's willful
misconduct or gross negligence in the performance of its duties or observance of
the covenants under the sale agreement or a breach by the seller of its
representations and warranties in the sale agreement, except to the extent of
amounts either resulting from the willful misconduct or gross negligence of the
indemnified person or resulting from a breach of a representation or warranty
made by the indemnified person in the transaction documents that gives rise to
the seller's breach.
The seller will also agree to take any legal or administrative action,
including defending against or instituting and pursuing legal actions, as may be
reasonably necessary to protect the note issuer, the noteholders, the
certificateholders, the note trustee, the Delaware trustee, the certificate
trustee, the trust, the State of Connecticut, the finance authority, the State
Treasurer, agencies of the State of Connecticut and any of their respective
affiliates, officials, officers, directors, employees, consultants, counsel and
agents from claims, state actions or other actions or proceedings of third
parties which, if successfully pursued, would result in a breach of any
representation described above. The seller will be entitled to be reimbursed by
the note issuer for the costs and expenses of taking these actions. The seller
will also agree that it will not at any time assert any security interest, lien,
charge or encumbrance against the transition property.
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
TRUE SALE
The seller will represent and warrant in the sale agreement that the
transfer of the transition property to the note issuer is a valid sale and
assignment of the transition property from the seller to the note issuer. The
seller will also represent and warrant that it will take the appropriate actions
under the restructuring statute to perfect this sale. The restructuring statute
provides that the transactions described in the sale agreement will constitute a
sale of the transition property to the note issuer, and the seller and the note
issuer will treat the transactions as a sale under applicable law, although for
financial reporting and federal income tax purposes the transactions will be
treated as debt of the seller.
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Should the transfer of the transition property to the note issuer be
recharacterized as a borrowing by the seller, the restructuring statute provides
that there is a perfected first priority statutory lien on the transition
property that secures all obligations to the certificateholders. In addition, in
the sale agreement, the seller grants to the note issuer a security interest in
the transition property and covenants that it will take appropriate actions to
perfect the security interest, although the seller takes the position that it
has no rights in the transition property to which a security interest could
attach.
Under the restructuring statute and the financing order, on the
effective date of the issuance advice letter, the transition property identified
in the issuance advice letter constitutes a property right that continuously
exists as property for all purposes. Nonetheless, if the seller were to become
the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee for, the
seller, or the seller itself as debtor in possession, may attempt to take the
position that, because the payments based on the RRB charge are usage-based
charges, transition property comes into existence only as customers use
electricity. If a court were to adopt this position, there is no assurance that
either the statutory lien created by the restructuring statute or the security
interest granted in the sale agreement would be valid as to the RRB charges
deemed to relate to electricity consumed after the commencement of a bankruptcy
case by or against the seller.
If a court were to determine that the transition property has not been
sold to the note issuer, and that the statutory lien created by the
restructuring statute and the security interest granted in the sale agreement
are invalid against payments arising from the RRB charge that become collectible
as a result of the consumption of electricity consumed after the commencement of
a bankruptcy case of the seller, then the certificate trustee, as noteholder and
for the benefit of holders of the certificates, would be an unsecured creditor
of the seller, and delays or reductions in payments on the certificates would
result.
SUBSTANTIVE CONSOLIDATION
In the event the seller or an affiliate of the seller were to become
the debtor in a bankruptcy case, a court could order that the assets and
liabilities of the note issuer be substantively consolidated with those of the
seller or an affiliate. Factors that may tend to support consolidation include
the ownership of the note issuer by the seller, the designation of officers or
employees of the seller as directors, other than independent directors, of the
note issuer and the existence of indemnities by the seller for some liabilities
of the note issuer. The seller and the note issuer have taken steps to reduce
this risk. These steps include the fact that the note issuer is a separate,
special purpose limited liability company, the organizational documents of which
require the note issuer to comply with certain covenants that will respect the
separateness of the note issuer from the seller and provide that it will have
two directors independent of the seller. Nonetheless, these steps may not be
completely effective, and thus if the seller or an affiliate of the seller were
to become a debtor in a bankruptcy case, a court may order that the assets and
liabilities of the note issuer be consolidated with those of the seller or an
affiliate, thus resulting in delays or reductions in payments on the
certificates.
THE TRUST
Prior to the sale of the certificates, the finance authority will form
the trust specifically for the purpose of acquiring the notes from the note
issuer. The trust will be a Delaware business trust. The finance authority and
the Delaware trustee, on behalf of the trust, will enter into a declaration of
trust to create the trust. The trust will not be an agency or instrumentality of
the State of Connecticut. The trust will have no assets other than the notes.
The declaration of trust will not permit the trust to engage in any activities
other than holding the notes, issuing the certificates and engaging in other
related activities.
Each class of certificates will represent a fractional undivided
beneficial interest in the related class of notes and any swap agreement,
including all amounts due and to become due under the related class of notes,
and will represent the right to receive the payments on the related class of
notes and any swap agreement. See "Description of the Certificates - Payments,"
which begins on page 63.
The note issuer, the finance authority, the trust, the Delaware trustee
and the certificate trustee will enter into a fee and indemnity agreement under
which the note issuer will pay the Delaware trustee's and the certificate
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trustee's reasonable compensation and reasonable fees and expenses. The fee and
indemnity agreement will further provide that the note issuer will indemnify the
Delaware trustee, the certificate trustee, the certificateholders, the trust,
the State of Connecticut, the finance authority, the State Treasurer, agencies
of the State of Connecticut and any of their respective affiliates, officials,
officers, directors, employees, consultants, counsel and agents for, and hold
them harmless against, among other things, any loss, liability or expense
incurred by them arising from the failure of any party to perform its
obligations under the various transaction documents.
The fiscal year of the trust will be the calendar year.
As of the date of this prospectus, because the trust has not yet been
formed, we have not included any financial statements or related information for
the trust.
OFFICE OF THE STATE TREASURER OF THE STATE OF CONNECTICUT
The Office of the State Treasurer was established following the
adoption of the fundamental orders of Connecticut in 1638. As described in the
Connecticut State Constitution, the Treasurer has the responsibility to receive
all funds belonging to the state and disburse the same only as may be directed
by law. The Treasurer is the Chief Fiscal Officer for the state government,
overseeing a wide variety of activities regarding the prudent management of
state funds. This includes the administration of a portfolio of pension assets
currently worth approximately $22 billion and a short-term investment fund with
an average daily balance of almost $4 billion. The Office of the State Treasurer
is also responsible for issuing over $1 billion in state debt annually and
managing an existing debt portfolio of over $11 billion.
The restructuring statute contemplates state sponsorship of individual
utility rate reduction bond issuances through the finance authority. The finance
authority is the State of Connecticut, acting through the Office of the State
Treasurer. The Office of the State Treasurer has participated in the structuring
of the transaction relating to the issuance of the certificates and related
matters. Public Resources Advisory Group has provided financial advisory
services to the Office of the State Treasurer in connection with the
certificates.
The certificates do not represent an interest in, or an obligation of,
the State of Connecticut, any governmental agency, authority or instrumentality
of the State of Connecticut or Connecticut Light & Power or any of its
affiliates, except that each class of certificates does represent a fractional
undivided beneficial interest in the related class of notes issued by the note
issuer which is an affiliate of Connecticut Light & Power. None of these
entities or the trust will guarantee or insure the certificates, the notes or
the property securing the notes.
Neither the certificates, the notes nor the property securing the notes
is an obligation of the State of Connecticut or any political subdivision,
governmental agency, authority or instrumentality of the State of Connecticut or
of Connecticut Light & Power or any of its affiliates, except for CL&P Funding
LLC, which is an affiliate of Connecticut Light & Power.
Neither the full faith and credit nor the taxing power of the State of
Connecticut is pledged to the payment of principal of, or interest on, the
certificates or the notes. Furthermore, the issuance of the certificates and the
notes shall not directly, indirectly or contingently obligate the State of
Connecticut or any political subdivision thereof to levy or to pledge any form
of taxation thereof or to make any appropriation for their payment.
THE NOTE ISSUER
The note issuer is a limited liability company organized under the laws
of the State of Delaware. The seller is the sole member of the note issuer. The
principal executive office of the note issuer is located at 107 Selden Street,
Berlin, Connecticut 06037-1616. The telephone number of the note issuer is (860)
665-5000. The seller organized the note issuer for the limited purpose of
holding and servicing the transition property and issuing notes secured by the
transition property and the other note collateral and related activities. The
note issuer's organizational documents restrict it from engaging in other
activities. The note issuer does not have any employees, but Connecticut Light &
Power will provide it with administrative services and office space according to
the terms of an
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administration agreement. This agreement requires the note issuer to pay
Connecticut Light & Power an administrative fee of $75,000 per year, payable
quarterly, for as long as Connecticut Light & Power provides these services. The
assets of the note issuer will consist primarily of the transition property and
the other collateral for the notes. In addition, the note issuer's
organizational documents require it to operate in a manner intended to reduce
the likelihood that it would be consolidated in the seller's bankruptcy estate
if the seller becomes involved in a bankruptcy proceeding.
The note issuer is a recently formed entity and, as of the date of this
prospectus, has not carried on any business activities. We have included audited
financial statements of the note issuer beginning at page F-1 of this
prospectus.
OFFICERS AND DIRECTORS
The directors of the note issuer oversee the management of its property
and business. The following is a list of the officers and directors of the note
issuer upon the closing of the offering:
Name Age Title
---- --- -----
Randy A. Shoop 42 President and Director
John P. Stack 41 Vice President and Treasurer
O. Kay Comendul 45 Secretary
William J. Quinlan 40 Assistant Secretary
David H. Boguslawski 56 Director
Rodney O. Powell 48 Director
Christopher T. Burt 30 Director
David O. Taylor 31 Director
All of the note issuer's officers and directors, other than those
directors who are independent of Connecticut Light & Power and its affiliates,
have served in their capacities since the organization of the note issuer. The
independent directors will begin to serve effective immediately prior to the
closing of the offering. The officers and directors will devote as much time as
is necessary to the affairs of the note issuer. The note issuer will have
sufficient officers, directors and employees to carry on its business.
Randy A. Shoop is Assistant Treasurer - Finance for the Northeast
Utilities system and Treasurer of Connecticut Light & Power. He began his
Northeast Utilities career in 1997 as Manager - Bank Relations and he assumed
his present position in September 1998. Prior to joining Northeast Utilities,
Shoop was employed by United Technologies Corporation for 15 years, holding
several management positions in a variety of finance positions responsible for
corporate finance, foreign exchange and capital market transactions, as well as
overseeing treasury operations.
John P. Stack is Controller of Connecticut Light & Power and Executive
Director of Corporate Accounting and Taxes for Northeast Utilities. Mr. Stack
joined the company in December 1998. Prior to joining the Company, Mr. Stack was
an audit partner with Arthur Andersen LLP for over 3 years and was responsible
for the audit services provided to Northeast Utilities.
O. Kay Comendul is Assistant Secretary of the Northeast Utilities
system. She joined Public Service Company of New Hampshire in 1978 and was
promoted to Assistant Secretary of that company in 1984. She transferred to
Northeast Utilities's legal department and assumed her present position in April
1997.
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<PAGE>
William J. Quinlan is Assistant General Counsel and chief regulatory
counsel for the Northeast Utilities system. Mr. Quinlan joined Northeast
Utilities in 1984 as an engineer in the nuclear program. In 1993, Quinlan joined
Northeast Utilities's Legal Department as an attorney. He assumed his current
position in January 2000.
David H. Boguslawski is Vice President - Energy Delivery for the
Northeast Utilities system. He joined Northeast Utilities in 1977, working first
in engineering and then in finance. In January, 1994, Mr. Boguslawski was
appointed to Vice President-Customer Operations for Public Service Company of
New Hampshire. He assumed his present position in 1996.
Rodney O. Powell is Vice President - Central Region of Connecticut
Light & Power. Mr. Powell joined Northeast Utilities in 1978 as a budget
analyst. In 1982, he was promoted to senior analyst. In 1994 he worked as a
customer engineering and marketing services consultant and was promoted to
manager in Regulatory Relations in 1995. In 1997, he became the general manager
of the Simsbury Area Work Center. Prior to joining Northeast Utilities, Powell
worked for Arthur Andersen & Company as a senior staff auditor and for the
University of Connecticut Medical School as an associate director. He assumed
his present position in October 1998.
Christopher T. Burt will serve as an independent director of the note
issuer. Mr. Burt joined Global Securitization Services, LLC in December 1999 as
an Assistant Vice President and has been a Vice President since December 2000.
Prior to joining Global Securitization Services, LLC, Mr. Burt worked for
BancBoston Robertson Stephens as an Administrator from September 1996 to
September 1998 and worked for Chase Manhattan Bank as a Trust Officer from
September 1998 to December 1999.
David O. Taylor will serve as an independent director of the note
issuer. Mr. Taylor joined Global Securitization Services, LLC in August 1999 as
an Assistant Vice President and has been a Vice President since December 2000.
Prior to joining Global Securitization Services, LLC, Mr. Taylor was a
consultant at Phoenix Technologies, KK from October 1995 to April 1997 and an
Assistant Treasurer at Bankers Trust Company, a division of Deutsche Bank, from
April 1997 to August 1999.
The note issuer will not compensate its officers and will not
compensate its directors, other than the two directors that are independent of
Connecticut Light & Power and its affiliates, for their services on behalf of
the note issuer. The initial aggregate annual compensation for both of the
independent directors will be $2,000. Any officer will serve at the discretion
of the note issuer's sole member. The note issuer's organizational documents
provide that it will indemnify its officers and directors against liabilities
incurred in connection with their services on behalf of the note issuer.
THE SELLER AND SERVICER
Connecticut Light & Power was incorporated under Connecticut law in
1917. Connecticut Light & Power is an electric company primarily engaged in the
business of providing electric service to retail customers in an area of
approximately 4,400 square miles, including 149 cities and towns. In 1999,
Connecticut Light & Power served an average of approximately 1.1 million
customers.
Connecticut Light & Power is regulated by the Department of Public
Utility Control and the Federal Energy Regulatory Commission. Connecticut Light
& Power is also regulated by the Nuclear Regulatory Commission because of its
ownership of nuclear generation assets.
Connecticut Light & Power is a wholly owned subsidiary of Northeast
Utilities. Northeast Utilities has entered into a merger agreement with
Consolidated Edison, Inc. pursuant to which Northeast Utilities will become a
wholly owned subsidiary of Consolidated Edison. The merger agreement contains
various conditions to the completion of the merger, including the receipt of
approvals from state and federal regulatory bodies. The prospectus supplement
contains current information about the status of the proposed merger.
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<PAGE>
CONNECTICUT LIGHT & POWER REVENUES, CUSTOMER BASE AND ENERGY CONSUMPTION
Several factors influence the number of Connecticut Light & Power's
retail customers and their electric energy consumption. One of these factors is
the general economic climate in Connecticut Light & Power's service territory,
which affects migration of residential, commercial and industrial customers into
or out of the service territory. Another factor influencing sales of electricity
is temperature. Connecticut Light & Power's electricity sales are typically
higher in the winter and summer when heating or cooling demands are highest than
in the spring and fall when temperatures tend to be more moderate. The level of
business activity of commercial and industrial customers also tends to influence
their electricity consumption. Other factors affecting the electricity
consumption of retail customers, primarily over the longer term, include the
availability of more energy-efficient appliances and other products and retail
customers' ability to acquire these products.
The table below sets forth Connecticut Light & Power's total retail
revenues from retail sales of electrical energy for the years 1995 to 1999 and
for the period beginning January 1, 2000 and ending September 30, 2000:
<TABLE>
<CAPTION>
RETAIL REVENUES ($ IN 000,000S)
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential 984 1,009 1,014 998 1,014 714
Commercial 833 848 871 876 851 615
Industrial 314 306 306 303 291 210
Other 36 37 37 37 35 26
Total 2,167 2,200 2,228 2,214 2,191 1,565
</TABLE>
The table below sets forth Connecticut Light & Power's monthly average
number of retail customers by class for the years 1995 to 1999 and for the
period beginning January 1, 2000 and ending September 30, 2000:
<TABLE>
<CAPTION>
MONTHLY AVERAGE NUMBER OF RETAIL CUSTOMERS (000S)
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential 998 1,002 1,005 1,013 1,022 1,019
Commercial 90 90 91 91 92 92
Industrial 4.2 4.1 4.1 4.1 4.0 4.0
Other 2.8 2.9 2.8 2.8 2.8 2.8
Total 1,095 1,099 1,103 1,111 1,121 1,118
</TABLE>
The table below sets forth the number of Connecticut Light & Power's
retail energy sales for the years 1995 to 1999 and for the period beginning
January 1, 2000 and ending September 30, 2000:
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<PAGE>
<TABLE>
<CAPTION>
RETAIL ENERGY SALES (GIGAWATT-HOURS)
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential 8,405 8,573 8,487 8,540 9,071 6,772
Commercial 8,233 8,469 8,567 8,915 8,973 6,828
Industrial 3,950 3,910 3,900 3,965 4,004 2,918
Other 268 269 268 273 268 207
Total 20,856 21,221 21,222 21,693 22,316 16,725
</TABLE>
ESTIMATED CONSUMPTION AND VARIANCES
Connecticut Light & Power's calculation of the initial RRB charge and
subsequent adjustments are based on electricity sales estimates. The servicer
will use these estimates to calculate and set the RRB charge at a level intended
to generate revenues sufficient to pay principal of and interest on the
certificates, to pay fees and expenses (including indemnities) related to
servicing and retiring the notes and the certificates, to replenish the capital
subaccount and to fund the overcollateralization amount.
Connecticut Light & Power conducts sales estimate variance analyses on
a regular basis to monitor the accuracy of energy estimates against recorded
consumption. The table below presents the estimates of Connecticut Light &
Power's retail energy sales in gigawatt-hours for the years 1995 to 1999 and for
the period beginning January 1, 2000 and ending September 30, 2000. There are
1,000,000 kilowatt-hours in a gigawatt-hour. Each estimate was made in the prior
year. For example, the 1995 estimate of 21,098 gigawatt-hours was prepared in
1994.
<TABLE>
<CAPTION>
ANNUAL VARIANCES
RETAIL ENERGY SALES (GIGAWATT-HOURS)
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Estimate 21,098 20,761 21,529 21,472 21,895 17,138
Actual 20,856 21,221 21,222 21,693 22,316 16,725
Variance -243 460 -307 221 421 -413
Percentage Variance -1.2% 2.2% -1.4% 1.0% 1.9% -2.4%
</TABLE>
Actual usage depends on several factors, including temperatures and
economic conditions. For example, while Connecticut Light & Power's methodology
for estimating usage assumes normal conditions, abnormally hot summers can add
an extra 1 to 2 percent in electricity sales. Regional economic conditions can
also affect sales as retail customers curb electricity usage to save money,
businesses close and retail customers migrate from Connecticut Light & Power's
service territory. Accordingly, variations in conditions will affect the
accuracy of any estimate.
BILLING AND COLLECTIONS
CREDIT POLICY
Connecticut Light & Power's credit and collections policies are
regulated by the Department of Public Utility Control. Under the Department of
Public Utility Control's regulations, Connecticut Light & Power is obligated to
provide service to all customers within its service territory.
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On application for service, the identification of all residential
customers is verified through the use of a major credit-reporting bureau. In
instances where nonresidential customers have not established satisfactory
credit, a signed application and a security deposit are required. The security
deposit may be in the form of a cash deposit, surety bond and/or irrevocable
letter of credit. The amount of security is normally the amount of one month's
bill. Connecticut Light & Power does not obtain security deposits from its
residential customers.
According to the Department of Public Utility Control's regulations,
Connecticut Light & Power may refuse to provide service, at any location, to an
applicant who is indebted to it for any service previously furnished to the
applicant. Connecticut Light & Power will commence service, however, if a
reasonable payment plan for the indebtedness is first made between a residential
applicant and Connecticut Light & Power, and it may likewise commence service
for an industrial or commercial applicant.
BILLING PROCESS
Connecticut Light & Power bills its customers in 20 billing cycles each
month. These billing cycles range from 25 to 38 days, with an average of 30
days. An approximately equal number of bills are distributed each business day.
For the nine months ending September 30, 2000, Connecticut Light & Power mailed
out an average of approximately 56,000 bills per billing cycle (i.e., on each
business day) to customers in its various customer categories.
Approximately 69,223 residential and small business customers, which
constitutes approximately 6 percent of Connecticut Light & Power's retail
customers, choose to be billed using Connecticut Light & Power's budget billing
program. For these customers Connecticut Light & Power determines and bills a
monthly budget amount based on the last twelve months of billing history for
each account. Customers receive eleven equal monthly budget bills. Overpayments
or underpayments for actual usage during the prior year are reconciled on each
customer's twelfth month budget bill. The budget amount is recalculated every
four months, if necessary.
For accounts with potential billing errors, exception reports are
generated for manual review. This review examines accounts that have abnormally
high or low bills, potential meter-reading errors and possible meter
malfunctions.
COLLECTION PROCESS
Connecticut Light & Power receives the majority of its payments via the
U.S. mail; however, other payment options are also available. These options
include electronic payments, electronic fund transfers, as well as direct
payment at Connecticut Light & Power's payment agency network.
Connecticut Light & Power considers customer bills to be delinquent if
they are unpaid 38 days after the billing date. In general, Connecticut Light &
Power's collection process begins when balances are unpaid for 52 days or more
from the billing date. At that time Connecticut Light & Power begins collection
activities ranging from delinquency notice mailings, to telephone calls, to
personal collection and ending with electricity shutoff. Connecticut Light &
Power also uses collection agencies and legal collection experts as needed
throughout this process.
RESTORATION OF SERVICE
Before restoring service that has been shut off for non-payment,
Connecticut Light & Power has the right to require the payment of all of the
following charges:
o amounts owing on an account including the amount of any
past-due balance for charges for which Connecticut Light &
Power may disconnect service if they are unpaid and legal
notice requirements were met prior to service termination, the
current billing and a credit deposit, if applicable;
o any miscellaneous charges associated with the reconnection of
service (i.e., reconnection charges and/or returned check
charges);
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<PAGE>
o any charges assessed for unusual costs incidental to the
termination or restoration of service which have resulted from
the customer's action or negligence; and
o any unpaid closing bills from other accounts in the name of
the customer of record.
LOSS EXPERIENCE
The following table sets forth information relating to Connecticut
Light & Power's annual net charge-offs (i.e., net of recoveries) for retail
customers for the years 1995 to 1999 and for the period beginning January 1,
2000 and ending September 30, 2000:
<TABLE>
<CAPTION>
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Charge-Offs
($ in 000,000's): 11.5 12.8 10.2 12.7 12.4 6.4
Percentage of
Billed Retail
Revenues: 0.53% 0.58% 0.46% 0.58% 0.57% 0.41%
</TABLE>
Connecticut Light & Power determines a customer's account to be
inactive on the date:
o the customer requests discontinuance of service,
o a new customer applies for service at a location where the
customer of record has not yet discontinued service, or
o the customer's service has been shut off due to non-payment.
Connecticut Light & Power's policy is to charge-off an inactive account
against bad debt reserve 75 days after the date the account is determined to be
inactive if payment has not been received.
AGING RECEIVABLES
The following table sets forth information relating to the aging of
Connecticut Light & Power's accounts receivable for all classes of customers on
December 31st of each year shown and as of September 30, 2000. This historical
information is presented because Connecticut Light & Power's actual accounts
receivable aging experience may affect the amounts charged-off, and consequently
the total amounts remitted that arise from the RRB charge.
<TABLE>
<CAPTION>
September 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Percentage
Outstanding For:
1 - 30 days 69.7 68.7 66.4 64.5 68.4 64.6
31 - 60 days 19.9 19.2 20.6 21.8 20.8 23.9
61 - 90 days 3.6 3.8 4.5 4.1 3.4 4.0
91 - 120 days 1.7 1.5 1.7 1.8 1.3 1.3
over 120 days 5.1 6.8 6.8 7.8 6.1 6.2
</TABLE>
During the last five and a half years, the accounts receivable aging
experience for Connecticut Light & Power has remained relatively consistent with
no discernible trend upwards or downwards. We are not aware of any material
factors that caused the accounts receivable aging experience to vary.
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<PAGE>
SERVICING
SERVICING PROCEDURES
The servicer, on behalf of the note issuer, will manage, service and
administer, and bill and collect payments arising from, the transition property
according to the terms of the servicing agreement between the servicer and the
note issuer. The servicer's duties will include responding to inquiries of
customers and the Department of Public Utility Control regarding the transition
property and the RRB charge, calculating electricity usage, accounting for
collections, furnishing periodic reports and statements to the note issuer, the
note trustee, the certificate trustee and the rating agencies and periodically
adjusting the RRB charge.
The servicer, on behalf of the noteholders and the certificateholders,
will institute any action or proceeding necessary to compel performance by the
Department of Public Utility Control or the State of Connecticut of any of their
obligations or duties under the restructuring statute, the financing order or
any true-up letter. In addition, the servicer will take legal or administrative
actions, including defending against or instituting and pursuing legal actions
and appearing or testifying in hearings or similar proceedings, as may be
reasonably necessary to block or overturn any attempts to cause a repeal of,
modification of or supplement to the restructuring statute or the financing
order or the rights of holders of transition property by legislative enactment
or constitutional amendment or (if such means become available in the future)
referendum or initiative petition that would be adverse to certificateholders.
The cost of any action will be payable from payments arising from the RRB charge
as an expense of the note issuer.
SERVICING STANDARDS AND COVENANTS
The servicing agreement will require the servicer, in servicing and
administering the transition property, to employ or cause to be employed
procedures and exercise or cause to be exercised the same care it customarily
employs and exercises in servicing and administering bill collections for its
own account and for others.
Consistent with the foregoing, the servicer may in its own discretion
waive any late payment charge or any other fee or charge relating to delinquent
payments, if any, and may waive, vary or modify any terms of payment of any
amounts payable by a customer, in each case, if the waiver or action:
o would comply with the servicer's customary practices or those
of any successor servicer for comparable assets that it
services for itself and for others;
o would not materially adversely affect the certificateholders;
and
o would comply in all material respects with applicable law.
In addition, the servicer may write off any amounts that it deems uncollectible
according to its customary practices.
In the servicing agreement, the servicer will covenant that, in
servicing the transition property it will:
o manage, service, administer and make collections of payments
arising from the transition property with reasonable care and
in compliance with applicable law, including all applicable
guidelines of the Department of Public Utility Control, using
the same degree of care and diligence that the servicer
exercises for bill collections for its own account and, if
applicable, for others;
o follow customary standards, policies and procedures for the
industry in performing its duties as servicer;
o use all reasonable efforts, consistent with its customary
servicing procedures, to bill and collect the RRB charge;
o comply in all material respects with laws applicable to and
binding on it relating to the transition property;
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<PAGE>
o submit annually and, in the last year that the certificates
are scheduled to be outstanding, quarterly a true-up letter to
the Department of Public Utility Control seeking an
adjustment, if any, of the RRB charge; and
o submit quarterly and, in the last year that the certificates
are scheduled to be outstanding, monthly a true-up letter to
the Department of Public Utility Control seeking an
adjustment, if any, of the RRB charge if it reasonably
determines that an adjustment is then necessary to assure
timely payment of scheduled amortization on the notes.
REMITTANCES TO COLLECTION ACCOUNT
Starting with collections that are received on the first business day
that is at least 45 days after the first day on which Connecticut Light & Power
imposes the RRB charge, the servicer will remit daily to the note trustee,
within 2 business days after receipt, an amount equal to the RRB charges
collected, calculated based on the servicer's remittance methodology.
Connecticut Light & Power's remittance methodology is as follows:
o Gross customer collections received will be deposited and
posted to Connecticut Light & Power's accounts receivable
system.
o The amount deposited will be adjusted by deducting an amount
for sales taxes and dishonored checks and by adding an amount
for write-off recoveries to determine net collections for each
of Connecticut Light & Power's customer classes.
o Net collections for each customer class will be multiplied by
the applicable RRB percentage (determined as described below)
for such customer class to determine the amount of RRB charge
collected for that customer class.
o The total of the RRB charges collected for all customer
classes will be remitted to the note trustee.
For net collections received on any day that occurs before two full
billing months have elapsed since the first day on which Connecticut Light &
Power imposed the RRB charge, the applicable RRB percentage for a customer class
is determined by dividing the initial RRB charge (cents per kilowatt-hour) for
such customer class by the total rate (cents per kilowatt-hour) in effect for
such customer class on the first day on which Connecticut Light & Power imposed
the RRB charge. For net collections received on any day that occurs after two
full billing months have elapsed since the first day on which Connecticut Light
& Power imposed the RRB charge, the applicable RRB percentage for a customer
class is determined by dividing the aggregate amount of all RRB charges billed
by Connecticut Light & Power to all customers in such customer class by the
aggregate of all amounts billed by Connecticut Light & Power to all customers in
such customer class, in each case during the second preceding billing month.
SERVICING COMPENSATION
The servicer will be entitled to receive an annual servicing fee in an
amount equal to:
o 0.05 percent of the initial principal amount of the notes; or
o up to 1.25 percent of the initial principal balance of the
notes if the RRB charge is being billed separately to
customers by a successor servicer.
The note trustee will pay the servicing fee in quarterly installments (together
with any portion of the servicing fee that remains unpaid from prior payment
dates) to the extent of available funds in the collection account prior to the
payment of any principal of and interest on the notes. See "Description of the
Notes - Allocations and Payments," which begins on page 56.
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<PAGE>
THIRD PARTY SUPPLIERS
As part of the deregulation of the Connecticut electric industry, the
restructuring statute contemplates that electricity metering and billing
services may be unbundled from distribution services. See "Energy Deregulation
and New Connecticut Market Structure - Third Party Billing Options," which
begins on page 29. As a result, while the restructuring statute continues to
reserve electricity metering and billing services to electric distribution
companies, third party suppliers may have the opportunity to bill, collect and
remit the RRB charge in the future. When a third party supplier bills, collects
and remits billed amounts arising from the RRB charge, there is a greater risk
that the servicer will receive payments arising from the RRB charge later than
it would if the servicer billed and collected these amounts itself. The greater
the delay in receipt of payment, the larger the amount of payments that bear the
risk of non-payment due to the default, bankruptcy or insolvency of the third
party supplier holding the funds. Third party supplier billing also places
increased information requirements on the servicer. The servicer will have the
responsibility of accounting for payments arising from the RRB charge due to
certificateholders regardless of which entity provides a customer's electric
power.
To mitigate the risks associated with a third party supplier, see "Risk
Factors - Problems with the servicing of transition property may cause payment
delays or losses - Billing of the RRB charge by third party suppliers may cause
delays in remittances," which begins on page 24, and "Risk Factors - Bankruptcy
and Creditors' Rights Issues - Bankruptcy of the servicer or a third party
supplier could also delay or reduce payments," which begins on page 25, the
Department of Public Utility Control states in its financing order issued to
Connecticut Light & Power that it will not authorize a third party supplier to
bill and collect the RRB charge unless such third party supplier meets specified
creditworthiness criteria and complies with specified billing, collection and
remittance procedures and information access requirements. The Department of
Public Utility Control also states that it will require creditworthiness
standards and other procedures and requirements that are consistent with
maintaining "AAA" (or its equivalent) ratings on the certificates, subject to
the following minimum criteria, procedures and requirements:
o The third party supplier must agree to remit the full amount
of the RRB charge it bills to customers, regardless of whether
payments are received from customers, within 15 days after the
servicer's bill for such charges.
o The third party supplier must provide the servicer with access
to information regarding kilowatt-hour billing and electricity
usage by customers to permit the servicer to fulfill its
obligations under the servicing agreement.
o The servicer will be entitled, within seven days after a
default by a third party supplier in remitting to the servicer
any amounts arising from the RRB charge, to assume
responsibility for billing the RRB charge to the customers of
the third party supplier or to assign that responsibility to a
third party.
o If and so long as a third party supplier does not maintain at
least a "BBB" (or the equivalent) long-term unsecured credit
rating from Moody's and S&P, a third party supplier will be
required to maintain with the servicer, or as directed by the
servicer, a cash deposit or comparable security equal to one
month's maximum estimated collections of payments arising from
the RRB charge, as agreed upon by the servicer and the third
party supplier.
The third party supplier will, in effect, replace the customer as the
obligor for payments arising from the RRB charge, and the servicer, on behalf of
the note issuer, will have no right to collect such payments from the customer.
In the event of a default in the remittance of payments arising from the RRB
charge by a third party supplier, the servicer will take these amounts into
account in adjusting the RRB charge.
Neither the servicer nor Connecticut Light & Power in any capacity
apart from its capacity as servicer will pay any shortfalls resulting from the
failure of any third party supplier to remit payments arising from the RRB
charge to the servicer. The true-up adjustment mechanism for the RRB charge, as
well as the overcollateralization amount and the amounts deposited in the
capital subaccount, are intended to mitigate the risk of shortfalls. Any
shortfalls that occur will delay the payment of principal of and interest on the
certificates.
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SERVICER REPRESENTATIONS AND WARRANTIES
In the servicing agreement, the servicer will represent and warrant to
the note issuer, as of the closing of the issuance of the certificates, among
other things, that:
o the servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Connecticut, with corporate power and authority to own its
properties as owned by it on the closing date and to conduct
its business as its business is conducted by it on the closing
date and to execute, deliver and carry out the terms of the
servicing agreement;
o the execution, delivery and carrying out of the terms of the
servicing agreement have been duly authorized by all necessary
corporate action on the part of the servicer;
o the servicing agreement constitutes a legal, valid and binding
obligation of the servicer, enforceable against it in
accordance with its terms, subject to insolvency,
reorganization, moratorium, fraudulent transfer and other laws
relating to or affecting creditors' rights generally from time
to time in effect and to general principles of equity,
regardless of whether considered in a proceeding in equity or
at law;
o the consummation of the transactions contemplated by the
servicing agreement does not conflict with the servicer's
articles of organization or by-laws or any material agreement
to which the servicer is a party or bound, result in the
creation or imposition of any lien on the servicer's
properties pursuant to a material agreement or violate any
existing law or any existing order, rule or regulation
applicable to the servicer so as to adversely affect the
servicer, the noteholders or the certificateholders;
o the servicer has all material licenses necessary for it to
perform its obligations under the servicing agreement (except
where failure to obtain such licenses would not be reasonably
likely to adversely affect the servicing of the transition
property);
o no governmental approvals, authorizations or filings are
required for the servicer to execute, deliver and perform its
obligations under the servicing agreement except those which
have previously been obtained or made and those that the
servicer is required to make in the future under the servicing
agreement or pursuant to applicable law; and
o no court or administrative proceeding is pending and, to the
servicer's knowledge, no court or administrative proceeding is
threatened and, to the servicer's knowledge, no investigation
is pending or threatened, asserting the invalidity of, or
seeking to prevent the consummation of the transactions
contemplated by, the servicing agreement or seeking a
determination that might materially and adversely affect the
performance by the servicer of its obligations under, or the
validity or enforceability of, the servicing agreement.
In the event of willful misconduct or gross negligence by the servicer
under the servicing agreement or in the event of the servicer's breach in any
material respect of any of the representations and warranties in the preceding
paragraph, the servicer will indemnify, defend and hold harmless the note
issuer, the noteholders and the certificateholders against any costs, expenses,
losses, claims, damages and liabilities incurred as a result of these events.
The noteholders and the certificateholders, however, may only enforce their
rights against the servicer through an action brought by the note trustee or the
certificate trustee, as the case may be. The servicer will not be liable for any
costs, expenses, losses, claims, damages or liabilities resulting from the
willful misconduct or gross negligence of the indemnified persons. The servicer
also will not be liable for any costs, expenses, losses, claims, damages or
liabilities, regardless of when incurred, after the notes and the certificates
have been discharged in full.
The servicer will indemnify, defend and hold harmless the note trustee,
the certificate trustee, the Delaware trustee, the trust, the State of
Connecticut, the finance authority, the State Treasurer, agencies of the State
of Connecticut and any of their respective affiliates, officials, officers,
directors, employees, consultants, counsel and agents against any costs,
expenses, losses, claims, damages and liabilities incurred as a result of the
willful misconduct or gross negligence of the servicer under the servicing
agreement or the servicer's breach in any material respect of any of the
representations and warranties above. The servicer will not be liable for any
costs, expenses,
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losses, claims, damages or liabilities resulting from the willful misconduct or
gross negligence of the indemnified person or resulting from a breach of a
representation or warranty made by an indemnified person in the transaction
documents that gives rise to the servicer's breach.
STATEMENTS BY SERVICER
The servicer will prepare, and the note trustee will furnish to the
noteholders on each payment date the quarterly servicer's certificate described
under "Description of the Notes - Reports to Noteholders," which begins on page
62. The servicer will also prepare and the certificate trustee will furnish to
the certificateholders on each payment date the report described under
"Description of the Certificates - Reports to Certificateholders," which begins
on page 66.
EVIDENCE AS TO COMPLIANCE
The servicing agreement will provide that a firm of independent public
accountants, at the note issuer's expense, will furnish to the note issuer, the
note trustee, the certificate trustee and the rating agencies on or before March
31 of each year, beginning March 31, 2002, a statement as to compliance by the
servicer with standards relating to the servicing of the transition property
during the preceding twelve months ended December 31 (or preceding period since
the closing date of the issuance of the certificates in the case of the first
statement). This report will state that the accounting firm has performed agreed
upon procedures in connection with the servicer's compliance with the servicing
procedures of the servicing agreement, identifying the results of the procedures
and including any exceptions noted. The report will also indicate that the
accounting firm providing the report is independent of the servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
The servicing agreement will also provide for delivery to the note
issuer, the note trustee, the certificate trustee and the rating agencies, on or
before March 31 of each year, beginning March 31, 2002, of a certificate signed
by an officer of the servicer stating that the servicer has fulfilled its
obligations under the servicing agreement throughout the preceding twelve months
ended December 31 (or preceding period since the closing date of the issuance of
the certificates in the case of the first certificate) or, if there has been a
default in the fulfillment of any material obligation under the servicing
agreement, describing each such material default. The servicer has agreed to
give the note issuer, the note trustee and the certificate trustee notice of
servicer defaults under the servicing agreement. For so long as any certificates
are listed on the Luxembourg Stock Exchange and the rules of that exchange so
require, this notice also will be given by publication in a daily newspaper in
Luxembourg, which is expected to be the Luxemburger Wort.
You may obtain copies of the statements and certificates by sending a
written request addressed to the certificate trustee.
MATTERS REGARDING THE SERVICER
The servicing agreement will provide that Connecticut Light & Power may
not resign from its obligations and duties as servicer under the servicing
agreement, except when either:
o Connecticut Light & Power determines that performance of its
duties is no longer permissible under applicable law; or
o Connecticut Light & Power receives notice from the rating
agencies that Connecticut Light & Power's resignation will not
result in a reduction or withdrawal of the then current
ratings on any class of certificates and consent of the
Department of Public Utility Control.
No resignation by Connecticut Light & Power as servicer will become effective
until a successor servicer has assumed Connecticut Light & Power's servicing
obligations and duties under the servicing agreement.
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The servicing agreement will further provide that neither the servicer
nor any of its directors, officers, employees, or agents will be liable to the
note issuer or any other person or entity, except as provided under the
servicing agreement, for taking any action or for refraining from taking any
action under the servicing agreement or for errors in judgment. The servicing
agreement will not protect the servicer or any of its directors, officers,
employees or agents against any liability that would otherwise be imposed by
reason of their willful misconduct or gross negligence in the performance of
duties. In addition, the servicing agreement will provide that the servicer is
under no obligation to appear in, prosecute, or defend any legal action, except
as provided in the servicing agreement at the note issuer's expense.
Under the circumstances specified in the servicing agreement, any
entity into which the servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the servicer is a party, or
any entity succeeding to the business of the servicer or its obligations as
servicer, will be the servicer under the servicing agreement. In each such case,
the successor must expressly assume the obligations of the servicer under the
servicing agreement.
SERVICER DEFAULTS
Servicer defaults under the servicing agreement will include, among
other things:
o any failure by the servicer to remit payments arising from the
RRB charge into the collection account as required under the
servicing agreement, if such failure continues unremedied for
5 business days after written notice from the note issuer or
the note trustee is received by the servicer;
o any failure by the servicer duly to observe or perform in any
material respect any other covenant or agreement in the
servicing agreement, if such failure materially and adversely
affects the rights of noteholders or certificateholders and
continues unremedied for 60 days after the giving of notice of
such failure (a) to the servicer by the note issuer or (b) to
the servicer by the note trustee or by holders of notes
evidencing not less than 25 percent in principal amount of the
outstanding notes;
o the inaccuracy in any material respect when made of any
representation or warranty made by the servicer in the
servicing agreement, if such inaccuracy has a material adverse
effect on the noteholders and such material adverse effect
continues unremedied for a period of 60 days after the giving
of notice to the servicer by the note issuer or the note
trustee; and
o events of bankruptcy, insolvency, receivership or liquidation
of the servicer.
RIGHTS WHEN SERVICER DEFAULTS
If a servicer default remains unremedied, either the note trustee or
holders of notes evidencing not less than 25 percent in principal amount of then
outstanding notes may terminate all the rights and obligations of the servicer
(other than the servicer's indemnity obligations) under the servicing agreement.
A successor servicer appointed by the note issuer, subject to the approval of
the Department of Public Utility Control, and with the note trustee's consent,
will succeed to all the responsibilities, duties and liabilities of the servicer
under the servicing agreement upon its assuming in writing the obligations of
the servicer thereunder. If the note issuer has not obtained a successor
servicer within 30 days after a termination notice has been delivered to the
defaulting servicer, the note trustee may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer. In order to
qualify as a successor servicer, such entity must be permitted to perform the
duties of a servicer under the Department of Public Utility Control regulations,
the rating agencies must confirm that appointment of such successor servicer
will not result in a reduction or withdrawal of the then current rating of the
certificates and the successor servicer must assume in writing the obligations
of the servicer under the servicing agreement or enter into a substantially
similar servicing agreement with the note issuer. The note trustee may make
arrangements for compensation to be paid to the successor servicer.
In addition, when the servicer defaults, each of the following will be
entitled to apply to the Department of Public Utility Control for sequestration
and payment of revenues arising from the transition property:
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o the certificateholders (subject to the provisions of the
certificate indenture) and the certificate trustee as
beneficiary of any statutory lien permitted by the
restructuring statute;
o the note issuer or its assignees;
o the trust; and
o pledgees or transferees, including transferees under the
restructuring statute, of the transition property.
If, however, a bankruptcy trustee or similar official has been appointed for the
servicer, and no servicer default other than an appointment of a bankruptcy
trustee or similar official has occurred, the bankruptcy trustee or similar
official may have the power to prevent the note trustee or the noteholders from
effecting a transfer of servicing.
WAIVER OF PAST DEFAULTS
Holders of notes evidencing at least a majority in principal amount of
the then outstanding notes, on behalf of all noteholders, may waive any default
by the servicer in the performance of its obligations under the servicing
agreement and may waive the consequences of any default, except a default in
making any required remittances to the collection account under the servicing
agreement. The servicing agreement provides that no waiver will impair the
noteholders' rights relating to subsequent defaults.
SUCCESSOR SERVICER
If for any reason a third party assumes the role of the servicer under
the servicing agreement, the servicing agreement will require the servicer to
cooperate with the note issuer, the note trustee and the successor servicer in
terminating the servicer's rights and responsibilities under the servicing
agreement, including the transfer to the successor servicer of all cash amounts
then held by the servicer for remittance or subsequently acquired. The servicing
agreement will provide that, in case a successor servicer is appointed as a
result of a servicer default, all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) incurred in connection with
transferring all relevant records to the successor servicer and amending the
servicing agreement to reflect such succession as servicer shall be paid by the
predecessor servicer upon presentation of reasonable documentation of such costs
and expenses. All other reasonable costs and expenses incurred in transferring
servicing responsibilities to a successor servicer shall be paid by the note
issuer.
AMENDMENT
The servicing agreement may be amended by the parties thereto, without
the consent of the noteholders or the certificateholders (notwithstanding any
provision of any other document that would otherwise require such consent as a
precondition of note trustee consent), but with the consent of the note trustee
(which consent may not be unreasonably withheld) to cure any ambiguity, to
correct or supplement any provision thereof or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
that agreement or of modifying in any manner the rights of the noteholders or
the certificateholders, provided that the action will not, as certified in a
certificate of an officer of the servicer delivered to the note trustee and the
note issuer, adversely affect in any material respect the interest of any
noteholder or certificateholder. The servicing agreement may also be amended by
the servicer and the note issuer with the consent of the note trustee (which
consent may not be unreasonably withheld) and the holders of notes evidencing at
least a majority in principal amount of the then outstanding notes for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the agreement or of modifying in any manner the rights of
the noteholders; provided that an amendment of the provisions of the servicing
agreement relating to the servicer's remittance and RRB charge adjustment
obligations will not result in a reduction or withdrawal of the then existing
rating of the certificates by the rating agencies (except that with regard to
Moody's it will be sufficient to provide 10 days' prior notice of the
amendment).
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Each rating agency will be given 10 business days' prior notice of any
amendment to any of the servicing agreement, the note indenture and the other
transaction documents relating to the issuance of the notes and the
certificates. Each rating agency will also receive a copy of any material
notice, filing or report distributed by the servicer, the note issuer's
independent accountants, the note issuer, the note trustee or the certificate
trustee under the servicing agreement, the note indenture and the other
transaction documents relating to the issuance of the notes and the
certificates.
DESCRIPTION OF THE NOTES
The note issuer will issue the notes to the trust under the terms of a
note indenture between the note issuer and the note trustee. Each class of notes
will be in an aggregate principal amount equal to the initial aggregate
principal amount of the related class of certificates. The following summary
describes the material terms and provisions of the note indenture. The
particular terms of the notes of any class will be established in the note
indenture. This summary is not complete. You should read this summary together
with the prospectus supplement and the terms and provisions of the note
indenture, a form of which is filed as an exhibit to the registration statement
relating to this prospectus, prior to buying the certificates.
The note issuer may issue the notes in one or more classes. All notes
of the same class will be identical in all respects except for their
denominations. The note issuer may not issue any additional notes under the note
indenture other than in connection with the replacement, transfer or exchange of
notes initially issued thereunder.
SECURITY
To secure the payment of principal of and interest on the notes, the
note issuer will grant to the note trustee a security interest in all of the
note issuer's right, title and interest in and to:
o the transition property;
o the sale agreement (including the security interest granted
therein by the seller to the note issuer with respect to the
transition property);
o the servicing agreement;
o the administration agreement;
o the collection account and all amounts or investment property
on deposit in the collection account;
o all other property of whatever kind owned from time to time by
the note issuer; and
o all proceeds on account of any or all of the foregoing.
We refer to the assets in which the note issuer will grant the note trustee a
security interest as the "note collateral." The note collateral will not
include, however, the following:
o amounts in the collection account released as permitted under
the note indenture, including net investment earnings on the
capital subaccount that have been released to the note issuer
by the note trustee under the terms of the note indenture; and
o proceeds from the sale of the notes required to pay costs of
issuance of the notes and the certificates.
COLLECTION ACCOUNT
The note issuer will establish, in the name of the note trustee, a
segregated trust account with an eligible institution (as described in the next
paragraph). The note trustee will hold the collection account for the benefit of
the noteholders. The collection account will consist of four subaccounts:
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o a general subaccount;
o a reserve subaccount;
o an overcollateralization subaccount for the
overcollateralization amount; and
o a capital subaccount for capital contributions to the note
issuer.
All amounts in the collection account not allocated to any other subaccount will
be allocated to the general subaccount. Unless the context indicates otherwise,
all references to the collection account include each of the four subaccounts.
An "eligible institution" means (a) the corporate trust department of
the note trustee or (b) a depository institution organized under the laws of the
United States of America or any state or the District of Columbia (or any
domestic branch of a foreign bank), which has either a long-term unsecured debt
rating of "AAA" by S&P, and "Aaa" by Moody's or a certificate of deposit rating
of "A-l+" by S&P and "P-1" by Moody's, or any other long-term, short-term or
certificate of deposit rating acceptable to S&P and Moody's and whose deposits
are insured by the Federal Deposit Insurance Corporation.
Funds in the collection account may be invested in any of the
following:
o direct obligations of, or obligations fully and
unconditionally guaranteed as to timely payment by, the United
States of America;
o demand deposits, time deposits, certificates of deposit or
bankers' acceptances of eligible depository institutions;
o commercial paper (other than commercial paper issued by
Connecticut Light & Power) having, at the time of investment,
a rating in the highest investment category from each of the
rating agencies from which a rating is available;
o money market funds having a rating in the highest investment
category from each of the rating agencies from which a rating
is available;
o repurchase obligations for any security that is a direct
obligation of, or fully guaranteed by, the United States of
America or its approved agencies or instrumentalities, entered
into with eligible depository institutions; or
o any other investment permitted by each of the rating agencies
from which a rating is available;
in each case which mature on or before the business day preceding the next
payment date. We refer to each of the investments listed above as the "eligible
investments." The note trustee will have access to the collection account for
the purpose of making deposits and withdrawals under the note indenture.
The servicer will account for, and ultimately credit to ratepayers, any
amounts remaining in the collection account (other than the capital subaccount
and an amount equal to interest earnings thereon) after the certificates are
paid in full, such as any overcollateralization amounts, including interest
earnings. These amounts will be released to the note issuer when the
certificates are retired. These amounts will inure to the benefit of ratepayers
through a credit to their competitive transition assessment or if there is no
competitive transition assessment, through a credit to other rates.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a class of notes at
the per annum rate specified in the prospectus supplement and will be payable on
the payment dates specified in the prospectus supplement. Collections arising
from the RRB charge held by the note trustee in the general subaccount and any
amounts that are available in
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the reserve subaccount, the overcollateralization subaccount and capital
subaccount (except interest earnings) will be used to make interest payments to
the noteholders of each class on each payment date.
Principal of each class of notes will be payable in the amounts and on
the payment dates specified in the prospectus supplement to the extent of
available cash in the collection account, and with the other limitations
described below. The prospectus supplement will set forth the expected
amortization schedule for the various classes of notes. On any payment date, the
note issuer will pay principal of a class of notes only until the outstanding
principal balance of that class has been reduced to the principal balance
specified in the expected amortization schedule.
However, if insufficient funds arising from the RRB charge collections,
or available in the reserve subaccount, the overcollateralization subaccount and
the capital subaccount, are in the collection account on any payment date,
principal of any class of notes may be paid later than expected. The entire
unpaid principal amount of the notes will be due and payable on the date on
which a note event of default has occurred and is continuing, if the note
trustee or the holders of at least a majority in principal amount of the
outstanding notes have declared the notes to be immediately due and payable. See
" - Note Events of Default; Rights On Note Event of Default," which begins on
page 58.
OPTIONAL REDEMPTION
The note issuer may redeem the notes, at its option, on any payment
date, and cause the trust to redeem the certificates on the related payment
date, if the outstanding principal balance of the notes (after giving effect to
payments that would otherwise be made on that payment date) is less than 5
percent of the initial principal balance of the notes. In the case of
redemption, the note trustee will pay the outstanding principal amount of the
notes and accrued but unpaid interest as of the redemption date. Unless
otherwise specified in the prospectus supplement, the note issuer will give
notice of the redemption to the trust by first-class mail, postage prepaid,
mailed not less than 5 days nor more than 25 days prior to the redemption date.
For so long as any certificates are listed on the Luxembourg Stock Exchange and
the rules of that exchange so require, notice of redemption also will be given
by publication in a daily newspaper in Luxembourg, expected to be the
Luxemburger Wort, not less than 10 days prior to the date of redemption.
MANDATORY REDEMPTION
If the seller is required to, or elects to, repurchase the transition
property as described under "Description of the Transition Property - Seller
Representations and Warranties and Repurchase Obligation," which begins on page
34, the note issuer will be required to redeem the notes on or before the fifth
business day following the date of repurchase at a price equal to the principal
amount of the notes together with any accrued but unpaid interest thereon.
Mandatory redemption of the notes will cause a redemption of the certificates
under the certificate indenture.
OVERCOLLATERALIZATION SUBACCOUNT
The note trustee will collect amounts arising from the transition
property exceeding the amount expected to be necessary to pay scheduled payments
of principal of and interest on the notes and fees and expenses (including
indemnities) related to servicing and retiring the notes and the certificates,
which overcollateralization amounts are intended to enhance the likelihood that
payments on the notes will be made in a timely manner. The servicer will set and
adjust the RRB charge at a level that is intended to collect the
overcollateralization amount ratably over the life of the notes according to a
schedule set forth in the prospectus supplement.
On each payment date, all payments arising from the RRB charge remitted
to the collection account will be deposited in the respective subaccounts,
including the overcollateralization subaccount, as described under " -
Allocations and Payments," which begins on page 56. On each payment date, the
note trustee will draw on amounts in the overcollateralization account, if any,
to the extent amounts available in the general subaccount and the reserve
subaccount are insufficient to make scheduled payments of principal of and
interest on the notes and pay fees,
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expenses and certain indemnities related to servicing and retiring the notes and
the certificates. Amounts in the overcollateralization subaccount will be
invested in eligible investments.
CAPITAL SUBACCOUNT
Before the issuance of the notes, Connecticut Light & Power will
contribute capital to the note issuer in the amount specified in the prospectus
supplement. The note trustee will deposit the capital into the capital
subaccount. On each payment date, the note trustee will draw on amounts in the
capital subaccount, if any, to the extent amounts available in the general
subaccount, the reserve subaccount and the overcollateralization subaccount are
insufficient to make scheduled payments of principal of and interest on the
notes and pay fees, expenses and certain indemnities relating to servicing and
retiring the notes and the certificates. Deposits to the capital subaccount will
be made as described under " - Allocations and Payments," which begins on page
56. Amounts in the capital subaccount will be invested in eligible investments.
Connecticut Light & Power will be entitled to the earnings on amounts in the
capital subaccount if the required capital level in the capital subaccount is
met at the time such earnings are withdrawn.
RESERVE SUBACCOUNT
The note trustee will allocate to the reserve subaccount any amounts
remitted to the collection account exceeding amounts necessary to:
o pay fees and expenses (including indemnities) related to
servicing and retiring the notes and the certificates;
o pay principal of and interest on the notes;
o fund the capital subaccount up to the required capital level;
and
o fund the overcollateralization subaccount up to the required
overcollateralization level
The note trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay the amounts
listed above. Amounts in the reserve subaccount will be invested in eligible
investments.
ALLOCATIONS AND PAYMENTS
On any business day that the note trustee receives a written request
from the servicer requesting repayment for any excess remittances to the
collection account, the note trustee will make payment of the amount due from
amounts on deposit in the general subaccount, the reserve subaccount, the
overcollateralization subaccount and the capital subaccount, in that order and
only to the extent required to make the payment. See "Servicing - Remittances to
Collection Account," which begins on page 47.
On any business day that the note trustee receives a written request
from the note issuer's administrator stating that any fees, costs, expenses and
indemnities payable by the note issuer, as described in clauses (1) through (4)
below, will become due and payable prior to the next succeeding payment date,
and setting forth the amount and nature of the expense, as well as any
supporting documentation that the note trustee may reasonably request, the note
trustee, after receiving the information, will make payment of the expense on or
before the date the payment is due from amounts on deposit in the general
subaccount, the reserve subaccount, the overcollateralization subaccount and the
capital subaccount, in that order and only to the extent required to make the
payment.
On each payment date, or for any amount payable under clauses (1)
through (4) below, on any business day, the note trustee will apply all amounts
on deposit in the collection account, including net earnings on those amounts
(other than on amounts in the capital subaccount) to pay the following amounts
in the following priority:
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(1) all amounts owed by the note issuer to the note trustee, the
Delaware trustee, the certificate trustee, the trust and the
finance authority will be paid, subject, in each case, to any
limitation on such payment described in the note indenture;
(2) the servicing fee and all unpaid servicing fees from prior
payment dates will be paid to the servicer;
(3) the administration fee and all unpaid administration fees from
prior payment dates will be paid to the note issuer's
administrator;
(4) so long as no note default or note event of default has
occurred and is continuing or would result from such payment,
all fees and expenses (including indemnities) payable by the
note issuer to persons other than those specified in clauses
(1) through (3) above will be paid, provided that the total
amount paid for such other fees and expenses (including
indemnities) since the previous payment date and on the
current payment date may not, in the aggregate, exceed
$100,000;
(5) (A) any overdue interest (together with, to the extent lawful,
interest on such overdue interest at the applicable note
interest rate) and (B) interest currently due and payable,
will be transferred to the certificate trustee, as noteholder,
for payment to the certificateholders or, in the case of any
floating rate certificates, the related swap counterparty;
(6) (A) principal due and payable (x) as a result of a note event
of default or (y) on the final maturity date of a class of
notes and (B) scheduled principal due and payable on that
payment date, will be transferred to the certificate trustee,
as noteholder, for payment to the certificateholders;
(7) unpaid fees and expenses (including indemnities) payable by
the note issuer will be paid to the persons entitled thereto;
(8) the amount, if any, by which the capital subaccount needs to
be funded to equal the required capital level as of that
payment date (disregarding for this purpose any interest
earnings held in the capital subaccount) will be allocated to
the capital subaccount;
(9) the amount, if any, by which the overcollateralization
subaccount needs to be funded to equal the required
overcollateralization level as of that payment date will be
allocated to the overcollateralization subaccount; and
(10) the balance, if any, will be allocated to the reserve
subaccount for payment on subsequent payment dates.
Following the repayment of all notes and certificates, any amounts
remaining in the collection account will be released to the note issuer.
In the case of any deficiency in the amount required under clause (5)
above, amounts available to make payments under clause (5) above will be
allocated among each class of notes pro rata based upon the respective amounts
of interest owed on the notes of each class, and allocated and paid to holders
within each class pro rata based upon the respective principal amount of notes
held. In the case of any deficiency in the amount required under clause (6)
above, amounts available to make payments under clause (6) above will be
allocated among each class of notes pro rata based upon the respective principal
amount of notes due (in the case of clause (6)(A)(x)) or scheduled to be paid
(in the case of clauses (6)(A)(y) and (6)(B), based on priorities described in
the prospectus supplement and according to the expected amortization schedule
for such class), and allocated and paid to the holders within each class pro
rata based upon the principal amount of notes held.
If on any payment date, or for any amounts payable under clauses (1)
through (4) above, on any business day, funds on deposit in the general
subaccount are insufficient to make the payments contemplated by clauses (1)
through (6) above, the note trustee will:
o first, draw from amounts on deposit in the reserve subaccount;
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o second, draw from amounts on deposit in the
overcollateralization subaccount; and
o third, draw from amounts on deposit in the capital subaccount,
up to the amount of the shortfall, in order to make the payment described above.
In addition, if on any payment date funds on deposit in the general subaccount
are insufficient to make the allocations described in clauses (8) and (9) above,
the note trustee will draw from amounts on deposit in the reserve subaccount to
make the required allocations.
If the amount in the capital subaccount on the last day of any month
exceeds the required capital level, the note trustee will pay such excess amount
to the note issuer upon request.
ACTIONS BY NOTEHOLDERS
The certificate trustee, on behalf of the trust as sole initial holder
of the notes, has the right to vote and give consents and waivers which are
required to be given by the noteholders under the note indenture and other
transaction documents for modifications to any class of notes and to the
provisions of the note indenture and other transaction documents. With some
exceptions, the holders of a majority of the outstanding principal amount of the
notes will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the note trustee, or exercising any trust
or power conferred on the note trustee under the note indenture, provided that:
o the direction is not in conflict with any rule of law or with
the note indenture;
o other than in the case of a default in the payment of any
interest, principal or redemption price in respect of any
note, the note trustee may not sell or liquidate the note
collateral unless the holders of 100% of the outstanding
principal amount of the notes consent thereto;
o if the note trustee elects to maintain possession of the note
collateral in compliance with the note indenture, then any
direction to the note trustee by holders of notes representing
less than 100% of the outstanding principal amount of the
notes to sell or liquidate the note collateral will be of no
force and effect; and
o the note trustee may take any other action deemed proper by
the note trustee that is not inconsistent with such direction.
No holder of any note will have the right to institute any proceeding
with respect to the note indenture, unless:
o the holder previously has given to the note trustee written
notice of a continuing event of default;
o the holders of not less than 25 percent in principal amount of
the outstanding notes have made written request of the note
trustee to institute the proceeding in its own name as note
trustee;
o the holder or holders have offered the note trustee reasonable
indemnity;
o the note trustee has failed for 60 days after receipt of
notice to institute a proceeding; and
o no direction inconsistent with the written request has been
given to the note trustee during the 60-day period by the
holders of a majority in principal amount of the outstanding
notes.
NOTE EVENTS OF DEFAULT; RIGHTS ON NOTE EVENT OF DEFAULT
An event of default on the notes is defined in the note indenture as
being:
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o a default in the payment of interest on any note on its
payment date that continues for a period of 5 days;
o a default in the payment of the then unpaid principal of any
note on the final maturity date;
o a default in the payment of the redemption price for any note
on a redemption date;
o a default in the observance or performance in any material
respect of any covenant or agreement of the note issuer made
in the note indenture, which continues unremedied for 30 days
after notice is given to the note issuer by the note trustee
or to the note issuer and the note trustee by the holders of
at least 25 percent in principal amount of the notes then
outstanding;
o the inaccuracy in any material respect when made of any
representation or warranty made by the note issuer in the note
indenture or in any certificate or writing delivered by the
note issuer in connection with the note indenture, which
inaccuracy continues unremedied for 30 days after notice is
given to the note issuer by the note trustee or to the note
issuer and the note trustee by the holders of at least 25
percent in principal amount of the notes then outstanding; or
o events of bankruptcy, insolvency, receivership or liquidation
of the note issuer.
Each of the seller, the servicer, the note trustee, the Delaware
trustee and the certificate trustee will covenant that it will not at any time
institute against the note issuer or the trust any bankruptcy, reorganization or
other proceeding under any federal or state bankruptcy or similar law.
If a note event of default should occur and be continuing, the note
trustee or holders of not less than a majority in principal amount of the notes
then outstanding may declare the notes to be immediately due and payable. Under
circumstances set forth in the note indenture, the holders of a majority in
principal amount of notes then outstanding may rescind the declaration.
If the notes have been declared to be due and payable following a note
event of default, the note trustee may, in its discretion, either sell the
transition property or elect to maintain possession of the transition property
and continue to apply payments arising from the RRB charge remitted to the note
trustee as if there had been no declaration of acceleration. We expect that
there will be a limited resale market, if any, for the transition property
following a foreclosure of the note indenture with respect to the note
collateral because of the unique nature of the transition property as an asset
and other factors discussed in this prospectus.
In addition, the note trustee is prohibited from selling the transition
property following a note event of default, other than a default in the payment
of any interest, principal or redemption price in respect of any note, unless:
o the holders of all the outstanding notes consent to the sale;
o the proceeds of the sale are sufficient to pay in full the
accrued interest on and the principal of the outstanding
notes; or
o the note trustee determines that the proceeds of the
transition property would not be sufficient on an ongoing
basis to make all payments on the notes as those payments
would have become due if the notes had not been declared due
and payable, and the note trustee obtains the consent of the
holders of 66-2/3 percent of the outstanding amount of the
notes.
If a note event of default occurs and is continuing, the note trustee
will be under no obligation to exercise any of the rights or powers under the
notes at the request or direction of any of the holders of notes if the note
trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities that it might incur in complying with the
request. The holders of a majority in principal amount of the outstanding notes
may, in some cases, waive any default with respect thereto, except a default in
the payment of principal or interest or a default arising from a covenant or
provision of the note indenture that cannot be modified without the consent of
all of the holders of the outstanding notes of all classes affected.
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COVENANTS OF THE NOTE ISSUER
The note issuer may not consolidate with or merge into any other
entity, unless:
o the entity formed by or surviving a consolidation or merger of
the note issuer is organized under the laws of the United
States, any state thereof or the District of Columbia;
o the entity expressly assumes by an indenture supplemental to
the note indenture the note issuer's obligation to make due
and punctual payments on the notes and the performance or
observance of every agreement and covenant of the note issuer
under the note indenture;
o no event of default will have occurred and be continuing
immediately after the merger or consolidation of the note
issuer;
o the transaction will not result in a reduction or withdrawal
of the then current ratings on any class of notes or
certificates;
o the note issuer has received an opinion of counsel to the
effect that the consolidation or merger would have no material
adverse tax consequence to the note issuer, the trust, any
noteholder or any certificateholder and the consolidation or
merger complies with the note indenture and all conditions
precedent relating to the transaction have been complied with;
and
o any action as is necessary to maintain the lien and security
interest created by the note indenture will have been taken.
The note issuer may not convey or transfer any of its properties or
assets to any person or entity, unless:
(a) the person or entity acquiring the properties and assets:
o is a United States citizen or an entity organized
under the laws of the United States, any state
thereof or the District of Columbia;
o expressly assumes by an indenture supplemental to the
note indenture the note issuer's obligation to make
due and punctual payments on the notes and the
performance or observance of every agreement and
covenant of the note issuer under the note indenture;
o expressly agrees by a supplemental indenture that all
right, title and interest so conveyed or transferred
will be subject and subordinate to the rights of
noteholders;
o unless otherwise expressly waived by the note issuer,
expressly agrees to indemnify, defend and hold
harmless the note issuer against and from any loss,
liability or expense arising under or related to the
note indenture and the notes; and
o expressly agrees by means of a supplemental indenture
that the person (or if a group of persons, then one
specified person) will make all filings with the
Securities and Exchange Commission (and any other
appropriate person) required by the Securities
Exchange Act of 1934 in connection with the notes;
(b) no event of default under the note indenture will have
occurred and be continuing immediately after the transaction;
(c) the transaction will not result in a reduction or withdrawal
of the then current ratings on any class of certificates;
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(d) the note issuer has received an opinion of counsel to the
effect that the transaction will not have any material adverse
tax consequence to the note issuer, the trust, any noteholder
or any certificateholder and an officer's certificate and an
opinion of counsel each stating that the conveyance or
transfer complies with the note indenture and all conditions
precedent relating to the transaction have been complied with;
and
(e) any action as is necessary to maintain the lien and security
interest created by the note indenture will have been taken.
The note issuer will not, among other things:
o except as expressly permitted by the note indenture,
sell, transfer, exchange or otherwise dispose of any
of the assets of the note issuer, unless directed to
do so by the note trustee in accordance with the note
indenture;
o claim any credit on, or make any deduction from the
principal or interest payable on, the notes (other
than amounts properly withheld under the Internal
Revenue Code of 1986) or assert any claim against any
present or former noteholder because of the payment
of taxes levied or assessed on any part of the note
collateral;
o terminate its existence, dissolve or liquidate in
whole or in part;
o permit the validity or effectiveness of the note
indenture to be impaired;
o permit the lien of the note indenture to be amended,
subordinated, terminated or discharged or permit any
person to be released from any covenants or
obligations arising from the notes except as may be
expressly permitted by the note indenture;
o permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance, other than
the lien and security interest created by the note
indenture or the statutory lien under the
restructuring statute, to be created by the note
issuer on or extend to or otherwise arise on or
burden the note collateral or any part of it or any
interest in it or the proceeds from it; or
o except for the statutory lien under the restructuring
statute, permit the lien of the note indenture not to
constitute a valid first priority security interest
in the note collateral.
The note issuer may not engage in any business other than financing,
purchasing, owning and managing the transition property in the manner
contemplated by the note indenture and the other transaction documents and
activities incidental thereto. The note issuer will not issue, incur, assume,
guarantee or otherwise become liable for any indebtedness except for the notes.
The note issuer will not, except for any eligible investments as
contemplated by the note indenture and the other transaction documents make any
loan or advance or credit to, or guarantee, endorse or otherwise become
contingently liable in connection with the obligations, stocks or dividends of,
or own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, or any other interest in, or make
any capital contribution to, any other person. The note issuer will not, other
than expenditures in an annual amount not to exceed $25,000, make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either real or personal property). The note issuer will not, directly or
indirectly, make payments to or from the collection account except in compliance
with the note indenture and the other transaction documents.
The note issuer will not make any payments, distributions or dividends
to any owner of beneficial interests in the note issuer arising from the
beneficial interests in the note issuer if any note event of default has
occurred and is continuing or if distributions cause the book value of the
remaining equity in the note issuer to decline below 0.50 percent of the initial
principal amount of the notes outstanding under the note indenture.
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The note issuer will deliver or cause the servicer to deliver to, among
others, the note trustee and the certificate trustee the annual accountant's
certificates, compliance certificates, reports regarding payments and statements
to noteholders and the certificateholders required by the servicing agreement.
REPORTS TO NOTEHOLDERS
On or prior to each payment date, the servicer will prepare and provide
to the note issuer, the note trustee and the certificate trustee a statement to
be delivered to the noteholders on the payment date. Each statement will include
(to the extent applicable) the following information for a payment date or the
period since the previous payment date, as applicable:
o the amount of the payment to noteholders allocable to
principal;
o the amount of the payment to noteholders allocable to
interest;
o the outstanding principal balance of the notes, after giving
effect to payments allocated to principal reported above; and
o the difference, if any, between the outstanding principal
balance of the notes and the principal amount scheduled to be
outstanding on a payment date according to the expected
amortization schedule.
The note trustee will deliver to each holder of the notes information
in the note trustee's possession that may be required to enable the holder to
prepare its federal and state income tax returns. See "Federal Income Tax
Consequences," which begins on page 72, and "State Taxation," which begins on
page 78.
ANNUAL COMPLIANCE STATEMENT
The note issuer will file annually with the note trustee, the
certificate trustee, the finance authority and the rating agencies a written
statement as to whether it has fulfilled its obligations under the note
indenture.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates under the certificate indenture
among the trust, the Delaware trustee and the certificate trustee. The following
summary describes the material terms and provisions of the certificate
indenture. The particular terms of the certificates of any class will be
established in the certificate indenture. This summary is not complete. You
should read this summary together with the prospectus supplement and the terms
and provisions of the certificate indenture, a form of which is filed as an
exhibit to the registration statement relating to this prospectus, before buying
the certificates.
Each class of certificates will represent fractional undivided
beneficial interests in the related class of notes, the proceeds of that class
of notes and, in the case of floating rate certificates, a related swap
agreement and its proceeds. Each certificate will be issued in the minimum
denominations specified in the prospectus supplement. The trust may not issue
any additional certificates under the certificate indenture other than in
connection with the replacement, transfer or exchange of certificates initially
issued thereunder.
Except in the case of floating rate certificates, each class of
certificates will bear interest at the rate per annum borne by the related class
of notes. See "Description of the Notes - Interest and Principal," which begins
on page 54. The prospectus supplement indicates whether the trust will issue
floating rate certificates and, if so, the manner in which the floating rate
certificates will bear interest. Payments of interest and principal made on any
class of notes or pursuant to any swap agreement are required to be passed
through to holders of the related class of certificates at the times and in the
manner described below. See " - Payments," which begins on page 63, and
"Description of the Notes - Interest and Principal," which begins on page 54.
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For so long as any certificates are listed on the Luxembourg Stock
Exchange, and to the extent that the rules of that exchange so require, the
issuer will have a listing agent, a paying agent and a transfer agent in
Luxembourg.
PAYMENTS
The note trustee will make payments on the notes on each payment date
to the certificate trustee, as holder of the notes, as described under
"Description of the Notes - Allocations and Payments," which begins on page 56.
The certificate trustee will pay on each payment date to the holders of
each class of certificates all payments of principal of and interest on the
related class of notes, other than a special payment described in the next
paragraph, the receipt of which is confirmed by the certificate trustee by 1:00
p.m. New York City time on a payment date or, if receipt is confirmed after 1:00
p.m. New York City time on a payment date, then on the following business day.
Each payment, other than the final payment for any certificate, will be made by
the certificate trustee to the holders of record of the certificates of the
applicable class on the record date for a payment date. If a payment of
principal or interest on any class of the notes, other than a special payment
described in the next paragraph, is not received by the certificate trustee on a
payment date but is received within 5 days thereafter, it will be paid to the
holders of record on the date receipt is confirmed by the certificate trustee,
if receipt is confirmed by the certificate trustee by 1:00 p.m. New York City
time or, if receipt is confirmed after 1:00 p.m. New York City time, then on the
following business day. If payment is received by the certificate trustee after
the five-day period, it will be treated as a special payment received following
a payment default on a class of notes and paid as described below in the next
paragraph.
Any payment received by the certificate trustee following a payment
default on any class of notes, any proceeds from the sale of the notes by the
certificate trustee following an event of default under the certificate
indenture and any proceeds from the repurchase of the transition property by the
seller under the sale agreement (each a "special payment") will be paid on the
later of
o the date receipt is confirmed by the certificate trustee
provided that if receipt of a special payment is not confirmed
until after 1:00 p.m. New York City time, the special payment
will be paid on the following business day and,
o the date that is the earlier of (A) if the certificate trustee
receives such special payment without prior notice, 20 days
after receipt is confirmed, or (B) the date that is 20 days
after the certificate trustee receives notice from the note
issuer of the anticipated payment of a special payment, except
that:
o if the special payment represents proceeds of the
sale of the notes by the certificate trustee
following an event of default under the certificate
indenture, then the special payment date will be the
earliest day for which it is practicable for the
certificate trustee to give 20 days notice to the
certificateholders of payment of such special
payment, and
o the certificate trustee shall distribute proceeds
from the repurchase by the seller of the transition
property under the sale agreement not later than 5
business days after the certificate trustee receives
such proceeds.
The certificate trustee will mail notice to the holders of record of
certificates stating the anticipated special payment date as required under the
certificate indenture.
The certificate indenture requires the certificate trustee to establish
and maintain for each class of certificates, for the trust, and on behalf of the
certificateholders, one or more non-interest bearing segregated certificate
accounts for the deposit of payments on the related class of notes and any swap
agreement. The certificate trustee is required to deposit any payments received
by it arising from the notes and any swap agreement in the appropriate
certificate account. The certificate trustee will pay all amounts so deposited
to holders of the certificates on a payment date or a special payment date, as
appropriate, unless a different date for payment of the amount is specified in
the certificate indenture.
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Any funds representing special payments received by the certificate
trustee in the certificate account will, to the extent practicable, be invested
and reinvested by the certificate trustee in eligible investments permitted
under the certificate indenture maturing in not more than 60 days or a lesser
time as is required for the payment of any funds on a special payment date,
pending the payment of the funds to certificateholders as described in this
prospectus.
At a time, if any, that the certificates are issued in registered form
and not to the Depository Trust Company ("DTC") or its nominee, payments by the
certificate trustee from the certificate accounts on a payment date or a special
payment date will be made by check mailed to each holder of record of a
certificate on the applicable record date at its address appearing on the
register maintained for the certificates, or, on application by a holder of any
certificates in the principal amount of $1,000,000 or more to the certificate
trustee not later than the applicable record date, by wire transfer to an
account maintained by the payee in New York, New York. Payments made to the
nominee of the DTC will be made by wire transfer. The final payment for the
certificates, however, will be made only on presentation and surrender of the
certificates at the office or agency of the certificate trustee specified in the
notice given by the certificate trustee of the final payment. The certificate
trustee will mail notice of the final payment to the certificateholders,
specifying the date set for the final payment and the amount of the final
payment. The final payment of any certificate listed on the Luxembourg Stock
Exchange may also be made upon presentation and surrender of the certificate at
the office of the paying agent in Luxembourg as specified in the notice of final
payment. A notice of such final payment will be published in a daily newspaper
in Luxembourg, which is expected the be the Luxemburger Wort, not later than the
fifth day of the month of such final payment.
If any special payment date or other date specified in this prospectus
for payment of any payments to certificateholders is not a business day, the
payments scheduled to be made on such date will be made on the following
business day and no interest will accrue on the payment during the intervening
period.
VOTING OF THE CERTIFICATES
The nominee for DTC, as sole initial holder of the certificates, has
the right to vote and give consents and waivers required to be given by the
holders of any class of certificates. With some exceptions, the holders of at
least a majority of the outstanding principal amount of the certificates will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the certificate trustee, or exercising any trust or
power conferred on the certificate trustee under the certificate indenture,
including any right of the certificate trustee as holder of the notes, in each
case unless a different percentage is specified in the certificate indenture.
The rights of the certificateholders to direct the action of the certificate
trustee are limited by the following, among other restrictions set forth in the
certificate indenture:
o the direction must not be in conflict with any rule of law or
with the certificate indenture and must not involve the
certificate trustee in personal liability or expense;
o the certificate trustee must not have determined that the
action so directed would be unjustly prejudicial to the
certificateholders not taking part in the direction; and
o the certificate trustee may take any other action deemed
proper by the certificate trustee that is not inconsistent
with the direction.
If the certificate trustee is required to seek instructions from the
holders of the certificates regarding any action or vote, the certificate
trustee will take the action or vote for or against any proposal in proportion
to the principal amount of the certificates taking the corresponding position.
EVENTS OF DEFAULT
An event of default under the certificate indenture is defined as the
occurrence and continuance of a note event of default or a breach by the State
of Connecticut of its pledge under the restructuring statute. For a description
of the note events of default, see "Description of the Notes - Note Events of
Default; Rights on Note Event of Default," which begins on page 58. For a
description of the pledge of the State of Connecticut, see "Description of the
Transition Property - Pledge by the State of Connecticut," which begins on page
33.
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The certificate indenture provides that, if a note event of default
occurs and is continuing, the certificate trustee may and, with the written
direction of holders representing not less than a majority of the outstanding
principal amount of the certificates, will vote all the notes in favor of
declaring the unpaid principal amount of the notes and accrued interest to be
due and payable. In addition, the certificate indenture provides that, if a note
event of default occurs and is continuing, the certificate trustee may and, with
the written direction of holders representing not less than a majority of the
outstanding principal amount of the certificates, will vote all the notes in
favor of directing the note trustee as to the time, method and place of
conducting any proceeding for any remedy available to the note trustee,
including the sale of any or all of the notes, without recourse to or warranty
by the certificate trustee or any certificateholder, to any person or entity, or
of exercising any trust or power conferred on the note trustee under the note
indenture.
The certificate trustee is prohibited from selling any notes following
a note event of default, other than a payment default, unless
o the certificate trustee determines that the amounts receivable
from the note collateral are not sufficient to pay in full the
principal of and accrued interest on the notes and to pay all
fees and expenses (including indemnities) then due, which are
described in clauses (1) through (4) in "Description of the
Notes - Allocations and Payments," which begins on page 56,
and the certificate trustee obtains the written consent of
holders of certificates representing 66-2/3 percent of the
outstanding principal amount of certificates, or
o the certificate trustee obtains the written consent of holders
of 100 percent of the outstanding principal amount of
certificates.
Any proceeds received by the certificate trustee on any sale will be deposited
in the certificate account and will be paid to the certificateholders on a
special payment date.
If, under the terms of the certificate indenture, the certificate
trustee so decides or is required to sell the notes, the certificate trustee
may, but is not obligated to, take action to complete the sale of the notes so
as to provide for the full payment of all amounts due on the certificates.
If there is a failure to make any interest or principal payment on any
note, then the certificate trustee in its own name, and as trustee of an express
trust, as holder of such note, if directed in writing by the holders of a
majority of the outstanding principal amount of the certificates and so long as
the certificate trustee is adequately indemnified against the cost, expenses and
liabilities that it might incur in complying with such request, will be entitled
and empowered to institute suits, actions or proceedings, including the power to
make demand on the note trustee to take action under the note indenture to
enforce the notes, for the collection of sums due on the notes and may prosecute
any proceeding to judgment or final decree.
If a breach by the State of Connecticut of its pledge under the
restructuring statute has occurred, then the certificate trustee, in its own
name and as trustee of an express trust, as holder of the notes, will be, to the
extent permitted by state and federal law, entitled and empowered to institute
any suits, actions or proceedings at law, in equity or otherwise, to enforce the
pledge and to collect any monetary damages as a result of a breach, and may
prosecute any of these suits, actions or proceedings to final judgment or
decree.
Within 30 days after the occurrence of any event that is, or after
notice or lapse of time or both would become, a note event of default with
respect to a class of certificates, the certificate trustee will mail to the
trust, note trustee and the certificateholders notice of all uncured or unwaived
defaults known to it. Except in the case of a default relating to the payment of
principal of or interest on any of the notes, however, the certificate trustee
will be protected in withholding notice if in good faith it determines that the
withholding of notice is in the interests of the certificateholders.
The certificate indenture contains a provision entitling the
certificate trustee to be indemnified by the certificateholders before
proceeding to exercise any right or power under the certificate indenture at the
request or direction of certificateholders.
Prior to acceleration of the notes, the holders of certificates
representing not less than a majority of the outstanding principal amount of the
certificates may in writing direct the certificate trustee to waive any default
or
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note event of default and thereby annul any previous direction given by the
certificate trustee with respect thereto, except a default:
o in the deposit or payment of any payment on the notes or
special payment required to be made on any class of
certificates;
o in the payment of principal of or interest on any of the
notes; or
o in respect of any covenant or provision of the note indenture
that cannot be modified or amended without the consent of the
holders of each note or of all classes of notes affected;
which defaults may be waived by the certificate trustee only upon the written
direction of the holders of each certificate, or each affected class, as the
case may be. With this direction, the certificate trustee will vote a
corresponding percentage of the notes in favor of the waiver. The note indenture
provides that, with some exceptions, the holders of not less than a majority of
the outstanding principal amount of the notes may waive any note event of
default or any event that is, or after notice or passage of time, or both, would
be, a note event of default.
The trust may hold two or more classes of notes, each of which may have
a different interest rate and a different or potentially different schedule for
the repayment of principal. Accordingly, the certificateholders of one class may
have divergent or conflicting interests from the certificateholders of other
classes. As a result, the note trustee and the certificate trustee may be
required to seek the appointment of additional trustee(s) to represent the
interests of one or more classes with divergent or conflicting interests.
REDEMPTION
The trust will redeem the certificates if the notes are redeemed. The
certificate trustee will cause notice of each special payment with respect to
the notes to be mailed to each certificateholder. Notice of optional redemption
of the notes will be given by first-class mail, postage prepaid, mailed not less
than 5 days nor more than 25 days prior to the special payment date on which the
optional redemption payment is scheduled to be paid. Notice of mandatory
redemption of the notes shall be mailed not less than 5 days prior to the
special payment date on which any such redemption payment is scheduled to be
paid. In the case of any other special payments, such notice will be mailed not
less than 20 days prior to the special payment date on which such special
payment is scheduled to be paid.
REPORTS TO CERTIFICATEHOLDERS
On each payment date, special payment date or any other date specified
in the certificate indenture for payment of any payments on any class of
certificates, the certificate trustee will include with each payment a statement
setting forth the following information, in each case, to the extent received by
the certificate trustee from the note trustee, no later than 2 business days
prior to a payment date, special payment date or other date specified herein for
payment:
o the amount of the payment to certificateholders allocable to
principal and interest, in each case per $1,000 original
principal amount of each class of certificates;
o the aggregate outstanding principal balance of the
certificates, after giving effect to payments allocated to
principal reported above; and
o the difference, if any, between the aggregate outstanding
principal balance of the certificates and the principal amount
scheduled to be outstanding on a payment date according to the
expected amortization schedule.
So long as the note trustee and the certificate trustee are the same,
the note trustee will agree to prepare and provide the statements to the
certificate trustee.
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Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the notes, the certificate
trustee will mail to each person or entity who at any time during a calendar
year has been a certificateholder and received any payment on the certificates,
a statement containing information for the purposes of a certificateholder's
preparation of federal and state income tax returns. See "Federal Income Tax
Consequences," which begins on page 72, and "State Taxation," which begins on
page 78.
If any certificates are listed on the Luxembourg Stock Exchange, and
the rules of that exchange so require, notice that this statement is available
with the listing agent in Luxembourg will be given to holders of those listed
certificates by publication in a daily newspaper in Luxembourg, which is
expected to be the Luxemburger Wort.
SUPPLEMENTAL CERTIFICATE INDENTURES
The certificate trustee and the Delaware trustee, on behalf of the
trust and with the approval of the note issuer, will, from time to time, and
without the consent of the certificateholders, enter into one or more agreements
supplemental to the certificate indenture to:
o add to the covenants of the trust for the benefit of the
certificateholders, or to surrender any right or power in the
certificate indenture conferred on the trust;
o correct or supplement any provision in the certificate
indenture or in any supplemental certificate indenture that
may be defective or inconsistent with any other provision in
the certificate indenture or in any supplemental agreement or
to make any other provisions regarding matters or questions
arising under the certificate indenture; provided that none of
these actions adversely affect in any material respect the
interests of the certificateholders;
o cure any ambiguity or correct any mistake;
o qualify, if necessary, the certificate indenture, including
any supplemental certificate indenture, under the Trust
Indenture Act of 1939 and to add to the certificate indenture
such other provisions as may be expressly permitted by the
Trust Indenture Act of 1939 excluding provisions referred to
in Section 316(a)(2) of such Act as in effect on the closing
date;
o to provide for any interest rate swap transactions with
respect to any floating rate series or class of certificates
or any series or class with specified credit enhancement; but:
o such action shall not, as evidenced by an opinion of
counsel, adversely affect in any material respect the
interests of any certificateholder or other swap
counterparty; and
o the rating agency condition shall have been
satisfied; or
o to authorize the appointment of any listing agent, transfer
agent or paying agent or additional registrar for any class of
certificates required or advisable in connection with the
listing of any class of certificates on the Luxembourg Stock
Exchange or any other stock exchange, and otherwise to amend
the certificate indenture to incorporate any changes requested
or required by any governmental authority, stock exchange
authority, listing agent, transfer agent or paying agent or
additional registrar for any class of certificates in
connection with that listing.
In addition, the certificate trustee and the Delaware trustee, acting
on behalf of the trust and with the approval of the note issuer, will, with the
consent of certificateholders holding not less than a majority of the
outstanding principal amount of the certificates of all affected classes, enter
into one or more certificate indentures supplemental to the certificate
indenture for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the certificate
indenture or modifying the rights and obligations of certificateholders.
However, no supplemental certificate indenture may, among other things, without
the consent of each certificateholder affected thereby:
o reduce in any manner the amount of, or delay the timing of,
any receipt by the certificate trustee of payments on the
notes or payments with respect to any certificate, change any
date of payment on any
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certificate, or change the place of payment where, or the
currency in which, any certificate is payable, or impair the
right to sue for the enforcement of any payment on or after
the payment date, special payment date or other date specified
in this prospectus;
o permit the disposition of any note held by the trust except as
permitted by the certificate indenture, or otherwise deprive
any certificateholder of the benefit of the ownership of the
related notes held by the trust;
o reduce the percentage of aggregate outstanding principal
amount of the certificates of any class that is required for
any supplemental indenture or reduce such percentage required
for any waiver or consent (of compliance with certain
provisions in the certificate indenture or certain defaults
thereunder and their consequences) provided for in the
certificate indenture;
o modify the provisions in the certificate indenture relating to
amendments with the consent of certificateholders, except to
increase the percentage vote necessary to approve amendments
or to add further provisions which cannot be modified or
waived without the consent of all certificateholders; or
o adversely affect the status of the trust as a grantor trust
not taxable as a corporation for federal income tax purposes.
Promptly following the execution of any amendment to the certificate indenture
(other than an amendment described in the preceding paragraph), the certificate
trustee will furnish written notice of the substance of an amendment to each
certificateholder. For so long as any of the certificates are listed on the
Luxembourg Stock Exchange and the rules of that exchange so require, this notice
will be published in a daily newspaper in Luxembourg, which is expected to be
the Luxemburger Wort.
LIST OF CERTIFICATEHOLDERS
With the written request of any certificateholder or group of
certificateholders of record holding certificates evidencing not less than 10
percent of the outstanding principal amount of the certificates, the certificate
trustee will give such certificateholder or certificateholders access during
business hours to the current list of certificateholders for purposes of
communicating with other certificateholders about their rights under the
certificate indenture.
Neither the declaration of trust nor the certificate indenture provides
for any annual or other meetings of certificateholders.
REGISTRATION AND TRANSFER OF THE CERTIFICATES
If so specified in the prospectus supplement, the certificates will be
issued in definitive form and will be transferable and exchangeable at the
office of the registrar identified in the prospectus supplement. No service
charge will be made for any registration or transfer of the certificates, but
the owner may be required to pay a sum sufficient to cover any tax or other
governmental charge.
CERTIFICATES WILL BE ISSUED IN BOOK-ENTRY FORM
Unless otherwise specified in the prospectus supplement, all classes of
certificates will initially be represented by one or more certificates
registered in the name of DTC or another securities depository. The certificates
will be available to investors only in the form of book-entry certificates.
Certificateholders may also hold certificates through Clearstream Banking,
Luxembourg, S.A., referred to as Clearstream, or Euroclear in Europe, if they
are participants in one of those systems or indirectly through participants.
THE ROLE OF DTC, CLEARSTREAM AND EUROCLEAR
DTC will hold the global certificate or certificates representing the
certificates. Clearstream and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream's
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and Euroclear's names on the books of their respective depositories. Citibank,
N.A. is depository for Clearstream and Morgan Guaranty Trust Company of New York
is depository for Euroclear. Those depositories will in turn hold these
positions in customers' securities accounts in the depositories' names on the
books of DTC.
THE FUNCTION OF DTC
DTC is a limited purpose trust company organized under the laws of the
State of New York, and is a member of the Federal Reserve System. DTC is a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to 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 securities. Direct participants of DTC include securities brokers
and dealers, banks, trust companies, clearing corporations and some other
organizations. DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the Nasdaq-Amex Market Group and the National
Association of Securities Dealers, Inc. Access to DTC's system is also available
to indirect participants.
THE FUNCTION OF CLEARSTREAM
Clearstream holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream
customers through electronic book-entry changes in accounts of Clearstream
customers, thereby eliminating the need for physical movement of securities.
Transactions may be settled by Clearstream in any of 36 currencies, including
United States dollars. Clearstream provides to its customers, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream also deals with domestic securities markets in over 30 countries
through established depository and custodial relationships. Clearstream is
registered as a bank in Luxembourg, subject to regulation by the Commission de
Surveillance du Secteur Financier, which supervises Luxembourg banks.
Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 2,000 customers located in over 80 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions that clear through or maintain a
custodial relationship with an account holder of Clearstream. Clearstream has
established an electronic bridge with Morgan Guaranty Trust Company of New York
as the Operator of the Euroclear System, referred to as MGT/EOC, in Brussels to
facilitate settlement of trades between Clearstream and MGT/EOC.
Clearstream and MGT/EOC customers are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to Clearstream and
MGT/EOC is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
THE FUNCTION OF EUROCLEAR
Euroclear was created in 1968 to hold securities for Euroclear
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment. By
performing these functions, Euroclear eliminated the need for physical movement
of securities and also eliminated any risk from lack of simultaneous transfers
of securities and cash. Transactions may now be settled in any of 30 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and arrangements with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described below. The Euroclear System is
operated by MGT/EOC, under contract with the Euroclear Clearance System S.C., a
Belgian cooperative corporation, referred to as the Cooperative. All operations
are conducted by MGT/EOC, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with MGT/EOC, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include central banks, commercial 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.
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MGT/EOC is the Belgian branch of a New York banking corporation that is
a member bank of the Federal Reserve System. As a Federal Reserve System member,
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.
TERMS AND CONDITIONS OF EUROCLEAR
Securities clearance accounts and cash accounts with MGT/EOC are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of Euroclear and applicable Belgian law, which are referred
to in this prospectus as the Terms and Conditions. The Terms and Conditions
govern transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific securities to specific securities
clearance accounts. MGT/EOC acts under the Terms and Conditions only on behalf
of Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
THE RULES FOR TRANSFERS AMONG DTC, CLEARSTREAM OR EUROCLEAR PARTICIPANTS
Transfers between participants will occur in accordance with DTC rules.
Transfers between Clearstream customers 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 Clearstream customers 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
depository. Cross-market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in this
system in accordance with its rules and procedures and within its established
deadlines, in European time. The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its depository to take action to effect final settlement on its behalf by
delivering or receiving certificates in DTC, and making or receiving payments in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Clearstream customers and Euroclear participants may not deliver
instructions directly to the depositories.
DTC WILL BE THE HOLDER OF THE CERTIFICATES
Unless and until definitive certificated certificates are issued to
beneficial owners of the certificates, which certificates are referred to as
certificated certificates, it is anticipated that the only "holder" of
certificates of any series will be DTC. Certificateholders will only be
permitted to exercise their rights as certificateholders indirectly through
participants and DTC. All references herein to actions by certificateholders
thus refer to actions taken by DTC upon instructions from its participants,
unless certificated certificates are issued. In addition, all references herein
to payments, notices, reports and statements to certificateholders refer to
payments, notices, reports and statements to DTC, as the registered holder of
the certificates, for subsequent payments to the beneficial owners of the
certificates in accordance with DTC procedures, unless certificated certificates
are issued.
BOOK-ENTRY TRANSFERS AND TRANSMISSION OF PAYMENTS
Except under the circumstances described below, while any book-entry
certificates of a series are outstanding, under DTC's rules, DTC is required to
make book-entry transfers among participants on whose behalf it acts with
respect to the book-entry certificates. In addition, DTC is required to receive
and transmit payments of principal of, and interest on, the book-entry
certificates. Participants with whom certificateholders have accounts with
respect to book-entry certificates are similarly required to make book-entry
transfers and receive and transmit these payments on behalf of their respective
certificateholders. Accordingly, although certificateholders will not possess
certificated certificates, DTC's rules provide a mechanism by which
certificateholders will receive payments and will be able to transfer their
interests.
DTC can only act on behalf of participants, who in turn act on behalf
of indirect participants and some banks. Thus, the ability of holders of
beneficial interests in the certificates to pledge certificates to persons or
entities
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that do not participate in the DTC system, or otherwise take actions in respect
of these certificates, may be limited due to the lack of certificated
certificates.
DTC has advised the certificate trustee that it will take any action
permitted to be taken by a certificateholder under the certificate indenture
only at the direction of one or more participants to whose account with DTC the
certificates are credited.
HOW CERTIFICATE PAYMENTS WILL BE CREDITED BY CLEARSTREAM AND EUROCLEAR
Payments with respect to certificates held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream customers or
Euroclear participants in accordance with the relevant systems' rules and
procedures, to the extent received by its depository. These payments will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Consequences," which begins on page 72.
Clearstream or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a certificateholder under the certificate
indenture on behalf of a Clearstream customer or Euroclear participant only in
accordance with its relevant rules and procedures and subject to its
depository's ability to effect these actions on its behalf through DTC.
DTC, Clearstream and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of certificates among customers or participants
of DTC, Clearstream and Euroclear. However, they are under no obligation to
perform or continue to perform these procedures and these procedures may be
discontinued at any time.
CERTIFICATED CERTIFICATES
THE CIRCUMSTANCES THAT WILL RESULT IN THE ISSUANCE OF CERTIFICATED
CERTIFICATES
Unless otherwise specified in the prospectus supplement, each class of
certificates will be issued in fully registered, certificated form to beneficial
owners of certificates or other intermediaries, rather than to DTC, only if:
o DTC advises the certificate trustee in writing that DTC is no
longer willing or able to discharge properly its
responsibilities as depository with respect to that class of
certificates and the trust is unable to locate a qualified
successor;
o the trust, at its option, elects to terminate the book-entry
system through DTC; or
o after the occurrence of an event of default under the
certificate indenture, beneficial owners of certificates
representing at least a majority of the outstanding principal
amount of certificates advise DTC and the certificate trustee
in writing that the continuation of a book-entry system
through DTC, or a successor thereto, is no longer in the
certificateholders' best interest.
THE DELIVERY OF CERTIFICATED CERTIFICATES
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify the certificate trustee and all
affected beneficial owners of certificates through participants of the
availability of certificated certificates. Upon surrender by DTC of the
certificates in the possession of DTC that had represented the applicable
certificates and receipt of instructions for re-registration, the certificate
trustee will authenticate and deliver certificated certificates to the
beneficial owners. Any certificated certificates listed on the Luxembourg Stock
Exchange will be made available to the beneficial owners of such certificates
through the office of the transfer agent in Luxembourg. Thereafter, the
certificate trustee will recognize the holders of any of these certificated
certificates as the certificateholders under the certificate indenture.
THE PAYMENT MECHANISM FOR CERTIFICATED CERTIFICATES
Payments of principal of and interest on certificated certificates will
be made by the certificate trustee, as paying agent, in accordance with the
procedures set forth in the certificate indenture. These payments will be made
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directly to holders of certificated certificates in whose names the certificated
certificates were registered at the close of business on the related record date
specified in the prospectus supplement. These payments will be made by check
mailed to the address of the holder as it appears on the register maintained by
the certificate trustee.
THE TRANSFER OR EXCHANGE OF CERTIFICATED CERTIFICATES
Certificated certificates will be transferable and exchangeable at the
offices of the certificate trustee. No service charge will be imposed for any
registration of transfer or exchange, but the certificate trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
FINAL PAYMENTS ON CERTIFICATED CERTIFICATES
The final payment on any certificated certificates, however, will be
made only upon presentation and surrender of the certificate at the office or
agency specified in the notice of final payment to certificateholders. The final
payment of any certificate listed on the Luxembourg Stock Exchange may also be
made upon presentation and surrender of the certificate at the office of the
paying agent in Luxembourg as specified in the notice of final payment. A notice
of such final payment will be published in a daily newspaper in Luxembourg,
which is expected to be the Luxemburger Wort, not later than the fifth day of
the month of such final payment. Certificated certificates listed on the
Luxembourg Stock Exchange will also be transferable and exchangeable at the
offices of the transfer agent in Luxembourg. With respect to any transfer of
these listed certificated certificates, the new certificated certificates
registered in the names specified by the transferee and the original transferor
will be available at the offices of the transfer agent in Luxembourg.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material federal income tax
consequences to certificateholders, and is based on the opinion of Brown & Wood
LLP. Brown & Wood LLP has advised the trust that the description of those
material federal income tax consequences in this summary is accurate in all
material respects. The opinion of Brown & Wood LLP is based on some assumptions
and is limited by some qualifications stated in this discussion or in that
opinion. This discussion is based on current provisions of the Internal Revenue
Code of 1986, currently applicable Treasury regulations, and judicial and
administrative rulings and decisions. Legislative, judicial or administrative
changes could alter or modify the statements and conclusions in this discussion.
Any legislative, judicial or administrative changes or new interpretations may
be retroactive and could affect tax consequences to certificateholders.
This discussion applies to certificateholders who acquire the
certificates at original issue for cash and hold the certificates as capital
assets. This discussion does not address all of the tax consequences relevant to
a particular certificateholder in light of that certificateholder's
circumstances, and some certificateholders may be subject to special tax rules
and limitations not discussed below (e.g., life insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, S corporations,
taxpayers subject to the alternative minimum tax provisions of the Internal
Revenue Code, broker-dealers, and persons who hold the certificates as part of a
hedge, straddle, "synthetic security", or other integrated investment, risk
reduction or constructive sale transaction). This discussion also does not
address the tax consequences to nonresident aliens, foreign corporations,
foreign partnerships or foreign trusts that are subject to U.S. federal income
tax on a net basis on income with respect to a certificate because that income
is effectively connected with the conduct of a U.S. trade or business. Those
holders generally are taxed in a manner similar to U.S. Certificateholders (as
defined below); however, special rules not applicable to U.S. Certificateholders
may apply. In addition, except as described below, this discussion does not
address any tax consequences under state, local or foreign tax laws or the
consequences under any tax treaties. CONSEQUENTLY, YOU ARE URGED TO CONSULT YOUR
TAX ADVISER TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND ANY
OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CERTIFICATES.
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We use the term, "U.S. Certificateholder" to mean a "U.S. Person" who
is the beneficial owner of a certificate. A "U.S. Person" is:
o a citizen or resident of the United States;
o a corporation (or entity treated as a corporation for tax
purposes) created or organized in the United States, or under
the laws of the United States or of any state (including the
District of Columbia);
o a partnership (or entity treated as a partnership for tax
purposes) organized in the United States, or under the laws of
the United States or of any state (including the District of
Columbia) unless provided otherwise by future Treasury
regulations;
o an estate the income of which is includible in gross income
for U.S. federal income tax purposes, regardless of its
source; or
o a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust.
In addition, as provided in Treasury regulations, some trusts in
existence on August 20, 1996, and treated as U.S. Persons prior to that date,
may elect to continue to be treated for federal income tax purposes as U.S.
Persons.
This discussion assumes that each certificate is issued in registered
form.
TREATMENT OF THE CERTIFICATES
The seller has received a ruling from the Internal Revenue Service
holding that the notes are obligations of the seller for federal income tax
purposes. Brown & Wood LLP will opine that the trust will not be a business
entity classified as a corporation or a publicly traded partnership treated as a
corporation, but will be treated as a grantor trust.
Further, Brown & Wood LLP will opine that each class of certificates
bearing interest at a fixed interest rate, referred to as "fixed rate
certificates," will evidence ownership of a fractional undivided beneficial
interest in the related class of notes, and any class of floating rate
certificates will evidence ownership of a fractional undivided beneficial
interest in the related class of notes, referred to as "underlying notes," and
will evidence ownership of a fractional undivided beneficial interest in the
related swap agreement. Accordingly, each certificateholder is treated as an
owner of an interest in the related notes and references in this discussion to
interest, discount and premium on a certificate are references to interest,
discount, or premium on the certificateholder's interest in the related notes.
Based on the assumptions and subject to the qualifications stated
herein, it is the opinion of Brown & Wood LLP that the material federal income
tax consequences to certificateholders are as follows:
TAXATION OF U.S. FIXED RATE CERTIFICATEHOLDERS
PAYMENTS OF INTEREST
Stated interest on the fixed rate certificates will be taxable as
ordinary interest income when received or accrued by a U.S. Certificateholder
under its method of accounting. Generally, interest on the fixed rate
certificates will constitute "investment income" for purposes of Internal
Revenue Code limitations on the deductibility of investment interest expense.
ORIGINAL ISSUE DISCOUNT
This discussion assumes that any original issue discount on the fixed
rate certificates (i.e., any excess of the stated redemption price at maturity
of the certificate over its issue price) is less than a statutory minimum amount
(equal to 0.25 percent of its stated redemption price at maturity multiplied by
the certificate's weighted average
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maturity), all as provided in the Treasury's original issue discount
regulations. Accordingly, unless a special election is made to treat all
interest on a fixed rate certificate as original issue discount, any original
issue discount generally will be taken into income by a U.S. Certificateholder
as gain from the retirement of a certificate (as described below under " - Sale
or Exchange of Fixed Rate Certificates," which begins on page 76) ratably as
principal payments are made on the certificates.
MARKET DISCOUNT AND PREMIUM
If a U.S. Certificateholder purchases (including a purchase at original
issuance for a price less than the issue price) a fixed rate certificate for an
amount that is less than the principal balance of the certificate, the
difference will be treated as "market discount" unless it is less than a
statutory minimum amount. This market discount will generally be treated as
accruing ratably on the certificate during the period from the date of
acquisition to the maturity date of the certificate, unless the U.S.
Certificateholder makes an election to accrue the market discount on a constant
yield to maturity basis. The U.S. Certificateholder will be required to treat
any principal payment on, or any gain realized on the sale, exchange, retirement
or other disposition of the certificate as ordinary income to the extent of the
lesser of:
o the amount of the payment or gain; or
o the market discount which is treated as having accrued on the
Certificate at the time of the payment or disposition and
which has not previously been included in income.
In addition, a U.S. Certificateholder may be required to defer the deduction of
all or a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a fixed rate certificate with market discount,
until the maturity of the certificate or its earlier disposition in a taxable
transaction.
In the alternative, a U.S. Certificateholder may elect to include
market discount in income currently as it accrues on either a ratable or
quarterly compounding basis, in which case the rules described above will not
apply. The election to include market discount in income as it accrues will
apply to all market discount instruments acquired by the U.S. Certificateholder
on or after the first day of the taxable year to which the election applies and
may not be revoked without the consent of the Internal Revenue Service.
Generally, currently included market discount is treated as ordinary interest
for United States federal income tax purposes.
A purchaser who acquires a fixed rate certificate at a premium (i.e.,
at a purchase price greater than the principal balance) may elect to offset the
premium against interest income on the certificate on a constant yield to
maturity basis. Any amortized premium will reduce the adjusted basis of the
certificate. If the certificate is redeemed before maturity for a price less
than the adjusted basis of the certificate, a U.S. Certificateholder will be
allowed an ordinary loss deduction for the unamortized premium. An election to
amortize bond premium applies to all bonds acquired by a U.S. Certificateholder
on or after the first day of the taxable year to which the election applies and
can be revoked only with the consent of the Internal Revenue Service.
TAXATION OF U.S. FLOATING RATE CERTIFICATEHOLDERS
Generally, as explained above, each floating rate certificateholder
will be treated as having purchased an interest in an underlying note and an
interest in the related swap agreement. The tax treatment of the
certificateholder's interest in the underlying note would generally be the same
as that described above in the case of a certificateholder who purchased an
interest in a class of fixed rate certificates.
Each floating rate certificateholder will include in income its share
of the fixed rate interest on the underlying note in accordance with its regular
method of tax accounting. As the tax owner of an undivided interest in the swap
agreement related to that class, the certificateholder would account for income
and expense with respect to the swap agreement under the rules set out in Treas.
Reg. ss. 1.446-3 (the "Notional Principal Contract" or "NPC" regulations).
The tax treatment of payments made or received under a swap agreement
depends on whether the payments are periodic payments, nonperiodic payments, or
termination payments. A periodic payment is any payment made or
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received under a swap contract payable at intervals of one year or less during
the entire term of the contract that is based on a specified index (which
includes a fixed rate) and a notional principal amount. A nonperiodic payment is
a payment made or received under a swap contract that is not a periodic payment
or a termination payment, and is usually an upfront payment made by one party to
a notional principal contract to induce the other party to enter into the
contract. It is not anticipated that there will be any nonperiodic payment made
or received with respect to a swap agreement. If such a nonperiodic payment is
expected to be made or received, the tax treatment will be described in the
prospectus supplement.
For any taxable year, a floating rate certificateholder would include
in, or deduct from, gross income the certificateholder's net swap income or
expense. Net swap income or expense would include the sum of all periodic
payments recognized and attributable to the year.
Periodic payments made on any quarterly payment date would be allocated
ratably among the days in the quarter, and a floating rate certificateholder
would include or deduct its share of the net periodic payments allocated to the
year.
Each purchaser of a floating rate certificate would be required to
allocate its purchase price between the underlying note and the related swap
agreement based on their relative fair market values. For example, even if a
floating rate certificate were purchased for its face amount, the holder might
be considered to have acquired the underlying note at a discount and to have
acquired the related swap agreement for the remaining purchase price. This
bifurcation of the purchase price of the floating rate certificate could result
in aggregate net income to the floating rate certificateholder that differs
somewhat in any particular year from the interest actually payable on the
certificate for such year. A holder could avoid such results by making an
integration election on or before the acquisition date of the floating rate
certificate in the manner described under " - Integration of the Underlying
Notes and the Swap Agreement," which begins on page 75.
Moreover, if an individual were to hold a floating rate certificate,
any net swap expense for any year would be treated as a miscellaneous itemized
deduction. In computing taxable income, an individual is allowed to deduct
miscellaneous itemized deductions only to the extent the sum of such deductions
exceeds two percent of the individual's adjusted gross income. Further, an
individual is not allowed a deduction for miscellaneous itemized deductions in
computing alternative minimum taxable income. Thus, for any period for which the
fixed rate on the underlying notes exceeded the floating rate payments made to
trust under the swap agreement, an individual would include in income interest
at the full fixed rate payable on the underlying notes, but could be precluded
from deducting the net swap expense for the period due to the limitations
imposed on miscellaneous itemized deductions. An individual could avoid such
treatment by making an integration election in the manner described under " -
Integration of the Underlying Notes and the Swap Agreement," which begins on
page 75.
A termination payment is a payment made or received to assign or
extinguish a party's rights and obligations under a swap contract. If a
certificateholder were to sell its interest in a floating rate certificate, it
would be considered to have made or to have received a termination payment with
respect to its interest in the swap agreement. The certificateholder would
recognize gain or loss in the year that it terminated its interest in the swap
agreement determined by reference to the amount of the termination payment made
or received and the certificateholder's basis in the swap agreement.
A floating rate certificateholder could also receive a termination
payment if an event of default under the swap agreement were to occur. If such
an event were to occur, the certificateholder could recognize gain upon receipt
of a termination payment.
INTEGRATION OF THE UNDERLYING NOTES AND THE SWAP AGREEMENT
In lieu of the tax treatment described above, a floating rate
certificateholder could identify the purchase of a floating rate certificate as
the acquisition of a fixed rate debt instrument together with a Treas. Reg. ss.
1.1275-6 hedge. In essence, if the certificateholder identifies the underlying
note and the related swap agreement as an integrated transaction on its books
and records, on or before the acquisition date of the floating rate certificate,
it may be able to integrate the cash flows on the swap agreement and the fixed
rate underlying note and treat the combined cash flows as a single synthetic
floating rate debt instrument. All interest on the synthetic floating rate debt
instrument would be treated as original issue discount, includible in income as
it accrues regardless of the
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holder's method of accounting. The disposition of a floating rate certificate
that was identified under the integration regime would be treated as the
disposition of a single synthetic floating rate debt instrument.
If a swap counterparty default event were to occur so that the swap
agreement terminated, a certificateholder who had made an integration election
would be treated as having "legged-out" of integration. Such a certificateholder
could recognize gain as a result of such legging-out. Certificateholders are
urged to consult their own tax advisors concerning the integration election.
SALE OR EXCHANGE OF FIXED RATE CERTIFICATES
Upon a disposition of an interest in a fixed rate certificate, a U.S.
Certificateholder generally will recognize gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any other property
received (other than amounts attributable to, and taxable as, accrued stated
interest) and (ii) the U.S. Certificateholder's adjusted basis in its interest
in the fixed rate certificate. The adjusted basis in the interest in the fixed
rate certificate will equal its cost, increased by any OID or market discount
included in income with respect to the interest in the fixed rate certificate
prior to its disposition and reduced by any payments reflecting principal or OID
previously received with respect to the interest in the fixed rate certificate
and any amortized premium. Subject to the OID and market discount rules, gain or
loss will generally be capital gain or loss if the interest in the fixed rate
certificate was held as a capital asset.
SALE OR EXCHANGE OF FLOATING RATE CERTIFICATES
If a floating rate certificateholder does not make an integration
election, then the sale or exchange of a floating rate certificate will be
treated as the sale of an interest in the underlying note and an assignment of
an interest in the swap agreement. The total sale proceeds would be allocated
between the underlying note and the swap agreement in proportion to their
relative fair market values. Gain or loss on the underlying note would be
determined in the manner described above, and gain or loss on the swap agreement
would give rise to gain or loss as described above for termination payments. If
the swap agreement has a negative value at the time of the sale of a floating
rate certificate, the floating rate certificateholder would apparently be
treated as having sold the underlying note for its fair market value (which
would exceed the sale proceeds) and as having paid such excess to the purchaser
of the floating rate certificate in consideration for the assumption of the
obligations under the swap agreement. If an integration election is made,
however, the certificateholder would be viewed as having sold a single floating
rate debt instrument and could recognize gain or loss on such sale.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S.
federal income or withholding tax on interest (including original issue
discount) on a certificate unless:
o the non-U.S. Certificateholder is a controlled foreign
corporation that is related to the seller through stock
ownership or is otherwise related as determined by Internal
Revenue Code Section 864(d);
o the non-U.S. Certificateholder is a bank as determined under
Internal Revenue Code Section 581 which receives interest as
described in Internal Revenue Code Section 881(c)(3)(A); or
o the non-U.S. Certificateholder actually or constructively owns
10% or more of the total combined voting power of all classes
of stock of the seller entitled to vote.
In order for interest payments to qualify for the exemption from U.S. taxation
described above, the last person or entity in the United States in the chain of
interest payments to the non-U.S. Certificateholder (the "Withholding Agent")
must have received (in the year in which a payment of interest or principal
occurs or in either of the two preceding years) a statement that complies with
Internal Revenue Service informational requirements and:
o is signed by the non-U.S. Certificateholder under penalty of
perjury;
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o certifies that the non-U.S. Certificateholder is not a U.S.
Person; and
o provides the name and address of the non-U.S.
Certificateholder.
The statement may be made on a Form W-8-BEN, and the non-U.S.
Certificateholder must inform the Withholding Agent of any change in the
information on the statement within 30 days of the change. If a certificate is
held through a securities clearing organization or other financial institution,
the organization or institution may provide a signed statement to the
Withholding Agent certifying under penalties of perjury that the Form W-8-BEN
has been received by it from the certificateholder or from another qualifying
financial institution. However, in that case, the signed statement must be
accompanied by a copy of the Form W-8-BEN provided by the non-U.S.
Certificateholder to the organization or institution holding the certificate on
behalf of the non-U.S. Certificateholder. We urge non-U.S. certificateholders to
consult a tax advisor about the specific methods to satisfy Internal Revenue
Service informational reporting requirements.
Generally, any gain or income realized by a non-U.S. Certificateholder
from the sale, exchange, redemption, retirement or other disposition of a
certificate (other than gain attributable to accrued interest or original issue
discount, which is addressed above) will not incur U.S. federal income tax
liability, provided, in the case of a certificateholder who is an individual,
that the certificateholder is not present in the United States for 183 or more
days during the taxable year in which a disposition of a certificate occurs.
Exceptions may be applicable, and non-U.S. Certificateholders should consult a
tax adviser regarding the tax consequences of a disposition of a certificate.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Some certificateholders may be subject to backup withholding at the
rate of 31% on interest (including original issue discount) and proceeds
received from the disposition of a certificate. Generally, backup withholding
will apply if the certificateholder fails to provide identifying information
(such as the payee's taxpayer identification number) in the manner required, or
if the payee has failed to report properly the receipt of reportable interest or
dividend payments and the Internal Revenue Service has notified the payor that
backup withholding is required. Some certificateholders (including, among
others, corporations and some tax-exempt organizations) generally are not
subject to backup withholding.
Backup withholding and information reporting generally will not apply
to a certificate issued in registered form that is beneficially owned by a
non-U.S. Certificateholder if the certification of non-U.S. status is provided
to the Withholding Agent as described above in " - Non-U.S. Certificateholders,"
as long as the payor does not have actual knowledge that the certificateholder
is a U.S. Person. The Withholding Agent may be required to report annually to
the Internal Revenue Service and to each non-U.S. Certificateholder the amount
of interest paid to, and the tax withheld, if any, for each non-U.S.
Certificateholder.
If payments of principal and interest are made to the beneficial owner
of a certificate by or through the foreign office of a custodian, nominee or
other agent of that beneficial owner, or if the proceeds of the sale of
certificates are made to the beneficial owner of a certificate through a foreign
office of a "broker" (as defined in the pertinent Treasury regulations), the
proceeds will not be subject to backup withholding (absent actual knowledge that
the payee is a U.S. Person). Information reporting (but not backup withholding)
will apply, however, to a payment by a foreign office of a custodian, nominee,
agent or broker that:
o is a U.S. Person;
o is a controlled foreign corporation for U.S. federal income
tax purposes; or
o derives 50% or more of its gross income from the conduct of a
U.S. trade or business for a specified three-year period,
unless the broker has in its records documentary evidence that
the holder is a non-U.S. Certificateholder and other
conditions are met (including that the broker has no actual
knowledge that the certificateholder is a U.S.
Certificateholder) or the certificateholder otherwise
establishes an exemption.
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Payment through the U.S. office of a custodian, nominee, agent or broker is
subject to both backup withholding at a rate of 31% and information reporting,
unless the certificateholder certifies that it is a non-U.S. Person under
penalties of perjury or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment
to a certificateholder would be allowed as a refund or a credit against that
certificateholder's U.S. federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
Regulations regarding the withholding and information reporting rules
discussed above were issued by the Treasury Department in October 1997 and
amended in May 2000. In general, the regulations did not significantly alter the
substantive withholding and information reporting requirements but rather
unified the prior certification procedures and forms and clarified reliance
standards. In addition, the regulations permit the shifting of primary
responsibility for withholding to financial intermediaries acting on behalf of
beneficial owners. The regulations are generally effective for payments made
after December 31, 2000, although there are transition rules. Under the
regulations, new forms generally will have to be solicited from U.S.
Certificateholders earlier than replacements for expiring existing forms
otherwise would have been solicited. You should consult your tax adviser about
the impact, if any, of the regulations.
STATE TAXATION
In the opinion of Pullman & Comley, LLC, under existing statutes,
interest on the certificates and any gain on the sale of the certificates are
excluded from Connecticut taxable income for purposes of the Connecticut income
tax on individuals, trusts and estates and is excluded from amounts on which the
net Connecticut minimum tax is based in the case of individuals, trusts and
estates required to pay the federal alternative minimum tax. Pullman & Comley,
LLC has not opined and will not opine as to other Connecticut tax consequences
with respect to the certificates.
Interest on the Certificates is included in gross income for purposes
of the Connecticut corporation business tax and the certificates are included in
the measure of Connecticut gift, estate, succession and transfer taxes.
This discussion does not address the tax consequences of the purchase,
ownership or disposition of the certificates under any state or local tax law
other than that of Connecticut.
Owners of the certificates should consult their tax advisors with
respect to other applicable state and local tax consequences of ownership of the
certificates and the disposition thereof.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 ("ERISA") and/or
Section 4975 of the Internal Revenue Code impose restrictions and requirements
on the following:
o employee benefit plans and other plans and arrangements,
including individual retirement accounts and annuities, Keogh
plans and some collective investment funds and insurance
company general or separate accounts in which the assets of
these plans, accounts or arrangements are invested (the
"Plans"); and
o persons who are fiduciaries for Plans in connection with the
investment of assets of Plans (the "Plan Assets").
Generally, any person who has discretionary authority or control over
the management or disposition of Plan Assets, and any person who provides
investment advice about Plan Assets for a fee or other consideration, is a
fiduciary for those Plan Assets. For those Plans that are governed by ERISA,
ERISA imposes on Plan fiduciaries specific fiduciary responsibilities, including
investment prudence, diversification and investing according to the documents
governing the Plan.
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PROHIBITED TRANSACTIONS
ERISA and Section 4975 of the Internal Revenue Code prohibit a broad
range of transactions involving Plan Assets and persons or entities that are
deemed "parties in interest" under Section 3(14) of ERISA or "disqualified
persons" under Section 4975(e)(2) of the Internal Revenue Code ("Parties in
Interest"), unless a statutory or administrative exemption applies. Parties in
Interest and Plan fiduciaries that participate in a prohibited transaction may
be liable for penalties under ERISA and/or excise taxes imposed under Section
4975 of the Internal Revenue Code. These prohibited transactions generally are
described in Section 406 of ERISA and Section 4975 of the Internal Revenue Code.
Some governmental and church plans are not governed by ERISA or Section
4975 of the Internal Revenue Code. The prohibited transaction provisions
described above do not apply to these plans. If a plan is exempt from taxation
under Section 501(a) of the Internal Revenue Code as a plan described in Section
401(a) of the Internal Revenue Code, however, it may lose its tax exemption if
it engages in a prohibited transaction described in Section 503 of the Internal
Revenue Code.
Any fiduciary or other Plan investor considering whether to purchase
the certificates on behalf of a Plan or with Plan Assets should determine
whether the purchase is consistent with its fiduciary duties and whether the
purchase would constitute or result in a non-exempt prohibited transaction under
ERISA and/or Section 4975 of the Internal Revenue Code because Connecticut Light
& Power, the certificate trustee, the underwriters or any of their affiliates is
a Party in Interest under the investing plan and may be deemed to be benefiting
from the issuance of the certificates. In particular, the certificates may not
be purchased with Plan Assets if any of Connecticut Light & Power, the
certificate trustee, the underwriters or any of their affiliates:
o has investment or administrative discretion over the Plan
Assets used to effect the purchase;
o has authority or responsibility to give, or regularly gives,
investment advice regarding the Plan Assets, for a fee and
under an agreement or understanding that the advice will serve
as a primary basis for investment decisions for the Plan
Assets, and will be based on the particular investment needs
of the Plan; or
o unless exemptive relief applies under a Department of Labor
prohibited transaction exemption, is an employer maintaining
or contributing to the Plan.
Each purchaser of the certificates will be deemed to have represented and
warranted that its purchase of the certificates or any interest in the
certificates does not violate the limitations described above.
PLAN ASSET REGULATION
The certificates will be treated as "equity interests" in the trust
under a plan asset regulation issued by the Department of Labor, which provides
that beneficial interests in a trust are equity interests. Generally, the plan
asset regulation provides that if Plans acquire a "significant" equity interest
in an entity, the entity may be considered to hold Plan Assets. Therefore, if
the certificates are purchased with Plan Assets, the assets of the trust may be
deemed Plan Assets of the investing Plans which, in turn, would subject the
trust and its assets to the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and Section 4975 of the Internal
Revenue Code. Even though only minimal administrative activity is expected at
the trust level, it is likely that the trust will interact with Connecticut
Light & Power, the certificate trustee, the underwriters and their affiliates.
If Connecticut Light & Power, the certificate trustee, the underwriters or any
of their affiliates is a Party in Interest to a Plan that purchases
certificates, violations of the prohibited transaction rules could occur at the
trust level, unless a statutory or administrative exemption applies or an
exception applies under the plan asset regulation.
Before purchasing any certificates, a Plan fiduciary, other Plan
investor or Party in Interest should consider whether a prohibited transaction
might arise by reason of any relationship between the investing Plan and
Connecticut Light & Power, the certificate trustee, the underwriters or any of
their affiliates. The Department of Labor has issued some class exemptions that
may afford exemptive relief for otherwise prohibited transactions arising from
the purchase or holding of the certificates, including Department of Labor
Prohibited Transaction
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Exemptions 96-23 (Class Exemption for Plan Asset Transactions Determined by
In-House Investment Managers); 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts); 91-38 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds); 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts); and 84-14 (Class Exemption for Plan Assets Transactions Determined by
Independent Qualified Professional Asset Managers). A purchaser of the
certificates should be aware, however, that even if the conditions specified in
one or more of the above exemptions are met, the scope of the relief provided by
the exemption might not cover all acts which might be construed as prohibited
transactions.
Plans would not have a "significant" equity interest in the trust, and
application of the plan asset regulation would be avoided, if Benefit Plan
Investors (as defined in the plan asset regulation) own less than 25 percent of
each class of equity in the trust. However, there is no commitment to limit
purchases of certificates by Benefit Plan Investors in this manner.
CONCLUSION
In light of the foregoing, Plan fiduciaries or other Plan investors
considering whether to purchase the certificates with Plan Assets of any Plan
and Parties in Interest should consult their own legal advisors regarding
whether the trust assets would be considered Plan Assets, the consequences that
would apply if the trust assets were considered Plan Assets, and the
availability of exemptive relief from the prohibited transaction rules or an
exception under the Plan Asset Regulation. Fiduciaries and other Plan investors
should also consider the fiduciary standards under ERISA or other applicable law
in the context of the Plan's particular circumstances before authorizing an
investment of Plan Assets in the certificates. Among other factors, fiduciaries
and other Plan investors should consider whether the investment:
o satisfies the diversification requirement of ERISA or other
applicable law;
o complies with the Plan's governing instruments; and
o is prudent in light of the "Risk Factors" and other factors
discussed in this prospectus.
USE OF PROCEEDS
The trust will use the net proceeds received from the sale of the
certificates to purchase the notes from the note issuer. The note issuer will
use the net proceeds from the sale of the notes to purchase the transition
property from the seller and to pay the costs of issuing the notes and the
certificates. The seller may apply the net proceeds from the sale of the
transition property towards the reduction of its capitalization and for general
corporate purposes.
PLAN OF DISTRIBUTION
The trust may sell the certificates to or through the underwriters
named in the prospectus supplement by a negotiated firm commitment underwriting
and public reoffering by the underwriters or another underwriting arrangement
that may be specified in the prospectus supplement or the trust may offer or
place the certificates either directly or through agents. The note issuer and
the trust intend that certificates will be offered through these various methods
from time to time and that offerings may be made concurrently through more than
one of these methods or that an offering of the certificates may be made through
a combination of these methods.
The distribution of certificates may be effected in one or more
transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to prevailing market
prices or in negotiated transactions or otherwise at varying prices to be
determined at the time of sale.
In connection with the sale of the certificates, underwriters or agents
may receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell certificates to dealers at prices less a concession.
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Underwriters may allow, and the dealers may reallow, a concession to other
dealers. Underwriters, dealers and agents that participate in the distribution
of the certificates may be deemed to be underwriters and any discounts or
commissions received by them from the trust and any profit on the resale of the
certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act. We will identify any of these underwriters or agents,
and describe any compensation we give them, in the prospectus supplement.
LEGAL MATTERS
Certain legal matters relating to the notes will be passed on by Day,
Berry & Howard LLP, Hartford, Connecticut, counsel to the seller and the note
issuer. Certain legal matters relating to the certificates and certain federal
and state income tax consequences of the issuance of the certificates will be
passed upon by Brown & Wood LLP, San Francisco, California, counsel to the
trust, and Pullman & Comley, LLC, Hartford, Connecticut, co-counsel to the
trust. Certain legal matters relating to the notes and the certificates will be
passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, Delaware
counsel to the note issuer and the trust. Certain legal matters relating to the
certificates will be passed upon by Palmer & Dodge LLP, Boston, Massachusetts,
counsel to the underwriters.
EXPERTS
The financial statements of CL&P Funding LLC as of January 12, 2001 and
for the period January 3, 2001 (date of inception) to January 12, 2001 included
in this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon said firm as experts in accounting and auditing
in giving said reports.
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CL&P FUNDING LLC
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-2
Financial Statements:
Balance Sheet as of January 12, 2001.................................... F-3
Statement of Operations for the period of January 3, 2001 (inception
date) to January 12, 2001............................................... F-4
Statement of Changes in Member's Equity for the period of January 3,
2001 (inception date) to January 12, 2001............................... F-5
Statement of Cash Flow for the period of January 3, 2001 (inception
date) to January 12, 2001............................................... F-6
Notes to Financial Statements........................................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CL&P Funding LLC:
We have audited the accompanying balance sheet of CL&P Funding LLC as
of January 12, 2001 and the related statement of operations, changes in member's
equity and cash flow from the date of inception (January 3, 2001) to January 12,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CL&P Funding LLC as
of January 12, 2001, and the results of its operations and cash flow from the
date of inception (January 3, 2001) to January 12, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSON LLP
----------------------------
Arthur Anderson LLP
Hartford, Connecticut
January 12, 2001
F-2
<PAGE>
CL&P FUNDING LLC
BALANCE SHEET
AS OF JANUARY 12, 2001
ASSETS
Cash.................................................................. $1,000
------
MEMBER'S EQUITY
Member's Equity....................................................... $1,000
======
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CL&P FUNDING LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD OF JANUARY 3, 2001 (INCEPTION DATE) TO JANUARY 12, 2001
INCOME................................................................ $ -
EXPENSES.............................................................. -
------
NET INCOME............................................................ $ -
======
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CL&P FUNDING LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE PERIOD OF JANUARY 3, 2001 (INCEPTION DATE) TO JANUARY 12, 2001
Member's equity as of the date of inception........................... $ -
Investment by The Connecticut Light and Power Company................. 1,000
------
Member's change in equity as of January 12, 2001...................... $1,000
======
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CL&P FUNDING LLC
STATEMENT OF CASH FLOW
FOR THE PERIOD OF JANUARY 3, 2001 (INCEPTION DATE) TO JANUARY 12, 2001
Net cash flow provided by operating activities........................ $ -
Net cash flow provided by investing activities........................ 1,000
Net cash flow provided by financing activities........................ -
Net cash at the beginning of the period............................... -
------
Net cash at the end of the period..................................... $1,000
======
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CL&P FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
CL&P Funding LLC is a special purpose limited liability company whose
sole member is The Connecticut Light and Power Company (Connecticut Light &
Power), a provider of electric services. CL&P Funding LLC is a wholly owned
subsidiary of Connecticut Light & Power, which is a wholly owned subsidiary of
Northeast Utilities.
The electric industry restructuring statute in Connecticut authorizes
the Department of Public Utility Control to issue a financing order, which
establishes the amount of stranded costs that Connecticut Light & Power is
permitted to finance through the issuance of rate reduction bonds. The
Department of Public Utility Control issued the financing order on November 8,
2000, and the order was supplemented on December 12, 2000. The financing order
establishes, among other things, the RRB charge to recover the stranded costs
specified in the financing order. The RRB charge is non-bypassable in that
customers must pay it whether or not they purchase energy from Connecticut Light
& Power or a third party supplier of energy, and whether or not their
distribution system is being operated by Connecticut Light & Power or a
successor distribution company.
The electric industry restructuring statute provides that the right to
collect payments based on the RRB charge is a property right (the transition
property) which may be pledged, assigned or sold in connection with the issuance
of the certificates. Under the restructuring statute and the financing order,
the owner of the transition property is entitled to assess the RRB charge until
it has received payments from customers sufficient to retire all outstanding
notes and certificates and to pay fees and expenses of servicing and retiring
the notes and the certificates. The transition property is a property right
consisting of the right, title, and interest to all revenues, collections,
claims, payments, money or proceeds of or arising from the RRB charge.
CL&P Funding LLC was organized on January 3, 2001, under the laws of
the State of Delaware. CL&P Funding LLC was organized for the limited purpose of
holding and servicing the transition property which it will acquire from
Connecticut Light & Power. CL&P Funding LLC will also issue notes secured by the
transition property and engage in other related activities. CL&P Funding LLC is
restricted from engaging in any non-related activities. In addition, CL&P
Funding LLC is required to operate in a manner intended to reduce the likelihood
that it would be consolidated in Connecticut Light & Power's bankruptcy estate
if Connecticut Light & Power becomes involved in a bankruptcy proceeding.
CL&P Funding LLC is legally separate from Connecticut Light & Power.
The assets and revenues of CL&P Funding LLC, including, without limitation, the
transition property, are not available to the creditors of Connecticut Light &
Power, and the transition property and other debt collateral will not be an
asset of Connecticut Light & Power. CL&P Funding LLC has not yet acquired the
transition property nor has it issued any notes.
CL&P Funding LLC, since its formation on January 3, 2001, has not
conducted any business activities. However, Connecticut Light & Power has
incurred legal and debt issuance related costs which may be allocated to CL&P
Funding LLC upon issuance of the notes and certificates. The expenses incurred
to date by Connecticut Light & Power on behalf of CL&P Funding LLC are
approximately $1,225,184.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH
Cash and cash equivalents include cash on hand and short-term cash
investments, if any, which are highly liquid in nature and have maturities of
three months or less.
F-7
<PAGE>
CL&P FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. THE NOTES
CL&P Funding LLC intends to issue up to $1.551 billion of notes to the
Connecticut RRB Special Purpose Trust CL&P-1 (the trust) under the terms of the
note indenture. Each class of notes will be in an aggregate amount equal to the
initial aggregate principal amount of the related class of certificates issued
by the trust. The notes may be issued in one or more classes. All notes of the
same class will be identical in all respects except for their denominations. The
note issuer may not issue any additional notes under the note indenture other
than in connection with the replacement, transfer or exchange of notes initially
issued thereunder.
4. RELATED PARTIES
Connecticut Light & Power will manage, service and administer, and bill
and collect payments arising from the transition property according to the terms
of the servicing agreement. Connecticut Light & Power's duties will include
responding to inquiries of customers and the Department of Public Utility
Control regarding the transition property and the RRB charge, calculating
electricity usage, accounting for collections, and furnishing periodic reports
and statements to CL&P Funding LLC.
5. INCOME TAXES
CL&P Funding LLC will not elect to be taxed as a corporation for
federal income tax purposes, therefore, no federal income taxes will be due by
CL&P Funding LLC.
6. CONSOLIDATED EDISON MERGER
Northeast Utilities has entered into a merger agreement with
Consolidated Edison, Inc. (Consolidated Edison) pursuant to which Northeast
Utilities will become a wholly owned subsidiary of Consolidated Edison. The
merger agreement contains various conditions to the completion of the merger,
including the receipt of approvals from state and federal regulatory bodies.
Northeast Utilities and Consolidated Edison have received regulatory approvals
in Connecticut, Maine, New Hampshire, New York, Pennsylvania and Vermont, and
are awaiting review by several federal agencies. The Connecticut regulatory
approval of the merger contained extensive conditions. These conditions included
a 3 percent distribution rate reduction and a $60 million pretax write-off for
Connecticut Light & Power immediately following the merger, a 50 percent/50
percent sharing between customers and shareholders of Connecticut Light & Power
earnings above a return on equity of 11.3 percent through 2003, and various
operational, employment, land use and customer service conditions. Connecticut
Light & Power does not expect any of the conditions contained in the Connecticut
regulatory approval to materially adversely affect its financial condition or
its ability to service the transition property.
Consolidated Edison has publicly indicated that it will continue to
assess the Connecticut approval and the impact of the conditions imposed by the
Connecticut approval along with other regulatory orders as they are issued and
that it does not expect to make a final decision on whether to complete the
merger until receiving and reviewing all information required to make its
decision. The Attorney General of the State of Connecticut and the State of
Connecticut Office of Consumer Counsel, which is the statutory advocate for
Connecticut ratepayers in utility matters (Consumer Counsel), each have filed
appeals from the Connecticut regulatory approval of the merger, claiming that
the merger fails to meet statutory standards and is inconsistent with the public
interest and that regulatory approval of the merger is unsupported by the
record.
7. APPEAL OF FINANCING ORDER
The Consumer Counsel has filed an appeal of the financing order. The
appeal challenges certain of the amounts that the Department of Public Utility
Control authorized Connecticut Light & Power to securitize. The challenge is
based on the methodology used to compute the amounts or the ability under the
restructuring statute to
F-8
<PAGE>
CL&P FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
securitize the costs that give rise to the amounts. The appeal does not request
a stay of the financing order, although the Department of Public Utility Control
or the reviewing court could impose such a stay upon request of the Consumer
Counsel. Unless a stay is imposed prior to the issuance of rate reduction bonds,
any rate reduction bonds issued or sold pursuant to a financing order will,
under the restructuring statute, be valid and binding in accordance with their
terms even if the appeal is ultimately successful. Connecticut Light & Power
currently expects that the appeal will be dismissed, settled, otherwise resolved
or limited in scope prior to issuance of the notes and certificates or that the
size of the transaction will be reduced to exclude the amounts being challenged
by the appeal. These excluded amounts may be securitized in a subsequent
transaction once the appeal has been resolved.
8. REOPENING OF PROCEEDINGS RELATED TO BUYDOWN PAYMENTS TO INDEPENDENT
POWER PRODUCERS
Prior to the issuance of the financing order and as a means to permit
Connecticut Light & Power to mitigate its stranded costs, the Department of
Public Utility Control approved buydown payments by Connecticut Light & Power to
independent power producers under several above-market long-term contracts. In
the financing order, the Department of Public Utility Control approved the
recovery of the buydown payments under these contracts through the RRB charge.
Since the issuance of the financing order, the Department of Public
Utility Control has reopened the separate proceedings in which it had previously
approved Connecticut Light & Power's buydown of two of these contracts. In each
case, Connecticut Light & Power and the independent power producer had requested
the reopening of the proceeding so that the Department of Public Utility Control
could approve minor modifications to the transactions that it had previously
approved. Connecticut Light & Power and the independent power producers had
hoped that the Department of Public Utility Control would approve the requested
modifications without conducting hearings. In each case, however, the Department
of Public Utility Control has indicated that it will conduct hearings with
respect to the proposed modification, and in one of the cases it has suggested
that it may reconsider matters beyond the requested modification.
As previously approved, the buydown payments under these two contracts
total approximately $822 million (subject to adjustment in accordance with the
contracts). If the Department of Public Utility Control withdraws its approval
of the buydown payments under these contracts or reduces the approved amount of
the buydown payments, the principal amount of the notes and certificates that
may validly be issued under the financing order will be reduced. Connecticut
Light & Power will either delay the issuance of the notes and certificates until
after the Department of Public Utility Control has issued decisions in both of
the reopened proceedings or will reduce the amount of the transaction to exclude
the amount of the buydown payments under these two contracts. These excluded
amounts may be securitized in a subsequent transaction once the Department of
Public Utility Control issues decisions in the reopened proceedings.
F-9
<PAGE>
$1,000,000 RATE REDUCTION CERTIFICATES
CONNECTICUT RRB
SPECIAL PURPOSE TRUST CL&P-1
ISSUER OF THE CERTIFICATES
CL&P FUNDING LLC
ISSUER OF THE NOTES
THE CONNECTICUT LIGHT AND POWER COMPANY
SELLER AND SERVICER
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[ ], 2001
LEHMAN BROTHERS
SALOMON SMITH BARNEY
Prospectus Delivery Requirements
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 [ ], 2001.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee.
ITEM AMOUNT
---- ------
Securities and Exchange Commission Registration Fee.....
Blue Sky Fees and Expenses..............................
Printing and Marketing Expenses.........................
Trustees' Fees and Expenses.............................
Accountants' Fees and Expenses..........................
Legal Fees and Expenses.................................
Rating Agency Fees......................................
Public Agency Fees......................................
Financial Advisor Structuring Fee.......................
Miscellaneous Fees and Expenses.........................
--------
Total..............................................
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 18-108 of the Delaware Limited Liability Company Act provides
that subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has the
power to indemnify and hold harmless any member or other person from and against
any and all claims and demands whatsoever.
Sections 10.01 and 10.02 of the Limited Liability Company Agreement of
the note issuer provide that, to the fullest extent permitted by applicable law,
the note issuer shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including actions by or in the right of the note issuer to procure a judgment
in its favor) by reason of the fact that he is or was a director, manager,
officer, employee or agent of the note issuer, or is or was serving at the
request of the note issuer as a manager, director, officer, employee or agent of
another company, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, proceeding or in enforcing such person's right to indemnification
hereunder, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the note issuer, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, provided that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the note issuer unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Chancery or such other court shall
deem proper. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner that he reasonably believed to
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<PAGE>
be in or not opposed to the best interests of the note issuer, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 33-770 of the Connecticut General Statutes defines the terms
"director" and "officer" to include a director or officer of a corporation who
serves at its request as a director, officer, partner, trustee, employee, or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity. Sections 33-770 to 33-779 provide that a
corporation which was incorporated prior to January 1, 1997, such as Connecticut
Light & Power, shall indemnify its directors as provided in these sections.
These sections also require such a corporation, except to the extent that its
certificate of incorporation provides otherwise, to indemnify its officers,
employees and agents who are not also its directors to the same extent as it is
permitted to indemnify its directors. In addition, these sections permit a
corporation to indemnify and advance expenses to those officers, employees and
agents who are not also its directors to such further extent, consistent with
public policy, as may be provided by contract, the certificate of incorporation,
the bylaws or a resolution of the board of directors. The note issuer believes
that its officers and non-independent directors who are also officers or
employees of Connecticut Light & Power are serving the note issuer in those
capacities at Connecticut Light & Power's request and are therefore entitled,
although the matter is not entirely free from doubt, to indemnification from
Connecticut Light & Power.
Section IX of Connecticut Light & Power's Certificate of Incorporation
provides that it shall indemnify and advance reasonable expenses to an
individual made or threatened to be made a party to a proceeding because he/she
is or was a director of Connecticut Light & Power to the fullest extent
permitted by law under Sections 33-770 to 33-779 of the Connecticut General
Statutes, as amended from time to time. Connecticut Light & Power shall also
indemnify and advance reasonable expenses under Connecticut General Statutes
Sections 33-770 to 33-779, as amended, to any officer, employee or agent of
Connecticut Light & Power who is not a director to the same extent as a director
and to such further extent, consistent with public policy, as may be provided by
contract, the Certificate of Incorporation, the bylaws of Connecticut Light &
Power or a resolution of the board of directors. In connection with any advance
for such expenses, Connecticut Light & Power may, but need not, require any such
officer, employee or agent to deliver a written affirmation of his/her good
faith belief that he/she has met the relevant standard of conduct or a written
undertaking to repay any funds advanced for expenses if it is ultimately
determined that he/she is not entitled to indemnification. The board of
directors, by resolution, the general counsel of Connecticut Light & Power, or
such additional officer or officers as the board of directors may specify, shall
have the authority to determine that indemnification or advance for such
expenses to any such officer, employee or agent is permissible and to authorize
payment of such indemnification or advance for expenses. The board of directors,
by resolution, the general counsel of Connecticut Light & Power, or such
additional officer or officers as the board of directors may specify, shall also
have the authority to determine the terms on which Connecticut Light & Power
shall advance expenses to any such officer, employee or agent, which terms need
not require delivery by such officer, employee or agent of a written affirmation
of his/her good faith belief that he/she has met the relevant standard of
conduct or a written undertaking to repay any funds advanced for such expenses
if it is ultimately determined that he/she is not entitled to indemnification.
Northeast Utilities, Connecticut Light & Power's parent company, has
directors' and officers' liability insurance policies in force insuring the
directors and officers of Northeast Utilities and its subsidiaries. Such
policies insure the directors and officers of Connecticut Light & Power and the
non-independent directors and the officers of CL&P Funding LLC.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of the Registrant.
3.2 Limited Liability Company Agreement of the Registrant.*
4.1 Form of Note Indenture.*
4.2 Form of Certificate Indenture.*
4.3 Form of Declaration of Trust.*
4.4 Form of Note.*
II-2
<PAGE>
4.5 Form of Rate Reduction Certificate.*
5.1 Opinion of Day, Berry & Howard LLP with respect to legality
of the Notes.*
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to
legality of the Rate Reduction Certificates.*
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to
due authorization of the Notes by the Registrant.*
8.1 Opinion of Brown & Wood LLP with respect to federal tax
matters.*
8.2 Opinion of Pullman & Comley, LLC with respect to state tax
matters.*
10.1 Form of Transition Property Purchase and Sale Agreement.*
10.2 Form of Transition Property Servicing Agreement.*
10.3 Form of Note Purchase Agreement.*
10.4 Form of Administration Agreement.*
10.5 Form of Fee and Indemnity Agreement.*
10.6 Form of Swap Agreement, if any.*
23.1 Consent of Day, Berry & Howard LLP (contained in its
opinion to be filed as Exhibit 5.1).*
23.2 Consent of Brown & Wood LLP (contained in its opinion to be
filed as Exhibit 8.1).*
23.3 Consent of Pullman & Comley, LLC (contained in its opinions
to be filed as Exhibits 8.2 and 99.3).*
23.4 Consent of Richards, Layton & Finger, P.A. (contained in
its opinions to be filed as Exhibits 5.2 and 5.3).*
23.5 Consent of Arthur Andersen LLP.
24 Power(s) of Attorney (See Signature Page).
25.1 Statement of Eligibility and Qualification of Note Trustee
on Form T-1.*
25.2 Statement of Eligibility and Qualification of Certificate
Trustee on Form T-1.*
99.1 Financing Order.
99.2 Internal Revenue Service Private Letter Ruling pertaining
to the Notes and the Certificates.
99.3 Opinion of Pullman & Comley, LLC with respect to impairment
of contracts.*
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant, on behalf of Connecticut RRB Special
Purpose Trust CL&P-1, hereby undertakes as follows:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and (iii) to include any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (a) (1) (i) and (a) (1) (ii)
will not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed pursuant to
Section 13 or Section 15 (d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities registered which remain unsold at the termination of the
offering.
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<PAGE>
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934), with respect to the Trust
that is incorporated by reference in the Registration Statement, shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424 (b) (1) or (4) or 497 (h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that the security rating
requirement of Form S-3 will be met by the time of sale and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Berlin, the State of Connecticut, on this 18th
day of January, 2001.
CL&P FUNDING, LLC
as Registrant
By: /s/ RANDY A. SHOOP
----------------------------
Name: Randy A. Shoop
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. CL&P Funding LLC and each person whose
signature appears below hereby constitute Randy A. Shoop, John P. Stack and O.
Kay Comendul, and each of them singly, their true and lawful attorneys, with
full power to them and each of them to sign for them and in their names, in the
capacities indicated above or below, as the case may be, any and all amendments
to this registration statement, hereby ratifying and confirming its or their
signatures as it may be signed by the named attorneys to any and all amendments
to this registration statement.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RANDY A. SHOOP President and Director January 18, 2001
-----------------------------
Randy A. Shoop
/s/ JOHN P. STACK Vice President and Treasurer January 18, 2001
----------------------------- (Chief Financial and
John P. Stack Accounting Officer)
/s/ DAVID H. BOGUSLAWSKI Director January 18, 2001
-----------------------------
David H. Boguslawski
/s/ RODNEY O. POWELL Director January 18, 2001
-----------------------------
Rodney O. Powell
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of the Registrant.
3.2 Limited Liability Company Agreement of the Registrant.*
4.1 Form of Note Indenture.*
4.2 Form of Certificate Indenture.*
4.3 Form of Declaration of Trust.*
4.4 Form of Note.*
4.5 Form of Rate Reduction Certificate.*
5.1 Opinion of Day, Berry & Howard LLP with respect to legality
of the Notes.*
5.2 Opinion of Richards, Layton & Finger, P.A. with respect to
legality of the Rate Reduction Certificates.*
5.3 Opinion of Richards, Layton & Finger, P.A. with respect to
due authorization of the Notes by the Registrant.*
8.1 Opinion of Brown & Wood LLP with respect to federal tax
matters.*
8.2 Opinion of Pullman & Comley, LLC with respect to state tax
matters.*
10.1 Form of Transition Property Purchase and Sale Agreement.*
10.2 Form of Transition Property Servicing Agreement.*
10.3 Form of Note Purchase Agreement.*
10.4 Form of Administration Agreement.*
10.5 Form of Fee and Indemnity Agreement.*
10.6 Form of Swap Agreement, if any.*
23.1 Consent of Day, Berry & Howard LLP (contained in its
opinion to be filed as Exhibit 5.1).*
23.2 Consent of Brown & Wood LLP (contained in its opinion to be
filed as Exhibits 8.1).*
23.3 Consent of Pullman & Comley, LLC (contained in its opinions
to be filed as Exhibits 8.2 and 99.3).*
23.4 Consent of Richards, Layton & Finger, P.A. (contained in
its opinions to be filed as Exhibits 5.2 and 5.3).*
23.5 Consent of Arthur Andersen LLP.
24 Power(s) of Attorney (See Signature Page).
25.1 Statement of Eligibility and Qualification of Note Trustee
on Form T-1.*
25.2 Statement of Eligibility and Qualification of Certificate
Trustee on Form T-1.*
99.1 Financing Order.
99.2 Internal Revenue Service Private Letter Ruling pertaining
to the Notes and the Certificates.
99.3 Opinion of Pullman & Comley, LLC with respect to impairment
of contracts.*
* To be filed by amendment.
II-6
