File No. 70-9107
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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CENTRAL AND SOUTH WEST CORPORATION CENTRAL POWER AND LIGHT COMPANY 1616 Woodall
Rodgers Freeway 539 North Carancahua Street Dallas, Texas 75202 Corpus Christi,
Texas 78401-2802
(Names of companies filing this post-effective amendment and
address of principal executive offices)
-----------------------------------------------
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
-----------------------------------------------
Wendy G. Hargus, Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
Kevin F. Blatchford, Esq.
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
(Names and addresses of agents for service)
<PAGE>
Central Power and Light Company ("CPL"), a wholly owned public utility
subsidiary of Central and South West Corporation ("CSW"), a registered holding
company under the Public Utility Holding Company Act of 1935, as amended
(the"Act"), hereby submit for filing this Post-Effective Amendment No. 2 to the
Form U-1 Application-Declaration in this File No. 70-9107 (the "Application")
for the purpose of amending Items 2 and 6 thereof. In all other respects, the
Application as previously filed and amended will remain the same.
Item 2. Fees and Expenses.
Approximate Amount
Printing and Marketing expenses $ 350,000
Trustee Fees and Counsel 50,000
Company Legal fees and expenses 2,500,000
Underwriters' Legal fees and expenses 300,000
Accountants/Consulting Fees 500,000
Rating Agency Fees 600,000
Legal Fees - Public Utility Commission of Texas 100,000
Miscellaneous expenses 1,000,000
Special Purpose Entity - Setup Costs 25,000
Upfront Servicer Setup costs 500,000
SEC Registration Fee 273,786
Underwriter Fees 4,780,305
Capital Subaccount 4,928,149
Original Issue Discount 985,630
-----------------
Total 16,892,870
Item 6. Exhibits and Financial Statements.
Item 6 is hereby amended to file the following exhibits:
(a) Exhibits
A-1 Form of Indenture between the Special Purpose Issuer and the
Trustee thereunder, including the form of Transition
Bond
B-1 Form of Transition Property Sale Agreement
B-2 Form of Transition Property Service Agreement
B-3 Form of Administration Agreement - not applicable
*B-4 Form of Underwriting Agreement
B-5 Organizational document for Special Purpose Issuer
C-1 Registration Statement on Form S-3 for the Transition Bonds
D Form of Application to the Public Utility Commission
of Texas ("PUCT"), including form of proposed Financing
Order.
E-1 Not applicable
*F-1 Opinion of Sidley & Austin
*F-2 "Past tense" Opinion of Sidley & Austin
(b) Financial Statements as of September 30, 1999.
*To be filed by Amendment
<PAGE>
Signature
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned companies have duly caused this
document to be signed on their behalf by the undersigned thereunto duly
authorized.
Dated: January 17, 2000
CENTRAL AND SOUTH WEST CENTRAL POWER AND LIGHT
CORPORATION COMPANY
By: /s/ WENDY G. HARGUS By: /s/ WENDY G. HARGUS
Wendy G. Hargus Wendy G. Hargus
Treasurer Treasurer
CPL TRANSITION FUNDING LLC,
Note Issuer,
and
----------------------------,
Indenture Trustee
------------------------------
INDENTURE
Dated as of ___________, 2000
------------------------------
Issuable in Series
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I..........Definitions and Incorporation by Reference 3
SECTION 1.01. Definitions.....................................3
SECTION 1.02. Incorporation by Reference of Trust Indenture
Act............................................................3
SECTION 1.03. Rules of Construction...........................3
ARTICLE II...........................................The Notes 4
SECTION 2.01. Form............................................4
SECTION 2.02. Denominations; Notes Issuable in Series.........4
SECTION 2.03. Execution, Authentication and Delivery..........6
SECTION 2.04. Temporary Notes.................................6
SECTION 2.05. Registration; Registration of Transfer and
Exchange of Notes..............................................7
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes......8
SECTION 2.07. Persons Deemed Owner............................9
SECTION 2.08. Payment of Principal, Premium, if any, and
Interest; Interest on Overdue Principal; Principal, Premium,
if any, and Interest Rights Preserved..........................9
SECTION 2.09. Cancellation....................................10
SECTION 2.10. Outstanding Amount; Authentication and
Delivery of Notes..............................................11
SECTION 2.11. Book-Entry Notes................................17
SECTION 2.12. Notices to Clearing Agency......................18
SECTION 2.13. Definitive Notes................................18
SECTION 2.14. CUSIP Number....................................19
SECTION 2.15. Letter of Representations.......................19
SECTION 2.16. Release of Note Collateral......................19
SECTION 2.17. Special Terms Applicable to Subsequent
Transfers of Certain Notes.....................................19
SECTION 2.18. Tax Treatment...................................20
SECTION 2.19. State Pledge....................................20
ARTICLE III..........................................Covenants 21
SECTION 3.01. Payment of Principal, Premium, if any, and
Interest.......................................................21
SECTION 3.02. Maintenance of Office or Agency.................21
SECTION 3.03. Money for Payments To Be Held in Trust..........21
SECTION 3.04. Existence.......................................22
SECTION 3.05. Protection of Note Collateral...................23
SECTION 3.06. Opinions as to Note Collateral..................23
SECTION 3.07. Performance of Obligations; Servicing; SEC
Filings........................................................24
SECTION 3.08. Certain Negative Covenants......................26
SECTION 3.09. Annual Statement as to Compliance...............27
SECTION 3.10. Note Issuer May Consolidate, etc., Only
on Certain Terms...............................................27
SECTION 3.11. Successor or Transferee.........................29
SECTION 3.12. No Other Business...............................29
SECTION 3.13. No Borrowing....................................29
SECTION 3.14. Servicer's Obligations..........................30
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities....................................................30
SECTION 3.16. Capital Expenditures............................30
SECTION 3.17. Restricted Payments.............................30
SECTION 3.18. Notice of Events of Default.....................30
SECTION 3.19. Further Instruments and Acts....................30
SECTION 3.20. Purchase of Subsequent Transition Property......31
ARTICLE IV..............Satisfaction and Discharge; Defeasance 32
SECTION 4.01. Satisfaction and Discharge of Indenture;
Defeasance.....................................................32
SECTION 4.02. Conditions to Defeasance........................34
SECTION 4.03. Application of Trust Money......................35
SECTION 4.04. Repayment of Moneys Held by Paying Agent........35
ARTICLE V............................................Remedies 36
SECTION 5.01. Events of Default...............................36
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment......................................................37
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee...............................38
SECTION 5.04. Remedies; Priorities............................40
SECTION 5.05. Optional Preservation of the Note Collateral....41
SECTION 5.06. Limitation of Suits.............................41
SECTION 5.07. Unconditional Rights of Holders To Receive
Principal, Premium,if any, and Interest........................42
SECTION 5.08. Restoration of Rights and Remedies..............42
SECTION 5.09. Rights and Remedies Cumulative..................43
SECTION 5.10. Delay or Omission Not a Waiver..................43
SECTION 5.11. Control by Holders..............................43
SECTION 5.12. Waiver of Past Defaults.........................44
SECTION 5.13. Undertaking for Costs...........................44
SECTION 5.14. Waiver of Stay or Extension Laws................44
SECTION 5.15. Action on Notes.................................45
SECTION 5.16. Performance and Enforcement of Certain
Obligations....................................................45
ARTICLE VI...............................The Indenture Trustee 45
SECTION 6.01. Duties of Indenture Trustee.....................45
SECTION 6.02. Rights of Indenture Trustee.....................47
SECTION 6.03. Individual Rights of Indenture Trustee..........47
SECTION 6.04. Indenture Trustee's Disclaimer..................48
SECTION 6.05. Notice of Defaults..............................48
SECTION 6.06. Reports by Indenture Trustee to Holders.........48
SECTION 6.07. Compensation and Indemnity......................49
SECTION 6.08. Replacement of Indenture Trustee................49
SECTION 6.09. Successor Indenture Trustee by Merger...........50
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee...51
SECTION 6.11. Eligibility; Disqualification...................52
SECTION 6.12. Preferential Collection of Claims Against Note
Issuer.........................................................52
SECTION 6.13. Representations and Warranties of Indenture
Trustee.......................................................
ARTICLE VII.........................Holders' Lists and Reports 53
SECTION 7.01. Note Issuer To Furnish Indenture Trustee Names
and Addresses of Holders.......................................53
SECTION 7.02. Preservation of Information; Communications
to Holders.....................................................53
SECTION 7.03. Reports by Note Issuer..........................53
SECTION 7.04. Reports by Indenture Trustee....................54
ARTICLE VIII...............Accounts, Disbursements and Releases 54
SECTION 8.01. Collection of Money.............................54
SECTION 8.02. Collection Account..............................55
SECTION 8.03. General Provisions Regarding the Collection
Account........................................................57
SECTION 8.04. Release of Note Collateral......................58
SECTION 8.05. Opinion of Counsel..............................59
SECTION 8.06. Reports by Independent Accountants..............59
ARTICLE IX.............................Supplemental Indentures 60
SECTION 9.01. Supplemental Indentures Without Consent of
Holders........................................................60
SECTION 9.02. Supplemental Indentures with Consent of Holders.61
SECTION 9.03. Execution of Supplemental Indentures............63
SECTION 9.04. Effect of Supplemental Indenture................63
SECTION 9.05. Conformity with Trust Indenture Act.............63
SECTION 9.06. Reference in Notes to Supplemental Indentures...63
ARTICLE X.................................Redemption of Notes 63
SECTION 10.01. Optional Redemption by Note Issuer.............63
SECTION 10.02. Form of Optional Redemption Notice.............64
SECTION 10.03. Notes Payable on Optional Redemption Date......65
<PAGE>
ARTICLE XI.......................................Miscellaneous 65
SECTION 11.01. Compliance Certificates and Opinions, etc......65
SECTION 11.02. Form of Documents Delivered to Indenture
Trustee........................................................67
SECTION 11.03. Acts of Holders................................67
SECTION 11.04. Notices, etc., to Indenture Trustee, Note
Issuer and Rating Agencies.....................................68
SECTION 11.05. Notices to Holders; Waiver.....................69
SECTION 11.06. Conflict with Trust Indenture Act..............69
SECTION 11.07. Effect of Headings and Table of Contents.......70
SECTION 11.08. Successors and Assigns.........................70
SECTION 11.09. Severability...................................70
SECTION 11.10. Benefits of Indenture..........................70
SECTION 11.11. Legal Holidays.................................70
SECTION 11.12. GOVERNING LAW..................................70
SECTION 11.13. Counterparts...................................71
SECTION 11.14. Recording of Indenture.........................71
SECTION 11.15. Trust Obligation...............................71
SECTION 11.16. No Recourse to Note Issuer.....................71
SECTION 11.17. Inspection.....................................71
SECTION 11.18. No Petition....................................72
EXHIBIT A -- Form of Notes
EXHIBIT B -- Form of Trustee's Issuance Certificate
EXHIBIT C -- Form of Series Supplement
<PAGE>
Cross Reference Table
TIA Section Indenture Section
310 (a)(1) 6.11
(a)(2) 6.11
(a)(3) 6.10
(a)(4) N.A.
(a)(5) 6.11
(b) 6.11
(c) N.A.
311 (a) 6.12
(b) 6.12
(c) N.A.
312 (a) 7.01,7.02
(b) 7.02
(c) 7.02
313 (a) 7.04
(b)(1) 7.04
(b)(2) 7.04
(c) 7.04
(d) 7.04
314 (a) 7.03(a), 3;09
(b) 3.06
(c)(1) 2.10,4.01,11.01(a)
(c)(2) 2.10,4.01,11.01(a)
(c)(3) 2.10,4.01,11.01(a)
(d) 2.10,11.01(b)
(e) 11.01(a)
(f) 11.01(a)
315 (a) 6.01(b)
(b) 6.05
(c) 6.01(a)
(d) 6.02,6.01(c)
(e) 5.13
316 (a)last
sentence Appendix A "outstanding"
(a)(1)(A) 5.11
(a)(1)(B) 5.12
(a)(2) Ommitted
(b) 5.07
(c) Appendix A "Record Date"
317 (a)(1) 5.03(b)
(a)(2) 5.03(c)
(b) 3.03
318 (a) 11.07
N.A. means Not Applicable
Note:This cross reference table shall not, for any ppurpose, be deemed to be
part of this Indenture.
INDENTURE dated as of ___________, 2000, between CPL
TRANSITION FUNDING LLC, a Delaware limited liability company (the "Note
Issuer"), and ____________________, a ________ banking corporation, as
trustee (the "Indenture Trustee").
In consideration of the mutual agreements herein contained,
each party agrees as follows for the benefit of the other and each of the
Holders:
RECITALS OF THE NOTE ISSUER
The Note Issuer has duly authorized the execution and delivery
of this Indenture and the creation and issuance of Notes issuable in Series
hereunder, each Series to be of substantially the tenor set forth herein and in
the respective Trustee's Issuance Certificate or Series Supplement, if any,
relating to each such Series of Notes.
The Notes shall be non-recourse obligations and shall be
secured by and payable solely out of the proceeds of the Transition Property and
the other Note Collateral. If and to the extent that such proceeds of Transition
Property and the other Note Collateral are insufficient to pay all amounts owing
with respect to the Notes, then, except as otherwise expressly provided
hereunder, the Holders shall have no Claim in respect of such insufficiency
against the Note Issuer, and the Holders, by their acceptance of the Notes,
waive any such Claim.
All things necessary to (a) make the Notes, when executed by
the Note Issuer and authenticated and delivered by the Indenture Trustee
hereunder and duly issued by the Note Issuer, valid obligations, and (b) make
this Indenture a valid agreement of the Note Issuer, in each case, in accordance
with their respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Note Issuer, in consideration of the premises herein
contained and of the purchase of the Notes by the Holders and of other good and
lawful consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure, equally and ratably without prejudice, priority or
distinction, except as specifically otherwise set forth in this Indenture, the
payment of the Notes, the payment of all other amounts due under or in
connection with this Indenture and the performance and observance of all of the
covenants and conditions contained herein or in such Notes, has hereby executed
and delivered this Indenture and by these presents does hereby convey, grant and
assign, transfer and pledge, in each case, in and unto the Indenture Trustee,
its successors and assigns forever, for the benefit of the Holders, all and
singular the property hereinafter described (hereinafter referred to as the
"Note Collateral"), to wit:
<PAGE>
GRANTING CLAUSE
The Note Issuer hereby Grants to the Indenture Trustee on the
Closing Date, as Indenture Trustee for the benefit of the Holders of the Notes
from time to time issued and outstanding, all of the Note Issuer's right, title
and interest in and to (a) the Transition Property created under and pursuant to
the Initial Financing Order, and transferred by CPL to the Note Issuer pursuant
to the Sale Agreement (including, to the fullest extent permitted by law, all
revenues, collections, claims, rights, payments, money or proceeds of or arising
from the Transition Charges authorized in the Initial Financing Order and any
Tariffs filed pursuant thereto and any contractual rights to collect such
Transition Charges from Customers and REPs), (b) all Transition Property created
under and pursuant to any Subsequent Financing Order, and transferred by CPL to
the Note Issuer pursuant to the Sale Agreement (including, to the fullest extent
permitted by law, all revenues, collections, claims, rights, payments, money or
proceeds of or arising from the Transition Charges authorized in such Subsequent
Financing Order and any Subsequent Tariffs filed pursuant thereto and any
contractual rights to collect such Transition Charges from Customers and REPs),
(c) Transition Charges, the Sale Agreement and all property and interests in
property transferred under the Sale Agreement, (d) the Servicing Agreement, (e)
the Collection Account, all subaccounts thereof and all amounts of cash or
investment property on deposit therein or credited thereto from time to time,
(f) any Swap Agreement or other interest rate exchange agreement which is
executed in connection with the issuance of Floating Rate Notes, if any, (h) all
rights to compel the Servicer to file for and obtain adjustments to the
Transition Charges in accordance with Section 39.307 of the Securitization Law,
the Initial Financing Order or any Subsequent Financing Order or any Tariff or
Subsequent Tariff filed in connection therewith, (i) all present and future
claims, demands, causes and choses in action in respect of any or all of the
foregoing, and (j) all payments on or under, and all proceeds in respect of, any
or all of the foregoing; it being understood that the following do not
constitute Note Collateral: (i) cash that has been released pursuant to Section
8.02(d)(xiv) following retirement of all Outstanding Series of Notes, and (ii)
amounts deposited with the Note Issuer on any Series Issuance Date, including
the Closing Date, for payment of costs of issuance with respect to the related
Series (together with any interest earnings thereon), it being understood that
such amounts described in clauses (i) and (ii) above shall not be subject to
Section 3.17.
The foregoing Grant is made in trust to secure the payment of
principal of and premium, if any, interest on, and any other amounts owing in
respect of, the Notes equally and ratably without prejudice, priority or
distinction, except as expressly provided in this Indenture, and to secure
compliance with the provisions of this Indenture with respect to the Notes, all
as provided in this Indenture. This Indenture constitutes a security agreement
within the meaning of the UCC to the extent that, under Texas law, the
provisions of the UCC are applicable hereto.
The Indenture Trustee, as trustee on behalf of the Holders,
acknowledges such Grant and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture.
<PAGE>
SIGNATURE PAGE
TO INDENTURE
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the
parties hereto that all Notes are to be issued, countersigned and delivered and
that all of the Note Collateral is to be held and applied, subject to the
further covenants, conditions, releases, uses and trusts hereinafter set forth,
and the Note Issuer, for itself and any successor, does hereby covenant and
agree to and with the Indenture Trustee and its successors in said trust, for
the benefit of the Holders, as follows:
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. Except as otherwise specified
herein or as the context may otherwise require, the capitalized terms used
herein shall have the respective meanings set forth in Appendix A attached
hereto and made a part hereof for all purposes of this Indenture.
SECTION 1.02. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Note Issuer
and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
The Notes
SECTION 2.01. Form. The Notes and the Indenture Trustee's
certificate of authentication shall be in substantially the forms set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture or by the related
Trustee's Issuance Certificate or Series Supplement, if any, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
Any portion of the text of any Note may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The
terms of the Notes set forth in Appendix A are part of the terms of this
Indenture.
SECTION 2.02. Denominations; Notes Issuable in Series. The
Notes shall be issuable in the Minimum Denomination specified in the applicable
Trustee's Issuance Certificate or Series Supplement, if any, and, except as
otherwise provided in such Trustee's Issuance Certificate or Series Supplement,
if any, in integral multiples thereof.
The Notes may, at the election of and as authorized by a
Responsible Officer of the Note Issuer, be issued in one or more Series (each
comprised of one or more Classes), and shall be designated generally as the
["Transition Notes"] of the Note Issuer, with such further particular
designations added or incorporated in such title for the Notes of any particular
Series or Class as a Responsible Officer of the Note Issuer may determine. Each
Note shall bear upon its face the designation so selected for the Series or
Class to which it belongs. All Notes of the same Series shall be identical in
all respects except for the denominations thereof, unless such Series is
comprised of one or more Classes, in which case all Notes of the same Class
shall be identical in all respects except for the denominations thereof. All
Notes of a particular Series or, if such Series is comprised of one or more
Classes, all Notes of a particular Class thereof, in each case issued under this
Indenture, shall be in all respects equally and ratably entitled to the benefits
hereof without preference, priority, or distinction on account of the actual
time or times of authentication and delivery, all in accordance with the terms
and provisions of this Indenture.
Each Series of Notes shall be created by a Trustee's Issuance
Certificate or Series Supplement, as the case may be, authorized by a
Responsible Officer of the Note Issuer and establishing the terms and provisions
of such Series. The several Series and Classes thereof may differ as between
Series and Classes, in respect of any of the following matters:
(1) designation of the Series and, if applicable, the Classes thereof;
(2) the principal amount;
(3) the Note Interest Rate;
(4) the Payment Dates;
(5) the Scheduled Payment Date;
(6) the Final Maturity Date;
(7) the Series Issuance Date;
(8) the place or places for the payment of interest,
principal and premium, if any;
(9) the Minimum Denominations;
(10) the Expected Amortization Schedule;
(11) provisions with respect to the definitions set forth in
Appendix A hereto;
(12) whether or not the Notes of such Series are to be
Book-Entry Notes and the extent to which Section 2.11 should apply;
(13) any redemption provisions applicable to the Notes of such Series
and the price or prices at which and the terms and conditions
upon which Notes of such Series shall be redeemed or purchased;
(14) to the extent applicable, the extent to which payments on
the Notes of the related Series are subordinate to or pari passu in
right of payment of principal and interest to other Notes; and
(15) any other provisions expressing or referring to the terms
and conditions upon which the Notes of the applicable Series or Class
are to be issued under this Indenture that are not in conflict with the
provisions of this Indenture and as to which the Rating Agency
Condition is satisfied.
SECTION 2.03. Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Note Issuer by any of its Responsible Officers.
The signature of any such Responsible Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Responsible Officers of the Note Issuer shall bind the Note
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Note Issuer may deliver Notes executed by the
Note Issuer to the Indenture Trustee pursuant to an Issuer Order for
authentication; and the Indenture Trustee shall authenticate and deliver such
Notes as in this Indenture provided and not otherwise.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for therein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.04. Temporary Notes. Pending the preparation of
Definitive Notes pursuant to Section 2.13, the Note Issuer may execute, and upon
receipt of an Issuer Order the Indenture Trustee shall authenticate and deliver,
Temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, of the tenor of the Definitive Notes in lieu of which they
are issued and with such variations not inconsistent with the terms of this
Indenture as the officers executing such Notes may determine, as evidenced by
their execution of such Notes.
If Temporary Notes are issued, the Note Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Definitive Notes, the Temporary Notes shall be exchangeable for
Definitive Notes upon surrender of the Temporary Notes at the office or agency
of the Note Issuer to be maintained as provided in Section 3.02, without charge
to the Holder. Upon surrender for cancellation of any one or more Temporary
Notes, the Note Issuer shall execute and the Indenture Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
Definitive Notes of authorized denominations. Until so delivered in exchange,
the Temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as Definitive Notes.
SECTION 2.05. Registration; Registration of Transfer and
Exchange of Notes. The Note Issuer shall cause to be kept a register (the "Note
Register") in which, subject to such reasonable regulations as it may prescribe,
the Note Issuer shall provide for the registration of Notes and the registration
of transfers of Notes. The Indenture Trustee shall be "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Note Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties of
Note Registrar.
If a Person other than the Indenture Trustee is appointed by
the Note Issuer as Note Registrar, the Note Issuer will give the Indenture
Trustee prompt written notice of the appointment of such Note Registrar and of
the location, and any change in the location, of the Note Register, and the
Indenture Trustee shall have the right to inspect the Note Register at all
reasonable times and to obtain copies thereof, and the Indenture Trustee shall
have the right to rely conclusively upon a certificate executed on behalf of the
Note Registrar by a Responsible Officer thereof as to the names and addresses of
the Holders and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the
office or agency of the Note Issuer to be maintained as provided in Section
3.02, the Note Issuer shall execute, and the Indenture Trustee shall
authenticate and the Holder shall obtain from the Indenture Trustee, in the name
of the designated transferee or transferees, one or more new Notes in any
Minimum Denominations, of the same Series (and, if applicable, Class) and
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes in any Minimum Denominations, of the same Series (and, if applicable,
Class) and aggregate principal amount, upon surrender of the Notes to be
exchanged at such office or agency. Whenever any Notes are so surrendered for
exchange, the Note Issuer shall execute, and the Indenture Trustee shall
authenticate and the Holder shall obtain from the Indenture Trustee, the Notes
which the Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of other Notes shall be the valid obligations of the Note Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed by, or be accompanied by (a) a
written instrument of transfer in form satisfactory to the Indenture Trustee
duly executed by the Holder thereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an institution which is a member of
one of the following recognized Signature Guaranty Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange
Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or
(iv) such other guarantee program acceptable to the Indenture Trustee, and (b)
such other documents as the Indenture Trustee may require.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Notes, but the Note Issuer or Indenture
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes, other than exchanges pursuant to Section 2.04 or
9.06 not involving any transfer.
The preceding provisions of this Section notwithstanding, the
Note Issuer shall not be required to make, and the Note Registrar need not
register transfers or exchanges (i) of Notes that have been selected for
redemption pursuant to Article X or the terms of such Notes as set forth in the
related Trustee's Issuance Certificate or Series Supplement, as the case may be,
creating such Series of Notes, (ii) of any Note that has been submitted within
15 days preceding the due date for any payment with respect to such Note or
(iii) of Unregistered Notes unless Section 2.17 has been complied with in
connection with such transfer or exchange.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes. If
(i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as may be required by it to hold the Note Issuer and the Indenture
Trustee harmless, then the Note Issuer shall execute and, upon its written
request, the Indenture Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement
Note of like Series (and, if applicable, Class), tenor and principal amount,
bearing a number not contemporaneously outstanding; provided, however, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, or shall have been called
for redemption, instead of issuing a replacement Note, the Note Issuer may pay
such destroyed, lost or stolen Note when so due or payable or upon the Optional
Redemption Date without surrender thereof. If, after the delivery of such
replacement Note or payment of a destroyed, lost or stolen Note pursuant to the
proviso to the preceding sentence, a purchaser of the original Note in lieu of
which such replacement Note was issued presents for payment such original Note,
the Note Issuer and the Indenture Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person and shall be
entitled to recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expense incurred by the Note Issuer or the
Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section,
the Note Issuer and/or the Indenture Trustee may require the payment by the
Holder of such Note of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Note Issuer, whether or not
the mutilated, destroyed, lost or stolen Note shall be found at any time or
enforced by any Person, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Notes duly issued
hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.07. Persons Deemed Owner. Prior to due presentment
for registration of transfer of any Note, the Note Issuer, the Indenture Trustee
and any agent of the Note Issuer or the Indenture Trustee may treat the Person
in whose name any Note is registered (as of the day of determination) as the
owner of such Note for the purpose of receiving payments of principal of and
premium, if any, and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Note Issuer,
the Indenture Trustee nor any agent of the Note Issuer or the Indenture Trustee
shall be affected by notice to the contrary.
SECTION 2.08. Payment of Principal, Premium, if any, and
Interest; Interest on Overdue Principal; Principal, Premium, if any, and
Interest Rights Preserved. (a) The Notes shall accrue interest as provided in
the related Trustee's Issuance Certificate or Series Supplement, if any, at the
applicable Note Interest Rate specified therein, and such interest shall be
payable on each Payment Date as specified therein. Any installment of interest,
principal or premium, if any, payable on any Note which is punctually paid or
duly provided for on the applicable Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered on the
Record Date for such Payment Date, by check mailed first-class, postage prepaid
to such Person's address as it appears on the Note Register on such Record Date
or in such other manner as may be provided in the related Trustee's Issuance
Certificate or Series Supplement, if any, except that (i) upon application to
the Indenture Trustee by any Holder owning Notes of any Class in the principal
amount of $10,000,000 or more not later than the applicable Record Date payment
will be made by wire transfer to an account maintained by such Holder and (ii)
with respect to Book Entry Notes payments will be made by wire transfer in
immediately available funds to the account designated by the Holder of the
applicable Global Note unless and until such Global Note is exchanged for
Definitive Notes (in which event payments shall be made as provided above) and
except for the final installment of principal and premium, if any, payable with
respect to such Note on a Payment Date which shall be payable as provided below.
The funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.03.
(b) The principal of each Note of each Series (and, if
applicable, Class) shall be paid, to the extent funds are available therefor in
the Collection Account, in installments on each Payment Date specified in the
related Trustee's Issuance Certificate or Series Supplement, if any.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
of a Series shall be due and payable, if not previously paid, on the date on
which an Event of Default shall have occurred and be continuing with respect to
such Series, if the Indenture Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes of all Series
have declared the Notes to be immediately due and payable in the manner provided
in Section 5.02. All payments of principal and premium, if any, on the Notes of
any Series shall be made pro rata to the Holders entitled thereto unless
otherwise provided in the related Trustee's Issuance Certificate or Series
Supplement, if any, with respect to any Class of Notes included in such Series.
The Indenture Trustee shall notify the Person in whose name a Note is registered
at the close of business on the Record Date preceding the Payment Date on which
the Note Issuer expects that the final installment of principal of and premium,
if any, and interest on such Note will be paid. Such notice shall be mailed no
later than five days prior to such final Payment Date and shall specify that
such final installment will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Holders as provided in Section 10.02.
(c) If interest on the Notes of any Series is not paid when
due, such defaulted interest shall be paid (plus interest on such defaulted
interest at the applicable Note Interest Rate to the extent lawful) to the
Persons who are Holders on a subsequent Special Record Date, which date shall be
at least fifteen Business Days prior to the Special Payment Date. The Note
Issuer shall fix or cause to be fixed any such Special Record Date and Special
Payment Date, and, at least 20 days before any such Special Record Date, the
Note Issuer shall mail to each affected Holder a notice that states the Special
Record Date, the Special Payment Date and the amount of defaulted interest (plus
interest on such defaulted interest) to be paid.
SECTION 2.09. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Note Issuer may at
any time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Note Issuer may have acquired in
any manner whatsoever, and all Notes so delivered shall be promptly canceled by
the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time.
SECTION 2.10. Outstanding Amount; Authentication and Delivery
of Notes. The aggregate Outstanding Amount of Notes that may be authenticated
and delivered under this Indenture shall be unlimited [except as provided in the
Initial Financing Order or any Subsequent Financing Order].
Notes of each Series created and established by a Trustee's
Issuance Certificate or Series Supplement, if any, may from time to time be
executed by the Note Issuer and delivered to the Indenture Trustee for
authentication and thereupon the same shall be authenticated and delivered by
the Indenture Trustee upon Issuer Request and upon delivery by the Note Issuer
to the Indenture Trustee, and receipt by the Indenture Trustee, or the causing
to occur by the Note Issuer, of the following; provided, however, that
compliance with such conditions and delivery of such documents shall only be
required in connection with the original issuance of a Note or Notes of such
Series:
(1) Note Issuer Action. An Issuer Order authorizing and
directing the execution, authentication and delivery of the Notes by
the Indenture Trustee and specifying the principal amount of Notes to
be authenticated.
(2) Authorizations. A copy of the PUHCA Order which shall be
in full force and effect. A Financing Order related to such Series
which shall be in full force and effect and be Final.
(3) Opinions. (a) An Opinion of Counsel that the applicable
Financing Order and the PUHCA Order are each in full force and effect,
that the applicable Financing Order is Final and that no other
authorization, approval or consent of any governmental body or bodies
at the time having jurisdiction in the premises is required for the
valid issuance, authentication and delivery of such Notes, except for
such registrations as are required under the "Blue Sky" and securities
laws of any State or such authorizations, approvals or consents of
governmental bodies that have been obtained and copies of which have
been delivered with such Opinion of Counsel.
(b) An Opinion of Counsel that no authorization, approval or
consent of any governmental body or bodies at the time having
jurisdiction in the premises is required for the valid execution and
delivery by the Note Issuer of each of the Basic Documents to which the
Note Issuer is a party and that is executed and delivered in connection
with such Note issuance, except for such authorizations, approvals or
consents of governmental bodies that have been obtained and copies of
which have been delivered with such Opinion of Counsel.
(4) Authorizing Certificate. An Officer's Certificate, dated
the Series Issuance Date, of the Note Issuer certifying that (i) the
Note Issuer has duly authorized the execution and delivery of this
Indenture and the related Trustee's Issuance Certificate or Series
Supplement, as the case may be, and the execution and delivery of the
Notes of such Series and (ii) that the Trustee's Issuance Certificate
or Series Supplement, as the case may be, for such Series of Notes is
in the form attached thereto, which Trustee's Issuance Certificate or
Series Supplement, as the case may be, shall comply with the
requirements of Section 2.02.
(5) The Note Collateral. The Note Issuer shall have made or
caused to be made all filings with the PUCT and the Texas Secretary of
State pursuant to the Financing Order and the Securitization Law and
all other filings necessary to perfect the Grant of the Note Collateral
to the Indenture Trustee and the Lien of this Indenture.
(6) Certificates of the Note Issuer and CPL. (a) An Officer's
Certificate from the Note Issuer, dated as of the Series Issuance Date:
(i) to the effect that (A) the Note Issuer is not in
Default under this Indenture and that the issuance of the
Notes applied for will not result in any Default or in any
breach of any of the terms, conditions or provisions of or
constitute a default under the Financing Order relating to the
Notes applied for or any indenture, mortgage, deed of trust or
other agreement or instrument to which the Note Issuer is a
party or by which it or its property is bound or any order of
any court or administrative agency entered in any Proceeding
to which the Note Issuer is a party or by which it or its
property may be bound or to which it or its property may be
subject and (B) that all conditions precedent provided in this
Indenture relating to the execution, authentication and
delivery of the Notes applied for have been complied with;
(ii) to the effect that the Note Issuer has not
assigned any interest or participation in the Note Collateral
except for the Grant contained in this Indenture; the Note
Issuer has the power and right to Grant the Note Collateral to
the Indenture Trustee as security hereunder; and the Note
Issuer, subject to the terms of this Indenture, has Granted to
the Indenture Trustee all of its right, title and interest in
and to such Note Collateral free and clear of any Lien,
mortgage, pledge, charge, security interest, adverse claim or
other encumbrance arising as a result of actions of the Note
Issuer or through the Note Issuer, except the Lien of this
Indenture;
(iii) to the effect that the Note Issuer has
appointed the firm of Independent certified public accountants
as contemplated in Section 8.06;
(iv) to the effect that attached thereto are duly
executed, true and complete copies of the Sale Agreement and
the Servicing Agreement; and
(v) stating that all filings with the PUCT and the
Texas Secretary of State pursuant to the Securitization Law
and the Financing Order relating to the Notes applied for and
all UCC financing statements with respect to the Note
Collateral which are required to be filed by the terms of the
Financing Order, the Securitization Law and the Sale
Agreement, the Servicing Agreement and this Indenture have
been filed as required.
(b) An Officer's Certificate from CPL, dated as of the Series
Issuance Date, to the effect that, in the case of the Transition
Property, immediately prior to the conveyance thereof to the Note
Issuer pursuant to the Sale Agreement:
(i) CPL was the owner of such Transition Property,
free and clear of any Lien; CPL had not assigned any interest
or participation in such Transition Property and the proceeds
thereof other than to the Note Issuer pursuant to the Sale
Agreement; CPL has the power and right to convey such
Transition Property and the proceeds thereof to the Note
Issuer; and CPL, subject to the terms of the Sale Agreement,
has validly conveyed to the Note Issuer all of its right,
title and interest in and to such Transition Property and the
proceeds thereof, free and clear of any Lien, mortgage,
pledge, charge, security interest, adverse claim or other
encumbrance; and
(ii) the attached copy of the Financing Order
creating such Transition Property is complete and correct.
(7) Opinion of Tax Counsel. CPL shall have delivered to the
Note Issuer and the Indenture Trustee an opinion of outside tax counsel
and/or a ruling from the Internal Revenue Service (as selected by, and
in form and substance reasonably satisfactory to, CPL) to the effect
that, for federal income tax purposes, (i) such issuance of Notes will
not result in gross income to CPL and the Notes will be obligations of
CPL and (ii) in the case of a sale of subsequent Transition Property
only, such issuance will not materially adversely affect the
characterization of any then Outstanding Notes as obligations of CPL
for tax purposes.
(8) Opinion of Counsel. Unless otherwise specified in a
Trustee's Issuance Certificate or Series Supplement, if any, an Opinion
of Counsel, portions of which may be delivered by counsel for the Note
Issuer, portions of which may be delivered by counsel for the Servicer,
and portions of which may be delivered by counsel for the Indenture
Trustee, dated the Series Issuance Date, in each case subject to the
customary exceptions, qualifications and assumptions contained therein,
to the collective effect that:
(a) the Indenture has been duly qualified under the
Trust Indenture Act and either the related Trustee's Issuance
Certificate or Series Supplement, if any, has been duly
qualified under the Trust Indenture Act or no such
qualification of the Trustee's Issuance Certificate or Series
Supplement is necessary;
(b) all instruments furnished to the Indenture
Trustee pursuant to this Indenture conform to the requirements
set forth in this Indenture and constitute all of the
documents required to be delivered hereunder for the Indenture
Trustee to authenticate and deliver the Notes applied for, and
all conditions precedent provided for in this Indenture
relating to the authentication and delivery of the Notes have
been complied with;
(c) the Note Issuer has the corporate power and
authority to execute and deliver the Trustee's Issuance
Certificate, if any, the Series Supplement, if any, and this
Indenture and to issue the Notes, and each of the Trustee's
Issuance Certificate, if any, the Series Supplement, if any,
this Indenture, and the Notes have been duly authorized and
the Note Issuer is duly created and is validly existing in
good standing under the laws of the jurisdiction of its
organization;
(d) the Trustee's Issuance Certificate, if any, the
Series Supplement, if any, and the Indenture have been duly
executed and delivered by the Note Issuer;
(e) the Notes applied for have been duly authorized
and executed and, when authenticated in accordance with the
provisions of the Indenture and delivered against payment of
the purchase price therefor, will constitute valid and binding
obligations of the Note Issuer (subject to bankruptcy,
insolvency, reorganization and other similar laws affecting
the rights of creditors generally and general principles of
equity), entitled to the benefits of the Indenture and any
related Trustee's Issuance Certificate or Series Supplement;
(f) this Indenture, the Sale Agreement, the Servicing
Agreement and the related Trustee's Issuance Certificate or
Series Supplement, if any, are valid and binding agreements of
the Note Issuer, enforceable in accordance with their
respective terms, except as such enforceability may be subject
to bankruptcy, insolvency, reorganization and other similar
laws affecting the rights of creditors generally and general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law);
(g) [in accordance with the Securitization Law, the
Financing Order relating to the Notes applied for (A) creates
a contract right, which includes the right to impose, collect,
and receive Transition Charges authorized in the Financing
Order, which contract right becomes Transition Property at the
time that it is first transferred in connection with the
issuance of Notes; (B) approves and authorizes the sale,
transfer and assignment by CPL of such Transition Property to
the Note Issuer; (C) approves the issuance and sale by the
Note Issuer of the Notes to be issued on such Series Issuance
Date in an aggregate principal amount which equals or exceeds
the initial Outstanding Amount of the Notes referred to in (1)
above; and (D) declares and establishes that such Notes are
"Transition Bonds" within the meaning of Section 39.302(6) of
the Securitization Law];
(h) (A) at the time value is received by the Note
Issuer for the Notes the Lien of this Indenture in favor of
the Holders in the Transition Property attaches automatically;
(B) such Lien has been perfected in accordance with Section
39.309(D) of the Securitization Law and in accordance with the
Financing Order; (C) such Lien is valid and enforceable
against CPL, the Servicer, the Note Issuer, and all third
parties, including judgment Lien creditors; and (D) such Lien
ranks prior to any other Lien which subsequently attaches to
the Transition Property;
(i) with respect to the Note Collateral other than
the Transition Property, upon the giving of value by the
Indenture Trustee to the Note Issuer with respect to such Note
Collateral, (A) this Indenture, together with any related
Trustee's Issuance Certificate or Series Supplement, creates
in favor of the Indenture Trustee a Lien in the rights of the
Note Issuer in such Note Collateral, and such Lien is
enforceable against CPL, the Servicer, the Note Issuer and all
third parties, (B) such Lien is perfected, and (C) such
perfected Lien is of first priority;
(j) either (A) the registration statement covering
the Notes is effective under the Securities Act and, to such
counsel's knowledge, no stop order suspending the
effectiveness of such registration statement has been issued
under the Securities Act and no proceedings for that purpose
have been initiated or are pending or threatened by the SEC or
(B) the Notes are exempt from the registration requirements
under the Securities Act;
(k) neither the Note Issuer nor CPL is now and,
assuming that the Note Issuer uses the net proceeds of the
sale of the Notes for the purpose of acquiring Transition
Property in accordance with the terms of the Sale Agreement
following the sale of the Notes to the underwriter,
underwriters, placement agent or agents or similar Person,
neither the Note Issuer nor CPL will be required to be
registered under the Investment Company Act of 1940, as
amended;
(l) the Sale Agreement is a valid and binding
agreement of CPL enforceable against CPL in accordance with
its terms, except in each case as such enforceability may be
subject to bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at
law);
(m) the Servicing Agreement is a valid and binding
agreement of the Servicer enforceable against the Servicer in
accordance with its terms, except as such enforceability may
be subject to bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at
law);
(n) pursuant to the Financing Order relating to the
Notes applied for and upon the delivery of the fully executed
Sale Agreement (or, with respect to Subsequent Transition
Property, a bill of sale in the form required by the Sale
Agreement) to the Note Issuer and the payment of the purchase
price of the Transition Property by the Note Issuer to CPL
pursuant to the Sale Agreement, (i) the transfer of the
Transition Property by CPL to the Note Issuer conveys CPL's
right, title and interest in the Transition Property to the
Note Issuer and will be treated under Texas state law as a
true sale of all of CPL's title, legal and equitable, in the
Transition Property, other than for federal income and, to the
extent consistent with applicable state tax law, state income
and franchise tax purposes, (ii) such transfer of the
Transition Property is perfected, (iii) such transfer has
priority over any other assignment of the Transition Property
and (iv) the Transition Property is free and clear of all
Liens created prior to its transfer to the Note Issuer
pursuant to the Sale Agreement; and
(o) such other matters as the Indenture Trustee may
reasonably require.
(9) Accountant's Certificate or Opinion. Unless otherwise
specified in a Trustee's Issuance Certificate or a Series Supplement,
if any, a certificate or opinion, addressed to the Note Issuer and the
Indenture Trustee complying with the requirements of Section 11.01(a),
of a firm of Independent certified public accountants of recognized
national reputation to the effect that (a) such accountants are
Independent with respect to the Note Issuer within the meaning of this
Indenture, and are independent public accountants within the meaning of
the standards of The American Institute of Certified Public
Accountants, and (b) with respect to the Note Collateral, they have
made such calculations as they deemed necessary for the purpose and
determined that, based on the assumptions used in calculating the
initial Transition Charges or, if applicable, the most recent revised
Transition Charges, as of the Series Issuance Date for such Series
(after giving effect to the issuance of such Series and the application
of the proceeds therefrom) such Transition Charges are sufficient to
pay (a) Operating Expenses when incurred, plus (b) the Required
Overcollateralization Level, plus (c) interest on each Series of Notes
at their respective Note Interest Rates when due, plus (d) principal of
each Series of Notes in accordance with the Expected Amortization
Schedule.
(10) Rating Agency Condition. The Indenture Trustee shall
receive evidence reasonably satisfactory to it that the Rating Agency
Condition will be satisfied with respect to the issuance of such new
Series.
(11) Requirements of Trustee's Issuance Certificate or Series
Supplement. Such other funds, accounts, documents certificates,
agreements, instruments or opinions as may be required by the terms of
the Trustee's Issuance Certificate or Series Supplement, if any,
creating such Series.
(12) Other Requirements. Such other documents, certificates,
agreements, instruments or opinions as the Indenture Trustee may
reasonably require.
SECTION 2.11. Book-Entry Notes. Unless the applicable
Trustee's Issuance Certificate or Series Supplement, if any, provides otherwise,
all of the related Series of Notes shall be issued in Book-Entry Form, and the
Note Issuer shall execute and the Indenture Trustee shall, in accordance with
this Section and the Issuer Order with respect to such Series, authenticate and
deliver one or more Global Notes, evidencing the Notes of such Series which (i)
shall be an aggregate original principal amount equal to the aggregate original
principal amount of such Notes to be issued pursuant to the applicable Issuer
Order, (ii) shall be registered in the name of the Clearing Agency therefor or
its nominee, which shall initially be Cede & Co., as nominee for The Depository
Trust Company, the initial Clearing Agency, (iii) shall be delivered by the
Indenture Trustee to such Clearing Agency's or such nominee's instructions, and
(iv) shall bear a legend substantially to the following effect: ["Transfers of
this Global Note shall be limited to transfers in the Clearing Agency or to a
successor thereof or such successor's nominee and transfers of portions of this
Global Note shall be limited to transfers made in accordance with the
restrictions set forth in the Indenture."]
Each Clearing Agency designated pursuant to this Section 2.11
must, at the time of its designation and at all times while it serves as
Clearing Agency hereunder, be a "clearing agency" registered under the Exchange
Act and any other applicable statute or regulation.
No Holder of any such Series of Notes issued in Book-Entry
Form shall receive a Definitive Note representing such Holder's interest in any
such Notes, except as provided in Section 2.13 or in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, relating to such Notes.
Unless (and until) certificated, fully registered Notes of any Series (the
"Definitive Notes") have been issued to the Holders of such Series pursuant to
Section 2.13 or pursuant to any applicable Trustee's Issuance Certificate or
Series Supplement, if any, relating thereto:
(a) the provisions of this Section 2.11 shall be
in full force and effect;
(b) the Note Issuer, the Servicer, the Paying Agent,
the Note Registrar and the Indenture Trustee may deal with the
Clearing Agency for all purposes (including the making of
distributions on the Notes of such Series) as the authorized
representatives of the Holders of such Series;
(c) to the extent that the provisions of this Section
2.11 conflict with any other provisions of this Indenture, the
provisions of this Section 2.11 shall control; and
(d) the rights of Holders of such Series shall be
exercised only through the Clearing Agency and the Clearing
Agency Participants and shall be limited to those established
by law and agreements between such Holders and the Clearing
Agency and/or the Clearing Agency Participants. Unless and
until Definitive Notes are issued pursuant to Section 2.13,
the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and
transmit distributions of principal and interest on the
Book-Entry Notes to such Clearing Agency Participants.
SECTION 2.12. Notices to Clearing Agency. Unless and until
Definitive Notes shall have been issued to Holders of such Series pursuant to
Section 2.13 or the applicable Trustee's Issuance Certificate or Series
Supplement, if any, relating to such Notes, whenever notice, payment, or other
communication to the holders of Book-Entry Notes of any Series is required under
this Indenture, the Indenture Trustee, the Servicer and the Paying Agent shall
give all such notices and communications specified herein to be given to Holders
of such Series to the Clearing Agency.
SECTION 2.13. Definitive Notes. If (i)(A) the Note Issuer
advises the Indenture Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities under any Letter of
Representations and (B) the Note Issuer is unable to locate a qualified
successor Clearing Agency, (ii) the Note Issuer, at its option, advises the
Indenture Trustee in writing that, with respect to any Series, it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of a Servicer Default, Holders holding Notes aggregating not less
than 50% of the aggregate Outstanding Amount of any Series of Notes maintained
as Book-Entry Notes advise the Indenture Trustee, CPL, the Note Issuer and the
Clearing Agency (through the Clearing Agency Participants) in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Holders of such Series, CPL shall notify the Clearing
Agency, the Indenture Trustee and all such Holders of such Series in writing of
the occurrence of any such event and of the availability of Definitive Notes of
such Series to the Holders of such Series requesting the same. Upon surrender to
the Indenture Trustee of the Global Notes of such Series by the Clearing Agency
accompanied by registration instructions from such Clearing Agency for
registration, the Note Issuer shall execute, and the Indenture Trustee shall
authenticate and deliver, Definitive Notes of such Series. None of the Note
Issuer, the Note Registrar or the Indenture Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions. Upon the issuance of
Definitive Notes of any Series, all references herein to obligations with
respect to such Series imposed upon or to be performed by the Clearing Agency
shall be deemed to be imposed upon and performed by the Indenture Trustee, to
the extent applicable with respect to such Definitive Notes and the Indenture
Trustee shall recognize the Holders of the Definitive Notes as Holders
hereunder.
SECTION 2.14. CUSIP Number. The Note Issuer in issuing any
Note or Series of Notes may use a "CUSIP" number and, if so used, the Indenture
Trustee shall use the CUSIP number in any notices to the Holders thereof as a
convenience to such Holders; provided, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Note Issuer shall
promptly notify the Indenture Trustee in writing of any change in the CUSIP
number with respect to any Note.
SECTION 2.15. Letter of Representations. Notwithstanding
anything to the contrary in this Indenture or any Series Supplement or any
Trustee's Issuance Certificate, the parties hereto shall comply with the terms
of each Letter of Representations.
SECTION 2.16. Release of Note Collateral. Subject to Section
11.01, the Indenture Trustee shall release property from the Lien of this
Indenture only as specified in Section 8.02(d) or Section 8.04 or upon receipt
of an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and Independent Certificates in accordance with TIA ss.ss.314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
SECTION 2.17. Special Terms Applicable to Subsequent Transfers
of Certain Notes. (a) Certain Series of Notes may not be registered under the
Securities Act, or the securities laws of any other jurisdiction. Consequently,
such Unregistered Notes shall not be transferable other than pursuant to an
exemption from the registration requirements of the Securities Act and
satisfaction of certain other provisions specified herein or in the related
Trustee's Issuance Certificate or Series Supplement, if any. Unless otherwise
provided in the related Trustee's Issuance Certificate or Series Supplement, if
any, no sale, pledge or other transfer of any Unregistered Note (or interest
therein) may be made by any Person unless either (i) such sale, pledge or other
transfer is made to a "qualified institutional buyer" (as defined under Rule
144A under the Securities Act) or to an "institutional accredited investor" (as
described in Rule 501(a)(l), (2), (3) or (7) under the Securities Act) and, if
so requested by CPL or the Indenture Trustee, such proposed transferee executes
and delivers a certificate to such effect in form and substance satisfactory to
the Indenture Trustee and the Note Issuer, or (ii) such sale, pledge or other
transfer is otherwise made in a transaction exempt from, or not subject to, the
registration requirements of the Securities Act, in which case (A) the Indenture
Trustee shall require that both the prospective transferor and the prospective
transferee certify to the Indenture Trustee and the Note Issuer in writing the
facts surrounding such transfer, which certification shall be in form and
substance satisfactory to the Indenture Trustee and the Note Issuer, and (B) the
Indenture Trustee shall require a written opinion of counsel (which shall not be
at the expense of the Note Issuer, the Servicer or the Indenture Trustee)
satisfactory to the Note Issuer and the Indenture Trustee to the effect that
such transfer will not violate the Securities Act. None of CPL, the Note Issuer,
the Indenture Trustee or the Servicer shall be obligated to register any
Unregistered Notes under the Securities Act, qualify any Unregistered Notes
under the securities laws of any state or provide registration rights to any
purchaser or holder thereof.
(b) Unless otherwise provided in the related Trustee's
Issuance Certificate or Series Supplement, if any, the Unregistered Notes may
not be acquired by or for the account of a Benefit Plan and, by accepting and
holding an Unregistered Note, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan and, if requested to do
so by the Note Issuer or the Indenture Trustee, the Holder of an Unregistered
Note shall execute and deliver to the Indenture Trustee a certificate to such
effect in form and substance satisfactory to the Indenture Trustee and the Note
Issuer.
(c) Unless otherwise provided in the related Trustee's
Issuance Certificate or Series Supplement, if any, Unregistered Notes shall be
issued in the form of Definitive Notes, shall be in fully registered form and
Sections 2.11 and 2.12 of this Indenture shall not apply thereto.
(d) Each Unregistered Note shall bear legends to the effect
set forth in subsections (a) and (b) (if subsection (b) is applicable) above.
SECTION 2.18. Tax Treatment. The Note Issuer and the Indenture
Trustee, by entering into this Indenture, and the Holders and any Persons
holding a beneficial interest in any Note, by acquiring any Note or interest
therein, (i) express their intention that, for the purposes of federal taxes
and, to the extent consistent with applicable state, local and other tax law,
for the purposes of state, local and other taxes, the Notes qualify under
applicable tax law as indebtedness of CPL secured by the Note Collateral and
(ii) agree to treat the Notes as indebtedness of CPL secured by the Note
Collateral, for the purposes of federal taxes and, to the extent consistent with
applicable state, local and other tax law, for the purposes of state, local and
other taxes, unless otherwise required by appropriate taxing authorities.
SECTION 2.19. State Pledge. Under the laws of the State of
Texas in effect on the Closing Date, the State of Texas has agreed for the
benefit of the Holders, pursuant to Section 39.310 of the Securitization
Law, as follows:
"Transition bonds are not a debt or obligation of the state and are not
a charge on its full faith and credit or taxing power. The state
pledges, however, for the benefit and protection of financing parties
and the electric utility, that it will not take or permit any action
that would impair the value of transition property, or, except as
permitted by Section 39.307, reduce, alter, or impair the transition
charges to be imposed, collected, and remitted to financing parties,
until the principal, interest and premium, and any other charges
incurred and contracts to be performed in connection with the related
transition bonds have been paid and performed in full. Any party
issuing transition bonds is authorized to include this pledge in any
documentation relating to those bonds."
ARTICLE III
Covenants
SECTION 3.01. Payment of Principal, Premium, if any, and
Interest. The principal of and premium, if any, and interest on the Notes will
be duly and punctually paid in accordance with the terms of the Notes and this
Indenture. Amounts properly withheld under the Code or other tax laws by any
Person from a payment to any Holder of interest or principal or premium, if any,
shall be considered as having been paid by the Note Issuer to such Holder for
all purposes of this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Note Issuer
will maintain in the Borough of Manhattan, the City of New York, an office or
agency at _______________ _____________________________, New York, New York
_____ where Notes may be surrendered for registration of transfer or exchange.
The Note Issuer hereby initially appoints the Indenture Trustee to serve as its
agent for the foregoing purposes. The Note Issuer will give prompt written
notice to the Indenture Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Note Issuer shall
fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders may be made at the
Corporate Trust Office of the Indenture Trustee, and the Note Issuer hereby
appoints the Indenture Trustee as its agent to receive all such surrenders.
SECTION 3.03. Money for Payments To Be Held in Trust. As
provided in Section 8.02(a), all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Collection Account pursuant to Section 8.02(d) shall be made on behalf of the
Note Issuer by the Indenture Trustee or by another Paying Agent, and no amounts
so withdrawn from the Collection Account for payments with respect to any Notes
shall be paid over to the Note Issuer except as provided in this Section and
Section 8.02.
The Note Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee an instrument
in which such Paying Agent shall agree with the Indenture Trustee (and if the
Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the
provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee written notice of any default
by the Note Issuer of which it has actual knowledge in the making of
any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time the Paying Agent determines that it has ceased to
meet the standards required to be met by a Paying Agent at the time of
such determination; and
(v) comply with all requirements of the Code and other tax
laws with respect to the withholding from any payments made by it on
any Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection
therewith.
The Note Issuer may at any time, for the purpose of obtaining
the satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Indenture
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Subject to applicable laws with respect to escheat of funds,
any money held by the Indenture Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Note Issuer on an Issuer Request; and, subject to
Section 11.16, the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Note Issuer for payment thereof (but only to the
extent of the amounts so paid to the Note Issuer), and all liability of the
Indenture Trustee or such Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that the Indenture Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense of
the Note Issuer, cause to be published once, in a newspaper published in the
English language, customarily published on each Business Day and of general
circulation in the City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Note Issuer. The Indenture Trustee may also
adopt and employ, at the expense of the Note Issuer, any other reasonable means
of notification of such repayment (including, but not limited to, mailing notice
of such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
SECTION 3.04. Existence. The Note Issuer will keep in full
effect its existence, rights and franchises as a limited liability company under
the laws of the State of Delaware (unless it becomes, or any successor Note
Issuer hereunder is or becomes, organized under the laws of any other State or
of the United States of America, in which case the Note Issuer will keep in full
effect its existence, rights and franchises under the laws of such other
jurisdiction) and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Indenture, the Notes, the Note
Collateral and each other instrument or agreement included in the Note
Collateral.
SECTION 3.05. Protection of Note Collateral The Note Issuer
will from time to time execute and deliver all such supplements and amendments
hereto and all filings with the PUCT or the Texas Secretary of State pursuant to
the Financing Order or to the Securitization Law and all financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the Lien and security interest (and
the priority thereof) of this Indenture or carry out more effectively
the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Note Collateral;
(iv) preserve and defend title to the Note Collateral and the
rights of the Indenture Trustee and the Holders in such Note Collateral
against the Claims of all Persons and parties, including the challenge
by any party to the validity or enforceability of any Financing Order,
any Tariff, the Transition Property or any proceeding relating thereto
and institute any action or proceeding necessary to compel performance
by the PUCT or the State of Texas of any of its obligations or duties
under the Securitization Law, the State Pledge, or any Financing Order;
or
(v) pay any and all taxes levied or assessed upon all or any
part of the Note Collateral.
The Note Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any filings with the PUCT or the Texas Secretary of
State, financing statements, continuation statements or other instrument
required by the Indenture Trustee pursuant to this Section, it being understood
that the Indenture Trustee shall have no such obligation or any duty to prepare
such documents.
SECTION 3.06. Opinions as to Note Collateral. (a) On the
Series Issuance Date for each Series (including the Closing Date), the Note
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of any filings with the PUCT pursuant to the Securitization
Law and the applicable Financing Order and any financing statements and
continuation statements, as are necessary to perfect and make effective the Lien
and security interest of this Indenture and reciting the details of such action,
or stating that, in the opinion of such counsel, no such action is necessary to
make such Lien and security interest effective.
(b) On or before [September 30] in each calendar year, while
any Series is outstanding, beginning on [September 30], ____, the Note Issuer
shall furnish to the Indenture Trustee an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any filings with the PUCT or the Texas
Secretary of State pursuant to the Securitization Law and the applicable
Financing Order and any financing statements and continuation statements as is
necessary to maintain the Lien created by this Indenture and reciting the
details of such action or stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any filings with the PUCT or the Texas Secretary of
State, financing statements and continuation statements that will, in the
opinion of such counsel, be required to maintain the Lien created by this
Indenture until [September 30] in the following calendar year.
(c) Prior to the effectiveness of any amendment to the Sale
Agreement, the Note Issuer shall furnish to the Indenture Trustee an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all filings,
including filings with the PUCT and the Texas Secretary of State pursuant to the
Securitization Law, or the applicable Financing Order, have been executed and
filed that are necessary fully to preserve and protect the interest of the Note
Issuer and the Indenture Trustee in the Transition Property and the proceeds
thereof, and reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or (B) stating that, in the opinion
of such counsel, no such action shall be necessary to preserve and protect such
interest.
SECTION 3.07. Performance of Obligations; Servicing; SEC
Filings. (a) The Note Issuer (i) will diligently pursue any and all actions to
enforce its rights under each instrument or agreement included in the Note
Collateral and (ii) will not take any action and will use its best efforts not
to permit any action to be taken by others that would release any Person from
any of such Person's covenants or obligations under any such instrument or
agreement or that would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity or effectiveness of, any
such instrument or agreement, except, in each case, as expressly provided in
this Indenture, any Trustee's Issuance Certificate, any Series Supplement, the
Sale Agreement, the Servicing Agreement or such other instrument or agreement.
(b) The Note Issuer may contract with other Persons to assist
it in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee herein or in an Officer's
Certificate of the Note Issuer shall be deemed to be action taken by the Note
Issuer. Initially, the Note Issuer has contracted with the Servicer to assist
the Note Issuer in performing its duties under this Indenture.
(c) The Note Issuer will punctually perform and observe all of
its obligations and agreements contained in this Indenture, the Basic Documents
and in the instruments and agreements included in the Note Collateral,
including, but not limited to, filing or causing to be filed all filings with
the PUCT pursuant to the Securitization Law or the Financing Order, all UCC
financing statements and continuation statements required to be filed by it by
the terms of this Indenture, the Sale Agreement and the Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
(d) If the Note Issuer shall have knowledge of the occurrence
of a Servicer Default under the Servicing Agreement, the Note Issuer shall
promptly give written notice thereof to the Indenture Trustee and the Rating
Agencies, and shall specify in such notice the response or action, if any, the
Note Issuer has taken or is taking with respect of such default. If a Servicer
Default shall arise from the failure of the Servicer to perform any of its
duties or obligations under the Servicing Agreement with respect to the
Transition Property or the Transition Charges, the Note Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of
termination to the Servicer and the Rating Agencies of the Servicer's rights and
powers pursuant to [Section 7.01] of the Servicing Agreement, the Note Issuer
shall appoint a successor Servicer (the "Successor Servicer"), and such
Successor Servicer shall accept its appointment by a written assumption in a
form acceptable to the Note Issuer and the Indenture Trustee. A Person shall
qualify as a Successor Servicer only if such Person satisfies the requirements
of the Servicing Agreement. If within 30 days after the delivery of the notice
referred to above, the Note Issuer shall not have obtained such a Successor
Servicer, the Indenture Trustee may petition the PUCT or a court of competent
jurisdiction to appoint a Successor Servicer. In connection with any such
appointment, CPL may make such arrangements for the compensation of such
Successor Servicer as it and such successor shall agree, subject to the
limitations set forth below and in the Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Servicing Agreement, the Indenture Trustee shall promptly notify
the Note Issuer, the Holders and the Rating Agencies. As soon as a Successor
Servicer is appointed, the Indenture Trustee shall notify the Note Issuer, the
Holders and the Rating Agencies of such appointment, specifying in such notice
the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the
assignment Granted to the Indenture Trustee under this Indenture or the rights
of the Indenture Trustee hereunder, the Note Issuer agrees that it will not,
without the prior written consent of the Indenture Trustee or the Holders of at
least a majority in Outstanding Amount of the Notes of all Series, amend,
modify, waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Note Collateral or the Basic Documents, or waive timely performance or
observance by or the Servicer under the Sale Agreement or the Servicing
Agreement, respectively; provided, that no such consent shall be required if (i)
the Indenture Trustee shall have received an Officer's Certificate stating that
such waiver, amendment, modification, supplement or termination shall not
adversely affect in any material respect the interests of the Holders and (ii)
the Rating Agency Condition shall have been satisfied with respect thereto. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Indenture Trustee or such Holders, the Note Issuer agrees to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as shall be necessary or appropriate in the
circumstances. The Note Issuer agrees that no such amendment, modification,
supplement or waiver shall adversely affect the rights of the Holders of the
Notes outstanding at the time of any such amendment, modification, supplement or
waiver.
(h) The Note Issuer shall file with the SEC such periodic
reports, if any, as are required from time to time under Section 13 or Section
15(d) of the Exchange Act.
(i) The Note Issuer shall make all filings required under the
Securitization Law relating to the transfer of the ownership or security
interest in the Transition Property other than those required to be made by CPL
pursuant to the Basic Documents.
SECTION 3.08. Certain Negative Covenants. (a) So long as
any Notes are Outstanding, the Note Issuer shall not:
(i) except as expressly permitted by this Indenture, sell,
transfer, exchange or otherwise dispose of any of the properties or
assets of the Note Issuer, including those included in the Note
Collateral, unless directed to do so by the Indenture Trustee in
accordance with Article V;
(ii) claim any credit on, or make any deduction from the
principal or premium, if any, or interest payable in respect of, the
Notes (other than amounts properly withheld from such payments under
the Code or other tax laws) or assert any claim against any present or
former Holder by reason of the payment of the taxes levied or assessed
upon any part of the Note Collateral;
(iii) terminate its existence or dissolve or liquidate in
whole or in part, except in a transaction permitted by Section 3.10; or
(iv) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the Lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any Lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the Lien of this
Indenture), to be created on or extend to or otherwise arise upon or
burden the Note Collateral or any part thereof or any interest therein
or the proceeds thereof (other than tax Liens arising by operation of
law with respect to amounts not yet due) or (C) permit the Lien of this
Indenture not to constitute a valid first priority security interest in
the Note Collateral; or
(v) elect to be classified as an association taxable as a
corporation for federal income tax purposes.
SECTION 3.09. Annual Statement as to Compliance. The Note
Issuer will deliver to the Indenture Trustee and the Rating Agencies not later
than [September 30] of each year (commencing with [September 30, ____]), an
Officer's Certificate stating, as to the Responsible Officer signing such
Officer's Certificate, that
(i) a review of the activities of the Note Issuer during the
preceding twelve months ended [June 30] (or, in the case of the first
such certificate, since the Series Issuance Date) and of performance
under this Indenture has been made; and
(ii) to the best of such Responsible Officer's knowledge,
based on such review, the Note Issuer has in all material respects
complied with all conditions and covenants under this Indenture
throughout such twelve month period, or, if there has been a default in
the compliance of any such condition or covenant, specifying each such
default known to such Responsible Officer and the nature and status
thereof.
SECTION 3.10. Note Issuer May Consolidate, etc., Only on
Certain Terms. (a) The Note Issuer shall not consolidate or merge with or
into any other Person, unless
(i) the Person (if other than the Note Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any State
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form and substance
satisfactory to the Indenture Trustee, the performance or observance of
every agreement and covenant of this Indenture on the part of the Note
Issuer to be performed or observed, all as provided herein and in the
applicable Trustee's Issuance Certificates and Series Supplements, if
any;
(ii) immediately after giving effect to such merger or
consolidation, no Default or Event of Default shall have occurred and
be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such merger or consolidation;
(iv) CPL shall have delivered to the Note Issuer and the
Indenture Trustee an opinion of outside tax counsel (as selected by,
and in form and substance reasonably satisfactory to, CPL, and which
may be based on a ruling from the Internal Revenue Service) to the
effect that such consolidation or merger will not result in a material
adverse federal income tax consequence to CPL, the Note Issuer, the
Indenture Trustee or the then existing Holders;
(v) any action as is necessary to maintain the Lien created by
this Indenture shall have been taken; and
(vi) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Section 3.10(a) and that all conditions precedent
herein provided for in this Section 3.10(a) with respect to such
transaction have been complied with (including any filing required by
the Exchange Act).
(b) Except as specifically provided herein, the Note Issuer shall not
sell, convey, exchange, transfer or otherwise dispose of any of its properties
or assets included in the Note Collateral, to any Person, unless
(i) the Person that acquires the properties and assets of the
Note Issuer, the conveyance or transfer of which is hereby restricted
shall (A) be a United States citizen or a Person organized and existing
under the laws of the United States of America or any State, (B)
expressly assumes, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form and substance satisfactory
to the Indenture Trustee, the performance or observance of every
agreement and covenant of this Indenture on the part of the Note Issuer
to be performed or observed, all as provided herein and in the
applicable Trustee's Issuance Certificates or Series Supplements, if
any, (C) expressly agrees by means of such supplemental indenture that
all right, title and interest so sold, conveyed, exchanged, transferred
or otherwise disposed of shall be subject and subordinate to the rights
of Holders, (D) unless otherwise provided in the supplemental indenture
referred to in clause (B) above, expressly agrees to indemnify, defend
and hold harmless the Note Issuer against and from any loss, liability
or expense arising under or related to this Indenture and the Notes and
(E) expressly agrees by means of such supplemental indenture that such
Person (or if a group of Persons, then one specified Person) shall make
all filings with the SEC (and any other appropriate Person) required by
the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) CPL shall have delivered to the Note Issuer and the
Indenture Trustee an opinion of outside tax counsel (as selected by,
and in form and substance reasonably satisfactory to, CPL, and which
may be based on a ruling from the Internal Revenue Service) to the
effect that such transaction will not result in a material adverse
federal income tax consequence to CPL, the Note Issuer, the Indenture
Trustee or the then existing Holders;
(v) any action as is necessary to maintain the Lien and
security interest created by this Indenture pursuant to the Financing
Order or the Securitization Law shall have been taken; and
(vi) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such sale, conveyance, exchange, transfer or other disposition and
such supplemental indenture comply with this Section 3.10(b) and that
all conditions precedent herein provided for in this Section 3.10(b)
with respect to such transaction have been complied with (including any
filing required by the Exchange Act).
SECTION 3.11. Successor or Transferee. (a) Upon any
consolidation or merger of the Note Issuer in accordance with Section 3.10(a),
the Person formed by or surviving such consolidation or merger (if other than
the Note Issuer) shall succeed to, and be substituted for, and may exercise
every right and power of, the Note Issuer under this Indenture with the same
effect as if such Person had been named as the Note Issuer herein.
(b) Except as set forth in Section 6.07, upon a sale,
conveyance, exchange, transfer or other disposition of all the assets and
properties of the Note Issuer pursuant to Section 3.10(b), the Note Issuer will
be released from every covenant and agreement of this Indenture and the other
Basic Documents to be observed or performed on the part of the Note Issuer with
respect to the Notes and the Transition Property immediately upon the delivery
of written notice to the Indenture Trustee from the Person acquiring such assets
and properties stating that the Note Issuer is to be so released.
SECTION 3.12. No Other Business. The Note Issuer shall not
engage in any business other than financing, purchasing, owning and managing the
Transition Property and the other Note Collateral and the issuance of the Notes
in the manner contemplated by the Financing Order and this Indenture and the
Basic Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Note Issuer shall not issue,
incur, assume, guarantee or otherwise become liable, directly or indirectly, for
any indebtedness except for the Notes or any Swap Agreement.
SECTION 3.14. Servicer's Obligations. The Note Issuer
shall enforce the Servicer's compliance with and performance of all of the
Servicer's material obligations under the Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities. Except as otherwise contemplated by the Sale Agreement, the
Servicing Agreement, any Swap Agreement or this Indenture, the Note Issuer shall
not make any loan or advance or credit to, or guarantee (directly or indirectly
or by an instrument having the effect of assuring another's payment or
performance on any obligation or capability of so doing or otherwise), endorse
or otherwise become contingently liable, directly or indirectly, 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.
SECTION 3.16. Capital Expenditures. Other than the purchase of
Transition Property from CPL on each Series Issuance Date and other than
expenditures made out of available funds in an aggregate amount not to exceed
$25,000 in any calendar year, the Note Issuer shall not make any expenditure (by
long-term or operating lease or otherwise) for capital assets (either realty or
personalty).
SECTION 3.17. Restricted Payments. The Note Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to any owner of a beneficial interest in the Note Issuer or
otherwise with respect to any ownership or equity interest or similar security
in or of the Note Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or similar security or (iii) set
aside or otherwise segregate any amounts for any such purpose; provided,
however, that, if no Event of Default shall have occurred and be continuing, the
Note Issuer may make, or cause to be made, any such distributions to any owner
of a beneficial interest in the Note Issuer or otherwise with respect to any
ownership or equity interest or similar security in or of the Note Issuer using
funds distributed to the Note Issuer pursuant to Section 8.02(d) to the extent
that such distributions would not cause the book value of the remaining equity
in the Note Issuer to decline below 0.5 percent of the original principal amount
of all Series of Notes which remain outstanding. The Note Issuer will not,
directly or indirectly, make payments to or distributions from the Collection
Account except in accordance with this Indenture and the other Basic Documents.
SECTION 3.18. Notice of Events of Default. The Note Issuer
agrees to give the Indenture Trustee and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of CPL or
the Servicer of its obligations under the Sale Agreement or the Servicing
Agreement, respectively.
SECTION 3.19. Further Instruments and Acts. Upon request of
the Indenture Trustee, the Note Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
SECTION 3.20. Purchase of Subsequent Transition Property. (a)
The Note Issuer may from time to time purchase Subsequent Transition Property
from CPL pursuant to the Sale Agreement, subject to the conditions specified in
paragraph (b) below.
(b) The Note Issuer shall be permitted to purchase from CPL
Subsequent Transition Property and the proceeds thereof only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:
(i) CPL shall have provided the Note Issuer, the Indenture
Trustee and the Rating Agencies with an Addition Notice, which shall be
given not later than 10 days prior to the related Subsequent Transfer
Date, specifying the Subsequent Transfer Date for such Subsequent
Transition Property and the aggregate amount of the Transition Charges
related to such Subsequent Transition Property, and shall have provided
any information reasonably requested by any of the foregoing Persons
with respect to the Subsequent Transition Property then being conveyed
to the Note Issuer;
(ii) the Securitization Law, the Sale Agreement and the
related Financing Order shall be in full force and effect and a filing
shall have been made pursuant to Section 39.309(D) of the
Securitization Law;
(iii) as of such Subsequent Transfer Date, CPL was not
insolvent and will not have been made insolvent by such sale and
transfer and CPL is not aware of any pending insolvency with respect to
itself;
(iv) the Rating Agency Condition shall have been satisfied
with respect to such sale and transfer;
(v) CPL shall have delivered to the Note Issuer and the
Indenture Trustee an opinion of outside tax counsel and/or a ruling
from the Internal Revenue Service (as selected by, and in form and
substance reasonably satisfactory to, CPL) to the effect that, for
federal income tax purposes (i) the PUCT's issuance of the Financing
Order authorizing the collection of the TCs will not result in gross
income to CPL and the Notes will be obligations of CPL, and (ii) the
assignment pursuant to the Sale Agreement will not adversely affect the
characterization of the then Outstanding Notes as obligations of CPL;
(vi) as of such Subsequent Transfer Date, no breach by CPL of
its representations, warranties or covenants in the Sale Agreement and
no Servicer Default shall exist;
(vii) as of such Subsequent Transfer Date, the Note Issuer
shall have sufficient funds available to pay the purchase price for the
Subsequent Transition Property to be conveyed on such date and all
conditions to the issuance of one or more Series of Notes intended to
provide such funds set forth in Section 2.10 of this Indenture shall
have been satisfied;
(viii) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (b);
(ix) (A) the Note Issuer shall have delivered to the Rating
Agencies any Opinions of Counsel requested by the Rating Agencies and
(B) the Note Issuer shall have delivered to the Indenture Trustee the
Opinion of Counsel required by Section 3.06(c) of this Indenture; and
(x) CPL and the Note Issuer shall have taken any action
required to maintain the first perfected ownership interest of the Note
Issuer in the Subsequent Transition Property and the proceeds thereof,
and the Note Issuer shall have taken any action required to maintain
the first perfected security interest of the Indenture Trustee in the
Subsequent Transition Property and the proceeds thereof.
ARTICLE IV
Satisfaction and Discharge; Defeasance
SECTION 4.01. Satisfaction and Discharge of Indenture;
Defeasance. (a) This Indenture shall cease to be of further effect with respect
to the Notes of any Series and the Indenture Trustee, on reasonable demand of
and at the expense of the Note Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes of such Series, when
(A) either
(1) all Notes of such Series theretofore
authenticated and delivered (other than (i) Notes that have
been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.06 and (ii) Notes for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Note Issuer and thereafter
repaid to the Note Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Indenture
Trustee for cancellation; or
(2) either (x) the Scheduled Payment Date has
occurred with respect to all Notes of such Series not
theretofore delivered to the Indenture Trustee for
cancellation, (y) such Notes will be due and payable on their
respective Scheduled Payment Dates within one year, or (z)
such Notes are to be called for redemption within one year in
accordance with the provisions of the applicable Trustee's
Issuance Certificate or Series Supplement, if any, and in any
such case, the Note Issuer has irrevocably deposited or caused
to be irrevocably deposited with the Indenture Trustee cash,
in trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for
cancellation when due;
(B) the Note Issuer has paid or caused to be paid all other
sums payable hereunder by the Note Issuer with respect to such Series;
and
(C) the Note Issuer has delivered to the Indenture Trustee an
Officer's Certificate, an Opinion of Counsel and (if required by the
TIA or the Indenture Trustee) an Independent Certificate from a firm of
certified public accountants, each meeting the applicable requirements
of Section 11.01(a) and each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture with respect to Notes of such Series have been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Note Issuer at
any time may terminate (i) all its obligations under this Indenture with respect
to the Notes of any Series ("Legal Defeasance Option") or (ii) its obligations
under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15,
3.16, 3.17, 3.18 and 3.19 and the operation of Section 5.01(iv) ("Covenant
Defeasance Option") with respect to any Series of Notes. The Note Issuer may
exercise the Legal Defeasance Option with respect to any Series of Notes
notwithstanding its prior exercise of the Covenant Defeasance Option with
respect to such Series.
If the Note Issuer exercises the Legal Defeasance Option with
respect to any Series, the maturity of the Notes of such Series may not be
accelerated because of an Event of Default. If the Note Issuer exercises the
Covenant Defeasance Option with respect to any Series, the maturity of the Notes
of such Series may not be accelerated because of an Event of Default specified
in Section 5.01(iv).
Upon satisfaction of the conditions set forth herein to the
exercise of the Legal Defeasance Option or the Covenant Defeasance Option with
respect to any Series of Notes, the Indenture Trustee, on reasonable demand of
and at the expense of the Note Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of the obligations that are terminated
pursuant to such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Holders to receive payments of
principal, premium, if any, and interest, (iv) Sections 4.03 and 4.04, (v) the
rights, obligations and immunities of the Indenture Trustee hereunder (including
the rights of the Indenture Trustee under Section 6.07 and the obligations of
the Indenture Trustee under Section 4.03) and (vi) the rights of Holders as
beneficiaries hereof with respect to the property deposited with the Indenture
Trustee payable to all or any of them, shall survive until the Notes of the
Series as to which this Indenture or certain obligations hereunder have be
satisfied and discharged pursuant to Section 4.01(a) or 4.01(b) have been paid
in full. Thereafter the obligations in Sections 6.07 and 4.04 with respect to
such Series shall survive.
SECTION 4.02. Conditions to Defeasance. The Note Issuer may
exercise the Legal Defeasance Option or the Covenant Defeasance Option with
respect to any Series of Notes only if:
(a) the Note Issuer irrevocably deposits or causes to be
deposited in trust with the Indenture Trustee cash or U.S. Government
Obligations for the payment of principal of and premium, if any, and
interest on such Notes to the Scheduled Payment Dates or Optional
Redemption Date therefor, as applicable;
(b) the Note Issuer delivers to the Indenture Trustee a
certificate from a nationally recognized firm of Independent
accountants expressing its opinion that the payments of principal and
interest when due and without reinvestment of the deposited U.S.
Government Obligations plus any deposited cash without investment will
provide cash at such times and in such amounts (but, in the case of the
Legal Defeasance Option only, not more than such amounts) as will be
sufficient to pay in respect of the Notes of such Series (i) subject to
clause (ii), principal in accordance with the Expected Amortization
Schedule therefor, (ii) if such Series is to be redeemed, the Optional
Redemption Price therefor on the Optional Redemption Date and (iii)
interest when due;
(c) in the case of the Legal Defeasance Option, 91 days pass
after the deposit is made and during the 91-day period no Default
specified in Section 5.01(vi) or (vii) occurs which is continuing at
the end of the period;
(d) no Default has occurred and is continuing on the day of
such deposit and after giving effect thereto;
(e) in the case of an exercise of the Legal Defeasance Option,
the Note Issuer shall have delivered to the Indenture Trustee an
Opinion of Counsel stating that (i) the Note Issuer has received from,
or there has been published by, the Internal Revenue Service a ruling,
or (ii) since the date of execution of this Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the Notes of such Series will not recognize income, gain or
loss for federal income tax purposes as a result of such legal
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred;
(f) in the case of an exercise of the Covenant Defeasance
Option, the Note Issuer shall have delivered to the Indenture Trustee
an Opinion of Counsel to the effect that the Holders of the Notes of
such Series will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred;
(g) the Note Issuer delivers to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the satisfaction and discharge of the Notes of
such Series to the extent contemplated by this Article IV have been
complied with; and
(h) the Rating Agency Condition shall have been satisfied with
respect to the exercise of any Legal Defeasance Option or Covenant
Defeasance Option.
Before or after a deposit pursuant to this Section 4.02 with
respect to any Series of Notes, the Note Issuer may make arrangements
satisfactory to the Indenture Trustee for the redemption of such Notes at a
future date in accordance with Article X.
SECTION 4.03. Application of Trust Money. All moneys or U.S.
Government Obligations deposited with the Indenture Trustee pursuant to Section
4.01 or 4.02 hereof shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent, as the Indenture Trustee may determine, to the
Holders of the particular Notes for the payment or redemption of which such
moneys have been deposited with the Indenture Trustee, of all sums due and to
become due thereon for principal, premium, if any, and interest; but such moneys
need not be segregated from other funds except to the extent required herein or
in the Servicing Agreement or required by law.
SECTION 4.04. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture or the Covenant
Defeasance Option or Legal Defeasance Option with respect to the Notes of any
Series, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Note Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default" with respect to any
Series, wherever used herein, means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for a
period of five Business Days; or
(ii) default in the payment of the then unpaid principal of
any Note of any Series on the Final Maturity Date for such Series; or
(iii) default in the payment of the Optional Redemption Price
for any Note on the Optional Redemption Date therefor; or
(iv) default in the observance or performance in any material
respect of any covenant or agreement of the Note Issuer made in this
Indenture (other than defaults specified in clauses (i), (ii) or (iii)
above), and such default shall continue or not be cured, for a period
of 90 days after there shall have been given, by registered or
certified mail, to the Note Issuer by the Indenture Trustee or to the
Note Issuer and the Indenture Trustee by the Holders of at least 33
percent of the Outstanding Amount of the Notes of such Series, a
written notice specifying such default and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(v) any representation or warranty of the Note Issuer made in
this Indenture or in any certificate or other writing delivered
pursuant hereto or in connection herewith proving to have been
incorrect in any material respect as of the time when the same shall
have been made, and the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 90 days after there
shall have been given, by registered or certified mail, to the Note
Issuer by the Indenture Trustee or to the Note Issuer and the Indenture
Trustee by the Holders of at least 33 percent of the Outstanding Amount
of the Notes of such Series, a written notice specifying such incorrect
representation or warranty and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder, or
(vi) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Note Issuer or
any substantial part of the Note Collateral in an involuntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Note Issuer or for any substantial part of the Note
Collateral, or ordering the winding-up or liquidation of the Note
Issuer's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(vii) the commencement by the Note Issuer of a voluntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Note
Issuer to the entry of an order for relief in an involuntary case under
any such law, or the consent by the Note Issuer to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Note Issuer or for any
substantial part of the Note Collateral, or the making by the Note
Issuer of any general assignment for the benefit of creditors, or the
failure by the Note Issuer generally to pay its debts as such debts
become due, or the taking of action by the Note Issuer in furtherance
of any of the foregoing; or
(viii) any act or failure to act by the State of Texas or any
of its agencies (including the PUCT), officers or employees which
violates or is not in accordance with the State Pledge; or
(ix) any other event designated as such in a Trustee's
Issuance Certificate or Series Supplement, if any.
The Note Issuer shall deliver to a Responsible Officer of the
Indenture Trustee and to the Rating Agencies, within five days after a
Responsible Officer of the Note Issuer has knowledge of the occurrence thereof,
written notice in the form of an Officer's Certificate of any event (i) which is
an Event of Default under clauses (i), (ii), (iii), (vi), (vii), (viii) or (ix)
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iv) or (v), including, in each case, the status of such
Event of Default and what action the Note Issuer is taking or proposes to take
with respect thereto.
.......SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default under clause
(viii) of Section 5.01) should occur and be continuing with respect to any
Series, then and in every such case the Indenture Trustee or the Holders
representing not less than a majority of the Outstanding Amount of the Notes of
all Series may declare all the Notes to be immediately due and payable, by a
notice in writing to the Note Issuer (and to the Indenture Trustee if given by
Holders), and upon any such declaration the unpaid principal amount of the Notes
of all Series, together with accrued and unpaid interest thereon through the
date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Indenture Trustee as hereinafter in this Article V
provided, the Holders representing a majority of the Outstanding Amount of the
Notes of all Series, by written notice to the Note Issuer and the Indenture
Trustee, may rescind and annul such declaration and its consequences if:
(i) the Note Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and premium, if any,
and interest on all Notes of all Series and all other amounts
that would then be due hereunder or upon such Notes if the
Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
(ii) all Events of Default with respect to all Series, other
than the nonpayment of the principal of the Notes of all Series that
has become due solely by such acceleration, have been cured or waived
as provided in Section 5.12.
No such rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee. (a) If an Event of Default under Section
5.01(i), (ii) or (iii) has occurred and is continuing with respect to any
Series, subject to Section 11.18, the Indenture Trustee, in its own name and as
trustee of an express trust, may institute a Proceeding for the collection of
the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and, subject to the limitations on recourse set forth herein, may
enforce the same and collect in the manner provided by law out of the Note
Collateral and the proceeds thereof, the whole amount then due and payable on
the Notes of such Series for principal, premium, if any, and interest, with
interest upon the overdue principal and premium, if any, and, to the extent
payment at such rate of interest shall be legally enforceable, upon overdue
installments of interest, at the respective rate borne by the Notes of such
Series or the applicable Class of such Series and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) If an Event of Default (other than Event of Default under
clause (viii) of Section 5.01) occurs and is continuing with respect to any
Series, the Indenture Trustee may, as more particularly provided in Section
5.04, in its discretion, proceed to protect and enforce its rights and the
rights of the Holders of such Series, by such appropriate Proceedings as the
Indenture Trustee shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(c) If an Event of Default under Section 5.01(vi) or (vii) has
occurred and is continuing, the Indenture Trustee, irrespective of whether the
principal of any Notes of any Series shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Indenture Trustee shall have made any demand pursuant to the provisions of this
Section, shall be entitled and empowered, by intervention in any Proceedings
related to such Event of Default or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal, premium, if any, and interest owing and unpaid in respect
of the Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Indenture
Trustee (including any claim for reasonable compensation to the
Indenture Trustee and each predecessor Indenture Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the
Indenture Trustee and each predecessor Indenture Trustee, except as a
result of negligence or bad faith) and of the Holders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders in any election of a trustee in
bankruptcy, a standby trustee or Person performing similar functions in
any such Proceedings; and
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Holders and of the Indenture
Trustee on their behalf;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Holders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Holders, to pay to the
Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(d) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Holder in
any such proceeding except, as aforesaid, to vote for the election of a trustee
in bankruptcy or similar Person.
(e) All rights of action and of asserting claims under this
Indenture, or under any of the Notes of any Series, may be enforced by the
Indenture Trustee without the possession of any of the Notes of such Series or
the production thereof in any trial or other Proceedings relative thereto, and
any such action or proceedings instituted by the Indenture Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and compensation
of the Indenture Trustee, each predecessor Indenture Trustee and their
respective agents and attorneys, shall be for the ratable benefit of the Holders
of the Notes of such Series.
(f) In any Proceedings brought by the Indenture Trustee (and
also any Proceedings involving the interpretation of any provision of this
Indenture to which the Indenture Trustee shall be a party), the Indenture
Trustee shall be held to represent all the Holders of the Notes, and it shall
not be necessary to make any Holder a party to any such Proceedings.
SECTION 5.04. Remedies; Priorities. (a) If an Event of Default
(other than an Event of Default under clause (viii) of Section 5.01) shall have
occurred and be continuing with respect to a Series, the Indenture Trustee may
do one or more of the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes of such Series or under this Indenture with respect thereto,
whether by declaration of acceleration or otherwise, and, subject to
the limitations on recovery set forth herein, enforce any judgment
obtained, and collect moneys adjudged due upon such Notes;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Note
Collateral;
(iii) exercise any remedies of a secured party under the UCC
or the Securitization Law and take any other appropriate action to
protect and enforce the rights and remedies of the Indenture Trustee
and the Holders of the Notes of such Series; and
(iv) sell the Note Collateral or any portion thereof or rights
or interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate any portion of the Note Collateral following such an Event of Default,
other than an Event of Default described in Section 5.01(i), (ii) or (iii), with
respect to any Series unless (A) the Holders of 100 percent of the Outstanding
Amount of the Notes of all Series consent thereto, (B) the proceeds of such sale
or liquidation distributable to the Holders of all Series are sufficient to
discharge in full all amounts then due and unpaid upon such Notes for principal,
premium, if any, and interest after taking into account payment of all amounts
due prior thereto pursuant to the priorities set forth in Section 8.02(d) or (C)
the Indenture Trustee determines that the Note Collateral will not continue to
provide sufficient funds for all payments on the Notes of all Series as they
would have become due if the Notes had not been declared due and payable, and
the Indenture Trustee obtains the consent of Holders of 66-2/3 percent of the
Outstanding Amount of the Notes of all Series. In determining such sufficiency
or insufficiency with respect to clause (B) and (C), the Indenture Trustee may,
but need not, obtain and conclusively rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Note
Collateral for such purpose.
(b) If an Event of Default under clause (viii) of Section 5.01
shall have occurred and be continuing, the Indenture Trustee, for the benefit of
the Holders, shall be entitled and empowered to the extent permitted by
applicable law, to institute or participate in Proceedings reasonably necessary
to compel performance of or to enforce the State Pledge and to collect any
monetary damages incurred by the Holders or the Indenture Trustee as a result of
any such Event of Default, and may prosecute any such Proceeding to final
judgment or decree.
(c) If the Indenture Trustee collects any money pursuant to
this Article V, it shall pay out such money in accordance with the priorities
set forth in Section 8.02(d).
SECTION 5.05. Optional Preservation of the Note Collateral. If
the Notes of all Series have been declared to be due and payable under Section
5.02 following an Event of Default and such declaration and its consequences
have not been rescinded and annulled, the Indenture Trustee may, but need not,
elect to maintain possession of the Note Collateral. It is the desire of the
parties hereto and the Holders that there be at all times sufficient funds for
the payment of principal of and premium, if any, and interest on the Notes, and
the Indenture Trustee shall take such desire into account when determining
whether or not to maintain possession of the Note Collateral. In determining
whether to maintain possession of the Note Collateral, the Indenture Trustee
may, but need not, obtain and conclusively rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Note
Collateral for such purpose.
SECTION 5.06. Limitation of Suits. No Holder of any Note of
any Series shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(i) such Holder previously has given written notice to the
Indenture Trustee of a continuing Event of Default with respect to such
Series;
(ii) the Holders of not less than 33 percent of the
Outstanding Amount of the Notes of all Series have made written request
to the Indenture Trustee to institute such Proceeding in respect of
such Event of Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the Notes of all
Series;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided.
In the event the Indenture Trustee shall receive conflicting
or inconsistent requests and indemnity from two or more groups of Holders, each
representing less than a majority of the Outstanding Amount of the Notes of all
Series, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.07. Unconditional Rights of Holders To Receive
Principal, Premium, if any, and Interest. Notwithstanding any other provisions
in this Indenture, the Holder of any Note shall have the right, which is
absolute and unconditional, (a) to receive payment of (i) the interest, if any,
on such Note on the due dates thereof expressed in such Note or in this
Indenture, (ii) the unpaid principal, if any, of such Notes on the Final
Maturity Date therefor or (iii) in the case of redemption, receive payment of
the unpaid principal and premium, if any, and interest, if any, on such Note on
the Optional Redemption Date therefor and (b) to institute suit for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Holder.
SECTION 5.08. Restoration of Rights and Remedies. If the
Indenture Trustee or any Holder has instituted any Proceeding to enforce any
right or remedy under this Indenture and such Proceeding has been discontinued
or abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Holder, then and in every such case the Note Issuer, the
Indenture Trustee and the Holders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the Holders shall continue as though no such Proceeding had been instituted.
SECTION 5.09. Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Indenture Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.10. Delay or Omission Not a Waiver. No delay or
omission of the Indenture Trustee or any Holder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Indenture Trustee or by the
Holders, as the case may be.
SECTION 5.11. Control by Holders. The Holders of a majority of
the Outstanding Amount of the Notes of all Series (or, if less than all Series
or Classes are affected, the affected Series or Class or Classes) shall have the
right to direct the time, method and place of conducting any Proceeding for any
remedy available to the Indenture Trustee with respect to the Notes of such
Series or Class or Classes or exercising any trust or power conferred on the
Indenture Trustee with respect to such Series or Class or Classes; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Note
Collateral shall be by the Holders of Notes representing not less than
100 percent of the Outstanding Amount of the Notes of all Series;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Note
Collateral pursuant to such Section, then any direction to the
Indenture Trustee by Holders representing less than 100 percent of the
Outstanding Amount of the Notes of all Series to sell or liquidate the
Note Collateral shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
provided, however, that, the Indenture Trustee's duties shall be subject to
Section 6.01, and the Indenture Trustee need not take any action that it
determines might involve it in liability or might materially adversely affect
the rights of any Holders not consenting to such action.
SECTION 5.12. Waiver of Past Defaults. Prior to the
declaration of the acceleration of the maturity of the Notes of all Series as
provided in Section 5.02, the Holders of Notes representing not less than a
majority of the Outstanding Amount of the Notes of all Series may waive any past
Default or Event of Default and its consequences except a Default (a) in payment
of principal of or premium, if any, or interest on any of the Notes or (b) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note of all Series or Classes
affected. In the case of any such waiver, the Note Issuer, the Indenture Trustee
and the Holders shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
SECTION 5.13. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Note by such Holder's acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Indenture Trustee for any action taken, suffered or omitted
by it as Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Holder, or group of Holders,
in each case holding in the aggregate more than 10 percent of the Outstanding
Amount of the Notes of a Series or (c) any suit instituted by any Holder for the
enforcement of the payment of (i) interest on any Note on or after the due dates
expressed in such Note and in this Indenture, (ii) the unpaid principal, if any,
of any Note on or after the Final Maturity Date therefor or (iii) in the case of
redemption, the unpaid principal of and premium, if any, and interest on any
Note on or after the Optional Redemption Date therefor.
SECTION 5.14. Waiver of Stay or Extension Laws. The Note
Issuer covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Note Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Indenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.15. Action on Notes. The Indenture Trustee's right
to seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the Lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the Holders shall be impaired by
the recovery of any judgment by the Indenture Trustee against the Note Issuer or
by the levy of any execution under such judgment upon any portion of the Note
Collateral or any other assets of the Note Issuer.
SECTION 5.16. Performance and Enforcement of Certain
Obligations. (a) Promptly following a request from the Indenture Trustee to do
so and at the Note Issuer's expense, the Note Issuer agrees to take all such
lawful action as the Indenture Trustee may request to compel or secure the
performance and observance by CPL and the Servicer, as applicable, of each of
their obligations to the Note Issuer under or in connection with the Sale
Agreement and the Servicing Agreement, respectively, in accordance with the
terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Note Issuer under or in connection with any
such agreements, respectively, to the extent and in the manner directed by the
Indenture Trustee, including the transmission of notices of default on the part
of CPL or the Servicer thereunder and the institution of legal or administrative
actions or proceedings to compel or secure performance by CPL or the Servicer of
each of their respective obligations under the Sale Agreement and the Servicing
Agreement, respectively.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and, at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3 percent of the Outstanding Amount of the Notes of all Series
shall, subject to Article VI, exercise all rights, remedies, powers, privileges
and claims of the Note Issuer against CPL or the Servicer under or in connection
with the Sale Agreement and the Servicing Agreement, respectively, including the
right or power to take any action to compel or secure performance or observance
by CPL or the Servicer of each of their obligations to the Note Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale Agreement or the Servicing Agreement,
respectively, and any right of the Note Issuer to take such action shall be
suspended.
ARTICLE VI
The Indenture Trustee
SECTION 6.01. Duties of Indenture Trustee. (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability
for its own negligent action, its own bad faith, its own negligent failure to
act or its own wilful misconduct, except that:
(i) this paragraph (c) does not limit the effect of
paragraph
(b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates
to the Indenture Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on
any money received by it except as the Indenture Trustee may agree in writing
with the Note Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture, the Sale Agreement and the Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or indemnity satisfactory to it against such risk or
liability is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
(i) In the event that the Indenture Trustee is also acting as
Paying Agent or Note Registrar hereunder, the protections of this Article VI
shall also be afforded to the Indenture Trustee in its capacity as Paying Agent
or Note Registrar.
(j) Except as expressly set forth in the Basic Documents, the
Indenture Trustee shall have no obligation to administer, service or collect
Transition Property or to maintain, monitor or otherwise supervise the
administration, servicing or collection of the Transition Property.
SECTION 6.02. Rights of Indenture Trustee. (a) The Indenture
Trustee may conclusively rely and shall be fully protected in relying on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Indenture Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting,
it may require and shall be entitled to receive an Officer's Certificate or an
Opinion of Counsel that such action is required or permitted hereunder. The
Indenture Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee, and the Indenture Trustee
shall not be responsible for any misconduct or negligence on the part of, or for
the supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action
it takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that the Indenture Trustee's
conduct does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 6.03. Individual Rights of Indenture Trustee. The
Indenture Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Note Issuer or its
affiliates with the same rights it would have if it were not Indenture Trustee.
Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the
same with like rights. However, the Indenture Trustee must comply with Sections
6.11 and 6.12.
SECTION 6.04. Indenture Trustee's Disclaimer. The Indenture
Trustee shall not be responsible for and makes no representation as to the
validity or adequacy of this Indenture or the Notes, it shall not be accountable
for the Note Issuer's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Note Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.
SECTION 6.05. Notice of Defaults. If a Default occurs and is
continuing with respect to any Series and if it is actually known to a
Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail
to each Holder of Notes of all Series notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of and
premium, if any, or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Holders. Except as
provided in the first sentence of this Section 6.05, in no event shall the
Indenture Trustee be deemed to have knowledge of a Default.
SECTION 6.06. Reports by Indenture Trustee to Holders.
(a) So long as Notes are Outstanding and the Indenture Trustee
is the Note Registrar and Paying Agent, within the prescribed period of time for
tax reporting purposes after the end of each calendar year it shall deliver to
each relevant current or former Holder such information in its possession as may
be required to enable such Holder to prepare its federal income and any
applicable local or state tax returns.
(b) With respect to each Series of Notes, on or prior to each
Payment Date or Special Payment Date therefor, the Indenture Trustee will
deliver to each Holder of such Notes on such Payment Date or Special Payment
Date a statement as provided and prepared by the Servicer which will include (to
the extent applicable) the following information (and any other information so
specified in the applicable Trustee's Issuance Certificate or Series Supplement,
if any,) as to the Notes of such Series with respect to such Payment Date or
Special Payment Date or the period since the previous Payment Date, as
applicable:
(i) the amount of the payment to Holders allocable to
principal, if any;
(ii) the amount of the payment to Holders allocable to
interest;
(iii) the aggregate Outstanding Amount of such Notes, after
giving effect to any payments allocated to principal reported under (i)
above; and
(iv) the difference, if any, between the amount specified in
subsection (iii) above and the Outstanding Amount specified in the
related Expected Amortization Schedule.
(c) The Note Issuer shall send a copy of each of the
Certificate of Compliance delivered to it pursuant to Section 3.03 of the
Servicing Agreement and the Annual Accountant's Report delivered to it pursuant
to Section 3.04 of the Servicing Agreement to the Rating Agencies. A copy of
such certificate and report may be obtained by any Holder by a request in
writing to the Indenture Trustee.
SECTION 6.07. Compensation and Indemnity. The Note Issuer
shall pay to the Indenture Trustee from time to time reasonable compensation for
its services. The Indenture Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Note Issuer shall
reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Indenture Trustee's
agents, counsel, accountants and experts. The Note Issuer shall indemnify the
Indenture Trustee and its officers, directors, employees and agents against any
and all loss, liability or expense (including reasonable attorney's fees and
expenses) incurred by it in connection with the administration of this trust and
the performance of its duties hereunder. The Indenture Trustee shall notify the
Note Issuer as soon as is reasonably practicable of any claim for which it may
seek indemnity. Failure by the Indenture Trustee to so notify the Note Issuer
shall not relieve the Note Issuer of its obligations hereunder. The Note Issuer
shall defend the claim and the Indenture Trustee may have separate counsel and
the Note Issuer shall pay the reasonable fees and expenses of such counsel. The
Note Issuer need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own wilful misconduct, negligence or bad faith.
The payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture or the earlier
resignation or removal of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of a Default specified in Section 5.01(vi)
or (vii) with respect to the Note Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
SECTION 6.08. Replacement of Indenture Trustee. The Indenture
Trustee may resign at any time by so notifying the Note Issuer, provided that no
such resignation shall be effective until either (a) the Note Collateral has
been completely liquidated and the proceeds of the liquidation distributed to
the Holders or (b) a successor trustee having the qualifications set forth in
Section 6.11 has been designated and has accepted such trusteeship. The Holders
of a majority in Outstanding Amount of the Notes of all Series may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Note Issuer shall remove the Indenture Trustee
if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee gives notice of resignation or is
removed or if a vacancy exists in the office of Indenture Trustee for any reason
(the Indenture Trustee in such event being referred to herein as the retiring
Indenture Trustee), the Note Issuer shall promptly appoint a successor Indenture
Trustee.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee and to the Note
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to Holders.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within
60 days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Note Issuer or the Holders of a majority in Outstanding
Amount of the Notes of all Series may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11,
any Holder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee
pursuant to this Section, the Note Issuer's obligations under Section 6.07 shall
continue for the benefit of the retiring Indenture Trustee.
SECTION 6.09. Successor Indenture Trustee by Merger. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, however, that if such successor Indenture Trustee is not eligible
under Section 6.11, then the successor Indenture Trustee shall be replaced in
accordance with Section 6.08.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the trust created by this Indenture or the Note Collateral may at the time be
located, the Indenture Trustee shall have the power and may execute and deliver
all instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
trust created by this Indenture or the Note Collateral, and to vest in such
Person or Persons, in such capacity and for the benefit of the Holders, such
title to the Note Collateral, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Holders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Note Collateral
or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the
Indenture Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees, as effectively as if given to each of them.
Every instrument appointing any separate trustee or co-trustee shall refer to
this Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Indenture Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Indenture on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Indenture Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Indenture
Trustee shall at all times satisfy the requirements of TIA ss. 310(a)(1) and ss.
310(a)(5) [and Section 26(a)(1) of the Investment Company Act of 1940]. The
Indenture Trustee shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of condition
and it shall have a long term debt rating of A (or the equivalent thereof) or
better by all of the Rating Agencies from which a rating is available. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Note Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Note
Issuer, The Indenture Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). An Indenture Trustee who has
resigned or been removed shall be subject to TIA ss. 311(a) to the extent
indicated therein.
SECTION 6.13. Representations and Warranties of Indenture
Trustee. The Indenture Trustee hereby represents and warrants that:
(a) the Indenture Trustee is [a banking corporation validly
existing and in good standing under the laws of the State of New York]; and
(b) the Indenture Trustee has full power, authority and legal
right to execute, deliver and perform this Indenture and the Basic Documents to
which the Indenture Trustee is a party and has taken all necessary action to
authorize the execution, delivery, and performance by it of this Indenture and
such Basic Documents.
ARTICLE VII
Holders' Lists and Reports
SECTION 7.01. Note Issuer To Furnish Indenture Trustee Names
and Addresses of Holders. The Note Issuer will furnish or cause to be furnished
to the Indenture Trustee (a) not more than five days after the earlier of (i)
each Record Date with respect to each Series and (ii) six months after the last
Record Date with respect to each Series, a list, in such form as the Indenture
Trustee may reasonably require, of the names and addresses of the Holders of
Notes of such Series as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Note Issuer of any such request, a list of similar form and content as of a date
not more than 10 days prior to the time such list is furnished; provided,
however, that so long as the Indenture Trustee is the Note Registrar, no such
list shall be required to be furnished.
SECTION 7.02. Preservation of Information; Communications to
Holders. (a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.01
and the names and addresses of Holders received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.01 upon receipt of a new list so furnished.
(b) Holders may communicate pursuant to TIA ss. 312(b) with
other Holders with respect to their rights under this Indenture or under the
Notes.
(c) The Note Issuer, the Indenture Trustee and the Note
Registrar shall have the protection of TIA ss. 312(c).
SECTION 7.03. Reports by Note Issuer. (a) The Note Issuer
shall:
(i) so long as the Note Issuer is required to file such
documents with the SEC, provide to the Indenture Trustee, within 15
days after the Note Issuer is required to file the same with the SEC,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the SEC may from time to time by rules and regulations prescribe) which
the Note Issuer may be required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act;
(ii) provide to the Indenture Trustee and file with the SEC in
accordance with rules and regulations prescribed from time to time by
the SEC such additional information, documents and reports with respect
to compliance by the Note Issuer with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Holders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Note Issuer pursuant to clauses (i) and
(ii) of this Section 7.03(a) as may be required by rules and
regulations prescribed from time to time by the SEC.
(b) Unless the Note Issuer otherwise determines, the fiscal
year of the Note Issuer shall end on December 31 of each year.
SECTION 7.04. Reports by Indenture Trustee. If required by TIA
ss. 313(a), within 60 days after September 30 of each year, commencing with the
year after the issuance of the Notes of any Series, the Indenture Trustee shall
mail to each Holder of Notes of such Series as required by TIA ss. 313(c) a
brief report dated as of such date that complies with TIA ss. 313(a). The
Indenture Trustee also shall comply with TIA ss. 313(b); provided, however, that
the initial report so issued shall be delivered not more than 12 months after
the initial issuance of each Series.
A copy of each report at the time of its mailing to Holders
shall be filed by the Servicer with the SEC and each stock exchange, if any, on
which the Notes are listed. The Note Issuer shall notify the Indenture Trustee
in writing if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of, and shall receive and collect, directly and without intervention or
assistance of any fiscal agent or other intermediary, all money and other
property payable to or receivable by the Indenture Trustee pursuant to this
Indenture. The Indenture Trustee shall apply all such money received by it as
provided in this Indenture. Except as otherwise expressly provided in this
Indenture, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Note Collateral, the
Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, subject to Article VI, including the institution and
prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.02. Collection Account. (a) Prior to the Series
Issuance Date for the first Series of Notes issued hereunder, the Note Issuer
shall open, at the Indenture Trustee's Corporate Trust Office, or at another
Eligible Institution, one or more segregated trust accounts in the Indenture
Trustee's name for the deposit of Estimated Transition Charge Collections
(collectively, the "Collection Account"). The Collection Account will consist of
five subaccounts: a general subaccount (the "General Subaccount"), a reserve
subaccount (the "Reserve Subaccount"), a subaccount for the
Overcollateralization Amount (the "Overcollateralization Subaccount"), a
subaccount for REP deposits (the "REP Deposit Subaccount")and a capital
subaccount (the "Capital Subaccount"). All amounts in the Collection Account not
allocated to any other subaccount shall be allocated to the General Subaccount.
Prior to the initial Payment Date, all amounts in the Collection Account (other
than funds deposited into the Capital Subaccount, up to the Required Capital
Level for any Series of Notes, and funds deposited into the REP Deposit
Subaccount) shall be allocated to the General Subaccount. All references to the
Collection Account shall be deemed to include reference to all subaccounts
contained therein. Withdrawals from and deposits to each of the foregoing
subaccounts of the Collection Account shall be made as set forth in Section
8.02(d) and (e). The Collection Account shall at all times be maintained in an
Eligible Deposit Account and only the Indenture Trustee shall have access to the
Collection Account for the purpose of making deposits in and withdrawals from
the Collection Account in accordance with this Indenture. Funds in the
Collection Account shall not be commingled with any other moneys. All moneys
deposited from time to time in the Collection Account, all deposits therein
pursuant to this Indenture, and all investments made in Eligible Investments
with such moneys, including all income or other gain from such investments,
shall be held by the Indenture Trustee in the Collection Account as part of the
Note Collateral as herein provided.
(b) The Indenture Trustee shall have sole dominion and
exclusive control over all moneys in the Collection Account and shall apply such
amounts therein as provided in this Section 8.02. The Indenture Trustee shall
also pay from the Collection Account any amounts requested to be paid by or to
the Servicer pursuant to Section 6.11(d)(ii) of the Servicing Agreement.
(c) TC Collections shall be deposited in the General
Subaccount as provided in Section 6.11 of the Servicing Agreement. All deposits
to and withdrawals from the Collection Account, all allocations to the
subaccounts of the Collection Account and any amounts to be paid to the Servicer
under Section 8.02(b) shall be made by the Indenture Trustee in accordance with
the written instructions provided by the Servicer in the Monthly Servicer's
Certificate, the Servicer's Certificate or upon other written notice provided by
the Servicer pursuant to Section 6.11(d)(ii) of the Servicing Agreement, as
applicable.
(d) On each Payment Date for any Series of Notes, the
Indenture Trustee shall apply all amounts on deposit in the Collection Account,
including all net earnings thereon, to pay the following amounts, in accordance
with the Servicer's Certificate, in the following priority:
(i) all amounts owed by the Note Issuer to the Indenture
Trustee (including legal fees and expenses) shall be paid to the
Indenture Trustee (subject to Section 6.07) and all amounts owed to the
Independent Managers in connection with their acting as managers under
the LLC Agreement shall be paid to the Independent Managers, as
appropriate;
(ii) the Servicing Fee for such Payment Date and all unpaid
Servicing Fees for prior Payment Dates shall be paid to the Servicer;
(iii) so long as no Default or Event of Default shall have
occurred and be continuing or would result from such payment, all other
Operating Expenses shall be paid to the Persons entitled thereto or, if
such have been previously paid by the Note Issuer, to the Note Issuer
in reimbursement thereof; provided that the amount paid on each Payment
Date pursuant to this clause (iii) shall not exceed [$100,000];
(iv) any overdue Periodic Interest (together with, to the
extent lawful, interest on such overdue Periodic Interest at the
applicable Note Interest Rate) with respect to any Series of Notes
shall be paid to the Holders of such Series of Notes;
(v) Periodic Interest for such Payment Date with respect to
each Series of Notes shall be paid to the Holders of such Series of
Notes;
(vi) any amounts due on such Payment Date to the counterparty
under any Swap Agreement shall be paid with respect to each Series of
Notes;
(vii) principal due and payable on the Notes of any Series as
a result of an Event of Default or on the Final Maturity Date of the
Notes of such Series, shall be paid to the Holders of such Series of
Notes;
(viii) any overdue Periodic Principal (together with interest
on such overdue Periodic Principal at the applicable Note Interest
Rate) payable with respect to any Series of Notes shall be paid to the
Holders of such Series of Notes;
(ix) Periodic Principal for such Payment Date with respect to
each Series of Notes shall be paid to the Holders of such Series of
Notes;
(x) unpaid Operating Expenses shall be paid to the Persons
entitled thereto or, if such have been previously paid by the Note
Issuer, to the Note Issuer or as it directs in reimbursement thereof;
(xi) the amount, if any, by which the Required Capital Level
with respect to all Outstanding Series of Notes exceeds the amount in
the Capital Subaccount as of such Payment Date shall be allocated to
the Capital Subaccount;
(xii) the amount, if any, by which the Required
Overcollateralization Level with respect to all Outstanding Series of
Notes exceeds the amount in the Overcollateralization Subaccount as of
such Payment Date shall be allocated to the Overcollateralization
Subaccount;
(xiii) the balance, if any, shall be allocated to the Reserve
Subaccount for distribution on subsequent Payment Dates; and
(xiv) after principal of and premium, if any, and interest on
all Notes of all Series, and all of the other foregoing amounts, have
been paid in full, the balance (including all amounts then held in the
Overcollateralization Subaccount, the Capital Subaccount and the
Reserve Subaccount), if any, shall be paid to the Note Issuer, free
from the Lien of this Indenture.
All payments to the Holders of a Series pursuant to clauses (iv), (vii), (viii)
and (ix) above or, in the case of clause (ii), if there is more than one Series
of Notes outstanding all payments to the Holders of all Series, shall be made to
such Holders pro rata based on the respective principal amounts of Notes of such
Series held by such Holders, unless, in the case of a Series comprised of two or
more Classes, the Trustee's Issuance Certificate or Series Supplement, if any,
for such Series provides otherwise. Payments in respect of principal of and
premium, if any, and interest on any Class of Notes will be made on a pro rata
basis among all the Holders of such Class.
(e) If on any Payment Date funds on deposit in the General
Subaccount are insufficient to make the payments contemplated by clauses (i)
through (ix) of Section 8.02(d) above, the Indenture Trustee shall (i) first,
draw from amounts on deposit in the Reserve Subaccount, (ii) second, draw from
amounts on deposit in the Overcollateralization Subaccount and (iii) third, draw
from amounts on deposit in the Capital Subaccount, in each case, up to the
amount of such shortfall in order to make the payments contemplated by clauses
(i) through (ix) of Section 8.02(d). In addition, if on any Payment Date funds
on deposit in the General Subaccount are insufficient to make the allocations
contemplated by clauses (xi) and (xii) above, the Indenture Trustee shall draw
from amounts on deposit in the Reserve Subaccount to make such allocations
notwithstanding the fact that on such Payment Date the allocation contemplated
by clause (x) above may not have been fully satisfied.
(f) The Indenture Trustee shall apply deposits held in the REP
Deposit Subaccount as instructed by the Servicer.
SECTION 8.03. General Provisions Regarding the Collection
Account. (a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order; provided, however, that (i) such Eligible Investments shall not
mature later than the Business Day prior to the next Payment Date for the
related Series of Notes and (ii) such Eligible Investments shall not be sold,
liquidated or otherwise disposed of at a loss prior to the maturity thereof. All
income or other gain from investments of moneys deposited in the Collection
Account shall be deposited by the Indenture Trustee in the Collection Account,
and any loss resulting from such investments shall be charged to the Collection
Account. The Note Issuer will not direct the Indenture Trustee to make any
investment of any funds or to sell any investment held in the Collection Account
unless the security interest Granted and perfected in such account will continue
to be perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Indenture Trustee to make any such investment or sale, if requested by
the Indenture Trustee, the Note Issuer shall deliver to the Indenture Trustee an
Opinion of Counsel, acceptable to the Indenture Trustee, to such effect. In no
event shall the Indenture Trustee be liable for the selection of Eligible
Investments or for investment losses incurred thereon. The Indenture Trustee
shall have no liability in respect of losses incurred as a result of the
liquidation of any Eligible Investment prior to its stated maturity or the
failure of the Note Issuer or the Servicer to provide timely written investment
direction. The Indenture Trustee shall have no obligation to invest or reinvest
any amounts held hereunder in the absence of written investment direction
pursuant to an Issuer Order.
(b) Subject to Section 6.01(c), the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in the Collection
Account resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Note Issuer shall have failed to give written
investment directions for any funds on deposit in the Collection Account to the
Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be
agreed by the Note Issuer and Indenture Trustee) on any Business Day; or (ii) a
Default or Event of Default shall have occurred and be continuing with respect
to the Notes of any Series but the Notes of such Series shall not have been
declared due and payable pursuant to Section 5.02, then the Indenture Trustee
shall, to the fullest extent practicable, invest and reinvest funds in the
Collection Account in one or more investments which qualify as investments in
money market funds described under clause (d) of the definition of Eligible
Investments.
(d) The parties hereto acknowledge that the Servicer may,
pursuant to the Servicing Agreement, select Eligible Investments on behalf of
the Note Issuer.
SECTION 8.04. Release of Note Collateral. (a) The Indenture
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments to release property from the Lien of this Indenture, or
convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article VIII shall be bound to ascertain the Indenture
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no
Notes Outstanding, release any remaining portion of the Note Collateral that
secured the Notes from the Lien of this Indenture and release to the Note Issuer
or any other Person entitled thereto any funds then on deposit in the Collection
Account. The Indenture Trustee shall release property from the Lien of this
Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA ss.ss.
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.01.
SECTION 8.05. Opinion of Counsel. The Indenture Trustee shall
receive at least seven days' notice when requested by the Note Issuer to take
any action pursuant to Section 8.04(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Holders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Note Collateral. Counsel rendering any
such opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
SECTION 8.06. Reports by Independent Accountants. As of the
Closing Date, the Note Issuer shall appoint a firm of Independent certified
public accountants of recognized national reputation for purposes of preparing
and delivering the reports or certificates of such accountants required by this
Indenture and the related Trustee's Issuance Certificates or Series Supplements,
if any. In the event such firm requires the Indenture Trustee to agree to the
procedures performed by such firm, the Note Issuer shall direct the Indenture
Trustee in writing to so agree; it being understood and agreed that the
Indenture Trustee will deliver such letter of agreement in conclusive reliance
upon the direction of the Note Issuer, and the Indenture Trustee makes no
independent inquiry or investigation to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures. Upon any resignation by such firm the Note Issuer shall provide
written notice thereof to the Indenture Trustee and shall promptly appoint a
successor thereto that shall also be a firm of Independent certified public
accountants of recognized national reputation. If the Note Issuer shall fail to
appoint a successor to a firm of Independent certified public accountants that
has resigned within 15 days after such resignation, the Indenture Trustee shall
promptly notify the Note Issuer of such failure in writing. If the Note Issuer
shall not have appointed a successor within 10 days thereafter the Indenture
Trustee shall promptly appoint a successor firm of Independent certified public
accountants of recognized national reputation; provided that the Indenture
Trustee shall have no liability with respect to such appointment if the
Indenture Trustee acted with due care with respect thereto. The fees of such
Independent certified public accountants and its successor shall be payable by
the Note Issuer.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Holders. (a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, the Note Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the TIA as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the Lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the Lien of this Indenture, or to subject
to the Lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Note Issuer, and
the assumption by any such successor of the covenants of the Note
Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Note Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Note Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect the interests of the Holders of
the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA; or
(viii) to set forth the terms of any Series that has not
theretofore been authorized by a Trustee's Issuance Certificate or
Series Supplement or to provide for the execution and delivery of any
Swap Agreement.
The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Note Issuer and the Indenture Trustee, when authorized
by an Issuer Order, may, also without the consent of any of the Holders of the
Notes, enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that (i) such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of the Holders and (ii) the Rating Agency
Condition shall have been satisfied with respect thereto.
SECTION 9.02. Supplemental Indentures with Consent of Holders.
The Note Issuer and the Indenture Trustee, when authorized by an Issuer Order,
also may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes of
each Series or Class to be affected, by Act of such Holders delivered to the
Note Issuer and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Outstanding Note of each Series or Class
affected thereby:
(i) change the date of payment of any installment of principal
of or premium, if any, or interest on any Note, or reduce the principal
amount thereof, the interest rate thereon or premium, if any, with
respect thereto, change any Optional Redemption Price, change the
provisions of this Indenture and the related applicable Trustee's
Issuance Certificate or Series Supplement relating to the application
of collections on, or the proceeds of the sale of, the Note Collateral
to payment of principal of or premium, if any, or interest on the
Notes, or change any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the right
to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as
provided in Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in the case of
optional redemption, on or after the Optional Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes or of a Series or Class thereof, the consent of the Holders of
which is required for any such supplemental indenture, or the consent
of the Holders of which is required for any waiver of compliance with
certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Note
Issuer to sell or liquidate the Note Collateral pursuant to Section
5.04;
(v) modify any provision of this Section to decrease any
minimum percentage specified herein necessary to approve any amendments
to any provisions of this Indenture;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest, principal or premium, if any, due on any Note on any Payment
Date (including the calculation of any of the individual components of
such calculation);
(vii) permit the creation of any Lien ranking prior to or on a
parity with the Lien of this Indenture with respect to any part of the
Note Collateral or, except as otherwise permitted or contemplated
herein, terminate the Lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the Lien of this Indenture; or
(viii) cause any material adverse federal income tax
consequence to CPL, the Note Issuer, the Indenture Trustee or the then
existing Holders.
The Indenture Trustee may in its discretion determine whether
or not any Notes of a Series or Class would be affected by any supplemental
indenture and any such determination shall be conclusive upon the Holders of all
Notes of such Series or Class, whether theretofore or thereafter authenticated
and delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Note Issuer and the
Indenture Trustee of any supplemental indenture pursuant to this Section, the
Note Issuer shall mail to the Rating Agencies and the Holders of the Notes to
which such supplemental indenture relates a notice setting forth in general
terms the substance of such supplemental indenture. Any failure of the Indenture
Trustee to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Execution of Supplemental Indentures. In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and subject to Sections 6.01 and 6.02, shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to each Series or Class of Notes affected thereby, and
the respective rights, limitations of rights, obligations, duties, liabilities
and immunities under this Indenture of the Indenture Trustee, the Note Issuer
and the Holders shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.05. Conformity with Trust Indenture Act. Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the TIA as then in
effect so long as this Indenture shall then be qualified under the TIA.
SECTION 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and if required by the Indenture
Trustee shall, bear a notation in form approved by the Indenture Trustee as to
any matter provided for in such supplemental indenture. If the Note Issuer or
the Indenture Trustee shall so determine, new Notes so modified as to conform,
in the opinion of the Indenture Trustee and the Note Issuer, to any such
supplemental indenture may be prepared and executed by the Note Issuer and
authenticated and delivered by the Indenture Trustee in exchange for Outstanding
Notes.
ARTICLE X
Redemption of Notes
SECTION 10.01. Optional Redemption by Note Issuer. The Note
Issuer may, at its option, redeem all, but not less than all, of the Notes of a
Series (a) on any Payment Date if, after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of any such
Series of Notes has been reduced to less than five percent of the initial
principal balance thereof, or (b) if and to the extent specified in the related
Trustee's Issuance Certificate or Series Supplement on any Payment Date from the
proceeds of the issuance and sale of the Notes of any other Series. In addition,
a Series of Notes shall be subject to redemption if and to the extent provided
in the related Trustee's Issuance Certificate or Series Supplement. In no event,
however, shall any Notes be redeemable unless the Rating Agency Condition shall
be satisfied with respect to each Rating Agency other than Moody's, to which
prior written notice of such redemption shall have been given, with respect to
any Notes which remain Outstanding after such redemption. The redemption price
in any case shall be equal to the outstanding principal amount of the Notes to
be redeemed plus accrued and unpaid interest thereon at the Note Interest Rate
to the Optional Redemption Date (such price being called the "Optional
Redemption Price"). If the Note Issuer shall elect to redeem the Notes of a
Series pursuant to this Section 10.01, it shall furnish written notice (which
notice shall state all items listed in Section 10.02) of such election to the
Indenture Trustee and the Rating Agencies not more than 50 and not less than 25
days prior to the Optional Redemption Date and shall deposit with the Indenture
Trustee not later than one Business Day prior to the Optional Redemption Date
the Optional Redemption Price of the Notes to be redeemed whereupon all such
Notes shall be due and payable on the Optional Redemption Date upon the
furnishing of a notice complying with Section 10.02 to each Holder of the Notes
of such Series pursuant to this Section 10.01.
SECTION 10.02. Form of Optional Redemption Notice. Unless
otherwise specified in the Trustee's Issuance Certificate or Series Supplement
relating to a Series of Notes, notice of redemption under Section 10.01 shall be
given by the Indenture Trustee by first-class mail, postage prepaid, mailed not
less than five days nor more than 25 days prior to the applicable Optional
Redemption Date to each Holder of Notes to be redeemed, as of the close of
business on the Record Date preceding the applicable Optional Redemption Date at
such Holder's address appearing in the Note Register.
All notices of redemption shall state:
(1) the Optional Redemption Date;
(2) the Optional Redemption Price;
(3) the place where such Notes are to be surrendered for
payment of the Optional Redemption Price (which shall be the office or
agency of the Note Issuer to be maintained as provided in Section
3.02);
(4) the CUSIP number, if applicable; and
(5) the principal amount of Notes to be redeemed.
Notice of redemption of the Notes to be redeemed shall be
given by the Indenture Trustee in the name and at the expense of the Note
Issuer. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
SECTION 10.03. Notes Payable on Optional Redemption Date.
Notice of redemption having been given as provided in Section 10.02, the Notes
to be redeemed shall on the Optional Redemption Date become due and payable at
the Optional Redemption Price and (unless the Note Issuer shall default in the
payment of the Optional Redemption Price) no interest shall accrue on the
Optional Redemption Price for any period after the date to which accrued
interest is calculated for purposes of calculating the Optional Redemption
Price.
ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc. (a)
Upon any application or request by the Note Issuer to the Indenture Trustee to
take any action under any provision of this Indenture, the Note Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Note Collateral or other
property or securities with the Indenture Trustee that is to be made the basis
for the release of any property or securities subject to the Lien of this
Indenture, the Note Issuer shall, in addition to any obligation imposed in
Section 11.01(a) or elsewhere in this Indenture, furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Note Issuer of the Note Collateral or other property or
securities to be so deposited.
(ii) Whenever the Note Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Note
Issuer shall also deliver to the Indenture Trustee an Independent Certificate as
to the same matters, if the fair value to the Note Issuer of the securities to
be so deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year of
the Note Issuer, as set forth in the certificates delivered pursuant to clause
(i) above and this clause (ii), is ten percent or more of the Outstanding Amount
of the Notes of all Series, but such a certificate need not be furnished with
respect to any securities so deposited, if the fair value thereof to the Note
Issuer as set forth in the related Officer's Certificate is less than the lesser
of (A) $25,000 or (B) one percent of the Outstanding Amount of the Notes of all
Series.
(iii) Whenever any property or securities are to be released
from the Lien of this Indenture other than pursuant to Section 8.02(d), the Note
Issuer shall also furnish to the Indenture Trustee an Officer's Certificate
certifying or stating the opinion of each person signing such certificate as to
the fair value (within 90 days of such release) of the property or securities
proposed to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Note Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signatory thereof as to the matters described in clause (iii) above, the
Note Issuer shall also furnish to the Indenture Trustee an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property with respect to such Series, or securities
released from the Lien of this Indenture (other than pursuant to Section
8.02(d)) since the commencement of the then-current calendar year, as set forth
in the certificates required by clause (iii) above and this clause (iv), equals
10 percent or more of the Outstanding Amount of the Notes of all Series, but
such certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than the lesser of (A) $25,000 or (B) one percent of the
then Outstanding Amount of the Notes of all Series.
(v) Notwithstanding Section 2.16 or any other provision of
this Section 11.01, the Indenture Trustee may (A) collect, liquidate, sell or
otherwise dispose of the Transition Property and the other Note Collateral as
and to the extent permitted or required by the Basic Documents and (B) make cash
payments out of the Collection Account as and to the extent permitted or
required by the Basic Documents.
SECTION 11.02. Form of Documents Delivered to Indenture
Trustee. In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of a Responsible Officer of the
Note Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his or her
certificate or opinion is based are erroneous. Any such certificate of a
Responsible Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer or the Note Issuer stating that the
information with respect to such factual matters is in the possession of the
Servicer or the Note Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Whenever in this Indenture, in connection with any application
or certificate or report to the Indenture Trustee, it is provided that the Note
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Note Issuer's compliance with any term
hereof, it is intended that the truth and accuracy, at the time of the granting
of such application or at the effective date of such certificate or report (as
the case may be), of the facts and opinions stated in such document shall in
such case be conditions precedent to the right of the Note Issuer to have such
application granted or to the sufficiency of such certificate or report. The
foregoing shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion contained
in any such document as provided in Article VI.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 11.03. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by agents duly appointed in writing; and except as herein otherwise
expressly provided such action shall become effective when such instrument or
instruments are delivered to the Indenture Trustee, and, where it is hereby
expressly required, to the Note Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.01)
conclusive in favor of the Indenture Trustee and the Note Issuer, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any manner that the Indenture
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Note Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 11.04. Notices, etc., to Indenture Trustee, Note
Issuer and Rating Agencies. (a) Any request, demand, authorization, direction,
notice, consent, waiver or Act of Holders or other documents provided or
permitted by this Indenture to be made upon, given or furnished to or filed
with:
(i) the Indenture Trustee by any Holder or by the Note Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing by facsimile transmission, first-class
mail or overnight delivery service to or with the Indenture Trustee at
its Corporate Trust Office, or
(ii) the Note Issuer by the Indenture Trustee or by any Holder
shall be sufficient for every purpose hereunder if in writing and
mailed, first-class, postage prepaid, to the Note Issuer addressed to:
CPL Transition Funding LLC c/o Central and South West Corporation, 1616
Woodall Rogers Freeway, Dallas, Texas 75202, Attention of the
Treasurer, telephone: __________, facsimile: __________ or at any other
address previously furnished in writing to the Indenture Trustee by the
Note Issuer. The Note Issuer shall promptly transmit any notice
received by it from the Holders to the Indenture Trustee.
(b) Notices required to be given to the Rating Agencies by the
Note Issuer or the Indenture Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested to (i) in the case of
Moody's, to: Moody's Investors Service, Inc., ABS Monitoring Department, 99
Church Street, New York, New York 10007, telephone: (212) 553-3686, facsimile
(212) 553-0573, (ii) in the case of Standard & Poor's, to: Standard & Poor's
Corporation, 55 Water Street, 40th Floor, New York, New York 10041, Attention of
Asset Backed Surveillance Department, telephone: (212) 438-2000, facsimile:
(212) 438-2665, (iii) in the case of Fitch IBCA, to Fitch IBCA, Inc., One State
Street Plaza, New York, New York 10004, Attention of ABS Surveillance,
telephone: (212) 908-0500, facsimile: (212) 908-0355, (iv) in the case of Duff &
Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New
York, New York 10004, Attention of Asset-Backed Monitoring Group, telephone:
________, facsimile: ________ and (v) as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
SECTION 11.05. Notices to Holders; Waiver. Where this
Indenture provides for notice to Holders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Holder affected by such event,
at such Holder's address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice nor any defect in any notice so mailed to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event of Holders when such notice is required
to be given pursuant to any provision of this Indenture, then any manner of
giving such notice as shall be satisfactory to the Indenture Trustee shall be
deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute a
Default or Event of Default.
SECTION 11.06. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with another provision hereof
that is required to be included in this Indenture by any of the provisions of
the TIA, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose
duties on any person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.07. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.08. Successors and Assigns. All covenants and
agreements in this Indenture and the Notes by the Note Issuer shall bind its
successors and assigns, whether so expressed or not. All agreements of the
Indenture Trustee in this Indenture shall bind its successors.
SECTION 11.09. Severability. Any provision in this Indenture
or in the Notes that is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision (if any)
or the remaining provisions hereof (unless such construction shall be
unreasonable), and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 11.10. Benefits of Indenture. Nothing in this
Indenture or in the Notes, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, and the Holders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Note Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.11. Legal Holidays. In any case where the date on
which any payment is due shall not be a Business Day, then (notwithstanding any
other provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12. GOVERNING LAW. THIS INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED
HEREUNDER IN TRANSITION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE
TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH TRANSITION PROPERTY, SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
SECTION 11.13. Counterparts. This Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to
be an original, but all such counterparts shall together constitute
but one and the same instrument.
SECTION 11.14. Recording of Indenture. If this Indenture is
subject to recording in any appropriate public recording offices, such recording
is to be effected by the Note Issuer and at its expense accompanied by an
Opinion of Counsel (which may be counsel to the Indenture Trustee or any other
counsel reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Holders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
SECTION 11.15. Trust Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Note Issuer or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Managers in their respective individual capacities,
(ii) any owner of a beneficial interest in the Note Issuer (including CPL) or
(iii) any shareholder, partner, owner, beneficiary, agent, officer, or employee
of the Indenture Trustee, the Managers or any owner of a beneficial interest in
the Note Issuer (including CPL) in its respective individual capacity, or of any
successor or assign of any of them in their respective individual or corporate
capacities, except as any such Person may have expressly agreed (it being
understood that none of the Indenture Trustee, the Managers or CPL has any such
obligations in their respective individual or corporate capacities).
SECTION 11.16. No Recourse to Note Issuer. Notwithstanding any
provision of this Indenture or any Trustee's Issuance Certificate or any Series
Supplement to the contrary, Holders shall have no recourse against the Note
Issuer, but shall look only to the Note Collateral with respect to any amounts
due to the Holders hereunder and under the Notes.
SECTION 11.17. Inspection. The Note Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Note Issuer's normal business hours, to examine all the
books of account, records, reports, and other papers of the Note Issuer, to make
copies and extracts therefrom, to cause such books to be audited by Independent
certified public accountants, and to discuss the Note Issuer's affairs, finances
and accounts with the Note Issuer's officers, employees, and Independent
certified public accountants, all at such reasonable times and as often as may
be reasonably requested. The Indenture Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the
Indenture Trustee may reasonably determine that such disclosure is consistent
with its obligations hereunder. Notwithstanding anything herein to the contrary,
the foregoing shall not be construed to prohibit (i) disclosure of any and all
information that is or becomes publicly known, or information obtained by the
Indenture Trustee from sources other than the Note Issuer, provided such parties
are rightfully in possession of such information, (ii) disclosure of any and all
information (A) if required to do so by any applicable statute, law, rule or
regulation, (B) pursuant to any subpoena, civil investigative demand or similar
demand or request of any court or regulatory authority exercising its proper
jurisdiction, (C) in any preliminary or final offering circular, registration
statement or contract or other document pertaining to the transactions
contemplated by this Indenture or the Basic Documents approved in advance by the
Note Issuer or (D) to any affiliate, independent or internal auditor, agent,
employee or attorney of the Indenture Trustee having a need to know the same,
provided that such parties agree to be bound by the confidentiality provisions
contained in this Section 11.17, or (iii) any other disclosure authorized by the
Note Issuer.
SECTION 11.18. No Petition. The Indenture Trustee, by entering
into this Indenture, each Holder, by accepting a Note (or interest therein)
issued hereunder, hereby covenant and agree that they shall not, prior to the
date which is one year and one day after the termination of this Indenture,
acquiesce, petition or otherwise invoke or cause the Note Issuer any Manager to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Note Issuer or under any insolvency
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Note Issuer or any substantial
part of its respective property, or ordering the winding up or liquidation of
the affairs of the Note Issuer.
IN WITNESS WHEREOF, the Note Issuer and the Indenture Trustee
have caused this Indenture to be duly executed by their respective officers
thereunto duly authorized and duly attested, all as of the day and year first
above written.
CPL TRANSITION FUNDING LLC
By:
Name:
Title: Manager
______________________________,
as Indenture Trustee
By: _____________________________
Name:
Title:
<PAGE>
STATE OF ________, )
)ss:
COUNTY OF ____.... )
On the day of ________, 2000, before me, , a Notary Public in
and for said county and state, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person and officer
whose name is subscribed to the within instrument and acknowledged to me that
such person executed the same in such person's authorized capacity, and that by
the signature on the instrument __________________, [a __________ banking
corporation], and the entity upon whose behalf the person acted, executed this
instrument.
WITNESS my hand and official seal.
Notary Public
My commission expires:
<PAGE>
STATE OF )
)ss:
COUNTY OF )
On the day of ________, 2000, before me, , a Notary Public in
and for said county and state, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her capacity as manager of CPL TRANSITION FUNDING LLC,
and that by his/her signature on the instrument CPL TRANSITION FUNDING LLC, a
Delaware limited liability company and the entity upon whose behalf such person
acted, executed this instrument.
WITNESS my hand and official seal.
Notary Public
My commission expires:
<PAGE>
EXHIBIT A
[Transfers of this Global Note shall be limited to transfers in the Clearing
Agency or to a successor thereof or such successor's nominee and transfers of
portions of this Global Note shall be limited to transfers made in accordance
with the restrictions set forth in the Indenture.]
REGISTERED $________
No. SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
THE PRINCIPAL OF THIS SERIES [ ], CLASS [ - ] ("THIS CLASS
[ - ] NOTE") WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS [ - ] NOTE AT ANY TIME MAY BE LESS
THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF THIS NOTE HAS NO
RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE NOTE COLLATERAL, AS
DESCRIBED IN THE INDENTURE AND ANY RELATED TRUSTEE'S ISSUANCE CERTIFICATE OR
SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS
DUE HEREUNDER. ALL OBLIGATIONS OF THE ISSUER OF THIS CLASS [ - ] NOTE UNDER THE
TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL
HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE
INDENTURE. THE HOLDER OF THIS CLASS [ - ] NOTE HEREBY COVENANTS AND AGREES THAT
PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT IN
FULL OF THE SERIES [ ] CLASS [ - ] NOTES, IT WILL NOT INSTITUTE AGAINST, OR JOIN
ANY OTHER PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY,
REORGANIZATION, ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS OR OTHER
SIMILAR PROCEEDING UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF THE
UNITED STATES. NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP,
SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN
(I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE
ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR
PROCEEDING PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF
OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY
PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE
CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT
TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS
NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST
THE ISSUER OR ANY OF ITS PROPERTIES.
<PAGE>
CPL TRANSITION FUNDING LLC TRUST NOTES,
SERIES [ ], Class [ - ].
INTEREST ORIGINAL PRINCIPAL FINAL MATURITY
RATE AMOUNT DATE
---- ------ ----
CPL Transition Funding LLC, a limited liability company
created under the laws of the State of Delaware (herein referred to as the "Note
Issuer"), for value received, hereby promises to pay to [ ], or registered
assigns, the Original Principal Amount shown above [in semi-annual installments]
on the Payment Dates and in the amounts specified on the reverse hereof or, if
less, the amounts determined pursuant to Section 8.02 of the Indenture, in each
year, commencing on the date determined as provided on the reverse hereof and
ending on or before the Final Maturity Date shown above and to pay interest, at
the Interest Rate shown above, on each __________, __________ and __________ or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on [ ] and continuing until the earlier of the payment in full of the
principal hereof and the Final Maturity Date (each a "Payment Date"), on the
principal amount of this Series [ ], Class [ - ] Note (hereinafter referred to
as "this Class [ - ] Note"). Interest on this Class [ - ] Note will accrue for
each Payment Date from the most recent Payment Date on which interest has been
paid to but excluding such Payment Date or, if no interest has yet been paid,
from [ ]. Interest will be computed on the basis of [specify method of
computation]. Such principal of and interest on this Class [ - ] Note shall be
paid in the manner specified on the reverse hereof.
The principal of and interest on this Class [ - ] Note are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. All payments
made by the Note Issuer with respect to this Class [ - ] Note shall be applied
first to interest due and payable on this Class [ - ] Note as provided above and
then to the unpaid principal of and premium, if any, on this Class [ - ] Note,
all in the manner set forth in Section 8.02 of the Indenture.
Reference is made to the further provisions of this Class [ -
] Note set forth on the reverse hereof, which shall have the same effect as
though fully set forth on the face of this Class [ - ] Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Class [ - ] Note shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Note Issuer has caused this instrument
to be signed, manually or in facsimile, by its Responsible Officer.
Date:
CPL TRANSITION FUNDING LLC
By:
Name:
Title: Manager
<PAGE>
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: ,
This is one of the Series [ ], Class [ - ] Notes,
designated above and referred to in the within-mentioned Indenture.
---------------------------,
as Indenture Trustee
By: _______________________________
Name: _____________________________
Title: ______________________________
<PAGE>
REVERSE OF NOTE
This Series [ ], Class [ - ] Note is one of a duly authorized
issue of Notes of the Note Issuer (herein called the "Notes"), issued and to be
issued in one or more Series, which Series are issuable in one or more Classes,
and the Series [ ] Notes consists of [ ] Classes, including this Class [ - ]
Note (herein called the "Class [ - ] Notes"), all issued and to be issued under
an Indenture dated as of [ ], 2000, (the "Indenture"), between the Note Issuer
and ______________________, as Indenture Trustee (the "Indenture Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights and obligations thereunder of the Note Issuer, the
Indenture Trustee and the Holders of the Notes. All terms used in this Class [ -
] Note that are defined in the Indenture, as supplemented or amended, shall have
the meanings assigned to them in the Indenture.
The Class [ - ] Notes, the other Classes of Series [ ] Notes
(all of such Classes being referred to herein as "Series [ ] Notes") and any
other Series of Notes issued by the Note Issuer are and will be equally and
ratably secured by the Note Collateral pledged as security therefor as provided
in the Indenture.
<PAGE>
The principal of this Class [ - ] Note shall be payable on
each Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof on
the preceding Payment Date (after giving effect to all payments of principal, if
any, made on the preceding Payment Date) has been reduced to the principal
balance specified in the Expected Amortization Schedule which is attached to the
related Trustee's Issuance Certificate or Series Supplement as Schedule A,
unless payable earlier either because (x) an Event of Default shall have
occurred and be continuing and the Indenture Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes of
all Series have declared the Notes of all Series to be immediately due and
payable in accordance with Section 5.02 of the Indenture (unless such
declaration shall have been rescinded and annulled in accordance with Section
5.02 of the Indenture) or (y) the Note Issuer, at its option, shall have called
for the redemption of the Series [ ] Notes pursuant to Section 10.01 of the
Indenture or in accordance with the Trustee's Issuance Certificate or Series
Supplement, if any. However, actual principal payments may be made in lesser
than expected amounts and at later than expected times as determined pursuant to
Section 8.02 of the Indenture. The entire unpaid principal amount of this Class
[ - ] Note shall be due and payable on the earlier of the Final Maturity Date
hereof and the Optional Redemption Date, if any. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable, if not
then previously paid, on the date on which an Event of Default shall have
occurred and be continuing and the Indenture Trustee or the Holders of the Notes
representing not less than a majority of the Outstanding Amount of the Notes of
all Series have declared the Notes of all Series to be immediately due and
payable in the manner provided in Section 5.02 of the Indenture (unless such
declaration shall have been rescinded and annulled in accordance with Section
5.02 of the Indenture). All principal payments on the Class [ - ] Notes shall be
made pro rata to the Class [ - ] Holders entitled thereto based on the
respective principal amounts of the Class [ - ] Notes held by them.
Payments of interest on this Class [ - ] Note due and payable
on each Payment Date, together with the installment of principal or premium, if
any, shall be made by check mailed first-class, postage prepaid, to the Person
whose name appears as the Registered Holder of this Class [ - ] Note (or one or
more Predecessor Notes) on the Note Register as of the close of business on the
Record Date or in such other manner as may be provided in the related Trustee's
Issuance Certificate or Series Supplement, if any, except for the final
installment of principal and premium, if any, payable with respect to this Class
[ - ] Note on a Payment Date which shall be payable as provided below. Such
checks shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Class [ - ] Note be submitted for notation of
payment. Any reduction in the principal amount of this Class [ - ] Note (or any
one or more Predecessor Notes) effected by any payments made on any Payment Date
shall be binding upon all future Holders of this Class [ - ] Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. If funds are expected to be available,
as provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Class [ - ] Note on a Payment Date, then the Indenture
Trustee, in the name of and on behalf of the Note Issuer, will notify the Person
who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable only
upon presentation and surrender of this Class [ - ] Note and shall specify the
place where this Class [ - ] Note may be presented and surrendered for payment
of such installment.
The Note Issuer shall pay interest on overdue installments of
interest at the Note Interest Rate to the extent lawful.
As provided in the Indenture, the Class [__-__] Notes may be
redeemed, in whole but not in part, at the option of the Note Issuer on any date
at the Optional Redemption Price (a) if, after giving effect to payments that
would otherwise be made on such Payment Date, the Outstanding Amount of the
Class [__-__] Notes has been reduced to less than five percent of the initial
principal balance thereof or (b) from the proceeds of the issuance and sale of
the Notes of any other Series.
This Note is a transition bond as such term is defined in the
Securitization Law. Principal and interest due and payable on this Note are
payable from and secured primarily by Transition Property created and
established by a Financing Order obtained from the Public Utility Commission of
Texas pursuant to the Securitization Law. Transition Property consists of the
rights and interests of CPL in the relevant Financing Order, including the right
to impose, collect and recover certain charges (defined in the Securitization
Law as "Transition Charges") to be included in regular electric utility bills of
existing and future electric service customers within the service territory of
Central Power and Light Company, a Texas electric utility, or its successors or
assigns, as more fully described in the financing order.
The Securitization Law provides that: "Transition bonds are
not a debt or obligation of the state and are not a charge on its full faith and
credit or taxing power. The state pledges, however, for the benefit and
protection of financing parties and the electric utility, that it will not take
or permit any action that would impair the value of transition property, or,
except as permitted by Section 39.307, reduce, alter, or impair the transition
charges to be imposed, collected, and remitted to financing parties, until the
principal, interest and premium, and any other charges incurred and contracts to
be performed in connection with the related transition bonds have been paid and
performed in full. Any party issuing transition bonds is authorized to include
this pledge in any documentation relating to those bonds."
As a result of the foregoing pledge, the State of Texas may
not, except as provided in the succeeding sentence, in any way reduce, alter or
impair the Transition Charges until the Notes, together with interest thereon,
are fully paid and discharged. Notwithstanding the immediately preceding
sentence, the State of Texas would be allowed to effect a temporary impairment
of the Holders' rights if it could be shown that such impairment was necessary
to advance a significant and legitimate public purpose.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Class [ - ] Note may be
registered on the Note Register upon surrender of this Class [ - ] Note for
registration of transfer at the office or agency designated by the Note Issuer
pursuant to the Indenture, duly endorsed by, or accompanied by (a) a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an institution which is a member of
one of the following recognized Signature Guaranty Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange
Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or
(iv) in such other guarantee program acceptable to the Indenture Trustee, and
(b) such other documents as the Indenture Trustee may require, and thereupon one
or more new Class [ - ] Notes of Minimum Denominations and in the same aggregate
principal amount will be issued to the designated transferee or transferees. No
service charge will be charged for any registration of transfer or exchange of
this Class [ - ] Note, but the transferor may be required to pay a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such registration of transfer or exchange, other than
exchanges pursuant to Section 2.04 or 9.06 of the Indenture not involving any
transfer.
<PAGE>
Each Note holder, by acceptance of a Note, covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Note Issuer or the Indenture Trustee on the Notes or
under the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Managers in their respective
individual capacities, (ii) any owner of a beneficial interest in the Note
Issuer (including CPL) or (iii) any shareholder, partner, owner, beneficiary,
agent, officer or employee of the Indenture Trustee, the Managers or any owner
of a beneficial interest in the Note Issuer (including CPL) in its respective
individual capacity, or of any successor or assign of any of them in their
individual or corporate capacities, except as any such Person may have expressly
agreed (it being understood that none of the Indenture Trustee, the Managers or
CPL has any such obligations in their respective individual or corporate
capacities).
Prior to the due presentment for registration of transfer of
this Class [ - ] Note, the Note Issuer, the Indenture Trustee and any agent of
the Note Issuer or the Indenture Trustee may treat the Person in whose name this
Class [ - ] Note is registered (as of the day of determination) as the owner
hereof for the purpose of receiving payments of principal of and premium, if
any, and interest on this Class [ - ] Note and for all other purposes
whatsoever, whether or not this Class [ - ] Note be overdue, and neither the
Note Issuer, the Indenture Trustee nor any such agent shall be affected by
notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Note Issuer and the rights of the Holders of the Notes under
the Indenture at any time by the Note Issuer with the consent of the Holders of
Notes representing not less than a majority of the Outstanding Amount of all
Notes at the time outstanding of each Series or Class to be affected. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes of all Series, on
behalf of the Holders of all the Notes, to waive compliance by the Note Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Class [ - ] Note (or any one of more Predecessor Notes) shall be conclusive
and binding upon such Holder and upon all future Holders of this Class [ - ]
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Class [ - ] Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of Holders of the Notes issued thereunder.
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness of the Note Issuer on this Class [ - ] Note and
(b) certain restrictive covenants and the related Events of Default, upon
compliance by the Note Issuer with certain conditions set forth herein, which
provisions apply to this Class [ - ] Note.
The term "Note Issuer" as used in this Class [ - ] Note
includes any successor to the Note
Issuer under the Indenture.
The Note Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the Holders of Notes under the Indenture.
The Class [ - ] Notes are issuable only in registered form in
denominations as provided in the Indenture and the related Trustee's Issuance
Certificate or Series Supplement, if any, subject to certain limitations therein
set forth.
This Class [ - ] Note, the Indenture and the related Trustee's
Issuance Certificate or Series Supplement, if any, shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Indenture and no provision of this
Class [ - ] Note or of the Indenture shall alter or impair the obligation, which
is absolute and unconditional, to pay the principal of and interest on this
Class [ - ] Note at the times, place, and rate, and in the coin or currency
herein prescribed.
The Holder of this Class [ - ] Note by the acceptance hereof
agrees that, notwithstanding any provision of the Indenture or the related
Trustee's Issuance Certificate or Series Supplement, if any, to the contrary,
the Holder shall have no recourse against the Note Issuer, but shall look only
to the Note Collateral, with respect to any amounts due to the Holder under this
Class [ - ] Note.
The Note Issuer and the Indenture Trustee, by entering into
the Indenture, and the Holders and any Persons holding a beneficial interest in
any Class [ - ] Note, by acquiring any Class [ - ] Note or interest therein, (i)
express their intention that the Class [ - ] Notes qualify under applicable tax
law as indebtedness of CPL secured by the Note Collateral and (ii) unless
otherwise required by appropriate taxing authorities, agree to treat the Class [
- - ] Notes as indebtedness of CPL secured by the Note Collateral for the purpose
of federal income taxes, to the extent consistent with applicable state tax law,
state income and franchise tax purposes, and any other taxes imposed upon,
measured by or based upon gross or net income.
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Class [ - ] Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM.. as tenants in common
TEN ENT.. as tenants by the entireties
JT TEN... as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN
ACT.... ________________ Custodian __________________
(Custodian) (minor)
Under Uniform Gifts to Minor Act (_________________)
(State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___________________________________________________________________
(name and address of assignee)
the within Class [ - ] Note and all rights thereunder, and hereby
irrevocably constitutes and appoints , attorney, to transfer said
Class [ - ] Note on the books kept for registration thereof, with
full power of substitution in the premises.
Dated: ________________________________
Signature Guaranteed:
________________________________
EXHIBIT B
TRUSTEE'S ISSUANCE CERTIFICATE dated as of ____, ____
(this "Certificate"), executed and delivered by CPL
TRANSITION FUNDING LLC, a limited liability company
created under the laws of the State of Delaware (the
"Note Issuer"), to ____________________, [a ________
banking corporation] (the "Indenture Trustee"), as
Indenture Trustee under the Indenture dated as of [
], 2000, between the Note Issuer and the Indenture
Trustee (the "Indenture").
PRELIMINARY STATEMENT
Article II of the Indenture provides, among other things, that
the Note Issuer may at any time and from time to time execute and deliver to the
Indenture Trustee one or more Trustee's Issuance Certificates for the purposes
of authorizing the issuance by the Note Issuer of a Series of Notes and
specifying the terms thereof. The Note Issuer has duly authorized the creation
of a Series of Notes with an initial aggregate principal amount of $ [ ] to be
known as CPL Transition Funding LLC Notes, Series [ ] (the "Series [ ] Notes"),
and the Note Issuer is executing and delivering this Certificate in order to
provide for the Series [ ] Notes.
All terms used in this Certificate that are defined in the
Indenture, either directly or by reference therein, have the meanings assigned
to them therein, except to the extent such terms are defined or modified in this
Certificate or the context clearly requires otherwise. In the event that any
term or provision contained herein shall conflict with or be inconsistent with
any term or provision contained in the Indenture, the terms and provisions of
this Certificate shall govern.
SECTION 1. Designation. The Series [ ] Notes shall be
designated generally as Transition Notes, Series [ ] and further
denominated as Classes [ ] through [ ].
SECTION 2. Initial Principal Amount; Note Interest Rate;
Scheduled Payment Date; Final Maturity Date. The Notes of each Class of the
Series [ ] shall have the initial principal amount, bear interest at the rates
per annum and shall have Scheduled Payment Dates and Final Maturity Dates set
forth below:
<PAGE>
Initial Note Scheduled Final
Principal Interest Payment Maturity
Class ... Amount Rate Date Date
----- ------ ---- ---- ----
The Note Interest Rate shall be computed on the basis of a 360-day year of
twelve 30-day months. [If the Notes of all or any Classes are to be Floating
Rate Notes, describe here the index or indexes to be used to determine the
applicable variable interest rate].
SECTION 3. Authentication Date; Payment Dates; Expected
Amortization Schedule for Principal; Periodic Interest; Required
Overcollateralization Level; No Premium; Other Terms. (a) Authentication Date.
The Series [ ] Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Note Issuer on [ ] (the "Series Issuance
Date") shall have as their date of authentication [ ].
(b) Payment Dates. The Payment Dates for the Series [ ] Notes
are __________, __________ and __________ of each year or, if any such date is
not a Business Day, the next succeeding Business Day, commencing on [ ] and
continuing until the earlier of repayment of the Series [ ], Class [ ] Notes in
full and the Final Maturity Date for the Series [ ], Class [ ] Notes.
(c) Expected Amortization Schedule for Principal. Unless an
Event of Default shall have occurred and be continuing, on each Payment Date the
Indenture Trustee shall distribute to the Holders of record as of the related
Record Date amounts payable pursuant to Section 8.02(d)[(ix)] of the Indenture
as principal, in the following order and priority: [(1) to the holders of the
Class A-1 Notes, until the Outstanding Amount of such Class of Notes thereof has
been reduced to zero; (2) to the holders of the Class A-2 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (3)
to the holders of the Class A-3 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (4) to the holders of the Class
A-4 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (5) to the holders of the Class A-5 Notes until the Outstanding
Amount of such Class of Notes thereof has been reduced to zero; (6) to the
holders of the Class A-6 Notes, until the Outstanding Amount of such Class of
Notes thereof has been reduced to zero; (7) to the holders of the Class A-7
Notes until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; and (8) to the holders of the Class A-8 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero;]
provided, however, that in no event shall a principal payment pursuant to this
Section 3(c) on any Class on a Payment Date be greater than the amount necessary
to reduce the Outstanding Amount of such Class of Notes below the amount
specified in the Expected Amortization Schedule which is attached as Schedule A
hereto for such Class and Payment Date.
<PAGE>
(d) Periodic Interest. Periodic Interest will be payable on
each Class of the Series [ ] Notes on each Payment Date in an amount equal to
[one-half] of the product of (i) the applicable Note Interest Rate and (ii) the
Outstanding Amount of the related Class of Notes as of the close of business on
the preceding Payment Date after giving effect to all payments of principal made
to the holders of the related Class of Series [ ] Notes on such preceding
Payment Date; provided, however, that with respect to the initial Payment Date,
or, if no payment has yet been made, interest on the outstanding principal
balance will accrue from and including the Series Issuance Date to, but
excluding, the following Payment Date.
(e) Required Overcollateralization Level. The Required
Overcollateralization Level for any Payment Date shall be as set forth in
Schedule B hereto.
[(f) No Premium. No premium will be payable in connection
with any optional redemption of the Series [ ] Notes.]
[(g) The Series [ ] Notes shall not be Book-Entry Notes and
the applicable provisions of Section 2.11 of the Indenture shall not apply to
such Notes.]
SECTION 4. Minimum Denominations. The Series [ ] Notes
shall be issuable in the Minimum Denomination and integral multiples thereof.
SECTION 5. Certain Defined Terms. Article I of the Indenture
provides that the meanings of certain defined terms used in the Indenture shall,
when applied to the Notes of a particular Series, be as defined in Appendix A to
the Indenture. Additionally, Article II of the Indenture provides that with
respect to a particular Series of Notes, certain terms will have the meanings
specified in the related Certificate. With respect to the Series [ ] Notes, the
following definitions shall apply:
"Minimum Denomination" shall mean [$1,000].
"Note Interest Rate" has the meaning set forth in Section 2 of this Certificate.
"Payment Date" has the meaning set forth in Section 3(b) of this Certificate.
'Periodic Interest" has the meaning set forth in Section 3(d) of this
Certificate.
"Series Issuance Date" has the meaning set forth in Section 3(a) of this
Certificate.
SECTION 6. Delivery and Payment for the Series [ ] Notes; Form
of the Series [ ] Notes. The Indenture Trustee shall deliver the Series [ ]
Notes to the Note Issuer when authenticated in accordance with Section 2.03 of
the Indenture. The Series [ ] Notes of each Class shall be in the form of
Exhibits [A-1 through A-_] hereto.
<PAGE>
SECTION 7. Ratification of Agreement. As supplemented by this
Certificate, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Certificate, shall be read, taken, and
construed as one and the same instrument.
SECTION 8. Counterparts. This Certificate may be executed
in any number of counterparts, each of which so executed shall be deemed to
be an original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 9. Governing Law. This Certificate shall be construed
in accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws; provided
that the creation, attachment and perfection of any Liens created under the
Indenture in Transition Property, and all rights and remedies of the Indenture
Trustee and the Holders with respect to such Transition Property, shall be
governed by the laws of the State of Texas.
SECTION 10. LLC Obligation. No recourse may be taken directly
or indirectly, with respect to the obligations of the Note Issuer or the
Indenture Trustee on the Notes or under this Certificate or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Managers in their respective individual capacities,
(ii) any owner of a beneficial interest in the Note Issuer (including CPL) or
(iii) any shareholder, partner, owner, beneficiary, agent, officer, director,
employee or agent of the Indenture Trustee, the Managers or any owner of a
beneficial interest in the Note Issuer (including CPL) in its individual
capacity, or of any successor or assign of any of them in their respective
individual or corporate capacities, except as any such Person may have expressly
agreed (it being understood that none of the Indenture Trustee, the Managers or
CPL has any such obligations in their respective individual or corporate
capacities).
<PAGE>
IN WITNESS WHEREOF, the Note Issuer has caused this
Certificate to be duly executed by a Responsible Officer thereunto duly
authorized as of the first day of the month and year first above written.
CPL TRANSITION FUNDING LLC, as
Note Issuer,
By: _________________________________
Name:
Title: Manager
RECEIVED, this ____ day of ___________.
__________________________,
as Indenture Trustee
By: _________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Expected Amortization Schedule
Outstanding Principal Balance
Date Class Class Class Class Class
- ---- ----- ----- ----- ----- -----
Series Issuance $ $ $ $ $
Date
,20
,20
,20
,20
[Etc.]
<PAGE>
SCHEDULE B
Required Overcollateralization Level Schedule
Required
Payment Date Overcollateralization Level
,20 $
,20 $
,20 $
[Etc.] $
<PAGE>
EXHIBIT C
SERIES SUPPLEMENT dated as of ____, 2000 ____ (this
"Supplement"), by and between CPL TRANSITION FUNDING
LLC, a limited liability company created under the
laws of the State of Delaware (the "Note Issuer"),
and ____________________, [a ________ banking
corporation] (the "Indenture Trustee"), as Indenture
Trustee under the Indenture dated as of [ ], 2000,
between the Note Issuer and the Indenture Trustee
(the "Indenture").
PRELIMINARY STATEMENT
Section 9.01 of the Indenture provides, among other things,
that the Note Issuer and the Indenture Trustee may at any time and from time to
time enter into one or more indentures supplemental to the Indenture for the
purposes of authorizing the issuance by the Note Issuer of a Series of Notes and
specifying the terms thereof. The Note Issuer has duly authorized the creation
of a Series of Notes with an initial aggregate principal amount of $ [ ] to be
known as CPL Transition Funding LLC Notes, Series [ ] (the "Series [ ] Notes"),
and the Note Issuer and the Indenture Trustee are executing and delivering this
Supplement in order to provide for the Series [ ] Notes.
All terms used in this Supplement that are defined in the
Indenture, either directly or by reference therein, have the meanings assigned
to them therein, except to the extent such terms are defined or modified in this
Supplement or the context clearly requires otherwise. In the event that any term
or provision contained herein shall conflict with or be inconsistent with any
term or provision contained in the Indenture, the terms and provisions of this
Supplement shall govern.
SECTION 1. Designation. The Series [ ] Notes shall be
designated generally as the Transition Notes, Series [ ] and further denominated
as Classes [ ] through [ ].
SECTION 2. Initial Principal Amount; Note Interest Rate;
Scheduled Payment Date; Final Maturity Date. The Notes of each Class of the
Series [ ] shall have the initial principal amount, bear interest at the rates
per annum and shall have Scheduled Payment Dates and Final Maturity Dates set
forth below:
Initial Note Scheduled Final
Principal Interest Payment Maturity
Class Amount Rate Date Date
<PAGE>
The Note Interest Rate shall be computed on the basis of a 360-day year of
twelve 30-day months. [If the Notes of all or any Classes are to be Floating
Rate Notes, describe here the index or indexes to be used to determine the
applicable variable rate.]
SECTION 3. Authentication Date; Payment Dates; Expected
Amortization Schedule for Principal; Periodic Interest; Required
Overcollateralization Level; No Premium; Other Terms. (a) Authentication Date.
The Series [ ] Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Note Issuer on [ ] (the "Series Issuance
Date") shall have as their date of authentication [ ].
(b) Payment Dates. The Payment Dates for the Series [ ]Notes
are __________, __________ and __________ of each year or, if any such date is
not a Business Day, the next succeeding Business Day, commencing on [ ] and
continuing until the earlier of repayment of the Series [ ], Class [ ] Notes in
full and the Final Maturity Date for the Series [ ], Class [ ] Notes.
(c) Expected Amortization Schedule for Principal. Unless an
Event of Default shall have occurred and be continuing on each Payment Date, the
Indenture Trustee shall distribute to the Holders of record as of the related
Record Date amounts payable pursuant to Section 8.02(d)[(ix)] of the Indenture
as principal, in the following order and priority: [(1) to the holders of the
Class A-1 Notes, until the Outstanding Amount of such Class of Notes thereof has
been reduced to zero; (2) to the holders of the Class A-2 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (3)
to the holders of the Class A-3 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (4) to the holders of the Class
A-4 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (5) to the holders of the Class A-5 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (6)
to the holders of the Class A-6 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (7) to the holders of the Class
A-7 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; and (8) to the holders of the Class A-8 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero;]
provided, however, that in no event shall a principal payment pursuant to this
Section 3(c) on any Class on a Payment Date be greater than the amount necessary
to reduce the Outstanding Amount of such Class of Notes below the amount
specified in the Expected Amortization Schedule which is attached as Schedule A
hereto for such Class and Payment Date.
<PAGE>
(d) Periodic Interest. Periodic Interest will be payable on
each Class of the Series [ ] Notes on each Payment Date in an amount equal to
[one-half] of the product of (i) the applicable Note Interest Rate and (ii) the
Outstanding Amount of the related Class of Notes as of the close of business on
the preceding Payment Date after giving effect to all payments of principal made
to the Holders of the related Class of Series [ ] Notes on such preceding
Payment Date; provided, however, that with respect to the Initial Payment Date,
or, if no payment has yet been made, interest on the outstanding principal
balance will accrue from and including the Series Issuance Date to, but
excluding, the following Payment Date.
(e) Required Overcollateralization Level. The Required
Overcollateralization Level for any Payment Date shall be as set forth in
Schedule B hereto.
[(f) No Premium. No premium will be payable in connection
with any optional redemption of the Series [ ] Notes.]
[(g) The Series [ ] Notes shall not be Book-Entry Notes and
the applicable provisions of Section 2.11 of the Indenture shall not apply to
such Notes.]
SECTION 4. Minimum Denominations. The Series [ ] Notes
shall be issuable in the Minimum Denomination and integral multiples thereof.
SECTION 5. Certain Defined Terms. Article I of the Indenture
provides that the meanings of certain defined terms used in the Indenture shall,
when applied to the Notes of a particular Series, be as defined in Appendix A to
the Indenture. Additionally, Article II of the Indenture provides that with
respect to a particular Series of Notes, certain terms will have the meanings
specified in the related Supplement. With respect to the Series [ ] Notes, the
following definitions shall apply:
"Minimum Denomination" shall mean [$1,000].
"Note Interest Rate" has the meaning set forth in Section 2 of this Supplement.
"Payment Date" has the meaning set forth in Section 3(b) of this Supplement.
"Periodic Interest" has the meaning set forth in Section 3(d) of this
Supplement.
"Series Issuance Date" has the meaning set forth in Section 3(a) of this
Supplement.
SECTION 6. Delivery and Payment for the Series [ ] Notes; Form
of the Series [ ] Notes. The Indenture Trustee shall deliver the Series [ ]
Notes to the Note Issuer when authenticated in accordance with Section 2.03 of
the Indenture. The Series [ ] Notes of each Class shall be in the form of
Exhibits [A-1 through A-_] hereto.
SECTION 7. Ratification of Agreement. As supplemented by this
Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Supplement, shall be read, taken, and
construed as one and the same instrument.
<PAGE>
SECTION 8. Counterparts. This Supplement may be executed
in any number of counterparts, each of which so executed shall be deemed to
be an original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 9. Governing Law. This Supplement shall be construed
in accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws; provided
that the creation, attachment and perfection of any Liens created under the
Indenture in Transition Property, and all rights and remedies of the Indenture
Trustee and the Holders with respect to such Transition Property, shall be
governed by the laws of the State of Texas.
SECTION 10. LLC Obligation. No recourse may be taken directly
or indirectly, with respect to the obligations of the Note Issuer or the
Indenture Trustee on the Notes or under this Supplement or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Managers in their respective individual capacities,
(ii) any owner of a beneficial interest in the Note Issuer (including CPL) or
(iii) any shareholder, partner, owner, beneficiary, agent, officer, director,
employee or agent of the Indenture Trustee, the Managers or any owner of a
beneficial interest in the Note Issuer (including CPL) in its individual
capacity, or of any successor or assign of any of them in their respective
individual or corporate capacities, except as any such Person may have expressly
agreed (it being understood that none of the Indenture Trustee, the Managers and
CPL have any such obligations in their respective individual or corporate
capacities).
<PAGE>
IN WITNESS WHEREOF, the Note Issuer and the Indenture Trustee
have caused this Supplement to be duly executed by their respective officers
thereunto duly authorized as of the first day of the month and year first above
written.
CPL TRANSITION FUNDING LLC,
as Note Issuer,
By: _________________________________
Name:
Title: Manager
_____________________________________,
as Indenture Trustee
By: ________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Expected Amortization Schedule
Outstanding Principal Balance
Date Class Class Class Class Class
- ---- ----- ----- ----- ----- -----
Series Issuance $ $ $ $ $
Date
,20
,20
,20
,20
[Etc.]
<PAGE>
SCHEDULE B
Required Overcollateralization Level Schedule
Required
Payment Date Overcollateralization Level
,20 $
,20 $
,20 $
[Etc.] $
- --------
NOTE: The form of the reverse of a Note is substantially as follows,
unless otherwise specified in the related Trustee's Issuance Certificate
or Series Supplement.
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Class [ - ] Note in
every particular, without alteration, enlargement or any change whatsoever.
NOTE: Signature(s) must be guaranteed by an institution which is a member of
one of the following recognized Signature Guaranty Programs: (i) The Securities
Transfer Agent Medallion Program (STAMP), (ii) The New York Stock Exchange
Medallion Program (MSP), (iii) The Stock Exchange Medallion Program (SEMP) or
(iv) such other guarantee program acceptable to the Indenture Trustee.
APPENDIX A
DEFINITIONS
This is Appendix A to the Indenture.
A. Defined Terms. As used in the Sale Agreement, the
Indenture, the LLC Agreement, the Servicing Agreement, Trustee's Issuance
Certificate, any Series Supplement or any other Basic Document as hereinafter
defined, as the case may be (unless the context requires a different meaning),
the following terms have the following meanings:
"Act" is defined in Section 11.03 of the Indenture.
"Actual TC Collections" means, with respect to Transition
Charges billed in any Reconciliation Period, the amount of such Transition
Charges less Net TC Write-Offs calculated for such Reconciliation Period.
"Addition Notice" means, with respect to the transfer of
Subsequent Transition Property to the Note Issuer pursuant to Section 2.02 of
the Sale Agreement, notice, which shall be given by the Seller to the Note
Issuer and the Rating Agencies not later than 10 days prior to the related
Subsequent Transfer Date, specifying the Subsequent Transfer Date for such
Subsequent Transition Property.
"Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agency Office" means the office of the Note Issuer maintained
pursuant to Section 3.02 of the Indenture.
"Aggregate Remittance Amount" means, with respect to any
Monthly Remittance Date, the total TC Payments estimated to have been received
by the Servicer from or on behalf of Customers during the prior Collection
Period in respect of all previously Billed TCs.
"Amendatory Tariff" means a revision to service riders or any
other notice filing filed with the PUCT in respect of a Tariff pursuant to a
True-Up Adjustment.
"Annual Accountant's Report" is defined in Section 3.04
of the Servicing Agreement.
"Annual True-Up Adjustment" means each adjustment to the
Transition Charges made pursuant to the terms of the related Tariff in
accordance with Section 4.01(b)(i) of the Servicing Agreement.
"Annual True-Up Adjustment Date" means March 1 of each year,
commencing on March 1, 2001.
"Applicable REP" means, with respect to each Customer taking
service from an REP, the REP, if any, providing consolidated billing to that
Customer which includes billing of Transition Charges.
"Application" means the Application of CPL for a Financing
Order to securitize regulatory assets and other qualified costs filed by CPL
with the PUCT dated October __, 1999 pursuant to the Securitization Law, or any
subsequent similar Application of CPL.
"Bankruptcy Code" means Title 11 of the United States Code
(11 U.S.C. ss. 101 et seq.), as amended from time to time.
"Basic Documents" means the Sale Agreement, the Indenture, the
LLC Agreement, the Servicing Agreement, each Swap Agreement, each Series
Supplement, each Trustee's Issuance Certificate, each Letter of Representations,
each Underwriting Agreement and all other documents and certificates delivered
in connection therewith.
"Benefit Plan" means, with respect to any Person, any defined
benefit plan (as defined in Section 3(35) of ERISA) that (a) is or was at any
time during the past six years maintained by such Person or any ERISA Affiliate
of such person, or to which contributions by any such Person are or were at any
time during the past six years required to be made or under which such Person
has or could have any liability or (b) is subject to the provisions of Title IV
of ERISA.
"Billing Period" means the period created by dividing the
calendar year into twelve consecutive periods of approximately [twenty-one (21)]
Servicer Business Days.
"Bills" means each of the regular monthly bills, summary
bills, opening bills and closing bills issued to Customers by CPL or REPS or to
REPs by CPL on its own behalf and in its capacity as Servicer.
"Book-Entry Form" means, with respect to any Note or Series of
Notes, that such Note or Series is not certificated and the ownership and
transfers thereof shall be made through the book entries by a Clearing Agency as
described in Section 2.11 of the Indenture and the applicable Trustee's Issuance
Certificate or Series Supplement, if any, pursuant to which such Note or Series
was issued.
"Book-Entry Notes" means any Notes issued in Book-Entry Form;
provided, however, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer permitted and Definitive Notes are to be
issued to the Holder of such Notes, such Notes shall no longer be "Book-Entry
Notes".
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in Dallas, Texas or New York, New York
are, or DTC is, authorized or required by law, regulation or executive order to
remain closed.
"Calculation Period" means initially, the period commencing on
the Closing Date and ending on February 28, 2001 and, thereafter, each period of
twelve Collection Periods ending immediately preceding the next Annual True-Up
Adjustment Date; provided, that, if an Interim True-Up Adjustment is required,
then the Calculation Period for such Interim True-Up Adjustment shall mean the
period of six Collection Periods commencing with the period during which such
Interim True-Up Adjustment is implemented and ending on the date immediately
preceding the next Annual True-Up Adjustment Date.
"Capital Contribution" means the amount of cash contributed to
the Note Issuer by CPL as specified in the LLC Agreement.
"Capital Subaccount" is defined in Section 8.02(a) of the
Indenture.
"Certificate of Compliance" means the certificate referred to
in Section 3.03 of the Servicing Agreement and substantially in the form of
Exhibit B attached to the Servicing Agreement.
"Certificate of Formation" means the Certificate of Formation
filed with the Secretary of State of the State of Delaware pursuant to which the
Note Issuer was formed, substantially in the form of Exhibit B to the LLC
Agreement.
"Claim" means a "claim" as defined in Section 101(5) of the
Bankruptcy Code.
"Class" means, with respect to any Series of Notes, any one of
the classes of Notes of that Series.
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a securities broker,
dealer, bank, trust company, clearing corporation or other financial institution
or other Person for whom from time to time a Clearing Agency effects book entry
transfers and pledges of securities deposited with the Clearing Agency.
"Closing Date" means __________, 2000.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
"Collection Account" means the account established and
maintained by the Indenture Trustee in accordance with Section 8.02(a) of the
Indenture and any subaccounts contained therein.
"Collection Period" means any period commencing on the first
Servicer Business Day of any calendar month and ending on the last Servicer
Business Day of such month.
"Consolidated REP Billing" means the billing option available
to Customers served by an REP pursuant to which such REP will be responsible for
billing and collecting all charges to such Customers, including the Transition
Charges, in accordance with applicable PUCT Regulations.
"Corporate Trust Office" means with respect to the Indenture
Trustee, the principal office at which at any particular time the corporate
trust business of the Indenture Trustee shall be administered, which office at
the Closing Date is located at ______________
____________________________________, Attention: ______________________________
or at such other address as the Indenture Trustee may designate from time to
time by notice to the Holders and the Note Issuer, or the principal corporate
trust office of any successor Indenture Trustee (the address of which the
successor Indenture Trustee will notify the Holders and the Note Issuer).
"Covenant Defeasance Option" is defined in Section 4.01(b)
of the Indenture.
"CPL" means Central Power and Light Company, a Texas
corporation, and any successors in interest to its electric transmission and
distribution business or, if transmission and distribution are split, to the
successor of CPL providing wires service directly to Customers.
"Customers" means all existing and future retail customers of
CPL and all other existing and future retail customers who are obligated to pay
Transition Charges pursuant to any Financing Order or any Tariff.
"Daily Remittance" is defined in Section 6.11(a) of the
Servicing Agreement.
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default as defined in Section
5.01 of the Indenture.
"Definitive Notes" means Notes issued in definitive form in
accordance with Section 2.13 of the Indenture.
"DTC" means The Depository Trust Company or any successor
thereto.
"Duff & Phelps" means Duff & Phelps Credit Rating Co. or any
successor thereto.
"Eligible Deposit Account" means either (a) a segregated trust
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any state (or any domestic branch of a
foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution shall have a credit rating from each Rating Agency in one of its
generic rating categories which signifies investment grade.
"Eligible Institution" means (a) the corporate trust
department of the Indenture Trustee; provided that an account with the Indenture
Trustee will only be an Eligible Deposit Account if it is a segregated trust
account or (b) a depository institution organized under the laws of the United
States of America or any State (or any domestic branch of a foreign bank), which
(i) has either (A) a long-term unsecured debt rating of AAA by Standard & Poor's
and Aaa by Moody's, and if rated by Fitch IBCA, AAA by Fitch IBCA and if rated
by Duff & Phelps, AAA by Duff & Phelps or (B) a certificate of deposit rating of
A-1+ by Standard & Poor's and P-1 by Moody's, and if rated by Fitch IBCA, F1+ by
Fitch IBCA and if rated by Duff & Phelps, D-1+ by Duff & Phelps or any other
long-term, short-term or certificate of deposit rating acceptable to the Rating
Agencies and (ii) whose deposits are insured by the FDIC. If so qualified under
clause (b) above, the Indenture Trustee may be considered an Eligible
Institution for the purposes of clause (a) of this definition.
"Eligible Investments" mean instruments or investment
property which evidence:1
(a) direct obligations of, and obligations fully and
unconditionally guaranteed as to timely payment by, the United
States of America;
(b) demand deposits, time deposits, certificates of
deposit or bankers' acceptances of depository institutions
meeting the requirements of clause (b) of the definition of
Eligible Institution;
(c) commercial paper (other than commercial paper of
CPL or any of its Affiliates) having, at the time of the
investment or contractual commitment to invest therein, a
rating from each of the Rating Agencies from which a rating is
available in the highest investment category granted thereby;
(d) investments in money market funds having a rating
from each of the Rating Agencies from which a rating is
available in the highest investment category granted thereby
(including funds for which the Indenture Trustee or any of its
Affiliates is investment manager or advisor);
(e) repurchase obligations with respect to any
security that is a direct obligation of, or fully guaranteed
by, the United States of America or any agency or
instrumentality thereof the obligations of which are backed by
the full faith and credit of the United States of America, in
either case entered into with depository institutions or trust
companies meeting the requirements of clause (b) of the
definition of Eligible Institutions; and
(f) any other investment permitted by each of the
Rating Agencies;
in each case maturing not later than the Business Day immediately preceding the
next Payment Date. Notwithstanding the foregoing, (x) Eligible Investments in
the Collection Account may mature not later than the Business Day immediately
preceding the next Payment Date, and (y) subject to the conditions and
limitations set forth in Section 8.03 of the Indenture, funds in the Collection
Account may be invested in securities that will not mature prior to each Payment
Date; provided, however, that any securities or investments which mature in 32
days or more shall not be an "Eligible Investment" unless the issuer thereof has
a long-term unsecured debt rating of at least A1 from Moody's and A+ from S&P.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means with respect to any Person at any
time, each trade or business (whether or not incorporated) that would, at that
time, be treated together with such Person as a single employer under Section
401 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Estimated TC Collections" means the sum of the payments in
respect of Transition Charges which are deemed to have been received by the
Servicer, directly or indirectly (including through an REP), from or on behalf
of Customers, calculated in accordance with Annex I of the Servicing Agreement.
"Event of Default" is defined in Section 5.01 of the
Indenture.
"Excess Remittance" means the amount, if any, calculated for a
particular Reconciliation Period, by which all Estimated TC Collections remitted
to the Collection Account during such Reconciliation Period exceed Actual TC
Collections received by the Servicer during such Reconciliation Period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expected Amortization Schedule" means Schedule 4.01(a)
to the Servicing Agreement, as the same may be amended from timee to time.
"Expected Final Payment Date" means, with respect to any
Series or Class of Notes, the Expected Final Payment Date thereof.
"FDIC" means the Federal Deposit Insurance Corporation or
any successor thereto.
"FERC" means the Federal Energy Regulatory Commission or any
successor thereto.
"Final" means, with respect to any Financing Order, that such
Financing Order has become final and that the time for filing an appeal
therefrom has expired.
"Final Maturity Date" means, with respect to any Series or
Class of Notes, the Final Maturity Date therefor, as specified in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"Financing Order" means, as the context may require, (i) the
Initial Financing Order and/or (ii) any Subsequent Financing Order.
"Fitch IBCA" means Fitch IBCA, Inc. or any successor thereto.
"Floating Rate Notes" means any Series or Class of Notes that
accrues interest at a variable rate determined as described in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"Freeze Period" has the meaning assigned to such term in
Section 31.002 of the Utilities Code.
"General Subaccount" is defined in Section 8.02(a) of the
Indenture.
"Global Note" means a Note evidencing all or any part of a
Series of Notes to be issued to the Holders thereof in Book-Entry Form, which
Global Note shall be issued to the Clearing Agency, or its nominee, for such
Series, in accordance with Section 2.11 of the Indenture and the applicable
Trustee's Issuance Certificate or Series Supplement, if any, pursuant to which
the Note is issued.
"Governmental Authority" means any nation or government, any
federal, state, local or other political subdivision thereof and any court,
administrative agency or other instrumentality or entity exercising executive,
legislative, judicial, regulatory or administrative function of government.
"Grant" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, grant, transfer, create, and grant a lien
upon and a security interest in and right of set-off against, deposit, set over
and confirm pursuant to the Indenture. A Grant of the Note Collateral or of any
other agreement or instrument included therein shall include all rights, powers
and options (but none of the obligations) of the Granting party thereunder,
including the immediate and continuing right to claim for, collect, receive and
give receipt for payments in respect of the Note Collateral and all other moneys
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Note Register.
"Indenture" means the Indenture dated as of __________, ____
between the Note Issuer and the Indenture Trustee as originally executed and, as
from time to time supplemented or amended by one or more Trustee's Issuance
Certificates or indentures supplemental thereto entered into pursuant to the
applicable provisions of the Indenture, as so supplemented or amended, or both,
and shall include the forms and terms of the Notes established thereunder.
"Indenture Trustee" means ____________________, a ____________
banking corporation, as Indenture Trustee under the Indenture, or any successor
Indenture Trustee under the Indenture.
"Independent" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Note Issuer, any other
obligor on the Notes, the Seller, the Servicer and any Affiliate of any of the
foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Note Issuer, any such other obligor,
the Seller, the Servicer or any Affiliate of any of the foregoing Persons and
(c) is not connected with the Note Issuer, any such other obligor, the Seller,
the Servicer or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and consented to by the Indenture Trustee, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in the Indenture and that the signer is Independent within the meaning thereof.
"Independent Manager" means each Person acting as an
Independent Manager under the LLC Agreement.
"Indirect Participant" means a securities broker, dealer,
bank, trust company or other Person that clears through or maintains a custodial
relationship with a Clearing Agency Participant, either directly or indirectly.
"Initial Financing Order" means the Final Financing Order
dated [__________, 2000] issued by the PUCT pursuant to the Securitization
Law, Docket No. [__-____].
"Initial Tariff" means the initial Tariff filed with the PUCT
to evidence the Transition Charges pursuant to the Initial Financing Order.
"Initial Transition Property" means all Transition Property
created in favor of the Note Issuer pursuant to the Initial Financing Order,
including [insert text from Initial Financing Order].
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having jurisdiction in
the premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Insolvency Law" means any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect.
"Interim True-Up Adjustment" means each adjustment to the
Transition Charges made pursuant to the terms of the related Tariff and in
accordance with Section 4.01(b)(ii) of the Servicing Agreement.
"Interim True-Up Adjustment Date" means [_________] of each
year, commencing on [____________], [____].
"Investment Company Act" means the Investment Company Act of
1940, as amended.
"Investment Earnings" means investment earnings on funds
deposited in the Collection Account net of losses and investment expenses.
"Issuance Advice Letter" means any Issuance Advice Letter
filed with the PUCT pursuant to the Securitization Law with respect to any
Transition Charges.
"Issuer Order" and "Issuer Request" mean a written order or
request signed in the name of the Note Issuer by any one of its Responsible
Officers and delivered to the Indenture Trustee or Paying Agent, as applicable.
"Legal Defeasance Option" is defined in Section 4.01(b) of
the Indenture.
"Letter of Representations" means any applicable agreement
among the Note Issuer, the Indenture Trustee and the applicable Clearing Agency,
with respect to such Clearing Agency's rights and obligations (in its capacity
as a Clearing Agency) with respect to any Book-Entry Notes, as the same may be
amended, supplemented, restated or otherwise modified from time to time.
"Lien" means a security interest, lien, charge, pledge, equity
or encumbrance of any kind other than tax liens, mechanics' liens and any liens
that attach by operation of law.
"LLC Act" means the Delaware Limited Liability Company Act,
as amended.
"LLC Agreement" means the Amended and Restated Limited
Liability Company Agreement of CPL Transition Funding LLC dated as of ________
__, 2000, as the same may be amended, supplemented or otherwise modified from
time to time.
"Losses" is defined in Section 5.04 of the Servicing
Agreement.
"Manager" means each manager of the Note Issuer under the
LLC Agreement.
"Minimum Denomination" means, with respect to any Note, the
minimum denomination therefor specified in the applicable Trustee's Issuance
Certificate or Series Supplement, if any, which minimum denomination shall be
not less than $1,000 and, except as otherwise provided in such Trustee's
Issuance Certificate or Series Supplement, if any, integral multiples thereof.
"Monthly Remittance Date" means the [tenth] day of each
calendar month or, if such day is not a Business Day, the next succeeding
Business Day.
"Monthly Servicer's Certificate" means a certificate,
substantially in the form of Exhibit A to the Servicing Agreement, completed and
executed by a Responsible Officer of the Servicer pursuant to Section 3.01(b)(i)
of the Servicing Agreement.
"Moody's" means Moody's Investors Service Inc. or any
successor thereto.
"Net TC Write-Offs" means, for any Reconciliation Period, an
amount equal to the product of (i) the Net Write-Off Percentage for such period
times (ii) total Billed TCs attributable to such Reconciliation Period.
"Net Write-Off Percentage" for any Reconciliation Period means
the Servicer's actual system wide charge-off percentage, as adjusted for
recoveries on previously written-off bills.
"Note Collateral" has the meaning specified in the Granting
Clause of the Indenture.
"Note Depository" means the depositary from time to time
selected by the Indenture Trustee on behalf of the Note Issuer in whose name the
Notes are registered prior to the issuance of Definitive Notes. The initial Note
Depository shall be Cede & Co., the nominee of the initial Clearing Agency.
"Note Interest Rate" means, with respect to any Series or
Class of Notes, the rate at which interest accrues on the Notes of such Series
or Class, as specified in the related Trustee's Issuance Certificate or Series
Supplement, if any.
"Note Issuer" means CPL Transition Funding LLC, a Delaware
limited liability company, named as such in the Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Note Owner" means with respect to a Book-Entry Note, the
Person who is the beneficial owner of such Book-Entry Note, as reflected on the
books of the Clearing Agency, or on the books of a Person maintaining an account
with such Clearing Agency (directly as a Clearing Agency Participant or as an
Indirect Participant, in each case in accordance with the rules of such Clearing
Agency).
"Note Register" means the register maintained pursuant to
Section 2.05 of the Indenture, providing for the registration of the Notes and
transfers and exchanges thereof.
"Note Registrar" means the registrar at any time of the
Note Register, appointed pursuant to Section 2.05 of the Indenture.
"Notes" means one or more Series of Transition Notes
authorized by the Initial Financing Order and any Subsequent Financing Order and
issued under the Indenture.
"Notice of Default" is defined in Section 5.01 of the
Indenture.
"Officer's Certificate" means a certificate signed by a
Responsible Officer of the Note Issuer under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Responsible Officer of the party delivering such
certificate.
"Operating Expenses" means all fees, costs and expenses of the
Note Issuer, including all amounts owed by the Note Issuer to the Indenture
Trustee, any Independent Manager, the Servicing Fee, legal and accounting fees,
costs and expenses of the Note Issuer and CPL and any franchise taxes owed on
investment income in the Collection Account.
"Opinion of Counsel" means one or more written opinions of
counsel who may, except as otherwise expressly provided in the Basic Documents,
be employees of or counsel to the party providing such opinion of counsel, which
counsel shall be reasonably acceptable to the party receiving such opinion of
counsel, and shall be in form and substance reasonably acceptable to such party.
"Optional Redemption Date" means, with respect to any Series
of Notes, the Payment Date specified for the redemption of the Notes of such
Series pursuant to Section 10.01 of the Indenture.
"Optional Redemption Price" is defined in Section 10.01 of
the Indenture.
"Outstanding" means, as of the date of determination, all
Notes theretofore authenticated and delivered under this Indenture except:
(a) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(b) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Indenture Trustee, made); and
(c) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
Amount of the Notes or any Series or Class thereof have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or under
any Basic Document, Notes owned by the Note Issuer, any other obligor upon the
Notes, CPL or any Affiliate of any of the foregoing Persons shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the
Indenture Trustee actually knows to be so owned shall be so disregarded. Notes
so owned that have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Note Issuer, any other obligor upon the Notes, CPL or any Affiliate of any
of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of
all Notes or, if the context requires, all Notes of a Series or Class,
Outstanding at the date of determination.
"Overcollateralization Subaccount" is defined in Section
8.02(a) of the Indenture.
"Paying Agent" means with respect to the Indenture, the
Indenture Trustee or any other Person that meets the eligibility standards for
the Indenture Trustee specified in Section 6.11 of the Indenture and is
authorized by the Note Issuer to direct the Servicer to make the payments to and
distributions from the Collection Account, including payment of principal of or
interest on the Notes on behalf of the Note Issuer.
"Payment Date" means, with respect to any Series or Class of
Notes, the dates specified in the related Trustee's Issuance Certificate or the
Series Supplement, if any, provided that if any such date is not a Business Day,
the Payment Date shall be the Business Day immediately succeeding such date.
"Periodic Billing Requirement" means, for any Calculation
Period, the aggregate amount of Transition Charges calculated by the Servicer as
necessary to be billed during such period in order to collect the Periodic
Payment Requirements on or before the end of the Collection Period immediately
preceding the next Annual True-Up Adjustment Date.
"Periodic Interest" means, with respect to any Payment Date
and any Series of Notes, the periodic interest for such Payment Date and Series
as specified in the related Trustee's Issuance Certificate or Series Supplement,
if any.
"Periodic Payment Requirement" for any Calculation Period
means the total dollar amount of TC Collections reasonably calculated by the
Servicer in accordance with Section 4.01 of the Servicing Agreement as necessary
to be received during such period (after giving effect to the allocation and
distribution of amounts on deposit in the Reserve Subaccount at the time of
calculation and which are available for payments on the Notes and including any
shortfalls in Periodic Payment Requirements for any prior Calculation Period) in
order to ensure that, as of the last Payment Date occurring in such Calculation
Period, (1) all accrued and unpaid interest on the Notes then due shall have
been paid in full, (2) the Outstanding Amount of the Notes is equal to the
Projected Unrecovered Balance, (3) the balance on deposit in the
Overcollateralization Subaccount equals the aggregate Required
Overcollateralization Level, (4) the balance on deposit in the Capital
Subaccount equals the aggregate Required Capital Level and (5) all other fees
and expenses due and owing and required or allowed to be paid under Section 8.02
of the Indenture as of such date shall have been paid in full; provided that,
with respect to any Annual True-Up Adjustment or Interim True-Up Adjustment
occurring after the last Expected Final Payment Date for any Notes, the Periodic
Payment Requirements shall be calculated to ensure that sufficient Transition
Charges will be collected to retire such Notes in full as of the earlier of (x)
the Payment Date preceding the next Annual True-Up Adjustment Date and (y) the
Final Maturity Date for such Notes.
"Periodic Principal" means, with respect to any Payment Date
and any Series of Notes, the excess, if any, of the Outstanding Amount of such
Series of Notes over the outstanding Unrecovered Balance specified for such
Payment Date on the applicable Expected Amortization Schedule.
"Person" means any individual, corporation, limited liability
company, estate, partnership, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Note" means, with respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note, and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.06 of the Indenture in lieu of
a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"Projected Unrecovered Balance" means, as of any Payment Date,
the sum of the projected outstanding principal amount of each Series of Notes
for such Payment Date set forth in the Expected Amortization Schedule.
"PUHCA Order" means the order of the SEC dated December 30,
1997 (Release No. 35-26811), as amended by the
supplemental order dated ________, ____.
"PUCT" means the Public Utility Commission of Texas, or any
successor thereto.
"PUCT Regulations" means the regulations, including proposed
or temporary regulations, promulgated under the Utilities Code.
"Qualified Costs" means all qualified costs as defined in
Section 39.302 of the Utilities Code.
"Rating Agency" means Moody's, Standard & Poor's, Duff &
Phelps and Fitch IBCA. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Note Issuer, notice of
which designation shall be given to the Indenture Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given ten days prior notice thereof and
that each of the Rating Agencies shall have notified the Servicer, the Note
Issuer and the Indenture Trustee in writing that such action will not result in
a reduction or withdrawal of the then current rating by such Rating Agency of
either any Series or Class of Notes.
"Reconciliation Period" means the twelve-month period
commencing on January 1 of each year and ending on December 31 of each year;
provided, that the initial Reconciliation Period shall commence on the Closing
Date.
"Record Date" means, with respect to a Payment Date or
Redemption Date, in the case of Definitive Notes, the close of business on the
last day of the calendar month preceding the calendar month in which such
Payment Date or Redemption Date occurs, and in the case of Book Entry Notes, one
Business Day prior to the applicable Payment Date or Redemption Date.
"Redemption Date" means, with respect to any Series or Class
of Notes, the date specified by the Note Issuer for the redemption of the Notes
of such Series or Class pursuant to Section 10.01 of the Indenture or in the
related Trustee's Issuance Certificate or the Series Supplement, if any.
"Redemption Payment" means with respect to any Series or Class
of Notes, any payment of principal of and interest on the Notes of such Series
or Class due from the Note Issuer upon the early redemption of such Series or
Class of Notes, other than any such payment due by reason of the occurrence of
an Event of Default with respect to such Series or Class of Notes.
"Redemption Price" means with respect to any Series or Class
of Notes, the unpaid principal amount of the Notes of such Series or Class
redeemed, plus accrued and unpaid interest thereon at the interest rate
applicable to such Series or Class to but excluding the Redemption Date.
"Registered Holder" means the Person in whose name a Note is
registered on the Note Register.
"Registration Statement" means the registration statement,
Form S-3 Registration No. 333-________, filed with the SEC for registration
under the Securities Act relating to the offering and sale of the Notes, and
including all amendments thereto.
"Related Assets" means all of the Note Issuer's right, title
and interest in and to the Sale Agreement, the Servicing Agreement and all
present and future claims, demands, causes and choses in action in respect of
all of the foregoing and all payments on or under and all proceeds of every kind
and nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind, and other forms of
obligations and receivables, instruments and other property which in any time
constitute all or part of or are included in the proceeds of any of the
foregoing.
"Remittance Requirement" means, with respect to any
Third-Party Collector, the requirement that such Third-Party Collector remit
Transition Charges to the Servicer within [16] days of billing by the Servicer
in accordance with the terms of the applicable Tariffs.
"Remittance Shortfall" means the amount, if any, calculated
for a particular Reconciliation Period, by which Actual TC Collections received
by the Servicer during such Reconciliation Period exceed all Estimated TC
Collections remitted to the Collection Account during such Reconciliation
Period.
"REP" means a retail electric provider as defined in Section
31.002(17) of the Utilities Code.
"REP Credit Requirements" means the credit and collection
policies applicable to REPS under the Tariffs and other PUCT Regulations.
"REP Deposit Requirements" means the deposit requirements
applicable to REPs under the Tariffs and other PUCT Regulations.
"REP Deposit Subaccount" is defined in Section 8.02(a) of the
Indenture .
"REP Service Agreement" means an agreement between an REP and
CPL for the provision of consolidated billing by such REP to customers in
accordance with PUCT Regulations, the terms of any Tariffs and the terms of any
delivery service tariffs filed by CPL under the Utilities Code.
"Required Capital Level" means, with respect to each Series of
Notes, an amount equal to 0.50% of the initial principal amount of such Series,
deposited into the Capital Subaccount by CPL prior to or upon the issuance of
such Series.
"Required Overcollateralization Level" means, as of any
Payment Date with respect to any Series, the amount required to be on deposit in
the Overcollateralization Subaccount as specified in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, but not less than, as of the
Expected Final Payment Date for such Series, 0.50% of the initial Outstanding
Amount thereof.
"Requirement of Law" means any foreign, federal, state or
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Authority or common law.
"Reserve Subaccount" is defined in Section 8.02(a) of the
Indenture.
"Responsible Officer" means with respect to (a) the Note
Issuer, any Manager or any duly authorized officer; (b) the Indenture Trustee,
any officer within the Corporate Trust Office of such trustee (including the
President, any Vice President, Assistant Vice President, Secretary or Assistant
Treasurer or any other officer or assistant officer of such Person customarily
performing functions similar to those performed by any of the chosen designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred to because of such officer's knowledge and
familiarity with the particular subject); (c) any corporation, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer or any other duly authorized officer of such Person who has been
authorized to act in the circumstances; (d) any partnership, any general partner
thereof; and (e) any other Person (other than an individual), any duly
authorized officer or member of such Person, as the context may require, who is
authorized to act in matters relating to such Person.
"Retirement of the Notes" means any day on which the final
distribution is made to the Indenture Trustee in respect of the last Outstanding
Notes.
"Sale Agreement" means the Transition Property Purchase and
Sale Agreement dated as of __________, 2000 between CPL and the Note Issuer, as
the same may be amended, supplemented or otherwise modified from time to time.
"Scheduled Payment Date" is defined in the applicable
Trustee's Issuance Certificate or Series Supplement, if any, with respect to
each Series or Class of Notes.
"SEC" means the Securities and Exchange Commission.
"Secretary of State" means the Secretary of State of the State
of Delaware or the Secretary of State of the State of Texas, as the case may be,
or any Governmental Authority succeeding to the duties of such offices.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Law" means Subchapter G of the Utilities Code.
"Seller" is defined in Section 1.01 of the Sale Agreement.
"[Semi-Annual] Servicer's Certificate" means a certificate,
substantially in the form of Exhibit E to the Servicing Agreement, completed and
executed by a Responsible Officer of the Servicer pursuant to Section
4.01(c)(ii) of the Servicing Agreement.
"Series" means each series of Notes issued and authenticated
pursuant to the Indenture and a related Trustee's Issuance Certificate or Series
Supplement, if any.
"Series Issuance Date" means, with respect to any Series, the
date on which the Notes of such Series are to be originally issued in accordance
with Section 2.10 of the Indenture and the related Trustee's Issuance
Certificate or Series Supplement, if any.
"Series Supplement" means an indenture supplemental to the
Indenture that authorizes the issuance of a particular Series of Notes.
"Servicer" means CPL, as Servicer under the Servicing
Agreement, or any successor Servicer to the extent permitted under the Servicing
Agreement.
"Servicer Business Day" means any day other than a Saturday,
Sunday or holiday on which the Servicer maintains normal office hours and
conducts business.
"Servicer Default" is defined in Section 7.01 of the
Servicing Agreement.
"Servicer's Certificate" means a certificate, substantially in
the form of Exhibit E to the Servicing Agreement, completed and executed by a
Responsible Officer of the Servicer pursuant to Section 3.01(c)(ii) of the
Servicing Agreement.
"Servicing Agreement" means the Transition Property Servicing
Agreement dated as of [__________], between the Note Issuer and CPL, as the same
may be amended, supplemented or otherwise modified from time to time.
"Servicing Fee" means the fee payable to the Servicer on each
Payment Date for services rendered during the period from, but not including,
the preceding Payment Date to and including the current Payment Date, determined
pursuant to Section 6.06 of the Servicing Agreement.
"Servicing Standard" means the obligation of the Servicer to
calculate, apply, remit and reconcile proceeds of the Transition Property,
including TC Payments, and all other Note Collateral for the benefit of the Note
Issuer and the Holders (i) with the same degree of care and diligence as the
Servicer applies with respect to payments owed to it for its own account, (ii)
in accordance with all applicable procedures and requirements established by the
PUCT for collection of electric utility tariffs and (iii) in accordance with the
other terms of the Servicing Agreement.
"Special Payment" means with respect to any Series or Class of
Notes, any payment of principal of or interest on (including any interest
accruing upon default), or any other amount in respect of, the Notes of such
Series or Class (including, with respect to Floating Rate Notes only, a payment
under any Swap) that is not actually paid within five days of the Payment Date
applicable thereto.
"Special Payment Date" means the date on which a Special
Payment is to be made by the Indenture Trustee to the Holders.
"Special Record Date" means with respect to any Special
Payment Date, the close of business on the 15th day (whether or not a Business
Day) preceding such Special Payment Date.
"Special True-Up Adjustment" means any special adjustment to
the Transition Charges to reallocate the amounts of such Transition Charges
among TC Customer Classes pursuant to the terms of the related Tariff under the
heading "Base TC Rates Adjustments" and in accordance with Section 4.01(b)(iii)
of the Servicing Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc., or any successor thereto.
"State" means any one of the 50 states of the United States
of America or the District of Columbia.
"State Pledge" means the pledge of the State of Texas as set
forth in Section 39.310 of the Securitization Law.
"Subsequent Closing Date" means any date (other than the
Closing Date) specified in a Trustee's Issuance Certificate or Series
Supplement, if any, under which Notes of any Series or Class are issued.
"Subsequent Creation Date" means any date on which Subsequent
Transition Property is created in favor of CPL pursuant to a Subsequent
Financing Order.
"Subsequent Financing Order" means a financing order (other
than the Initial Financing Order) issued hereafter by the PUCT in favor of CPL.
"Subsequent Sale" means the sale of Initial Transition
Property or Subsequent Transition Property after the Closing Date, subject to
the satisfaction of the conditions specified in the Sale Agreement and the
Indenture.
"Subsequent Tariff" means a Tariff filed with the PUCT in
connection with a Subsequent Financing Order.
"Subsequent Transfer Date" means any date on which a
Subsequent Sale will be effective, specified in an Addition Notice.
"Subsequent Transition Property" means Transition Property
sold by the Seller to the Note Issuer as of a Subsequent Transfer Date pursuant
to the Sale Agreement [identified in the related Bill of Sale].
"Successor Servicer" is defined in Section 3.07(e) of the
Indenture.
"Swap" means an interest rate swap, cap, floor, collar or
other hedging transaction that may be entered into by the Note Issuer for the
purpose of managing interest rate risk with respect to a specified Series or
Class of Floating Rate Notes that are being issued concurrently with the
execution of the Swap.
"Swap Agreement" means an Interest Rate and Currency Exchange
Agreement (including the Schedule and Confirmation thereto) entered into between
the Note Issuer and a swap provider.
"Swap Counterparty" means the entity that is a party to a Swap
with the Note Issuer.
"Swap Payment" means the payments made by the Note Issuer to
the Swap Counterparty pursuant to any Swap, subject to any netting of payments
provided in the applicable Swap.
"Swap Revenues" means the payments paid by a Swap Counterparty
to the Note Issuer pursuant to any Swap, subject to any netting of payments
provided in the applicable Swap.
"Tariff" means any rate tariff filed with the PUCT pursuant
to the Securitization Law to evidence any Transition Charges.
"TC Collections" means Transition Charges received by the
Servicer which are remitted to the Collection Account.
"TC Customer Class" means each customer class identified as a
separate rate class in any Tariff.
"TC Payments" means the payments made by Customers based on
the Transition Charges.
"Temporary Notes" means Notes executed, and upon the receipt
of an Issuer Order, authenticated and delivered by the Indenture Trustee pending
the preparation of Definitive Notes pursuant to Section 2.04 of the Indenture.
"Termination Notice" is defined in Section 7.01 of the
Servicing Agreement.
"Third-Party Collectors" means each third-party, including
each Applicable REP, which, pursuant to any Tariff, any other tariffs filed with
the PUCT, or any agreement with CPL, is obligated to remit TC Payments in
respect of Transition Charges to the Servicer.
"Transition Charge" means any transition charge as defined in
Section 39.302(7) of the Securitization Law which is authorized by a Financing
Order.
"Transition Property" means all transition property as defined
in Section 39.302(8) of the Securitization Law created pursuant to a Financing
Order and assigned to the Note Issuer, including the Initial Transition Property
and any Subsequent Transition Property pursuant to the Sale Agreement. As used
in the Basic Documents, unless the context requires otherwise, the term
"Transition Property" when used with respect to CPL includes the contract rights
of CPL that exist prior to the time that such rights are first transferred in
connection with the issuance of the Notes, at which time they become transition
property in accordance with Section 39.304 of the Securitization Law.
"Transition Property Records" is defined in Section 5.01 of
the Servicing Agreement.
"Treasury Regulations" means the regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"True-Up Adjustment" means any Annual True-Up Adjustment,
Interim True-Up Adjustment or Special True-Up Adjustment, as the case may be.
"Trust Estate" means all right, title and interest of the Note
Issuer in, to and under the property and rights assigned to the Note Issuer
pursuant to the Sale Agreement, all funds on deposit from time to time in the
Collection Account and all other property of or interests of the Note Issuer
from time to time, including all rights, interests and claims of the [__________
Manager] and the Note Issuer under or in connection with any Basic Documents.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended by the Trust Indenture Reform Act of 1990, as in force on
the Closing Date, unless otherwise specifically provided.
"Trustee's Issuance Certificate" means a certificate executed
by a Authorized Officer of the Note Issuer in accordance with the terms of the
Sale Agreement and delivered to the Indenture Trustee under Section 2.01 of the
Indenture substantially in the form attached as Exhibit C to the Indenture.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"Underwriters" means the underwriters who purchase Notes of
any Series or Class from the Note Issuer and sell such Notes in a public
offering.
"Underwriting Agreement" means the Underwriting Agreement,
dated as of __________, 2000 among CPL, the Underwriters party thereto, on their
own behalf and as representatives of the several underwriters named therein, and
the Note Issuer, as the same may be amended, supplemented or modified from time
to time.
"Unrecovered Balance" means, as of any Payment Date, the sum
of the outstanding principal amount of each Series of Notes less the amount in
the Reserve Subaccount.
"Unregistered Notes" means any Notes not registered under the
Securities Act or the securities laws of any other jurisdiction.
"Utilities Code" means the Texas Utilities Code, as amended
from time to time.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the Note Issuer's option.
"Weighted Average Days Outstanding" means the weighted average
number of days CPL's monthly retail customer bills (or, following the advent of
customer choice) monthly REP bills remain outstanding during the calendar year
immediately preceding the calculation thereof pursuant to Section 4.01(b)(i) of
the Servicing Agreement. The initial Weighted Average Days Outstanding shall be
[35] days until updated pursuant to Section 4.01(b)(i) of the Servicing
Agreement.
B. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles. To the extent that the definitions of accounting terms in
any Basic Document are inconsistent with the meanings of such terms under
generally accepted accounting principles or regulatory accounting principles,
the definitions contained in such Basic Document shall control. All terms used
in Article 9 of the UCC in the State of Texas and not specifically defined
herein, are used herein as defined in such Article 9. As used in the Basic
Documents, the term "including" means "including without limitation," and other
forms of the verb "to include" have correlative meanings. All references to any
Person shall include such Person's permitted successors.
C. Computation of Time Periods. Unless otherwise stated in any
of the Basic Documents, as the case may be, in the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".
D. Reference; Captions. The words "hereof", "herein" and
"hereunder" and words of similar import when used in any Basic Document shall
refer to such Basic Document as a whole and not to any particular provision of
such Basic Document; and references to "Section", "subsection", "Schedule" and
"Exhibit" in any Basic Document are references to Sections, subsections,
Schedules and Exhibits in or to such Basic Document unless otherwise specified
in such Basic Document. The various captions (including the tables of contents)
in each Basic Document are provided solely for convenience of reference and
shall not affect the meaning or interpretation of any Basic Document.
E. The definitions contained in this Appendix A are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter forms of such terms.
- --------
1 To be revised to exclude Texas sourced income, if necessary.
Transition Property Purchase and Sale Agreement
between
CPL TRANSITION FUNDING LLC
Note Issuer
and
CENTRAL POWER AND LIGHT COMPANY
Seller
Dated as of _______________, 2000
<PAGE>
TABLE OF CONTENTS
page
ARTICLE I.........................................DEFINITIONS 1
SECTION 1.01. Definitions......................................1
SECTION 1.02. Other Definitional Provisions.....................2
ARTICLE II...................CONVEYANCE OF TRANSITION PROPERTY 2
SECTION 2.01. Conveyance of Transition Property................2
SECTION 2.02. Conveyance of Subsequent Transition Property.....3
SECTION 2.03. Conditions to Conveyance of Transition Property..3
ARTICLE III...........REPRESENTATIONS AND WARRANTIES OF SELLER 5
SECTION 3.01. Organization and Good Standing. ................5
SECTION 3.02. Due Qualification................................5
SECTION 3.03. Power and Authority..............................5
SECTION 3.04. Binding Obligation...............................5
SECTION 3.05. No Violation.....................................5
SECTION 3.06. No Proceedings...................................6
SECTION 3.07. Approvals. .....................................6
SECTION 3.08. The Transition Property..........................6
SECTION 3.09. Limitations on Representations and Warranties....9
ARTICLE IV.............................COVENANTS OF THE SELLER 9
SECTION 4.01. Corporate Existence..............................9
SECTION 4.02. No Liens.........................................9
SECTION 4.03. Delivery of Collections..........................9
SECTION 4.04. Notice of Liens..................................9
SECTION 4.05. Compliance with Law..............................10
SECTION 4.06. Covenants Related to Notes and Transition
Property.........................................10
SECTION 4.07. Protection of Title..............................11
SECTION 4.08. Nonpetition Covenants............................11
SECTION 4.09. Taxes............................................11
SECTION 4.10. Issuance Advice Letter...........................11
SECTION 4.11. Tariff...........................................11
SECTION 4.12. Maintenance of Operations. ......................12
SECTION 4.13. Notice of Breach to Rating Agencies. ............12
ARTICLE V..........................................THE SELLER 12
SECTION 5.01. Liability of Seller; Indemnities.................12
SECTION 5.02. Merger or Consolidation of, or Assumption of
the Obligations of,
Seller...........................................14
SECTION 5.03. Limitation on Liability of Seller and Others.....15
ARTICLE VI............................MISCELLANEOUS PROVISIONS 15
SECTION 6.01. Amendment........................................15
SECTION 6.02. Notices..........................................16
SECTION 6.03. Assignment.......................................16
SECTION 6.04. Limitations on Rights of Third Parties...........17
SECTION 6.05. Severability.....................................17
SECTION 6.06. Separate Counterparts............................17
SECTION 6.07. Headings.........................................17
SECTION 6.08. Governing Law....................................17
SECTION 6.09. Assignment to Indenture Trustee..................17
SECTION 6.10. Limitation of Liability..........................17
SECTION 6.11. Waivers..........................................17
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This TRANSITION PROPERTY PURCHASE AND SALE AGREEMENT, dated as of
____________, 2000, is between CPL Transition Funding LLC, a Delaware limited
liability company (the "Note Issuer"), and Central Power and Light Company, a
Texas corporation (together with its successors in interest to the extent
permitted hereunder, the "Seller").
RECITALS
WHEREAS, the Note Issuer desires to purchase from time to time the
Transition Property created pursuant to the Securitization Law;
WHEREAS, the Seller is willing to sell from time to time the
Transition Property to the Note Issuer;
WHEREAS, the Note Issuer, in order to finance the purchase of the
Transferred Transition Property, will from time to time issue one or more Series
of Notes under the Indenture; and
WHEREAS, the Note Issuer, to secure its obligations under the Notes of
each Series and the Indenture, will pledge, among other things, all right, title
and interest of the Note Issuer in and to the Transferred Transition Property
and this Agreement to the Indenture Trustee for the benefit of the Holders of
the Notes of such Series.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. (a) Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in that
certain Indenture (including Appendix A thereto) dated as of the date hereof
between the Note Issuer, and [___________], as the Indenture Trustee, as the
same may be amended, supplemented or modified from time to time.
(b)......Whenever used in this Agreement, the following words and
phrases shall have the following meanings:
"Agreement" means this Transition Property Purchase and Sale Agreement,
as amended and supplemented from time to time.
"Bill of Sale" means a bill of sale substantially in the form of
Exhibit A hereto delivered pursuant to Section 2.03(i).
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"Indemnified Person" has the meaning specified in Section 5.01(g).
"Original Transition Property" means the Initial Transition Property
sold, transferred, assigned, set over and conveyed by the Seller to the Note
Issuer as of the Closing Date pursuant to this Agreement.
"Losses" has the meaning specified in Section 5.01(d).
"Note Issuer" has the meaning set forth in the preamble of this
Agreement.
"Repurchase Price" has the meaning specified in Section 5.01(d).
"Seller" has the meaning set forth in the preamble of this Agreement.
"Transfer Date" means, with respect to the Original Transition
Property, the Closing Date and, with respect to any Subsequent Transition
Property, the Subsequent Transfer Date related thereto.
"Transferred Transition Property" means, collectively, the Original
Transition Property and any Subsequent Transition Property.
SECTION 1.02. Other Definitional Provisions.
(a)......All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b)......The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation".
(c)......The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms.
ARTICLE II
CONVEYANCE OF TRANSITION PROPERTY
<PAGE>
SECTION 2.01. Conveyance of Transition Property. (a) In consideration
of the Note Issuer's delivery to or upon the order of the Seller of $[_____],
subject to the conditions specified in Section 2.03, the Seller does hereby
irrevocably sell, transfer, assign, set over and otherwise convey to the Note
Issuer, without recourse or warranty, except as set forth herein, all right,
title and interest of the Seller in and to the Original Transition Property
(such sale, transfer, assignment, setting over and conveyance of the Original
Transition Property includes, to the fullest extent permitted by the
Securitization Law, the assignment of all revenues, collections, claims, rights,
payments, money or proceeds of or arising from the Transition Charges related to
the Original Transition Property, as the same may be adjusted from time to
time). Such sale, transfer, assignment, setting over and conveyance is hereby
expressly stated to be a sale and, pursuant to Section 39.308 of the
Securitization Law, shall be treated as an absolute transfer of all of the
Seller's right, title and interest in and to (as in a true sale), and not as a
pledge or other financing of, the Original Transition Property. The Seller and
the Note Issuer agree that after giving effect to the sale, transfer,
assignment, setting over and conveyance contemplated hereby the Seller has no
right, title or interest in or to the Original Transition Property to which such
a security interest could attach because (i) it has sold, transferred, assigned,
set over and conveyed all right, title and interest in and to the Original
Transition Property to the Note Issuer, (ii) as provided in Section 39.304 of
the Securitization Law, such rights are only contract rights until the time of
such sale, transfer, assignment, setting over and conveyance and (iii) as
provided in Section 39.309(c) of the Securitization Law, appropriate notice has
been filed and such transfer is perfected against all third parties, including
subsequent judicial or other lien creditors. If such sale, transfer, assignment,
setting over and conveyance is held by any court of competent jurisdiction not
to be a true sale as provided in Section 39.308 of the Securitization Law, then
such sale, transfer, assignment, setting over and conveyance shall be treated as
the creation of a security interest in the Original Transition Property and,
without prejudice to its position that it has absolutely transferred all of its
rights in the Original Transition Property to the Note Issuer, the Seller hereby
grants a security interest in the Original Transition Property to the Note
Issuer.
(b) Subject to Section 2.03, the Note Issuer does hereby
purchase the Original Transition Property from the Seller for the consideration
set forth in Section 2.01(a).
SECTION 2.02. Conveyance of Subsequent Transition Property. The Seller
may from time to time offer to sell, transfer, assign, set over and convey
additional Transition Property to the Note Issuer, subject to the conditions
specified in Section 2.03. If any such offer is accepted by the Note Issuer,
such Subsequent Transition Property shall be sold, transferred, assigned, set
over and conveyed to the Note Issuer effective on the Subsequent Transfer Date
specified in the related Addition Notice, subject to the satisfaction or waiver
of the conditions specified in Section 2.03.
SECTION 2.03. Conditions to Conveyance of Transition Property. The
obligation of the Note Issuer to purchase Transition Property on any Transfer
Date shall be subject to the satisfaction or waiver by the Note Issuer of each
of the following conditions:
<PAGE>
(i)......on or prior to such Transfer Date, the Seller shall have
delivered to the Note Issuer a duly executed Bill of Sale identifying the
Transition Property to be conveyed on that Transfer Date;
(ii).....as of such Transfer Date, the Seller is not insolvent and will
not have been made insolvent by such sale and the Seller is not aware of any
pending insolvency with respect to itself;
(iii)....as of such Transfer Date, the representations and warranties
of the Seller set forth in this Agreement shall be true and correct with the
same force and effect as if made on such Transfer Date (except to the extent
that they relate to an earlier date); on and as of such Transfer Date no breach
of any covenant or agreement of Seller contained in this Agreement has occurred
and is continuing; and no Servicer Default shall have occurred and be
continuing;
(iv).....as of such Transfer Date, (A) the Note Issuer shall have
sufficient funds available to pay the purchase price for the Transferred
Transition Property to be conveyed on such date and (B) all conditions to the
issuance of one or more Series of Notes intended to provide such funds set forth
in the Indenture shall have been satisfied or waived;
(v)......on or prior to such Transfer Date, the Seller shall have taken
all action required to transfer to the Note Issuer ownership of the Transition
Property to be conveyed on such date, free and clear of all Liens other than
Liens created by the Note Issuer pursuant to the Indenture; and the Note Issuer
or the Servicer, on behalf of the Note Issuer, shall have taken any action
required for the Note Issuer to grant the Indenture Trustee a first priority
perfected security interest in the Note Collateral and maintain such security
interest as of such date;
(vi).....in the case of a sale of Subsequent Transition Property only,
on or prior to the Subsequent Transfer Date, the Seller shall have provided the
Note Issuer and the Rating Agencies with a timely Addition Notice;
(vii)....the Seller shall have delivered to the Rating Agencies and the
Note Issuer any Opinions of Counsel requested by the Rating Agencies;
(viii)...the Seller shall have delivered to the Note Issuer and the
Indenture Trustee an opinion of outside tax counsel and/or a ruling from the IRS
(as selected by, and in form and substance reasonably satisfactory to, the
Seller) to the effect that, for federal income tax purposes, (i) the PUCT's
issuance of the Financing Order authorizing the collection of the Transition
Charges will not result in gross income to the Seller and (ii) in the case of a
sale of Subsequent Transition Property only, such conveyance will not adversely
affect the characterization of the then outstanding Notes of any Series as
obligations of the Seller;
(ix).....on and as of such Transfer Date, each of the LLC Agreement,
the Servicing Agreement, this Agreement, the Indenture, any issued Financing
Order and the Securitization Law shall be in full force and effect; and
<PAGE>
(x)......the Seller shall have delivered to the Indenture Trustee and
the Note Issuer an Officers' Certificate confirming the satisfaction of each
condition precedent specified in this Section 2.03.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to Sections 3.08(f) and 3.09, the Seller makes the following
representations and warranties, as of each Transfer Date, and the Seller
acknowledges that the Note Issuer has relied thereon in acquiring the
Transferred Transition Property. The representations and warranties shall
survive the sale and transfer of Transferred Transition Property to the Note
Issuer and the pledge thereof to the Indenture Trustee pursuant to the
Indenture.
SECTION 3.01. Organization and Good Standing. The Seller is duly
organized and validly existing as a corporation in good standing under the laws
of the State of Texas, with the requisite corporate power and authority to own
its properties as such properties are currently owned and to conduct its
business as such business is now conducted by it, and has the requisite
corporate power and authority to obtain Financing Orders and own, sell and
transfer the Transition Property.
SECTION 3.02. Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications, licenses or approvals (except where the failure to so qualify or
obtain such licenses and approvals would not be reasonably likely to have a
material adverse effect on the Seller's business, operations, assets, revenues
or properties).
SECTION 3.03. Power and Authority. The Seller has the requisite
corporate power and authority to execute and deliver this Agreement and to carry
out its terms; and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action on the part of the
Seller.
SECTION 3.04. Binding Obligation. This 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 (including concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.
<PAGE>
SECTION 3.05. No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not:
(i) conflict with or result in any breach of any of the terms and provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
restated articles of incorporation or by-laws of the Seller, or any material
indenture or agreement or other material instrument to which the Seller is a
party or by which it or any of its property is bound; (ii) result in the
creation or imposition of any Lien upon any of the Seller's properties pursuant
to the terms of any such indenture, agreement or other instrument (other than
any Lien that may be granted under the Basic Documents or any Lien created
pursuant to Section 39.309 of the Securitization Law); or (iii) violate any
existing law or any existing order, rule or regulation applicable to the Seller
of any Governmental Authority having jurisdiction over the Seller or its
properties, so as to adversely affect the Seller, the Note Issuer or the
Noteholders.
SECTION 3.06. No Proceedings. [Except as set forth on Schedule 3.06,]
there are no proceedings pending and, to the Seller's knowledge, there are no
proceedings threatened and, to the Seller's knowledge, there are no
investigations pending or threatened, before any Governmental Authority having
jurisdiction over the Seller or its properties involving or relating to the
Seller or the Note Issuer or, to the Seller's knowledge, any other Person: (i)
asserting the invalidity of this Agreement, any of the other Basic Documents or
the Notes of any Series, (ii) seeking to prevent the issuance of the Notes of
such Series or the consummation of any of the transactions contemplated by this
Agreement or any of the other Basic Documents, (iii) seeking any determination
or ruling that might materially and adversely affect the performance by the
Seller of its obligations under, or the validity or enforceability of, this
Agreement, any of the other Basic Documents or the Notes of any Series or (iv)
seeking to adversely affect the federal income tax or state income or franchise
tax classification of the Notes of any Series as debt.
SECTION 3.07. Approvals. Except for UCC filings, no approval,
authorization, consent, order or other action of, or filing with, any
Governmental Authority is required in connection with the execution and delivery
by the Seller of this Agreement, the performance by the Seller of the
transactions contemplated hereby or the fulfillment by the Seller of the terms
hereof, except those that have been obtained or made and those that the Seller,
in its capacity as Servicer under the Servicing Agreement, is required to make
in the future pursuant to the Servicing Agreement.
SECTION 3.08. The Transition Property.1
(a)......Information. At each Transfer Date, all written information,
as amended or supplemented from time to time, provided by the Seller to the Note
Issuer with respect to the Transferred Transition Property (including the
Expected Amortization Schedule, the Financing Order and the Issuance Advice
Letter) is true and correct in all material respects.
<PAGE>
(b)......Title. It is the intention of the parties hereto that the
transfers and assignments herein contemplated each constitute a sale and
absolute transfer of the Transferred Transition Property from the Seller to the
Note Issuer and that no interest in, or right or title to, the Transferred
Transition Property shall be part of the Seller's estate in the event of the
filing of a bankruptcy petition by or against the Seller under any bankruptcy
law. No portion of the Transferred Transition Property has been sold,
transferred, assigned or pledged or otherwise conveyed by the Seller to any
Person other than the Note Issuer.
(c)......Transfer Filings. The Seller is the sole owner of the
Transition Property being sold to the Note Issuer on such Transfer Date. On such
Transfer Date, immediately upon the sale hereunder, the Transferred Transition
Property shall be validly transferred and sold to the Note Issuer, the Note
Issuer shall own all such Transferred Transition Property free and clear of all
Liens (except for any Lien created in favor of the Holders pursuant to Section
39.309 of the Securitization Law or any Lien that may be granted under the Basic
Documents) and all filings to be made by the Seller (including filings with the
Secretary of State of the State of Texas under the Securitization Law) necessary
in any jurisdiction to give the Note Issuer a perfected ownership interest in
the Transferred Transition Property as against all creditors of the Seller have
been made. No further action is required to maintain such ownership interest
(subject to any Lien created in favor of the Holders pursuant to Section 39.309
of the Securitization Law and any Lien that may be granted under the Basic
Documents) and to give the Indenture Trustee a first priority perfected security
interest in the Transferred Transition Property. Filings have also been made to
perfect the security interest in the Original Transition Property granted by the
Seller to the Note Issuer (subject to any Lien created in favor of the Holders
pursuant to Section 39.309 of the Securitization Law and any Lien that may be
granted under the Basic Documents) pursuant to Section 2.01.
<PAGE>
(d) .....Financing Order, Issuance Advice Letter and Tariff; Other
Approvals. On each Transfer Date, under the laws of the State of Texas and the
United States in effect on such Transfer Date, (i) the Financing Order pursuant
to which the rights and interests of the Seller, including the right to impose,
collect and receive the Transition Charge, in and to the Transition Property
transferred on such date have been created has become Final is in full force and
effect; (ii) [as of the issuance of the Notes, the Notes are entitled to the
protection provided in Sections _______ of the Securitization Law and,
accordingly, the Financing Order, the Transition Property and the Issuance
Advice Letter are not revocable by the PUCT]; (iii) the Tariff is in full force
and effect and is not subject to modification by the PUCT except as provided
under Section 39.307 of the Securitization Law; neither the State of Texas nor
the PUCT may take or permit any action that would impair the value of the
Transition Property transferred on such date, or, except as permitted by Section
39.307 of the Securitization Law, reduce, alter or impair the Transition Charges
relating to such Transition Property until the principal, interest and premium
and any other charges incurred and contracts to be performed in connection with
the Notes of such Series relating to such Transition Property have been paid or
performed in full; (iv) the process by which the Financing Order creating the
Transition Property transferred on such date was adopted and approved, and the
Financing Order, Issuance Advice Letter and Tariff themselves, comply with all
applicable laws, rules and regulations; (v) the Issuance Advice Letter and the
Tariff relating to the Transition Property transferred on such date have been
filed in accordance with the Financing Order creating the Transition Property
transferred on such date; and (vi) no other approval, authorization, consent,
order or other action of, or filing with any Governmental Authority is required
in connection with the creation of the Transition Property transferred on such
date, except those that have been obtained or made. Notwithstanding clause (ii)
of the immediately preceding sentence, the State of Texas would be allowed to
effect a temporary impairment of the Holders' rights if it could be shown that
such an impairment was necessary to advance a significant and legitimate public
purpose.
(e)......Assumptions. On each Transfer Date, based upon the information
available to the Seller on such date, the assumptions used in calculating the
Transition Charge are reasonable and are made in good faith. Notwithstanding the
foregoing, the Seller makes no representation or warranty, express or implied,
that the assumptions used in calculating such Transition Charge will in fact be
realized.
(f)......Creation of Transition Property. [Upon the effectiveness of
the Financing Order, the Issuance Advice Letter and the Tariff and the transfer
of Transition Property pursuant to this Agreement: (i) the rights and interests
of the Seller under the Financing Order, including the right to impose, collect
and receive the Transition Charges authorized in the Financing Order, become
Transition Property; (ii) the Transferred Transition Property constitutes a
present property right; (iii) the Transferred Transition Property includes the
right, title and interest of the Seller in the Financing Order and the
Transition Charge, the rights to impose and obtain periodic adjustments of such
Transition Charge, and the rates and other charges authorized by the Financing
Order and all revenues, collections, claims, payments, money or proceeds of or
arising from the Transition Charge; and (iv) the owner of the Transferred
Transition Property is legally entitled to collect payments in respect of the
Transition Charge in the aggregate sufficient to pay the interest on and
principal of the Notes of such Series, to pay the fees and expenses of servicing
the Notes of such Series, to replenish the Capital Subaccount to the Required
Capital Level and to fund the Overcollateralization Subaccount to the Required
Overcollateralization Level until the Notes of such Series are paid in full or
until the last date permitted for the collection of payments in respect of the
Transition Charge under the Financing Order, whichever is earlier.
(g)......Nature of Representations and Warranties. The representations
and warranties set forth in this Section 3.08, insofar as they involve
conclusions of law, are made not on the basis that the Seller purports to be a
legal expert or to be rendering legal advice, but rather to reflect the parties'
good faith understanding of the legal basis on which the parties are entering
into this Agreement and the other Basic Documents and the basis on which the
Holders are purchasing the Notes, and to reflect the parties' agreement that, if
such understanding turns out to be incorrect or inaccurate, the Seller will be
obligated to indemnify the Note Issuer and its permitted assigns (to the extent
required by and in accordance with Section 5.01), and that the Note Issuer and
its permitted assigns will be entitled to enforce any rights and remedies under
the Basic Documents, on account of such inaccuracy to the same extent as if the
Seller had breached any other representations or warranties hereunder.
<PAGE>
SECTION 3.09. Limitations on Representations and Warranties. Without
prejudice to any of the other rights of the parties, the Seller will not be in
breach of any representation or warranty, as a result of a change in law by
means of any legislative enactment, constitutional amendment or voter
initiative. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE
SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, THAT ANY AMOUNTS
ACTUALLY COLLECTED IN RESPECT OF THE TRANSITION CHARGE WILL IN FACT BE
SUFFICIENT TO MEET PAYMENT OBLIGATIONS WITH RESPECT TO THE NOTES OF ANY SERIES
OR THAT THE ASSUMPTIONS USED IN CALCULATING THE TRANSITION CHARGE WILL IN FACT
BE REALIZED.
ARTICLE IV
COVENANTS OF THE SELLER
SECTION 4.01. Corporate Existence. Subject to Section 5.02, so long as
any of the Notes of any Series are Outstanding, the Seller (a) will keep in full
force and effect its corporate existence under the laws of the jurisdiction of
its organization, (b) will obtain and preserve its qualification to do business,
in each case to the extent that in each such jurisdiction such existence or
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Basic Documents to which the Seller
is a party and each other instrument or agreement necessary or appropriate to
the proper administration of this Agreement and the transactions contemplated
hereby and (c) agrees to continue to operate its wires system.
SECTION 4.02. No Liens. Except for the conveyances hereunder or any
Lien under Section 39.309 of the Securitization Law for the benefit of the Note
Issuer, the Indenture Trustee or the Holders, the Seller will not sell, pledge,
assign or transfer, or grant, create, or incur any Lien on, any of the
Transferred Transition Property, or any interest therein, and the Seller shall
make all reasonable efforts to defend the right, title and interest of the Note
Issuer and the Indenture Trustee in, to and under the Transferred Transition
Property against all claims of third parties claiming through or under the
Seller. CPL, in its capacity as Seller, will not at any time assert any Lien
against, or with respect to, any of the Transferred Transition Property.
SECTION 4.03. Delivery of Collections. If the Seller receives any
payments in respect of the Transition Charge or the proceeds thereof when it is
not acting as the Servicer, the Seller agrees to pay to the Servicer all
payments received by it in respect thereof as soon as practicable after receipt
thereof by it.
<PAGE>
SECTION 4.04. Notice of Liens. The Seller shall notify the Note Issuer
and the Indenture Trustee promptly after becoming aware of any Lien on any of
the Transferred Transition Property, other than the conveyances hereunder, any
Lien under the Basic Documents or any Lien under Section 39.309 of the
Securitization Law for the benefit of the Note Issuer or the Holders.
SECTION 4.05. Compliance with Law. The Seller hereby agrees to comply
with its organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any Governmental Authority applicable to it,
except to the extent that failure to so comply would not materially adversely
affect the Note Issuer's or the Indenture Trustee's interests in the Transferred
Transition Property or under any of the other Basic Documents to which the
Seller is party or the Seller's performance of its obligations hereunder or
under any of the other Basic Documents to which it is party.
SECTION 4.06. Covenants Related to Notes and Transition Property.
(a)......So long as any of the Notes are outstanding, the Seller shall
treat the Notes as debt of the Note Issuer, other than for financial accounting
or tax purposes [or as required under the Public Utility Holding Company Act of
1935, as amended].
(b)......So long as any of the Notes are outstanding, the Seller shall
indicate in its financial statements that it is not the owner of the Transferred
Transition Property.
(c)......So long as any of the Notes are outstanding, the Seller shall
not own or purchase any Notes.
(d)......The Seller agrees that, upon the sale by the Seller of the
Transferred Transition Property to the Note Issuer pursuant to this Agreement,
(i) to the fullest extent permitted by law, including applicable PUCT
Regulations, the Note Issuer shall have all of the rights originally held by the
Seller with respect to the Transferred Transition Property, including the right
(subject to the terms of the Servicing Agreement) to exercise any and all rights
and remedies to collect any amounts payable by any Customer or REP in respect of
the Transferred Transition Property, notwithstanding any objection or direction
to the contrary by the Seller and (ii) any payment by any Customer or REP
directly to the Note Issuer shall discharge such Customer's or REP's
obligations, if any, to the Seller in respect of the Transferred Transition
Property to the extent of such payment, notwithstanding any objection or
direction to the contrary by the Seller.
(e)......So long as any of the Notes are outstanding, (i) the Seller
shall not make any statement or reference in respect of the Transferred
Transition Property that is inconsistent with the ownership interest of the Note
Issuer (other than for financial accounting or tax reporting purposes [or as
required under the Public Utility Holding Company Act of 1935, as amended]), and
(ii) the Seller shall not take any action in respect of the Transferred
Transition Property except solely in its capacity as the Servicer thereof
pursuant to the Servicing Agreement or as otherwise contemplated by the Basic
Documents.
<PAGE>
SECTION 4.07. Protection of Title. The Seller shall execute and file
such filings, including filings with the Secretary of State of the State of
Texas pursuant to the Securitization Law, and cause to be executed and filed
such filings, all in such manner and in such places as may be required by law to
fully preserve, maintain and protect the ownership interest of the Note Issuer
in the Transferred Transition Property, including all filings required under the
Securitization Law relating to the transfer of the ownership interest or
security interest in the Transferred Transition Property by the Seller to the
Note Issuer. The Seller shall deliver or cause to be delivered to the Note
Issuer file-stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing. The Seller shall
institute any action or proceeding necessary to compel performance by the PUCT
or the State of Texas of any of their obligations or duties under the
Securitization Law, any Financing Order or any Issuance Advice Letter, and the
Seller agrees to take such legal or administrative actions, including defending
against or instituting and pursuing legal actions and appearing or testifying at
hearings or similar proceedings, as may be reasonably necessary to protect the
Note Issuer from claims, state actions or other actions or proceedings of third
parties which, if successfully pursued, would result in a breach of any
representation set forth in Article III. The costs of any such actions or
proceedings will be payable by the Note Issuer.
SECTION 4.08. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Indenture, the Seller shall not, prior to
the date which is one year and one day after the termination of the Indenture,
petition or otherwise invoke or cause the Note Issuer to invoke the process of
any Government Authority for the purpose of commencing or sustaining a case
against the Note Issuer under any federal or state bankruptcy, insolvency or
similar law, appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Note Issuer or any substantial
part of the property of the Note Issuer, or ordering the winding up or
liquidation of the affairs of the Note Issuer.
SECTION 4.09. Taxes. So long as any of the Notes are outstanding, the
Seller shall, and shall cause each of its subsidiaries to, pay all material
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a Lien on the
Transferred Transition Property; provided that no such tax need be paid if the
Seller or one of its subsidiaries is contesting the same in good faith by
appropriate proceedings promptly instituted and diligently conducted and if the
Seller or such subsidiary has established appropriate reserves as shall be
required in conformity with generally accepted accounting principles.
SECTION 4.10. Issuance Advice Letter. The Seller hereby agrees not
to withdraw the filing of any Issuance Advice Letter with the PUCT.
SECTION 4.11. Tariff. The Seller hereby agrees to make all
reasonable efforts to keep each Tariff in full force and effect at all times.
<PAGE>
SECTION 4.12. Maintenance of Operations. The Seller hereby agrees that,
so long as any of the Notes are outstanding, the Seller shall continue to
provide wires service directly to customers.
SECTION 4.13. Notice of Breach to Rating Agencies. Promptly after
obtaining knowledge thereof, in the event of a breach in any material respect of
any of the Seller's representations and warranties contained herein, the Seller
shall promptly notify the Note Issuer and the Rating Agencies of such breach.
ARTICLE V
THE SELLER
SECTION 5.01. Liability of Seller; Indemnities.
(a)......The Seller shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Seller under this
Agreement.
(b)......The Seller shall indemnify the Note Issuer and the Indenture
Trustee (for itself and for the benefit of the Noteholders) for, and defend and
hold harmless each such Person from and against, any and all taxes (other than
taxes imposed on Noteholders as a result of their ownership of a Note and the
receipt of amounts thereunder) that may at any time be imposed on or asserted
against any such Person under existing law as of the Closing Date or the
Subsequent Transfer Date, as applicable, as a result of the sale of the
Transferred Transition Property to the Note Issuer, including any sales, gross
receipts, general corporation, tangible personal property, privilege or license
taxes, in the event and to the extent such taxes are not recoverable as
Qualified Costs.
(c)......The Seller shall indemnify the Note Issuer and the Indenture
Trustee (for itself and for the benefit of the Noteholders) for, and defend and
hold harmless each such Person from and against, any and all taxes (other than
taxes imposed on Noteholders as a result of their ownership of a Note and the
receipt of amounts thereunder) that may be imposed on or asserted against any
such Person under existing law as of the Closing Date or Subsequent Transfer
Date, as applicable, as a result of the issuance and sale by the Note Issuer of
the Notes or the other transactions contemplated herein, including any sales,
gross receipts, general corporation, tangible personal property, privilege or
license taxes but excluding any taxes imposed as a result of a failure of such
Person to withhold or remit taxes imposed with respect to payments on any Note,
in the event and to the extent such taxes are not recoverable as Qualified
Costs.
<PAGE>
(d)......The Seller shall indemnify the Note Issuer, the Indenture
Trustee (for the benefit of the Noteholders) and any Swap Counterparty for, and
defend and hold harmless each such Person from and against, any and all
liabilities, obligations, losses, claims, damages, payments, costs or expenses
of any kind whatsoever (collectively, "Losses") that may be imposed on, incurred
by or asserted against each such Person as a result of (i) the Seller's willful
misconduct or gross negligence in the performance of its duties or observance of
its covenants under this Agreement, or (ii) the Seller's breach in any material
respect of any of its representations and warranties contained in this
Agreement.
(e)......Indemnification under Sections 5.01(b), 5.01(c), 5.01(d) and
5.01(g) shall include reasonable out-of-pocket fees and expenses of
investigation and litigation (including reasonable attorney's fees and
expenses), except as otherwise provided in this Agreement.
(f)......Without prejudice to any of the other rights of the parties,
the Seller will not be in breach of any representation or warranty as a result
of a change in law by means of any legislative enactment, constitutional
amendment or voter initiative.
<PAGE>
(g)......The Seller shall indemnify the Indenture Trustee (for itself)
and the Independent Managers, and any of their respective affiliates, officers,
directors, employees and agents (each an "Indemnified Person") for, and defend
and hold harmless each such Person from and against, any and all Losses incurred
by any of such Indemnified Persons as a result of (i) the Seller's willful
misconduct or gross negligence in the performance of its duties or observance of
its covenants under this Agreement or (ii) the Seller's breach in any material
respect of any of its representations and warranties contained in this
Agreement, except to the extent of Losses either resulting from the willful
misconduct, bad faith or gross negligence of any Indemnified Person or resulting
from a breach of a representation or warranty made by any Indemnified Person in
any of the Basic Documents that gives rise to the Seller's breach. The Seller
shall not be required to indemnify an Indemnified Person for any amount paid or
payable by such Indemnified Person in the settlement of any action, proceeding
or investigation without the prior written consent of the Seller which consent
shall not be unreasonably withheld. Promptly after receipt by an Indemnified
Person of notice of the commencement of any action, proceeding or investigation,
such Indemnified Person shall, if a claim in respect thereof is to be made
against the Seller under this Section 5.01(g), notify the Seller in writing of
the commencement thereof. Failure by an Indemnified Person to so notify the
Seller shall relieve the Seller from the obligation to indemnify and hold
harmless such Indemnified Person under this Section 5.01(g) only to the extent
that the Seller suffers actual prejudice as a result of such failure. With
respect to any action, proceeding or investigation brought by a third party for
which indemnification may be sought under this Section 5.01(g), the Seller shall
be entitled to conduct and control, at its expense and with counsel of its
choosing that is reasonably satisfactory to such Indemnified Person, the defense
of any such action, proceeding or investigation (in which case the Seller shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the Indemnified Person except as set forth below); provided that the
Indemnified Person shall have the right to participate in such action,
proceeding or investigation through counsel chosen by it and at its own expense.
Notwithstanding the Seller's election to assume the defense of any action,
proceeding or investigation, the Indemnified Person shall have the right to
employ separate counsel (including local counsel), and the Seller shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the
defendants in any such action include both the Indemnified Person and the Seller
and the Indemnified Person shall have reasonably concluded that there may be
legal defenses available to it that are different from or additional to those
available to the Seller, (ii) the Seller shall not have employed counsel
reasonably satisfactory to the Indemnified Person to represent the Indemnified
Person within a reasonable time after notice of the institution of such action
or (iii) the Seller shall authorize the Indemnified Person to employ separate
counsel at the expense of the Seller. Notwithstanding the foregoing, the Seller
shall not be obligated to pay for the fees, costs and expenses of more than one
separate counsel for the Indemnified Persons other than one local counsel, if
appropriate.
(h)......The remedies of the Note Issuer and each Indemnified Person
provided in this Agreement are each such Person's sole and exclusive remedies
against the Seller for breach of its representations and warranties in this
Agreement.
(i)......Indemnification under this Section 5.01 shall survive any
repeal of, modification of, or supplement to, or judicial invalidation of, the
Securitization Law or any Financing Order and shall survive the resignation or
removal of the Indenture Trustee or the termination of this Agreement and shall
include reasonable out-of-pocket fees and expenses of investigation and
litigation (including reasonable attorney's fees and expenses).
<PAGE>
SECTION 5.02. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
consolidated and which succeeds to the major part of the electric transmission
and distribution business of the Seller (or, if transmission and distribution
are split, which provides wire service directly to customers), (b) that may
result from any merger or consolidation to which the Seller shall be a party and
which succeeds to the major part of the electric transmission and distribution
business of the Seller (or, if transmission and distribution are split, which
provides wire service directly to customers), (c) that may succeed to the
properties and assets of the Seller substantially as a whole and which succeeds
to the major part of the electric transmission and distribution business of the
Seller (or, if transmission and distribution are split, which provides wire
service directly to customers), (d) which is a successor entity resulting from
the division of the Seller into two or more Persons and which succeeds to the
major part of the electric transmission and distribution business of the Seller
(or, if transmission and distribution are split, which provides wire service
directly to customers), or (e) which otherwise succeeds to the major part of the
electric transmission and distribution business of the Seller (or, if
transmission and distribution are split, which provides wire service directly to
customers) and which Person in any of the foregoing cases executes an agreement
of assumption to perform the obligations of the Seller hereunder, shall be the
successor to the Seller under this Agreement without further act on the part of
any of the parties to this Agreement; provided, however, that (i) immediately
after giving effect to such transaction, no Servicer Default, and no event
which, after notice or lapse of time, or both, would become a Servicer Default
shall have occurred and be continuing, (ii) the Seller shall have delivered to
the Note Issuer and the Indenture Trustee an Officer's Certificate and an
Opinion of Counsel stating that such consolidation, merger, division or
succession and such agreement of assumption comply with this Section and that
all conditions precedent, if any, provided for in this Agreement relating to
such transaction have been complied with, (iii) the Seller shall have delivered
to the Note Issuer and the Indenture Trustee an Opinion of Counsel either (A)
stating that, in the opinion of such counsel, all filings to be made by the
Seller, including filings with the PUCT pursuant to the Securitization Law, have
been executed and filed that are necessary to fully preserve and protect the
interest of the Note Issuer in the Transferred Transition Property and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interests and (iv) the Seller shall have given the Rating Agencies prior written
notice of such transaction. When any Person acquires the properties and assets
of the Seller substantially as a whole and succeeds to the major part of the
electric transmission and distribution business of the Seller (or, if
transmission and distribution are split, which provides wire service directly to
customers) or otherwise becomes the successor, whether by sale, transfer, lease
or otherwise, to the major part of the electric transmission and distribution
business of the Seller (or, if transmission and distribution are split, provides
wire service directly to customers) in accordance with the terms of this Section
5.02, then upon satisfaction of all of the other conditions of this Section
5.02, the Seller shall automatically and without further notice be released from
all of its obligations hereunder.
SECTION 5.03. Limitation on Liability of Seller and Others. The Seller
and any director, officer, employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person, respecting any matters arising
hereunder. The Seller shall not be under any obligation to appear in, prosecute
or defend any legal action that is not incidental to its obligations under this
Agreement, and that in its opinion may involve it in any expense or liability.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. Amendment. This Agreement may be amended in writing by
the Seller and the Note Issuer with five Business Days' prior written notice
given to the Rating Agencies and the prior written consent of the Indenture
Trustee (which consent shall not be unreasonably withheld), but without the
consent of any of the Holders, to cure any ambiguity, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Holders; provided, however, that
such action shall not, as evidenced by an Officer's Certificate delivered to the
Note Issuer and the Indenture Trustee, adversely affect in any material respect
the interests of any Holder of then Outstanding Notes.
<PAGE>
This Agreement may also be amended from time to time by the Seller and
the Note Issuer with five Business Days' prior written notice given to the
Rating Agencies and the prior written consent of the Indenture Trustee (which
consent shall not be unreasonably withheld) and the prior written consent of the
Holders evidencing not less than a majority of the Outstanding Amount of the
Notes affected thereby, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders. Promptly after the execution
of any such amendment or consent, the Note Issuer shall furnish a copy of such
amendment or consent to the Indenture Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to its consent to any amendment to this Agreement, the Indenture
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Indenture Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Indenture Trustee's own rights, duties or
immunities under this Agreement or otherwise.
SECTION 6.02. Notices. All demands, notices and communications upon or
to the Seller, the Note Issuer, the Indenture Trustee, or the Rating Agencies
under this Agreement shall be sufficiently given for all purposes hereunder if
in writing, and delivered personally, sent by documented delivery service or, to
the extent receipt is confirmed telephonically, sent by telecopy or other form
of electronic transmission, (a) in the case of the Seller, to Central Power and
Light Company c/o Central and South West Corporation, at 1616 Woodall Rogers
Freeway, Dallas, Texas 75202, Attention of the Treasurer, telephone:
____________, facsimile: ________________, (b) in the case of the Note Issuer to
CPL Transition Funding LLC c/o Central and South West Corporation, at 1616
Woodall Rogers Freeway, Dallas, Texas 75202, Attention of ___________,
telephone: ____________, facsimile: ________________, (c) in the case of the
Indenture Trustee, to it at the Corporate Trust Office, telephone: ____________,
facsimile: ________________, (d) in the case of Moody's, to Moody's Investors
Service, Inc., ABS Monitoring Department, 99 Church Street, New York, New York
10007, telephone: (212) 553-3686, facsimile: (212) 553-0573, (e) in the case of
S&P, to Standard & Poor's, 55 Water Street, 40th Floor, New York, New York
10041, Attention of Asset Backed Surveillance Department, telephone: (212)
438-2000, facsimile: (212) 438-2665, (f) in the case of Fitch, to Fitch IBCA,
Inc., One State Street Plaza, New York, NY 10004, Attention of ABS Surveillance,
telephone: (212) 908-0500, facsimile: (212) 908-0355, (g) in the case of Duff &
Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New
York, NY 10004, Attention of Asset-Backed Monitoring Group, telephone:
_________, facsimile: __________ or (h) as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
SECTION 6.03. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not
be assigned by the Seller.
<PAGE>
SECTION 6.04. Limitations on Rights of Third Parties. The provisions of
this Agreement are solely for the benefit of the Seller, the Note Issuer, the
Indenture Trustee and the other Persons expressly referred to herein, and such
Persons shall have the right to enforce the relevant provisions of this
Agreement. Nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Transition Property or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 6.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remainder of such provision (if any) or the remaining
provisions hereof (unless such construction shall be unreasonable), and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 6.06. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 6.08. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 6.09. Assignment to Indenture Trustee. The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Note Issuer to the Indenture Trustee pursuant to the
Indenture for the benefit of the Holders of all right, title and interest of the
Note Issuer in, to and under the Transferred Transition Property and the
proceeds thereof and the assignment of any or all of the Note Issuer's rights
and obligations hereunder.
SECTION 6.10. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that this Agreement is executed and delivered by
the Indenture Trustee, not individually or personally but solely as Indenture
Trustee on behalf of the Holders, in the exercise of the powers and authority
conferred and vested in it.
<PAGE>
SECTION 6.11. Waivers. Any term of provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
CPL TRANSITION FUNDING LLC,
Note Issuer
By: __________________________
Name:
Title: Manager
CENTRAL POWER AND LIGHT COMPANY,
Seller
By: __________________________
Name:
Title
Acknowledged and Accepted:
- -------------------------,
as Indenture Trustee
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT A
BILL OF SALE
1........This Bill of Sale is being delivered pursuant to the
Transition Property Purchase and Sale Agreement, dated as of ______________,
2000 (the "Sale Agreement"), between Central Power and Light Company (the
"Seller") and CPL Transition Funding LLC (the "Note Issuer") and is subject to
all of the terms, conditions and limitations contained in the Sale Agreement.
All capitalized terms used but not defined herein have the respective meanings
ascribed thereto in the Sale Agreement.
2........In consideration of the Note Issuer's delivery to or upon the
order of the Seller of $[_____], subject to the conditions specified in Section
2.03 of the Sale Agreement, the Seller does hereby irrevocably sell, transfer,
assign, set over and otherwise convey to the Note Issuer, without recourse or
warranty, except as set forth in the Sale Agreement, all right, title and
interest of the Seller in and to the [Original][Subsequent] Transition Property
identified on Schedule 1 hereto (such sale, transfer, assignment, setting over
and conveyance of the [Original][Subsequent] Transition Property includes, to
the fullest extent permitted by the Securitization Law, the assignment of all
revenues, collections, claims, rights, payments, money or proceeds of or arising
from the Transition Charges related to the [Original][Subsequent] Transition
Property, as the same may be adjusted from time to time). Such sale, transfer,
assignment, setting over and conveyance is hereby expressly stated to be a sale
and, pursuant to Section 39.308 of the Securitization Law, shall be treated as
an absolute transfer of all of the Seller's right, title and interest in and to
(as in a true sale), and not as a pledge or other financing of, the
[Original][Subsequent] Transition Property. The Seller and the Note Issuer agree
that after giving effect to the sale, transfer, assignment, setting over and
conveyance contemplated hereby the Seller has no right, title or interest in or
to the [Original][Subsequent] Transition Property to which such a security
interest could attach because (i) it has sold, transferred, assigned, set over
and conveyed all right in and to the [Original][Subsequent] Transition Property
to the Note Issuer, (ii) as provided in Section 39.304 of the Securitization
Law, such rights are only contract rights until the time of such sale, transfer,
assignment, setting over and conveyance and (iii) as provided in Section
39.309(c) of the Securitization Law, appropriate notice has been filed and such
transfer is perfected against all third parties, including subsequent judicial
or other lien creditors. If such sale, transfer, assignment, setting over and
conveyance is held by any court of competent jurisdiction not to be a true sale
as provided in Section 39.308 of the Securitization Law, then such sale,
transfer, assignment, setting over and conveyance shall be treated as the
creation of a security interest in the [Original][Subsequent] Transition
Property and, without prejudice to its position that it has absolutely
transferred all of its rights in the [Original][Subsequent] Transition Property
to the Note Issuer, the Seller hereby grants a security interest in the
[Original][Subsequent] Transition Property to the Note Issuer.
3........The Note Issuer does hereby purchase the [Original]
[Subsequent] Transition Property from the Seller for the consideration set forth
in paragraph 2 above.
<PAGE>
4........The Seller and the Note Issuer each acknowledge and agree that
the purchase price for the [Original] [Subsequent] Transition Property sold
pursuant to this Bill of Sale and the Sale Agreement is equal to its fair market
value at the time of sale.
5........The Seller confirms that each of the representations and
warranties on the part of the Seller contained in the Sale Agreement are true
and correct in all respects on the date hereof as if made on the date hereof.2
6........This Bill of Sale may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
7........THIS BILL OF SALE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Seller and the Note Issuer have duly executed
this Bill of Sale as of the ___ day of ___________, ____.
CENTRAL POWER AND LIGHT COMPANY
By:
Name:
Title:
CPL TRANSITION FUNDING LLC
By: __________________________,
as Manager
Name:
<PAGE>
SCHEDULE 1
SCHEDULE 1
to
BILL OF SALE
[Original] [Subsequent] Transition Property
- --------
1 To be revised to reflect financing order as issued.
2If any representations or warranties require modification with respect
to Subsequent Transition Property as a result of provisions in the Financing
Order, then such modifications should be set forth in this Bill of Sale (it
being understood that any such modifications must be agreed to by the parties
and approved by the Rating Agencies prior to the time additional Notes are
issued).
TRANSITION PROPERTY SERVICING AGREEMENT
between
CPL TRANSITION FUNDING LLC
Note Issuer
and
CENTRAL POWER AND LIGHT COMPANY
Servicer
Dated as of ___________________, 2000
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.........................................DEFINITIONS 1
ARTICLE II.......................APPOINTMENT AND AUTHORIZATION 2
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment..2
SECTION 2.02. Authorization.......................................2
SECTION 2.03. Dominion and Control Over the Transition Property...2
ARTICLE III...................................BILLING SERVICES 3
SECTION 3.01. Duties of Servicer..................................3
SECTION 3.02. Servicing and Maintenance Standards.................4
SECTION 3.03. Certificate of Compliance...........................5
SECTION 3.04. Annual Report by Independent Public Accountants.....5
ARTICLE IV.............SERVICES RELATED TO TRUE-UP ADJUSTMENTS 6
SECTION 4.01. True-Up Adjustments.................................6
SECTION 4.02. Limitation of Liability..............................8
SECTION 4.03 Monitoring of Third-Party Collectors............ ....9
ARTICLE V.............................THE TRANSITION PROPERTY 11
SECTION 5.01. Custody of Transition Property Records..............11
SECTION 5.02. Duties of Servicer as Custodian.....................11
SECTION 5.03. Instructions; Authority to Act......................12
SECTION 5.04. Custodian's Indemnification.........................12
SECTION 5.05. Effective Period and Termination....................13
ARTICLE VI........................................THE SERVICER 13
SECTION 6.01. Representations and Warranties of Servicer...........13
SECTION 6.02. Indemnities of Servicer; Release of Claims..........15
SECTION 6.03. Merger or Consolidation of, or Assumption of the
Obligations of,Servicer..............................16
SECTION 6.04. Limitation on Liability of Servicer and Others.......17
SECTION 6.05. CPL Not to Resign as Servicer.......................17
SECTION 6.06. Servicing Compensation..............................17
SECTION 6.07. Compliance with Applicable Law......................18
SECTION 6.08. Access to Certain Records and Information
Regarding Transition Property.......................18
SECTION 6.09. Appointments........................................18
SECTION 6.10. No Servicer Advances................................19
SECTION 6.11. Remittances.........................................19
SECTION 6.12. Maintenance of Operations...........................20
ARTICLE VII............................................DEFAULT 20
SECTION 7.01. Servicer Default....................................20
SECTION 7.02. Appointment of Successor............................22
SECTION 7.03. Waiver of Past Defaults.............................22
SECTION 7.04. Notice of Servicer Default..........................22
ARTICLE VIII...........................MISCELLANEOUS PROVISIONS 23
SECTION 8.01. Amendment............................................23
SECTION 8.02. Maintenance of Accounts and Records.................24
SECTION 8.03. Notices.............................................24
SECTION 8.04. Assignment..........................................25
SECTION 8.05. Limitations on Rights of Others.....................25
SECTION 8.06. Severability........................................25
SECTION 8.07. Separate Counterparts...............................25
SECTION 8.08. Headings............................................25
SECTION 8.09. Governing Law.......................................25
SECTION 8.10. Assignment to Indenture Trustee.....................25
SECTION 8.11. Nonpetition Covenants...............................25
SECTION 8.12. Limitation of Liability.............................26
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A Form of Monthly Servicer's Certificate
Exhibit B Form of Certificate of Compliance
Exhibit C Form of Annual True-Up Mechanism
Advice Letter
Exhibit D Form of Interim True-Up Mechanism
Advice Letter
Exhibit E Form of Servicer Certificate
Schedule 4.01(a) Expected Amortization Schedule
Schedule 6.01(f) No Proceedings
<PAGE>
ANNEXES
Annex I.. Servicing Procedures
<PAGE>
This TRANSITION PROPERTY SERVICING AGREEMENT (this
"Agreement"), dated as of ____________, 2000, is between CPL Transition Funding
LLC, a Delaware limited liability company (the "Note Issuer"), and Central Power
and Light Company, a Texas corporation, as Servicer (the "Servicer").
RECITALS
WHEREAS, pursuant to the Securitization Law and the Initial
Financing Order, the Seller and the Note Issuer are concurrently entering into
the Sale Agreement pursuant to which the Seller is selling and the Note Issuer
is purchasing certain Transition Property created pursuant to the Securitization
Law and the Initial Financing Order described therein, and the Seller may sell
other Transition Property to the Note Issuer pursuant to the Sale Agreement.
WHEREAS, in connection with its ownership of the Transition
Property and in order to collect the associated Transition Charges, the Note
Issuer desires to engage the Servicer to carry out the functions described
herein. The Servicer currently performs similar functions for itself with
respect to its own charges to its customers and may in the future perform such
functions for others. In addition, the Note Issuer desires to engage the
Servicer to act on its behalf in obtaining Annual True-Up Adjustments and
Interim True-Up Adjustments from the PUCT. The Servicer desires to perform all
of these activities on behalf of the Note Issuer.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
(a) Unless otherwise defined herein, capitalized terms used
herein shall have the meanings assigned to them in that certain Indenture
(including Appendix A thereto) dated as of the date hereof between the Note
Issuer and [ ], as the Indenture Trustee, as the same may be amended,
supplemented or otherwise modified from time to time.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
<PAGE>
(c) The words "hereof," "herein," "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section, Schedule,
Exhibit, Annex and Attachment references contained in this Agreement are
references to Sections, Schedules, Exhibits, Annexes and Attachments in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation."
(d) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms.
(e) Non-capitalized terms used herein which are defined in the
Utilities Code shall, as the context requires, have the meanings assigned to
such terms in the Utilities Code, but without giving effect to amendments to the
Utilities Code after the date hereof which have a material adverse effect on the
Note Issuer or the Holders.
ARTICLE II
APPOINTMENT AND AUTHORIZATION
SECTION 2.01. Appointment of Servicer; Acceptance of
Appointment. Subject to Section 6.05 and Article VII, the Note Issuer hereby
appoints the Servicer, and the Servicer hereby accepts such appointment, to
perform the Servicer's obligations pursuant to this Agreement on behalf of and
for the benefit of the Note Issuer or any assignee thereof in accordance with
the terms of this Agreement and applicable law. This appointment and the
Servicer's acceptance thereof may not be revoked except in accordance with the
express terms of this Agreement.
SECTION 2.02. Authorization. With respect to all or any
portion of the Transition Property, the Servicer shall be, and hereby is,
authorized and empowered by the Note Issuer to (a) execute and deliver, on
behalf of itself and/or the Note Issuer, as the case may be, any and all
instruments, documents or notices, and (b) on behalf of itself and/or the Note
Issuer, as the case may be, make any filing and participate in proceedings of
any kind with any Governmental Authority, including with the PUCT. The Note
Issuer shall execute and deliver to the Servicer such documents as have been
prepared by the Servicer for execution by the Note Issuer and shall furnish the
Servicer with such other documents as may be in the Note Issuer's possession, in
each case as the Servicer may determine to be necessary or appropriate to enable
it to carry out its servicing and administrative duties hereunder. Upon the
Servicer's written request, the Note Issuer shall furnish the Servicer with any
powers of attorney or other documents necessary or appropriate to enable the
Servicer to carry out its duties hereunder.
<PAGE>
SECTION 2.03. Dominion and Control Over the Transition
Property. Notwithstanding any other provision herein, the Note Issuer shall have
dominion and control over the Transition Property, and the Servicer, in
accordance with the terms hereof, is acting solely as the servicing agent and
custodian for the Note Issuer with respect to the Transition Property and the
Transition Property Records. The Servicer shall not take any action that is not
authorized by this Agreement, that is not consistent with its customary
procedures and practices, or that shall materially impair the rights of the Note
Issuer in the Transition Property, in each case unless such action is required
by applicable law.
ARTICLE III
BILLING SERVICES
SECTION 3.01. Duties of Servicer. The Servicer, as agent
for the Note Issuer, shall have the following duties:
(a) Duties of Servicer Generally. The Servicer's duties in
general shall include management, servicing and administration of the
Transition Property; obtaining meter reads, calculating usage
(including demand and including any such usage by Customers served by a
REP), billing, collections and posting of all payments in respect of
the Transition Property; responding to inquiries by Customers, REPs,
the PUCT, or any other Governmental Authority with respect to the
Transition Property; delivering Bills to Customers and REPs,
investigating and handling delinquencies, processing and depositing
collections and making periodic remittances; furnishing periodic
reports to the Note Issuer, the Indenture Trustee and the Rating
Agencies; making all filings with the PUCT as may be necessary to
perfect the Note Issuer's ownership interests in and the Indenture
Trustee's lien on the Transition Property, and taking all necessary
action in connection with True-Up Adjustments as set forth herein.
Certain of the duties set forth above may be performed by REPs pursuant
to REP Service Agreements. Anything to the contrary notwithstanding,
the duties of the Servicer set forth in this Agreement shall be
qualified in their entirety by any PUCT Regulations as in effect at the
time such duties are to be performed. Without limiting the generality
of this Section 3.01(a), in furtherance of the foregoing, the Servicer
hereby agrees that it shall also have, and shall comply with, the
duties and responsibilities relating to data acquisition, usage and
bill calculation, billing, customer service functions, collections,
payment processing and remittance set forth in Annex I hereto, as it
may be amended from time to time. For the avoidance of doubt, the term
usage when used herein refers to both kilowatt hour consumption and
kilowatt demand.
(b) Reporting Functions.
(i) Monthly Servicer's Certificate. On or before the
[_________] calendar day of each month (or if such day is not
a Servicer Business Day, on the immediately preceding Servicer
Business Day), the Servicer shall prepare and deliver to the
Note Issuer, the Indenture Trustee and the Rating Agencies a
written report substantially in the form of Exhibit A hereto
(a "Monthly Servicer's Certificate") setting forth certain
information relating to TC Payments received by the Servicer
during the Collection Period immediately preceding such date.
<PAGE>
(ii) Notification of Laws and Regulations. The Servicer
shall immediately notify the Note Issuer, the Indenture
Trustee and the Rating Agencies in writing of any Requirements
of Law or PUCT Regulations hereafter promulgated that have a
material adverse effect on the Servicer's ability to perform
its duties under this Agreement.
(iii) Other Information. Upon the reasonable request of the
Note Issuer, the Indenture Trustee or any Rating Agency, the
Servicer shall provide to the Note Issuer, the Indenture
Trustee or such Rating Agency, as the case may be, any public
financial information in respect of the Servicer, or any
material information regarding the Transition Property to the
extent it is reasonably available to the Servicer, as may be
reasonably necessary and permitted by law to enable the Note
Issuer, the Indenture Trustee or the Rating Agencies to
monitor the performance by the Servicer hereunder. In
addition, so long as any of the Notes of any Series are
outstanding, the Servicer shall provide the Note Issuer and
the Indenture Trustee, within a reasonable time after written
request therefor, any information available to the Servicer or
reasonably obtainable by it that is necessary to calculate the
Transition Charges applicable to each TC Customer Class.
(iv) Preparation of Reports to be Filed with the SEC. The
Servicer shall prepare any reports required to be filed by the
Note Issuer under the securities laws, including a copy of
each Servicer's Certificate described in Section 4.01(c)(ii),
the annual Certificate of Compliance described in Section
3.03, and the Annual Accountant's Report described in Section
3.04.
SECTION 3.02. Servicing and Maintenance Standards. On behalf
of the Note Issuer, the Servicer shall (a) manage, service, administer and make
collections in respect of the Transition Property with reasonable care and in
accordance with applicable Requirements of Law, including all applicable PUCT
Regulations and guidelines, using the same degree of care and diligence that the
Servicer exercises with respect to similar assets for its own account and, if
applicable, for others; (b) follow customary standards, policies and procedures
for the industry in performing its duties as Servicer; (c) use all reasonable
efforts, consistent with its customary servicing procedures, to enforce, and
maintain rights in respect of, the Transition Property and to bill and collect
the Transition Charges; (d) comply with all Requirements of Law including all
applicable PUCT Regulations and guidelines, applicable to and binding on it
relating to the Transition Property; and (e) file all PUCT notices described in
the Securitization Law and file and maintain the effectiveness of UCC financing
statements with respect to the property transferred from time to time under the
Sale Agreement. The Servicer shall follow such customary and usual practices and
procedures as it shall deem necessary or advisable in its servicing of all or
any portion of the Transition Property, which, in the Servicer's judgment, may
include the taking of legal action, at the Note Issuer's expense but subject to
the priority of payment set forth in Section 8.02(d) of the Indenture.
<PAGE>
SECTION 3.03. Certificate of Compliance. The Servicer shall
deliver to the Note Issuer, the Indenture Trustee and the Rating Agencies on or
before [June 30] of each year, commencing [June 30, 2001] to and including the
[June 30] succeeding the Retirement of the Notes, an Officer's Certificate
substantially in the form of Exhibit B hereto (a "Certificate of Compliance"),
stating that: (i) a review of the activities of the Servicer during the twelve
months ended the preceding [March 31] (or, in the case of the first Certificate
of Compliance to be delivered on or before [June 30, 2001] , the period of time
from the date of this Agreement until [March 31, 2001]) and of its performance
under this Agreement has been made under such officer's supervision, and (ii) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all of its obligations in all material respects under this Agreement
throughout such twelve months (or, in the case of the Certificate of Compliance
to be delivered on or before [June 30, 2001], the period of time from the date
of this Agreement until [March 31, 2001]), or, if there has been a material
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof.
SECTION 3.04. Annual Report by Independent Public Accountants.
(a) The Servicer, at its own expense in partial consideration of the Servicing
Fee paid to it, shall cause a firm of independent certified public accountants
(which may provide other services to the Servicer or the Seller) to prepare, and
the Servicer shall deliver to the Note Issuer, the Indenture Trustee and the
Rating Agencies, a report addressed to the Servicer (the "Annual Accountant's
Report"), which may be included as part of the Servicer's customary auditing
activities, for the information and use of the Note Issuer, the Indenture
Trustee and the Rating Agencies on or before [June 30] of each year, beginning
[June 30, 2001] to and including the [June 30] succeeding the Retirement of the
Notes, to the effect that such firm has performed certain procedures, agreed
between the Servicer and such accountants, in connection with the Servicer's
compliance with its obligations under this Agreement during the preceding twelve
months ended [March 31] (or, in the case of the first Annual Accountant's Report
to be delivered on or before [June 30, 2001], the period of time from the date
of this Agreement until [March 31, 2001]), identifying the results of such
procedures and including any exceptions noted. In the event such accounting firm
requires the Indenture Trustee to agree or consent to the procedures performed
by such firm, the Note Issuer shall direct the Indenture Trustee in writing to
so agree; it being understood and agreed that the Indenture Trustee will deliver
such letter of agreement or consent in conclusive reliance upon the direction of
the Note Issuer, and the Indenture Trustee will not make any independent inquiry
or investigation as to, and shall have no obligation or liability in respect of
the sufficiency, validity or correctness of such procedures.
(b) The Annual Accountant's Report shall also indicate that
the accounting firm providing such report is independent of the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
<PAGE>
ARTICLE IV
SERVICES RELATED TO TRUE-UP ADJUSTMENTS
SECTION 4.01. True-Up Adjustments. From time to time, until
the Retirement of the Notes, the Servicer shall identify the need for Annual
True-Up Adjustments, Interim True-Up Adjustments and Special True-Up Adjustments
and shall take all reasonable action to obtain and implement such True-Up
Adjustments, all in accordance with the following:
(a) Expected Amortization Schedule. The initial Expected
Amortization Schedule is attached hereto as Schedule 4.01(a). In
connection with the Note Issuer's issuance of any additional Series of
Notes after the Closing Date, the Servicer, on or prior to the Series
Issuance Date therefor, shall revise the Expected Amortization Schedule
to add the requisite information for each new Series of Notes and set
forth, as of each Payment Date through the scheduled Retirement of the
Notes, the aggregate principal amounts of the Notes of all Series,
including such additional Series, expected to be outstanding on such
Payment Date. If the Expected Amortization Schedule is revised as set
forth above, the Servicer shall send a copy of such revised Expected
Amortization Schedule to the Note Issuer, the Indenture Trustee and the
Rating Agencies promptly thereafter.
(b) True-Up Adjustments.
(i) Annual True-Up Adjustments and Filings. Each year
no later than [_________], the Servicer shall: (A) update the
data and assumptions underlying the calculation of the
Transition Charges, including projected electricity usage
during the next Calculation Period for each TC Customer Class
and including interest and estimated expenses and fees of the
Note Issuer to be paid during such period, the Weighted
Average Days Outstanding and write-offs; (B) determine the
Periodic Payment Requirements and Periodic Billing Requirement
for the next Calculation Period based on such updated data and
assumptions; (C) determine the Transition Charges to be
allocated to each TC Customer Class during the next
Calculation Period based on such Periodic Billing Requirement
and the terms of the applicable Financing Orders and the
Tariffs filed pursuant thereto; (D) make all required notice
and other filings with the PUCT to reflect the revised
Transition Charges, including any Amendatory Tariffs, and (E)
take all reasonable actions and make all reasonable efforts to
effect such Annual True-Up Adjustment and to enforce the
provisions of the Securitization Law and the applicable
Financing Orders. The Servicer shall implement the revised
Transition Charges, if any, resulting from such Annual True-Up
Adjustment as of the Annual True-Up Adjustment Date.
<PAGE>
(ii) Interim True-Up Adjustments and Filings. Each
year no later than [____] Servicer Business Days prior to each
Payment Date, the Servicer shall compare the anticipated
Unrecovered Balance, as of such Payment Date and after giving
effect to payments to be made on such Payment Date, to the
Projected Unrecovered Balance as of such Payment Date. If the
Servicer determines that such Unrecovered Balance will exceed
105% of such Projected Unrecovered Balance and will be less
than 95% of such Projected Unrecovered Balance and if any
Outstanding Series of Notes which matures after ___, 20__,
will not have been paid in full by its Expected Final Payment
Date, then the Servicer shall: (A) update the data and
assumptions underlying the calculation of the Transition
Charges, including projected electricity usage during the next
Calculation Period for each TC Customer Class and including
interest and estimated expenses and fees of the Note Issuer to
be paid during such period, the rate of delinquencies and
write-offs; (B) determine the Periodic Payment Requirement and
Periodic Billing Requirement for the next Calculation Period
based on such updated data and assumptions; (C) determine the
Transition Charges to be allocated to each TC Customer Class
during the next Calculation Period based on such Periodic
Billing Requirement and the terms of the applicable Financing
Orders and the Tariffs filed pursuant thereto; (D) make all
required notice and other filings with the PUCT to reflect the
revised Transition Charges, including any Amendatory Tariffs,
and (E) take all reasonable actions and make all reasonable
efforts to effect such Interim True-Up Adjustment and to
enforce the Securitization Law and the applicable Financing
Orders. The Servicer shall implement the revised Transition
Charges, if any, resulting from such Interim True-Up
Adjustment on the Interim True-Up Adjustment Date.
(iii) Special True-Up Adjustments and Filings. In the
event that a Special True-Up Adjustment is required pursuant
to an order of the PUCT which has become final, the Servicer
will recalculate the Transition Charges to reallocate such
Transition Charges among TC Customer Classes in accordance
with the requirements of such order and shall implement the
revised Transition Charges resulting from such Special True-Up
Adjustment within 45 days of such order becoming final and
nonappealable.
(c) Reports.
<PAGE>
(i) Notification of Amendatory Tariff Filings and
True-Up Adjustments. Whenever the Servicer files an Amendatory
Tariff with the PUCT or implements revised Transition Charges
with notice to the PUCT without filing an Amendatory Tariff if
permitted by any applicable Financing Order, the Servicer
shall send a copy of such filing or notice (together with a
copy of all notices and documents which, in the Servicer's
reasonable judgment, are material to the adjustments effected
by such Amendatory Tariff or notice) to the Note Issuer, the
Indenture Trustee and the Rating Agencies concurrently
therewith. If, for any reason any revised Transition Charges
are not implemented and effective on the applicable date set
forth herein, the Servicer shall notify the Note Issuer the
Indenture Trustee and each Rating Agency by the end of the
Second Servicer Business Day after such applicable date.
(ii) Servicer's Certificate. Not later than five
Servicer Business Days prior to each Payment Date, the
Servicer shall deliver a written report substantially in the
form of Exhibit E hereto (the "Servicer's Certificate") to the
Note Issuer, the Indenture Trustee and the Rating Agencies.
(iii) Reports to Customers.
(A) After each revised Transition Charge has gone
into effect pursuant to a True-Up Adjustment, the Servicer
shall, to the extent and in the manner and time frame required
by applicable PUCT Regulations, if any, cause to be prepared
and delivered to Customers any required notices announcing
such revised Transition Charges.
(B) In addition, at least once each year, the
Servicer shall (to the extent that it does not include the
notice described below in the Bills regularly sent to
Applicable REPs or Customers) cause to be prepared and
delivered to REPs and such Customers a notice stating, in
effect, that the Transition Property and the Transition
Charges are owned by the Note Issuer and not the Seller. The
Servicer shall cause each Applicable REP, at least once each
year, to include similar notices in the bills sent by
Applicable REPs to Customers indicating additionally that the
Transition Charges are not owned by the REP. Such notice shall
be included either as an insert to or in the text of the Bills
delivered to such Customers or shall be delivered to Customers
by electronic means or such other means as the Servicer or the
Applicable REP may from time to time use to communicate with
their respective customers.
(C) Except to the extent that applicable PUCT
Regulations make the Applicable REP responsible for such
costs, or the Applicable REP has otherwise agreed to pay such
costs, the Servicer shall pay from its own funds all costs of
preparation and delivery incurred in connection with clauses
(A) and (B) above, including printing and postage costs as the
same may increase or decrease from time to time.
(iv) REP Reports. The Servicer shall provide to the
Rating Agencies, upon request, any publicly available reports
filed by the Servicer with the PUCT (or otherwise made
publicly available by the Servicer) relating to REPs and any
other non-confidential and non-proprietary information
relating to REPs reasonably requested by the Rating Agencies.
<PAGE>
SECTION 4.02. Limitation of Liability. (a) The Note Issuer
and the Servicer expressly agree and acknowledge that:
(i) In connection with any True-Up Adjustment, the Servicer is
acting solely in its capacity as the servicing agent hereunder.
(ii) Neither the Servicer nor the Note Issuer is responsible
in any manner for, and shall have no liability whatsoever as a result
of, any action, decision, ruling or other determination made or not
made, or any delay (other than any delay resulting from the Servicer's
failure to file the applications required by Section 4.01 in a timely
and correct manner or other breach by the Servicer of its duties under
this Agreement that adversely affects Transition Property or the the
True-Up Adjustments), by the PUCT in any way related to the Transition
Property or in connection with any True-Up Adjustment, the subject of
any filings under Section 4.01, any proposed True-Up Adjustment, or the
approval of any revised Transition Charges and the scheduled
adjustments thereto.
(iii) The Servicer shall have no liability whatsoever relating
to the calculation of any revised Transition Charges and the scheduled
adjustments thereto, including as a result of any inaccuracy of any of
the assumptions made in such calculation regarding expected energy
usage volume and the Weighted Average Days Outstanding, write-offs and
estimated expenses and fees of the Note Issuer, so long as the Servicer
has acted in good faith and has not acted in a grossly negligent manner
in connection therewith, nor shall the Servicer have any liability
whatsoever as a result of any Person, including the Holders, not
receiving any payment, amount or return anticipated or expected or in
respect of any Note generally, except only to the extent that the
Servicer is liable under Section 6.02.
(b) Notwithstanding the foregoing, this Section 4.02 shall not
relieve the Servicer of liability for any misrepresentation by the Servicer
under Section 6.01 or for any breach by the Servicer of its other obligations
under this Agreement.
SECTION 4.03 Monitoring of Third-Party Collectors. From time
to time, until the Retirement of the Notes, the Servicer shall, in accordance
with the Servicing Standard, implement such procedures and policies as are
necessary to ensure that the obligations of all Third-Party Collectors to remit
TC Payments are properly enforced in accordance with the terms and provisions of
the Tariffs, and any other applicable PUCT Regulations in effect from time to
time. Such procedures and policies shall include the following:
(a) Maintenance of Records and Information. In addition to any
actions required by PUCT Regulations or other applicable law, the
Servicer shall:
(i) maintain adequate records for promptly
identifying and contacting each such Third-Party Collector
(including any Applicable REP);
<PAGE>
(ii) maintain records of end-user Customers which are
billed by Applicable REPs to permit prompt transfer of billing
responsibilities in the event of default by such Applicable
REPs;
(iii) maintain adequate records for enforcing
compliance with all REP Deposit Requirements; and
[Others to be determined].
The Servicer shall update the records described above no less
frequently than [quarterly].
(b) Monitoring of Performance and Payment. In addition to any
actions required by PUCT Regulations or other applicable law, the
Servicer shall undertake to do the following:
(i) The Servicer shall require each REP to pay all
Transition Charges billed to such REP in accordance with the
provisions of the Initial Tariff and each Subsequent Tariff
(whether or not disputed). The Servicer shall monitor
compliance by each REP with all REP Remittance Requirements
and take prompt action to enforce such requirements.
(ii) The Servicer shall, consistent with its
customary billing practices, bill each REP who provides
consolidated billing to end-user Customers for all Transition
Charges owed by such end-user Customers no less frequently
then the billing cycle otherwise applicable to such end-user
Customers.
[Others to be determined]
(c) Enforcement. The Servicer shall, in accordance with the
terms of the Initial Tariff and each Subsequent Tariff, ensure that
each REP remits all TC Payments which it is obligated to remit to the
Servicer. In the event of any default by any REP, the Servicer shall
enforce all rights set forth in, and take all other steps permitted by,
the Initial Tariff or any Subsequent Tariff or other PUCT Regulations
as it determines, in accordance with the Servicing Standard, are
reasonably necessary to ensure the prompt payment of TC Payments by
such REP and to preserve the rights of the Holders with respect
thereto, including, where appropriate, terminating the right of any REP
to bill and collect Transition Charges or petitioning the PUCT to
impose such other remedies or penalties as may be available under the
circumstances.
(d) Credit and Collection Policies.
<PAGE>
The Servicer shall, to the full extent permitted
under the Initial Financing Order or any Subsequent Financing
Order, as applicable, impose such terms with respect to credit
and collection policies applicable to Third-Party Collectors
as may be reasonably necessary to prevent the then-current
rating of the Notes from being downgraded. The Servicer shall,
in accordance with and to the extent permitted by the
Utilities Code and the terms of the Initial Financing Order
and any Subsequent Financing Order, include and impose the
above-described terms in all tariffs filed under the Utilities
Code which would allow REPs or other utilities to issue single
bills to CPL's Customers which include Transition Charges. The
Servicer shall periodically review the need for modified or
additional terms based upon, among other things, (i) the
relative amount of TC Payments received through REPs relative
to the Periodic Billing Requirement, (ii) the historical
payment and default experience of each REP and (iii) such
other credit and collection policies to which the REPs are
subject, and if permitted by applicable law, will set out any
such modified or additional terms in a supplemental tariff
filed with the PUCT.
ARTICLE V
THE TRANSITION PROPERTY
SECTION 5.01. Custody of Transition Property Records. To
assure uniform quality in servicing the Transition Property and to reduce
administrative costs, the Note Issuer hereby revocably appoints the Servicer,
and the Servicer hereby accepts such appointment, to act as the agent of the
Note Issuer and the Indenture Trustee as custodian of any and all documents and
records that the Seller shall keep on file, in accordance with its customary
procedures, relating to the Transition Property, including copies of any
Financing Orders, Issuance Advice Letters, Tariffs and Amendatory Tariffs
relating thereto and all documents filed with the PUCT in connection with any
True-Up Adjustment and computational records relating thereto (collectively, the
"Transition Property Records"), which are hereby constructively delivered to the
Indenture Trustee, as pledgee of the Note Issuer (or, in the case of the
Subsequent Transition Property, will as of the applicable Subsequent Transfer
Date be constructively delivered to the Indenture Trustee, as pledgee of the
Note Issuer) with respect to all Transition Property.
<PAGE>
SECTION 5.02. Duties of Servicer as Custodian. (a)
Safekeeping. The Servicer shall hold the Transition Property Records on behalf
of the Note Issuer and maintain such accurate and complete accounts, records and
computer systems pertaining to the Transition Property Records as shall enable
the Note Issuer and the Indenture Trustee, as applicable, to comply with this
Agreement, the Sale Agreement and the Indenture. In performing its duties as
custodian, the Servicer shall act with reasonable care, using that degree of
care and diligence that the Servicer exercises with respect to comparable assets
that the Servicer services for itself or, if applicable, for others. The
Servicer shall promptly report to the Note Issuer, the Indenture Trustee and the
Rating Agencies any failure on its part to hold the Transition Property Records
and maintain its accounts, records and computer systems as herein provided and
promptly take appropriate action to remedy any such failure. Nothing herein
shall be deemed to require an initial review or any periodic review by the Note
Issuer or the Indenture Trustee of the Transition Property Records. The
Servicer's duties to hold the Transition Property Records on behalf of the Note
Issuer and the Indenture Trustee set forth in this Section 5.02, to the extent
such Transition Property Records have not been previously transferred to a
successor Servicer pursuant to Article VII, shall terminate one year and one day
after the earlier of the date on which (i) the Servicer is succeeded by a
successor Servicer in accordance with Article VII and (ii) no Notes of any
Series are Outstanding.
(b) Maintenance of and Access to Records. The Servicer shall
maintain the Transition Property Records at [_______________] or at such other
office as shall be specified to the Note Issuer and the Indenture Trustee by
written notice at least 30 days prior to any change in location. The Servicer
shall make available for inspection to the Note Issuer and the Indenture Trustee
or their respective duly authorized representatives, attorneys or auditors the
Transition Property Records at such times during normal business hours as the
Note Issuer or the Indenture Trustee shall reasonably request and which do not
unreasonably interfere with the Servicer's normal operations. Nothing in this
Section 5.02(b) shall affect the obligation of the Servicer to observe any
applicable law (including any PUCT Regulation) prohibiting disclosure of
information regarding the Customers, and the failure of the Servicer to provide
access to such information as a result of such obligation shall not constitute a
breach of this Section 5.02(b).
(c) Release of Documents. Upon instruction from the Indenture
Trustee in accordance with the Indenture, the Servicer shall release any
Transition Property Records to the Indenture Trustee, the Indenture Trustee's
agent or the Indenture Trustee's designee, as the case may be, at such place or
places as the Indenture Trustee may designate, as soon as practicable.
(d) Defending Transition Property Against Claims. The
Servicer, on behalf of the Holders, shall institute any action or proceeding
necessary to compel performance by the PUCT or the State of Texas of any of
their respective obligations or duties under the Securitization Law, any
Financing Order, any Issuance Advice Letter, True-Up Adjustment, any Tariff or
any Amendatory Tariff and the Servicer agrees to take such legal or
administrative actions, including defending against or instituting and pursuing
legal actions and appearing or testifying at hearings or similar proceedings, as
may be reasonably necessary to block or overturn any attempts to cause a repeal
of, modification of or supplement to or judicial invalidation of the
Securitization Law or any Financing Order or the rights of holders of Transition
Property by legislative enactment, voter initiative or constitutional amendment
that would be materially adverse to Holders. The costs of any such action shall
be payable from TC Collections as Operating Expenses in accordance with the
priorities set forth in Section 8.02(d) of the Indenture. The Servicer's
obligations pursuant to this Section 5.02 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to
Section 8.02(d) of the Indenture may be delayed (it being understood that the
Servicer may be required to advance its own funds to satisfy its obligations
hereunder).
<PAGE>
SECTION 5.03. Instructions; Authority to Act. For so long as
any Notes remain Outstanding, the Servicer shall be deemed to have received
proper instructions with respect to the Transition Property Records upon its
receipt of written instructions signed by a Responsible Officer of the Indenture
Trustee.
SECTION 5.04. Custodian's Indemnification. The Servicer as
custodian shall indemnify the Note Issuer, the Independent Managers and the
Indenture Trustee (for itself and for the benefit of the Noteholders) and each
of their respective officers, directors, employees and agents for, and defend
and hold harmless each such Person from and against, any and all liabilities,
obligations, losses, damages, payments and claims, and reasonable costs or
expenses, of any kind whatsoever (collectively, "Losses") that may be imposed
on, incurred by or asserted against each such Person as the result of any
negligent act or omission in any way relating to the maintenance and custody by
the Servicer, as custodian, of the Transition Property Records; provided,
however, that the Servicer shall not be liable for any portion of any such
amount resulting from the willful misconduct, bad faith or gross negligence of
the Note Issuer, the Independent Managers or the Indenture Trustee, as the case
may be.
Indemnification under this Section shall survive resignation
or removal of the Indenture Trustee or any Independent Manager and shall include
reasonable out-of-pocket fees and expenses of investigation and litigation
(including reasonable attorney's fees and expenses).
SECTION 5.05. Effective Period and Termination. The Servicer's
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If
any Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been terminated under Section 7.01, the appointment of such Servicer as
custodian shall be terminated by the Indenture Trustee or by the Holders of
Notes evidencing not less than 25 percent of the Outstanding Amount of the Notes
of all Series in the same manner as the Indenture Trustee or such Holders may
terminate the rights and obligations of the Servicer under Section 7.01.
Additionally, if not sooner terminated as provided above, the Servicer's
obligations as Custodian shall terminate one year and one day after the date on
which no Notes of any Series are Outstanding.
ARTICLE VI
THE SERVICER
<PAGE>
SECTION 6.01. Representations and Warranties of Servicer. The
Servicer makes the following representations and warranties, as of the Closing
Date, as of each Subsequent Transfer Date relating to the sale of Subsequent
Transition Property, and as of such other dates as expressly provided in this
Section 6.01, on which the Note Issuer and the Indenture Trustee are deemed to
have relied in entering into this Agreement relating to the servicing of the
Transition Property. The representations and warranties shall survive the
execution and delivery of this Agreement and the pledge thereof to the Indenture
Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is duly
organized and validly existing and is in good standing under the laws
of the state of its organization, with the requisite corporate or other
power and authority to own its properties and to conduct its business
as such properties are currently owned and such business is presently
conducted, and had at all relevant times, and has, the requisite power,
authority and legal right to service the Transition Property and to
hold the Transition Property Records as custodian.
(b) Due Qualification. The Servicer is duly qualified to do
business and is in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the
servicing of the Transition Property as required by this Agreement)
shall require such qualifications, licenses or approvals (except where
the failure to so qualify would not be reasonably likely to have a
material adverse effect on the Servicer's business, operations, assets,
revenues or properties or materially adversely affect the servicing of
the Transition Property).
(c) Power and Authority. The Servicer has the requisite
corporate or other power and authority to execute and deliver this
Agreement and to carry out its terms; and the execution, delivery and
performance of this Agreement have been duly authorized by all
necessary action on the part of the Servicer order its organizational
or governing documents and laws.
(d) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Servicer enforceable against the
Servicer in accordance with its terms, subject to applicable
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 (including concepts
of materiality, reasonableness, good faith and fair dealing),
regardless of whether considered in a proceeding in equity or at law.
<PAGE>
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time)
a default under, the organization and documents of the Servicer, or any
material indenture, agreement or other instrument to which the Servicer
is a party or by which it or any of its property is bound; nor result
in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other
instrument; nor violate any existing law or any existing order, rule or
regulation applicable to the Servicer of any Governmental Authority
having jurisdiction over the Servicer or its properties, so as to
adversely affect the Servicer's ability to perform its obligations
under this Agreement Holders.
(f) No Proceedings. [Except as set forth on Schedule 6.01(f)],
there are no proceedings or investigations pending or, to the
Servicer's knowledge, threatened, before any Governmental Authority
having jurisdiction over the Servicer or its properties involving or
relating to the Servicer or the Note Issuer or, to the Servicer's
knowledge, any other Person: (i) asserting the invalidity of this
Agreement or any of the other Basic Documents, (ii) seeking to prevent
the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the other Basic
Documents, (iii) seeking any determination or ruling that could
reasonably be expected to materially and adversely affect the
performance by the Servicer of its obligations under, or the validity
or enforceability of, this Agreement, any of the other Basic Documents
or the Notes or (iv) relating to the Servicer and which could
reasonably be expected to adversely affect the federal income tax or
state income or franchise tax attributes of the Notes as debt.
(g) Approvals. No approval, authorization, consent, order or
other action of, or filing with, any Governmental Authority is required
in connection with the execution and delivery by the Servicer of this
Agreement, the performance by the Servicer of the transactions
contemplated hereby or the fulfillment by the Servicer of the terms
hereof, except those that have been obtained or made and those that the
Servicer is required to make in the future pursuant to Article IV.
(h) Reports and Certificates. Each report and certificate
delivered in connection with an Issuance Advice Letter will constitute
a representation and warranty by the Servicer that each such report or
certificate, as the case may be, is true and correct in all material
respects; provided, however, that to the extent any such report or
certificate is based in part upon or contains assumptions, forecasts or
other predictions of future events, the representation and warranty of
the Servicer with respect thereto will be limited to the representation
and warranty that such assumptions, forecasts or other predictions of
future events are reasonable based upon historical performance.
SECTION 6.02. Indemnities of Servicer; Release of Claims.
(a) The Servicer shall be liable in accordance herewith only
to the extent of the obligations specifically undertaken by the Servicer under
this Agreement.
<PAGE>
(b) The Servicer shall indemnify the Note Issuer, the
Indenture Trustee (for itself and for the benefit of the Noteholders) and the
Independent Managers and each of their respective officers, directors, employees
and agents for, and defend and hold harmless each such Person from and against,
any and all Losses imposed on, incurred by any such Person as a result of (i)
the Servicer's willful misconduct, bad faith or gross negligence in the
performance of its duties or observance of its covenants under this Agreement or
its reckless disregard of its obligations and duties under this Agreement, or
(ii) the Servicer's breach in any material respect of any of its representations
and warranties contained in this Agreement except to the extent of Losses either
resulting from the willful misconduct, bad faith or gross negligence of such
Person seeking indemnification hereunder or resulting from a breach of a
representation or warranty made by such Person in any of the Basic Documents
that gives rise to the Servicer's breach.
(c) For purposes of Section 6.02(b), in the event of the
termination of the rights and obligations of CPL (or any successor thereto
pursuant to Section 6.03) as Servicer pursuant to Section 7.01, or a resignation
by such Servicer pursuant to this Agreement, such Servicer shall be deemed to be
the Servicer pending appointment of a successor Servicer pursuant to Section
7.02.
(d) Indemnification under this Section 6.02 shall survive any
repeal of, modification of, or supplement to, or judicial invalidation of, the
Securitization Law or any Financing Order and shall survive the resignation or
removal of the Indenture Trustee or any Independent Manager or the termination
of this Agreement and shall include reasonable out-of-pocket fees and expenses
of investigation and litigation (including reasonable attorney's fees and
expenses).
(e) Except to the extent expressly provided in this Agreement
or the other Basic Documents (including the Servicer's claims with respect to
the Servicing Fee, reimbursement for any Excess Remittance, reimbursement for
costs incurred pursuant to Section 5.02 (d) and the payment of the purchase
price of Transition Property), the Servicer hereby releases and discharges the
Note Issuer, the Independent Managers, and the Indenture Trustee and each of
their respective officers, directors and agents (collectively, the "Released
Parties") from any and all actions, claims and demands whatsoever, whenever
arising, which the Servicer, in its capacity as Servicer or otherwise, shall or
may have against any such Person relating to the Transition Property or the
Servicer's activities with respect thereto other than any actions, claims and
demands arising out of the willful misconduct, bad faith or gross negligence of
the Released Parties.
<PAGE>
SECTION 6.03. Merger, Conversion or Consolidation of, or
Assumption of the Obligations of, Servicer. Any Person (a) into which the
Servicer may be merge, converted d or consolidated and which, (b) that may
result from any merger, conversion or consolidation to which the Servicer shall
be a party and which (c) that may succeed to the properties and assets of the
Servicer and which (d) which results from the division of the Servicer into two
or more Persons and which (e) which otherwise succeeds to the major part of the
electric transmission and distribution business of the Servicer (or, if
transmission and distribution are not provided by a single entity, which
provides wire service directly to customers taking service at facilities,
premises or loads located in CPL's certificated service area as it existed on
May 1, 1999), which Person in any of the foregoing cases executes an agreement
of assumption to perform all of the obligations of the Servicer hereunder, shall
be the successor to the Servicer under this Agreement without further act on the
part of any of the parties to this Agreement; provided, however, that (i)
immediately after giving effect to such transaction, no Servicer Default and no
event which, after notice or lapse of time, or both, would become a Servicer
Default shall have occurred and be continuing, (ii) the Servicer shall have
delivered to the Note Issuer, conversion, and the Indenture Trustee and each
Rating Agency an Officer's Certificate and an Opinion of Counsel stating that
such consolidation, merger, division or succession and such agreement of
assumption complies with this Section and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been complied
with, (iii) the Servicer shall have delivered to the Note Issuer and the
Indenture Trustee an Opinion of Counsel either (A) stating that, in the opinion
of such counsel, all filings to be made by the Servicer, including filings with
the PUCT pursuant to the Securitization Law, have been executed and filed that
are necessary to fully preserve and protect the interests of the Note Issuer in
the Transition Property and reciting the details of such filings or (B) stating
that, in the opinion of such counsel, no such action shall be necessary to
preserve and protect such interests and (iv) the Servicer shall have given the
Rating Agencies prior written notice of such transaction. When any Person (or
more than one Person) acquires the properties and assets of the Servicer
substantially as a whole or otherwise becomes the successor, by merger,
conversion, consolidation, sale, transfer, lease or otherwise, to the electric
transmission and distribution business of the Servicer (or, if transmission and
distribution are not provided by a single entity, provides wire service directly
to customers taking servcices at facilities, premises or loads located in CPL's
Certificated Service area as it existed on May 1, 1999) in accordance with the
terms of this Section 6.03, then upon satisfaction of all of the other
conditions of this Section, the Servicer shall automatically and without further
notice be released from all its obligations hereunder.
SECTION 6.04. Limitation on Liability of Servicer and Others.
Except as otherwise provided under this Agreement, neither the Servicer nor any
of the directors, officers, employees or agents of the Servicer shall be liable
to the Note Issuer or any other Person for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this provision shall not protect the Servicer
or any such person against any liability that would otherwise be imposed by
reason of willful misconduct, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties under
this Agreement. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on the advice of counsel reasonably acceptable
to the Indenture Trustee or on any document of any kind, prima facie properly
executed and submitted by any Person, respecting any matters arising under this
Agreement.
Except as provided in this Agreement, the Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action
relating to the Transition Property.
<PAGE>
SECTION 6.05. CPL Not to Resign as Servicer. Subject to the
provisions of Section 6.03, CPL shall not resign from the obligations and duties
hereby imposed on it as Servicer under this Agreement unless either (a) the
Servicer determines that the performance of its duties under this Agreement
shall no longer be permissible under applicable law or (b) satisfaction of the
following: (i) the Rating Agency Condition shall have been satisfied except that
with respect to Moody's it shall be sufficient to provide ten days' prior notice
and (ii) to the extent required under any Financing Order, the PUCT shall have
approved such resignation. Notice of any such determination permitting the
resignation of CPL shall be communicated to the Note Issuer, the Indenture
Trustee and the Rating Agencies at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination that the performance of CPL's
duties under this Agreement shall no longer be permissible under applicable law
shall be evidenced by an Opinion of Counsel to such effect delivered by CPL to
the Note Issuer and the Indenture Trustee concurrently with or promptly after
such notice. No such resignation shall become effective until a successor
Servicer shall have assumed the responsibilities and obligations of CPL in
accordance with Section 7.02.
SECTION 6.06. Servicing Compensation. (a) In consideration for
its services hereunder, until the Retirement of the Notes, the Servicer shall
receive a fee (the "Servicing Fee") payable semi-annually on each Payment Date
in an amount equal to (i) $0.05% of the aggregate initial principal amount of
all Outstanding Series of Notes for so long as CPL or an Affiliate of CPL is the
Servicer or Transition Charges are included in amounts on Bills otherwise sent
by the Servicer to REPs or Customers, as applicable, for amounts owed to the
Servicer on its own account or (ii) $0.60% of the aggregate initial principal
amount of all Outstanding Series of Notes if Transition Charges are not included
in amounts on Bills otherwise sent by the Servicer to Customers for amounts owed
to the Servicer on its own account but, instead, are billed separately to
Customers. So long as CPL or an affiliate thereof remains as Servicer, the
Servicer shall not cause Transition Charges to be billed separately to Customers
or REPs from amounts owed to the Servicer on its own account. The Servicer also
shall be entitled to retain as additional compensation (i) any interest earnings
on TC Payments received by the Servicer and invested by the Servicer during each
Collection Period prior to remittance to the Collection Account and (ii) all
late payment charges, if any, collected from Customers or REPs.
(b) The Servicing Fee set forth in Section 6.06(a) shall be
paid to the Servicer by the Indenture Trustee, on each Payment Date in
accordance with the priorities set forth in Section 8.02(d) of the Indenture, by
wire transfer of immediately available funds from the Collection Account to an
account designated by the Servicer. Any portion of the Servicing Fee not paid on
any such date should be added to the Servicing Fee payable on the subsequent
Payment Date.
(c) Except as expressly provided elsewhere in this Agreement,
the Servicer shall be required to pay from its own account expenses incurred by
the Servicer in connection with its activities hereunder (including any fees to
and disbursements by accountants, counsel, or any other Person, any taxes
imposed on the Servicer (other than taxes based on the Servicer's net income)
and any expenses incurred in connection with reports to Holders) out of the
compensation retained by or paid to it pursuant to this Section 6.06, and shall
not be entitled to any extra payment or reimbursement therefor.
<PAGE>
SECTION 6.07. Compliance with Applicable Law. The Servicer
covenants and agrees, in servicing the Transition Property, to comply in all
material respects with all laws applicable to, and binding upon, the Servicer
and relating to such Transition Property the noncompliance with which would have
a material adverse effect on the value of the Transition Property; provided,
however, that the foregoing is not intended to, and shall not, impose any
liability on the Servicer for noncompliance with any law that the Servicer is
contesting in good faith in accordance with its customary standards and
procedures.
SECTION 6.08. Access to Certain Records and Information
Regarding Transition Property. The Servicer shall provide to the Holders and the
Indenture Trustee access to the Transition Property Records in such cases where
the Holders and the Indenture Trustee shall be required by applicable law to be
provided access to such records. Access shall be afforded without charge, but
only upon reasonable request and during normal business hours at the respective
offices of the Servicer. Nothing in this Section shall affect the obligation of
the Servicer to observe any applicable law (including any PUCT Regulation)
prohibiting disclosure of information regarding the Customers, and the failure
of the Servicer to provide access to such information as a result of such
obligation shall not constitute a breach of this Section.
SECTION 6.09. Appointments. The Servicer may at any time
appoint any Person to perform all or any portion of its obligations as Servicer
hereunder; provided, however, that, unless such Person is an Affiliate of CPL,
the Rating Agency Condition shall have been satisfied in connection therewith;
provided further that the Servicer shall remain obligated and be liable under
this Agreement for the servicing and administering of the Transition Property in
accordance with the provisions hereof without diminution of such obligation and
liability by virtue of the appointment of such Person and to the same extent and
under the same terms and conditions as if the Servicer alone were servicing and
administering the Transition Property; and provided further, however, that
nothing herein (including the Rating Agency Condition) shall preclude the
execution by the Servicer of an REP Service Agreement with any REP pursuant to
applicable PUCT Regulations. The fees and expenses of any such Person shall be
as agreed between the Servicer and such Person from time to time and none of the
Note Issuer, the Indenture Trustee, the Holders or any other Person shall have
any responsibility therefor or right or claim thereto. Any such appointment
shall not constitute a Servicer resignation under Section 6.05.
SECTION 6.10. No Servicer Advances. The Servicer shall not
make any advances of interest or principal on the Notes.
<PAGE>
SECTION 6.11. Remittances. (a) Subject to clause (b) below, on
each Servicer Business Day, commencing [35] days after the Closing Date, the
Servicer shall remit to the General Subaccount of the Collection Account the
total TC Payments estimated to have been received by the Servicer from or on
behalf of Customers on the second preceding Servicer Business Day in respect of
all previously billed Transition Charges (the "Daily Remittance"), which Daily
Remittance may be calculated according to the procedures set forth in Annex I.
Prior to each remittance to the General Subaccount of the Collection Account
pursuant to this Section, the Servicer shall provide written notice to the
Indenture Trustee of each such remittance (including the exact dollar amount to
be remitted).
(b) Notwithstanding the foregoing clause (a), unless a
Servicer Default has occurred and is continuing, during any period in which the
Servicer maintains a long-term rating of at least A or its equivalent or the
Rating Agency Condition is otherwise satisfied, the Servicer shall no longer be
required to make Daily Remittances and, in lieu thereof, the Servicer shall, on
each Monthly Remittance Date, remit the Aggregate Remittance Amount for the
applicable Collection Period to the General Subaccount of the Collection
Account. All such remittances shall be made by wire transfer of immediately
available funds.
(c) The Servicer agrees and acknowledges that it holds all TC
Payments collected by it for the benefit of the Note Issuer and the Holders and
that all such amounts will be remitted by the Servicer in accordance with this
Section without any surcharge, fee, offset, charge or other deduction except (i)
as set forth in clause (b) above or clause (d) below and (ii) for late fees
permitted by Section 6.06. The Servicer further agrees not to make any claim to
reduce its obligation to remit all TC Payments collected by it in accordance
with this Agreement except (i) as set forth in clause (b) above or clause (d)
below and (ii) for late fees permitted by Section 6.06.
(d) On or before each [ _________] commencing [ _______] 2001,
the Servicer shall calculate the amount of any Remittance Shortfall or Excess
Remittance for the prior Reconciliation Period and (A) if a Remittance Shortfall
exists, the Servicer shall make a supplemental remittance to the General
Subaccount of the Collection Account within two Servicer Business Days, or, if
monthly remittances are permitted under Section 6.11(b), then on the next
Monthly Remittance Date in the amount of such Remittance Shortfall, or (B) if an
Excess Remittance exists, the Servicer shall be entitled either (i) to reduce
the amount of each Daily Remittance (or, if monthly remittances are permitted
under Section 6.11(b), each Aggregate Remittance Amount) which the Servicer
subsequently remits to the General Subaccount of the Collection Account for
application to the amount of such Excess Remittance until the balance of such
Excess Remittance has been reduced to zero, the amount of such reduction
becoming the property of the Servicer or (ii) so long as such withdrawal would
not cause the amounts on deposit in the General Subaccount or the Reserve
Subaccount to be insufficient for the payment of the next installment of
interest on the Notes, to be paid immediately from the General Subaccount or the
Reserve Subaccount the amount of such Excess Remittance, such payment becoming
the property of the Servicer. If there is a Remittance Shortfall, the amount
which the Servicer remits to the General Subaccount of the Collection Account on
the relevant date set forth above shall be increased by the amount of such
Remittance Shortfall, such increase coming from the Servicer's own funds.
(e) Unless otherwise directed to do so by the Note Issuer, the
Servicer shall be responsible for selecting Eligible Investments in which the
funds in the Collection Account shall be invested pursuant to Section 8.03 of
the Indenture.
<PAGE>
SECTION 6.12. Maintenance of Operations. Subject to Section
6.03, CPL agrees to continue to operate its electric transmission and
distribution system to provide service (or, if transmission and distribution are
split, to provide wire service directly to its customers) so long as it is
acting as the Servicer under this Agreement.
ARTICLE VII
DEFAULT
SECTION 7.01. Servicer Default. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to remit to the Collection
Account on behalf of the Note Issuer any required remittance that shall
continue unremedied for a period of five Business Days after written
notice of such failure is received by the Servicer from the Note Issuer
or the Indenture Trustee or after discovery of such failure by an
officer of the Servicer; or
(b) any failure on the part of the Servicer or, so long as the
Servicer is CPL or an affiliate thereof, any failure on the part of
CPL, as the case may be, duly to observe or to perform in any material
respect any other covenants or agreements of the Servicer or CPL, as
the case may be, set forth in this Agreement or any other Basic
Document to which it is a party, which failure shall (i) materially and
adversely affect the rights of the Holders and (ii) continue unremedied
for a period of [60] days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given
(A) to the Servicer or CPL, as the case may be, by the Note Issuer or
(B) to the Servicer or CPL, as the case may be, by the Indenture
Trustee or by the Holders of Notes evidencing not less than [25]
percent of the Outstanding Amount of the Notes of all Series; or
(c) any representation or warranty made by the Servicer in
this Agreement shall prove to have been incorrect in any material
respect when made, which has a material adverse effect on the Holders
and which material adverse effect continues unremedied for a period of
[60] days after the date on which written notice thereof, requiring the
same to be remedied, shall have been delivered to the Servicer by the
Note Issuer or the Indenture Trustee; or
(d) an Insolvency Event occurs with respect to the
Servicer or CPL;
<PAGE>
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Indenture Trustee, or the Holders of Notes evidencing
not less than a majority of the Outstanding Amount of the Notes of all Series,
by notice then given in writing to the Servicer (and to the Indenture Trustee if
given by the Holders) (a "Termination Notice") may terminate all the rights and
obligations (other than the obligations set forth in Section 6.02) of the
Servicer under this Agreement. In addition, upon a Servicer Default described in
Section 7.01(a), the Holders and the Indenture Trustee as financing parties
under the Securitization Law (or any of their representatives) shall be entitled
to apply to the district court of Travis County for sequestration and payment of
revenues arising with respect to the Transition Property. On or after the
receipt by the Servicer of a Termination Notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Notes, the Transition
Property, the Transition Charges or otherwise, shall, without further action,
pass to and be vested in such successor Servicer as may be appointed under
Section 7.02; and, without limitation, the Indenture Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the predecessor
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such Termination Notice, whether to
complete the transfer of the Transition Property Records and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer, the Note Issuer and the Indenture Trustee in effecting the termination
of the responsibilities and rights of the predecessor Servicer under this
Agreement, including the transfer to the successor Servicer for administration
by it of all Transition Property Records and all cash amounts that shall at the
time be held by the predecessor Servicer for remittance, or shall thereafter be
received by it with respect to the Transition Property or the Transition
Charges. In case a successor Servicer is appointed as a result of a Servicer
Default, all reasonable costs and expenses (including reasonable attorney's fees
and expenses) incurred in connection with transferring the Transition Property
Records to the successor Servicer and amending this Agreement to reflect such
succession as Servicer pursuant to this Section shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs and
expenses.
SECTION 7.02. Appointment of Successor. (a) Upon the
Servicer's receipt of a Termination Notice pursuant to Section 7.01 or the
Servicer's resignation or removal in accordance with the terms of this
Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, and shall be entitled to receive the requisite
portion of the Servicing Fee, until a successor Servicer shall have assumed in
writing the obligations of the Servicer hereunder as described below. In the
event of the Servicer's termination hereunder, the Note Issuer shall appoint a
successor Servicer with the Indenture Trustee's prior written consent thereto
(which consent shall not be unreasonably withheld), and the successor Servicer
shall accept its appointment by a written assumption in form reasonably
acceptable to the Note Issuer and provide prompt written notice of such
assumption to the Indenture Trustee and the Rating Agencies. If within 30 days
after the delivery of the Termination Notice, the Note Issuer shall not have
obtained such a new Servicer, the Indenture Trustee may petition the PUCT or a
court of competent jurisdiction to appoint a successor Servicer under this
Agreement. A Person shall qualify as a successor Servicer only if (i) such
Person is permitted under PUCT Regulations to perform the duties of the
Servicer, (ii) the Rating Agency Condition shall have been satisfied and (iii)
such Person enters into a servicing agreement with the Note Issuer having
substantially the same provisions as this Agreement.
<PAGE>
(b) Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer and shall be subject to
all the responsibilities, duties and liabilities arising thereafter relating
thereto placed on the predecessor Servicer and shall be entitled to the
Servicing Fee and all the rights granted to the predecessor Servicer by the
terms and provisions of this Agreement.
SECTION 7.03. Waiver of Past Defaults. The Holders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes of
all Series may, on behalf of all Holders, waive in writing any default by the
Servicer in the performance of its obligations hereunder and its consequences,
except a default in making any required deposits to the Collection Account in
accordance with this Agreement. Upon any such waiver of a past default, such
default shall cease to exist, and any Servicer Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
SECTION 7.04. Notice of Servicer Default. The Servicer shall
deliver to the Note Issuer, the Indenture Trustee and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officer's Certificate of any
event which with the giving of notice or lapse of time, or both, would become a
Servicer Default under Section 7.01(a) or (b).
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.01. Amendment. (a) This Agreement may be amended in
writing by the Servicer and the Note Issuer with five Business Days' prior
written notice given to the Rating Agencies and the prior written consent of the
Indenture Trustee (which consent shall not be unreasonably withheld), but
without the consent of any of the Holders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions in
this Agreement or of modifying in any manner the rights of the Holders;
provided, however, that such action shall not, as evidenced by an Officer's
Certificate delivered to the Note Issuer and the Indenture Trustee, adversely
affect in any material respect the interests of any Holder.
<PAGE>
This Agreement may also be amended in writing from time to
time by the Servicer and the Note Issuer with five Business Days' prior written
notice given to the Rating Agencies and the prior written consent of the
Indenture Trustee (which consent shall not be unreasonably withheld) and the
prior written consent of the Holders evidencing not less than a majority of the
Outstanding Amount of the Notes affected thereby, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Holders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, TC Payments or (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all the outstanding Notes provided, further, that any
amendment of the provisions of Sections 4.01 or 4.03 of this Agreement shall
satisfy the Rating Agency Condition (except that with respect to Moody's it
shall be sufficient to provide ten days prior notice in lieu of satisfying such
condition).
It shall not be necessary for the consent of Holders pursuant
to this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof.
Prior to its consent to any amendment to this Agreement, the
Indenture Trustee shall be entitled to receive and conclusively rely upon an
Opinion of Counsel stating that such amendment is authorized or permitted by
this Agreement. The Indenture Trustee may, but shall not be obligated to, enter
into any such amendment which affects the Indenture Trustee's own rights,
duties, indemnities or immunities under this Agreement or otherwise.
(b) Notwithstanding Section 8.01(a) or anything to the
contrary in this Agreement, the Servicer and the Note Issuer may amend Annex I
to this Agreement in writing with prior written notice given to the Indenture
Trustee and the Rating Agencies, but without the consent of the Indenture
Trustee, any Rating Agency or any Holder, solely to address changes to the
Servicer's method of calculating TC Payments received as a result of changes to
the Servicer's current computerized customer information system, including
changes which would replace the remittances contemplated by the estimation
procedures set forth in Annex I with remittances of TC Collections determined to
have been actually received; provided that any such amendment shall not have a
material adverse effect on the Holders of then Outstanding Notes.
SECTION 8.02. Maintenance of Accounts and Records. (a) The
Servicer shall maintain accounts and records as to the Transition Property
accurately and in accordance with its standard accounting procedures and in
sufficient detail to permit reconciliation between TC Payments received by the
Servicer and TC Collections from time to time deposited in the Collection
Account.
(b) The Servicer shall permit the Indenture Trustee and its
agents at any time during normal business hours, upon reasonable notice to the
Servicer and to the extent it does not unreasonably interfere with the
Servicer's normal operations, to inspect, audit and make copies of and abstracts
from the Servicer's records regarding the Transition Property and the Transition
Charges. Nothing in this Section 8.02(b) shall affect the obligation of the
Servicer to observe any applicable law (including any PUCT Regulation)
prohibiting disclosure of information regarding the Customers, and the failure
of the Servicer to provide access to such information as a result of such
obligation shall not constitute a breach of this Section 8.02(b).
<PAGE>
SECTION 8.03. Notices. Unless otherwise specifically provided
herein, all demands, notices and communications upon or to the Servicer, the
Note Issuer, the Indenture Trustee or the Rating Agencies under this Agreement
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented delivery service or, to the extent
receipt is confirmed telephonically, sent by telecopy or other form of
electronic transmission, (a) in the case of the Servicer, to Central Power and
Light Company c/o Central and South West Corporation, at 1616 Woodall Rogers
Freeway, Dallas, Texas 75202, Attention of Treasurer, telephone:(214) 777-1000,
facsimile: (214) 777-1223 (b) in the case of the Note Issuer to CPL Transition
Funding LLC, at 1616 Woodall Rogers Freeway, Dallas, Texas 75202, Attention of
___________, telephone: ____________, facsimile:_____________, (c) in the case
of the Indenture Trustee, to it at the Corporate Trust Office, telephone:
____________, facsimile:_____________, (d) in the case of Moody's, to Moody's
Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York,
New York 10007, telephone: (212) 553-3686, facsimile: (212) 553-0573, (e) in the
case of S&P, to Standard & Poor's, 55 Water Street, 40th Floor, New York, New
York 10041, Attention of Asset Backed Surveillance Department, telephone: (212)
438-2000, facsimile: (212) 438-2665, (f) in the case of Fitch, to Fitch IBCA,
Inc., One State Street Plaza, New York, NY 10004, Attention of ABS Surveillance,
telephone: (212) 908-0500, facsimile: (212) 908-0355, (g) in the case of Duff &
Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New
York, NY 10004, Attention of Asset-Backed Monitoring Group, telephone:
____________, facsimile:_____________, or (h) as to each of the foregoing, at
such other address as shall be designated by written notice to the other
parties.
SECTION 8.04. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 6.03 and as provided in
the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Servicer.
SECTION 8.05. Limitations on Rights of Others. The provisions
of this Agreement are solely for the benefit of the Servicer and the Note Issuer
and, to the extent provided herein or in the Basic Documents, the Indenture
Trustee and the Holders, and the other Persons expressly referred to herein, and
such Persons shall have the right to enforce the relevant provisions of this
Agreement. Nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Transition Property or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 8.06. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision (if any)
or the remaining provisions hereof (unless such a construction shall be
unreasonable), and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
<PAGE>
SECTION 8.07. Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 8.08. Headings. The headings of the various
Articles and Sections herein are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.
SECTION 8.09. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 8.10. Assignment to Indenture Trustee. The Servicer
hereby acknowledges and consents to any mortgage, pledge, assignment and grant
of a security interest by the Note Issuer to the Indenture Trustee pursuant to
the Indenture for the benefit of the Holders of any or all of the Note Issuer's
rights hereunder.
SECTION 8.11. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement or the Indenture, the Servicer shall not, prior to
the date which is one year and one day after the termination of the Indenture
with respect to the Note Issuer, acquiesce, petition or otherwise invoke or
cause the Note Issuer to invoke or join with them in provoking the process of
any Governmental Authority for the purpose of commencing or sustaining a case
against the Note Issuer under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Note Issuer or any substantial
part of the property of the Note Issuer or ordering dissolution, the winding up
or liquidation of the affairs of the Note Issuer.
SECTION 8.12. Limitation of Liability. It is expressly
understood and agreed by the parties hereto that this Agreement is executed and
delivered by the Indenture Trustee, not individually or personally but solely as
Indenture Trustee on behalf of the Holders, in the exercise of the powers and
authority conferred and vested in it.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
CPL TRANSITION FUNDING LLC
By: _________________________________,
as Manager
Name:
CENTRAL POWER AND LIGHT COMPANY
By: _________________________________
Name:
Title:
Acknowledged and Accepted:
- ---------------------------,
as Indenture Trustee
By: _______________________
Name:
Title:
<PAGE>
EXHIBIT A
to Transition Property
Servicing Agreement
MONTHLY SERVICER'S CERTIFICATE
<PAGE>
EXHIBIT B
to Transition Property
Servicing Agreement
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he/she is the duly
elected and acting _________________ of [NAME OF SERVICER], as servicer (the
"Servicer") under the Transition Property Servicing Agreement dated as of
[__________], 2000 (the "Servicing Agreement") between the Servicer and CPL
Transition Funding LLC (the "Note Issuer") and further that:
1. A review of the activities of the Servicer and of its
performance under the Servicing Agreement during the twelve months ended [June
30], [ ] has been made under the supervision of the undersigned pursuant to
Section 3.03 of the Servicing Agreement; and
2. To the best of the undersigned's knowledge, based on such
review, the Servicer has fulfilled all of its material obligations in all
material respects under the Servicing Agreement throughout the twelve months
ended [June 30],[ _____], except for those material defaults in the fulfillment
of material obligations listed on Annex A hereto.
Executed as of this ______________ day of _________________,
____.
[NAME OF SERVICER]
By: ____________________________
Name:
Title:
<PAGE>
ANNEX A
to Certificate of Compliance
LIST OF SERVICER DEFAULTS
The following material defaults known to the undersigned occurred during the
year ended [June 30], [________]:
Nature of Default Status
<PAGE>
EXHIBIT C
to Transition Property
Servicing Agreement
FORM OF ANNUAL TRUE-UP MECHANISM
ADVICE LETTER
<PAGE>
EXHIBIT D
to Transition Property
Servicing Agreement
FORM OF INTERIM TRUE-UP MECHANISM ADVICE LETTER
<PAGE>
EXHIBIT E
to Transition Property
Servicing Agreement
SERVICER'S CERTIFICATE
<PAGE>
SCHEDULE 4.01(a)
to Transition Property
Servicing Agreement
EXPECTED AMORTIZATION SCHEDULE
<PAGE>
ANNEX I
to Transition Property
Servicing Agreement
<PAGE>
ANNEX II
to Transition Property
Servicing Agreement
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CPL TRANSITION FUNDING LLC
Dated and Effective as of
____________, 2000
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CPL TRANSITION FUNDING LLC.
a Delaware Limited Liability Company
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
"Agreement") of CPL Transition Funding LLC, a Delaware limited liability company
(the "Company"), is made and entered into as of ________, 2000 by Central Power
and Light Company, a Texas corporation (including any additional or successor
members of the Company other than Special Members, the "Member").
WHEREAS, the Member has caused to be filed a Certificate of Formation
with the Secretary of State of the State of Delaware to form the Company under
and pursuant to the LLC Act and has entered into a Limited Liability Company
Agreement of the Company, dated as of _________ (the "Original LLC Agreement");
WHEREAS, in accordance with the LLC Act, the Member desires to
enter into this Agreement to amend and restate the terms of the Original LLC
Agreement and to set forth the rights, powers and interests of the Member with
respect to the Company and its Membership Interest therein and to provide for
the management of the business and operations of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Member,
intending to be legally bound, hereby agrees to amend and restate in its
entirety the Original LLC Agreement as follows:
ARTICLE I
GENERAL PROVISIONS
SECTION 1.01 Definitions. (a) Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in that
certain Indenture (including Appendix A) dated as of _____________ between the
Company, as Note Issuer, and ___________, as the Indenture Trustee, as the same
may be amended, supplemented or otherwise modified from time to time.
<PAGE>
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) The words "hereof," "herein," "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section, Schedule,
Exhibit, Annex and Attachment references contained in this Agreement are
references to Sections, Schedules, Exhibits, Annexes and Attachments in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation."
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms.
(e) Non-capitalized terms used herein which are defined in the
Utilities Code shall, as the context requires, have the meanings assigned to
such terms in the Utilities Code, but without giving effect to amendments to the
Utilities Code.
SECTION 1.02 Sole Member; Registered Office and Agent. (a) The initial
sole member of the Company shall be Central Power and Light Company, a Texas
corporation, or any successor as sole member pursuant to Section 6.06. The
registered office and registered agent of the Company in the State of Delaware
shall be [The Corporation Trust Company, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801]. The Member may change said registered office and
agent from one location to another in the State of Delaware.
<PAGE>
(b) Upon the occurrence of any event that causes the Member to cease to
be a member of the Company (other than (i) upon an assignment by the Member of
all of its limited liability company interest in the Company and the admission
of the transferee pursuant to Sections 6.06 and 6.07, or (ii) the resignation of
the Member and the admission of an additional member of the Company pursuant to
Sections 6.06 and 6.07), each Person acting as an Independent Manager pursuant
to the terms of this Agreement shall, without any action of any Person and
simultaneously with the Member ceasing to be a member of the Company,
automatically be admitted to the Company as a Special Member and shall continue
the Company without dissolution. No Special Member may resign from the Company
or transfer its rights as Special Member unless (i) a successor Special Member
has been admitted to the Company as Special Member by executing a counterpart to
this Agreement, and (ii) such successor has also accepted its appointment as
Independent Manager pursuant to this Agreement; provided, however, the Special
Members shall automatically cease to be members of the Company upon the
admission to the Company of a substitute Member. Each Special Member shall be a
member of the Company that has no interest in the profits, losses and capital of
the Company and has no right to receive any distributions of Company assets.
Pursuant to Section 18-301 of the LLC Act, a Special Member shall not be
required to make any capital contributions to the Company and shall not receive
a limited liability company interest in the Company. A Special Member, in its
capacity as Special Member, may not bind the Company. Except as required by any
mandatory provision of the LLC Act, each Special Member, in its capacity as
Special Member, shall have no right to vote on, approve or otherwise consent to
any action by, or matter relating to, the Company, including, without
limitation, the merger, consolidation or conversion of the Company. In order to
implement the admission to the Company of each Special Member, each Person
acting as an Independent Manager pursuant to this Agreement shall execute a
counterpart to this Agreement. Prior to its admission to the Company as Special
Member, each Person acting as an Independent Manager pursuant to this Agreement
shall not be a member of the Company. A "Special Member" means, upon such
Person's admission to the Company as a member of the Company pursuant to this
Section 1.02(b), a Person acting as Independent Manager, in such Person's
capacity as a member of the Company. A Special Member shall only have the rights
and duties expressly set forth in this Agreement. For purposes of this
Agreement, a Special Member is not included within the defined term "Member."
SECTION 1.03 Other Offices. The Company may have an office at 1616
Woodall Rogers Freeway, Dallas, Texas 65202, or at any other offices that may at
any time be established by the Member at any place or places within or outside
the State of Delaware.
SECTION 1.04 Name. The name of the Company shall be "CPL Transition
Funding LLC." The name of the Company may be changed from time to time by the
Member with [five] days' prior written notice to the Managers and the Indenture
Trustee.
SECTION 1.05 Purpose; Nature of Business Permitted; Powers. The
purpose for which the Company is formed is limited solely to:
(a) acquire, own, hold, administer, service or enter into
agreements regarding the receipt and servicing of Transition Property
and the other Note Collateral, along with certain other related assets;
(b) manage, sell, assign, pledge, collect amounts due on or
otherwise deal with the Transition Property and the other Note
Collateral and related assets to be so acquired in accordance with the
terms of the Basic Documents;
(c) enter into, perform and comply with the Basic Documents
and to enter into, perform and comply with such other agreements as may
be necessary or desirable in connection with the Basic Documents;
(d) file with the SEC one or more registration statements,
including any pre-effective or post-effective amendments thereto and
any registration statement filed pursuant to Rule 462(b) under the
Securities Act (including any prospectus supplement, prospectus and
exhibits contained therein) and file such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of
process and other papers and documents necessary or desirable to
register the Notes under the securities or "Blue Sky" laws of various
jurisdictions;
<PAGE>
(e) execute, deliver and issue Notes from time to time;
(f) pledge its interest in Transition Property and other Note
Collateral to the Indenture Trustee under the Indenture in order to
secure the Notes; and
(g) engage in any lawful act or activity and to exercise any
powers permitted to limited liability companies formed under the laws
of the State of Delaware that, in either case, are incidental to, or
necessary, suitable or convenient for the accomplishment of the
above-mentioned purposes.
The Company shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the terms of the
Basic Documents or other agreements referenced above. The Company shall have all
powers reasonably incidental, necessary, suitable or convenient to effect the
foregoing purposes, including all powers granted under the LLC Act. The Company,
and the Member, any Manager, including the Independent Managers (as defined
herein), or any officer of the Company, acting singly or collectively, on behalf
of the Company, may enter into and perform the Basic Documents and all
registration statements, documents, agreements, certificates or financing
statements contemplated thereby or related thereto, all without any further act,
vote or approval of any Member, Manager or other Person, notwithstanding any
other provision of this Agreement, the LLC Act, or other applicable law, rule or
regulation. The authorization set forth in the preceding sentence shall not be
deemed a restriction on the power and authority of the Member or any Manager,
including the Independent Managers, to enter into other agreements or documents
on behalf of the Company as authorized pursuant to this Agreement and the LLC
Act. The Company shall possess and may exercise all the powers and privileges
granted by the LLC Act or by any other law or by this Agreement, together with
any powers incidental thereto, insofar as such powers and privileges are
incidental, necessary, suitable or convenient to the conduct, promotion or
attainment of the business purposes or activities of the Company.
SECTION 1.06 Limited Liability Company Agreement; Certificate of
Formation. This document (this "Agreement") shall constitute a "limited
liability company agreement" within the meaning of the LLC Act.
SECTION 1.07 Separate Existence. The Member and the Managers shall take
all steps necessary to continue the identity of the Company as a separate legal
entity and to make it apparent to third Persons that the Company is an entity
with assets and liabilities distinct from those of the Member, Affiliates of the
Member or any other Person, and that, except for financial reporting purposes
(to the extent required by generally accepted accounting principles) and for
federal income and, to the extent consistent with applicable state tax law,
state income and franchise tax purposes, it is not a division of any of the
Affiliates or any other Person. In that regard, and without limiting the
foregoing in any manner, the Company shall:
<PAGE>
(a) maintain office space separate and clearly delineated from
the office space of any Affiliate, owned by the Company or evidenced by
a written lease or sublease (even if located in an office owned or
leased by, or shared with, an Affiliate);
(b) maintain the assets of the Company in such a manner that
it is not costly or difficult to segregate, identify or ascertain its
individual assets from those of any other Person, including any
Affiliate;
(c) maintain a separate telephone number which will be
answered only in its own name;
(d) conduct all intercompany transactions with Affiliates on
an arm's-length basis;
(e) not guarantee, become obligated for or pay the debts of
any Affiliate or hold the credit of the Company out as being available
to satisfy the obligations of any Affiliate or other Person (nor
indemnify any Person for losses resulting therefrom), nor have any of
its obligations guaranteed by any Affiliate or hold the Company out as
responsible for the debts of any Affiliate or other Person or for the
decisions or actions with respect to the business and affairs of any
Affiliate, nor seek or obtain credit or incur any obligation to any
third-Party based upon the creditworthiness or assets of any Affiliate
or any other Person (i.e. other than based on the assets of the
Company) nor allow any Affiliate to do such things based on the credit
of the Company;
(f) except as expressly otherwise permitted hereunder or under
any of the Basic Documents, not permit the commingling or pooling of
the Company's funds or other assets with the funds or other assets of
any Affiliate;
(g) maintain separate deposit and other bank accounts and
funds to which no Affiliate has any access, which accounts shall be
maintained in the name and tax identification number of the Company;
(h) maintain full books of accounts and records
(financial or other) and financial statements separate from those of
the Affiliates or any other Person, prepared and maintained in
accordance with generally accepted accounting principals (including,
but not limited to, all resolutions, records, agreements or instruments
underlying or regarding the transactions contemplated by the Basic
Documents or otherwise) and will be audited annually by an independent
accounting firm which shall provide such audit to the Indenture
Trustee;
<PAGE>
(i) compensate (either directly or through
reimbursement of the Company's allocable share of any shared expenses)
all employees, consultants and agents and Affiliates, to the extent
applicable, for services provided to the Company by such employees,
consultants and agents or Affiliates, in each case, from the Company's
own funds and maintain a sufficient number of employees in light of its
contemplated operations;
(j) pay from its own bank accounts for accounting and payroll
services, rent, lease and other expenses (or the Company's allocable
share of any such amounts provided by one or more other Affiliate) and
not have such operating expenses (or the Company's allocable share
thereof) paid by any Affiliates, provided, that the Member shall be
permitted to pay the initial organization expenses of the Company and
certain of the expenses related to the transactions contemplated by the
Basic Documents incurred on or prior to the closing date for such
transactions;
(k) maintain adequate capitalization to conduct its
business and affairs considering the Company's size and the nature of
its business and intended purposes and, after giving effect to the
transactions contemplated by the Basic Documents, refrain from engaging
in a business for which its remaining property represents an
unreasonably small capital;
(l) conduct all of the Company's business (whether in writing
or orally) solely in the name of the Company through the Member and the
Company's Managers, employees, officers and agents and hold the Company
out as an entity separate from any Affiliate;
(m) not make or declare any distributions of cash or property
to the Member except in accordance with appropriate corporate
formalities and only consistent with sound business judgment to the
extent that it is permitted pursuant to the Basic Documents and not
violative of any applicable law;
(n) otherwise practice and adhere to all corporate procedures
and formalities to the extent required by this Agreement or all other
appropriate constituent documents;
(o) not appoint an Affiliate or any employee of an
Affiliate as an agent of the Company, except as otherwise permitted in
the Basic Documents (although such Persons can qualify as a Manager or
as an officer of the Company);
(p) not acquire obligations or securities of or make
loans or advances to or pledge its assets for the benefit of the Member
or any Affiliate of the Member;
(q) not permit the Member or any Affiliate to acquire
obligations of or make loans or advances to the Company;
(r) not permit the Member or any Affiliate to
guarantee, pay or become liable for the debts of the Company or permit
any such Person to hold out its creditworthiness as being available to
pay the liabilities and expenses of the Company nor, except for the
indemnities in this Agreement and the Basic Documents, indemnify any
Person for losses resulting therefrom;
<PAGE>
(s) maintain separate minutes of the actions of the
Member and the Managers, including of the transactions contemplated by
the Basic Documents;
(t) cause (i) all written and oral communications,
including, without limitation, letters, invoices, purchase orders, and
contracts, of the Company to be made solely in the name of the Company,
(ii) the Company to have its own tax identification number, stationery,
checks and business forms, separate from those of any Affiliate, (iii)
all Affiliates not to use the stationery or business forms of the
Company, and for the Company not to use the stationery or business
forms of any Affiliate, and (iv) all Affiliates not to conduct business
in the name of the Company, and the Company not to conduct business in
the name of any Affiliate;
(u) direct creditors of the Company to send invoices
and other statements of account of the Company directly to the Company
and not to any Affiliate and to cause the Affiliates not to direct
their creditors to send invoices and other statements of accounts to
the Company;
(v) cause the Member to maintain as official records all
resolutions, agreements, and other instruments underlying or regarding
the transactions contemplated by the Basic Documents;
(w) disclose, and cause the Member to disclose, in
its financial statements the effects of all transactions between the
Member and the Company in accordance with generally accepted accounting
principles, and in a manner which makes it clear that (i) the Company
is a separate legal entity, (ii) the assets of the Company (including
the Transition Property transferred to the Company pursuant to the Sale
Agreement) are not assets of any Affiliate and are not available to pay
creditors of any Affiliate and (iii) neither the Member nor any other
Affiliate is liable or responsible for the debts of the Company;
(x) treat and cause the Member to treat the transfer of
Transition Property from the Member to the Company as a sale under the
Utilities Code;
(y) except as described herein with respect to tax
purposes and financial reporting, describe and cause each Affiliate to
describe the Company, and hold the Company out as a separate legal
entity and not as a division or department of any Affiliate, and
promptly correct any known misunderstandings regarding its identity
separate from any Affiliate or any Person;
(z) treat the Notes as debt obligations of the
Company, except for federal income and, to the extent consistent with
applicable state tax law, state tax purposes, for which the Notes will
be treated as debt obligations of the Member;
<PAGE>
(aa) maintain its valid existence in good standing
under the laws of the State of Delaware and maintain its qualification
to do business under the laws of such other jurisdictions as its
operations require;
(bb) comply with all laws applicable to the transactions
contemplated by this Agreement and the Basic Documents; and
(cc) cause the Member to observe in all material respects all
corporate procedures and formalities, if any, required by its
constituent documents and the laws of its state of formation and all
other appropriate jurisdictions.
SECTION 1.08 Limitation on Certain Activities. Notwithstanding any
other provisions of this Agreement, the Company, and the Member or Managers on
behalf of the Company, shall not:
(a) engage in any business or activity other than as set
forth in Article I hereof;
(b) without the affirmative vote of its Member and the
affirmative vote of all of the Managers, including two Independent
Managers, file a voluntary petition for relief under the Bankruptcy
Code or similar law or otherwise institute insolvency or bankruptcy
proceedings with respect to the Company or take any company action in
furtherance of any such filing or institution of a proceeding;
(c) merge or consolidate with any other Person or, except to
the extent permitted by the Basic Documents, sell all or substantially
all of its assets or acquire all or substantially all of the assets or
capital stock or other ownership interest of any other Person;
(d) incur any indebtedness or assume or guarantee any
indebtedness of any Person (other than the indebtedness incurred under
the Basic Documents); or
(e) to the fullest extent permitted by law, without the
affirmative vote of its Member and the affirmative vote of all
Managers, including two Independent Managers, execute any dissolution,
liquidation, or winding up of the Company.
To the fullest extent permitted by applicable law, including without limitation
Section 18-1101(c) of the LLC Act, the fiduciary duty of each Manager, including
two Independent Managers, in respect of any decision on any matter referred to
in this Section 1.08 shall be owed solely to the Company (including its
creditors) and not to the Member or any other holders of equity interest in the
Company as may exist at such time.
<PAGE>
SECTION 1.09 No State Law Partnership. No provisions of this Agreement
shall be deemed or construed to constitute a partnership (including, without
limitation, a limited partnership) or joint venture, or the Member a partner or
joint venturer of or with any Manager or the Company, for any purposes.
ARTICLE II
CAPITAL
SECTION 2.01 Initial Capital. The initial capital of the Company shall
be the sum of cash contributed to the Company by the Member (the "Capital
Contribution") in the amount set out opposite the name of the Member on Schedule
A hereto, as amended from time to time and incorporated herein by this
reference.
SECTION 2.02 Additional Capital Contributions. The assets of the
Company are expected to generate a return sufficient to satisfy all obligations
of the Company under this Agreement and the Basic Documents and any other
obligations of the Company. It is expected that no capital contributions to the
Company will be necessary after the purchase of the initial Transition Property,
except for capital contributions in connection with the issuance of additional
Series of Notes. On or prior to the date of issuance of each Series of Notes,
the Member shall make an additional contribution to the Company in an amount
equal to at least 0.50% of the initial principal amount of such Series (less any
amount of the proceeds of such Series retained by the Company (deposited in an
appropriate account maintained by the Company) in substitution for such
additional contribution) or such greater amount as agreed to by the Member in
connection with the issuance by the Company of any Series of Notes. No capital
contribution by the Member to the Company will be made for the purpose of
mitigating losses on Transition Property that has previously been transferred to
the Company, and all capital contributions shall be made in accordance with all
applicable corporate procedures and requirements, including proper record
keeping by the Member and the Company. Each capital contribution will be
acknowledged by a written receipt signed by any one of the Managers. The
Managers acknowledge and agree that, notwithstanding anything in this Agreement
to the contrary, such additional contribution will be managed by an investment
manager selected by the Member who shall invest such amounts only in Eligible
Investments, and all income earned thereon shall be allocated or paid by the
Indenture Trustee in accordance with the provisions of the Indenture.
SECTION 2.03 Capital Account. A Capital Account shall be established
and maintained for the Member on the Company's books (the "Capital Account").
SECTION 2.04 Interest. No interest shall be paid or credited to the
Member on its Capital Account or upon any undistributed profits left on deposit
with the Company. Except as provided herein or by law, the Member shall have no
right to demand or receive the return of its Capital Contribution.
<PAGE>
ARTICLE III
ALLOCATIONS; BOOKS
SECTION 3.01 Allocations of Income and Loss.
(a) Book Allocations. The net income and net loss of the Company
shall be allocated entirely to the Member.
(b) Tax Allocations. Because the Company is not making (and will not
make) an election to be treated as an association taxable as a corporation under
Section 301.7701-3(a) of the U.S. Treasury Regulations, and because the Company
is a business entity that has a single owner and is not a corporation, it is
expected to be disregarded as an entity separate from its owner for federal
income tax purposes under Section 301.7701-3(b)(1) of the U.S. Treasury
Regulations. Accordingly, all items of income, gain, loss, deduction and credit
of the Company for all taxable periods will be treated for federal income tax
purposes, and for state and local income and other tax purposes to the extent
permitted by applicable law, as realized or incurred directly by the Member. To
the extent not so permitted, all items of income, gain, loss, deduction and
credit of the Company shall be allocated entirely to the Member as permitted by
applicable tax law.
SECTION 3.02 Company to be Treated as a Division for Tax Purposes. The
Company shall comply with the applicable provisions of the Code and the
applicable Treasury Regulations thereunder in the manner necessary to effect the
intention of the parties that the Company be treated as a division of the Member
for federal income tax purposes pursuant to Treasury Regulations 301.7701-1 et
seq. and that the Company be accorded such treatment until its dissolution
pursuant to Article IX hereof and shall take, or refrain form taking, any action
required by the Code or Treasury Regulations thereunder in order to maintain
such status of the Company. In addition, for federal income tax purposes the
Company may not claim any credit on, or make any deduction from the principal
and interest payable in respect of, the Notes (other than amounts properly
withheld under the Code), or assert any claim against any present or former
Noteholder because of the payment of taxes levied or assessed upon the Company.
SECTION 3.03 Books of Account. At all times during the continuance of
the Company, the Company shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principals, using the fiscal year and taxable year of the Member. In
addition, the Company shall keep all records required to be kept pursuant to the
LLC Act.
SECTION 3.04 Access to Accounting Records. All books and records of the
Company shall be maintained at any office of the Company or at the Company's
principal place of business, and the Member, and its duly authorized
representative, shall have access to them at such office of the Company and the
right to inspect and copy them at reasonable times.
<PAGE>
SECTION 3.05 Tax Elections. Subject to, and to the extent not
inconsistent with, Section 3.02, the Managers shall make the following elections
on behalf of the Company:
(a) To elect the calendar year as the Company's fiscal year if
permitted by applicable law;
(b) To elect the accrual method of accounting;
(c) To elect to treat all organization and start-up costs of the
Company as deferred expenses amortizable over 60 months under Section
195 of the Code; and
(d) To elect with respect to such other federal, state and local tax
matters as the Managers shall agree from time to time.
SECTION 3.06 Annual Tax Information. The Managers shall cause the
Company to deliver to the Member all information necessary for the preparation
of the Member's federal income tax return.
SECTION 3.07 Tax Matters Member. The Member shall communicate and
negotiate with the Internal Revenue Service on any federal tax matter on behalf
of the Member and the Company.
ARTICLE IV
MEMBER
SECTION 4.01 Powers. [Subject to the provisions of this Agreement and
the LLC Act, all powers shall be exercised by or under the authority of, and the
business and affairs of the Company shall be controlled by, the Member pursuant
to Section 4.04. The Member may delegate any or all such powers to the Managers.
Without prejudice to such general powers, but subject to the same limitations,]
it is hereby expressly declared that the Member shall have the following powers:
<PAGE>
First - To select and remove the Managers and all officers, agents and
employees of the Company, prescribe such powers and duties for them as may be
consistent with the LLC Act and other applicable law and this Agreement, fix
their compensation, and require from them security for faithful service. Prior
to issuance of any Notes, the Member shall appoint two Independent Managers. An
"Independent Manager" is a Manager that is not and has not been for at least
three years from the date of his or her or its appointment (i) a direct or
indirect legal or beneficial owner of the Company or the Member or any of their
respective Affiliates, (ii) a relative, supplier, employee, officer, director,
manager, contractor or material creditor of the Company or the Member or any of
their respective Affiliates or (iii) a Person who controls the Member or its
Affiliates. All right, power and authority of the Independent Managers shall be
limited to the extent necessary to exercise those rights and perform those
duties specifically set forth in this Agreement. Except as provided in this
Agreement, including Section 1.08, in exercising their rights and performing
their duties under this Agreement, any Independent Manager shall have a
fiduciary duty of loyalty and care similar to that of a director of a business
corporation organized under the General Corporation Law of the State of
Delaware. No Independent Manager shall at any time serve as trustee in
bankruptcy for any Affiliate of the Company. The Company shall pay the
Independent Managers annual fees totaling not less than $[7,000] per year. Each
Manager, including each Independent Manager, is hereby deemed to be a "manager"
within the meaning 18-101(10) of the LLC Act.
Second - Subject to Article VII hereof, to conduct, manage and control
the affairs and business of the Company, and to make such rules and regulations
therefor consistent with the LLC Act and other applicable law and this
Agreement.
Third - To change the registered agent and office of the Company in
Delaware from one location to another; to fix and locate from time to time one
or more other offices of the Company; and to designate any place within or
without the State of Delaware for the conduct of the business of the Company.
SECTION 4.02 Compensation of Member. The Company shall have authority
to pay to the Member reasonable compensation for the Member's services to the
Company. It is understood that the compensation paid to the Member under the
provisions of this Section 4.02 shall be determined without regard to the income
of the Company, shall not be deemed to constitute distributions to the recipient
of any profit, loss or capital of the Company and shall be considered as an
operating expense of the Company.
SECTION 4.03 Other Ventures. It is expressly agreed that the Member
and any Affiliates, officers, directors, managers, stockholders, partners or
employees of the Member, may engage in other business ventures of every nature
and description, whether or not in competition with the Company, independently
or with others, and the Company shall not have any rights in and to any
independent venture or activity or the income or profits derived therefrom.
SECTION 4.04 Actions by the Member. All actions of the Member may be
taken by written resolution of the Member which shall be signed on behalf of the
Member by an authorized officer of the Member and filed with the records of the
Company.
<PAGE>
ARTICLE V
OFFICERS
SECTION 5.01 Designation; Term; Qualifications. (a) The [Managers] may,
from time to time, designate one or more Persons to be officers of the Company.
Any officer so designated shall have such title and authority and perform such
duties as the Managers may, from time to time, delegate to them. Each officer
shall hold office for the term for which such officer is designated and until
its successor shall be duly designated and shall qualify or until its death,
resignation or removal as provided in this Agreement. Any Person may hold any
number of offices. No officer need be a Manager, the Member, a Delaware
resident, or a United States citizen. The Member hereby appoints the Persons
identified on Schedule C to be the initial officers of the Company.
(b) President. The President shall be the chief executive officer of
the Company, shall preside at all meetings of the Managers, shall be responsible
for the general and active management of the business of the Company and shall
see that all orders and resolutions of the Managers are carried into effect. The
President or any other officer authorized by the President or the Managers may
execute all contracts, except: (i) where required or permitted by law or this
Agreement to be otherwise signed and executed, including Section 1.08; and (ii)
where signing and execution thereof shall be expressly delegated by the Managers
to some other officer or agent of the Company.
(c) Vice President. In the absence of the President or in the event of
the President's inability to act, the Vice President, if any (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the Managers, or in the absence of any designation, then in the
order of their election), shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice Presidents, if any, shall perform such other duties and
have such other powers as the Managers may from time to time prescribe.
(d) Secretary and Assistant Secretary. The Secretary shall be
responsible for filing legal documents and maintaining records for the Company.
The Secretary shall attend all meetings of the Managers and record all the
proceedings of the meetings of the Company and of the Managers in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or shall cause to be given, notice of
all meetings of the Member, if any, and special meetings of the Managers, and
shall perform such other duties as may be prescribed by the Managers or the
President, under whose supervision the Secretary shall serve. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the order
determined by the Managers (or if there be no such determination, then in order
of their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability to act, perform the duties and exercise the powers of
the Secretary and shall perform such other duties and have such other powers as
the Managers may from time to time prescribe.
<PAGE>
(e) Treasurer and Assistant Treasurer. The Treasurer shall have the
custody of the Company funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Manager.
The Treasurer shall disburse the funds of the Company as may be ordered by the
Manager, taking proper vouchers for such disbursements, and shall render to the
President and to the Managers, at its regular meetings or when the Managers so
require, an account of all of the Treasurer's transactions and of the financial
condition of the Company. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers in the order determined by the Managers (or
if there be no such determination, then in the order of their election), shall,
in the absence of the Treasurer or in the event of the Treasurer's inability to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Managers may from
time to time prescribe.
(f) Officers as Agents. The officers of the Company, to the extent of
their powers set forth in this Agreement or otherwise vested in them by action
of the Managers not inconsistent with this Agreement, are agents of the Company
for the purpose of the Company's business and, subject to Section 1.08, the
actions of the officers taken in accordance with such powers shall bind the
Company.
(g) Duties of Managers and Officers. Except to the extent otherwise
provided herein, each Manager and officer of the Company shall have a fiduciary
duty of loyalty and care similar to that of directors and officers of business
corporations organized under the General Corporation Law of the State of
Delaware.
SECTION 5.02 Removal and Resignation. Any officer of the Company may be
removed as such, with or without cause, by the Managers at any time. Any officer
of the Company may resign as such at any time upon written notice to the
Company. Such resignation shall be made in writing and shall take effect at the
time specified therein or, if no time is specified therein, at the time of its
receipt by the Managers.
SECTION 5.03 Vacancies. Any vacancy occurring in any office of the
Company may be filled by the Managers.
SECTION 5.04 Compensation. The compensation, if any, of the officers of
the Company shall be fixed from time to time by the Managers.
<PAGE>
ARTICLE VI
MEMBERSHIP INTEREST
SECTION 6.01 General. "Membership Interest" means the limited liability
company interest of the Member in the Company. The Membership Interest
constitutes personal property and, subject to Section 6.06, shall be freely
transferable and assignable in whole but not in part upon registration of such
transfer and assignment on the books of the Company in accordance with the
procedures established for such purpose by the Managers of the Company.
SECTION 6.02 Distributions. The Member shall be entitled to receive,
out of the assets of the Company legally available therefor, when, as and if
declared by the Managers, distributions payable in cash in such amounts, if any,
as the Managers shall declare.
SECTION 6.03 Rights on Liquidation, Dissolution or Winding Up. (a) In
the event of any liquidation, dissolution or winding up of the Company, the
Member shall be entitled to all remaining assets of the Company available for
distribution to the Member after satisfaction (whether by payment or reasonable
provision for payment) of all liabilities, debts and obligations of the Company.
(b) Neither the sale of all or substantially all of the property or
business of the Company, nor the merger or consolidation of the Company into or
with another Company or other entity, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purpose of this
Section 6.03.
SECTION 6.04 Redemption. The Membership Interest shall not be
redeemable.
SECTION 6.05 Voting Rights. Subject to the terms of this Agreement, the
Member shall have the sole right to vote on all matters as to which members of a
limited liability company shall be entitled to vote pursuant to the LLC Act and
other applicable law.
SECTION 6.06 Transfer of Membership Interests. (a) The Member may
transfer its Membership Interest, in whole but not in part, but the transferee
shall not be admitted as a Member except in accordance with Section 6.07. Until
the transferee is admitted as a Member, the Member shall continue to be the sole
member of the Company (subject to Section 1.02 )and to be entitled to exercise
any rights or powers of a Member of the Company with respect to the Membership
Interest transferred.
<PAGE>
(b) To the fullest extent permitted by law, any purported transfer of
any Membership Interest in violation of the provisions of this Agreement shall
be wholly void and shall not effectuate the transfer contemplated thereby.
Notwithstanding anything contained herein to the contrary and to the fullest
extent permitted by law, the Member may not transfer any Membership Interest in
violation of any provision of this Agreement or in violation of any applicable
federal or state securities laws.
SECTION 6.07 Admission of Transferee as Member. (a) A transferee of a
Membership Interest desiring to be admitted as a Member must execute a
counterpart of, or an agreement adopting, this Agreement and, except as
permitted by paragraph (b) below, shall not be admitted without unanimous
affirmative vote of the Managers, which vote must include the affirmative vote
of two Independent Managers. Upon admission of the transferee as a Member, the
transferee shall have the rights, powers and duties and shall be subject to the
restrictions and liabilities of the Member under this Agreement and the LLC Act.
The transferee shall also be liable, to the extent of the Membership Interest
transferred, for the unfulfilled obligations, if any, of the transferor Member
to make capital contributions to the Company, but shall not be obligated for
liabilities unknown to the transferee at the time such transferee was admitted
as a Member and that could not be ascertained from this Agreement. Except as set
forth in paragraph (b) below, whether or not the transferee of a Membership
Interest becomes a Member, the Member is not released from any liability to the
Company under this Agreement or the LLC Act.
(b) The approval of the Managers, including the Independent Managers,
shall not be required for the transfer of the Membership Interest from the
Member to any successor pursuant to Section 5.02 of the Sale Agreement or the
admission of such Person as a Member. Once the transferee of a Membership
Interest pursuant to this paragraph (b) becomes a Member, the Member shall be
released from any liability to the Company under this Agreement and the LLC Act.
ARTICLE VII
MANAGERS
SECTION 7.01 Managers. (a) Subject to Section 1.08, the business and
affairs of the Company shall be managed by or under the direction of two or more
Managers designated by the Member. Subject to the terms of this Agreement, the
Member may determine at any time in its sole and absolute discretion the number
of Managers to constitute the Board. The authorized number of Managers may be
increased or decreased by the Member at any time in its sole and absolute
discretion, upon notice to all Managers, and subject in all cases to the terms
of this Agreement. The initial number of Managers shall be _____, two of which
shall be Independent Managers. Each Manager elected, designated or appointed by
the Member shall hold office until a successor is elected and qualified or until
such Manager's earlier death, resignation, expulsion or removal. Each Manager
shall execute and deliver the Management Agreement in the form attached hereto
as Exhibit A. Managers need not be a Member.
The initial Managers designated by the Member are listed on Schedule B hereto.
<PAGE>
(b) Each Manager shall be elected by the Member and shall hold office
for the term for which elected and until a successor has been appointed and
qualified.
(c) The Managers shall be obliged to devote only as much of their time
to the Company's business as shall be reasonably required in light of the
Company's business and objectives. A Manager shall perform his or her duties as
a Manager in good faith, in a manner he or she reasonably believes to be in the
best interests of the Company, and with such care as an ordinarily prudent
Person in a like position would use under similar circumstances.
(d) Subject to the terms of this Agreement, the Managers shall act by
the affirmative vote of a majority of the Managers. Each Manager shall have the
authority to sign duly authorized agreements and other instruments on behalf of
the Company without the joinder of any other Manager.
(e) Subject to the terms of this Agreement, any action may be taken by
the Managers without a meeting and without prior notice if authorized by the
written consent of a majority of the Managers (or such greater number as is
required by this Agreement), which written consent shall be filed with the
records of the Company.
(f) Every Manager is an agent of the Company for the purpose of its
business, and the act of every Manager, including the execution in the Company
name of any instrument for carrying on the business of the Company, binds the
Company, unless such act is in contravention of this Agreement or unless the
Manager so acting otherwise lacks the authority to act for the Company and the
Person with whom he or she is dealing has knowledge of the fact that he or she
has no such authority.
SECTION 7.02 Powers of the Managers. The Managers shall have the right
and authority to take all actions which the Managers deem incidental, necessary,
suitable or convenient for the day-to-day management and conduct of the
Company's business.
The Managers may exercise all powers of the Company and do all such
lawful acts and things as are not by the LLC Act, other applicable law or this
Agreement directed or required to be exercised or done by the Member. All duly
authorized instruments, contracts, agreements and documents providing for the
acquisition or disposition of property of the Company shall be valid and binding
on the Company if executed by one or more of the Managers.
SECTION 7.03 Compensation. The Company may pay to any Manager
compensation for such Manager's services rendered to the Company. Such
compensation shall be treated as expenses of the Company and shall not be deemed
to constitute distributions to the recipient of any profit, loss or capital of
the Company.
SECTION 7.04 Removal of Managers. (a) The Member may remove any
Manager with or without cause at any time.
<PAGE>
(b) Subject to Section 4.01, any removal of a Manager shall become
effective on such date as may be specified by the Member and in a notice
delivered to any remaining Managers or the Manager elected to replace the
removed Manager (except that it shall not be effective on a date earlier than
the date such notice is delivered to the remaining or newly-elected Manager).
Should a Manager be removed who is also the Member, the Member shall continue to
participate in the Company as the Member and receive its share of the Company's
income, gains, losses, deductions and credits pursuant to this Agreement.
SECTION 7.05 Resignation of Manager. A Manager may resign as a Manager
at any time by ____ days' prior notice to the Member. Notwithstanding the
preceding sentence, an Independent Manager may not resign, withdraw or resign as
a Manager of the Company without the consent of the Member. No resignation or
removal of an Independent Manager, and no appointment of a successor Independent
Manager, shall be effective until such successor (i) shall have accepted his or
her appointment as an Independent Manager by a written instrument, which may be
a counterpart signature page to the Management Agreement, and (ii) shall have
executed a counterpart to this Agreement.
SECTION 7.06 Vacancies. Subject to Section 4.01, any vacancies among
the Managers may be filled by the Member. In the event of a vacancy in the
position of Independent Manager, the Member shall, as soon as practicable,
appoint a successor Independent Manager.
SECTION 7.07 Meetings of the Managers. The Managers may hold meetings,
both regular and special, within or outside the State of Delaware. Regular
meetings of the Managers may be held without notice at such time and at such
place as shall from time to time be determined by the Managers. Special meetings
of the Managers may be called by the President on not less than one day's notice
to each Manager by telephone, facsimile, mail, telegram or any other means of
communication, and special meetings shall be called by the President or
Secretary in like manner and with like notice upon the written request of any
one or more of the Managers.
SECTION 7.08 Electronic Communications. Managers, or any committee
designated by the Managers, may participate in meetings of the Managers, or any
committee, by means of telephone conference or similar communications equipment
that allows all Persons participating in the meeting to hear each other, and
such participation in a meeting shall constitute presence in Person at the
meeting. If all the participants are participating by telephone conference or
similar communications equipment, the meeting shall be deemed to be held at the
principal place of business of the Company.
SECTION 7.09 Committees of Managers.
<PAGE>
(i) The Managers may, by resolution passed by a majority
of the Managers, designate one or more committees,
each committee to consist of one or more of the
Managers. The Managers may designate one or more
Managers as alternate members of any committee, who
may replace any absent or disqualified member at any
meeting of the committee.
(ii) In the absence or disqualification of a member of a
committee, the member or members thereof present at
any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may
unanimously appoint another Manager to act at the
meeting in the place of any such absent or
disqualified member.
(iii) Any such committee, to the extent provided in the
resolution of the Managers, shall have and may
exercise all the powers and authority of the Managers
in the management of the business and affairs of the
Company. Such committee or committees shall have such
name or names as may be determined from time to time
by resolution adopted by the Managers. Each committee
shall keep regular minutes of its meetings and report
the same to the Managers when required.
ARTICLE VIII
EXPENSES
Except as otherwise provided in this Agreement, the Company shall be
responsible for all expenses and the allocation thereof including without
limitation:
(a) all expenses incurred by the Member or its Affiliates in
organizing the Company;
(b) all expenses related to the business of the Company and all routine
administrative expenses of the Company, including the maintenance of books and
records of the Company, the preparation and dispatch to the Member of checks,
financial reports, tax returns and notices required pursuant to this Agreement;
(c) all expenses incurred in connection with any litigation or
arbitration involving the Company (including the cost of any investigation and
preparation) and the amount of any judgment or settlement paid in connection
therewith;
(d) all expenses for indemnity or contribution payable by the Company
to any Person;
(e) all expenses incurred in connection with the collection of amounts
due to the Company from any Person;
(f) all expenses incurred in connection with the preparation of
amendments to this Agreement;
<PAGE>
(g) all expenses incurred in connection with the liquidation,
dissolution and winding up of the Company; and
(h) all expenses otherwise allocated in good faith to the Company by
the Managers.
ARTICLE IX
PERPETUAL EXISTENCE; DISSOLUTION, LIQUIDATION AND WINDING-UP
SECTION 9.01 Existence. (a) The Company shall have a perpetual
existence. So long as any of the Company's Notes shall remain outstanding, the
Member shall not be entitled to consent to the dissolution of the Company.
(b) Notwithstanding any provision of this Agreement, the bankruptcy (as
defined in the LLC Act) of the Member will not cause the member to cease to be a
Member of the Company, and upon the occurrence of such an event, the business of
the Company shall continue without dissolution. Upon the occurrence of any event
that causes the last remaining member of the Company to cease to be a member of
the Company, to the fullest extent permitted by law, the personal representative
of such member is hereby authorized to, and shall, within 90 days after the
occurrence of the event that terminated the continued membership of such member
in the Company, agree in writing (i) to continue the Company and (ii) to the
admission of the personal representative or its nominee or designee, as the case
may be, as a substitute member of the Company, effective as of the occurrence of
the event that terminated the continued membership of the last remaining member
of the Company in the Company.
SECTION 9.02 Dissolution. The Company shall be dissolved and its
affairs shall be wound up upon the occurrence of the earliest of the following
events:
(a) subject to Section 1.07, the election to dissolve the Company made
in writing by the Member and each Manager, including the Independent
Managers, as permitted by the Basic Documents;
(b) the occurrence of any event that causes the last remaining member
of the Company to cease to be a member of the Company unless the
business of the Company is continued without dissolution in a manner
permitted by the LLC Act or this Agreement; or
(c) the entry of a decree of judicial dissolution of the Company
pursuant to Section 18-802 of the LLC Act.
<PAGE>
SECTION 9.03 Accounting. In the event of the dissolution, liquidation
and winding-up of the Company, a proper accounting shall be made of the Capital
Account of the Member and of the net income or net loss of the Company from the
date of the last previous accounting to the date of dissolution.
SECTION 9.04 Certificate of Cancellation. As soon as possible following
the occurrence of any of the events specified in Section 9.02 and the completion
of the winding up of the Company, the Person winding up the business and affairs
of the Company, as an authorized Person, shall cause to be executed a
Certificate of Cancellation of the Certificate in such form as shall be
prescribed by the Secretary and file the Certificate of Cancellation of the
Certificate as required by the LLC Act.
SECTION 9.05 Winding Up. Upon the occurrence of any event specified in
Section 9.02, the Company shall continue solely for the purpose of winding up
its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Member, or if there is no Member, the Managers,
shall be responsible for overseeing the winding up and liquidation of the
Company, shall take full account of the liabilities of the Company and its
assets, shall either cause its assets to be sold or distributed, and if sold as
promptly as is consistent with obtaining the fair market value thereof, shall
cause the proceeds therefrom, to the extent sufficient therefor, to be applied
and distributed as provided in Section 9.07.
SECTION 9.06 Order of Payment of Liabilities Upon Dissolution. After
determining that all known debts and liabilities of the Company, including all
contingent, conditional or unmatured liabilities of the Company, in the process
of winding-up, including, without limitation, debts and liabilities to the
Member in the event it is a creditor of the Company to the extent otherwise
permitted by law, have been paid or adequately provided for, the remaining
assets shall be distributed in cash or in kind to the Member.
SECTION 9.07 Limitations on Payments Made in Dissolution. Except as
otherwise specifically provided in this Agreement, the Member shall only be
entitled to look solely to the assets of Company for the return of its positive
Capital Account balance and shall have no recourse for its Capital Contribution
and/or share of net income (upon dissolution or otherwise) against any Manager.
SECTION 9.08 Limitation on Liability. Except as otherwise provided by
the LLC Act, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Member or Manager shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Member or a Manager.
<PAGE>
ARTICLE X
INDEMNIFICATION
SECTION 10.01 Indemnity. Subject to the provisions of Section 10.04
hereof, to the fullest extent permitted by law, the Company 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, except an action by or in the right
of the Company, by reason of the fact that such Person is or was a Manager,
Member, officer, controlling person, employee, legal representative or agent of
the Company, or is or was serving at the request of the Company as a member,
manager, director, officer, partner, shareholder, controlling person, employee,
legal representative or agent of another limited liability company, partnership,
corporation, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Person in connection with the action,
suit or proceeding if such Person acted in good faith and in a manner which such
Person reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to a criminal action or proceeding, had no reasonable
cause to believe such Person's conduct was unlawful.
SECTION 10.02 Indemnity for Actions By or In the Right of the Company.
Subject to the provisions of Section 10.04 hereof, to the fullest extent
permitted by law, the Company 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 or suit by or in the rights of the Company to procure a judgment in its
favor by reason of the fact that he is or was a Member, Manager, officer,
controlling person, employee, legal representative or agent of the Company, or
is or was serving at the request of the Company as a member, manager, director,
officer, partner, shareholder, controlling person, employee, legal
representative or agent of another limited liability company, corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including amounts paid in settlement and attorneys' fees actually and reasonably
incurred by such Person in connection with the defense or settlement of the
actions or suit if such Person acted in good faith and in a manner which such
Person reasonably believed to be in or not opposed to the best interests of the
Company. Indemnification may not be made for any claim, issue or matter as to
which such Person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Company or for amounts
paid in settlement to the Company, unless and only to the extent that the court
in which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the Person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
<PAGE>
SECTION 10.03 Indemnity If Successful. The Company may indemnify any
Person who is or was a Manager, Member, officer, controlling person, employee,
legal representative or agent of the Company, or is or was serving at the
request of the Company as a member, manager, director, officer, partner,
shareholder, controlling person, employee, legal representative or agent of
another limited liability company, corporation, partnership, joint venture,
trust or other enterprise against expenses, including attorneys' fees, actually
and reasonably incurred by him or her in connection with the defense of any
action, suit or proceeding referred to in Sections 10.01 and 10.02 or in defense
of any claim, issue or matter therein, to the extent that such Person has been
successful on the merits.
SECTION 10.04 Expenses. Any indemnification under Sections 10.01 and
10.02, as well as the advance payment of expenses permitted under Section 10.05
unless ordered by a court or advanced pursuant to Section 10.05 below, must be
made by the Company only as authorized in the specific case upon a determination
that indemnification of the Manager, Member, officer, controlling person,
employee, legal representative or agent is proper in the circumstances. The
determination must be made:
(a) By the Member if the Member was not a party to the act, suit or
proceeding; or
(b) If the Member was a party to the act, suit or proceeding by
independent legal counsel in a written opinion.
SECTION 10.05 Advance Payment of Expenses. The expenses of each Person
who is or was a Manager, Member, officer, controlling Person, employee, legal
representative or agent, or is or was serving at the request of the Company as a
member, manager, director, officer, partner, shareholder, controlling person,
employee, legal representative or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise, incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
Company as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such Person to repay the amount if it is ultimately determined by a court of
competent jurisdiction that such Person is not entitled to be indemnified by the
Company. The provisions of this Section 10.05 shall not affect any rights to
advancement of expenses to which personnel other than [the Member or the
Managers] may be entitled under any contract or otherwise by law.
SECTION 10.06 Other Arrangements Not Excluded. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to this
Article X:
<PAGE>
(a) Does not exclude any other rights to which a Person seeking
indemnification or advancement of expenses may be entitled under any agreement,
decision of the Member or otherwise, for either an action of any Person who is
or was a Manager, Member, officer, controlling Person, employee, legal
representative or agent, or is or was serving at the request of the Company as a
member, manager, director, officer, partner, shareholder, controlling person,
employee, legal representative or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise, in the
official capacity of such Person or an action in another capacity while holding
such position, except that indemnification and advancement, unless ordered by a
court pursuant to Section 10.05 above, may not be made to or on behalf of such
Person if a final adjudication established that its acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and were
material to the cause of action; and
(b) Continues for a Person who has ceased to be a Member, Manager,
officer, employee, legal representative or agent and inures to the benefit of
the successors, heirs, executors and administrators of such a Person.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01 Amendments. (a) The power to alter, amend or repeal this
Agreement shall be only on the consent of the Member, provided, that the Company
shall not alter, amend or repeal any provision of Sections 1.05, 1.07, 1.08,
3.02, 6.06, 6.07, 7.05, 9.01(b), 9.02, 11.01 and 11.06 of this Agreement or the
definition of an Independent Manager contained herein without the affirmative
vote of a majority of the Managers, which vote must include the affirmative vote
of all of the Independent Managers.
(b) The Company's power to alter or amend the Certificate of
Formation shall be vested in the Member. Upon obtaining the approval of any
amendment, supplement or restatement as to the Certificate of Formation, the
Member on behalf of the Company shall cause a Certificate of Amendment or
Amended and Restated Certificate of Formation to be prepared, executed and filed
in accordance with the LLC Act.
SECTION 11.02 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.03 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.04 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remainder of such provision (if any) or the remaining
provisions hereof (unless such construction shall be unreasonable), and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
<PAGE>
SECTION 11.05 Assigns. Each and all of the covenants, terms, provisions
and agreements contained in this Agreement shall be binding upon and inure to
the benefit of the Member, and its successors and assigns.
SECTION 11.06 Enforcement by Independent Managers. Notwithstanding any
other provision of this Agreement, the Member agrees that this Agreement
constitutes a legal, valid and binding agreement of the Member, and is
enforceable against the Member by the Independent Managers in accordance with
its terms. The Independent Managers are intended beneficiaries of this
Agreement.
SECTION 11.07 Waiver of Partition; Nature of Interest. Except as
otherwise expressly provided in this Agreement, to the fullest extent permitted
by law, each of the Member and the Special Members hereby irrevocably waives any
right or power that such Person might have to cause the Company or any of its
assets to be partitioned, to cause the appointment of a receiver for all or any
portion of the assets of the Company, to compel any sale of all or any portion
of the assets of the Company pursuant to any applicable law or to file a
complaint or to institute any proceeding at law or in equity to cause the
dissolution, liquidation, winding up or termination of the Company. The Member
shall not have any interest in any specific assets of the Company, and the
Member shall not have the status of a creditor with respect to any distribution
pursuant to this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby executed by the
undersigned as the sole Member of the Company and is effective as of _______.
CENTRAL POWER AND LIGHT COMPANY
By:
Name:
Title:
ACKNOWLEDGED AND AGREED:
- --------------,
as Independent Manager
- ---------------------------------
- --------------,
as Independent Manager
- ---------------------------------
<PAGE>
SCHEDULE A
Schedule of Capital Contributions of Member
Membership Interest
MEMBER'S CAPITAL Membership Interest CAPITAL
NAME CONTRIBUTION PERCENTAGE ACCOUNT
Central Power and Light Company $[1,000] 100% $[1,000]
<PAGE>
SCHEDULE B
Initial Managers
Names
1)
2)
3)
<PAGE>
SCHEDULE C
Initial Officers
Names Office
<PAGE>
EXHIBIT A
Management Agreement
_________________ ___, ____
[____________________________
_____________________________
_____________________________]
Re: Management Agreement -- CPL Transition Funding LLC
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned Persons,
who have been designated as managers of CPL Transition Funding LLC, a Delaware
limited liability company (the "Company"), in accordance with the Amended and
Restated Limited Liability Company Agreement of the Company, dated as of
______________________ __, ____, as it may be amended or restated from time to
time (the "LLC Agreement"), hereby agree as follows:
1. Each of the undersigned accepts such Person's rights and authority
as a Manager under the LLC Agreement and agrees to perform and discharge such
Person's duties and obligations as a Manager under the LLC Agreement, and
further agrees that such rights, authorities, duties and obligations under the
LLC Agreement shall continue until such Person's successor as a Manager is
designated or until such Person's resignation or removal as a Manager in
accordance with the LLC Agreement. Each of the undersigned agrees and
acknowledges that it has been designated as a "manager" of the Company within
the meaning of the Delaware Limited Liability Company Act.
2. So long as any obligation is outstanding under the Basic Documents,
to the fullest extent permitted by law, each of the undersigned agrees, solely
in its capacity as a creditor of the Company on account of any indemnification
or other payment owing to the undersigned by the Company, not to acquiesce,
petition or otherwise invoke or cause the Company to invoke the process of any
court or governmental authority for the purpose of commencing or sustaining a
case against the Company under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Company or any substantial part of
the property of the Company, or ordering the winding up or liquidation of the
affairs of the Company.
3. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES
SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
<PAGE>
Capitalized terms used and not otherwise defined herein have the
meanings set forth in the LLC Agreement.
This Management Agreement may be executed in any number of
counterparts, each of which shall be deemed an original of this Management
Agreement and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Management
Agreement as of the day and year first above written.
[SIGNATURE BLOCKS]
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
CPL TRANSITION FUNDING LLC
(Exact name of Registrant as Specified in its Certificate of Formation)
<TABLE>
<S> <C>
DELAWARE 74-2935495
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
1616 WOODALL RODGERS FREEWAY
DALLAS, TEXAS 75202
(214) 777-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive Offices)
WENDY G. HARGUS
1616 WOODALL RODGERS FREEWAY
DALLAS, TEXAS 75202
(214) 777-1000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
----------------------
Copies to:
<TABLE>
<S> <C> <C>
J. GONZALO SANDOVAL, PRESIDENT KEVIN F. BLATCHFORD TRAYTON M. DAVIS
CENTRAL POWER AND LIGHT COMPANY SIDLEY & AUSTIN ROBERT B. WILLIAMS
539 NORTH CARANCAHUA STREET BANK ONE PLAZA MILBANK, TWEED, HADLEY & MCCLOY LLP
CORPUS CHRISTI, TEXAS 78401-2802 10 SOUTH DEARBORN 1 CHASE MANHATTAN PLAZA
(512) 881-5300 CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10005
(312) 853-7000 (212) 530-5000
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transition Notes................... $1,000,000 100% $1,000,000 $278.00
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information contained in this preliminary prospectus supplement and the
related prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary prospectus
supplement is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated , 2000.
Prospectus Supplement to Prospectus Dated , 2000.
$
CPL TRANSITION FUNDING LLC
ISSUER
CENTRAL POWER AND LIGHT COMPANY
SELLER AND SERVICER
Transition Notes, Series 2000
----------------------
We will pay interest on the notes on and of each year.
The first such payment will be made on . The notes will be issued only
in denominations of $1,000 and integral multiples of $1,000.
See "Risk Factors" beginning on page 12 in the accompanying prospectus to
read about factors you should consider before buying the notes.
These notes are legal obligations of CPL Transition Funding LLC, as issuer,
only. These notes do not constitute a debt, liability or other legal obligation
of Central Power and Light Company or any of its affiliates (other than the
issuer). These notes are not obligations of the State of Texas, the Public
Utility Commission of Texas or any other governmental agency or instrumentality.
Neither the full faith and credit nor the taxing power of the State of Texas nor
of any political subdivision, agency, authority or instrumentality of the State
of Texas is pledged to the payment of principal of, or interest on, these notes,
or the payments securing these notes. Furthermore, neither the State of Texas
nor any political subdivision, agency, authority or instrumentality of the State
of Texas will appropriate any funds for the payment of any of these notes.
We are a special purpose entity and own no property other than the
collateral described under "Security for the Notes -- Pledge of Collateral" in
the accompanying prospectus, and that collateral is the sole source of payment
for these notes.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
PROCEEDS SCHEDULED
NOTE INITIAL TO FINAL FINAL
INTEREST PRINCIPAL UNDERWRITING ISSUER PAYMENT MATURITY
RATE AMOUNT PRICE(%) PRICE($) DISCOUNT(%) (%)(1)(2) DATE DATE
-------- --------- -------- -------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A-1............ % $ % $ % %
Class A-2............ % $ % $ % %
Class A-3............ % $ % $ % %
Class A-4............ % $ % $ % %
Class A-5............ % $ % $ % %
</TABLE>
(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 $ .
----------------------
The underwriters expect to deliver the notes through the facilities of The
Depository Trust Company against payment in New York, New York on
, 2000.
[Names of Underwriters]
Prospectus Supplement dated , 2000.
<PAGE>
This prospectus supplement does not contain all of the information that you
should know about this offering. You will find additional information in the
accompanying prospectus. The prospectus for the offering of these notes consists
of both this prospectus supplement and the accompanying prospectus. You should
read both of these documents in full before purchasing these notes.
----------------------
S-1
<PAGE>
DESCRIPTION OF THE NOTES
We will issue these notes in minimum denominations of $1,000 and in
integral multiples of $1,000. These notes will consist of classes, in
the initial principal amounts and bearing the interest rates and having the
scheduled final payment dates and final maturity dates listed below:
<TABLE>
<CAPTION>
SCHEDULED
INITIAL NOTE FINAL FINAL
PRINCIPAL INTEREST PAYMENT MATURITY
CLASS AMOUNT RATE DATE DATE
- ----- --------- -------- --------- --------
<S> <C> <C> <C> <C>
A-1.................................. $ %
A-2.................................. $ %
A-3.................................. $ %
A-4.................................. $ %
A-5.................................. $ %
</TABLE>
The scheduled final payment date for a class of notes is the date by which
we expect the indenture trustee to pay in full all interest on and principal of
that class of notes. The final maturity date for a class of notes is the legal
maturity date of that class. The failure to pay principal of any class of notes
in full by the final maturity date for that class is an event of default, and
the indenture trustee or the holders of not less than a majority in principal
amount of the notes of all series then outstanding may declare the unpaid
principal amount of all outstanding notes of all series to be due and payable.
Please refer to "Description of the Notes -- Events of Default; Rights Upon
Event of Default" in the accompanying prospectus.
INTEREST
Interest on each class of notes will accrue from the issuance date of that
class at the interest rate listed in the table above. Beginning , we
are required to pay interest semiannually on and (or, if any
payment date is not a business day, the following business day) of each year, to
holders of notes. The record date (so long as these notes are book-entry notes)
for any payment of interest on and principal of these notes will be the business
day immediately before the payment date. The indenture trustee will pay interest
on these notes prior to paying principal of these notes. Please refer to
"Security for the Notes -- Allocations; Payments" in the prospectus.
On each payment date, the indenture trustee will pay interest as follows:
- if there has been a payment default, any unpaid interest payable on any
prior payment dates, together with interest at the applicable interest
rate on any of this unpaid interest; and
- accrued interest on the principal balance of each class of notes as of
the close of business on the preceding payment date, or the date of the
original issuance of the class of notes, if applicable, after giving
effect to all payments of principal made on the preceding payment date.
If there is a shortfall in the amounts necessary to make these interest
payments, the indenture trustee will distribute interest pro rata to each class
of notes based on the outstanding principal amount of that class and the
applicable interest rate. The indenture trustee will calculate interest on the
basis of a 360-day year of twelve 30-day months.
S-2
<PAGE>
PRINCIPAL
After paying interest as described above, the indenture trustee will pay
any principal on each payment date as follows:
(1) to the holders of Class A-1 notes, until the principal balance of
that class has been reduced to zero;
(2) to the holders of Class A-2 notes, until the principal balance of
that class has been reduced to zero;
(3) to the holders of Class A-3 notes, until the principal balance of
that class has been reduced to zero;
(4) to the holders of Class A-4 notes, until the principal balance of
that class has been reduced to zero; and
(5) to the holders of Class A-5 notes, until the principal balance of
that class has been reduced to zero.
The indenture trustee will not, however, pay principal on a payment date of
any class of notes if making the payment would reduce the principal balance of a
class to an amount lower than the balance specified in the expected amortization
schedule for that class on that payment date except in the case of an optional
redemption, as described below, or an acceleration of the notes following an
event of default. If an event of default under the indenture under which these
notes will be issued has occurred and is continuing, the indenture trustee or
the holders of not less than a majority in principal amount of the notes of all
series then outstanding may declare the unpaid principal amount of all
outstanding notes of all series to be due and payable.
The following expected amortization schedule lists the scheduled
outstanding principal balance for each class of these notes on each payment date
from the issuance date to the scheduled final payment date, after giving effect
to the payments expected to be made on that payment date. In preparing the
following table, we have assumed, among other things, that:
- these notes are issued on , 2000;
- payments on these notes are made on each payment date, commencing
, 2000;
- the initial servicing fee equals 0.05% annually of the initial principal
amount of these notes;
- there are no net earnings on amounts on deposit in the collection
account;
- other ongoing operating expenses are estimated to be approximately $
per annum, and these amounts are payable in arrears; and
- payments arising from the property securing these notes are deposited in
the collection account as expected.
S-3
<PAGE>
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
EXPECTED
AMORTIZATION
SCHEDULE
------------
AGGREGATE
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 SERIES 2000
- ---- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
We cannot assure you that the principal balances of the classes of these
notes will be reduced at the rates indicated in the table above. The actual
rates of reduction in class principal balances may be slower (but cannot be
faster, except in the case of an optional redemption or acceleration of the
notes following an event of default) than those indicated in the table.
We may redeem these notes on any payment date if, after giving effect to
payments that would otherwise be made on that payment date, the outstanding
principal balance of these notes has been reduced to less than five percent of
the initial principal balance. We may not redeem these notes under any other
circumstances.
COLLECTION ACCOUNT AND SUBACCOUNTS
The indenture trustee will establish a collection account to hold amounts
remitted by the servicer of the property securing the notes. The collection
account will consist of five subaccounts:
- a general subaccount;
- an overcollateralization subaccount;
- a capital subaccount;
- a reserve subaccount; and
- an REP deposit subaccount.
Withdrawals from and deposits to these subaccounts (other than the REP
deposit subaccount) will be made as described under "Security for the Notes
-- Allocations; Payments" in the accompanying prospectus. Withdrawals from and
deposits to the REP deposit subaccount will be made as described under "-- Other
Credit Enhancement -- REP Deposit Subaccount" in this prospectus supplement.
REQUIRED OVERCOLLATERALIZATION LEVEL
We are entitled to collect amounts arising from the property securing these
notes exceeding the actual amounts necessary to pay interest on and principal of
these notes and fees and expenses of servicing and retiring these notes. The
collection of these excess amounts is intended to enhance the likelihood that
payments on these notes will be made on a timely basis. These amounts will fund
the required overcollateralization level. The required overcollateralization
level for these notes will be $ , which is 0.50% of the initial principal
amount of these notes. The servicer will collect on our behalf and deposit with
the indenture trustee the overcollateralization amount ratably in the amount of
approximately $ on each payment date (except the first payment date, on
which date the amount collected will be approximately $ )
S-4
<PAGE>
over the expected life of these notes. The indenture trustee will make deposits
of these amounts on each payment date into the overcollateralization subaccount.
The required overcollateralization level on each payment date is as follows:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED REQUIRED
OVERCOLLATERALIZATION OVERCOLLATERALIZATION
PAYMENT DATE LEVEL PAYMENT DATE LEVEL
------------ --------------------- ------------ ---------------------
<S> <C> <C> <C>
$ $
</TABLE>
The indenture trustee will draw on amounts in the overcollateralization
subaccount to the extent amounts available in the general subaccount and reserve
subaccount are insufficient to pay interest on and principal of these notes and
fees and expenses of servicing and retiring these notes.
OTHER CREDIT ENHANCEMENT
Capital Subaccount. Upon the issuance of these notes, CPL will contribute
capital of $
to us from the proceeds of the sale of these notes. This amount is equal to
0.50% of the initial principal amount of these notes and is the capital level
required to be maintained under the indenture. The indenture trustee will
deposit the capital into the capital subaccount. The indenture trustee will draw
on amounts in the capital subaccount, to the extent amounts available in the
general subaccount, reserve subaccount and overcollateralization subaccount are
insufficient to pay interest on and principal of these notes and fees and
expenses of servicing and retiring these notes. If the indenture trustee uses
the capital subaccount to pay those amounts, subsequent true-up adjustments will
take into account those amounts and on subsequent payment dates the indenture
trustee will replenish the capital subaccount to the extent transition charge
collections exceed amounts required to pay amounts having a higher priority of
payment.
Reserve Subaccount. On each payment date, the indenture trustee will
allocate to the reserve subaccount any amounts remitted to the general
subaccount exceeding amounts necessary to:
- pay fees and expenses related to the servicing and retirement of these
notes;
- pay interest on and principal of these notes;
- fund the capital subaccount to the required capital level; and
- fund the overcollateralization subaccount to the required
overcollateralization level.
The indenture 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.
REP Deposit Subaccount. Generally, from and after the introduction of
customer choice, each retail electric provider who bills and collects transition
charges will maintain a security deposit with the indenture trustee. An REP
which maintains an investment grade rating and meets certain billing criteria
will not be required to maintain a security deposit. Each security deposit will
be held in the REP deposit subaccount. The indenture trustee will only withdraw
amounts from the REP deposit subaccount for deposit in the general subaccount of
the collection account in the event that an REP defaults in payment. The
indenture trustee may then withdraw the amount of the payment default or, if
less, the amount of that REP's security deposit.
S-5
<PAGE>
TRANSITION PROPERTY
These notes will be secured primarily by the transition property created
under the financing order issued to CPL by the Texas commission on ,
including the right to impose, collect and receive transition charges generally
billed to retail consumers of electricity within CPL's service area as it
existed on May 1, 1999. The transition property will be transferred to us by CPL
on the date of the issuance of these notes and we will pledge the transition
property to the indenture trustee to secure payment of these notes.
The actual initial transition charge for each customer class, as of the
date of this prospectus supplement, is as follows:
<TABLE>
<CAPTION>
INITIAL TRANSITION
CUSTOMER CLASS CHARGE
- -------------- ------------------
<S> <C>
Residential................................................. $ per kWh
Commercial and Small Industrial-Energy...................... $ per kWh
Commercial and Small Industrial-Demand...................... $ per kW
Large Industrial-Firm....................................... $ per kW
Large Industrial-Non-Firm................................... $ per kW
Municipal................................................... $ per kWh
</TABLE>
The financing order requires that transition charges be reviewed and
adjusted to correct any overcollections or undercollections in the collection
account in the preceding 12 months. These adjustments will be implemented
annually unless more frequent adjustments are required in order to maintain the
principal balance of these notes (adjusted for amounts in the reserve
subaccount) within 5% of the expected amortization schedule or the servicer
determines that any class of notes maturing after , 20 has not been
paid in full as of its scheduled final payment date. Please refer to
"Description of the Transition Property -- Tariff" in the accompanying
prospectus.
S-6
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement and a pricing agreement with
respect to these notes with CPL and the underwriters for the offering named
below. Assuming that conditions in the underwriting agreement are met, each
underwriter has severally agreed to purchase the respective principal amount of
notes indicated in the following table. , and are
the representatives of the underwriters.
<TABLE>
<CAPTION>
NAME CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5
- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
------- ------- ------- ------- -------
Total................ $ $ $ $ $
======= ======= ======= ======= =======
</TABLE>
Notes sold by the underwriters to the public will initially be offered to
the public at the initial public offering prices set forth on the cover of this
prospectus supplement. Any notes sold by the underwriters to securities dealers
may be sold at a discount from the initial public offering price of up to the
percentage of the principal amount of these notes set forth below. Any such
securities dealers may sell any notes purchased from the underwriters to other
brokers or dealers at a discount from the initial offering price of up to the
percentage of the principal amount of these notes set forth below.
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS CONCESSION DISCOUNT
- ----- ---------- -----------
<S> <C> <C>
Class A-1................................................... % %
Class A-2................................................... % %
Class A-3................................................... % %
Class A-4................................................... % %
Class A-5................................................... % %
</TABLE>
These notes are a new issue of securities with no established trading
market. These notes will not be listed on any securities exchange. The
underwriters have advised us that they intend to make a market in these notes
but are not obligated to do so and may discontinue market making at any time
without notice. We cannot give any assurances as to the liquidity of the trading
market for these notes.
In connection with the offering, the underwriters may purchase and sell
these notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater principal
amount of notes than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the notes while the offering is in
progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased notes sold
by or for the account of an underwriter in stabilizing or short covering
transactions.
S-7
<PAGE>
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of these notes. As a result, the price of these notes
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These activities may be effected in the over-the-counter market or
otherwise.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
We, along with CPL, have agreed to reimburse the several underwriters for
some expenses and indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Certain of the underwriters and their affiliates have in the past provided,
and may in the future from time to time provide, investment banking and general
financing and banking services to CPL and its affiliates for which they have in
the past received, and in the future may receive, customary fees.
RATINGS
It is a condition of issuance of these notes that these notes be rated
by each of Moody's Investors Service, Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Duff & Phelps Credit Rating
Co. and Fitch IBCA, Inc.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. No person is obligated to maintain the rating on any note, and,
accordingly, we can give no assurance that the ratings assigned to any class of
notes upon initial issuance will not be revised or withdrawn by a rating agency
at any time thereafter. If a rating of any class of notes is revised or
withdrawn, the liquidity of such class of notes may be adversely affected. In
general, ratings address credit risk and do not represent any assessment of the
rate of principal payments.
MATERIAL U.S. FEDERAL TAX CONSEQUENCES
CPL has received a private letter ruling from the IRS to the effect that,
for federal income tax purposes:
- The issuance of the financing order authorizing the collection of
transition charges related to these notes will not result in gross income
to CPL.
- The issuance of these notes will not result in gross income to CPL.
- These notes will be obligations of CPL.
In the opinion of Sidley & Austin, counsel to us and to CPL, interest paid on
these notes generally will be taxable to a U.S. noteholder as ordinary interest
income at the time it accrues or is received in accordance with the U.S.
noteholder's method of accounting for U.S. federal income tax purposes. Sidley &
Austin's opinion assumes, based on the ruling from the IRS described above, that
these notes will constitute indebtedness of CPL for federal income tax purposes.
Please refer to "Material U.S. Federal Tax Consequences" in the accompanying
prospectus.
S-8
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell nor does it seek an
offer to buy these securities in any jurisdiction where the offer or sale
is not permitted.
Subject to Completion, Dated , 2000
PRELIMINARY PROSPECTUS
CPL TRANSITION FUNDING LLC
ISSUER
TRANSITION NOTES
ISSUABLE IN SERIES
CENTRAL POWER AND LIGHT COMPANY
SELLER AND SERVICER
----------------------
CPL Transition Funding LLC, the issuer, may periodically offer and sell
transition notes in one or more series, each with one or more classes, as
described in the related prospectus supplement. We will own transition property,
a property right established under Subchapter G of Chapter 39 of the Texas
Utilities Code and created through a financing order issued by the Public
Utility Commission of Texas, otherwise referred to as the Texas commission. In
general terms, the transition property includes the right to impose, collect and
receive transition charges from retail consumers of electricity in Central Power
and Light Company's certificated service area as it existed on May 1, 1999. The
transition charges will be in amounts designed to be sufficient to repay the
notes, to pay other expenses specified in the indenture and to fund or replenish
the indenture trust accounts. We will also own other property described in this
prospectus.
The notes will be payable only from our assets. The notes will be supported
by trust accounts held by the indenture trustee for the notes. We may issue
notes in series without the consent of existing noteholders. Each series of
notes will rank on a parity with all other series of notes, provided that we may
enter into credit enhancements with respect to a specific class or series of
notes and hedge or swap transactions with respect to any floating rate class or
series of notes.
We are a Delaware limited liability company formed by CPL. CPL formed us
for the purpose of purchasing and owning the transition property, issuing notes
from time to time and pledging our interest in the collateral to the indenture
trustee under the indenture in order to secure the notes.
The notes are our legal obligations only. The notes do not constitute a
debt, liability or other legal obligation of CPL or any of its affiliates (other
than us). The notes are not obligations of the State of Texas, the Public
Utility Commission of Texas or any other governmental agency or instrumentality.
Neither the full faith and credit nor the taxing power of the State of Texas nor
of any political subdivision, agency, authority or instrumentality of the State
of Texas is pledged to the payment of principal of, or interest on, the notes,
or the payments securing the notes. Furthermore, neither the State of Texas nor
any political subdivision, agency, authority or instrumentality of the State of
Texas will appropriate any funds for the payment of any of the notes.
Before purchasing the notes, you should consider carefully the Risk Factors
beginning on page in this prospectus.
We are a special purpose entity and own no property other than the
collateral described in this prospectus, and that collateral is the sole source
of payment for the notes.
This prospectus may be used to offer and sell a series of notes only if
accompanied by the prospectus supplement for that series.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................ 1
RISK FACTORS.............................. 12
AVAILABLE INFORMATION..................... 26
REPORTS TO HOLDERS........................ 27
INCORPORATION OF DOCUMENTS BY REFERENCE... 27
ENERGY DEREGULATION AND NEW TEXAS MARKET
STRUCTURE............................... 28
The Restructuring Act's General Effect on
the Electric Utility Industry in
Texas................................... 28
Recovery of Stranded Costs for CPL and
Other Texas Utilities................... 29
CPL and Other Utilities May Securitize
Stranded Costs and Regulatory Assets.... 29
Restructuring of CPL...................... 31
DESCRIPTION OF THE TRANSITION PROPERTY.... 31
Creation of Transition Property; Financing
Order................................... 31
Tariff.................................... 32
CPL TRANSITION FUNDING LLC, THE ISSUER.... 35
Our Purpose............................... 36
Our Interaction with CPL.................. 36
Our Management............................ 36
The Managers' Compensation and Limitation
on Liabilities.......................... 37
We are a Separate and Distinct Legal
Entity.................................. 38
THE SELLER AND SERVICER................... 38
CPL Customer Base and Electric Energy
Consumption............................. 38
Transition Charge Retail Customer
Classes................................. 39
Information by FERC Form 1 Customer Class
Allocation.............................. 39
Information by Customer Class
Allocation.............................. 40
Annual Forecast Variance for Retail
Electric Sales (GWh).................... 41
Billing and Collections................... 42
Loss Experience........................... 44
Days Sales Outstanding.................... 44
Delinquencies............................. 45
THE SALE AGREEMENT........................ 46
Sale and Assignment of Transition
Property................................ 46
Conditions to the Sale of Transition
Property................................ 46
Seller Representations and Warranties..... 47
Covenants of the Seller................... 50
Indemnification........................... 52
Amendment................................. 53
Assumptions of the Obligations of the
Seller.................................. 53
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Bankruptcy and Creditors' Rights Issues... 53
THE SERVICING AGREEMENT................... 55
Servicing Procedures...................... 55
Servicing Standards and Covenants......... 55
Remittances to Collection Account......... 56
Servicing Compensation.................... 57
Retail Electric Providers................. 58
Servicer Representations and Warranties... 59
Evidence as to Compliance................. 60
Matters Regarding the Servicer............ 61
Servicer Defaults......................... 62
Rights When Servicer Defaults............. 62
Waiver of Past Defaults................... 63
Successor Servicer........................ 63
Amendment................................. 63
DESCRIPTION OF THE NOTES.................. 64
General................................... 64
Interest and Principal.................... 65
Payments on the Notes..................... 66
Floating Rate Notes....................... 67
No Third-Party Credit Enhancement......... 67
Registration and Transfer of the Notes.... 67
Book-Entry Registration................... 67
Definitive Notes.......................... 68
Optional Redemption....................... 69
Conditions of Issuance of Additional
Series and Acquisition of Additional
Transition Property..................... 70
Access of Noteholders..................... 70
Reports to Noteholders.................... 70
Supplemental Indentures................... 71
Covenants of the Issuer................... 72
Events of Default; Rights Upon Event of
Default................................. 74
Actions by Noteholders.................... 76
Annual Report of Indenture Trustee........ 77
Annual Compliance Statement............... 77
The Indenture Trustee..................... 77
SECURITY FOR THE NOTES.................... 78
General................................... 78
Pledge of Collateral...................... 78
Security Interest in the Collateral....... 78
Right of Foreclosure...................... 80
Description of Indenture Accounts......... 80
Allocations; Payments..................... 81
State Pledge.............................. 83
MATERIAL U.S. FEDERAL TAX CONSEQUENCES.... 83
Tax Consequences to U.S. Noteholders...... 84
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Consequences to Non-U.S.
Noteholders............................... 85
Backup Withholding and Information
Reporting............................... 88
ERISA CONSIDERATIONS...................... 90
General................................... 90
Regulation of Assets Included in a Plan... 91
Prohibited Transaction Exemptions......... 91
Consultation with Counsel................. 91
USE OF PROCEEDS........................... 92
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLAN OF DISTRIBUTION...................... 92
LEGAL MATTERS............................. 93
EXPERTS................................... 93
INDEX TO FINANCIAL STATEMENTS............. F-1
</TABLE>
(iii)
<PAGE>
IMPORTANT NOTICE
ABOUT INFORMATION IN THIS PROSPECTUS
You should rely only on information about the notes provided in this
prospectus and in the related prospectus supplement. We have not authorized
anyone to provide you with different information.
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 "we," "us" and "our" refer to CPL Transition Funding LLC, the
issuer of the notes.
References to the "seller" refer to CPL and any successor seller under the
sale agreement described in this prospectus. References to the "servicer" refer
to CPL and any successor servicer under the servicing agreement described in
this prospectus.
We include cross-references to sections where you can find additional
information. Check the table of contents to locate these sections.
(iv)
<PAGE>
PROSPECTUS SUMMARY
This summary contains a brief description of the notes that applies to all
series of notes issued under this prospectus. Information that relates to a
specific series or class of notes can be found in the prospectus supplement
related to that series or class. You will find a detailed description of the
terms of the offering of the notes in "Description of the Notes" in this
prospectus.
Consider carefully the Risk Factors beginning on page of this prospectus.
Transaction Overview: In 1999, Texas enacted an act ("restructuring act")
amending the Texas Utilities Code, governing the
restructuring of the electric industry in Texas,
and providing competition for retail electric
service beginning on January 1, 2002. Deregulation
of the Texas retail electric utility industry under
the restructuring act will require electric
utilities to unbundle their generation,
transmission and distribution, and retail electric
services. While transmission and distribution
services will continue to be provided by electric
utilities, the statute authorizes:
- Retail electric providers, referred to as "REPs,"
certified by the Texas commission, to provide
electric energy and related services, including
billing and collecting, beginning January 1,
2002, and
- REPs and other entities to provide metering
services to commercial and industrial retail
customers beginning January 1, 2004, and to
residential retail customers beginning the later
of September 1, 2005 or the date on which at
least 40% of those residential customers are
taking services from REPs unaffiliated with the
utility.
The restructuring act permits electric utilities to
recover the loss in value of generation-related
assets caused by the transition from a regulated
environment to competition for retail electric
generation services, as determined by the Texas
commission. Examples of generation-related assets
include electric generation facilities (including
nuclear power plants), power purchase contracts
with third-party generators of electricity and
regulatory assets recoverable through electric
rates. The costs of these assets were historically
recoverable in rates established by the Texas
commission but are not expected to be recoverable
in rates established by market forces in a
competitive environment.
Under the portion of the restructuring act
providing for securitization, the Texas commission
may authorize an electric utility to use
securitization financing to recover regulatory
assets and stranded costs through the issuance by
the utility or its designee of transition bonds
secured by or payable from transition property. The
notes constitute transition bonds under the
restructuring act. The net proceeds of the notes
will be used solely for the purposes of reducing
the amount of recoverable regulatory assets and
stranded costs, as determined by the Texas
commission in accordance with the restructuring
act, through the refinancing or retirement of
utility debt or equity.
1
<PAGE>
The restructuring act further provides that the
Texas commission shall ensure that:
- Securitization provides tangible and quantifiable
benefits to ratepayers, greater than would have
been achieved absent the issuance of the notes;
and
- The structuring and pricing of the notes results
in the lowest transition bond charges consistent
with market conditions and the terms of the Texas
commission's financing order.
Under the restructuring act, an electric utility in
the state of Texas is authorized to securitize up
to:
- 100% of its regulatory assets,
- 75% of its estimated stranded costs,
- The costs of issuing, supporting, and servicing
the notes,
- Any costs of retiring and refunding the electric
utility's existing debt and equity securities in
connection with the issuance of the notes, and
- The costs of the Texas commission in evaluating
the financing order and related matters in
connection with the issuance of notes.
Collectively, these amounts are referred to as
"qualified costs" in the restructuring act.
Pursuant to the restructuring act, the Texas
commission has issued and may hereafter issue one
or more financing orders authorizing CPL or a
successor seller to securitize specified amounts of
qualified costs, including costs incurred in
connection with the issuance of notes and the
retirement or refunding of existing debt and
equity. Each financing order will establish the
qualified costs and the amount of notes that may be
issued and create transition property upon the
transfer to us of such property. In order to
securitize the qualified costs established under a
financing order, CPL or a successor seller will
sell to us, as the issuer, the related transition
property. Transition property is comprised of the
right to impose, collect and receive transition
charges payable by existing and future retail
customers in CPL's certificated service area as it
existed on May 1, 1999 in an amount sufficient to
recover the qualified costs established in that
financing order. For each financing order,
qualified costs will include the aggregate
principal amount of notes to be issued plus an
amount sufficient to provide any credit
enhancement, to fund any reserves (including the
trust accounts) and to pay interest, redemption
premiums, if any, servicing fees and other expenses
relating to the notes.
We will sell notes from time to time to fund the
purchase of transition property. We may also issue
notes to refund outstanding notes. Under the
restructuring act, as implemented by a financing
order, the right to collect transition charges is
irrevocable, and not subject to reduction,
impairment, or
2
<PAGE>
adjustment by action of the Texas commission (other
than periodic "true-up" adjustments in accordance
with the restructuring act). The true-up
adjustments are designed to increase or decrease
future transition charge collections to ensure
recovery of the expected amounts for fees and
expenses of servicing the notes, payment of
premiums, if any, and interest on the notes when
due, payment of principal of each series of the
notes in accordance with the related expected
amortization schedule and funding of the trust
accounts to required levels. We will issue the
notes from time to time in one or more series, each
of which may be comprised of one or more classes.
[CHART SHOWING PARTIES TO THE TRANSACTION]
The Issuer: CPL Transition Funding LLC is a special purpose
Delaware limited liability company. CPL is our sole
member and owns all of our equity interests. We
were formed solely for the purpose of purchasing
and owning the transition property, issuing notes
from time to time and pledging our interest in the
collateral to the indenture trustee under the
indenture in order to secure the notes and engaging
in activities necessary, suitable or convenient for
the accomplishment of these purposes. Our address
is 1616 Woodall Rogers Freeway, Dallas, Texas 75202
(telephone: (214) 777- ).
Seller and Servicer of the
Transition Property: CPL is an electric utility providing retail service
in southern Texas. At December 31, 1998, CPL
provided service to approximately 642,000 retail
customers covering a service territory of
approximately 44,000 square miles. CPL is an
operating subsidiary of Central and South West
Corporation, a Delaware corporation. Central and
South West Corporation is a public utility holding
company registered under the Public Utility Holding
Company Act of 1935. On December 22, 1997, Central
and South West Corporation and American Electric
Power Company, Inc. announced that their boards of
directors had approved a definitive merger
agreement. The shareholders of each company have
approved the merger, which is subject to regulatory
approvals and other customary conditions.
On the issue date for each series of notes, except
in the event of a refunding of outstanding notes,
CPL or a successor seller will sell transition
property to us pursuant to the sale agreement and
will agree to service the transferred transition
property pursuant to a servicing agreement between
us and CPL, as the servicer. CPL may transfer
certain of its obligations to approved affiliates
or third parties. Upon satisfaction of conditions
described in the servicing agreement, any entity
which becomes successor by merger, sale, transfer,
lease, management contract or otherwise to the
major part of CPL's electric transmission and
distribution business will become the servicer and
CPL will no longer be liable for those servicing
obligations. If separate entities provide
transmission and distribution services, the entity
providing wires service directly to retail
3
<PAGE>
customers will become the servicer. If CPL
transfers any of its servicing obligations for
another reason, CPL will remain primarily liable
for those servicing obligations.
Indenture Trustee: will act as indenture trustee under the
indenture for the benefit of the noteholders.
Managers: and will be named as
independent managers under our limited liability
company agreement. R. Russell Davis, Wendy G.
Hargus and J. Gonzalo Sandoval, officers and/or
employees of CPL, are also managers and will
execute and file the amendments to the registration
statement relating to the notes and related
documents, register the notes with the applicable
state securities commissions and take other
necessary and appropriate related actions on our
behalf in connection with the notes.
Interest: Interest on each class of notes will accrue at the
interest rate specified in the related prospectus
supplement. The indenture trustee will pay interest
accrued on each class of notes on each payment
date, to the extent of transition charge
collections received from the servicer and amounts
available from accounts held by the indenture
trustee.
Principal: The indenture trustee will pay the principal of
each class of notes in the amounts and on the
payment dates specified in the expected
amortization schedule in the related prospectus
supplement, but only to the extent of collections
by the servicer on our behalf and amounts available
from accounts held by the indenture trustee. Please
refer to "Security for the Notes -- Allocations;
Payments."
On any payment date, the indenture trustee will pay
principal of the notes only until the outstanding
principal balances of the various classes of notes
have been reduced to the principal balances
specified for those classes in their expected
amortization schedules. If cash is not available,
the indenture trustee will pay principal of a class
of notes later than set forth in the expected
amortization schedule. If an event of default under
the indenture has occurred and is continuing for
any class of notes, the indenture trustee may, and
with the written direction of the holders of not
less than a majority in principal amount of the
notes of all series then outstanding will, declare
the unpaid principal amount of all series of notes
and accrued interest to be due and payable. Please
refer to "Description of the Notes -- Events of
Default; Rights Upon Event of Default" in this
prospectus.
Collateral: We will own and pledge to the indenture trustee for
the benefit of the noteholders all of our right,
title and interest in and to:
- The transition property transferred to us,
- The basic documents described in this prospectus,
- Trust accounts held by the indenture trustee, and
4
<PAGE>
- Other credit enhancement acquired or held to
ensure payment of the notes, including rights
under any interest rate swaps or hedges
supporting payment of any floating rate notes
that we issue.
- All claims, demands, causes and choses in action.
- All payments and proceeds of the foregoing.
Transition Property: Transition property is a property right established
under the restructuring act and created through a
financing order issued by the Texas commission. In
general terms, transition property is the rights
granted to CPL or a successor seller by the Texas
commission under a financing order, including the
right to impose, collect and receive transition
charges. The amount of transition charges which may
be imposed will be calculated at an amount
sufficient to retire the principal amount of the
related series of notes in accordance with the
expected amortization schedule, to pay all interest
on those notes when due, to pay fees and expenses
of servicing those notes and premiums, if any,
associated with those notes and to fund any
required credit enhancement for those notes.
On the closing date for each issuance of notes, the
seller will sell related transition property to us.
The servicer of the transition property will
collect the transition charges on our behalf.
Beginning with the introduction of customer choice,
REPs will be responsible for collecting transition
charges from retail customers within CPL's service
territory and paying the amounts collected to the
servicer. Please refer to "The Servicing
Agreement -- Retail Electric Providers" in this
prospectus.
Transition Charges: The transition charges will be payable by all
existing and future retail customers of CPL or its
successor located within CPL's certificated service
area as it existed on May 1, 1999. There are
exceptions for
- certain categories of existing customers whose
load has been lawfully served by a
fully-operational qualifying facility before
September 1, 2001 or whose load has been lawfully
served by an on-site power production facility
with a rated capacity of 10 megawatts or less,
- retail customers in a dually-certificated service
area that requested to switch providers on or
before May 1, 1999, or were not taking service
from the utility on, and do not do so after, May
1, 1999, and
- the facilities and premises of customers that are
not taking retail service from CPL pursuant to
Texas commission orders in certain designated
dockets issued prior to the issuance of the
initial financing order.
The defined classes of retail customers are:
- Residential,
5
<PAGE>
- Commercial and Small Industrial-Energy,
- Commercial and Small Industrial-Demand,
- Large Industrial-Firm,
- Large Industrial-Non-Firm, and
- Municipal.
Because of differences in the tariff rate for each
class of retail customers and the provisions of the
restructuring act, the transition charges payable
by each class of retail customers will differ.
After the introduction of customer choice, the REPs
will be responsible for billing, collecting and
paying to CPL, as servicer, the retail customer's
transition charges. Each REP will be responsible
for paying transition charges billed to retail
customers of the REP, whether or not the retail
customers pay the REP, less an amount based on the
servicer's systemwide charge-off percentage,
subject to annual reconciliations for actual
charge-offs as provided in tariffs to be filed with
the Texas commission. Please refer to "The
Servicing Agreement -- Retail Electric Providers"
in this prospectus.
The obligation of retail customers to pay
transition charges is not subject to right of
set-off. Transition charges are "non-bypassable" in
accordance with the provisions set forth in the
restructuring act and a financing order. Prior to
the introduction of customer choice, which
generally begins January 1, 2002, the servicer may
terminate electric service to any retail customer
who fails to pay any transition charges in
accordance with the restructuring act and Texas
commission guidelines. After the introduction of
customer choice, the servicer may terminate service
to any such retail customer in accordance with the
restructuring act and Texas commission guidelines
and may assume or transfer billing and collection
rights from any REP that fails to pay transition
charges in accordance with the financing order.
Transition charges will be assessed by the servicer
for our benefit as owner of the transition
property. Transition charges will be based on a
retail customer's actual consumption of electricity
or electric demand from time to time. Transition
charges will be collected by the servicer, either
directly from retail customers prior to customer
choice or indirectly from an REP that collects
transition charges from retail customers after
January 1, 2002 as part of its normal collection
activities. Transition charges will be deposited by
the servicer into the collection account under the
terms of the indenture and the servicing agreement.
Each financing order will require a notification
letter (which we refer to as an "issuance advice
letter") and a tariff to be filed with the Texas
commission by CPL, as seller of the transition
property, prior to the issuance of notes. Each
issuance advice
6
<PAGE>
letter and tariff will establish the initial
transition charges relating to such notes,
calculated using the methodology described in the
related financing order. Subsequent issuance advice
letters may modify transition charges or evidence
new transition charges to reflect the adjustments
described in the next paragraph to support the
issuance of additional series of notes.
Adjustments to Transition
Charges: Each financing order will require that transition
charges be reviewed and adjusted at least annually
to correct any overcollections or undercollections
in the preceding 12 months. These adjustments are
intended to ensure the expected recovery of amounts
sufficient to timely provide all payments of debt
service and other required amounts and expenses in
connection with the notes. The servicing agreement
and each financing order will require the servicer
to calculate and implement these true-up
adjustments to the transition charges by providing
written notice to the Texas commission. These
adjustments will be implemented annually; provided,
however, that the servicer may also be required to
implement adjustments to the transition charges by
providing written notice to the Texas commission,
if as of the end of the month prior to any payment
date, the servicer determines that
- the aggregate outstanding principal balance of
any series of notes plus amounts on deposit in
the reserve subaccount described below will vary
by more than 5% from the principal balance set
forth on the expected amortization schedule, or
- commencing after the payment date specified in
the related prospectus supplement, any series of
notes will not have been paid in full as of its
scheduled final payment date.
Collections: The servicer will deposit in the collection account
estimated payments of transition charges on each
business day. However, if the servicer achieves a
long-term unsecured rating of at least "A" or the
equivalent by each nationally recognized rating
agency that has assigned a credit rating to the
notes or provides credit enhancement satisfactory
to the rating agencies, and no servicer default is
continuing, the servicer may remit to the
collection account estimated payments of transition
charges on a monthly basis.
Payment Sources: On each payment date specified in the related
prospectus supplement, the indenture trustee will
pay amounts owed on all outstanding series of notes
from:
- Amounts collected by the servicer on our behalf
with respect to transition charges during the
prior collection period; and
- Amounts available from trust accounts held by the
indenture trustee.
Priority of Payments: On each payment date specified in the related
prospectus supplement, the indenture trustee will
pay or allocate, at the direction of the servicer,
all amounts on deposit in the trust accounts and
all investment earnings on the trust accounts
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(other than the REP deposit subaccount) to the
extent funds are available in the collection
account, in the following order of priority:
- Amounts owed by us to our independent managers
and to the indenture trustee;
- The servicing fee, which will be a fixed
percentage of the initial principal balance of
the notes, in an amount specified in the
servicing agreement, to the servicer;
- So long as no event of default has occurred and
is continuing or would be caused by their
payment, our current operating expenses, up to an
aggregate of $100,000 for each payment date;
- Overdue interest on the notes and interest on
past due interest;
- Interest then due on the notes, including payment
of any amount to a swap counterparty with respect
to floating rate notes;
- Principal then due and payable on the notes
together with any past due installments of
principal, first to principal due and payable on
any series of notes on its final maturity date or
as a result of acceleration and then to any
scheduled principal payments of any series of
notes according to the expected amortization
schedule;
- Payment of any remaining unpaid operating
expenses;
- Replenishment of any shortfalls in the capital
subaccount;
- Allocation of any required amount to the
overcollateralization subaccount; and
- Allocation of the remainder, if any, to the
reserve subaccount.
[CHART SHOWING PRIORITY OF PAYMENTS]
Credit Enhancement and
Accounts: Credit enhancement for the notes will be as
follows:
- True-up Adjustments -- The servicer will make
true-up adjustments to the transition charges, at
least annually, to make up for any shortfall or
excess in transition charge collections and will
file the true-up adjustments with the Texas
commission as described above.
- Collection Account -- The indenture trustee will
hold a single collection account, divided into
various subaccounts, for all series of the notes.
The primary subaccounts for credit enhancement
purposes are:
- Overcollateralization Subaccount -- The
prospectus supplement for each series of notes
will specify a required funding level for the
overcollateralization subaccount. The required
funding level will be equal to one-half of one
percent (0.5%) of the initial principal amount
of that series
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of notes or a higher percentage as may be
specified in the related prospectus supplement.
That amount will be funded approximately
ratably over the term of the notes of such
series through transition charge collections.
- Capital Subaccount -- An amount equal to
one-half of one percent (0.5%) of the initial
principal amount of each series of notes (or a
higher amount as may be specified in the
related prospectus supplement) will be
deposited into the capital subaccount from the
proceeds of the sale of a series of notes on
the date of issuance of that series of notes.
Any shortfall in the capital subaccount will be
included in the periodic adjustment of the
transition charges and replenished from
transition charge collections.
- Reserve Subaccount -- All amounts (including
investment earnings) that, as of a payment
date, are not needed to pay interest,
principal, fees and expenses and to replenish
the overcollateralization subaccount and
capital subaccount will be held in the reserve
subaccount.
Each of the overcollateralization subaccount, the
capital subaccount and the reserve subaccount and
investment earnings thereon will be available to
make payments on all series of notes on each
payment date.
The collection account will also have a separate
subaccount, the REP deposit subaccount, that will
hold security deposits from REPs. In the event that
an REP defaults in payment, the indenture trustee
may withdraw the amount of the payment default or,
if less, the amount of that REP's security deposit
for deposit into the general subaccount of the
collection account.
Additional credit enhancement for any series of
notes may include surety bonds, letters of credit,
liquidity reserves or other forms of credit
enhancement. Any additional forms of credit
enhancement for a series of notes will be specified
in the related prospectus supplement. Additional
credit enhancement for any series of notes is
intended to protect against losses or delays in
scheduled payments on that series of notes.
State Pledge: The State of Texas has pledged, and the Texas
commission will pledge in each financing order, for
the benefit and protection of noteholders and CPL
that it will not take or permit any action that
would:
- Impair the value of transition property, or
- Reduce, alter, or impair the transition charges
to be imposed, collected, and remitted to the
indenture trustee on behalf of the noteholders
(other than periodic true-up adjustments in
accordance with the restructuring act),
until the principal, interest and premium, and any
other charges incurred and contracts to be
performed in connection with the related notes have
been paid and performed in full.
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Events of Default: An event of default with respect to any series of
notes is defined in the indenture as being:
- A default in the payment of interest that is not
cured within five business days.
- A default in the payment of principal on any
final maturity date.
- A default in the payment of the optional
redemption price on a redemption date.
- A default in the observance or performance of any
covenant or agreement of the issuer made in the
indenture, and which continues unremedied for 30
days after notice is given to the issuer by the
indenture trustee or to the issuer and the
indenture trustee by the holders of at least 25%
in principal amount of the notes of that series
then outstanding.
- Any representation or warranty made by the issuer
in the indenture or in any certificate delivered
by the issuer in connection with the indenture
proving to have been incorrect in a material
respect when made and which continues unremedied
for a period of 30 days after notice is given to
the issuer by the indenture trustee or to the
issuer and the indenture trustee by the holders
of at least 25% in principal amount of the notes
of that series then outstanding.
- Events of bankruptcy, insolvency, receivership or
liquidation of the issuer.
- A breach by the State of Texas of the State's
pledge.
- Any other event designated as an event of default
in the related prospectus supplement.
If an event of default should occur and be
continuing with respect to any series of notes, the
indenture trustee or holders of not less than a
majority in principal amount of the notes of all
series then outstanding may declare the notes of
all series to be immediately due and payable. Under
circumstances set forth in the indenture, the
holders of a majority in principal amount of notes
of all series then outstanding may rescind the
declaration.
If the notes have been declared to be due and
payable following an event of default, the
indenture trustee may, in its discretion, subject
to the limitations and conditions provided in the
indenture, either sell the transition property or
elect to maintain possession of the transition
property and continue to apply payments arising
from the transition charges remitted to the
indenture trustee as if there had been no
declaration of acceleration.
Optional Redemption: We will have the option to redeem a series of notes
- if the outstanding principal balance of the
series of notes has been reduced to less than 5%
of the initial principal amount of that series,
or
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- if provided for in the applicable prospectus
supplement, from the proceeds of the issuance and
sale of another series of notes.
The prospectus supplement relating to a series of
notes will describe any other optional redemption
provisions for that series. The redemption price
for any series of notes will not be less than the
outstanding principal of and accrued interest on
those notes.
Payment and Record Dates: Payments of interest on and principal of any series
of notes will be made on the dates specified in the
related prospectus supplement. So long as the notes
are in book-entry form, the record date for any
payment of interest on or principal of the notes
will be the business day immediately before the
payment date.
Scheduled Final Payment
Dates and Final Maturity
Dates: Failure to pay the entire outstanding amount of the
notes of any class or series by the scheduled final
payment date for each class or series will not
result in a default with respect to that class or
series unless such amount remains unpaid on the
final maturity date for the class or series. The
final maturity date may be up to two (2) years
after the scheduled final payment date for each
class, but cannot exceed 15 years from the date of
original issuance. The scheduled final payment date
and the final maturity date of each series and
class of notes will be specified in the related
prospectus supplement.
Ratings of Notes: It will be a condition of issuance of the notes
that the notes be rated in one of the four highest
rating categories by each of Moody's Investors
Service, Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Duff &
Phelps Credit Rating Co., and Fitch IBCA, Inc.
Federal Income Tax Status: In the opinion of Sidley & Austin, counsel to us
and to CPL, interest paid on each series of notes
generally will be taxable to a U.S. noteholder as
ordinary interest income at the time it accrues or
is received in accordance with the U.S.
noteholder's method of accounting for U.S. federal
income tax purposes. Sidley & Austin's opinion
assumes that, based on a ruling or tax opinion
described under "Material U.S. Federal Tax
Consequences," the notes will constitute
indebtedness of CPL for federal income tax
purposes. All parties have agreed that the notes
will be treated as debt for all purposes, including
federal income tax purposes.
ERISA Considerations: Pension plans and other investors subject to ERISA
may acquire the notes subject to specified
conditions. The acquisition and holding of the
notes could be treated as an indirect prohibited
transaction under ERISA. Accordingly, by purchasing
the notes, each investor purchasing on behalf of a
pension plan will be deemed to certify that the
purchase and subsequent holding of the notes would
be exempt from the prohibited transaction rules of
ERISA.
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RISK FACTORS
You should carefully consider all the information we have included or
incorporated by reference in this prospectus and the prospectus supplement
before deciding whether to invest in the notes. In particular, you should
consider carefully the risk factors described below.
If any of the following risks actually occur, your investment in the notes
could be materially adversely affected. In that event, the trading price of your
notes could decline and you may lose all or part of your investment.
YOU MAY EXPERIENCE MATERIAL PAYMENT DELAYS OR LOSSES ON YOUR INVESTMENT IN THE
NOTES DUE TO THE LIMITED SOURCES OF PAYMENT FOR THE NOTES AND LIMITED CREDIT
ENHANCEMENT.
You may suffer material payment delays or losses on your notes if our
assets are insufficient to pay the principal amount of the notes in full. The
only source of funds for payments on the notes will be our assets. These assets
are limited to:
- the transition property, including the right to impose, collect and
receive the transition charges and to adjust the transition charges at
least annually;
- the funds on deposit in the trust accounts held by the indenture trustee;
- contractual rights under the sale agreement, the servicing agreement and
other contracts; and
- any other credit enhancements described in a prospectus supplement.
Any floating rate notes will also have the proceeds of any swap agreement
available as a payment source.
The notes will not be insured or guaranteed by CPL, including in its
capacity as servicer, or by its parent, Central and South West Corporation, any
of its affiliates (other than us), the indenture trustee or any other person or
entity. Thus, you must rely for payment of the notes upon collections of the
transition charges, funds on deposit in the trust accounts held by the indenture
trustee and any other credit enhancement described in the related prospectus
supplement. Our organizational documents will restrict our right to acquire
other assets unrelated to the transactions (including future financing orders)
described in this prospectus. Please refer to "CPL Transition Funding LLC, the
Issuer" in this prospectus.
RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS
Legal Action May Challenge or Invalidate the Restructuring Act or a
Financing Order and Materially Adversely Affect Your Investment. The transition
property is created pursuant to the restructuring act and one or more financing
orders issued by the Texas commission pursuant to the restructuring act. The
restructuring act was adopted in June 1999. A court decision might seek to
overturn the restructuring act or a financing order. Because the notes are a
creation of statute, any alteration affecting the validity of the relevant
underlying legislative provisions could directly impact the notes. For example,
the provisions which create transition property may be invalidated. This would
eliminate the validity of the assets securing the notes. As another example, the
provisions which allow for the transition charge true-up adjustment process may
be invalidated. This would prevent the servicer from ensuring that sufficient
funds are deposited with the indenture trustee for the scheduled payments on the
notes. If this occurs, you may lose some or all of your investment or you may
experience delays in recovering your investment.
There is uncertainty associated with investing in bonds payable from an
asset which depends for its existence on recently enacted legislation because of
an absence of any judicial or regulatory experience implementing and
interpreting the legislation. The restructuring act or any provisions thereof,
including the provisions relating to securitization, may be directly contested
in
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courts or otherwise become the subject of litigation. If a court were to
determine that the relevant provisions of the restructuring act or a financing
order are unlawful or invalid, that decision could adversely affect the validity
of the notes or our ability to make payments on the notes. In that case, you
could suffer a loss on or delay in recovery of your investment in the notes. As
of the date of this prospectus, we are not aware of any lawsuit that has
challenged or challenges any provision of the restructuring act relating to
securitization, any financing order, the creation or characterization of
transition property or the issuance of transition bonds. The deadline
established under the restructuring act to appeal the initial financing order
will expire prior to the issuance of the related notes. However, if the
restructuring act is overturned, the limitation on appealing any financing order
may also be overturned. Please refer to "Energy Deregulation and New Texas
Market Structure" in this prospectus.
Although as of the date of this prospectus we are aware of no lawsuit that
has been filed in Texas challenging the restructuring act or the initial
financing order, judicial challenges have been filed in other states seeking to
overturn electricity generation deregulation laws similar to the restructuring
act. In Pennsylvania, three lawsuits challenged the validity of similar state
legislation. Two of these alleged that the legislation was not validly enacted
by the Pennsylvania legislature. A Pennsylvania court has rejected these claims.
The court's decisions in those cases have not been appealed and the period for
filing appeals has lapsed. The third lawsuit asserted that the legislative
provisions that allowed for the recovery of transition charges violated the
Commerce Clause of the U.S. Constitution. The Pennsylvania courts rejected that
claim, and a petition that the U.S. Supreme Court review the case was denied.
In California, a consumer advocacy group and others filed a petition with
the California Supreme Court asking that the court suspend the implementation of
the California public utility commission's decision, which, among other items,
allowed for the recovery of a utility's stranded costs. The California Supreme
Court denied this petition.
Other states in addition to California and Pennsylvania have passed
electricity deregulation laws and further judicial challenges could be made in
other states. An unfavorable decision regarding another state's law would not
automatically invalidate the restructuring act or a financing order, but it
might provoke a challenge to the restructuring act. In addition, an unfavorable
court decision on another state's statute may establish a legal precedent for a
successful challenge to the restructuring act depending on the similarity of the
other statute and the applicability of the legal precedent to the restructuring
act. Furthermore, legal action in other states could heighten awareness of the
political and other risks of the notes, and in that way may limit the liquidity
and value of the notes. Therefore, legal activity in other states may indirectly
affect the value of your investment.
Neither we nor CPL nor any successor seller will indemnify you for any
changes in the law that may affect the value of your notes. CPL or a successor
seller may, however, have to indemnify us if legal action based on law in effect
at the time of the issuance of the notes invalidates the transition property.
The Restructuring Act May be Overturned by the Federal Government Without
Full Compensation. Congress or a federal agency may attempt to preempt the Texas
legislature and pass a law or adopt a rule or regulation prohibiting or limiting
the collection of transition charges, or otherwise affecting the energy
industry. Two bills, neither of which passed in committee, were introduced in
the 105th Congress prohibiting the recovery of stranded costs through charges
such as the transition charges provided for in the restructuring act. A
prohibition of this nature could negate the existence of transition property. As
of the date of this prospectus, no member of the 106th Congress has introduced a
bill that would affect the existence or value of transition property or the
imposition of the transition charges.
We cannot predict whether any future bills that prohibit the recovery of
stranded costs, or securitized financing for the recovery of these costs, will
become law or, if they become law,
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what their final form or effect will be. Moreover, even if this preemption of
the restructuring act and/or the financing order by the federal government were
considered a "taking" under the U.S. Constitution for which the government had
to pay the estimated market value of the transferred transition property at the
time of the taking, we can give no assurance that this compensation would be
sufficient to pay the full amount of principal of and interest on the notes or
to pay such amounts on a timely basis.
Except as described in "The Sale Agreement -- Indemnification," neither we
nor CPL nor any successor seller will indemnify you for any changes in law that
may affect the value of your notes.
Future Texas Legislative Action May Invalidate the Notes or the Transition
Property which is the Primary Source of Payments on Your Notes. Unlike many
other states, the citizens of the State of Texas do not have the constitutional
right to adopt or revise laws by initiative or referendum. Thus, absent any
amendment of the constitution of the State of Texas, the restructuring act
cannot be amended or repealed by direct action of the electorate.
The Texas legislature may repeal the restructuring act, or amend the
restructuring act in a way that limits or alters the transition property so as
to reduce its value. Under the restructuring act, the State of Texas has pledged
not to diminish the value of the transition property. For a description of this
pledge, please refer to "Security for the Notes -- State Pledge" in this
prospectus. In the opinion of Sidley & Austin, counsel to CPL and us, with
respect to applicable federal constitutional principles relating to the
impairment of contracts, and in the opinion of Vinson & Elkins, LLP, Texas
counsel to CPL and us, under applicable Texas constitutional principles relating
to the impairment of contracts, the State of Texas could not, absent a
demonstration that such action was necessary to serve a significant and
legitimate public purpose, repeal or amend the restructuring act 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 noteholders. It may be possible for the Texas legislature to repeal or
amend the restructuring act without violating the State's pledge, if the
legislature acts in order to serve a significant and legitimate public purpose,
such as protecting the public health and safety. Even if the legislature
provides you with an amount deemed to be adequate compensation, it may not be
sufficient for you to fully recover your investment. Any action of the Texas
legislature adversely affecting the transition property or the ability to
collect transition charges may be considered a "taking" under the U.S. or Texas
constitutions. The Texas legislature might then be obligated to pay the
estimated value of the transition property at the time of the taking. We cannot
assure you of the likelihood or legal validity of any action of this type by the
Texas legislature, or whether the action would be considered a taking. As of the
date of the prospectus, we are not aware of any pending legislation in the Texas
legislature that would affect any provisions of the restructuring act.
We cannot assure you that a repeal or amendment to the restructuring act
will not be sought or adopted or that any action by the State of Texas will not
occur. In any event, costly and time-consuming litigation might ensue. Any
litigation of this type might adversely affect the price and liquidity of the
notes and delay the payment of interest and principal. Moreover, given the lack
of judicial precedent directly on point, and the novelty of transition property
as security for noteholders, we cannot predict the outcome of any litigation
with certainty. Accordingly, you may suffer a loss on or delay in recovery of
your investment in the notes.
The seller has agreed to take legal or administrative action, including
instituting legal action, as may be reasonably necessary to block or overturn
any attempts to cause a repeal, modification or amendment to the restructuring
act, a financing order or transition property.
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Except as described in "The Sale Agreement -- Indemnification," neither we
nor CPL nor any successor seller will indemnify you for any changes in the law
that may affect the value of your notes.
Future Actions By The Texas Commission May Reduce the Value of Your
Investment. The restructuring act provides that the financing order issued to
CPL, or any successor seller is irrevocable upon issuance and is not subject to
reduction, impairment or adjustment by further action of the Texas commission,
except for the periodic true-up adjustments. The State of Texas and the Texas
commission have each pledged that it will not take or permit any action to
amend, alter or impair the value of transition property created under the
financing order, except as permitted in true-up adjustments until the principal,
interest and premium, and any other charges incurred and contracts to be
performed in connection with the notes have been paid and performed in full.
However, the Texas commission retains the power to adopt, revise or rescind
rules or regulations affecting the seller or a successor utility. The Texas
commission also retains the power to interpret the financing order. Any new or
amended regulations or orders by the Texas commission could affect the ability
of the servicer to collect the transition charges in full and on a timely basis.
The seller has agreed to take legal or administrative action to resist any Texas
commission rule, regulation or decision that would reduce the value of the
transition property. We cannot assure you that the seller would be successful in
its efforts. Thus, future Texas commission rules, regulations or decisions may
adversely affect the rating of the notes, their price or the rate of transition
charge collections and, accordingly, the amortization of notes and their
weighted average lives. As a result, you could suffer a loss of your investment.
The Texas commission may challenge the servicer's calculation of its
proposed adjustments which may cause delay or may refuse to permit an adjustment
to take effect on the grounds the adjustment contains an arithmetic error. There
is uncertainty associated with investing in notes whose timely payment of
principal and interest may depend on true-up adjustments because of the absence
of any judicial or regulatory experience implementing and interpreting the
provisions of the restructuring act providing for true-up adjustments. The
servicer must make periodic filings with the Texas commission in order to
implement any true-up adjustment, which under the terms of a financing order
will become effective at the beginning of the next monthly billing cycle
following the filing. Nonetheless, the adjustment procedures and adjustments
could be challenged. This could result in costly and time consuming litigation.
A shortfall or material delay in transition charge collections due to inaccurate
forecasts or delayed implementation of true-up adjustments could result in
payments of principal of and interest on the notes not being paid according to
the expected amortization schedule, lengthening the weighted average life of the
notes, or in payments of principal and interest not being made at all.
We May Not Charge Transition Charges for Electricity Delivered More Than 15
Years From the Original Issue Date of the Series of Notes relating to Those
Transition Charges. Each financing order establishes the amount of qualified
costs and of notes that may be issued and creates transition property, including
the right to collect the related transition charges. We will be prohibited from
recovering transition charges under a financing order after the fifteenth
anniversary of the original issue date of the series of notes related to those
transition charges. However, the servicer may continue to collect transition
charges after the 15-year period for electricity consumed or made available
during the 15-year period that are either unbilled or not yet collected. Amounts
collected from the specific transition charges relating to a series of notes
imposed for electricity delivered during the applicable 15-year period, or from
credit enhancement funds, may not be sufficient to repay the notes in full. If
so, it is possible that no other funds will be available to pay the unpaid
balance due on the notes.
The Amount of Retail Base Rate Charges Including Transition Charges May Not
Exceed a Statutory Cap. The restructuring act sets caps on the total bundled
charges that CPL may charge for electric service, including transition charges,
through January 1, 2002. These rate caps apply to each customer class
separately. The restructuring act also limits the bundled rates that
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can be assessed by CPL and its affiliates to residential and small commercial
retail customers through January 1, 2007. If there is a severe or persistent
shortfall in collections of transition charges, the rate caps applicable to a
customer class may prevent the servicer from adjusting transition charges for
that customer class in excess of the rate caps. If this occurs, the servicer
would have to adjust transition charges for other customer classes. These
adjustments may result in the assessment of transition charges on the remaining
customer classes at a level that is limited by their rate caps. This could
reduce the amount or the rate of collections of transition charges, which may
adversely affect the value of your investment. Please refer to "Energy
Deregulation and New Texas Market Structure" in this prospectus.
SERVICING RISKS
Inaccurate Forecasting or Unanticipated Delinquencies Could Result in
Insufficient Funds to Make Scheduled Payments on the Notes. The transition
charges are generally assessed based on customer usage, which includes kilowatts
demanded and kilowatt-hours of electricity consumed by retail customers. The
transition charges are calculated by the servicer according to the methodology
approved by the related financing order. In addition, the servicer is required
to file with the Texas commission, on our behalf, periodic true-up adjustments
for the transition charges. These adjustments are intended to provide, among
other things, for timely payment of the notes, but the frequency of these
adjustments is limited. The servicer will generally base its adjustments on any
shortfalls during the prior adjustment period and on projections of future
electricity usage (consumption and demand) and the retail customers' ability to
pay their electric bills in full and on a timely basis. The servicer has
historically forecasted customer usage based on kilowatt-hours and the servicer
has historically forecasted peak demand annually on a total company basis. The
servicer has not historically forecasted demand by customer class. If the
servicer inaccurately forecasts electricity consumption or demand or
underestimates retail customer delinquencies or charge-offs when setting or
adjusting the transition charges, or if the effectiveness of the adjustments is
delayed for any reason, there could be a shortfall or material delay in
transition charge payments.
Inaccurate forecasting of electricity consumption by the servicer could
result from, among other things:
- warmer winters or cooler summers, resulting in less electricity
consumption than forecasted;
- general economic conditions being worse than expected, causing retail
customers to migrate from CPL's service territory or reduce their
electricity consumption;
- the occurrence of a natural disaster, such as a hurricane, unexpectedly
disrupting electrical service and reducing usage;
- problems with energy generation, transmission or distribution resulting
from the change in the market structure of the electric industry;
- retail customers ceasing business or departing CPL's service territory;
- dramatic changes in energy prices;
- retail customers consuming less electricity because of increased
conservation efforts; or
- retail customers switching to alternative sources of energy, including
self-generation or co-generation of electric power. Please refer to
"Energy Regulation and New Texas Market Structure" in this prospectus.
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Inaccurate forecasting of delinquencies or charge-offs by the servicer
could result from, among other things:
- unexpected deterioration of the economy or the occurrence of a natural
disaster, causing greater charge-offs than expected or forcing CPL or a
successor utility to grant additional payment relief to more retail
customers;
- a change in law that makes it more difficult for CPL or a successor
distribution company to disconnect nonpaying retail customers, or that
requires CPL or a successor distribution company to apply more lenient
credit standards for retail customers; or
- the introduction into the energy markets of less creditworthy REPs who
collect and remit payments arising from the transition charges, but who
fail to remit retail customer charges to the servicer in a timely manner.
Please refer to "-- It May Be More Difficult to Collect the Transition
Charges from REPs Who Will Provide Electricity to CPL's Retail Customers
Commencing in 2002."
Uncertainties Associated with Collecting the Transition Charges and
Unpredictability of a Deregulated Electricity Market. CPL has not previously
calculated transition charges for retail customers, nor made all of the
associated calculations and predictions which are inherent in that calculation,
before making the calculations required in connection with the initial financing
order and our initial issuance of notes. The predictions are based primarily on
historical retail customer usage and payments, collection of payments and
forecasted energy usage for which CPL has records available. The servicer has
historically forecasted customer usage based on kilowatt-hours and the servicer
has historically forecasted peak demand annually on a total company basis. The
servicer CPL has not historically forecasted demand by customer class. In
addition, historical usage and collection records may not reflect retail
customers' payment patterns or energy usage in the competitive market since
retail competition is being introduced in Texas for the first time. These
records also do not reflect any experience with consolidated billing by REPs.
Because that kind of billing is new in Texas, there are potentially unforeseen
factors in that billing which may affect collection of payments. Furthermore,
the servicer does not have any experience administering transition charges.
Risks are associated with the servicer's inexperience in calculating, billing
and collecting transition charges and in managing retail customer payments on
our behalf. A shortfall or material delay in collecting transition charges could
result in payments of principal not being paid according to the expected
amortization schedule, lengthening the weighted average life of the notes, or
payments of principal and interest not being made at all.
Your Investment Relies on CPL or Its Successor Acting as Servicer of
Transition Property. CPL, as servicer, will be responsible for billing and
collecting transition charges from retail customers and REPs and for periodic
filings with the Texas commission to adjust these charges. If CPL ceased
servicing the transition property, it might be hard to find a successor
servicer. Any successor servicer may have less experience than CPL and less
capable billing and/or collection systems than CPL. A successor servicer may
experience difficulties in collecting transition charges, determining
appropriate adjustments to transition charges, terminating service to retail
customers or otherwise taking actions against retail customers for non-payment
of their transition charges. If CPL were to be replaced as servicer, any of
these factors and others could delay the timing of payments and may reduce the
value of your investment. Also, a change in servicer or the reclaiming of
billing functions by the servicer from an REP that has defaulted may cause
billing and/or payment arrangements to change, which may lead to a period of
disruption in which retail customers continue to remit payments according to the
former arrangement, resulting in delays in collection that could result in a
delay in payments on your notes. Please refer to "The Servicing Agreement" in
this prospectus.
Upon a servicer default based upon the commencement of a case by or against
the servicer under the United States Bankruptcy Code or similar laws, the
indenture trustee and we may be
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prevented from effecting a transfer of servicing. The restructuring act provides
that, if a default or termination occurs under the notes, the Texas commission
may order that amounts arising from transition charges be transferred to a
separate account, and the indenture trustee or noteholders may apply to a
district court of Travis County, Texas for an order for sequestration and
payment of revenues arising from the transition charges. However, in the event
that the servicer becomes subject to a bankruptcy proceeding, federal bankruptcy
law may prevent the Texas commission or a Texas court from issuing or enforcing
these orders. The indenture requires the indenture trustee to request an order
from the bankruptcy court to permit the Texas commission or a Texas court to
issue and enforce these orders. However, the bankruptcy court may deny the
request. The failure of the servicer to make required remittances would likely
result in a default under the indenture. Please refer to "The Sale
Agreement -- Bankruptcy and Creditors' Rights Issues" in this prospectus.
Under the restructuring act and the indenture, the indenture trustee or the
noteholders have the right to foreclose or otherwise enforce the lien on
transition property securing the notes. However, in the event of foreclosure,
there is likely to be a limited market, if any, for the transition property.
Therefore, foreclosure may not be a realistic or practical remedy.
It May Be More Difficult to Collect the Transition Charges from REPs Who
Will Provide Electricity to CPL's Retail Customers Commencing in 2002. As part
of the restructuring of the Texas electric industry, retail customers in CPL's
service territory will, as of January 1, 2002, or in limited circumstances,
sooner, purchase electricity and related services from REPs rather than CPL. CPL
or any affiliated transmission and distribution utility will no longer be
permitted to sell electricity directly to retail customers. However, CPL
currently expects that it will organize an affiliated REP to provide electricity
and related services to retail customers. The restructuring act contemplates
that REPs, including CPL's affiliated REP, will issue a single bill to retail
customers purchasing electricity from an REP. This single bill would include all
charges related to purchasing electricity from the REP, delivery services from
the transmission and distribution utility and the applicable transition charges.
Therefore, we expect that retail customers will pay transition charges to REPs
who supply them with electric power. The REPs will be obligated to remit
payments of transition charges to the servicer, even if they do not collect the
charges from retail customers, less an amount based on the servicer's
system-wide charge-off percentage. Each REP will be entitled to recover amounts
remitted to the servicer in excess of payments received from retail customers
(and will be obligated to remit to the servicer any excess of such collections
over prior remittances) in an annual reconciliation made in conjunction with the
true-up adjustment process. The servicer will have limited rights to collect
transition charges directly from those retail customers who receive their
electricity bills from an REP in the event that the REP does not pay the
transition charges to the servicer. Once retail competition begins, the REPs
will bill most retail customers for the transition charges, and we will have to
rely on a relatively small number of entities for the collection of the bulk of
the transition charges. The servicer will not pay any shortfalls resulting from
the failure of any REP to forward transition charge collections. This may cause
delays in payments on the notes and adversely affect your investment because:
- REPs might use more permissive standards in bill collection and credit
appraisal than CPL uses for its retail customers, or might be less
effective in billing and collecting. As a result, those entities may not
be as successful in collecting the transition charges as the servicer
anticipated when setting the transition charge.
- If an REP defaults, the servicer may assume responsibility for billing
and collecting transition charges from the REP's retail customers or
transfer billing and collection rights with respect to transition charges
due from the REP's retail customers to another entity in accordance with
the financing order unless and until the retail customer switches service
to a non-defaulting REP. However, the servicer will generally have even
more limited rights to pursue these retail customers to pay amounts owed
to us by the defaulted REP. In no
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event may the servicer directly bill a retail customer for service that
was previously billed by the REP and previously paid by that customer to
the REP. In addition, if the servicer assumes the billing and collecting
responsibility during the period of an REP default, billing and
collections may be delayed due to the need to convert to the servicer's
systems or because the servicer may not have adequate or complete
information. This change could cause customer confusion.
- A default by an REP which collects from a large number of retail
customers would have a greater impact than a default by a single retail
customer.
- The bankruptcy of an REP may cause a delay in or prohibition of payment
to the servicer of transition charges collected by that REP.
- Any security deposit made by an REP may not be sufficient to cover
shortfalls resulting from a default by such REP.
Please refer to "The Transition Property -- Tariff -- Billing and
Collection Terms and Conditions" in this prospectus.
REPs who do not meet specified credit rating and billing criteria will be
required to provide a cash deposit to the indenture trustee. The cash deposit
will equal two months maximum estimated collections of transition charges, as
determined by the servicer, and will be deposited in the REP deposit subaccount
of the collection account. In the event that an REP defaults in remitting
transition charges, the indenture trustee may withdraw the amount of the payment
default or, if less, the amount of that REP's security deposit from the REP
deposit subaccount for deposit into the general subaccount of the collection
account.
In addition, the restructuring act provides for one REP in each designated
geographical area to be designated the "provider of last resort." The
restructuring act requires the provider of last resort to offer a standard
retail service package of basic electric service to retail customers in its
designated area at a fixed, nondiscountable rate approved by the Texas
commission, regardless of the creditworthiness of the customer. The REP serving
as the provider of last resort may face greater difficulty in bill collection
than other REPs and therefore the servicer may face greater difficulty in
collecting transition charges from the REP serving as the provider of last
resort.
Adjustments to transition charges and, in some cases credit enhancement,
will be available to compensate for a failure by an REP to pay transition
charges over to the servicer. However, the amount of credit enhancement funds
may not be sufficient to protect your investment. Please refer to "Energy
Deregulation and New Texas Market Structure -- Transition Property" in this
prospectus.
Retail Customer Payments May Decline or be Delayed due to Confusion. The
transition charges are being introduced to retail customers for the first time.
Retail customers unused to paying transition charges may be confused by the
transition charges and any other changes in customer billing and payment
arrangements. This confusion may cause the misdirection or delay of collections
of transition charges. When retail competition begins, all generation and
related services, including billing and collections, will be provided by REPs,
and in the case of CPL, by an affiliated REP. Any problems arising from new and
untested systems or any lack of experience on the part of the REPs with customer
billing and collections could also cause delays in billing and collecting
transition charges. These delays could result in shortfalls in transition charge
collections and payments on the notes.
Billing and Collection Practices May Reduce the Amount of Funds Available
for Payments on the Notes. Each financing order will set the methodology for
determining the amount of the transition charges we may impose on each retail
customer. The servicer cannot change this methodology. However, the servicer may
set its own billing and collection arrangements with REPs and with those retail
customers from whom it collects the transition charges directly,
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provided that these arrangements comply with Texas commission customer
safeguards. For example, to recover part of an outstanding bill, the servicer
may agree to extend an REP's or a retail customer's payment schedule or to write
off the remaining portion of the bill, including transition charges. Also, the
servicer may change billing and collection practices. Any change to billing and
collection practices may have an adverse or unforeseen impact on the timing and
amount of customer payments and may reduce the amount of transition charge
collections and thereby limit our ability to make scheduled payments on the
notes. Separately, the Texas commission may require changes to these practices.
Any changes in billing and collection regulation might adversely affect the
billing terms and the terms of remittances by REPs to the servicer or make it
more difficult for the servicer to collect the transition charges. These changes
may adversely affect the value of the notes and their amortization and,
accordingly, their weighted average lives. Please refer to "The Seller and
Servicer -- Billing and Collection" in this prospectus. The servicing agreement
provides, however, that the Servicer will not take any action that will
adversely impair our interest in the transition property.
Limits on Rights to Terminate Service May Make it More Difficult to Collect
Transition Charges. An important element of an electric utility's policies and
procedures relating to credit and collections is the right to terminate or
disconnect service on account of nonpayment. After customer choice begins and
transmission and distribution utilities no longer sell electricity directly to
retail customers, the servicer may have to rely on the REP's right to terminate
or disconnect service. We expect the tariff authorized by each financing order
to authorize the servicer to terminate service for nonpayment of transition
charges pursuant to the Texas commission rules. Texas statutory requirements and
the rules and regulations of the Texas commission, which may change from time to
time, regulate and control the right to terminate service. CPL and the REPs may
not terminate service to a retail customer on (1) a weekend day, (2) a day when
the previous day's high temperature did not exceed 32 degrees Fahrenheit and is
predicted to remain at or below that level for the next 24 hours or (3) a day
for which the National Weather Service issues a heat advisory for any county in
the service territory, or when a heat advisory has been issued for either of the
two prior calendar days. As a result, CPL or an REP must continue to provide
service to these retail customers under these circumstances. To the extent these
retail customers do not pay for their electric service, we will not receive
payment of transition charges from these retail customers. The servicer's
ability to disconnect service will also be dependent on the information provided
to it by the REP and the REP's policies and procedures relating to service
termination. This may reduce the amount of transition charge collections
available for payments on the notes, although the expected associated reduction
in payments would be factored into the transition charge true-up adjustments.
Please refer to "The Seller and Servicer -- Billing and Collections" in this
prospectus.
Future Adjustments to Transition Charges by Customer Class May Result in
Insufficient Collections. The retail customers who will be responsible for
paying transition charges are divided into customer classes. Transition charges
will be allocated among customer classes and assessed in accordance with the
formula required under the restructuring act and as specified in the financing
order. This allocation is based in part upon the existing rate structure of each
customer class. For a description of the formula, please refer to "Energy
Deregulation and New Texas Market Structure" in this prospectus. Adjustments to
the transition charges will also be made ratably to each customer class with the
result that a shortfall in collections of transition charges in any one customer
class may be corrected by making adjustments to the transition charges payable
by all customer classes.
CPL's large industrial class consists of a small number of large industrial
retail customers. In addition, several of these retail customers have already
notified CPL that they will cease purchasing electricity from CPL and have
secured or are securing their own power resources that qualify under the
restructuring act to allow them to avoid paying transition charges. The
inability to impose and collect transition charges or the failure to collect
transition charges from
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the retail customers in this customer class could lead to increases in
transition charges for other customers. These increases could lead to failures
by retail customers to pay transition charges. In addition, transition charges
cannot exceed statutory caps during the rate freeze and price to beat periods.
In either case, these increases could increase the risk of a shortfall in
transition charge collections to pay the notes.
The restructuring act provides that transition charges must be collected
and allocated among retail customers in the same manner as competition
transition charges provided for elsewhere in the restructuring act. The final
amount of stranded cost recovery and the final allocations of competition
transition charges among retail customers, however, may not be known for some
time. Accordingly, the Texas commission could order that the allocation of
transition charges among customer classes set forth in a financing order be
modified to reflect any subsequent Texas commission orders concerning the
allocation of stranded cost recovery. The initial tariff filed to evidence the
transition charges requires the servicer to file a true-up adjustment within 45
days of any such order by the Texas commission in accordance with the same
methodology used to establish the initial transition charges but reflecting the
changed class allocations. Any reductions in transition charge collections due
to reallocation among customer classes would be factored into the transition
charge true-up adjustments. Nonetheless, these adjustments could lead to
increased transition charges for one or more classes and could therefore lead to
increased risks of nonpayment as described above.
UNCERTAINTIES RELATED TO ELECTRIC INDUSTRY GENERALLY
Technological Change May Make Alternative Energy Sources More
Attractive. The continuous process of technological development may result in
the introduction for an increasing number of retail customers of economically
attractive alternatives to purchasing electricity through CPL's distribution
facilities. Previously, only the largest industrial and institutional users with
large process steam requirements could use cogeneration or self-generation
installations cost-effectively. However, manufacturers of self-generation
facilities continue to develop smaller-scale, more fuel-efficient generating
units which can be cost-effective options for retail customers with smaller
electric energy requirements. If such facilities have rated capacities of 10
megawatts or less those customers may not have to pay transition charges under
provisions of the restructuring act. Technological developments may allow
greater numbers of retail customers to avoid transition charges under such
provisions, which may reduce the total number of retail customers from which
transition charges will be collected. A reduction in the number of payers of
transition charges could result in delays in or a failure to make payments of
interest on and principal of the notes.
THE RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS
Bankruptcy of CPL or any Successor Seller Could Result in Losses or Delays
in Payments on the Notes. The restructuring act and the financing order provide
that as a matter of Texas state law:
- the rights and interests of a selling utility under a financing order,
including the right to impose, collect and receive transition charges,
are contract rights of the seller;
- the seller may make a present transfer of its rights under a financing
order, including the right to impose, collect and receive future
transition charges that retail customers do not yet owe;
- upon the transfer to us, the rights will become transition property and
transition property constitutes a present property right, even though the
imposition and collection of transition charges depend on further acts
that have not yet occurred; and
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- a transfer of the transition property from the seller, or its affiliate,
to us is a true sale of the transition property, not a pledge of the
transition property to secure a financing by the seller.
These four provisions are important to maintaining payments on the notes in
accordance with their terms during any bankruptcy of the seller. In addition, we
have structured the transaction with the objective of keeping us separate from
the seller in the event of a bankruptcy of the seller.
A bankruptcy court generally follows state property law on issues such as
those addressed by the four provisions described above. However, a bankruptcy
court has authority not to follow state law if it determines that the state law
is contrary to a paramount federal bankruptcy policy or interest. If a
bankruptcy court in a bankruptcy of the seller refused to enforce one or more of
the state property law provisions described above for this reason, the effect of
this decision on you as a noteholder would be similar to the treatment you would
receive in a bankruptcy of the seller if the notes had been issued directly by
the seller. A decision by the bankruptcy court that, despite the separateness of
us and the seller, we should be consolidated with the seller, would have a
similar effect on you as a noteholder. Either decision could cause material
delays in payment of, or losses on, your notes and could materially reduce the
value of your investment. For example:
- the indenture trustee could not, without permission from the bankruptcy
court (which could be denied):
-- exercise any remedies against the seller on your behalf,
-- recover funds to repay the notes,
-- use funds in the accounts under the indenture to make payments on the
notes, or
-- replace the seller as the servicer (if the same entity is acting in
both capacities);
- the bankruptcy court could order the indenture trustee to exchange the
transition property for other property, which might be of lower value;
- tax or other government liens on the seller's property that arose after
the transfer of the transition property to us might nevertheless have
priority over the indenture trustee's lien and might be paid from
transition charge collections before payments on the notes;
- the indenture trustee's lien might not be properly perfected in
transition property collections that were commingled with other funds of
the seller collected from its retail customers as of the date of the
seller's bankruptcy, or might not be properly perfected in all of the
transition property, and the lien could therefore be set aside in the
bankruptcy, with the result that the notes would represent only general
unsecured claims against the seller;
- the bankruptcy court might rule that neither our property interest nor
the indenture trustee's lien extends to transition charges in respect of
electricity consumed after the commencement of the seller's bankruptcy
case, with the result that the notes would represent only general
unsecured claims against the seller;
- neither the seller nor we may be obligated to make any payments on the
notes during the pendency of the bankruptcy case;
- the seller may be able to alter the terms of the notes as part of its
plan of reorganization;
- the bankruptcy court might rule that the transition charges should be
used to pay a portion of the cost of providing electric service; or
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- the bankruptcy court might rule that the remedy provisions of the sale
agreement are unenforceable, leaving us with a claim of actual damages
against the seller which may be difficult to prove.
Furthermore, if the seller enters into bankruptcy, it may be permitted to
stop acting as servicer and it may be difficult to find a third-party to act as
servicer. The failure of a servicer to perform its duties or the inability to
find a successor servicer may cause payment delays or losses on your investment.
Also, the mere fact of a servicer or REP bankruptcy proceeding could have an
adverse effect on the resale market for the notes and the value of the notes.
Please refer to "The Sale Agreement -- Bankruptcy and Creditors' Rights Issues"
in this prospectus.
The Servicer Will Commingle the Transition Charges with Other Revenues
which May Obstruct Access to the Transition Charges in Case of Bankruptcy of the
Servicer. The servicer will not segregate the transition charges from its
general funds. The transition charges will be segregated only when the servicer
pays them to the indenture trustee. The servicer will be permitted to remit
collections on a monthly basis only if no servicer default has occurred and is
continuing and if:
- the servicer has the requisite credit ratings from the rating agencies or
- the servicer provides credit enhancement satisfactory to the rating
agencies to assure remittance by the servicer to the indenture trustee of
the transition charges it collects.
Otherwise, the servicer will be required to remit estimated payments of
transition charges on each business day. Despite these requirements, the
servicer might fail to pay the full amount of the transition charges to the
indenture trustee or might fail to do so on a timely basis. This failure,
whether voluntary or involuntary, could materially reduce the amount of
transition charge collections available to make payments on the notes.
The restructuring act provides that our rights to the transition property
are not affected by the commingling of these funds with any other funds. In a
bankruptcy of the servicer, however, a bankruptcy court might rule that federal
bankruptcy law takes precedence over the restructuring act and, among other
things, decline to recognize our right to collections of the transition charges
that are commingled with other funds of the servicer as of the date of
bankruptcy. If so, the collections of the transition charges held by the
servicer as of the date of bankruptcy would not be available to pay amounts
owing on the notes. In this case, we would have only a general unsecured claim
against the servicer for those amounts. This decision could cause material
delays in payment or losses on your notes and could materially reduce the value
of your investment.
REPs Will Commingle the Transition Charges with Other Revenues which May
Obstruct Access to Transition Charges in Case of an REP's Bankruptcy. An REP is
not required to segregate the transition charges it collects from its general
funds, but will be required to remit transition charge collections to the
servicer within 16 days of billing by the servicer. An REP nonetheless might
fail to pay the full amount of the transition charges to the servicer or might
fail to do so on a timely basis. This failure, whether voluntary or involuntary,
could materially reduce the amount of transition charge collections available to
make payments on the notes.
The restructuring act provides that our rights to the transition property
are not affected by the commingling of these funds with other funds. In a
bankruptcy of an REP, however, a bankruptcy court might rule that federal
bankruptcy law takes precedence over the restructuring act and does not
recognize our right to collections of the transition charges that are commingled
with other funds of an REP as of the date of bankruptcy. If so, the collections
of the transition charges held by an REP as of the date of bankruptcy would not
be available to pay amounts owing on the notes. In this case, we would have only
a general unsecured claim against that REP for those amounts. This decision
could cause material delays in payment or losses on your notes and could
materially reduce the value of your investment.
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OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE NOTES
Absence of a Secondary Market for Notes Could Limit Your Ability to Resell
Notes. The underwriters for the notes may assist in resales of the notes but
they are not required to do so. A secondary market for the notes may not
develop. If a secondary market does develop, it may not continue or there may
not be sufficient liquidity to allow you to resell any of your notes. We do not
anticipate that any notes will be listed on any securities exchange. Please
refer to "Plan of Distribution" in this prospectus.
We May Issue Additional Series of Notes Whose Holders have Conflicting
Interests. We may issue other series of notes without your prior review or
approval. These series may include terms and provisions which would be unique to
that particular series. We may not issue a new series of notes if the issuance
would result in the credit ratings on any outstanding class of notes being
reduced or withdrawn. However, we cannot assure you that a new series would not
cause reductions or delays in payments on your notes. In order to issue an
additional series of notes, CPL or any successor seller may need to obtain an
additional financing order. An additional financing order would specify the
amount of additional transition charges created for each additional series of
notes. Any additional transition charges would reduce the ability of CPL or any
successor seller to recover its bundled rates during the rate freeze period or
for a CPL affiliated REP to recover its remaining rates during the price to beat
period. In addition, all outstanding notes will have an equal lien with respect
to all transition property held by us. Please refer to "Description of the
Notes" and "Security for the Notes" in this prospectus. In addition, some
matters relating to the notes require the vote of the holders of all series and
classes of notes. Your interests in these votes may conflict with the interests
of the noteholders of another series or of another class. Thus, these votes
could result in an outcome that is materially unfavorable to you.
CPL or any successor seller may sell additional transition property to one
or more entities other than us in connection with the issuance of a new series
of transition bonds under a separate financing order. Neither any sales nor the
terms of any transition bonds issued by that entity or entities will be subject
to the prior review by or consent of the noteholders of any series. Transition
charge collections will be prorated among us and the other entities based on the
respective amounts of transition charges billed. The sale of transition property
to an entity other than us will be subject, among other things, to notification
in writing by each rating agency to us and to our managers, the servicer and the
indenture trustee that the sale will not result in the reduction or withdrawal
of the then current rating of any outstanding class of notes. We cannot assure
you, however, that the issuance of other transition bonds secured by transition
property would not cause reductions or delays in payments on your notes.
The Ratings have a Limited Function and Are No Indication of the Expected
Rate of Payment of Principal on the Notes. Each series or class of notes will be
rated by one or more established rating agencies. The ratings merely analyze the
probability that we will repay the total principal amount of the notes at final
maturity (which is later than the expected final payment date) and will make
timely interest payments. The ratings are not an indication that the rating
agencies believe that principal payments are likely to be paid on time according
to the expected amortization schedule. Thus, we may repay the principal of your
notes earlier or later than you expect, which may materially reduce the value of
your investment. A rating is not a recommendation to buy, sell or hold notes.
The rating may change at any time. A rating agency has the authority to revise
or withdraw its rating based solely upon its own judgment.
The Obligation of the Seller of Transition Property to Indemnify Us for a
Breach of a Representations or Warranty May Not Be Sufficient to Protect Your
Investment. If the seller (initially CPL) breaches a representation or warranty
in the sale agreement, it is obligated to indemnify us and the indenture trustee
for any liabilities, obligation, claims, actions, suit or payments resulting
from that breach, as well as any reasonable costs and expenses incurred.
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This indemnification obligation would include principal and interest on the
notes not paid when scheduled to be paid in accordance with their terms and the
amounts of any deposits to the indenture accounts required to be made which are
not made when so required, but in each case only as a result of a breach by the
seller of a representation or warranty in the sale agreement. The seller will
not be obligated to repurchase the transition property in the event of a breach
of any of its representations or warranties regarding the transition property,
and neither the indenture trustee nor the noteholders will have the right to
accelerate payments on the notes because of a breach. The seller may not have
sufficient funds available to satisfy its indemnification obligation to us;
therefore, we may not be able to pay you amounts owing on your notes in full. If
the seller becomes obligated to indemnify noteholders, the ratings on the notes
will likely be downgraded since noteholders will be unsecured creditors of the
seller with respect to any of these indemnification amounts. Please refer to
"The Sale Agreement -- Seller Representations and Warranties" and
"-- Indemnification" in this prospectus. The seller has agreed to take legal or
administrative action, including instituting legal action, as may be reasonably
necessary to block or overturn any attempts to cause a repeal, modification or
amendment to the restructuring act, a financing order or transition property.
The seller has also agreed to resist proceedings of third parties, which, if
successful, would result in a breach of its representations and warranties
concerning the transition property, a financing order or the restructuring act.
We cannot assure you that the seller would be able to take any action or that
any action the seller is able to take would be successful.
You May Have to Reinvest Principal of Your Notes at a Lower Rate of Return
Because of an Optional Redemption of Notes. As described more fully under
"Description of the Notes -- Optional Redemption," we may redeem any series of
notes on any payment date if, after giving effect to payments that would
otherwise be made on that payment date, the outstanding principal balance of
that series of notes has been reduced to less than five percent of that series'
initial principal amount. In addition, we may redeem a series of notes if and to
the extent provided in the related prospectus supplement. Redemption of a series
of notes will result in a shorter than expected weighted average life for that
series. Redemption may also adversely affect the yield to maturity of the notes
redeemed. We cannot predict whether any series of notes will be redeemed. Future
market conditions may require you to reinvest the proceeds of a redemption at a
lower rate than the rate you receive on the notes. Please refer to "Description
of the Notes -- Optional Redemption" in this prospectus.
Additional Risks of Floating Rate Notes. A termination event under a swap
agreement may adversely affect the liquidity and the market value of any
floating rate notes. As described under "Description of the Notes -- Floating
Rate Notes," in the event that we issue floating rate notes, upon the occurrence
of an event of default or termination event under the swap agreement, the swap
agreement pursuant to which interest will be paid on any floating rate notes
will terminate or may be terminated. In particular, we will terminate the swap
agreement if the swap counterparty's rating by either Moody's or S&P falls below
AA (or the equivalent rating) and the swap agreement is not assigned to a
replacement swap counterparty satisfying that ratings criteria or a lower
ratings criteria that may be permitted by the swap agreement within the time
period specified in the related prospectus supplement. In no event will any
successor swap counterparty be rated below A (or the equivalent rating) by
either Moody's or S&P. The failure to assign the swap agreement after a
downgrade of the counterparty's rating constitutes a termination of the swap
agreement. Upon any swap termination, the interest rate payable with respect to
the floating rate notes will convert permanently to the fixed swap rate payable
to the swap counterparty, which may be substantially less than the rate
otherwise payable on the floating rate notes. A conversion to a fixed interest
rate may adversely affect both the liquidity and the market value of the
floating rate notes.
Risks Associated With the Use of Credit Enhancements, Hedge or Swap
Transactions. We may enter into certain forms of credit enhancement, interest
rate swaps or hedge arrangements
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with respect to a series or class of floating rate notes that entail certain
kinds of risks. These risks include credit risks (the risk associated with the
credit of any party providing the credit enhancement, interest rate swap or
hedge). The applicable prospectus supplement will contain the risk factors, if
any, associated with any applicable credit enhancement, interest rate swap or
hedge arrangement.
You Might Receive Principal Payments Later, or in Limited Circumstances,
Earlier, Than You Expected. The amount and the rate of collection of transition
charges that the servicer will collect from each customer class will partially
depend on actual electricity usage and the amount of delinquencies and
write-offs for that customer class. The amount and the rate of collection of
transition charges, together with the transition charge adjustments described
above, will generally determine whether there is a delay in the scheduled
repayments of note principal. If the servicer collects transition charges at a
slower rate than expected from any customer class, it may have to request
adjustments of the transition charges. If those adjustments are not timely and
accurate, you may experience a delay in payments of principal and interest or a
material decrease in the value of your investment. If there is an acceleration
of the notes before maturity, all classes will be paid pro rata. Therefore, some
classes may be paid earlier and some classes may be paid later than expected.
Unless there is a redemption or acceleration of the notes before maturity, the
notes will not be retired earlier than scheduled.
AVAILABLE INFORMATION
We have filed a registration statement relating to 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 SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices located as follows: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048. You may obtain copies of the registration statement and
related exhibits at the above locations at prescribed rates. You may obtain
information on the operation of the public reference facilities by calling the
SEC at 1-800-SEC-0330. You can also inspect information filed electronically
with the SEC, including the registration statement at the SEC's site on the
World Wide Web at http://www.sec.gov.
We will file annual, quarterly and special reports and other information
with the SEC. We are permitted and intend to stop filing periodic reports with
the SEC at the beginning of any fiscal year following the issuance of the notes
if there are fewer than 300 record holders of the notes.
REPORTS TO HOLDERS
Pursuant to the indenture, the indenture trustee will provide to
noteholders of record regular reports prepared by the servicer containing
information concerning, among other things, the issuer and the collateral.
Unless and until notes are no longer issued in book-entry form, the reports will
be provided to the depository for the notes, or its nominee, as sole beneficial
owner of the notes. The reports will be available to noteholders upon request to
the indenture trustee or the servicer. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The financial information provided to noteholders will not be
examined and reported upon by an independent public accountant. In addition, an
independent public accountant will not provide an opinion on the financial
information. Please refer to "Description of the Notes -- Reports to
Noteholders" in this prospectus.
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INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents that we file with the SEC after the date of
this prospectus and prior to the termination of this offering are incorporated
by reference in this prospectus and considered to be part of this prospectus.
Any statement in this prospectus or in any prospectus supplement, or in a
document incorporated or deemed to be incorporated by reference, will be deemed
to be modified or superseded if we file a document that modifies that statement.
Any statement as modified or superseded shall constitute a part of this
prospectus or the prospectus supplement.
You can request a free copy of any document incorporated by reference in
the registration statement (except exhibits to the documents) by writing to CPL
Transition Funding LLC at 1616 Woodall Rogers Freeway, Dallas, Texas, 75202,
Attention: , or by calling (214) 777- .
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ENERGY DEREGULATION AND NEW TEXAS MARKET STRUCTURE
THE RESTRUCTURING ACT'S GENERAL EFFECT ON THE ELECTRIC UTILITY INDUSTRY IN TEXAS
An Overview of the Restructuring Act. The restructuring act, including the
provisions relating to securitization, became effective on September 1, 1999.
The restructuring act, among other things:
- authorizes competition in the retail electric markets beginning January
1, 2002;
- provides for recovery of stranded costs and regulatory assets;
- requires a rate freeze for all retail customers until January 1, 2002,
and certain rate reductions for residential and small commercial retail
customers for up to five years thereafter; and
- sets certain limits on electric generation capacity owned and controlled
by power generation companies.
Unbundling. By September 1, 2000, each electric utility must separate from
its regulated activities its customer related energy services business
activities that are otherwise already widely available in the competitive
market. By January 1, 2002, each electric utility must separate its business
into the following units:
- a power generation company, which generates electricity that is intended
to be sold at wholesale, and which may not, in general, own a
transmission or distribution facility and may not have a certificated
service area,
- an REP, which sells electric energy to retail customers and which may not
own or operate generation assets, and
- a transmission and distribution utility or separate transmission and
distribution companies, which own or operate facilities to transmit or
distribute electricity.
Retail Competition. On June 1, 2001, utilities are required to implement a
pilot project covering 5% of the utility's load in all customer classes. Retail
customers electing to participate in the pilot project will choose their own
REP, but cannot choose the REP affiliated with their existing utility. Beginning
on January 1, 2002, all retail customers will be able to choose their own REP.
The restructuring act freezes base rates of most investor owned electric
utilities until competition begins on January 1, 2002. The affiliated REP of the
utility serving a retail customer on December 31, 2001 may continue service,
unless the customer chooses another REP. Competition in a particular region of
the state may be delayed if the Texas commission determines that the region is
unable to offer fair competition and reliable service to all retail customer
classes. If a delay occurs, the Texas commission may establish new rates for
utilities in that region using traditional rate making principles.
"Price to Beat" and Services. Effective January 1, 2002, until January 1,
2007, the affiliated REP of a utility must make available a "price to beat" to
residential and small commercial retail customers in the electric utility's
service area. The "price to beat" must be 6% less than the bundled rates of the
electric utility in effect on January 1, 1999. For all residential, and most
small commercial retail customers, the affiliated REP may not charge rates that
are different from the "price to beat" for three years or until 40% of customers
in that class have chosen new REPs. The "price to beat" is subject to adjustment
only in limited circumstances.
The Texas commission will designate an "REP of last resort" for each
service area in the state. The REP of last resort will be required to offer a
standard retail service package for each class of retail customers in a
designated service area at a fixed rate approved by the Texas commission.
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The transmission and distribution affiliate of the utility that was serving
the area before competition begins will provide metering services for
residential retail customers until the later of September 1, 2005 or when 40% of
those retail customers are taking service from unaffiliated REPs. For commercial
and industrial retail customers, metering services will become competitive on
January 1, 2004.
RECOVERY OF STRANDED COSTS FOR CPL AND OTHER TEXAS UTILITIES
The restructuring act allows utilities an opportunity to recover their net,
verifiable, nonmitigatible stranded costs. Stranded costs means the amount by
which the net book value of generation-related assets exceeds the market value
of the assets. Stranded costs are calculated taking into account:
- all of a utility's generation-related assets,
- any above-market purchased power costs, and
- any deferred debit relating to a utility's discontinuance of the
application of Statement of Financial Accounting Standards No. 71
("Accounting for the Effects of Certain Types of Regulation") for
generation-related assets if required by the provisions of the
restructuring act.
The restructuring act provides that recovery of retail stranded costs by an
electric utility shall be through collection of competition transition charges
imposed on all existing or future retail customers, including the facilities,
premises, and loads of those retail customers within a utility's certificated
service area as it existed on May 1, 1999. The restructuring act allows certain
retail customers to avoid paying transition charges: (1) retail customers with
on-site power production facilities with rated capabilities of 10 megawatts or
less; (2) retail customers whose load has been lawfully served by qualifying
facilities that are fully operational before September 1, 2001, and that made
substantially complete filings for all necessary site-specific environmental
permits by December 31, 1999; and (3) retail customers in dually certificated
service areas that requested to switch providers on or before May 1, 1999, or
were not taking service from the utility on, and do not do so after, May 1,
1999. In addition, the initial tariff provides an exception for the facilities
and premises of retail customers that are not taking retail service from CPL
pursuant to Texas commission orders in certain designated dockets issued prior
to the issuance of the initial financing order.
CPL AND OTHER UTILITIES MAY SECURITIZE STRANDED COSTS AND REGULATORY ASSETS
We May Issue Transition Bonds to Recover CPL's Stranded Costs and
Regulatory Assets. The restructuring act authorizes the Texas commission to
issue financing orders approving the issuance of transition bonds, such as the
notes, to recover regulatory assets and stranded costs of an electric utility. A
utility, its successors or a third-party assignee of a utility may issue
transition bonds. The proceeds of the transition bonds are to be used solely for
the purpose of reducing the amount of recoverable regulatory assets and stranded
costs of a utility through the refinancing or retirement of debt or equity of
the utility. The transition bonds are secured by and payable from transition
property, which includes the right to impose, collect and receive transition
charges. Transition bonds may have a maximum maturity of 15 years. The amounts
of transition charges must be allocated to customer classes based in part on the
methodology used to allocate the costs of the underlying assets in the utility's
most recent Texas commission order addressing rate design and in part based on
the energy consumption of the customer classes. Transition charges can be
imposed only when and to the extent that transition bonds are issued.
Creation of Transition Property. Under the restructuring act, transition
property is created when the rights and interests of an electric utility or
successor under a financing order, including the right to impose, collect and
receive transition charges established in the order, are first
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transferred to an assignee, such as us, or pledged in connection with the
issuance of transition bonds.
A Financing Order is Irrevocable. A financing order, once effective,
together with the transition charges established in the order, will be
irrevocable and not subject to reduction, impairment, or adjustment by the Texas
commission. The only exception is for periodic true-up adjustments pursuant to
the restructuring act in order to correct overcollections or undercollections
and to provide that sufficient funds are available for payments of debt service
and other required amounts in connection with the transition bonds. In addition,
under the restructuring act, the State of Texas has pledged, and the Texas
Commission will pledge in each financing order, for the benefit and protection
of transition bondholders and the electric utilities covered by the
restructuring act, that it will not take or permit any action that would impair
the value of the transition property, or, except for adjustments discussed in
the following paragraph, reduce, alter, or impair the transition charges to be
imposed, collected and remitted to the issuer of transition bonds. The State's
pledge remains effective until the principal, interest and premium, and any
other charges incurred and contracts to be performed in connection with the
related transition bonds have been paid and performed in full. Please refer to
"Risk Factors -- Risks Associated with Potential Judicial, Legislative or
Regulatory Actions" in this prospectus.
The Texas Commission May Adjust Transition Charges. The restructuring act
requires the Texas commission to provide in all financing orders a mechanism
requiring that transition charges be reviewed and adjusted at least annually,
within 45 days of the anniversary of the date of the issuance of the transition
bonds. The purpose of these adjustments is:
- to correct any overcollections or undercollections during the preceding
12 months, and
- to provide for the expected recovery of amounts sufficient to timely
provide all payments of debt service and other required amounts and
charges in connection with the transition bonds.
Current Retail Customers Cannot Avoid Paying Transition Charges. The
restructuring act provides that the transition charges are non-bypassable.
"Non-bypassable" means that a utility collects these charges from all existing
retail customers of a utility and all future retail customers located within the
utility's certificated service area as it existed on May 1, 1999. There are
exceptions for certain categories of existing retail customers whose load has
been lawfully served by a fully operational qualifying facility before September
1, 2001 or by an on-site power production facility with a rated capacity of 10
megawatts or less, or retail customers in a dually-certificated service area
that requested to switch providers on or before May 1, 1999, or were not taking
service from the utility on, and do not do so after, May 1, 1999. In addition,
the initial tariff provides an exception for the facilities and premises of
retail customers that are not taking retail service from CPL pursuant to Texas
commission orders in certain designated dockets issued prior to the issuance of
the initial financing order.
The Restructuring Act Protects the Lien on Transition Property for the
Benefit of Holders of Transition Bonds. The restructuring act provides that a
valid and enforceable lien and security interest in transition property may be
created only by a financing order and the execution and delivery of a security
agreement in connection with the issuance of transition bonds. The security
interest automatically attaches from the time value is received by the issuer of
the transition bonds and, on perfection through filing with the Secretary of
State of Texas will be a continuously perfected lien and security interest in
the transition property.
Upon perfection, the statutorily created lien attaches both to transition
property and to all proceeds of transition property, whether the related
transition charges have accrued or not. The
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restructuring act provides that the transfer of an interest in transition
property will be perfected against all third parties, including subsequent
judicial or other lien creditors, when:
- the financing order becomes effective,
- transfer documents have been delivered to the assignee, and
- a notice of the transfer has been filed with the Secretary of State of
Texas.
If the notice of the transfer is not filed within 10 days after the delivery of
transfer documentation, the transfer is not perfected against third parties
until the notice is filed. The restructuring act provides that priority of
security interests in transition property will not be impaired by:
- commingling of funds arising from transition charges with other funds, or
- modifications to the financing order resulting from any true-up
adjustment.
The Restructuring Act Characterizes the Transfer of Transition Property as
a True Sale. The restructuring act provides that an electric utility's or an
assignee's transfer of transition property is a "true sale" and is not a secured
transaction and that legal and equitable title passes to the transferee, if the
agreement governing that transfer expressly states that the transfer is a sale
or other absolute transfer. Please refer to "Risk Factors -- The Risks
Associated With Potential Bankruptcy Proceedings" in this prospectus.
The Restructuring act Provides a Tax Exemption. The restructuring act
provides that "transactions involving the transfer and ownership of transition
property and the receipt of transition charges are exempt from state and local
income, sales, franchise, gross receipts and other taxes or similar charges."
RESTRUCTURING OF CPL
[To Come]
DESCRIPTION OF THE TRANSITION PROPERTY
CREATION OF TRANSITION PROPERTY; FINANCING ORDER
The restructuring act defines transition property as the rights and
interests of an electric utility or successor under a financing order, including
the right to impose, collect and receive transition charges established in the
order. Transition property becomes property at the time that it is first
transferred to an assignee or pledged in connection with the issuance of
transition bonds, such as the notes. The notes will be secured by transition
property, as well as the other collateral described under "Security for the
Notes."
Unless otherwise specified in the accompanying prospectus supplement, in
addition to the right to impose, collect and receive transition charges, each
financing order will:
- authorize the transfer of transition property to us and the issuance of
notes;
- establish procedures for periodic true-up adjustments to transition
charges in the event of overcollection or undercollection;
- implement guidelines for REPs who collect transition charges; and
- provide that the financing order is irrevocable and not subject to
reduction, impairment, or adjustment by further act of the Texas
commission (except for the periodic adjustments to the transition
charges).
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A form of issuance advice letter and a form of tariff will be attached to
each financing order. We will complete and file both documents with the Texas
commission immediately after the pricing of the notes.
The issuance advice letter confirms to the Texas commission the interest
rate and expected amortization schedule for the notes. The issuance advice
letter also establishes that the seller and we have satisfied all requirements
for the issuance of the notes.
The tariff establishes the initial transition charges. It also implements
the minimum requirements for REPs which collect transition charges, the
procedures for periodic adjustments to the transition charges, the procedures
for REPs to remit transition charge payments and the annual procedures allowing
REPs to reconcile remittances with actual charge-offs.
The issuance advice letter and the tariff will become effective in
accordance with their terms. The Texas commission's review of the issuance
advice letter and the tariff will be limited to confirming the arithmetic
accuracy of the calculations. Any terms of the issuance advice letter and tariff
affecting the terms of the notes will be more fully described in the related
prospectus supplement.
Each financing order, along with the transition charges established under
the financing order, is binding on:
- any successor to CPL that provides transmission and distribution service
in CPL's existing service area, (or, if such services are provided by
different entities, the entity that provides wire service directly to
customers),
- any other entity that provides transmission and distribution or wire
services to retail customers within CPL's existing service area,
- each REP that sells electric energy to retail customers located within
CPL's existing service area, and any successor to such REP,
- any other entity responsible for billing and collecting transition
charges on our behalf, and
- any successor to the Texas commission.
TARIFF
The following is a description of the initial tariff to be filed with the
Texas commission pursuant to the initial financing order creating transition
property. We expect that future tariffs will have substantially similar terms.
We will describe any material differences between the initial tariff and future
tariffs in the prospectus supplement relating to the classes or series of notes
subject to such tariffs.
The initial tariff applies primarily to energy consumption and demand of
retail customers taking transmission and/or distribution service from CPL and
its successors and assigns that provide transmission and distribution service,
or if transmission and distribution services are not provided by a single
entity, the successor entity providing wire service directly to retail customers
taking service at facilities, premises or loads located within CPL's
certificated service area as it existed on May 1, 1999. In no event will
transition charges provided for in the tariff be billed for service provided
after 15 years from the issuance of the related notes, or sooner if the notes
are paid in full at an earlier date, and the initial tariff will remain in
effect throughout the period. Delinquencies and end of period billings may be
collected after the fifteen-year period.
Transition Charges. The transition charges will be payable by all existing
retail customers of CPL and all existing and future retail customers located
within CPL's certificated service area as it existed on May 1, 1999. There are
exceptions for certain categories of existing retail customers whose load has
been lawfully served by a fully operational qualifying facility before September
1, 2001 or by an on-site power production facility with a rated capacity of 10
megawatts or less, or
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retail customers in a dually-certificated service area that requested to switch
providers on or before May 1, 1999, or were not taking service from the utility
on, and do not do so after, May 1, 1999, and the facilities and premises of
customers that are not taking retail service from CPL pursuant to Texas
commission orders in certain designated dockets issued prior to the issuance of
the initial financing order. The defined classes of retail customers are:
- Residential -- This service is applicable to customers consisting of
individual private dwellings and individually metered apartments. In
addition, security or flood lighting services provided on residential
end-use customers premises will be included in this rate class.
- Commercial and Small Industrial -- Energy -- This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose of
transmission and distribution usage is billed without any demand charges.
In addition, security or flood lighting services provided on applicable
end-use customer's premises will be included in this rate class.
- Commercial and Small Industrial -- Demand -- This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose of
transmission and distribution usage requires a demand meter.
- Large Industrial -- Firm -- This service is applicable to non-residential
customers taking non-interruptible service with annual maximum measured
demands equal to 12,500 KVA or more. In addition, firm standby and
maintenance power will be included in this rate class.
- Large Industrial -- Non-firm -- This service is applicable to
non-residential customers taking interruptible service including as
available standby service with annual maximum measured demands equal to
12,500 KVA or more. In addition, as available standby and maintenance
power will be included in this rate class.
- Municipal -- This service is applicable to municipalities, other
utilities, and other public agencies for electric service for the
operation of water supply, sewage, and/or drainage systems serving the
general public supplied at one point of delivery and measured by one
meter. In addition, this service is applicable to political subdivisions
and eleemosynary institutions for traffic lighting, flood lighting and
street lighting service on public streets and highways, in public areas,
and upon the grounds of public schoolyard or educational institutions not
organized for profit.
Because of differences in the tariff rate for each class of retail
customers and the provisions of the restructuring act, the transition charges
payable by each class of retail customers will differ. The restructuring act
requires that transition charges be allocated to each of CPL's classes of retail
customers according to the same formula used to allocate competition transition
charges. Under this formula:
- The servicer will determine the allocation to the residential class by
allocating 50% of all transition charges to all customer classes in
accordance with the methodology used to allocate the costs of the
underlying assets in CPL's most recent commission order addressing rate
design (the "rate design methodology"). The servicer will allocate the
remaining transition charges on the basis of energy consumption of the
classes. For purposes of determining the amount of transition charges to
be allocated to the residential class under this formula, allocations are
made to all classes but only the result for the residential class is
retained.
- After the allocation to the residential class, the servicer will
determine the allocation to the large industrial non-firm class by
allocating the transition charges which have not been allocated to the
residential class as described above to all classes other than the
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residential class in accordance with the rate design methodology and then
multiplying the resulting amount for the large industrial non-firm class
by 150%. For purposes of determining the amount of transition charges to
be allocated to the large industrial non-firm class, allocations are made
to all classes other than the residential class but only the result for
the large industrial non-firm class is retained.
After the allocation to the residential and large industrial non-firm
classes, the servicer will determine the allocation of remaining transition
charges to all classes other than the residential class and the large industrial
non-firm class in accordance with the rate design methodology.
In the case of Commercial and Small Industrial retail customers, demand
metered rates will be applicable to customers in those transmission and
distribution rate classes who are billed on a demand basis. All other retail
customers will be billed on a kilowatt-hour, non-demand metered basis. Each new
retail customer will be assigned to the appropriate customer class.
Transition charges will not change the total rate levels required to be
paid by retail customers through the rate freeze period, which ends January 1,
2002. During the price to beat period, generally from January 1, 2002 until
January 1, 2007, bundled rates, including the transition charges, charged to
residential and small commercial retail customers by the utility's affiliated
REP may not exceed the price to beat.
Each financing order will require that transition charges be reviewed and
adjusted at least annually. Transition charges will be adjusted to correct any
overcollections or undercollections in the preceding 12 months. These
adjustments are intended to ensure the expected recovery of amounts sufficient
to timely provide all payments of debt service and other required amounts and
charges in connection with the notes. The servicing agreement and the financing
order require the servicer to calculate and implement these true-up adjustments
to the transition charges by providing written notice to the Texas commission.
These adjustments will be implemented annually; provided, however, that the
servicer may also be required to implement adjustments to the transition charges
by providing written notice to the Texas commission if, as of the end of the
month prior to any payment date, the servicer determines that
- the aggregate outstanding principal balance of any series of notes
together with amounts on deposit in the reserve subaccount will vary by
more than 5% from the principal balance set forth on the expected
amortization schedule for such payment date, or
- commencing after the payment date specified in the related prospectus
supplement, any series of notes will not have been paid in full as of its
scheduled final payment date.
The servicer will deposit in the collection account estimated payments of
transition charges on each business day. However, if the servicer achieves a
long-term unsecured rating of at least "A" or the equivalent by a nationally
recognized rating agency that has assigned a credit rating to the notes or
provides credit enhancement satisfactory to the rating agencies to assure
remittance to the indenture trustee of the transition charges it collects, and
no servicer default is continuing, the servicer may remit to the collection
account estimated payments of transition charges on a monthly basis.
Billing and Collection Terms and Conditions. Transition charges will be
assessed by the servicer for our benefit as owner of the transition property.
Transition charges will be based on a retail customer's actual consumption of
electricity or electric demand from time to time. Transition charges will be
collected by the servicer, either directly from retail customers until the
introduction of customer choice or indirectly from an REP that collects
transition charges from retail customers after the introduction of customer
choice as part of its normal collection activities. Transition charges will be
deposited by the servicer into the collection account under the terms of the
indenture and the servicing agreement.
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After the introduction of customer choice, the REPs will be responsible for
billing, collecting and paying to the servicer the retail customer's transition
charges. Each REP will be responsible for paying transition charges billed to
retail customers of the REP, whether or not the retail customers pay the REP,
less an amount based on the servicer's systemwide charge-off percentage and
except as otherwise provided in tariffs to be filed with the Texas commission,
subject to limited rights of refund and credit as described in "The Servicing
Agreement -- Retail Electric Providers."
The obligation to pay transition charges is not subject to right of
set-off. Transition charges are "non-bypassable" in accordance with the
provisions set forth in the restructuring act and the financing order. If a
retail customer or an REP pays only a portion of its bill, a pro-rata share
amount of transition charge revenues will be deemed to be collected. The
servicer will allocate any shortfall first, ratably based on the amount owed to
transition charges and the amount owed for other fees and charges, other than
late charges, owed to the servicer, and second, all late charges will be
allocated to the servicer. Prior to the introduction of customer choice, the
servicer may terminate electric service to any retail customer who fails to pay
any transition charges in accordance with the restructuring act and Texas
commission guidelines. After the introduction of customer choice, the servicer
may terminate service to any such customer in accordance with the restructuring
act and Texas commission guidelines and may assume or transfer billing and
collection rights from any REP who fails to pay transition charges in accordance
with the financing order.
In the event that the REP defaults, the servicer will be entitled, within
five business days thereafter, to assume responsibility for billing and
collecting the transition charges or to the extent it does not retain such
ability, to assign responsibility to a new REP that meets the deposit
requirements described above. In addition, the servicer may bill and collect
from retail end-use customers any accrued transition charges which were not
billed by the REP or which were unpaid by the customer.
CPL TRANSITION FUNDING LLC, THE ISSUER
We are a special purpose limited liability company formed on October 28,
1999 under the laws of the State of Delaware. As of the date of this prospectus,
CPL is our sole member and owns all of our equity interests. The limited
liability company agreement restricts us from engaging in other activities. We
do not have any employees, but we will pay our member for administrative
services in accordance with the limited liability company agreement. Our assets
will consist of
- the transition property,
- the other collateral -- collections of transition charges that are
allocated to us, trust accounts held by the indenture trustee and other
credit enhancements acquired or held to ensure payment of the notes, and
- any money distributed by the indenture trustee from the collection
account in accordance with the indenture.
As of the date of this prospectus, we have not carried on any business
activities and have no operating history. Our limited liability company
agreement will be amended and restated immediately prior to the initial issuance
of notes. The form of the amended and restated limited liability company
agreement has been filed as an exhibit to the registration statement of which
this prospectus forms a part. Our audited financial statements are included as
an exhibit to this prospectus.
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OUR PURPOSE
We have been created for the sole purpose of:
- purchasing and owning the transition property;
- issuing from time to time one or more series of notes, each of which may
be comprised of one or more classes;
- pledging our interest in the transition property and other collateral to
the indenture trustee under the indenture in order to secure the notes;
and
- performing activities that are necessary, suitable or convenient to
accomplish these purposes.
OUR INTERACTION WITH CPL
On the issuance date for each series of notes, except in the event of a
series issued solely to refund outstanding notes, CPL will sell transition
property to us pursuant to a sale agreement. CPL will service the transition
property pursuant to a servicing agreement with us. Any entity which becomes the
successor by merger, sale, transfer, lease, management contract or otherwise to
the major part of the electric transmission and distribution business of CPL may
assume the rights and obligations of CPL under the servicing agreement and the
sale agreement, subject to satisfying the conditions in the servicing agreement
and the sale agreement. If transmission and distribution are not provided by a
single entity after any such transaction, the entity which provides wire service
directly to retail customers taking service at facilities, premises or loads
located in CPL's certificated service area as it existed on May 1, 1999 may
assume CPL's rights and obligations under the servicing agreement and the sale
agreement, subject to satisfying the conditions in the servicing agreement and
the sale agreement. So long as the conditions of any such assumption are met,
CPL will automatically be released from its obligations under the servicing
agreement and the sale agreement.
OUR MANAGEMENT
Our business will be managed by five managers appointed from time to time
by CPL or, in the event that CPL transfers its interest in us, by the new owner.
At all times following the initial issuance of notes at least two of the five
managers must be independent managers who, among other things, are not and have
not been for at least three years from the date of their appointment:
- a direct or indirect legal or beneficial owner of us, our owner or any of
our respective affiliates,
- a relative, supplier, employee, officer, director, manager, contractor or
material creditor of us, our owner or any of our respective affiliates,
or
- a person who controls our owner or its affiliates.
36
<PAGE>
The remaining managers will be employees or officers of CPL or any new owner.
The managers will devote the time necessary to conduct our affairs. The
following is a list of our managers as of the date of the initial issuance of
notes:
<TABLE>
<CAPTION>
NAME AGE BACKGROUND
- ---- ---- ----------
<S> <C> <C>
R. Russell Davis..................... 43 Mr. Davis is currently controller of CPL,
Public Service Company of Oklahoma, West
Texas Utilities Company, Southwestern
Electric Power Company and Central and South
West Services, Inc. Mr. Davis has served in
these positions since 1994.
Wendy G. Hargus...................... 42 Ms. Hargus is currently treasurer of Central
and South West Corporation, CPL, Public
Service Company of Oklahoma, Southwestern
Electric Power Company, West Texas Utilities
Company and Central and South West Services,
Inc. Ms. Hargus has served in these positions
since 1996. Prior to her current position,
Ms. Hargus served as controller of Central
and South West Corporation from 1993 to 1996.
J. Gonzalo Sandoval.................. 51 Mr. Sandoval is currently general manager and
president of CPL. Mr. Sandoval has served in
this position since February 1998. Prior to
his current position, Mr. Sandoval served as
general manager of CPL from 1996 to 1998 and
vice president, operations and engineering of
CPL from 1993 to 1996.
</TABLE>
The independent managers will begin to serve effective immediately prior to the
closing of the initial issuance of the notes. None of our managers or officers
has been involved in any legal proceedings which are specified in Item 401(f) of
the SEC's Regulation S-K.
THE MANAGERS' COMPENSATION AND LIMITATION ON LIABILITIES
We have not paid any compensation to any manager since we were formed. We
will not compensate the managers other than the independent managers for their
services on our behalf. We will pay the independent managers annual fees from
our revenues and will reimburse them for their reasonable expenses. These
expenses include the reasonable compensation, expenses and disbursements of the
agents, representatives, experts and counsel that the independent managers may
employ in connection with the exercise and performance of their rights and
duties under our limited liability company agreement, the indenture, the sale
agreement and the servicing agreement. The limited liability company agreement
provides that the managers will not be personally liable for any of our debts,
obligations or liabilities. The limited liability company agreement further
provides that, except as described below, to the fullest extent permitted by
law, we will indemnify the managers against any liability incurred in connection
with their services as managers for us if they acted in good faith and in a
manner which they reasonably believed to be in or not opposed to our best
interests. With respect to a criminal action, the managers will be indemnified
unless they had reasonable cause to believe their conduct was unlawful. Unless
ordered by a court, we will not indemnify the managers if a final adjudication
establishes that their acts or omissions involved intentional misconduct, bad
faith, fraud or a knowing violation of the law and were material to the cause of
action. We will pay any indemnification amounts owed to the managers out of
funds in the collection account, subject to the priority of payments described
in "Security for the Notes -- Allocation; Payments."
37
<PAGE>
WE ARE A SEPARATE AND DISTINCT LEGAL ENTITY
Under our limited liability company agreement, we may not file a voluntary
petition for relief under the Title 11 of the U.S. Code, the Bankruptcy Code,
without a unanimous vote of our managers, including the independent managers.
CPL has agreed that it will not cause us to file a voluntary petition for relief
under the Bankruptcy Code. The limited liability company agreement requires us
to take all reasonable steps to maintain our existence separate from CPL. This
will include:
- taking all reasonable steps to continue our identity as a separate legal
entity;
- making it apparent to third persons that we are an entity with assets and
liabilities distinct from those of CPL, other affiliates of CPL, the
managers or any other person; and
- making it apparent to third persons that, except for federal and certain
other tax purposes, we are not a division of CPL or any of its affiliated
entities or any other person.
Our principal place of business is 1616 Woodall Rodgers Freeway, Dallas,
Texas 75202, and our telephone number is (214) 777- .
THE SELLER AND SERVICER
CPL is an electric utility providing retail service in southern Texas. At
December 31, 1998, CPL provided retail service to approximately 642,000 retail
customers in a service territory covering approximately 44,000 square miles. The
retail customer base includes a mix of residential, commercial and diversified
industrial retail customers. In 1998, CPL sold approximately 23.1 million
kilowatt hours of electricity resulting in operating revenues of $1.406 billion
and operating income of $283 million.
CPL, incorporated under the laws of the State of Texas in 1945, is an
operating subsidiary of Central and South West Corporation. Central and South
West Corporation is a Dallas-based public utility holding company registered
under the Public Utility Holding Company Act of 1935. On December 22, 1997,
Central and South West Corporation and American Electric Power Company, Inc.
announced that their boards of directors had approved a definitive merger
agreement. The shareholders of each company have approved the merger, which is
subject to regulatory approvals and other customary conditions.
CPL is subject to the jurisdiction of the SEC under the Public Utility
Holding Company Act of 1935 with respect to the issuance of securities,
acquisitions and divestitures of utility assets, certain affiliate transactions
and other matters. CPL is regulated by the Texas commission and the Federal
Energy Regulatory Commission. CPL is also regulated by the Nuclear Regulatory
Commission because of its part ownership of the STP nuclear generating units.
CPL CUSTOMER BASE AND ELECTRIC ENERGY CONSUMPTION
CPL's retail customer base consists of four FERC revenue reporting customer
classes: residential, commercial, industrial and other. The revenue reporting
customer classes are broad groups that include accounts with a wide range of
load characteristics served under a variety of rate designs. In order to comply
with the statutory provisions of the restructuring act which state that
transition charges be allocated to each of CPL's classes of retail customers
according to the same formula used to allocate competition transition charges,
CPL, for purposes of allocating the transition charges required to be billed in
order to recover the qualified costs that are the subject of the financing
order, established the six transition charge retail customer classes listed
below and their respective allocation percentages, each of which was approved in
the financing order issued by the Texas commission. For additional information
please refer to "Description of the Transition Property -- Tariff."
38
<PAGE>
TRANSITION CHARGE RETAIL CUSTOMER CLASSES
<TABLE>
<CAPTION>
TRANSITION CHARGE RETAIL CUSTOMER CLASS ALLOCATION PERCENTAGE
- --------------------------------------- ---------------------
<S> <C>
Residential................................................. %
Commercial and Small Industrial: Energy..................... %
Commercial and Small Industrial: Demand..................... %
Large Industrial: Firm...................................... %
Large Industrial: Non-Firm.................................. %
Municipal................................................... %
</TABLE>
The restructuring act provides that transition charges must be collected
and allocated among retail customers in the same manner as competition
transition charges provided for elsewhere in the restructuring act. The final
amount of stranded cost recovery and the final allocations of competition
transition charges among retail customers, however, may not be known for some
time. Accordingly, the Texas commission could order that the allocation of
transition charges among customer classes set forth in a financing order be
modified to reflect any subsequent Texas commission orders concerning the
allocation of stranded cost recovery. The initial tariff filed to evidence the
transition charges requires the servicer to file a true-up adjustment within 45
days of any such order by the Texas commission in accordance with the same
methodology used to establish the initial transition charges but reflecting the
changed class allocations. Please refer to "Risk Factors -- Servicing
Risks -- Future Adjustments to Transition Charges by Customer Class May Result
in Insufficient Collections."
For the initial transition charges that will be assessed to customers
comprising each of the above transition charge retail customer classes as of the
issuance date for any series of transition bonds, see the related prospectus
supplement.
The tables below show the retail electricity sales, retail electric
revenues and number of retail customers for each of the four revenue reporting
customer classes for the first nine months of 1999 and each of the five
preceding years. Any updated information relating to the tables below will be
set forth in a prospectus supplement. There can be no assurances that the retail
electricity sales, retail electric revenues and number of retail customers or
the composition of any of the foregoing will remain at or near the levels
reflected in the following tables.
INFORMATION BY FERC FORM 1 CUSTOMER CLASS ALLOCATION:
RETAIL ELECTRIC SALES, RETAIL ELECTRIC REVENUES AND RETAIL CUSTOMERS
<TABLE>
<CAPTION>
RETAIL ELECTRIC SALES (GWH): 1994 1995 1996 1997 1998 1999YTD(1)
- ---------------------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential............... 5,954 6,223 6,680 6,771 7,167
Commercial................ 4,523 4,656 4,773 4,846 5,122
Industrial................ 6,910 7,250 7,610 7,999 8,350
Other..................... 457 465 499 486 553
Total..................... 17,844 18,594 19,562 20,102 21,192
</TABLE>
- ---------------
(1) 1999 Year-to-date information through September 30, 1999.
<TABLE>
<CAPTION>
RETAIL ELECTRIC REVENUES
($000S): 1994 1995 1996 1997 1998 1999YTD(1)
- ------------------------ --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential.............. 474,480 465,478 528,916 541,169 527,081
Commercial............... 368,405 355,238 388,008 400,412 377,492
Industrial............... 271,738 256,223 308,186 330,481 309,543
Other.................... 52,579 (55,551) 3,414 33,759 125,321
Total.................... 1,167,202 1,021,388 1,228,524 1,305,821 1,339,437
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
AVERAGE RETAIL ELECTRIC
CUSTOMERS: 1994 1995 1996 1997 1998 1999YTD(1)
- ----------------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential.............. 516,355 526,900 529,100 538,700 550,000
Commercial............... 76,739 77,700 78,000 79,700 82,000
Industrial............... 5,864 5,700 5,700 5,600 5,500
Other.................... 3,577 3,600 3,900 3,900 4,500
Total.................... 602,535 613,900 616,700 627,900 642,000
</TABLE>
- ---------------
(1) 1999 Year-to-date information through September 30, 1999.
INFORMATION BY TRANSITION CHARGE RETAIL CUSTOMER CLASS ALLOCATION:
RETAIL ELECTRIC SALES, BILLED RETAIL ELECTRIC REVENUES AND RETAIL CUSTOMERS
<TABLE>
<CAPTION>
RETAIL ELECTRIC SALES (GWH): 1994 1995 1996 1997 1998 1999YTD(1)
---------------------------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential.......................
Commercial and Small Industrial:
Energy..........................
Commercial and Small Industrial:
Demand..........................
Large Industrial: Firm............
Large Industrial: Non-Firm........
Municipal.........................
Total.............................
</TABLE>
- ---------------
(1) 1999 Year-to-date information through September 30, 1999.
<TABLE>
<CAPTION>
BILLED RETAIL ELECTRIC REVENUES ($000)(1): 1994 1995 1996 1997 1998 1999 YTD(2)
- ------------------------------------------ ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential..........................
Commercial and Small Industrial: Energy...
Commercial and Small Industrial: Demand...
Large Industrial: Firm...............
Large Industrial: Non-Firm...........
Municipal............................
Total................................
</TABLE>
- ---------------
(1) The Billed Retail Electric Revenue includes only the billed base and fuel
revenue by transition charge customer class. It does not include unbilled
revenue or revenue related taxes.
(2) 1999 Year-to-date information through September 30, 1999.
<TABLE>
<CAPTION>
AVERAGE RETAIL ELECTRIC CUSTOMERS: 1994 1995 1996 1997 1998
---------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Residential..................................
Commercial and Small Industrial: Energy......
Commercial and Small Industrial: Demand......
Large Industrial: Firm.......................
Large Industrial: Non-Firm...................
Municipal....................................
Total........................................
</TABLE>
FORECASTING ELECTRICITY CONSUMPTION
CPL conducts sales forecast variance analyses on a monthly basis to monitor
how well forecasts track actual consumption, by comparing forecasts to weather
normalized consumption,
40
<PAGE>
and thus determine the accuracy of its short-term forecasting models. Using this
process, CPL establishes the need for revised megawatt-hour sales projections
throughout the year. Otherwise, CPL normally revises its short-term
megawatt-hour sales forecasts on a quarterly basis. CPL usually adopts the
forecast produced during the third quarter for the following year as its
official megawatt-hour sales, usage and number of customers forecasts. These
short-term projections usually extend for two years. CPL also produces
longer-term forecasts of number of customers, energy consumption, usage and peak
demand. These long-term forecasts are updated every year.
CPL has opted for the use of Box-Jenkins time series methods for short-term
forecasting. The advantages of these methods over econometric methods are of a
statistical nature and of primary importance in the short-term horizon. CPL uses
univariate ARIMA models and some variations of ARIMA to arrive at the forecast
for the number of customers, and regression models with time series errors to
forecast the megawatt-hours per customer. The company also uses state space
models. In general, these time series methods extract the past patterns and
extrapolate them into the future by using sophisticated statistical processes.
The regression models with time series errors contain only cooling and
heating-degree days as explanatory variables, as contrasted with econometric
models which usually include several variables of an economic nature, such as
income, employment, electricity price, and other economic variables that are
thought to influence electricity sales.
An important consideration in CPL's decision to utilize time series methods
is that the short-term trends and cycles in electricity consumption are often
the result of customer behavior reacting to abnormal changes in weather, changes
in season, and short term contingencies such as fuel price shocks and emergency
conservation measures. Using the cause and effect models containing economic
drivers mainly implies or suggests long-term adjustments in the capital stock
when, usually, the short-term infrastructure tends to remain fairly constant.
ANNUAL FORECAST VARIANCE FOR RETAIL ELECTRIC SALES (GWH) (1)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 YTD(2)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential
Forecast.........................
Actual...........................
Variance ($).....................
Variance (%).....................
Commercial
Forecast.........................
Actual...........................
Variance ($).....................
Variance (%).....................
Industrial
Forecast.........................
Actual...........................
Variance ($).....................
Variance (%).....................
Other Retail
Forecast.........................
Actual...........................
Variance ($).....................
Variance (%).....................
TOTAL
Forecast.........................
Actual...........................
Variance ($).....................
Variance (%).....................
</TABLE>
41
<PAGE>
- ---------------
(1) Variance ($) amounts may not be exact due to rounding.
(2) 1999 Year-to-date information through September 30, 1999.
During the last five years, there has been no discernible trend in the
variance between projected retail electric sales and actual retail electric
sales.
BILLING AND COLLECTIONS
Credit Policy. Under Texas law, CPL is generally required to provide
electric service to all retail customers in its service area. CPL's review of
the credit history of a new applicant for electric service generally consists of
a review to determine if the applicant has previously received service from CPL
and, if so, whether there are any delinquent billed amounts outstanding. CPL
relies on information provided by the applicant, and on its customer information
system, to determine whether CPL has previously served the customer and whether
any delinquent billed amounts are outstanding. In accordance with the Texas
commission's regulations, deposits may be required from certain applicants for
service or existing customer accounts to protect CPL against losses. Accounts
from which deposits are most frequently obtained are new commercial and
industrial customers (i.e., applicants with limited or no credit history), and
residential customers with poor payment histories (as defined in the Texas
commission's regulations). The maximum allowable amount of the deposit is
one-sixth of the projected annual billings to the customer. The deposit will be
refunded to a residential customer after one year if the customer has not been
disconnected for non-payment and has not paid a bill after the due date more
than twice during the year. Under the same circumstances, the deposit will be
refunded after two years for a non-residential customer. Deposits are typically
credited to a customer's account automatically, but may be refunded upon
request.
CPL may change its credit policies and procedures, consistent with Texas
commission guidelines, from time to time. It is expected that any change would
be designed to enhance CPL's ability to make timely recovery of amounts billed
to customers.
Billing and Meter Reading. CPL bills its customers once every 26 to 34
days, with approximately an equal number of bills being distributed each
business day. For the year ending December 31, 1998, CPL mailed out an average
of 36,470 bills on each business day to customers in its various customer
categories. Accounts with potential billing errors are held for review. This
review examines accounts that have abnormally high or low bills, potential meter
reading errors, safety problems as identified by the meter-reading staff and
possible meter malfunctions.
Billings for electric service, except for unmetered electric service, are
based upon registration of meters furnished, installed and maintained by CPL.
All billings are tariff driven and a customer must meet the availability of that
tariff to be billed under it. Kilowatt demand is available to non-residential
customers and is stated in the tariff.
Customer bills are due 16 calendar days after issuance or, in the case of
state agencies subject to Texas Governmental Code, Chapter 2251, 30 days from
receipt. If the due date falls on a holiday or weekend, the due date for payment
purposes shall be the next business day. A bill not paid on or before the due
date is considered delinquent. These billing guidelines hold constant for all
customer classes.
CPL also has an alternative payment plan that allows residential and
commercial customers who have satisfactory credit the opportunity for a monthly
budget payment. CPL currently has 54,990 customers on this plan.
Collection Process. CPL receives the majority of its payments via the U.S.
mail and paystations; however, other payment options are also available. These
options include electronic
42
<PAGE>
payments, electronic fund transfers, credit/debit cards and direct payment at
field office locations.
CPL's collection process begins when balances are unpaid for 17 days or
more from the billing date. At that time CPL begins collection activities
ranging from delinquency notice mailings and telephone calls to termination of
electric service. CPL also uses collection agencies and legal collection experts
as needed throughout this process.
CPL tracks credit history based upon a customer's payment habits over the
past twelve months. A customer who is considered as having a poor payment
history is sent a disconnection notice 17 days after an unpaid bill is issued.
In late 1999, CPL installed a new calling system that allows CPL to attempt to
contact the customer via telephone in order to discuss payment options within 29
days after the date the delinquent bill was issued. If the customer cannot be
reached and payment is still not made, the customer may be disconnected
approximately 30 days after billing. A customer in good standing with the
Company who has made payment in a timely fashion over the past twelve months
will receive a reminder notice 17 days after an unpaid bill is mailed. It is not
until 17 days following a second bill that such a customer would receive a
disconnection notice and be subject to the disconnection time frame outlined for
a customer with a poor payment history.
If a customer requests termination of service, or if a customer does not
make a payment after service is canceled, a final bill is sent. A customer has
16 days to pay a final bill after which point it becomes delinquent. When a
final bill becomes delinquent, three collection letters are mailed to the
customer, one every eight business days. Unpaid bills are charged-off between 90
and 120 days after the disconnection date. The charged-off account is then
transferred to a collection agency and the major credit bureaus are notified.
Under certain circumstances, customers may enter into deferred payment
arrangements that allow the customer to make partial payments or to extend an
arrearage. A customer's electric service would not be terminated if the customer
has entered into one of these payment agreements and is abiding by the
agreement. In addition, CPL may not terminate electric service under certain
conditions, such as when there is a "heat advisory day" as issued by the
National Weather Service. When a "heat advisory day" is announced, CPL cannot
terminate service for non-payment on that day or on the two following days.
There were experienced a total of 23 heat advisory days in 1999. Additionally,
CPL may not disconnect power when the previous day's highest temperature did not
exceed 32 degrees Fahrenheit, and the temperature is predicted to remain at that
level for the next 24 hours as determined by the National Weather Service.
CPL may change its collection policies and procedures, consistent with
Texas commission guidelines, from time to time; however, it is expected that any
changes would be designed to enhance CPL's ability to make timely recovery of
amounts billed to customers.
Restoration of Service. Before restoring service that has been shut-off for
non-payment, CPL has the right to require the payment of all of the following
charges: (i) amounts owing on an account including the amount of any past-due
balance for charges for which CPL may terminate electric service if they are
unpaid and legal noticing requirements were met prior to service termination,
(ii) a credit deposit, if applicable; (iii) any miscellaneous charges associated
with the reconnection of service (i.e., reconnection charges, field collection
charges and/or returned check charges); (iv) 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 (v) any unpaid closing
bills from other accounts in the name of the customer of record.
CPL may change its restoration of service policies and procedures,
consistent with Texas commission guidelines, from time to time. It is expected
that any change would be designed to enhance CPL's ability to make timely
recovery of amounts billed to customers.
43
<PAGE>
LOSS EXPERIENCE
CPL's policy is to charge-off a finaled account approximately 90 to 120
days after the final bill has been issued. The final bill is generally issued
from 35 to 90 days from issuance of the original bill. The following table sets
forth information relating to CPL's annual net charge-offs for retail customers
for the years 1994 through 1999:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 YTD(1)
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Billed Retail Electric Revenues
($000)(2)..............................
Net Charge-offs ($000).................
Percentage of Billed Revenue(%)........
</TABLE>
- ---------------
(1) 1999 Year-to-date information through September 1999.
(2) Billed Retail Electric Revenues includes billed base, fuel and revenue
related taxes.
From 1994 through September 1999, the annual net charge-offs for all retail
customers have trended up due to increases in revenue and the waiver of
residential deposits. Prior to 1994, CPL decided to waive the deposit
requirement for residential customers unless the customer owed a previous bad
debt upon returning to the CPL service territory. During 1997, CPL changed its
deposit requirements so that any new residential customer who did not have a
proven or a good credit history would be required to make a deposit. In
addition, CPL added 11 additional credit collectors. As a result, charge-offs in
1998 declined. In 1999, the charge-offs increased due to the heat moratorium in
1998 in which CPL did not terminate customers' service for non-payment. In
addition, a large industrial customer of CPL went bankrupt in 1999. During this
period, the annual ratios of net charge-offs to [billed] retail electric
revenues have been between [ ].
DAYS SALES OUTSTANDING
The following table sets forth information relating to the average number
of days retail customer bills remain outstanding:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 YTD(1)
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Average Days Sales
Outstanding.................
</TABLE>
- ---------------
(1) 1999 Year-to-date information through September 1999.
From 1994 to through September 1999, average number of days that retail
customers' bills have remained outstanding has been relatively stable, although
there has been a slight upward trend due to [ ].
44
<PAGE>
DELINQUENCIES
The tables below set forth the delinquency and net write-off experience
with respect to payments to CPL by customer class.
DELINQUENCIES AS A PERCENTAGE OF TOTAL BILLED REVENUES
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 9/30/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Residential
30-59 days..............
60-89 days..............
90+ days................
Total...................
Commercial and Small
Industrial: Energy
30-59 days..............
60-89 days..............
90+ days................
Total...................
Commercial and Small
Industrial: Demand
30-59 days..............
60-89 days..............
90+ days................
Total...................
Large Industrial: Firm
30-59 days..............
60-89 days..............
90+ days................
Total...................
Large Industrial: Non-
Firm..................
30-59 days..............
60-89 days..............
90+ days................
Total...................
Municipal
30-59 days..............
60-89 days..............
90+ days................
Total...................
Grand Total.............
</TABLE>
45
<PAGE>
THE SALE AGREEMENT
The following summary describes the material terms and provisions of the
sale agreement pursuant to which we will purchase transition property from the
seller. The form of the sale agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part. This summary is
subject to the provisions of the sale agreement.
SALE AND ASSIGNMENT OF TRANSITION PROPERTY
From time to time the seller will offer and sell transition property to us,
subject to the satisfaction of the conditions specified in the sale agreement
and the indenture. We will finance each purchase of transition property through
the issuance of notes. On each date of issuance of a series of notes, the seller
will sell to us, without recourse, its entire right, title and interest in and
to the transition property to be transferred to us on that date. The transition
property will include all of the seller's rights under the financing order
related to such transition property, including the irrevocable right to receive
transition charges in an amount sufficient to recover the qualified costs
approved in that financing order.
In accordance with the restructuring act, upon the receipt of value for the
notes and the filing of notice with the Texas Secretary of State, the transfer
of transition property will be perfected as against all third persons, including
judicial lien creditors.
CONDITIONS TO THE SALE OF TRANSITION PROPERTY
Our obligation to purchase transition property on any transfer date is
subject to the satisfaction or waiver of each of the following conditions:
- on or prior to the transfer date, the seller must deliver to us a duly
executed bill of sale identifying transition property to be conveyed on
that date;
- on or prior to the transfer date, the seller must have received a
financing order from the Texas commission;
- as of the transfer date, the seller may not be insolvent and may not be
made insolvent by the sale of transition property to us, and the seller
may not be aware of any pending insolvency with respect to itself;
- as of the transfer date, the representations and warranties of the seller
in the sale agreement must be true and correct, the seller may not have
breached any of its covenants in the sale agreement, and the servicer may
not be in default under the servicing agreement;
- as of the transfer date, we must have sufficient funds available to pay
the purchase price for transition property to be conveyed and all
conditions to the issuance of one or more series of notes intended to
provide the funds to purchase that transition property must have been
satisfied or waived;
- on or prior to the transfer date, the seller must have taken all action
required to transfer ownership of transition property to be conveyed to
us on the transfer date, free and clear of all liens other than liens
created by us pursuant to the indenture; and we or the servicer, on our
behalf, must have taken any action required for us to grant the indenture
trustee a first priority perfected security interest in the collateral
and maintain that security interest as of the transfer date;
- in the case of a sale of transition property after the initial issuance
of notes only, on or prior to the transfer date, the seller must provide
timely notice to us and to the rating agencies;
- the seller must deliver appropriate opinions of counsel to us and to the
rating agencies;
46
<PAGE>
- the seller must deliver an opinion of tax counsel or a ruling from the
IRS regarding the tax treatment of the transition property and the
related notes to the effect that, for federal income tax purposes, (1)
the issuance of the related financing order authorizing the collection of
transition charges and transfer of the transition property will not
result in gross income for the seller and (2) in the case of an
acquisition of transition property after the initial issuance of notes
only, that the acquisition will not adversely affect the characterization
of the then outstanding notes of any series as obligations of the seller;
- on and as of the transfer date, our limited liability company agreement,
the servicing agreement, the sale agreement, the indenture, the
restructuring act, any issued financing order and any tariff authorizing
the collection of transition charges must be in full force and effect;
- each rating agency has notified us, the servicer and the indenture
trustee that the acquisition of the transition property will not result
in a reduction or withdrawal of the then-current rating of any
outstanding class of notes; and
- the seller must deliver to us and to the indenture trustee an officers'
certificate confirming the satisfaction of each of these conditions.
SELLER REPRESENTATIONS AND WARRANTIES
In the sale agreement, the seller will represent and warrant to us, as of
each transfer date, among other things, that:
(1) no portion of the transferred transition property has been sold,
transferred, assigned or pledged or otherwise conveyed by the seller to any
person other than us and immediately prior to the sale of the transition
property, the seller owns the transition property free and clear of all
liens and rights of any other person, and no offsets, defenses or
counterclaims exist or have been asserted with respect to the transition
property;
(2) on the transfer date, immediately upon the sale under the sale
agreement, the transition property transferred on the transfer date will be
validly transferred and sold to us, we will own the transferred transition
property free and clear of all liens (except for liens created in your
favor by the restructuring act and the basic documents) and all filings
(including filings with the Secretary of State of Texas under the
restructuring act) necessary in any jurisdiction to give us a perfected
ownership interest (subject to any lien created by us under the basic
documents or the restructuring act) in the transferred transition property
will have been made;
(3) at the transfer date, all written information, as amended or
supplemented from time to time, provided by the seller to us with respect
to the transition property (including the expected amortization schedule,
the financing order and the issuance advice letter relating to the
transition property) is true and correct in all material respects;
(4) under the laws of the State of Texas (including the restructuring
act) and the U.S. in effect on the transfer date:
-- the financing order pursuant to which the rights and interests of
the seller, including the right to impose, collect and receive the
transition charges, in and to the transition property have been
created has become final, is not subject to appeal and is in full
force and effect;
-- as of the issuance of the related notes, those notes are entitled
to the protection provided in the restructuring act and,
accordingly, the transition property and the related financing
order, transition charges and issuance advice letter are not
revocable by the Texas commission;
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-- as of the issuance of the related notes, the related tariff is in
full force and effect and is not subject to modification by the
Texas commission except for true-up adjustments made in accordance
with the restructuring act;
-- neither the State of Texas nor the Texas commission may take or
permit any action that would impair the value of the transition
property, or, except for true-up adjustments made in accordance
with the restructuring act, reduce, alter, or impair the
transition charges relating to such transition property until the
principal, interest and premium, and any other charges incurred
and contracts to be performed in connection with the related notes
have been paid and performed in full (except for temporary
impairments necessary to advance a significant and legitimate
public purpose);
-- the process by which the financing order was approved and the
financing order, issuance advice letter and tariff comply with all
applicable laws and regulations;
-- the issuance advice letter and the tariff have been filed in
accordance with the related financing order; and
-- no other approval, authorization, consent, order or other action
of, or filing with any governmental authority is required in
connection with the creation of the transition property
transferred on the transfer date, except those that have been
obtained or made;
(5) based on information available to the seller on the transfer date,
the assumptions used in calculating the transition charges as of the
transfer date are reasonable and are made in good faith;
(6) upon the effectiveness of the financing order, the issuance advice
letter and the tariff and the transfer of the transition property to us:
-- the rights and interests of the seller under the financing order,
including the right to impose, collect and receive the transition
charges established in the financing order, become transition
property;
-- the transition property constitutes a present property right;
-- the transition property includes the right, title and interest of
the seller in the financing order and the transition charges, the
right to impose, collect and obtain periodic adjustments of the
transition charges, and the rates and other charges established by
the financing order and all revenues, claims, payments, money or
proceeds of or arising from the transition charges; and
-- the owner of the transition property is legally entitled to
collect payments in respect of the transition charges in the
aggregate sufficient to pay the interest on and principal of the
related notes, to pay the fees and expenses of servicing the
notes, to replenish the capital subaccount to the required capital
level and to fund the overcollateralization subaccount to the
required overcollateralization level until the notes are paid in
full or until the last date permitted for the collection of
payments in respect of the transition charges under the financing
order, whichever is earlier;
(7) the seller is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, with
requisite corporate power and authority to own its properties as owned on
the transfer date and to conduct its business as conducted by it on the
transfer date, to obtain financing orders and own, sell and transfer
transition property and to execute, deliver and perform the terms of the
sale agreement;
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(8) the seller is duly qualified to do business and has obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires such
qualifications, licenses or approvals except where a failure to qualify or
obtain such licenses and approvals would not be reasonably likely to have a
material adverse effect on the business, operations, assets, revenues or
properties of the seller;
(9) the execution, delivery and performance of the sale agreement have
been duly authorized by all necessary corporate action on the part of the
seller;
(10) 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;
(11) the consummation of the transactions contemplated by the sale
agreement do not conflict with the seller's corporate charter or by-laws or
any indenture, agreement or material instrument to which the seller is a
party or by which it is bound, result in the creation or imposition of any
lien upon the seller's properties pursuant to the terms of any such
indenture, agreement or material instrument (other than any that may be
granted under the basic documents or any liens created by us pursuant to
the restructuring act) or violate any existing law or any existing order,
rule or regulation applicable to the seller so as to adversely affect the
seller, us, the noteholders or the noteholders' interest in the transferred
transition property;
(12) except as disclosed to us, no proceeding is pending and, to the
seller's knowledge, no proceeding is threatened and no investigation is
pending or threatened before any governmental authority:
-- asserting the invalidity of the restructuring act, any financing
order, the notes of any series and the basic documents;
-- seeking to prevent the issuance of the notes of the relevant
series or the consummation of any of the transactions contemplated
by any of the basic documents;
-- 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 restructuring act, any
financing order, the notes of any series or the basic documents;
or
-- seeking to adversely affect the federal income tax or state income
or franchise tax classification of the notes of any series as
debt; and
(13) no governmental approvals, authorizations, consents, orders or
other actions or filings, other than filings under the Uniform Commercial
Code, 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 or are required to be made by the servicer in the
future.
The seller makes no representation or warranty that any amounts actually
collected in respect of the transition charges will in fact be sufficient to
meet payment obligations on the notes or that assumptions made in calculating
the transition charges will in fact be realized.
Certain of the representations and warranties that the seller makes in the
sale agreement involve conclusions of law. The seller makes those
representations and warranties in order to reflect the understanding of the
basis on which we are issuing the notes and to reflect the
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agreement that if this understanding proves to be incorrect, the seller will be
obligated to indemnify us.
COVENANTS OF THE SELLER
In the sale agreement, the seller makes the following covenants:
- Subject to its right to assign its rights and obligations under the sale
agreement, so long as any of the notes of any series are outstanding, the
seller will keep in full force and effect its corporate existence under
the laws of the jurisdiction of its organization, and obtain and preserve
its qualifications to do business in those jurisdictions necessary to
protect the validity and enforceability of the basic documents or to the
extent necessary to perform its obligations under the basic documents.
- Except for the conveyances under the sale agreement or any lien under the
restructuring act or for the benefit of us (as issuer), the noteholders
or the indenture trustee, the seller will not sell, pledge, assign or
transfer, or grant, create, or incur any lien on, any of the transferred
transition property and the seller will defend the right, title and
interest of us and of the indenture trustee in, to and under the
transferred transition property against all claims of third parties
claiming through or under the seller. The seller also covenants that, in
its capacity as seller, it will not at any time assert any lien against,
or with respect to, any of the transferred transition property.
- If the seller receives any payments in respect of the transition charges
or the proceeds thereof when it is not acting as the servicer, the seller
agrees to pay all those payments to the servicer and to hold such amounts
in trust for us prior to such payment.
- The seller will notify us and the indenture trustee promptly after
becoming aware of any lien on any of the transferred transition property,
other than the conveyances under the sale agreement, or any lien under
the basic documents or under the restructuring act for our benefit or for
the benefit of the noteholders.
- The seller agrees to comply with its organizational or governing
documents and all laws, treaties, rules, regulations and determinations
of any governmental authority applicable to it, except to the extent that
failure to so comply would not adversely affect our or the indenture
trustee's interests in the transferred transition property or under the
basic documents to which the seller is a party or the seller's
performance of its obligations under the basic documents.
- So long as any of the notes are outstanding, the seller will treat the
notes as debt for all purposes and specifically as our debt, other than
for financial accounting or tax purposes or as required under the Public
Utility Holding Company Act.
- So long as any of the notes are outstanding:
-- The seller will indicate in its financial statements that we and not
the seller are the owner of the transferred transition property; and
-- The seller will not own or purchase any notes.
- The seller agrees that, upon the sale by the seller of transition
property to us pursuant to the sale agreement
-- to the fullest extent permitted by law, we will have all of the rights
originally held by the seller with respect to the transition property,
including the right (subject to the terms of the servicing agreement)
to exercise any and all rights and remedies to collect any amounts
payable by any retail customer or REP in respect of the transferred
transition property, notwithstanding any objection or direction to the
contrary by the seller, and
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-- any payment by any retail customer or REP to us will discharge that
customer's or REP's obligations in respect of the transferred
transition property to the extent of that payment, notwithstanding any
objection or direction to the contrary by the seller.
- So long as any of the notes are outstanding:
-- the seller will not make any statement or reference in respect of the
transferred transition property that is inconsistent with our ownership
interest (other than for financial accounting or tax purposes or as
required under the Public Utility Holding Company Act), and
-- the seller will not take any action in respect of the transferred
transition property except solely in its capacity as servicer pursuant
to the servicing agreement or as otherwise contemplated by the basic
documents.
- The seller will execute and file the filings required by law to fully
preserve, maintain and protect our ownership interest in the transferred
transition property. The seller will institute any action or proceeding
necessary to compel performance by the Texas commission or the State of
Texas of any of their obligations or duties under the restructuring act,
any financing order or any issuance advice letter. The seller also agrees
to take those legal or administrative actions that may be reasonably
necessary to protect us from claims, state actions or other actions or
proceedings of third parties which, if successfully pursued, would result
in a breach of any representation or warranty of the seller in the sale
agreement. We will reimburse the seller for the costs of any actions or
proceedings out of funds in the collection account as an operating
expense.
- Even if the sale agreement or the indenture is terminated, the seller
will not, prior to the date which is one year and one day after the
termination of the indenture, petition or otherwise invoke or cause us to
invoke the process of any court or government authority for the purpose
of commencing or sustaining a case against us under any federal or state
bankruptcy, insolvency or similar law, appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official or
any substantial part of our property, or ordering the winding up or
liquidation of our affairs.
- So long as any of the notes are outstanding, the seller will, and will
cause each of its subsidiaries to, pay all material taxes, assessments
and governmental charges imposed upon it or any of its properties or
assets or with respect to any of its franchises, business, income or
property before any penalty accrues if the failure to pay any such taxes,
assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a lien on the
transferred transition property.
- The seller agrees not to withdraw the filing of any issuance advice
letter with the Texas commission.
- The seller will make all reasonable efforts to keep each tariff in full
force and effect.
- Subject to its right to assign its rights and obligations under the sale
agreement, the seller will continue to provide wire service directly to
retail customers so long as the notes are outstanding.
- Promptly after obtaining knowledge of any breach of its representations
and warranties in the sale agreement, the seller will notify us and the
rating agencies of the breach.
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INDEMNIFICATION
The seller will indemnify and hold harmless us and the indenture trustee
(for your benefit) and any swap counterparty and any of our respective officers,
directors, employees and agents against
- any amounts of principal and interest on the notes not paid when due,
- any deposits required to be made by or to us under the basic documents or
any financing order which are not made when required, and
- any liabilities, obligations, losses, claims, damages, payment, costs or
expenses 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,
- a breach by the seller of the representations and warranties identified
in items 1, 2, 4, 6, 7, 9, 10 and 11 under "-- Seller Representations and
Warranties" above,
- a breach in any material respect by the seller of any of its other
representations and warranties in the sale agreement.
The seller will also indemnify and hold harmless us and the indenture
trustee (for itself and for your benefit) and any of our respective officers,
directors, employees and agents against any and all taxes, except taxes imposed
on you as a result of your ownership of the notes, that may be imposed on or
asserted against us or the indenture trustee under existing law as of the
applicable transfer date as a result of either the sale of transition property
to us or the issuance by us of notes.
In addition, the seller will indemnify and hold harmless the indenture
trustee (for itself), our independent managers and any of our respective
affiliates, officers, directors, employees and agents against any and all
liabilities, obligations, losses, claims, damages, payment, costs or expenses
incurred by any of these parties as a result of
- the seller's willful misconduct or gross negligence in the performance of
its duties or observance of its covenants under sale agreement, or
- the seller's breach in any material respect of any of its representations
and warranties contained in the sale agreement,
except to the extent of losses either resulting from the willful misconduct, bad
faith or gross negligence of any of the indemnified persons or resulting from a
breach of a representation or warranty made by any of the indemnified persons in
the indenture or any related documents that gives rise to the seller's breach.
The seller will not be in breach of any representation or warranty under
the sale agreement as a result of a change in law by means of any legislative
enactment, constitutional amendment or voter initiative.
The indemnification provided for in the sale agreement will survive the
termination of the sale agreement and will rank in priority with other general,
unsecured obligations of the seller.
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AMENDMENT
The sale agreement may be amended with ten business days' prior written
notice to the ratings agencies and the consent of the indenture trustee, but
without the consent of the noteholders,
- to cure any ambiguity,
- to correct or supplement any provision in the sale agreement,
- for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the sale agreement, or
- of modifying in any manner the rights of noteholders,
provided that the action will not, as certified in a certificate of an officer
of the seller delivered to us and the indenture trustee, adversely affect in any
material respect the interest of any holder of notes then outstanding. The sale
agreement may also be amended by the seller and us with ten business days' prior
written notice to the rating agencies and with the consent of the indenture
trustee and the holders of notes evidencing at least a majority in principal
amount of the then outstanding notes for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the sale
agreement or of modifying in any manner the rights of noteholders.
ASSUMPTIONS OF THE OBLIGATIONS OF THE SELLER
Any entity which becomes the successor by merger, sale, transfer, lease,
management contract or otherwise to the major part of the electric transmission
and distribution business of CPL may assume the rights and obligations of CPL
under the sale agreement. If transmission and distribution are not provided by a
single entity after any such transaction, the entity which provides wire service
directly to retail customers taking service at facilities, premises or loads
located in CPL's certificated service area as it existed on May 1, 1999 may
assume CPL's rights and obligations under the sale agreement. So long as the
conditions of any such assumption are met, CPL will automatically be released
from its obligations under the sale agreement. The conditions include that,
immediately after giving effect to the transaction, no servicer default under
the servicing agreement may have occurred or be continuing.
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
True Sale. The seller will represent and warrant in the sale agreement that
each transfer of transition property to us is a valid sale and assignment of the
transition property. The seller will also represent and warrant that it will
take the appropriate actions under the restructuring act to perfect each sale.
The restructuring act provides that the transactions described in the sale
agreement will constitute a sale of transition property to us, and both we and
the seller will treat the transactions as a sale under applicable law. However,
for federal income tax purposes we will not be considered a taxable entity so
the transactions will be treated as occurring between two divisions of CPL,
rather than between CPL and a separate entity.
Should the transfer of any transition property to us be recharacterized as
a borrowing by the seller, under the sale agreement the seller grants to us a
security interest in the transferred transition property. The seller also
covenants under the sale agreement 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 act and the financing order, once the seller
transfers transition property to us, the transition property constitutes a
present property right that continuously exists as property for all purposes.
Nonetheless, if the seller were to become the debtor in a
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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 transition charge are usage-based charges,
transition property comes into existence only as retail customers use
electricity. If a court were to adopt this position, we cannot assure you that
either our property interest in the transition property or the statutory lien
created by the restructuring act would be valid as to electricity consumed after
the commencement of a bankruptcy case by or against the seller. Please refer to
"Risk Factors -- The Risks Associated with Potential Bankruptcy Proceedings" in
this prospectus.
Substantive Consolidation. We have taken steps together with CPL, as the
seller, to reduce the risk that in the event the seller or an affiliate of the
seller were to become the debtor in a bankruptcy case, a court would order that
our assets and liabilities be substantively consolidated with those of the
seller or an affiliate. These steps include the fact that we are a separate,
special purpose limited liability company, and our organizational documents
provide that we will not commence a voluntary bankruptcy case without the
unanimous affirmative vote of all of our managers, including the managers
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 our assets and liabilities
be consolidated with those of the seller or an affiliate. This could result in
delays or reductions in payments on the notes. Other factors that may tend to
support consolidation include the seller's ownership of us, the designation of
officers or employees of the seller as managers, other than the independent
managers, and the existence of indemnities by the seller for some liabilities.
Please refer to "Risk Factors -- The Risks Associated with Potential Bankruptcy
Proceedings" in this prospectus.
Estimation of Claims; Challenge to Indemnity Claims. If the seller were to
become a debtor in a bankruptcy case, claims, including indemnity claims, by us
against the seller under the sale agreement and the other documents executed in
connection with the sale agreement would be unsecured claims and would be
subject to being discharged in the bankruptcy case. In addition, a party in
interest in the bankruptcy may request that the bankruptcy court estimate any
contingent claims that we have against the seller. That party may then take the
position that these claims should be estimated at zero or at a low amount
because the contingency giving rise to these claims is unlikely to occur. If the
seller were to become a debtor in a bankruptcy case and the indemnity provisions
of the sale agreement were triggered, a party in interest in the bankruptcy
might challenge the enforceability of the indemnity provisions. If a court were
to hold that the indemnity provisions were unenforceable, we would be left with
a claim for actual damages against the seller based on breach of contract
principles. The actual amount of these damages would be subject to estimation
and/or calculation by the court. We cannot give any assurance as to the result
if any of the above-described actions or claims were made. Furthermore, we
cannot give any assurance as to what percentage of their claims, if any,
unsecured creditors would receive in any bankruptcy proceeding involving the
seller.
Enforcement of Rights by Indenture Trustee. Upon an event of default under
the indenture, the restructuring act permits the indenture trustee to enforce
the security interest in the transition property in accordance with the terms of
the indenture. In this capacity, the indenture trustee is permitted to request a
Travis County, Texas district court to order the sequestration and payment to
noteholders of all revenues arising with respect to the transition property.
There can be no assurance, however, that the Travis County, Texas district court
would issue this order after a seller bankruptcy in light of the automatic stay
provisions of Section 362 of the United States Bankruptcy Code. In that event,
the indenture trustee under the indenture would be required to seek an order
from the bankruptcy court lifting the automatic stay to permit this action by
the Texas court, and an order requiring an accounting and segregation of the
revenues arising from the transition property. There can be no assurance that a
court would grant either order. Please refer to "Risk Factors -- The Risks
Associated with Potential Bankruptcy Proceedings" in this prospectus.
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THE SERVICING AGREEMENT
The following summary describes the material terms and provisions of the
servicing agreement pursuant to which the servicer is undertaking to service the
transition property. The form of the servicing agreement has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
This summary is subject to the provisions of the servicing agreement.
SERVICING PROCEDURES
The servicer, on our behalf, will manage, service and administer, and bill
and collect payments in respect of the transition property according to the
terms of the servicing agreement. The servicer's duties will include:
calculating, billing and collecting the transition charges; responding to
inquiries of retail customers, REPs and the Texas commission regarding the
transition property; calculating electricity usage; accounting for collections;
furnishing periodic reports and statements to us, the rating agencies and to the
indenture trustee; making all filings with the Texas commission necessary to
perfect our ownership interests in and the indenture trustee's lien on the
transition property; and periodically adjusting the transition charge. The
servicer is required to notify us, the indenture trustee and the rating agencies
in writing of any laws or Texas commission regulations promulgated after the
execution of the servicing agreement that have a material adverse effect on the
servicer's ability to perform its duties under the servicing agreement. The
servicer is also authorized to execute and deliver documents and to make filings
and participate in proceedings on our behalf.
In addition, if we request, the servicer will provide public information
about the servicer, any material information about the transition property that
is reasonably available and, so long as any notes are outstanding, any
information necessary to calculate the transition charges applicable to each
customer class. The servicer will also prepare any reports to be filed by us
with the SEC.
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.
Among other things, the servicing agreement requires the servicer to file,
and the restructuring act requires the Texas commission to approve, annual
true-up adjustments within 45 days of each anniversary of the initial issuance
of notes. These adjustments are to be based on actual transition charge
collections and updated assumptions by the servicer as to projected future
billed revenue from which transition charges are allocated, projected
electricity usage during the next period, expected delinquencies and write-offs
and future payments and expenses relating to the transition property serviced by
the servicer and the notes. The servicing agreement also requires the servicer
to file interim true-up adjustment requests if as of the month-end preceding any
payment date it determines that
- the outstanding principal of any series of notes (less amounts in the
reserve subaccount) would be greater than 105% or less than 95% of the
anticipated outstanding principal balance of the notes as of such payment
date, and
- any series of notes which matures after the date specified in the related
prospectus supplement will not have been paid in full as of its scheduled
final payment date.
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The servicer will calculate the transition charges necessary to result in
- all accrued and unpaid interest being paid in full,
- the outstanding principal balance of each series equaling the amount
provided its the expected amortization schedule, the amount on deposit in
the overcollateralization subaccount equaling the overcollateralization
level,
- the amount on deposit in the capital subaccount equaling the required
capital level, and
- all other fees and expenses under the indenture being paid,
by (1) the date for payment immediately succeeding the next scheduled true-up
adjustment filing date, or (2) with respect to a true-up adjustment occurring
after the last scheduled final payment date for any notes, the earlier of the
payment date preceding the next date for a true-up adjustment and the final
maturity date for those notes. The servicer will file true-up adjustments and,
in accordance with the financing order, the Texas commission has the right to
review the adjustments. The Commission's rights of review are limited to
arithmetic errors. Absent the need for an interim true-up adjustment, the
servicer will implement adjustments to the transition charges annually, unless
more frequent adjustments are required as described above.
If the Texas commission enters an order setting forth an allocation of
transition charges and requiring transition charges to be reallocated among
customer classes in the same manner, the servicer will recalculate the
transition charges to give effect to the reallocation within 45 days of the
commission's order becoming final.
The servicing agreement requires the servicer to implement procedures and
policies to ensure that REPs remit the transition charges collected from their
retail customers to the servicer on behalf of us and the noteholders. These
procedures and policies include creating and maintaining records that would
permit the servicer to bill retail customers directly for the transition charges
and maintaining the capability to promptly assume billing and collecting
responsibilities in the event that an REP defaults. The servicer will also
monitor payments from REPs and will take all permitted steps to ensure and
collect payment by the REPs. The servicer will impose credit and collection
policies on the REPs, as permitted under each financing order and the rules of
the Texas commission, to prevent the then current rating of the related notes by
the rating agencies from being withdrawn or downgraded. Please refer to
"-- Retail Electric Providers" below.
The servicer is responsible for instituting any proceeding to compel
performance by the State of Texas or the Texas commission of their respective
obligations under the restructuring act, any financing order, any issuance
advice letter, any true-up adjustment or any tariff. The servicer is also
responsible for instituting any proceeding to block or overturn any attempts to
cause a repeal, modification or judicial invalidation of the restructuring act
or any financing order. The servicing agreement also designates the servicer as
the custodian of our records and documents. The servicing agreement requires the
servicer to indemnify us, our independent managers and the indenture trustee
(for itself and for your benefit) for any negligent act or omission relating to
the servicer's duties as custodian.
REMITTANCES TO COLLECTION ACCOUNT
The servicer will make periodic payments on account of transition charge
collections to the indenture trustee for deposit in the collection account as
follows. For a description of the allocation of the deposits, please refer to
"Security for the Notes -- Allocations; Payments" in this prospectus. The
servicer will remit estimated collection payments on the transition charges to
the collection account each business day. The servicer may, however, remit
estimated collection payments on the transition charges to the collection
account each calendar month if no servicer default has occurred and is
continuing, and the servicer maintains a long-term rating of at least A
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or its equivalent, or each rating agency has notified the servicer, us, as well
as the indenture trustee and the managers that monthly payment will not result
in a reduction or withdrawal of the then current rating of any outstanding class
of notes.
The servicer will remit to the indenture trustee transition charge
collections based on its estimated system-wide charge-off percentage and the
average number of days outstanding of bills. Each year, the servicer will
reconcile remittances of estimated payments arising from transition charges with
the indenture trustee to more accurately reflect the amount of billed transition
charges that should have been remitted, based on the actual system-wide
charge-off percentage. To the extent the remittances of estimated payments
arising from the transition charge exceed the amounts that should have been
remitted based on actual system-wide charge-offs, the servicer will be entitled
to receive a payment from the indenture trustee in an amount equal to the excess
remittance, or to withhold the excess amount from any subsequent remittance to
the indenture trustee. To the extent the remittances of estimated payments
arising from the transition charge are less than the actual payments arising
from the transition charge collected, the servicer will remit the amount of the
shortfall to the indenture trustee within two business days, or, if monthly
remittances are permitted, on the next remittance date. Although the servicer
will remit estimated payments arising from the transition charge to the
indenture trustee, the servicer is not obligated to make any payments on the
notes.
In the event that the servicer makes changes to its current computerized
customer information system which would allow the servicer to track actual
transition charge payments and/or otherwise monitor payment and collection
activity more efficiently or accurately than is being done today, the servicing
agreement will allow the servicer to substitute actual remittance procedures for
the estimated remittance procedures described above and otherwise modify the
remittance procedures described above as may be appropriate in the interests of
efficiency, accuracy, cost and/or system capabilities. However, the servicer
will not be allowed to make any modification or substitution that will
materially adversely affect the noteholders. The servicer must also give notice
to the rating agencies of any such computer system changes no later than 60
business days after the date on which all retail customer accounts are billed on
the new system.
SERVICING COMPENSATION
The servicer will be entitled to receive an annual servicing fee paid
semi-annually in an amount equal to:
- 0.05% of the initial aggregate principal amount of the notes for so long
as the servicer remains CPL or an affiliate or bills the transition
charge concurrently with other charges for its own account for electric
services; or
- 0.60% of the initial aggregate principal amount of the notes if CPL or an
affiliate is not the servicer and the transition charge is not being
concurrently billed with other charges for electric service for the
servicer's own account. So long as CPL or an affiliate remains the
servicer, the servicer will not cause transition charges to be billed
separately to retail customers or REPs from amounts owed to the servicer
on its own account.
The servicer will also be entitled to retain any interest earnings on
transition charge collections prior to remittance to the collection account, and
all late payment charges collected from REPs or retail customers. The indenture
trustee will pay the servicing fee on each payment date (together with any
portion of the servicing fee that remains unpaid from prior payment dates) to
the extent of available funds prior to the distribution of any interest on and
principal of the notes. Please refer to "Security for the Notes -- Allocations;
Payments" in this prospectus.
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RETAIL ELECTRIC PROVIDERS
As part of the restructuring of the Texas electric industry, retail
customers of CPL will, as of the introduction of customer choice or in limited
circumstances, sooner, purchase electricity and related services from REPs
rather than CPL. CPL will no longer be permitted to sell electricity directly to
retail customers. However, CPL currently expects that it will organize an
affiliated REP to provide electricity and related services to retail customers.
The restructuring act grants all retail customers the option to have all
electric service provided on a single bill. REPs, including CPL's affiliated
REP, will issue a single bill to retail customers purchasing electricity from an
REP. This single bill would include all charges related to purchasing
electricity from the REP, delivery services from CPL or a successor servicer and
the applicable transition charges under the financing order. Therefore, we
expect that retail customers will pay the transition charges to REPs who supply
them with electric power. The REPs will be obligated to forward payments on the
transition charges to the servicer even if they do not collect the charge from
retail customers. This obligation is subject to the right to credits or refunds
from the servicer for amounts written off as uncollectible as described above.
The servicer will have limited rights to collect the transition charges directly
from those retail customers who receive their electricity bills from a third
party in the event that the REP does to pay the transition charge. Because the
REPs will initially bill most retail customers for the transition charges, we
will have to rely on a relatively small number of entities for the collection of
the bulk of the transition charges. The servicer will not pay any shortfalls
resulting from the failure of any REP to forward transition charge collections.
REPs must provide the servicer with timely information necessary for
billing and true-up adjustments. In addition, prior to billing or collecting any
transition charges, the REP must provide a cash deposit equal to two months'
maximum estimated collections of transition charges, which deposit will be put
into the REP deposit subaccount. There will be a quarterly evaluation of the
REP's estimated transition charge collections to determine the correct size of
the deposit. If the REP's customer base has grown, then the REP will have to
deposit additional cash. If the REP's customer base has declined or if the
earnings on the REP's deposit have caused the deposit to exceed two months'
maximum estimated collections of transition charges, the REP will be entitled to
a refund of the excess, provided that the REP is not in default. An REP who
maintains a credit rating of BBB by S&P and Baa2 by Moody's or better will be
exempt from this requirement for so long as the servicer maintains an
unqualified ability to assume the REP's billing and collection function and to
separately bill and collect transition charges upon an REP default. The servicer
will be allowed to impose other credit and collection policies as may be
reasonably necessary to prevent the ratings of the notes from being withdrawn or
downgraded as authorized by the financing order and the rules of the Texas
commission. The servicer will also maintain the right to terminate transmission
and distribution service for non-payment by end-use retail customers in
accordance with the rules of the Texas commission.
The REP must pay the transition charges billed to it by the servicer within
16 days after billing by the servicer regardless of whether the REP collects
such charges from end-use retail customers. The amount of payments that an REP
must remit will incorporate the same system-wide charge off percentage used by
the servicer to remit payments to the indenture trustee. On an annual basis in
connection with the true-up adjustment process, the REP and the servicer will
reconcile the amounts held back with amounts actually written-off as
uncollectible in accordance with the terms agreed to by the REP and the
servicer. The REP's right to reconciliation for write-offs will be limited to
retail customers whose service has been permanently terminated and whose entire
accounts have been written off. The REP's recourse will be limited to a credit
against future transition charge payments unless the REP and the servicer agree
to alternative arrangements. The REP will not have recourse to us or our funds
for such payments. The REP's rights to credits will not take effect until after
adjusted transition charges which take the REP's uncollectible bills into
account have been implemented.
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Neither CPL nor any successor servicer will pay any shortfalls resulting
from the failure of any REP to remit payments arising from the transition
charges to the servicer. The annual true-up and interim true-up adjustment
mechanisms for the transition charges, as well as the overcollateralization
amount and the amounts deposited in the capital subaccount, are intended to
mitigate the risk of shortfalls. Any shortfalls that occur will delay the
distribution of interest on and principal of the notes.
SERVICER REPRESENTATIONS AND WARRANTIES
In the servicing agreement, the servicer will represent and warrant to us,
as of the date of each issuance of a series of notes, among other things, that:
- the servicer is duly organized and validly existing as a corporation in
good standing under the laws of the state of its incorporation, with
corporate power and authority to own its properties as owned by it on the
issuance date, to conduct its business as its business is conducted by it
on the issuance date and to service the transition property and hold the
records related to the transition property, and to execute, deliver and
carry out the terms of the servicing agreement;
- the servicer is duly qualified to do business and has obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires
such qualifications, licenses or approvals, except where a failure to
qualify or obtain such licenses and approvals would not be reasonably
likely to have a material adverse effect on the business, operations,
assets, revenues or properties of the servicer;
- the execution, delivery and carrying out of the terms of the servicing
agreement have been duly authorized by all necessary corporate action on
the part of the servicer;
- the servicing agreement constitutes a legal, valid and binding obligation
of the servicer, enforceable against it in accordance with its terms,
subject to insolvency, reorganization, moratorium, fraudulent transfer
and other laws relating to or affecting creditors' rights generally from
time to time in effect and to general principles of equity, regardless of
whether considered in a proceeding in equity or at law;
- the consummation of the transactions contemplated by the servicing
agreement does not conflict with the servicer's corporate charter or
by-laws or any material agreement to which the servicer is a party or by
which it is bound, result in the creation or imposition of any lien upon
the servicer's properties pursuant to the terms of 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's
ability to perform its obligations under the servicing agreement or the
noteholders;
- each report or certificate delivered in connection with an advice letter
to the Texas commission will be true and correct, or, if based on
predictions and assumptions, will be based on predictions and assumptions
that are reasonably based on historical performance and facts known to
the servicer on the date such report or certificate is delivered;
- 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 or are required to be made by the servicer in the future; and
- except as disclosed to us, no proceeding is pending and, to the
servicer's knowledge, no proceeding is threatened and no investigation is
pending or threatened before any governmental authority, asserting the
invalidity of any of the basic documents, seeking to
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prevent issuance of notes or the consummation of the transactions
contemplated by any of the basic documents, seeking a determination that
might materially and adversely affect the performance by the servicer of
its obligations under any of the basic documents or which could
reasonably be expected to adversely affect the federal income tax or
state income or franchise tax attributes of the notes as debt.
The servicer is not responsible for any ruling, action or delay of the
Texas commission, except those caused by the servicer's failure to file required
applications in a timely and correct manner or other breach of its duties under
the servicing agreement. The servicer also is not liable for the calculation of
the transition charges and adjustments, including any inaccuracy in the
assumptions made in the calculation, so long as the servicer has acted in good
faith and has not acted in a grossly negligent manner.
The servicer will indemnify, defend and hold harmless us and the indenture
trustee (for itself and for your benefit) and the independent managers and each
of their respective officers, directors, employees and agents from any and all
liabilities, obligations, losses, damages, payments and claims, and reasonable
costs or expenses, arising from the servicer's willful misconduct, bad faith or
gross negligence in the performance of its duties, the servicer's reckless
disregard of its obligations and duties or the servicer's breach in any material
respect of any of its representations or warranties. The servicer will not be
liable, however, for any liabilities, obligations, losses, damages, payments or
claims, or reasonable costs or expenses, resulting from the willful misconduct,
bad faith or gross negligence of the party seeking indemnification.
The servicing agreement also provides that the servicer releases us and our
independent managers, the indenture trustee and each of our respective officers,
directors and agents from any actions, claims and demands which the servicer, in
the capacity of servicer or otherwise, may have against those parties relating
to the transition property or the servicer's activities, other than actions,
claims and demands arising from the willful misconduct, bad faith or gross
negligence of the parties.
EVIDENCE AS TO COMPLIANCE
The servicing agreement will provide that a firm of independent public
accountants, at our expense, will furnish to us, the indenture trustee and the
rating agencies on or before of each year, beginning , a
statement as to compliance by the servicer with standards relating to the
servicing of the transition property during the preceding twelve months ended
(or preceding period since the closing date of the issuance of the
notes 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 us and to the
indenture trustee and the rating agencies, on or before of each year,
beginning , 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 (or preceding
period since the closing date of the issuance of the notes in the case of the
first certificate) or, if there has been a default in the fulfillment of any
obligation under the servicing agreement, describing each default. The servicer
has agreed to give us, the indenture trustee and the ratings agencies notice of
servicer defaults under the servicing agreement.
You may obtain copies of the statements and certificates by sending a
written request addressed to the indenture trustee.
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The servicer will also be required to deliver monthly reports and copies of
any filings made with the Texas commission to us and to the indenture trustee
and the rating agencies. In addition, the servicer is required to make certain
disclosures to its retail customers and REPs, and must provide information about
the REPs as is reasonably requested by the rating agencies.
MATTERS REGARDING THE SERVICER
The servicing agreement will provide that CPL may not resign from its
obligations and duties as servicer thereunder, except when either:
- CPL determines that performance of its duties is no longer permissible
under applicable law; or
- CPL receives (1) notice from the rating agencies rating the notes that
CPL's resignation will not result in a reduction or withdrawal of the
then current ratings on any class of notes, and (2) consent of the Texas
commission, to the extent required under the financing order.
No resignation by CPL as servicer will become effective until a successor
servicer has assumed CPL's servicing obligations and duties under the servicing
agreement.
The servicing agreement further provides that neither the servicer nor any
of its directors, officers, employees, and agents will be liable to us or to the
indenture trustee, our managers, you 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.
However, neither the servicer nor any person or entity will be protected against
any liability that would otherwise be imposed by reason of willful misconduct,
bad faith or gross negligence in the performance of duties. The servicer and any
of its directors, officers, employees or agents may rely in good faith on the
advice of counsel reasonably acceptable to the indenture trustee or on any
document submitted by any person respecting any matters under the servicing
agreement. 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 our expense.
Under the circumstances specified in the servicing agreement, any entity
which becomes the successor by merger, sale, transfer, lease, management
contract or otherwise to the major part of the servicer's electric transmission
and distribution business may assume all of the rights and obligations of the
servicer under the servicing agreement. If transmission and distribution are not
provided by a single entity after any such transaction, the entity which
provides wire service directly to retail customers taking service as facilities,
premises located in the servicer's certificated service area as it existed on
May 1, 1999 may assume all of the servicer's rights and obligations under the
servicing agreement. The following are conditions to the transfer of the duties
and obligations to a successor servicer:
- immediately after the transfer, no servicer default has occurred and is
continuing;
- the servicer has delivered to us and to the indenture trustee and the
rating agencies an officer's certificate and an opinion of counsel
stating that the transfer complies with the servicing agreement and all
conditions to the transfer under the servicing agreement have been
complied with;
- the servicer has delivered to us and to the indenture trustee and the
rating agencies an opinion of counsel stating either that all necessary
filings, including those with the Texas commission, to protect our
interests in all of the transition property have been made or that no
filings are required; and
- the servicer has given prior notice to the rating agencies.
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So long as the conditions of any such assumptions are met, then the prior
servicer will automatically be released from its obligations under the servicing
agreement.
The servicing agreement permits the servicer to appoint any person to
perform any or all of its obligations. However, unless the appointed person is
an affiliate of CPL, the servicer must receive notice from the rating agencies
that the appointment will not result in a reduction or withdrawal of the then
current ratings on any class of notes and the servicer must remain obligated and
liable under the servicing agreement.
SERVICER DEFAULTS
Servicer defaults under the servicing agreement will include, among other
things:
- any failure by the servicer to remit payments arising from the transition
charge into the collection account as required under the servicing
agreement, which failure continues unremedied for five business days
after written notice from us or the indenture trustee is received by the
servicer or after discovery of the failure by an officer of the servicer;
- any failure by the servicer or CPL to observe or perform in any material
respect any of its respective other covenants or agreements in the
servicing agreement or the other agreements related to the notes, which
failure materially and adversely affects the rights of noteholders and
which continues unremedied for 60 days after the giving of notice of a
failure (1) to the servicer or CPL by us or (2) to the servicer or CPL by
the indenture trustee or holders of notes evidencing not less than 25% in
principal amount of the outstanding notes;
- any representation or warranty made by the servicer in the servicing
agreement will prove to have been incorrect in a material respect when
made, which has a material adverse effect on us or the noteholders and
which material adverse effect continues unremedied for a period of 60
days after the giving of notice to the servicer by us or the indenture
trustee; and
- events of bankruptcy, insolvency, receivership or liquidation of the
servicer.
RIGHTS WHEN SERVICER DEFAULTS
In the event of a servicer default that remains unremedied, either the
indenture trustee or holders of notes evidencing not less than a majority in
principal amount of then outstanding notes of all series may terminate all the
rights and obligations of the servicer under the servicing agreement, other than
the servicer's indemnity obligation and obligation to continue performing its
functions as servicer until a successor servicer is appointed. After the
termination, the indenture trustee will appoint a successor servicer who will
succeed to all the responsibilities, duties and liabilities of the servicer
under the servicing agreement and will be entitled to similar compensation
arrangements. In addition, when a servicer defaults, the noteholders (subject to
the provisions of the indenture) and the indenture trustee as beneficiary of any
statutory lien permitted by the restructuring act will be entitled to apply to a
Travis County, Texas district court for sequestration and payment of revenues
arising from the transition property. If, however, a bankruptcy trustee or
similar official has been appointed for the servicer, and no servicer default
other than an appointment of a bankruptcy trustee or similar official has
occurred, that trustee or official may have the power to prevent the indenture
trustee or the noteholders from effecting a transfer of servicing. The indenture
trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor servicer which satisfies criteria specified by the
nationally recognized statistical rating agencies rating the notes. The
indenture trustee may make arrangements for compensation to be paid to the
successor servicer.
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WAIVER OF PAST DEFAULTS
Holders of notes evidencing not less than a majority in principal amount of
the then outstanding notes, on behalf of all noteholders, may waive any default
by the servicer in the performance of its obligations under the servicing
agreement and its consequences, except a default in making any required
remittances to the collection account under the servicing agreement. The
servicing agreement provides that no waiver will impair the noteholders' rights
relating to subsequent defaults.
SUCCESSOR SERVICER
If for any reason a third party assumes the role of the servicer under the
servicing agreement, the servicing agreement will require the servicer to
cooperate with us and with the indenture 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 we will be liable for its reasonable costs and
expenses incurred in transferring servicing responsibilities (which will not
include any set-up costs for the successor) to the successor servicer.
AMENDMENT
The servicing agreement may be amended with five business days' prior
written notice to the rating agencies with the consent of the indenture trustee,
but without the consent of the noteholders
- to cure any ambiguity,
- to correct or supplement any provision in the servicing agreement,
- for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the servicing agreement, or
- of modifying in any manner the rights of the noteholders,
provided that the action will not, as certified in a certificate of an officer
of the servicer delivered to us and to the indenture trustee and the managers,
adversely affect in any material respect the interest of any holder of notes
then outstanding.
The servicing agreement may also be amended by the servicer and us with
five business days' prior written notice to the rating agencies and with the
consent of the indenture trustee and the holders of notes evidencing at least a
majority in principal amount of the then outstanding notes for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the servicing agreement or of modifying in any manner the rights
of the noteholders. However, no amendment adopted in this manner may increase or
decrease, or accelerate or delay the timing of, collection of transition
charges, or reduce the percentage of noteholders required to consent to
amendments. No amendment of the provisions of the servicing agreement relating
to the servicer's remittance and transition charge adjustment obligations will
be permitted absent confirmation from the rating agencies that such amendment
will not result in a reduction or withdrawal of the then existing rating of the
notes by the rating agencies (except that with regard to Moody's it will be
sufficient to provide ten days' prior notice of the amendment). We may also
amend the servicing procedures provided in the servicing agreement solely to
address changes to the servicer's method of calculating payments of transition
charges received as a result of changes to the servicer's current computerized
information system, if the amendment does not have a material adverse effect on
the holders of notes then outstanding, with prior written notice to the
indenture trustee and the rating agencies, but without the consent of the
indenture trustee, any rating agency or any noteholder. These
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changes may include changes which would replace remittances calculated by
estimation procedures with remittances of transition charge collections actually
received.
DESCRIPTION OF THE NOTES
GENERAL
We will issue the notes pursuant to the terms of an indenture between us
and the indenture trustee. The particular terms of the notes of any series will
be established in a supplement to the indenture or an issuance certificate and,
in either case, the material terms will be described in the related prospectus
supplement. Although we have disclosed the material terms of the notes and the
indenture in this prospectus, this summary is subject to the terms and
provisions of the indenture and related supplements or issuance certificates,
forms of which are filed as exhibits to the registration statement of which this
prospectus forms a part.
We may issue the notes in one or more series, any one or more of which may
be comprised of one or more classes. Classes of notes may differ as to the
interest rate and the timing, sequential order and amount of payments of
principal or interest, or both. Each series of notes may include one or more
classes of notes that accrue interest at a variable rate based on an index
described in the related prospectus supplement. A swap agreement may serve as
security for any class of floating rate notes, in addition to the security
provided under the indenture. Please refer to "-- Floating Rate Notes" below.
While the prospectus supplement will describe the specific terms of only a
series of notes (and the classes of that series (if any)) in respect of which
this prospectus is being delivered, the terms of that series and any classes
will not be subject to the prior review of or consent of the holders of
outstanding notes. All notes of the same series will be identical in all
respects except for the denominations, unless that series is comprised of more
than one class, in which case all notes of the same class will be identical in
all respects except for the denominations.
All notes that we issue under the indenture will be payable solely from,
and secured solely by, a pledge of and lien on the transition property and the
other collateral as provided in the indenture. Please refer to "Security for the
Notes -- Pledge of Collateral" in this prospectus. All notes that we issue under
the indenture, whenever issued, on all of the collateral.
The prospectus supplement for a series of notes will describe the following
terms of that series of notes and, if applicable, the classes of that series:
- the designation of the series and, if applicable, the classes of that
series,
- the principal amount of the series and, if applicable, the classes of
that series,
- the annual rate at which interest accrues,
- the payment dates,
- the scheduled final payment date and the final maturity date of the
series and, if applicable, the classes of that series,
- the issuance date of the series,
- the place or places for the payment of principal,
- the authorized denominations,
- any provisions for optional redemption of the series or class,
- the expected amortization schedule for principal of the series and, if
applicable, the classes of that series,
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- that the series will have an equal priority lien with all other
outstanding series,
- any other material terms of the class that are not inconsistent with the
provisions of the indenture and that will not result in any rating agency
reducing or withdrawing its rating of any outstanding class of notes,
- the identity of the indenture trustee, and
- solely if a series includes floating rate notes, the terms of any swap
agreement executed to permit such issuance and the identity of any swap
counterparty related thereto.
The notes are not a debt, liability or other obligation of the State of
Texas or of any political subdivision, agency or instrumentality of the State
and do not represent an interest in or legal obligation of CPL or any of its
affiliates, other than us. Neither CPL nor any of its affiliates will guarantee
or insure the notes. Financing orders authorizing the issuance of the notes do
not constitute a pledge of the full faith and credit of the State of Texas or of
any of its political subdivisions. The issuance of the notes under the
restructuring act will not directly, indirectly or contingently obligate the
State of Texas or any of its political subdivisions to levy or to pledge any
form of taxation for the notes or to make any appropriation for their payment.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a class of notes at the
annual rate either specified in or determined in the manner specified in the
related prospectus supplement and will be payable on the payment dates specified
in the related prospectus supplement. Collections of transition charges,
including amounts available in the reserve subaccount, the overcollateralization
subaccount and, if necessary, the amounts available in the capital subaccount.
In the event of default by an REP, the amounts in the REP deposit subaccount (up
to an amount of the lesser of the payment defaults of an REP or that REP's
deposit amount) will be used to make interest payments to the noteholders of
each class on each payment date for the notes. Please refer to "Security for the
Notes -- Allocations; Payments."
Principal of the notes of each class will be payable in the amounts and on
the payment dates specified in the related prospectus supplement, but only to
the extent that amounts in the collection account are available, and subject to
the other limitations described below, under "Security for the
Notes -- Allocations; Payments." Each prospectus supplement will set forth the
expected amortization schedule for each series of notes and, if applicable, the
classes of that series. On any payment date, unless an event of default has
occurred and is continuing and the notes have been declared due and payable, the
indenture trustee will make principal payments on the notes only until the
outstanding principal balances of those notes have been reduced to the principal
balances specified in the applicable expected amortization schedule for that
payment date. The indenture trustee will retain in the reserve subaccount for
payment on later payment dates any collections of transition charges in excess
of amounts payable as
- expenses of the servicer, the independent managers and the indenture
trustee (including the servicing fee),
- payments of interest on and principal of the notes,
- allocations to the capital subaccount, and
- allocations to the overcollateralization subaccount (all as described
under "Security for the Notes -- Allocations; Payments").
If the indenture trustee receives insufficient collections of transition charges
for any payment date, and amounts in the collection account (and the applicable
subaccount of the collection account) are not sufficient to make up the
shortfall, principal of any class of notes may be
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payable later than expected, as described in this prospectus. Please refer to
"Risk Factors -- Other Risks Associated with an Investment in the Notes." The
entire unpaid principal amount of the notes of all series will be due and
payable on the date on which an event of default (other than a breach by the
State of Texas of its pledge) has occurred and is continuing, if the indenture
trustee or the holders of not less than a majority in principal amount of the
notes of all series then outstanding have declared the notes to be immediately
due and payable. Please refer to "Description of the Notes -- Events of Default;
Rights Upon Event of Default" in this prospectus.
Unless the context requires otherwise, all references in this prospectus to
principal of the notes of a series include any premium that might be payable if
notes of that series are redeemed, as described in the related prospectus
supplement.
PAYMENTS ON THE NOTES
The indenture trustee will pay on each payment date to the holders of each
class of notes to the extent of available funds in the collective account all
payments of principal and interest then due. In the case of floating rate notes,
in lieu of interest, the indenture trustee will make payments under any related
swap agreement with respect to interest. The indenture trustee will make each
payment other than the final payment with respect to any notes to the holders of
record of the notes of the applicable class on the record date for that payment
date. The indenture trustee will make the final payment for each class of notes,
however, only upon presentation and surrender of the notes of that class at the
office or agency of the indenture trustee specified in the notice given by the
indenture trustee of the final payment. The indenture trustee will mail notice
of the final payment to the noteholders no later than five days prior to the
final payment date, specifying the date set for the final payment and the amount
of the payment.
If interest on the notes of any series is not paid when due, the defaulted
interest will be paid (plus interest on the defaulted interest at the applicable
note's interest rate to the extent lawful) to the noteholders on a special
record date. The special record date will be at least fifteen business days
prior to the date on which the indenture trustee is to make a special payment (a
"special payment date"). We will fix any special record date and special payment
date. At least 20 days before any special record date, the indenture trustee
will mail to each affected noteholder a notice that states the special record
date, the special payment date and the amount of defaulted interest (plus
interest on the defaulted interest) to be paid.
At the time, if any, we issue the notes of any series in the form of
definitive notes and not to DTC or its nominee, the indenture trustee will make
payments with respect to that class on a payment date or a special payment date
by check mailed to each holder of a definitive note of the class of record on
the applicable record date at its address appearing on the register maintained
with respect to the notes of that series. Upon application by a holder of any
class of notes in the principal amount of $10,000,000 or more to the indenture
trustee not later than the applicable record date, the indenture trustee will
make payments by wire transfer to an account maintained by the payee in New
York, New York.
If any special payment date or other date specified for any payments to
noteholders is not a business day, the indenture trustee will make payments
scheduled to be made on that special payment date or other date on the next
succeeding business day and no interest will accrue upon the payment during the
intervening period. "Business day" means any day other than a Saturday, a Sunday
or a day on which banking institutions or trust companies in New York, New York
or Dallas, Texas are, or DTC is, authorized or obligated by law, regulation or
executive order to remain closed.
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FLOATING RATE NOTES
If we offer any floating rate notes of any class, we will enter into one or
more swap agreements with a swap counterparty identified and having the terms
described in the related prospectus supplement. Generally, a swap agreement, on
each payment date, will obligate us to pay to the swap counter party, solely
from payments of transition charges received with respect to that class of
notes, an amount equal to the interest due on that class of notes on the payment
date. The swap agreement will obligate the swap counter party to pay to us an
amount equal to the product of (1) the floating rate and (2) the principal
balance of the floating rate notes as of the close of business on the preceding
payment date, after giving effect to all payments of principal made to the
floating rate noteholders on the preceding payment date. Please refer to "Risk
Factors -- Additional Risks of Floating Rate Notes" in this prospectus.
NO THIRD-PARTY CREDIT ENHANCEMENT
We do not currently anticipate that the notes will have the benefit of any
third-party credit enhancement, such as guarantees, letters of credit, insurance
or the like. If, however, we issue any series of notes with any third-party
credit enhancement any credit enhancement will be described in the related
prospectus supplement.
REGISTRATION AND TRANSFER OF THE NOTES
If specified in the related prospectus supplement, we may issue one or more
classes of notes in definitive form, which will be transferable and exchangeable
at the office of the registrar identified in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, there will be
no service charge for any registration or transfer of the notes, but the
indenture trustee may require the owner to pay a sum sufficient to cover any tax
or other governmental charge.
We will issue each class of notes in the minimum initial denominations set
forth in the related prospectus supplement and, except as otherwise provided in
the related prospectus supplement, in integral multiples thereof.
The indenture trustee will make payments of interest and principal on each
payment date to the noteholders in whose names the notes were registered on the
record date.
BOOK-ENTRY REGISTRATION
If specified in the related prospectus supplement, one or more classes of
notes may initially be book-entry notes. Book-entry notes are initially
represented by one or more notes registered in the name of Cede & Co., as
nominee of DTC, or another securities depository, and are available only in the
form of book-entries. We will initially register any book-entry notes in the
name of Cede & Co., the nominee 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 the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participants and to facilitate the settlement of securities
transactions between participants through electronic book-entries, thereby
eliminating the need for physical movement of securities. Participants include
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others, such as banks, brokers,
dealers and trust companies, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
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Noteholders that are not DTC participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, notes may do so only through participants and indirect participants. In
addition, noteholders will receive all payments of principal of and interest on
the notes from the indenture trustee through DTC and its participants. Under a
book-entry format, noteholders will receive payments after the related payment
date because, while payments are required to be forwarded to Cede & Co., as
nominee for DTC, on that date, DTC will forward the payments to its
participants, which thereafter will be required to forward them to indirect
participants or holders of beneficial interests in the notes. The indenture
trustee, the servicer and any paying agent, transfer agent or registrar may
treat the registered holder in whose name any note is registered (expected to be
Cede & Co.) as the absolute owner thereof (whether or not the note is overdue
and notwithstanding any notice of ownership or writing thereon or any notice to
the contrary) for the purpose of making payments and for all other purposes.
Unless and until we issue definitive notes, we anticipate that the only
"holder" of notes of any series will be Cede & Co., as nominee of DTC.
Noteholders will only be permitted to exercise their rights as noteholders
indirectly through DTC or its participants. All references in this prospectus to
actions by noteholders thus refer to actions taken by DTC upon instructions from
its participants. All references in this prospectus to payments, notices,
reports and statements to noteholders refer to payments, notices, reports and
statements to Cede & Co., as the registered holder of the notes, for
distribution to the beneficial owners of the notes in accordance with DTC
procedures.
Except under the circumstances described below, while any book-entry notes
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 notes. In addition, DTC is required to receive and transmit
payments of principal of, and interest on, the book-entry notes. Participants
with whom noteholders have accounts with respect to book-entry notes are
similarly required to make book-entry transfers and receive and transmit these
payments on behalf of their respective noteholders. Accordingly, although
noteholders will not possess physical notes, DTC's rules provide a mechanism by
which noteholders 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 certain banks. Thus, the ability of holders of
beneficial interests in the notes to pledge notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of the
notes, may be limited due to the lack of a definitive note for the notes.
DTC has advised the indenture trustee that it will take any action
permitted to be taken by a noteholder under the indenture and the related
prospectus supplement only at the direction of one or more participants to whose
account with DTC the notes are credited. Additionally, DTC has advised the
indenture trustee that it may take actions with respect to the noteholders'
interest that might conflict with other of its actions with respect thereto.
DEFINITIVE NOTES
Unless otherwise specified in the related prospectus supplement, we will
issue notes of a series in registered, certificated form to noteholders, or
their nominees, rather than to DTC only under the circumstances provided in the
indenture, which will include: (1) our advising the indenture trustee in writing
that DTC is no longer willing or able to properly discharge its responsibilities
as nominee and depositary with respect to the book-entry notes of that series
and that we are unable to locate a qualified successor, (2) our electing to
terminate the book-entry system through DTC, with written notice to the
indenture trustee, or (3) after the occurrence of an event of default under the
indenture, holders' of notes representing not less than a majority of the
aggregate outstanding principal amount of the notes of any series
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maintained as book-entry notes advising us, the indenture trustee, and DTC in
writing that the continuation of a book-entry system through DTC (or a
successor) is no longer in the best interests of those noteholders. Upon
issuance of definitive notes of a series, those notes will be transferable
directly (and not exclusively on a book-entry basis) and registered holders will
deal directly with the indenture trustee with respect to transfers, notices and
payments.
Upon surrender by DTC of the definitive securities representing the notes
and instructions for registration, the indenture trustee will issue the notes in
the form of definitive notes, and thereafter the indenture trustee will
recognize the registered holders of the definitive notes as noteholders under
the indenture.
The indenture trustee will make payment of principal of and interest on the
notes directly to noteholders in accordance with the procedures set forth herein
and in the indenture and the related prospectus supplement. The indenture
trustee will make interest payments and principal payments to noteholders in
whose names the definitive notes were registered at the close of business on the
related record date. The indenture trustee will make payments by check mailed to
the address of the noteholder as it appears on the register maintained by the
indenture trustee or in such other manner as may be provided in the related
trustee's issuance certificate or supplement to the indenture and except that
certain payments will be made by wire transfer as described in the indenture.
The indenture trustee will make the final payment on any note (whether
definitive notes or notes registered in the name of Cede & Co.), however, only
upon presentation and surrender of the note on the final payment date at the
office or agency that is specified in the notice of final payment to
noteholders. The indenture trustee will provide the notice to registered
noteholders not later than the fifth day prior to the final payment date.
Definitive notes will be transferable and exchangeable at the offices of
the transfer agent and registrar, which initially will be the indenture trustee.
There will be no service charge for any registration of transfer or exchange,
but the transfer agent and registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
OPTIONAL REDEMPTION
We may redeem a series of notes on any payment date if, after giving effect
to payments that would otherwise be made on that date, the outstanding principal
balance of the series of notes has been reduced to less than five percent of the
initial principal balance. If specified in the prospectus supplement related to
any series or class of notes, the indenture may also permit the redemption of
the series or class of notes in full for cash on any payment date using proceeds
received from the issuance of any additional series or class of notes. These new
notes will be payable solely out of the transition property and other collateral
and will have no more than an equal priority lien thereon as against all
existing series of notes. In addition, a series of notes will be subject to
redemption if and to the extent provided in the related prospectus supplement.
The indenture does not permit a redemption under the indenture unless each
rating agency other than Moody's, to which prior written notice will be given,
has notified us and our managers, the servicer and the indenture trustee that
the redemption will not result in a reduction or withdrawal of the then current
rating of any outstanding class of notes. Upon any redemption of any series or
class of notes, we will have no further obligations under the indenture with
respect thereto. We may redeem the notes in all instances of optional
redemptions permitted by the indenture upon payment of the outstanding principal
amount of the notes to be redeemed and accrued but unpaid interest thereon as of
the date of redemption. We will give notice of redemption to the indenture
trustee and the rating agencies not less than 25 days nor more than 50 days
prior to the date of redemption. We will give written notice to each holder of
notes to be redeemed by first-class mail, postage prepaid, mailed not less than
five days nor more than 25 days prior to the applicable date of redemption.
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CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES AND ACQUISITION OF ADDITIONAL
TRANSITION PROPERTY
Our acquisition of transition property and issuance of any series of notes
with respect thereto after the initial acquisition and issuance is subject to
the following conditions, among others:
- all parties required to do so by the terms of the relevant documents must
have authorized, executed and delivered appropriate documentation
required by the indenture and the limited liability company agreement,
including trustee's certificates or supplements to the limited liability
company agreement;
- the seller must have irrevocably assigned all of its right, title and
interest in the additional transition property to us and made a filing
required by Section 39.309 of the restructuring act with respect to the
assignment;
- each rating agency must have notified us and our managers, the servicer
and the indenture trustee that the transactions will not result in a
reduction or withdrawal of the then current rating of any outstanding
class of notes;
- the seller must have delivered to us and our managers and the indenture
trustee an opinion of independent tax counsel and/or a ruling from the
IRS (as selected by, and in form and substance reasonably satisfactory
to, the seller) to the effect that, for federal income tax purposes, (1)
the issuance of the notes will not result in gross income to the seller
and the notes will be obligations of the seller, and (2) in the case of
the acquisition of subsequent transition property only, the issuance will
not adversely affect the characterization of the then outstanding notes
as obligations of the seller;
- no event of default may have occurred and be continuing under the
indenture;
- as of the date of issuance, we must have sufficient funds available to
pay the purchase price for the additional transition property, and all
conditions to the issuance of a new series of notes must have been
satisfied or waived; and
- we must deliver certain certificates and opinions specified in the
indenture to the indenture trustee.
Our obligation to purchase transition property on any transfer date is also
subject to the satisfaction or waiver of the conditions described in "The Sale
Agreement -- Conditions to the Sale of Transition Property."
ACCESS OF NOTEHOLDERS
Upon written request of any noteholder or group of noteholders of any
series or of all outstanding series of notes evidencing not less than 10 percent
of the aggregate outstanding principal amount of the notes of that series or all
series, as applicable, the indenture trustee will afford the noteholder or
noteholders access during business hours to the current list of noteholders of
that series or of all outstanding series, as the case may be, for purposes of
communicating with other noteholders with respect to their rights under the
indenture.
The indenture does not provide for any annual or other meetings of
noteholders.
REPORTS TO NOTEHOLDERS
On or prior to each payment date, special payment date or any other date
specified in the indenture for payments with respect to any series or class of
notes, the indenture trustee will deliver to the noteholders of that series or
class a statement with respect to the payment to be
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made on the payment date, special payment date or other date, as the case may
be, setting forth the following information:
- the amount of the payment to noteholders allocable to (1) principal and
(2) interest,
- the aggregate outstanding principal balance of the notes, after giving
effect to payments allocated to principal reported immediately above, and
- the difference, if any, between the amount specified immediately above
and the principal amount scheduled to be outstanding on that date
according to the related expected amortization schedule.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the notes, the indenture trustee
will mail to each person who at any time during the calendar year has been a
noteholder and received any payment thereon, a statement containing certain
information for the purposes of the noteholder's preparation of U.S. federal and
state income tax returns. Please refer to "Material U.S. Federal Tax
Consequences."
SUPPLEMENTAL INDENTURES
From time to time, and without the consent of the noteholders of any series
(but with prior notice to the rating agencies), we may enter into one or more
agreements supplemental to the indenture for various purposes described in the
indenture, including:
- to correct or amplify the description of any property subject to the
indenture, or to better convey the property subject to the indenture, or
to add additional property,
- to add to the covenants for the benefit of the noteholders,
- to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture which may be inconsistent with
any other provision in the indenture or in any supplemental indenture or
to make any other provisions with respect to matters or questions arising
under the indenture, however, any such action will not adversely affect
the interests of the noteholders,
- to evidence the succession of another person to us or to the indenture
trustee in accordance with the terms of the indenture,
- to effect qualification under the Trust Indenture Act of 1939, or
- to set forth the terms of any additional series or class of notes or to
provide for the terms of any swap agreement.
We may also, without the consent of the noteholders, enter into one or more
other agreements supplemental to the indenture so long as the supplemental
agreement does not, as evidenced by an opinion of counsel, adversely affect the
interests of any holders of notes then outstanding in any material respect and
each rating agency has notified us and the servicer, the indenture trustee and
the issuer trustee that the supplemental agreement will not result in a
reduction or withdrawal of the then current rating of any outstanding class of
notes.
In addition, we may, with the consent of noteholders holding not less than
a majority of the aggregate outstanding principal amount of the notes of all
affected series or classes, enter into one or more indentures supplemental to
the 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
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indenture. No supplement, however, may, without the consent of each noteholder
of each series or class affected thereby, take certain actions enumerated in the
indenture, including:
- reduce in any manner the amount of, or delay the timing of, deposits or
payments on any note,
- reduce the percentage of the aggregate outstanding principal amount of
the notes the holders of which are required to consent to any supplement,
- modify the provisions in the indenture relating to amendments with the
consent of noteholders to decrease any minimum percentage of noteholders
required to approve amendments,
- permit the creation of any lien on the collateral ranking prior to or on
a parity with the lien of the indenture, or
- cause any material adverse federal income tax consequences to us or to
our managers or to the seller, the indenture trustee or the then existing
noteholders.
Promptly following the execution of any supplement to the indenture, the
indenture trustee will furnish written notice of the substance of the supplement
to each noteholder. Any supplement to the indenture or trustee's issuance
certificate executed in connection with the issuance of one or more additional
series of notes will not be considered an amendment to the indenture.
COVENANTS OF THE ISSUER
We may not consolidate with or merge into any other entity, unless:
- the entity formed by or surviving the consolidation or merger is
organized under the laws of the U.S., any State or the District of
Columbia;
- the entity expressly assumes by an indenture supplemental to the
indenture the performance or observance of all of our agreements and
covenants under the indenture;
- no default or event of default under the indenture has occurred and is
continuing immediately after the merger or consolidation;
- each rating agency has notified us, the servicer and the indenture
trustee that the transaction will not result in a reduction or withdrawal
of the then current rating of any outstanding class of notes;
- the seller has delivered to us, the indenture trustee and the rating
agencies an opinion of outside tax counsel (as selected by, and in form
and substance reasonably satisfactory to, the seller, and which may be
based on a ruling from the IRS) to the effect that the consolidation or
merger will not result in a material adverse federal income tax
consequence to us, the seller, the indenture trustee or the then existing
noteholders;
- any action as is necessary to maintain the first perfected security
interest in the note collateral created by the indenture has been taken,
as evidenced by an opinion of outside counsel; and
- we have delivered to the indenture trustee an officer's certificate and
an opinion of counsel, each stating that all conditions precedent in the
indenture provided for relating to the transaction have been complied
with.
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We may not sell, convey, exchange or transfer or otherwise dispose of any
of our properties or assets to any person or entity, unless:
- the person or entity acquiring the properties and assets
-- is a U.S. citizen or an entity organized under the laws of the U.S.,
any State or the District of Columbia,
-- expressly assumes by an indenture supplemental to the indenture the
performance or observance of all of our agreements and covenants under
the notes,
-- expressly agrees by the supplemental indenture that all right, title
and interest so conveyed or transferred will be subject and subordinate
to the rights of noteholders,
-- unless otherwise specified in the supplemental indenture referred to
above, expressly agrees to indemnify, defend and hold us harmless
against and from any loss, liability or expense arising under or
related to the indenture and the notes, and
-- expressly agrees by means of the supplemental indenture that the person
(or if a group of persons, then one specified person) will make all
filings with the SEC (and any other appropriate person) required by the
Securities Exchange Act of 1934 in connection with the notes;
- no default under the indenture has occurred and is continuing immediately
after the transactions;
- each rating agency has notified us, the servicer and the indenture
trustee that the transactions will not result in a reduction or
withdrawal of the then current rating of any outstanding class of notes;
- the seller has delivered to us, the indenture trustee and the rating
agencies an opinion of outside tax counsel (as selected by, and in form
and substance reasonably satisfactory to, the seller, and which may be
based on a ruling from the IRS) to the effect that the disposition will
not result in a material adverse federal income tax consequence to us,
the Seller, the indenture trustee or the then existing noteholders;
- any action as is necessary to maintain a first perfected security
interest in the note collateral created by the indenture has been taken
as evidenced by an opinion of outside counsel; and
- we have delivered to the indenture trustee an officer's certificate and
an opinion of counsel, each stating that the conveyance or transfer
complies with the indenture and all conditions precedent therein provided
for relating to the transaction have been complied with.
We will not, among other things, for so long as any notes are outstanding:
- except as expressly permitted by the indenture, sell, transfer, exchange
or otherwise dispose of any of our assets unless directed to do so by the
indenture trustee,
- claim any credit on, or make any deduction from the principal or interest
payable in respect of, the notes (other than amounts properly withheld
under the Code) or assert any claim against any present or former
noteholder because of the payment of taxes levied or assessed upon any
part of the transition property and the other collateral,
- terminate our existence, or dissolve or liquidate in whole or in part,
- permit the validity or effectiveness of the indenture to be impaired,
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- permit the lien of the indenture to be amended, hypothecated,
subordinated, terminated or discharged or permit any person to be
released from any covenants or obligations with respect to the notes
except as may be expressly permitted by the indenture,
- permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than the lien and security interest granted
under the indenture, to be created on or extend to or otherwise arise
upon or burden the collateral or any part thereof or any interest therein
or the proceeds thereof (other than tax liens arising by operation of law
with respect to amounts not yet due),
- permit the lien granted under the indenture not to constitute a valid
first priority security interest in the collateral, or
- elect to be classified as an association taxable as a corporation for
federal income tax purposes.
We may not engage in any business other than financing, purchasing, owning
and managing the transition property and the other collateral and the issuance
of the notes in the manner contemplated by the notes, the basic documents or
certain related activities incidental thereto.
We will not issue, incur, assume, guarantee or otherwise become liable for
any indebtedness except for the notes.
We will not, except as contemplated by the notes and the basic 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. We will not, except as
contemplated by the notes and the basic documents, make any expenditure (by
long-term or operating lease or otherwise) for capital assets (either realty or
personalty).
We will not make any payments, distributions, dividends or redemptions to
any holder of our equity interests in respect of that interest for any calendar
month unless no event of default has occurred and is continuing and any
distributions do not cause the book value of our remaining equity to decline
below 0.50% of the initial principal amount of all series of notes issued and
outstanding pursuant to the indenture.
We will cause the servicer to deliver to the indenture trustee the annual
accountant's certificates, compliance certificates, reports regarding
distributions and statements to noteholders required by the servicing agreement.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An "event of default" with respect to any series of notes is defined in the
indenture as being:
- a default for five business days in the payment of any interest on any
note,
- a default in the payment of the then unpaid principal of any note on the
final maturity date for the series,
- a default in the payment of the optional redemption price for any note on
the optional redemption date therefor,
- a default in the observance or performance in any material respect of any
of our covenants or agreements made in the indenture (other than a
default under the first three bullet points above) and the continuation
of any default for a period of 30 days after written notice of the
default is given to us by the indenture trustee or to us and the
indenture trustee by the holders of at least 25% in principal amount of
the notes of that series then outstanding,
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- any representation or warranty made by us in the indenture or in any
certificate delivered pursuant to the indenture or in connection with the
indenture having been incorrect in a material respect as of the time
made, and the breach not having been cured within 30 days after notice of
the breach is given to us by the indenture trustee or to us and the
indenture trustee by the holders of at least 25% in principal amount of
the indenture of that series then outstanding,
- certain events of bankruptcy, insolvency, receivership or liquidation,
- a breach by the State of Texas or any of its agencies (including the
Texas commission) of the State's pledge, or
- any other event designated as such in an issuance certificate or series
supplement relating to that series as described in the related prospectus
supplement.
If an event of default (other than as specified in the seventh bullet point
above) should occur and be continuing with respect to any series of notes, the
indenture trustee or holders of not less than a majority in principal amount of
the notes of all series then outstanding may declare the unpaid principal of the
notes of all series to be immediately due and payable. The holders of a majority
in principal amount of the notes of all series then outstanding may rescind that
declaration under certain circumstances set forth in the indenture. If an event
of default as specified in the seventh bullet above has occurred, the servicer
will be obligated to institute (and the indenture trustee, for the benefit of
the noteholders, will be entitled and empowered to institute) any suits, actions
or proceedings at law, in equity or otherwise, to enforce the State's pledge and
to collect any monetary damages as a result of a breach thereof, and each of the
servicer and the indenture trustee may prosecute any suit, action or proceeding
to final judgment or decree. The servicer would be required to advance its own
funds in order to bring any suits, actions or proceedings and, for so long as
the legal actions were pending, the servicer would, unless otherwise prohibited
by applicable law or court or regulatory order in effect at that time, be
required to bill and collect the transition charges, perform adjustments and
discharge its obligations under the servicing agreement. The servicer would be
entitled to reimbursement of its expenses advanced by it in connection with the
legal or administrative action as our operating expense under the indenture.
If the notes of all series have been declared to be due and payable
following an event of default, the indenture trustee may, in its discretion,
either sell the transition property or elect to have us maintain possession of
the transition property and continue to apply transition charge collections as
if there had been no declaration of acceleration. There is likely to be a
limited market, if any, for the transition property following a foreclosure, in
light of the event of default, the unique nature of the transition property as
an asset and other factors discussed in this prospectus. In addition, the
indenture trustee is prohibited from selling the transition property following
an event of default with respect to any series, other than a default in the
payment of any principal or redemption price or a default for five days or more
in the payment of any interest on any note of any series unless
- the holders of all the outstanding notes of all series consent to the
sale,
- the proceeds of the sale are sufficient to pay in full the principal of
and the accrued interest on the outstanding notes of all series, or
- the indenture trustee determines that the proceeds of the collateral
would not be sufficient on an ongoing basis to make all payments on the
notes of all series as those payments would have become due if the notes
had not been declared due and payable, and the indenture trustee obtains
the consent of the holders of 66 2/3% of the aggregate outstanding amount
of the notes of all series.
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Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing, the
indenture 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 of any series if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with the request. Subject to the provisions for
indemnification and certain limitations contained in the indenture:
- the holders of not less than a majority in principal amount of the
outstanding notes of all series (or, if less than all series or classes
are affected, the affected series, class or classes) will have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee and,
- the holders of not less than a majority in principal amount of the notes
of all series then outstanding may, in certain cases, waive any default
with respect thereto, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the
indenture that cannot be modified without the consent of all of the
holders of the outstanding notes of all series or classes affected
thereby.
With respect to the notes, no holder of any note of any series will have
the right to institute any proceeding with respect to the notes, unless:
- the holder previously has given to the indenture trustee written notice
of a continuing event of default with respect to that series,
- the holders of not less than a majority in principal amount of the
outstanding notes of all series have made written request of the
indenture trustee to institute the proceeding in its own name as
indenture trustee,
- the holder or holders have offered the indenture trustee satisfactory
indemnity,
- the indenture trustee has for 60 days failed to institute the proceeding,
and
- no direction inconsistent with the written request has been given to the
indenture trustee during the 60-day period by the holders of a majority
in principal amount of the outstanding notes of all series.
In addition, each of the indenture trustee, the noteholders and the
servicer will covenant that it will not, prior to the date which is one year and
one day after the termination of the indenture, institute against us or against
our managers or our member or members any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law, subject to the
right of a Travis county, Texas district court to order sequestration and
payment of revenues arising with respect to the transition property.
Neither any manager nor the indenture trustee in its individual capacity,
nor any holder of any ownership interest in us, nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the notes
of any series or for our agreements contained in the indenture.
ACTIONS BY NOTEHOLDERS
Subject to certain exceptions, the holders of not less than a majority of
the aggregate outstanding amount of the notes of all series (or, if less than
all series or classes are affected, the affected series or class or classes)
will have the right to direct the time, method and place of
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conducting any proceeding for any remedy available to the indenture trustee, of
exercising any trust or power conferred on the indenture trustee under the
indenture; provided that:
- the direction is not in conflict with any rule of law or with the
indenture and would not involve the indenture trustee in personal
liability or expense;
- the consent of 100% of the noteholders of all series is required to
direct the indenture trustee to sell the collateral; and
- the indenture trustee may take any other action deemed proper by the
indenture trustee which is not inconsistent with the direction.
In circumstances under which the indenture trustee is required to seek
instructions from the holders of the notes of any class with respect to any
action or vote, the indenture trustee will take the action or vote for or
against any proposal in proportion to the principal amount of the corresponding
class, as applicable, of notes taking the corresponding position.
Notwithstanding the foregoing, the indenture allows each noteholder to institute
suit for the nonpayment of (1) the interest, if any, on its notes which remains
unpaid as of the applicable due date and (2) the unpaid principal, if any, of
its notes on the final maturity date therefor.
ANNUAL REPORT OF INDENTURE TRUSTEE
If required by the Trust Indenture Act of 1939, the indenture trustee will
be required to mail each year to all noteholders a brief report. The report must
state, among other things:
- the indenture trustee's eligibility and qualification to continue as the
indenture trustee under the indenture,
- any amounts advanced by it under the indenture,
- the amount, interest rate and maturity date of specific indebtedness
owing by us to the indenture trustee in the indenture trustee's
individual capacity,
- the property and funds physically held by the indenture trustee,
- any additional issue of a series of notes not previously reported, and
- any action taken by it that materially affects the notes or any series
and that has not been previously reported.
ANNUAL COMPLIANCE STATEMENT
We will file annually with the indenture trustee and the rating agencies
rating the notes a written statement as to whether we have fulfilled our
obligations under the indenture.
THE INDENTURE TRUSTEE
will be the indenture trustee under the indenture. The indenture
trustee may resign at any time by so notifying us. The holders of a majority in
principal amount of the notes of all series then outstanding may remove the
indenture trustee by so notifying the indenture trustee and may appoint a
successor indenture trustee. We will remove the indenture trustee if the
indenture trustee ceases to be eligible to continue in this capacity under the
indenture, the indenture trustee becomes insolvent, a receiver or other public
officer takes charge of the indenture trustee or its property or the indenture
trustee becomes incapable of acting. If the indenture trustee resigns or is
removed or a vacancy exists in the office of indenture trustee for any reason,
we will be obligated promptly to appoint a successor indenture trustee eligible
under the indenture. No resignation or removal of the indenture trustee will
become effective until acceptance of the appointment by a successor indenture
trustee. The indenture trustee will at all times satisfy the requirements of the
Trust Indenture Act and Rule 3a-7 under the Investment
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Company Act of 1940 and have a combined capital and surplus of at least $50
million and a long term debt rating of "Baa3" or better by Moody's. If the
indenture trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business or assets to, another
entity, the resulting, surviving or transferee entity will without any further
action be the successor indenture trustee.
SECURITY FOR THE NOTES
GENERAL
The notes issued under the indenture are payable solely from and secured
solely by a pledge of and lien on the transition property and the other
collateral as provided in the indenture. As noted under the heading,
"Description of the Notes," we will issue the notes pursuant to the terms of the
indenture. We will establish the particular terms of the notes of any series in
a supplement to the indenture or an issuance certificate. We will describe the
material terms of the notes in the prospectus supplement for the related series
of notes.
PLEDGE OF COLLATERAL
To secure the payment of principal of and interest on the notes, we will
grant to the indenture trustee a security interest in all of our right, title
and interest in and to:
- all of the transition property,
- the sale agreement and servicing agreement,
- the collection account, all subaccounts of the collection account and all
amounts of cash or investment property on deposit therein or credited
thereto from time to time,
- with respect to floating rate notes only, any swap agreement entered into
with respect to the issuance of the floating rate notes,
- all rights to compel CPL, as servicer (or any successor), to file for and
obtain adjustments to the transition charges in accordance with Section
39.307 of the restructuring act and the financing order,
- all present and future claims, demands, causes and choses in action in
respect of any or all of the foregoing and all payments on or under the
foregoing, and
- all proceeds in respect of any or all of the foregoing.
The security interest does not extend to:
- amounts (including net investment earnings) on deposit in the REP deposit
subaccount that have been released to the servicer or an REP,
- amounts deposited in the overcollateralization subaccount and the capital
subaccount that have been released to us or as we direct following
retirement of all series of notes, and
- amounts deposited with us on any series issuance date for payment of
costs of issuance with respect to the related series of notes (together
with any interest earnings thereon).
We refer to the foregoing assets to which we, as assignee of the seller, will
grant the indenture trustee a security interest as the "collateral" in this
prospectus.
SECURITY INTEREST IN THE COLLATERAL
Section 39.308 of the restructuring act provides that transition property
does not constitute property in which a security interest may be created under
the Uniform Commercial Code.
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Rather, Section 39.308(b) of the restructuring act provides that a valid and
enforceable security interest in transition property will attach and be
perfected only by the means set forth in Section 39.308. Specifically, Section
39.308(b) provides that a valid and enforceable lien and security interest in
transition property may be created only by a financing order and the execution
and delivery of a security agreement in connection with issuance of financing
instruments such as the notes. The lien and security interest attach
automatically at the time when value is received for the instruments. Upon
perfection by filing notice with the Texas Secretary of State under Section
39.308(d) of the restructuring act, the lien and security interest will be a
continuously perfected lien and security interest in the transition property and
all proceeds of the property, whether accrued or not, and will have priority in
the order of filing and take precedence over any subsequent judicial or other
lien creditor. If notice is filed within 10 days after value is received for the
notes, the security interest will be perfected retroactively to the date that
value was received. Otherwise, the security interest will be perfected as of the
date of filing.
The relative priority of the lien and security interest perfected under
Section 39.308(d) of the restructuring act is not impaired by later modification
of the financing order or the commingling of revenues arising with respect to
any transition property with other funds (subject to the tracing requirements of
federal bankruptcy law).
The servicer, pledges in the servicing agreement to file with the Texas
Secretary of State on or before the date of issuance of any series of notes the
filing required by Section 39.308 of the restructuring act to perfect the lien
of the indenture trustee in the transition property. The seller will represent,
at the time of issuance of any series of notes, that no prior filing has been
made under the terms of Section 39.308 of the restructuring act with respect to
the transition property securing the notes to be issued other than a filing
which provides the indenture trustee with a first priority perfected security
interest in the transition property on a parity basis with that securing any
outstanding notes, if any.
Certain items of the collateral may not constitute transition property and
the perfection of the indenture trustee's security interest in those items of
collateral would therefore be subject to the UCC or common law and not Section
39.308 of the restructuring act. These items consist of our rights in
- the sale agreement or the servicing agreement,
- the capital subaccount or any other funds on deposit in the collection
account which do not constitute transition charge collections,
- any interest rate exchange agreements, and
- proceeds of the foregoing items.
Additionally, any contractual rights we have against retail customers (other
than the right to impose transition charges and rights otherwise included in the
definition of transition property) would be collateral to which the UCC applies.
As a condition to the issuance of any series of notes, we will have made
all filings and taken any other action required by the UCC or common law to
perfect the lien of the indenture trustee in all the items included in
collateral which do not constitute transition property. We will also covenant to
take all actions necessary to maintain or preserve the lien and security
interest on a first priority basis. We will represent, along with the seller, at
the time of issuance of any series of notes, that no prior filing has been made
with respect to the party under the terms of the UCC, other than a filing which
provides the indenture trustee with a first priority perfected security interest
in the collateral on a parity basis with that securing any outstanding notes.
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RIGHT OF FORECLOSURE
Section 39.308(f) of the restructuring act provides that if an event of
default occurs under the notes, the holders of the notes or their
representatives, as secured parties, may foreclose or otherwise enforce the lien
in the transition property securing the notes as if they were secured parties
under Article 9 of the UCC. The Texas commission may order that amounts arising
from transition charges be transferred to a separate account for the holders'
benefit, to which their lien and security interest will apply.
DESCRIPTION OF INDENTURE ACCOUNTS
Collection Account. Pursuant to the indenture, we will establish a
segregated trust account in the name of the indenture trustee with an eligible
institution, called the "collection account." The indenture trustee will hold
the collection account for our benefit as well as for the benefit of the
noteholders. The collection account will consist of five subaccounts: a general
subaccount, a reserve subaccount, an overcollateralization subaccount for the
overcollateralization amount with respect to each series of notes, an REP
deposit subaccount for REP deposits and a capital subaccount. All amounts in the
collection account not allocated to any other subaccount will be allocated to
the general subaccount. Unless the context indicates otherwise, references in
this prospectus to the collection account include each of the subaccounts
contained therein.
An "eligible institution" means (1) the corporate trust department of the
indenture trustee or (2) 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) (A) which has either (i) a long-term
unsecured debt rating of "AAA" by S&P and "A2" by Moody's or (ii) a certificate
of deposit rating of "A-1 +" by S&P and "P-1" by Moody's, or any other
long-term, short-term or certificate of deposit rating acceptable to the rating
agencies and (B) whose deposits are insured by the Federal Deposit Insurance
Corporation.
Funds in the collection account may be invested in any of the following
eligible investments (subject to additional restrictions in the indenture):
- direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the U.S.,
- demand deposits, time deposits, certificates of deposit or bankers'
acceptances of eligible institutions,
- commercial paper (other than commercial paper issued by CPL or any of its
affiliates) having, at the time of investment or contractual commitment
to invest, a rating in the highest rating category from each rating
agency from which a rating is available,
- money market funds which have the highest rating from each rating agency
from which a rating is available,
- repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the U.S. or certain of its
agencies or instrumentalities, entered into with certain depository
institutions or trust companies, or
- any other investment permitted by each rating agency, in each case which
mature on or before the business day preceding the next payment date.
The indenture trustee will have access to the collection account for the purpose
of making deposits in and withdrawals from the collection account in accordance
with the indenture. The servicer will select the eligible investments in which
funds will be invested, unless otherwise directed by the issuer.
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The servicer will remit transition charge payments to the collection
account in the manner described under "The Servicing Agreement -- Remittances to
Collection Account."
General Subaccount. The general subaccount will hold all funds held in the
collection account that are not held in the other four subaccounts. The servicer
will remit all transition charge payments to the general subaccount. On each
payment date, the indenture trustee will draw on amounts in the general
subaccount to pay our expenses and to pay interest and make scheduled payments
on the notes, and to make other payments and transfers in accordance with the
terms of the indenture.
Reserve Subaccount. The servicer will allocate to the reserve subaccount
transition charge collections available with respect to any payment date in
excess of amounts necessary to make the payments specified on such payment date.
Overcollateralization Subaccount. Each financing order will provide that
we, as the assignee of the transition property created by the financing order,
are entitled to collect an additional amount (referred to as the
"overcollateralization amount") specified in the related prospectus supplement.
The overcollateralization amount is intended to enhance the likelihood that
payments on the notes will be made in accordance with their expected
amortization schedules. Each financing order will permit the servicer to set the
transition charges at levels that it expects will produce transition charge
collections in amounts that exceed the amounts expected to be required to pay
interest and make scheduled payments on the notes, and to pay all related fees
and expenses of the issuer, including the servicing fee, in order to collect the
overcollateralization amount. The prospectus supplement will specify the
overcollateralization amount established in connection with each series of
notes, which will not be less than 0.50% of the initial principal balance of
that series of notes. The servicer will collect the overcollateralization amount
over the expected life of the notes of the series. The expected life of the
notes of any series is the period from the issuance date of the series of notes
through the latest scheduled final payment date for any note in the series. The
overcollateralization amount for all series of notes will be held in the
overcollateralization subaccount. We refer to the amount required to be on
deposit in the overcollateralization subaccount as of any payment date with
respect to each series, as specified in the schedule set forth in the related
prospectus supplement, as the "required overcollateralization level."
Amounts in the overcollateralization subaccount will be invested in
eligible investments, and earnings thereon will be deposited into the reserve
subaccount, subject to the limitations described under "-- Allocations;
Payments." Amounts in the overcollateralization subaccount are intended to cover
any shortfall in transition charge collections that might otherwise occur on any
payment date or at the last scheduled final payment date for any series or class
of notes.
Capital Subaccount. In connection with the issuance of each series of
notes, the seller will contribute capital to us in an amount, referred to as the
"required capital level," which will be at least equal to 0.50% of the initial
principal amount of that series of notes. This amount will be funded from the
proceeds of the sale of such series of notes. The amount in the aggregate for
all series of notes will be deposited into the capital subaccount.
REP Deposit Subaccount. Deposits received from REPs as described under
"Servicing Agreement -- Retail Electric Providers" will be held in the REP
deposit subaccount. Amounts in the REP deposit subaccount will only be available
to make payments on the notes in the event that an REP defaults in payment, in
which case the indenture trustee may withdraw the amount of the payment default
or, if less, the amount of that REP's security deposit.
ALLOCATIONS; PAYMENTS
On each payment date, the indenture trustee will pay or allocate, at the
direction of the servicer, all amounts on deposit in the collection account
(including investment earnings
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thereon) other than, except as described above, amounts in the REP deposit
subaccount, which have accumulated from the first billing date of the month in
which the prior payment date occurred until the final billing date of the month
immediately preceding the month of the relevant payment date, to pay the
following amounts in the following priority:
- the indenture trustee will pay all amounts owed by us to our independent
managers and the indenture trustee to those persons;
- the indenture trustee will pay the servicing fee and all unpaid servicing
fees from any prior payment dates to the servicer;
- so long as no event of default has occurred and is continuing or would be
caused by their payment, the indenture trustee will pay all other
operating expenses to the persons entitled thereto, provided that the
amount paid on each payment date may not exceed $100,000;
- the indenture trustee will pay any overdue interest on the notes
(together with, to the extent lawful, interest on the overdue interest at
the applicable notes' interest rate) and then currently due interest on
each series of notes to the noteholders (including payment of any amount
to a swap counterparty with respect to floating rate notes);
- the indenture trustee will pay principal on any series of notes payable
as a result of an event of default or on the final maturity date for the
series of notes to the noteholders of the applicable series;
- the indenture trustee will pay the scheduled principal payments for any
series of notes based on priorities described in each prospectus
supplement to the noteholders of the applicable series;
- the indenture trustee will pay any remaining unpaid operating expenses to
the persons entitled thereto;
- the indenture trustee will allocate the amount, if any, by which the
required capital level with respect to all outstanding series of notes
exceeds the amount in the capital subaccount as of that payment date to
the capital subaccount;
- the indenture trustee will allocate the amount, if any, by which the
required overcollateralization level exceeds the amount in the
overcollateralization subaccount as of that payment date to the
overcollateralization subaccount;
- the indenture trustee will allocate the balance, if any, to the reserve
subaccount for distribution on subsequent payment dates; and
- following the payment in full of all outstanding series of notes, the
indenture trustee will release the balance, if any (including amounts in
the overcollateralization subaccount and the capital subaccount), to us.
If on any payment date funds on deposit in the general subaccount are
insufficient to make the payments contemplated by the first six bullet points
above, the indenture trustee will first, draw from amounts on deposit in the
reserve subaccount, second, draw from amounts on deposit in the
overcollateralization subaccount, and third, draw from amounts on deposit in the
capital subaccount, up to the amount of the shortfall, in order to make those
payments in full. If the indenture trustee uses amounts on deposit in the
capital subaccount or the overcollateralization subaccount to pay those amounts
or make those transfers, as the case may be, subsequent adjustments to the
transition charges will take into account, among other things, those amounts.
Thereafter, on subsequent payment dates the indenture trustee will replenish the
capital subaccount or the overcollateralization subaccount, as the case may be,
to the extent transition charge collections exceed amounts required to pay
amounts having a higher priority of payment. In addition, if on any payment date
funds on deposit in the general subaccount are
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insufficient to make the transfers described in the eighth and ninth bullet
points above, the indenture trustee will draw from amounts on deposit in the
reserve subaccount to make the transfers notwithstanding the fact that, on that
payment date, the obligation to pay unpaid operating expenses to the persons
entitled thereto may not have been fully satisfied. If on any payment date when
there is more than one series of notes outstanding, funds on deposit in the
collection account are insufficient to make the payments of principal and
interest described above, the indenture trustee will allocate the funds among
the various series and classes pro rata, as specified in the related prospectus
supplement.
The indenture trustee will make payments to the noteholders of a series to
the noteholders as specified in the related prospectus supplement.
STATE PLEDGE
The restructuring act provides: "The State [of Texas] pledges [ ] for the
benefit and protection of financing parties and the electric utility, that it
will not take or permit any action that would impair the value of the transition
property, or, except as permitted by Section 39.307 [relating to true-up
adjustments], reduce, alter or impair the transition charges to be imposed,
collected and remitted to financing parties, until the principal, interest and
premium, and any other charges incurred and contracts to be performed in
connection with the related transition bonds have been paid and performed in
full. Any party issuing transition bonds is authorized to include this pledge in
any documentation relating to those bonds."
The noteholders and the indenture trustee, for the benefit of the
noteholders, will be entitled to the benefit of the pledges and agreements of
the State of Texas set forth in Section 39.310 of the restructuring act and both
we and the seller are authorized to include these pledges and agreements in any
contract with the noteholders, the indenture trustee or with any assignees
pursuant to the restructuring act. The seller will include these pledges and
agreements of the State of Texas in the sale agreement, and we, in turn, have
included these pledges and agreements in the indenture and the notes for the
benefit of the indenture trustee and the noteholders.
MATERIAL U.S. FEDERAL TAX CONSEQUENCES
The following discussion is a summary of material U.S. federal income and
estate tax consequences relevant to the purchase, ownership and disposition of
the notes by U.S. noteholders and non-U.S. noteholders. The discussion is
limited to original purchasers of the notes, except where specifically noted.
This summary is not a complete analysis of all the potential U.S. federal income
and estate tax consequences relating to the purchase, ownership and disposition
of the notes. The IRS may take a different view of such consequences. Further,
the discussion does not address all aspects of taxation that might be relevant
to particular purchasers in light of their individual circumstances, including
the effect of any state, local, non-U.S. or other tax laws, or to certain types
of purchasers, including dealers in securities, insurance companies, financial
institutions and tax-exempt entities, subject to special treatment under U.S.
federal tax law.
A U.S. noteholder is a beneficial owner of a note that is a U.S. person, or
a beneficial owner of a note who is a former citizen or resident of the U.S.
whose income and gain from the notes will be subject to U.S. federal taxation. A
U.S. person is a person who or which is, for U.S. federal income tax
purposes --
- a citizen or resident of the U.S.;
- a corporation or partnership (or entity treated as a corporation or a
partnership for tax purposes) created or organized in the U.S., or under
the laws of the U.S. or of any State
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(including the District of Columbia), unless in the case of a
partnership, treasury regulations are adopted that provide otherwise;
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust if a court within the U.S. 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 (taking into account changes thereto and associated effective
dates, elections and transition rules under Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended).
A Non-U.S. noteholder is a beneficial owner of a note that is not a U.S.
noteholder.
The discussion below is based on the code, administrative pronouncements,
judicial decisions, existing, proposed and temporary U.S. treasury regulations,
all in effect as of the date hereof, all of which are subject to change at any
time, and any such change may be applied retroactively. The discussion below
assumes that the notes are held as capital assets within the meaning of Section
1221 of the code.
IT IS RECOMMENDED THAT ALL PROSPECTIVE PURCHASERS OF THE NOTES CONSULT
THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
OF THE OWNERSHIP AND DISPOSITION OF THE NOTES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AS WELL AS ANY TAX CONSEQUENCES TO THEM UNDER THE LAWS OF ANY
STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.
With respect to each series of notes, the seller expects to receive a
ruling from the IRS to the effect that, among other things:
- our issuance of the notes will not result in gross income to the seller
and
- the notes will be obligations of the seller.
CPL has received this ruling with respect to the notes to be issued in
accordance with the initial financing order issued by the Texas commission. For
a given series of notes, however, the seller may decide that, in lieu of
obtaining a ruling from the Internal Revenue Service, the seller will rely on an
opinion from its tax counsel to the effect that, among other things, the notes
will be obligations of the seller. The IRS ruling or the tax opinion will be
discussed in the related prospectus supplement.
The following summary of material U.S. federal income and estate tax
consequences relevant to the purchase, ownership and disposition of the notes by
U.S. noteholders and non-U.S. noteholders is based on the advice of Sidley &
Austin, counsel to CPL, and assumes that, based on the ruling or tax opinion
discussed above, the notes will constitute indebtedness of our sole member for
federal income and estate tax purposes. All parties, including each noteholder
by purchasing a note, agree to treat the notes as indebtedness, including for
federal income tax purposes.
TAX CONSEQUENCES TO U.S. NOTEHOLDERS
Payments of Interest. Interest paid on a note will generally be taxable to
a U.S. noteholder as ordinary interest income at the time payments are accrued
or received in accordance with such U.S. noteholder's regular method of
accounting for U.S. federal income tax purposes. The preceding sentence assumes
that, in the case of floating rate notes, the floating rate notes will qualify
as "variable rate debt instruments" as defined in treasury regulation
sec. 1.1275-5(a) and that interest on such floating rate notes will be
unconditionally payable, or will be constructively received under Section 451 of
the code, in cash or in property at least annually at a single "qualified
floating rate" or "objective rate." If such assumption is incorrect with respect
to a
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floating rate note, the taxation of interest on such floating rate note will be
addressed in the related prospectus supplement.
"Original Issue Discount." Because it is expected that the stated principal
amount of the notes will not exceed their issue price by more than a statutory
de minimis amount (i.e., 0.25% of the principal amount of a note multiplied by
its weighted average maturity), the notes should not be issued with "original
issue discount." If the stated principal amount of a note exceeds its issue
price by an amount that is less than or equal to such de minimis amount, the
excess generally will be taken into income by a U.S. noteholder as gain from the
retirement of a note (as described below under "-- Sale, Exchanges, Redemption
or Retirement of the Notes"), in proportion to principal payments made on the
notes. A U.S. noteholder may elect to treat all interest on a note as original
issue discount. If such an election is made, the excess of a note's stated
principal amount over its issue price would not be treated as de minimis, and
would be taken into income on a constant yield basis under the rules applicable
to accrual of original issue discount.
Market Discount and Premium. A U.S. noteholder attempting to sell a note in
the secondary market should be aware that a subsequent U.S. noteholder who
purchases a note for an amount that is less than the note's principal amount
might be subject to the "market discount" rules of the code. Also, a subsequent
U.S. noteholder who purchases a note for an amount that exceeds the principal
amount, disregarding the portion of the purchase price attributable to accrued
but unpaid interest, (i.e., a purchase at a premium) may elect to amortize and
deduct the premium over the remaining term of the note in accordance with rules
set forth in Section 171 of the code.
Sale, Exchanges, Redemption or Retirement of the Notes. Upon the sale,
exchange, redemption or retirement of a note, a U.S. noteholder will recognize
taxable gain or loss equal to the difference between the amount realized on such
sale, exchange, redemption or retirement (not including any amount attributable
to accrued but unpaid interest) and the U.S. noteholder's adjusted tax basis in
the note. To the extent the amount realized is attributable to accrued but
unpaid interest not previously includible in income, the amount recognized by
the U.S. noteholder will be treated as a payment of interest. Please refer to
"-- Payments of Interest" above. A U.S. noteholder's adjusted tax basis in a
note generally will equal such U.S. noteholder's cost for the note, reduced by
any principal payments received by such noteholder.
Gain or loss recognized on the sale, exchange, redemption or retirement of
a note will be capital gain or loss. For non-corporate taxpayers, capital gain
recognized on the disposition of a note held for more than one year is subject
to U.S. federal income tax at a maximum rate of 20%. Capital gain on the
disposition of a note held for one year or less is taxed at the rates applicable
to ordinary income (i.e., up to a maximum rate of 39.6%). The distinction
between capital gain or loss and ordinary income or loss is relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
TAX CONSEQUENCES TO NON-U.S. NOTEHOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
- payments of principal and interest (including original issue discount, if
any) on a note by us or any paying agent to a non-U.S. noteholder will
not be subject to withholding of U.S. federal income tax, provided that,
in the case of interest:
-- the non-U.S. noteholder does not own, actually or constructively, 10
percent or more of the total combined voting power of all classes of
stock of our sole member entitled to vote,
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-- the non-U.S. noteholder is not, for U.S. federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to our
sole member through stock ownership,
-- the non-U.S. noteholder is not a bank receiving interest described in
Section 881(c)(3)(A) of the code, and
-- the certification requirements under Section 871(h) or Section 881(c)
of the code and treasury regulations thereunder (summarized below) are
met;
- a non-U.S. noteholder will not be subject to U.S. federal income tax on
gain recognized on the sale, exchange, redemption, retirement or other
disposition of such note, unless:
-- the non-U.S. noteholder is a non-resident alien individual who is
present in the U.S. for 183 days or more in the taxable year of
disposition, and certain conditions are met, or
-- the gain is effectively connected with the conduct by the non-U.S.
noteholder of a trade or business in the U.S.; and
- a note held by an individual who is not a citizen or resident (as defined
for U.S. federal estate tax purposes) of the U.S. at the time of his
death will not be subject to U.S. federal estate tax as a result of such
individual's death, provided that, at the time of the individual's death:
-- the individual does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of stock of our
sole member entitled to vote, and
-- payments with respect to such note, if received at the time of the
individual's death, would not have been effectively connected with the
conduct by the individual of a trade or business in the U.S.
Sections 871(h) and 881(c) of the code and U.S. treasury regulations
thereunder require that, in order to obtain the exemption from withholding tax
described above, either:
- the beneficial owner of a note must certify, under penalties of perjury,
to the issuer or paying agent, as the case may be, that the owner is a
non-U.S. noteholder and must provide such owner's name and address, or
- a securities clearing organization, bank or other financial institution
that holds retail customers' securities in the ordinary course of its
trade or business, referred to as a "financial institution" and holds the
note on behalf of the beneficial owner thereof must certify, under
penalties of perjury, to the issuer or paying agent, as the case may be,
that the certificate has been received from the beneficial owner by it or
by a financial institution between it and the beneficial owner and must
furnish the payor with a copy thereof.
A certificate described in this paragraph is effective only with respect to
payments of interest made to the certifying non-U.S. noteholder after issuance
of the certificate in the calendar year of its issuance and the two immediately
succeeding calendar years. Under the U.S. treasury regulations, the foregoing
certification may be provided by the beneficial owner of a note on IRS Form W-8
or IRS Form W-8BEN.
While most interest payments are exempt from withholding tax under (and
subject to) the rules described above, Section 871(h)(4) of the code subjects
certain types of interest to a U.S. withholding tax at a 30% rate (or such lower
rate as may be provided by an applicable treaty). In general, interest described
in Section 871(h)(4) of the code includes (subject to certain exceptions) any
interest, the amount of which is determined by reference to: receipts, sales or
other cash flow of the issuer or a related person, any income or profits of the
issuer or
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a related person, any change in the value of any property of the issuer or a
related person, or any dividends, partnership distribution or similar payments
made by the issuer or a related person. Interest described in Section 871(h)(4)
of the code may include other types of contingent interest identified by the IRS
in future treasury regulations. We do not currently expect to issue notes the
interest on which is described in Section 871(h)(4) of the code. However, if
such notes are issued, the taxation of such notes will be addressed in the
related prospectus supplement.
On October 14, 1997, the IRS published in the Federal Register final
treasury regulations, referred to as the "1997 final regulations," which affect
the U.S. taxation of non-U.S. noteholders. As promulgated, the 1997 final
regulations will be effective for payments after December 31, 1998, regardless
of the issue date of the instrument with respect to which such payments are
made, subject to certain transition rules. The IRS thereafter amended the 1997
final regulations to extend this date to December 31, 2000, subject to certain
transition rules. The discussion under this heading and under "-- Backup
Withholding and Information Reporting," below, is not intended to be a complete
discussion of the provisions of the 1997 final regulations or the transition
rules, and it is recommended that prospective purchasers of the notes consult
their tax advisors concerning the tax consequences of their acquiring, holding
and disposing of the notes in light of the 1997 final regulations.
The 1997 final regulations provide documentation procedures designed to
simplify compliance by withholding agents. A withholding agent is the last U.S.
person in the chain of interest payments prior to payment to a non-U.S.
noteholder. The 1997 final regulations generally do not affect the documentation
rules described above, but add other certification options. Under one such
option, a withholding agent will be allowed to rely on an intermediary
withholding certificate furnished by a "qualified intermediary" (as defined
below) on behalf of one or more beneficial owners (or other intermediaries)
without having to obtain the beneficial owner certificate described above.
"Qualified intermediaries" include: foreign financial institutions or foreign
clearing organizations (other than a U.S. branch or U.S. office of such
institution or organization), or foreign branches or offices of U.S. financial
institutions or foreign branches or offices of U.S. clearing organizations, in
each case, which have entered into withholding agreements with the IRS. In
addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as IRS Form W-8BEN (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a U.S.
withholding agent will be permitted to act on behalf of the U.S. withholding
agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 final regulations
generally treat, as the beneficial owners of payments on a note, those persons
that, under U.S. tax principles, are the taxpayers with respect to those
payments, rather than persons such as nominees or agents legally entitled to the
payments. In the case of payments to an entity classified as a foreign
partnership under U.S. tax principles, the partners, rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a U.S.
partnership, however, is treated for these purposes as payment to a U.S. payee,
even if the partnership has one or more foreign partners. The 1997 final
regulations provide certain presumptions with respect to withholding for
non-U.S. noteholders not furnishing the required certifications to qualify for
the withholding exemption described above. In addition, the 1997 final
regulations replaced a number of tax certification forms (including IRS Form W-8
and IRS Form 4224, discussed below) with revised IRS Forms W-8BEN, W-8IMY, and
W-8EXP (which, in certain circumstances, requires information in addition to
that previously required). Under the 1997 final regulations, Form W-8s will
remain valid, generally, until the last day of the third calendar year following
the year in which the certificate is signed. In its announcement that it was
amending the 1997 final regulations to postpone the effective date of the
regulations to payments made after December 31, 2000, the IRS announced that the
certification forms provided under the current treasury regulations would not be
extended beyond December 31,
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<PAGE>
2000. In addition, the new withholding certificates will satisfy the
documentation requirements of the current treasury regulations.
If a non-U.S. noteholder is engaged in a trade or business in the U.S., and
if interest on the note, or gain recognized on the sale, exchange, redemption,
retirement or other disposition of a note, is effectively connected with the
conduct of that trade or business, the non-U.S. noteholder, although exempt from
withholding of U.S. income tax, will generally be subject to regular U.S. income
tax on the interest or gain in the same manner as if it were a U.S. noteholder.
Please refer to "-- Tax Consequences to U.S. Noteholders" above. In lieu of the
certificate described above, such a noteholder must provide to the withholding
agent a properly executed IRS Form 4224 (the old form) or a W-8ECI (the new
form) in order to claim an exemption from withholding. In addition, if the
non-U.S. noteholder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments. For purposes of the branch profits tax, interest on, and
any gain recognized on the sale, exchange, redemption, retirement or other
disposition of, a note will be included in the effectively connected earnings
and profits of the non-U.S. noteholder if such interest or gain is effectively
connected with the conduct by the non-U.S. noteholder of a trade or business in
the U.S.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current U.S. federal income tax law, a 31% backup withholding tax and
information reporting requirements apply to certain payments of principal and
interest made to, and to the proceeds of sale before maturity by, certain
non-U.S. and U.S. noteholders.
In the case of a non-corporate U.S. noteholder, backup withholding will
apply only if:
- the U.S. noteholder fails to furnish its Taxpayer Identification Number
("TIN") (which, for an individual, is his or her Social Security number)
to the payor in the manner required;
- the U.S. noteholder furnishes an incorrect TIN and the payor is so
notified by the IRS;
- the payor is notified by the IRS that the noteholder has failed properly
to report payments of interest or dividends; or
- under certain circumstances, the U.S. noteholder fails to certify, under
penalties of perjury, that it has furnished a correct TIN and has not
been notified by the IRS that it is subject to backup withholding for
failure to report interest or dividend payments.
Backup withholding does not apply with respect to payments made to certain
exempt recipients, such as a corporation (within the meaning of Section 7701(a)
of the Code) and tax-exempt organizations. U.S. noteholders should consult their
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. noteholder
will be allowed as a credit against such U.S. noteholder's U.S. federal income
tax liability and may entitle such U.S. noteholder to a refund, provided that
the required information is furnished to the IRS.
In the case of a non-U.S. noteholder, under currently applicable U.S.
treasury regulations, backup withholding and information reporting will not
apply to payments of principal or interest made by the issuer or any paying
agent thereof on a note (absent actual knowledge that the alleged non-U.S.
noteholder is a U.S. noteholder) if the non-U.S. noteholder has provided the
required certification under penalties of perjury that it is not a U.S.
noteholder (as defined above) or has otherwise established an exemption. If the
non-U.S. noteholder does not provide the required certification, the non-U.S.
noteholder may nevertheless avoid backup withholding or information reporting in
the circumstances described below, but might be subject to withholding
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of U.S. federal income tax as described above under "-- Tax Consequences to Non-
U.S. Noteholders."
Under currently applicable U.S. treasury regulations, if payments of
principal or interest are collected outside the U.S. by a foreign office of a
custodian, nominee or other agent acting on behalf of a beneficial owner of a
note, the custodian, nominee or other agent will not be required to apply backup
withholding to such payments made to such beneficial owner, and generally will
not be subject to information reporting requirements. However, if the custodian,
nominee or other agent is a U.S. person, a controlled foreign corporation for
U.S. tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a U.S. trade or business for a specified three-year
period, information reporting (but not backup withholding) will be required
unless the custodian, nominee or other agent has in its records documentary
evidence that the beneficial owner is not a U.S. noteholder (which the agent
does not actually know to be false) and certain other conditions are met or the
beneficial owner otherwise establishes an exemption.
Under currently applicable U.S. treasury regulations, payments on the sale,
exchange, redemption, retirement or other disposition of a note made to or
through a foreign office of a broker generally will not be subject to backup
withholding, and generally will not be subject to information reporting
requirements. These payments, however, will be subject to information reporting
(but not backup withholding) if the broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation or a foreign person
50% or more of whose gross income is effectively connected with a U.S. trade or
business for a specified three-year period, unless the broker has in its records
documentary evidence that the beneficial owner is not a U.S. noteholder (which
the broker does not actually know to be false) and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Payments made to
or through the U.S. office of a broker will be subject to backup withholding and
information reporting unless the non-U.S. noteholder certifies, under penalties
of perjury, that it is not a U.S. person or otherwise establishes an exemption.
In general, the 1997 final regulations do not significantly alter the
substantive backup withholding and information reporting requirements described
above. Under current law, backup withholding and information reporting will not
apply to: payments to a non-U.S. noteholder of principal and interest and
payments to a non-U.S. Noteholder on the sale, exchange, redemption, retirement
or other disposition of a note, in each case if such non-U.S. noteholder
provides the required certification to establish an exemption from the
withholding of U.S. federal income tax or otherwise establishes an exemption.
Similarly, even if a non-U.S. noteholder does not provide the certification or
otherwise establish an exemption, unless the payor has actual knowledge that the
payee is a U.S. noteholder, backup withholding will not apply to: payments of
interest made outside the U.S. to certain offshore accounts, and payments on the
sale, exchange, redemption, retirement or other disposition of a note effected
outside the U.S. However, information reporting (but not backup withholding)
will apply to: payments of interest made by a payor outside the U.S. and
payments on the sale, exchange, redemption, retirement or other disposition of a
note effected outside the U.S. if payment is made by a broker that is, for U.S.
federal income tax purposes: a U.S. person, a controlled foreign corporation, a
U.S. branch of a foreign bank or foreign insurance company, a foreign
partnership controlled by U.S. persons or engaged in a U.S. trade or business,
or a foreign person 50% or more of whose gross income is effectively connected
with the conduct of a U.S. trade or business for a specified three-year period,
in each case, unless the payor or broker has in its records documentary evidence
that the beneficial owner is not a U.S. noteholder and certain other conditions
are met or the beneficial owner otherwise establishes an exemption (in which
case neither information reporting nor backup withholding will apply). As noted
above, the IRS amended the 1997 final regulations to be effective generally for
payments made after December 31, 2000, subject to certain transition rules.
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Non-U.S. noteholders should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available. Any amounts withheld from a payment
to a non-U.S. noteholder under the backup withholding rules will be allowed as a
credit against the non-U.S. noteholder's U.S. federal income tax liability and
may entitle the non-U.S. noteholder to a refund, provided that the required
information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A NOTEHOLDER'S PARTICULAR SITUATION. IT IS RECOMMENDED
THAT PROSPECTIVE NOTEHOLDERS CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, NON-U.S. AND
OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, known as ERISA, and
Section 4975 of the code impose certain requirements on plans subject to ERISA
or Section 4975 of the code. ERISA and the code also impose certain requirements
on fiduciaries of a plan in connection with the investment of the assets of the
plan. "Plans" are any 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 those plans, accounts or arrangements are invested. A
fiduciary of an investing plan is any person who in connection with the assets
of the plan:
- has discretionary authority or control over the management or disposition
of assets, or
- provides investment advice for a fee.
Some plans, such as governmental plans, and certain church plans, and the
fiduciaries of those plans, are not subject to ERISA requirements. Accordingly,
assets of these plans may be invested in the notes without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the code, however, is subject to the
prohibited transaction rules in Section 503 of the code.
ERISA imposes certain general fiduciary requirements on fiduciaries,
including:
- investment prudence and diversification, and
- the investment of the assets of the plan in accordance with the documents
governing the plan.
Section 406 of ERISA and Section 4975 of the code also prohibit a broad
range of transactions involving the assets of a plan and persons who have
certain specified relationships to the plan, referred to as "parties in
interest," unless a statutory or administrative exemption is available. Parties
in interest include parties in interest under ERISA and disqualified persons
under the code. The types of transactions that are prohibited include:
- sales, exchanges or leases of property;
- loans or other extensions of credit; and
- the furnishing of goods or services.
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Certain persons that participate in a prohibited transaction may be subject
to an excise tax under Section 4975 of the code or a penalty imposed under
Section 501(i) of ERISA, unless a statutory or administrative exemption is
available. In addition, the persons involved in the prohibited transaction may
have to cancel the transaction and pay an amount to the plan for any losses
realized by the plan or profits realized by these persons. In addition,
individual retirement accounts involved in the prohibited transaction may be
disqualified which would result in adverse tax consequences to the owner of the
account.
REGULATION OF ASSETS INCLUDED IN A PLAN
A fiduciary's investment of the assets of a plan in the notes may cause our
assets to be deemed assets of the plan. Section 2510.3-101 of the regulations of
the U.S. Department of Labor provides that the assets of an entity will be
deemed to be assets of a plan that purchases an interest in the entity only if
the interest that is purchased by the plan is an equity interest and none of the
exceptions contained in Section 2510.3-101 of the regulations applies. An equity
interest is defined in Section 2510.3-101 of the regulations as an interest in
an entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there is no authority directly on point and unless otherwise stated in the
prospectus supplement, it is anticipated that the notes will be treated as
indebtedness under local law without any substantial equity features.
In addition, the acquisition or holding of the notes by or on behalf of a
plan could give rise to a prohibited transaction if we or the indenture trustee,
CPL, any other servicer, Central and South West Corporation, American Electric
Power Company, Inc. upon completion of the merger with Central and South West
Corporation, any swap counterparty, any underwriter or certain of their
affiliates has, or acquires, a relationship to an investing plan. Each purchaser
of the notes will be deemed to have represented and warranted that its purchase
and holding of the notes will not result in a prohibited transaction.
Before purchasing any notes by or on behalf of a plan, you should consider
whether the purchase and holding of notes might result in a prohibited
transaction under ERISA or Section 4975 of the code and, if so, whether any
prohibited transaction exemption might apply to the purchase and holding of the
notes.
PROHIBITED TRANSACTION EXEMPTIONS
If you are a fiduciary of a plan, before purchasing any notes, you should
consider the availability of one of the Department of Labor's prohibited
transaction exemptions, which include:
- Prohibited transaction class exemption 75-1, which exempts certain
transactions between a plan and certain broker-dealers, reporting dealers
and banks;
- Prohibited transaction class exemption 84-14, which exempts certain
transactions effected on behalf of a plan by a "qualified professional
asset manager";
- Prohibited transaction class exemption 90-1, which exempts certain
transactions between insurance company separate accounts and parties in
interest;
- Prohibited transaction class exemption 91-38, which exempts certain
transactions between bank collective investment funds and parties in
interest;
- Prohibited transaction class exemption 95-60, which exempts certain
transactions between insurance company general accounts and parties in
interest; and
- Prohibited transaction class exemption 96-23, which exempts certain
transactions effected on behalf of a plan by an "in-house asset manager".
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We cannot provide any assurance that any of these class exemptions will
apply with respect to any particular investment in the notes by, or on behalf
of, a plan or, even if it were deemed to apply, that any exemption would apply
to all transactions that may occur in connection with the investment. Even if
one of these class exemptions were deemed to apply, notes may not be purchased
with assets of any plan if we or the indenture trustee, CPL, any other servicer,
Central and South West Corporation, American Electric Power Company, Inc. upon
completion of the merger with Central and South West Corporation, any swap
counterparty, any underwriter or any of their affiliates:
- has investment discretion over the assets of the plan used to purchase
the notes;
- has authority or responsibility to give, or regularly gives, investment
advice regarding the assets of the plan used to purchase the notes, for a
fee and under an agreement or understanding that the advice will serve as
a primary basis for investment decisions for the assets of the plan, and
will be based on the particular investment needs of the plan; or
- unless one of the class exemptions applied to the purchase and holding of
the notes, is an employer maintaining or contributing to the plan.
CONSULTATION WITH COUNSEL
If you are a fiduciary which proposes to purchase the notes on behalf of or
with assets of a plan, you should consider your general fiduciary obligations
under ERISA and you should consult with your legal counsel as to the potential
applicability of ERISA and the code to any investment and the availability of
any prohibited transaction exemption in connection with any investment.
USE OF PROCEEDS
We will use the net proceeds from the sale of the notes to purchase the
transition property from the seller and to pay certain costs of issuing the
notes. The seller will apply the net proceeds from the sale of the transition
property towards the reduction of recoverable regulatory assets and stranded
costs through the retirement or refinancing of a portion of its debt and equity.
PLAN OF DISTRIBUTION
We may sell the notes 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. We may also offer or place the notes
either directly or through agents. We intend that notes 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
notes may be made through a combination of these methods.
The distribution of notes 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 notes, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell notes to dealers at prices less a concession. Underwriters
may allow, and the dealers may reallow, a concession to other dealers.
Underwriters, dealers and agents that participate in the distribution of the
notes may be deemed to be underwriters and any discounts or commissions received
by them from the issuer and any profit on the resale of the notes by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933. We will identify any of these
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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 Sidley &
Austin, Chicago, Illinois, counsel to CPL and the issuer, by Richards, Layton &
Finger, P.A., Wilmington, Delaware, Delaware counsel to the issuer, Broyles &
Pratt, Austin, Texas, regulatory counsel to CPL, and Vinson & Elkins, LLP,
Dallas, Texas, Texas counsel to CPL and the issuer, and Milbank, Tweed, Hadley &
McCloy LLP, New York, New York, counsel to the underwriters or agents. Certain
matters relating to U.S. federal tax consequences of the issuance of the notes
will be passed upon by Sidley & Austin, Chicago, Illinois, counsel to CPL and
the issuer. Milbank, Tweed, Hadley & McCloy LLP has represented CPL and
affiliates of CPL from time to time in connection with various legal matters.
EXPERTS
The financial statements of the issuer as of , 1999 and for the
period from , 1999 (date of inception) to , 1999
included in this prospectus have been so included in reliance on the report of
Arthur Andersen LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-2
Statement of Operations for the period from ,
1999 (date of inception) to , 1999......... F-3
Balance Sheet as of , 1999.................... F-4
Statement of Changes in Member's Equity for the period
from , 1999 (date of inception) to ,
1999................................................... F-5
Statement of Cash Flows for the period from ,
1999 (date of inception) to , 1999......... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Member of
CPL Transition Funding LLC
We have audited the accompanying balance sheet of CPL Transition Funding
LLC (a special purpose Delaware limited liability company) (Company) as of
, and the related statements of operations, changes in member's equity
and cash flows for the period from inception (October 28, 1999) to .
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 have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audits provide 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 CPL Transition Funding LLC
as of , and the results of its operations and its cash flows for the
period from inception (October 28, 1999) to , in conformity with
generally accepted accounting principles.
Dallas, Texas
F-2
<PAGE>
CPL TRANSITION FUNDING LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1999) TO
<TABLE>
<S> <C>
Revenues.................................................... $
Expenses.................................................... $
Net Income (Loss)........................................... $
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-3
<PAGE>
CPL TRANSITION FUNDING LLC
BALANCE SHEET
Assets
<TABLE>
<S> <C>
Current Assets:
Accounts Receivable from CPL.............................. $
Deferred Charges:
Unamortized Issuance Expense of Notes..................... $
Total Assets...................................... $
Liabilities and Member's Equity
Current Liabilities:
Accounts Payable.......................................... $
Member's Equity........................................... $
Total Liabilities and Member's Equity............. $
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-4
<PAGE>
CPL TRANSITION FUNDING LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1999) TO
<TABLE>
<S> <C>
Member's Equity at Inception................................ $
Add: Net Loss............................................. $
Contributed Equity.................................. $
Member's Equity at End of Period............................ $
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-5
<PAGE>
CPL TRANSITION FUNDING LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 28, 1999) TO
<TABLE>
<S> <C>
Cash Flows From Operating Activities........................ $
Cash Flows From Investing Activities........................ $
Cash Flows From Financing Activities........................ $
Net Increase/(Decrease) in Cash............................. $
Cash at Inception........................................... $
Cash at End of Period....................................... $
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
F-6
<PAGE>
CPL TRANSITION FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements include the accounts of the company, a special
purpose Delaware limited liability company, whose sole member is CPL (CPL). CPL,
a subsidiary of Central and South West Corporation, is engaged in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of customers. The company was formed on October 28, 1999, for the
exclusive purpose of issuing notes and will remit the proceeds to CPL in
consideration for the transferring of CPL's interest in the transition property
(described below). In accordance with the restructuring law and the related
financing order, the company shall be entitled to receive the transition
property created by such financing order as assignee of CPL, and shall be
authorized to issue notes as transitional funding bonds. The assets of the
company will consist of the transition property and the other collateral,
including capital transferred by CPL in an amount specified in each prospectus
supplement which will be sufficient to meet certain requirements of the
indenture between the company and the indenture trustee. CPL anticipates that
the notes will be issued sometime in the quarter of 2000.
The company was organized with the sole purpose of limited business
activities as are necessary or reasonably related to the issuance of the notes.
The company is structured and is to be operated in a manner such that even in
the event of bankruptcy proceedings against CPL, the assets of the company will
not be consolidated into the bankruptcy estate of CPL.
The transition property is a separate property right, as created under the
financing order issued by the Public Utility Commission of the State of Texas on
, including, without limitation, the right to impose, collect and receive
transition charges. Transition charges are non-bypassable, usage-based charges
to be imposed on designated retail consumer of electricity.
2. SUMMARY OF ACCOUNTING POLICIES
(a) General
The company follows the accrual method of accounting. The account
receivable from CPL was received subsequent to the balance sheet date. The
issuance expenses in connection with the notes will be paid from the proceeds
received for the notes.
(b) Unamortized Issuance Expense in Connection with the Notes
The unamortized issuance expenses in connection with the notes will be
amortized over the life of the notes.
(c) Income Taxes
As a special purpose limited liability company, the member of the company
intends for the company and CPL to be treated as a single entity of tax
purposes. Income and losses are passed through to the member of the company and,
accordingly, there will be no provision for income taxes.
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
CPL TRANSITION FUNDING LLC
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
3. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, CPL
(individually, as servicer or otherwise) will be required under the transaction
documents (i) to make certain representations and warranties with respect to,
among other things, the validity of the company's and its assignees' title to
the transition property and (ii) to observe certain covenants for the benefit of
the company and its assignees. CPL will also be required to indemnify the
company against breaches of such representations and warranties and its failure
to perform its covenants and to protect such parties against certain other
losses, which result from actions or inactions of CPL.
CPL will act as the initial servicer for the company under the transaction
documents. The transaction documents will contain provisions allowing the
servicer to be replaced under limited circumstances. The servicer will be paid a
servicing fee in consideration for billing and collection transition charges on
behalf of the company, calculating the true-up adjustments and performing
related services. Such servicing fees shall be paid to the servicer for the
transition charges collection.
F-8
<PAGE>
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson, or other person is authorized to give any information
or to represent anything not contained in this prospectus supplement and the
accompanying prospectus. You must not rely on any unauthorized information or
representations. This prospectus supplement and the accompanying prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus supplement and the accompanying prospectus is
current only as of the date of this prospectus supplement and the accompanying
prospectus.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of the Notes................ S-2
Transition Property..................... S-6
Underwriting............................ S-7
Ratings................................. S-8
Material U.S. Federal Tax Consequences.. S-8
PROSPECTUS
Prospectus Summary...................... 1
Risk Factors............................ 12
Available Information................... 26
Reports to Holders...................... 27
Incorporation of Documents by
Reference............................. 27
Energy Deregulation and New Texas Market
Structure............................. 28
Description of the Transition
Property.............................. 31
CPL Transition Funding LLC, the
Issuer................................ 35
The Seller and Servicer................. 38
The Sale Agreement...................... 46
The Servicing Agreement................. 55
Description of the Notes................ 64
Security for the Notes.................. 78
Material U.S. Federal Tax Consequences.. 83
ERISA Considerations.................... 90
Use of Proceeds......................... 92
Plan of Distribution.................... 92
Legal Matters........................... 93
Experts................................. 93
Index to Financial Statements........... F-1
</TABLE>
----------------------
Through and including , (the 90th day after the date of this
prospectus supplement and the accompanying prospectus), all dealers effecting
transactions in these securities, whether or not participating in this offering,
may be required to deliver a prospectus supplement and the accompanying
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
supplement and the accompanying prospectus when acting as an underwriter and
when offering an unsold allotment or subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
$
CPL TRANSITION FUNDING LLC
ISSUER OF THE NOTES
CENTRAL POWER AND LIGHT COMPANY
SELLER AND SERVICER
Transition Notes, Series 2000
$ Class A-1
$ Class A-2
$ Class A-3
$ Class A-4
$ Class A-5
----------------------
PROSPECTUS SUPPLEMENT
----------------------
[NAMES OF UNDERWRITERS]
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE>
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 SEC registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
Securities and Exchange Commission Registration Fee......... $278
Blue Sky Fees and Expenses.................................. *
Printing Expenses........................................... *
Managers' Fees and Expenses................................. *
Accountants' Fees and Expenses.............................. *
Legal Fees and Expenses..................................... *
Rating Agency Fees.......................................... *
Trustee's Fees and Expenses................................. *
Miscellaneous Fees and Expenses............................. *
----
Total............................................. $*
====
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF MEMBERS AND MANAGERS.
Section 18-108 of the Delaware Limited Liability Company Act provides that,
subject to specified standards and restrictions, if any, as are set forth in the
limited liability company agreement, a limited liability company shall have the
power to indemnify and hold harmless any member or manager or other person from
and against any and all claims and demands whatsoever.
The amended and restated limited liability company agreement (the "LLC
Agreement") of CPL Transition Funding LLC (the "Issuer") provides that, to the
fullest extent permitted by law, the Issuer shall indemnify its members and
managers against any liability incurred in connection with any proceeding in
which any member or manager may be involved as a party or otherwise by reason of
the fact that the member or manager is or was serving in its capacity as a
member or manager, unless this liability is based on or arises in connection
with the member's or manager's own willful misconduct or gross negligence, the
failure to perform the obligations set forth in the LLC Agreement, or taxes,
fees or other charges on, based on or measured by any fees, commissions or
compensation received by the managers in connection with any of the transactions
contemplated by the LLC Agreement and related agreements.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Form of Amended and Restated Limited Liability Company
Agreement of Registrant.*
3.2 -- Certificate of Formation of Registrant.
4.1 -- Form of Indenture.*
4.2 -- Form of Note.*
5.1 -- Opinion of Sidley & Austin with respect to legality of
the Notes.*
8.1 -- Opinion of Sidley & Austin with respect to federal tax
matters.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8.2 -- Opinion of Vinson & Elkins with respect to state tax
matters.*
10.1 -- Form of Transition Property Purchase and Sale Agreement.*
10.2 -- Form of Transition Property Servicing Agreement.*
23.1 -- Consent of Sidley & Austin (contained in its opinion
filed as Exhibit 5.1).*
23.2 -- Consent of Sidley & Austin (contained in its opinion
filed as Exhibit 8.1).*
23.3 -- Consent of Vinson & Elkins (contained in its opinion
filed as Exhibit 8.2)*
23.4 -- Consent of Arthur Andersen LLP*.
25.1 -- Statement of Eligibility and Qualification of Indenture
Trustee on Form T-1.*
27.1 -- Financial Data Schedule.*
99.1 -- Financing Order.*
99.2 -- Internal Revenue Service Private Letter Ruling Pertaining
to the first series of Notes.*
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a twenty percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement; provided, however, that
(a)(1)(i) and (a)(1)(ii) will not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering hereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934),
that is incorporated by reference in the Registration Statement shall be
deemed to be a new
II-2
<PAGE>
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-3
<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 Dallas, State of Texas, on this 19th day of November,
1999.
CPL TRANSITION FUNDING LLC
as Registrant
By: Central Power and Light Company,
sole member
By: WENDY G. HARGUS
----------------------------------
Name: Wendy G. Hargus
Title: Treasurer
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Form of Amended and Restated Limited Liability Company
Agreement of Registrant.*
3.2 -- Certificate of Formation of Registrant.
4.1 -- Form of Indenture.*
4.2 -- Form of Note.*
5.1 -- Opinion of Sidley & Austin with respect to legality of
the Notes.*
8.1 -- Opinion of Sidley & Austin with respect to federal tax
matters.*
8.2 -- Opinion of Vinson & Elkins with respect to state tax
matters.*
10.1 -- Form of Transition Property Purchase and Sale Agreement.*
10.2 -- Form of Transition Property Servicing Agreement.*
23.1 -- Consent of Sidley & Austin (contained in its opinion
filed as Exhibit 5.1).*
23.2 -- Consent of Sidley & Austin (contained in its opinion
filed as Exhibit 8.1).*
23.3 -- Consent of Vinson & Elkins (contained in its opinion
filed as Exhibit 8.2)*
23.4 -- Consent of Arthur Andersen LLP*.
25.1 -- Statement of Eligibility and Qualification of Indenture
Trustee on Form T-1.*
27.1 -- Financial Data Schedule.*
99.1 -- Financing Order.*
99.2 -- Internal Revenue Service Private Letter Ruling Pertaining
to the first series of Notes.*
</TABLE>
- ---------------
* To be filed by amendment.
DOCKET NO. ________
APPLICATION OF CENTRAL POWER ) BEFORE THE
AND LIGHT COMPANY FOR A ) PUBLIC UTILITY COMMISSION
FINANCING ORDER TO BE SECURITIZE ) OF TEXAS
REGULATORY ASSETS AND OTHER )
QUALIFIED COSTS )
APPLICATION OF CENTRAL POWER AND LIGHT COMPANY
TO THE HONORABLE PUBLIC UTILITY COMMISSION OF TEXAS:
NOW COMES Central Power and Light Company (CPL) and files its
Application for a Financing Order to Securitize Regulatory Assets and other
Qualified Costs. In support of its Application, CPL respectfully shows:
I. Business Address
CPL's business address and telephone number are 539 North
Carancahua Street, Corpus Christi, Texas,(512) 881-5300.
II. Authorized Representatives
CPL's authorized representative for service of all pleadings and other
documents is:
Mr. Rocky Miracle
Senior Case Manager
Central and South West Corporation
400 West 15th Street, Suite 610
Austin, Texas 78701
Telephone: 512-481-4547
Facsimile: 512-481-4591
CPL's authorized legal representatives are: Larry W. Brewer,
Davison W. Grant and Joe N. Pratt, Broyles and Pratt, A Professional
Corporation, Suite 250, 6836 Austin Center Blvd., Austin, Texas 78731;
Telephone 512-794-2100, Facsimile 512-794-2111.
III. Jurisdiction
The Commission has jurisdiction over this Application under ss.ss.
14.001 and 39.303 of the Public Utility Regulatory Act (PURA), which is found at
TEX. UTIL. CODE ss.ss. 11.001-63.063. This Application, if granted, will affect
all Texas jurisdictional retail customers of CPL.
<PAGE>
IV. Requested Amount to be Securitized
Pursuant to PURA Chapter 39, Subchapter G, CPL seeks to securitize
$1,270,246,816 of the generation-related portion of the retail jurisdictional
regulatory assets shown on CPL's 1998 annual report on Securities and Exchange
Commission Form 10-K. In this regard, CPL seeks authorization to cause to be
issued a face value of transition bond adequate to recover the balance of such
generation-related regulatory assets, the estimated costs to issue, service, and
support the transition bonds, and estimated costs of retiring and refinancing
debt and equity securities in connection with the securitization. The estimate
of the upfront costs to issue, service and support the transition bonds and the
cost retiring and refinancing debt and equity is $46,763,030.
V. Description of the Application
An Executive Summary is provided at pages 8 through 30 of Ms. Wendy
Hargus' testimony for the convenience of the Commission and other participants
to acquaint them with CPL's filing. A list of witnesses and a description of
their testimony is also included in Ms. Hargus' testimony at pages 5 through 7.
For a full understanding of the matters contained in the summary, the reader is
referred to the testimony, exhibits and schedules sponsored by CPL's witnesses.
VI. Asset Specific Information
Appendix A to this Application lists the asset-specific information
required by the Commission's "Application for Financing Order to Securitize
Regulatory Assets by Electric Utilities" published in the Texas Register on
August 20, 1999 (Filing Package).
VII. Statement of Financial Accounting Standards 109 Questions
Appendix B to this Application lists the answers to the Statement
of Financial Accounting Standards (SFAS) No. 109 Questions required by the
Filing Package published in the Texas Register on August 20, 1999. The
schedule is also included as an attachment to Mr. John Jeter's testimony.
VIII. Required Testimony
Appendix C contains cross-references to the topics identified in the
Filing Package as requiring testimony and the portions of witnesses' testimony
addressing those topics.
<PAGE>
IX. Filing Package
In support of this Application, attached hereto and made a part hereof,
is a Filing Package containing direct testimony and exhibits of seven witnesses
and schedules, supplemental information and workpapers. CPL's Filing Package
demonstrates that 1) CPL's requested amount to be securitized complies with PURA
Chapter 39, Subchapter G; 2) the structuring and pricing of the transition bonds
when issued will result in the lowest transition bond charges consistent with
market conditions and terms of the financing order; 3) the securitization
provides tangible and quantifiable benefits to ratepayers greater than would
have been achieved absent the issuance of transition bonds; and 4) the total
amount of revenues to be collected under the financing order is less than the
revenue requirement that would be recovered over the remaining life using
conventional financing methods; and (5) the functional allocation of regulatory
assets to generation, the allocation to the Texas retail jurisdiction, and the
allocation to classes of ratepayers is fair, reasonable and equitable and
results in a proper transition charge by major rate class.
X. Confidentiality of Disclosure Agreement
Certain parts of CPL's Application contain confidential information.
The confidential information has been included as part of CPL's Filing Package,
but has not been simultaneously provided to all parties at the time of filing.
CPL stands ready to supply the information pursuant to a protective order. CPL
will also provide the confidential information in advance of the approval of a
protective order upon the signing of a confidentiality agreement, which
agreement would, among other things, provide that the agreement is superceded by
a Commission-approved protective order. Parties wishing to review confidential
information prior to the issuance of a protective order should contact counsel
for CPL. The confidential information included in the Filing Package is the
following:
(1) Exhibit WGH-A to the testimony of Ms. Wendy Hargus. The Exhibit
contains the highly-sensitive confidential discussion of CPL's plans for using
proceeds from the issuance of transition bonds to retire or refinance debt and
equity.
(2) The draft prospectus contained in the supplemental information
which is designated confidential. (3) Certain large industrial customer
information contained in Mr. Moncrief's workpapers are
designated as highly-sensitive confidential material.
XI. Notice
Although PURA Chapter 39 is silent as to proper notice, the notice
requirements of PUCT Proc. R. 22.55, state that the presiding officer may
require a party to provide reasonable notice to affected persons. CPL proposes
that it be permitted to publish notice of the filing of this Application once a
week for two (2) consecutive weeks in newspapers having general circulation in
its Texas service area, beginning as soon as possible after the filing of this
Application with the Commission. In addition, CPL will provide individual notice
to the governing bodies of all Texas incorporated municipalities served by CPL
retaining original jurisdiction. Proof of publication in the form of publishers'
affidavits and the provision of notice to the municipalities will be submitted
as soon as they are available. The forms of notice are attached hereto as
Appendix D.
XII. Prayer
WHEREFORE, PREMISES CONSIDERED, CPL prays that its Application to
securitize regulatory assets and other qualified costs be granted and that the
Financing Order required by PURA ss.39.303 be issued to permit the requested
securitization to be completed under the terms of the order.
<PAGE>
Date: October 15, 1999 Respectfully submitted
BROYLES & PRATT
A Professional Corporation
6836 Austin Center Blvd., Suite 250
Austin, Texas 78731
(512) 794-2100
(512) 794-2111 (Facsimile)
By:______________________________
Joe N. Pratt
State Bar No. 16240100
Larry W. Brewer
State Bar No. 02965550
Davison W. Grant
State Bar No. 08300010
SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
(312) 853-2085
(312) 853-7036
Kevin Hochberg
Teresa Harmon
ATTORNEYS FOR CENTRAL POWER AND LIGHT COMPANY
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document
has been hand-delivered, sent overnight mail or U.S. mail to all parties of
record, on the 18th day of October 1999.
__________________________________
Larry W. Brewer
DOCKET NO. 21528
)
APPLICATION OF CENTRAL POWER AND )
LIGHT COMPANY FOR ) BEFORE THE
FINANCING ORDER TO SECURITIZE )
REGULATORY ASSETS AND ) PUBLIC UTILITY COMMISSION OF TEXAS
OTHER QUALIFIED COSTS )
)
FINANCING ORDER
Table of Contents
Page
I. STATUTORY OVERVIEW AND PROCEDURAL HISTORY.......................1
II. DESCRIPTION OF PROPOSED TRANSACTION.............................3
A. Financing Structure....................................3
B. Qualified Costs........................................5
C. Transition Charges.....................................6
1. Imposition and Amounts........................6
2. Collection Period.............................6
3. Allocation Among Customers....................6
4. Non-Bypassability.............................7
5. Self Generation...............................7
6. Binding Obligations to Continue Service
and to Collect and Account....................8
7. True-Ups......................................10
8. Retail Electric Providers.....................11
D. Transition Property....................................11
E. Transition Bonds.......................................12
1. Issuance......................................12
2. Security for Bonds............................12
3. Collection Account and Subaccounts............13
4. Other Credit Enhancement......................16
5. Refinancing...................................17
6. Use of Proceeds...............................17
III. FINDINGS OF FACT................................................18
A. Procedural History.....................................18
B. Applicant's Request....................................19
C. Qualified Costs........................................19
D. The SPE................................................22
E. Transition Bonds.......................................23
F. Servicer...............................................24
G. Retail Electric Providers..............................24
Lowest Transition Bond Charges..................................29
J. Information Required by Utilities Code Section
39.303 (b).............................................35
K. Transition Charges per Utilities Code Section
39.303 (c).............................................35
L. Accumulated Deferred Income Taxes......................42
M. Annual Report Under Utilities Code Section
39.257 and Stranded Cost Related Issues................45
IV. CONCLUSIONS OF LAW..............................................46
V. ORDERING PARAGRAPHS.............................................54
1. Approval of Application.......................54
2. Recovery of Transition Charges................54
3. Issuance Advice Letter........................55
Transition Charges..............................................56
4. Imposition....................................56
5. Collection Period.............................56
6. Allocation....................................56
7. Non-Bypassability.............................57
8. True-ups......................................58
9. SPE Remedies with respect to Transition
Charges.......................................60
10. Ownership Notification........................60
Transition Bonds................................................60
11. Issuance......................................60
12. Refinancing...................................61
13. Credit Enhancement............................61
14. Weighted Average Life.........................62
15. Structuring and Pricing of the Transition
Bonds.........................................62
Servicing.......................................................62
16. Servicing Agreement...........................62
17. Replacement of Applicant as Servicer..........63
18. Collection Terms..............................63
Retail Electric Providers.......................................64
19. Project No. 21082 Billing and Credit
Standards.....................................64
20. Transition Charge Remittance Procedures.......64
21. Default and Assumption of Servicing...........65
22. Deposit Standards.............................65
23. Competitive Enhancement Subaccount............66
Miscellaneous...................................................66
23. Continuing Issuance Right.....................66
24. Internal Revenue Service Private Letter or
Other Rulings.................................66
25. Binding on Successors.........................67
26. Flexibility...................................67
27. Effectiveness of Order........................68
28. Regulatory Approvals..........................68
29. Payment of Commission's Costs for
Professional Services.........................68
30. Negative CTC..................................68
31. Effect........................................69
Appendix A.................Description of Regulatory Assets and Other Qualified
..................Costs and Estimated Costs and Expenses
Appendix B Form of Transition Charge Rate Tariff - Schedule
TC and Rider TC
Appendix C.................Form of Issuance Advice Letter
Appendix D.................Form of Negative Competitive Transition Charge
Credits Tariff
..................-- Schedule NCTC and Rider NCTC
I.
<PAGE>
I. STATUTORY OVERVIEW AND PROCEDURAL HISTORY1
Title 2, Subtitle B, Chapter 39, Subchapters E, F and G of the Texas
Utilities Code (the "Utilities Code") provide that an electric utility in the
State of Texas is authorized, through the issuance of transition bonds, to
securitize 100% of its regulatory assets and 75% of its estimated recoverable
stranded costs together with the costs of issuing, supporting and servicing the
transition bonds and any costs of retiring and refunding the electric utility's
existing debt and equity in connection with the issuance of the transition
bonds. These provisions, particularly Subchapter G, permit securitization
financing because such financing will lower the carrying costs of the assets
securitized relative to the costs that would be incurred using conventional
utility financing methods. Pursuant to these provisions, the Public Utility
Commission of Texas (the "Commission") may authorize an electric utility or its
designee to issue transition bonds to securitize its regulatory assets and
stranded costs. The proceeds of the transition bonds are to be used solely for
the purpose of reducing the amount of recoverable regulatory assets and stranded
costs, as determined by the Commission in accordance with the Utilities Code,
through the refinancing or retirement of utility debt or equity. The Commission
must ensure that the securitization provides tangible and quantifiable benefits
to ratepayers greater than would have been achieved absent the issuance of the
transition bonds. The Commission must ensure that the structuring and pricing of
the transition bonds results in the lowest transition bond charges consistent
with market conditions and the terms of a financing order. The amount
securitized may not exceed the present value of the revenue requirement over the
life of the proposed transition bond associated with the regulatory assets or
stranded costs sought to be securitized. The total amount of revenues to be
collected under the financing order must be less than the revenue requirement
that would be recovered over the remaining life of the stranded costs using
conventional financing methods. Repayment of the transition bonds is to be
supported by the collection of transition charges and by any additional rights
created pursuant to the financing order authorizing the securitization.
On October 18, 1999, Central Power and Light Company, an investor-owned
electric utility providing retail and wholesale electric service in Texas, filed
an application for this financing order (this "Financing Order") to permit
securitization of the regulatory assets (the "Regulatory Assets") and other
qualified costs described in the application. For purposes of this Financing
Order, the term "Applicant" refers to Central Power and Light Company and its
successors and assigns that provide transmission and distribution service, or,
if transmission and distribution services are not provided by a single entity,
the successor entity providing wire service directly to customers, in Central
Power and Light Company's existing service area, but not to any successor or
assign that provides competitive services after the advent of customer choice
under Utilities Code Section 39.051. Also, for purposes of this Financing Order,
references to the "Application" herein include the application, exhibits,
schedules, attachments, testimony and filings by Applicant in connection
therewith.
The Application was filed pursuant to Subchapter G of Chapter 39 of the
Utilities Code. Notice was provided through publication once a week for two
consecutive weeks in newspapers having general circulation in Applicant's Texas
service area, beginning shortly after the filing of the Application. In
addition, Applicant provided individual notice to the governing bodies of all
Texas incorporated municipalities served by Applicant retaining original
jurisdiction. The Commission granted the requests to intervene filed by [15]
parties.2 A hearing was held before the Commission on December 7 and 8, 1999. On
December 17, 1999 the Applicant agreed to modify the effective date of its
request for a financing order pursuant to Utilities Code Section 39.303(e) to
November 3, 1999. By an order issued on December 17, 1999, the Administrative
Law Judge agreed to accept that modification. Briefs were filed on January 12,
2000, and reply briefs were filed on January [19], 2000. II. DESCRIPTION OF
PROPOSED TRANSACTION
The transactions in which Applicant intends to engage based upon this
Financing Order are described in the Application. The following is a summary
of those proposed transactions.
A. Financing Structure
For purposes of the securitization, Applicant will create a special
purpose entity, which is expected to be either a Delaware limited liability
company with Applicant as its sole member or a Delaware business trust with
Applicant as grantor and owner of all beneficial interests (the "SPE").
Applicant proposes to transfer the rights to impose, collect and receive the
transition charges (the "Transition Charges") along with its other rights
arising pursuant to this Financing Order to the SPE or another legal entity
(each, together with its successors and assigns, an "Assignee"). Upon the
transfer, such rights will become transition property (the "Transition
Property") in accordance with Utilities Code Section 39.304. The SPE will issue
transition bonds (the "Transition Bonds") and will transfer the net proceeds
from the sale of the Transition Bonds to Applicant in consideration for the
transfer of the Transition Property.
The SPE will be formed for the limited purpose of acquiring the
Transition Property, issuing Transition Bonds (including any transition property
and transition bonds authorized by the Commission in a subsequent financing
order) and performing other activities relating thereto or otherwise authorized
by this Financing Order. It will not be permitted to engage in any other
activities and will have no assets other than the Transition Property (or
subsequent transition property) and related assets to support its obligations
under the Transition Bonds (or subsequent transition bonds). Obligations
relating to the Transition Bonds (or subsequent transition bonds) will be the
SPE's only significant liabilities. These restrictions on the activities of the
SPE and restrictions on the ability of Applicant to take action on the SPE's
behalf are imposed to ensure that the SPE will be "bankruptcy remote" and will
not be affected by a bankruptcy of Applicant.
The SPE will be managed by a board of managers, trustees or a board of
directors with rights similar to those of boards of directors of corporations.
As long as the Transition Bonds remain outstanding, the SPE will have at least
one independent manager, trustee or director, i.e., with no organizational
affiliation with Applicant. The SPE will not be permitted to amend the
provisions of the organizational documents which ensure bankruptcy-remoteness of
the SPE without the consent of the independent manager, trustee or director.
Similarly, the SPE will not be permitted to institute bankruptcy or insolvency
proceedings or to consent to the institution of bankruptcy or insolvency
proceedings against it, or to dissolve, liquidate, consolidate, convert or merge
without the consent of the independent manager, trustee or director. Other
restrictions to assure bankruptcy-remoteness may also be included in the
organizational documents of the SPE as indicated by the rating agencies. B.
Qualified Costs
Utilities Code Section 39.302(4) defines "qualified costs" as "100
percent of an electric utility's regulatory assets and 75 percent of its
recoverable costs determined by the commission under Section 39.201 and any
remaining stranded costs determined under Section 39.262 together with the costs
of issuing, supporting, and servicing transition bonds and any costs of retiring
and refunding the electric utility's existing debt and equity securities in
connection with the issuance of transition bonds." Under Utilities Code Section
39.302(4), the term "qualified costs" also includes "the costs to the commission
of acquiring professional services for the purpose of evaluating proposed
transactions under Section 39.201 and [Utilities Code Subchapter G]."
As more fully detailed in the Application, Applicant seeks to recover
qualified costs consisting of the items described in the Applicant's prepared
testimony and including the amounts summarized on Appendix A to this Financing
Order (collectively, the "Qualified Costs"). The regulatory assets in Appendix A
and the related amounts of other qualified costs in Appendix A have been agreed
upon by ORA and Applicant as qualifying for securitization based on the
testimony presented by ORA and Applicant.
C. Transition Charges
1. Imposition and Amounts
Applicant seeks authorization to impose on and collect from retail
customers and retail electric providers (each, a "REP," and, collectively,
"REPs"), as herein provided, Transition Charges in an amount sufficient to
provide for the timely recovery of its aggregate Qualified Costs (including
payment of principal and interest on the Transition Bonds). Transition Charges
will be identified on bills to retail customers and REPs to the extent provided
in the Application. Applicant proposes that any shortfalls in payments will be
allocated as between Transition Charges and other billed amounts in the manner
set forth in the Transition Charge tariff attached to this Financing Order. This
allocation proposal is supported by the testimony of Applicant. 2. Collection
Period
Applicant proposes that the Transition Charges related to a series of
Transition Bonds will be recovered over a period of not more than 15 years from
the date of issuance of such series of the Transition Bonds, it being recognized
that delinquencies and end of period billings may be collected after the
conclusion of such 15-year period.
3. Allocation Among Customers
ORA and Applicant propose to allocate the Transition Charges among retail
customers in the manner described in the letter of understanding between ORA and
Applicant. This allocation methodology is supported by the testimony presented
by ORA and Applicant.
4. Non-Bypassability
Applicant proposes to collect Transition Charges from all existing
retail customers of Applicant and all future retail customers located within
Applicant's certificated service area as it existed on May 1, 1999, except for
former customers not taking service from the Applicant pursuant to Commission
Docket No. 20292.3 In accordance with Utilities Code Section 39.252(c), a retail
customer within such area may not avoid Transition Charges by switching to
another electric utility, electric cooperative or municipally-owned utility
after May 1, 1999. However, a customer in a multiply-certificated service area
that requested to switch providers on or before May 1, 1999, or was not taking
service from Applicant on May 1, 1999, and does not do so after that date shall
not be responsible for paying Transition Charges.
5. Self Generation.
Applicant proposes that, except as provided by Utilities Code Sections
39.262(k) and 39.252, as implemented by P.U.C. Subst. Rule 25.345, a retail
customer may not avoid the payment of Transition Charges by switching to "new
on-site generation." If a customer commences taking energy from new on-site
generation that materially reduces the customer's use of energy delivered
through Applicant's facilities, the customer will pay an amount each month
computed by multiplying the output of the on-site generation utilized to meet
the internal electrical requirements of the customer by the applicable
Transition Charges in effect for that month. Any reduction equivalent to more
than 12.5% of the customer's use of energy delivered through Applicant's
facilities will be considered "material" for this purpose. Payments of the
Transition Charges owed by such customers under Utilities Code Section
39.252(b)(2) will be made to the Servicer (as defined herein) and will be
collected in addition to any other charges applicable to services provided to
the customer through Applicant's facilities and any other competition transition
charges applicable to self-generation under Utilities Code Section 39.252.
6.Binding Obligations to Continue Service and to Collect and Account.
To the extent that any interest in the Transition Property created
hereby is assigned, sold or transferred to an Assignee, Applicant proposes to
contract with such Assignee that Applicant will continue to operate its
transmission and distribution system to provide electric services to Applicant's
customers.
Applicant also proposes to execute a Servicing Agreement with the SPE.
This Financing Order uses the term "Servicing Agreement" to refer to such
Servicing Agreement together with any amendment, renewal or replacement thereof,
and uses the term "Servicer" to refer to Applicant in its capacity as the
initial servicer under the Servicing Agreement and any successor servicer under
the Servicing Agreement. Pursuant to the Servicing Agreement, Applicant, as
Servicer, will agree, among other things, to impose and collect the applicable
Transition Charges for the benefit and account of the Assignee, to make the
periodic "true-up" adjustments of Transition Charges contemplated below in this
Financing Order, and to account for and remit the applicable Transition Charges
to or for the account of the Assignee in accordance with the remittance
procedures described in the Servicing Agreement without any charge, deduction or
surcharge of any kind (other than the servicing fee specified in the Servicing
Agreement). Under the terms of the Servicing Agreement, if Applicant fails to
fully perform its servicing obligations, the indenture trustee (the "Indenture
Trustee") under the indenture (the "Indenture") to be entered into in connection
with the issuance of the Transition Bonds, or its designee, may, or, upon the
instruction of the requisite percentage of holders of the outstanding amount of
Transition Bonds, shall appoint an alternate party (which may be a trustee) to
replace Applicant as Servicer, in which case the replacement Servicer will
perform the obligations of Applicant contemplated in this Financing Order. The
obligations of the Servicer under the Servicing Agreement and the circumstances
under which an alternate Servicer may be appointed will be more fully described
in the Servicing Agreement. The rights of the Assignee under the Servicing
Agreement will be included in the collateral pledged to the Indenture Trustee
under the Indenture for the benefit of holders of the Transition Bonds.
Applicant proposes that the foregoing obligations to continue to
provide service and to collect and account for Transition Charges will be
binding upon Applicant, and the Commission will ensure that such obligations are
undertaken and performed by Applicant and any other entity that provides
transmission and distribution services or direct wire services to a person that
was a retail customer of Applicant located within Applicant's certificated
service area on May 1, 1999, or that became a retail customer for electric
services within such area after May 1, 1999 and is still located within such
area. Applicant further proposes that to the extent REPs are responsible for
imposing and billing Transition Charges on behalf of the SPE, certain minimum
billing and credit standards will be binding on all REPs that bill and collect
Transition Charges to such retail customers, together with their successors and
assigns, as discussed in more detail below.
7. True-Ups
Pursuant to Utilities Code Section 39.307, Applicant, as Servicer,
proposes to make annual adjustments to the Transition Charges to correct any
undercollections or overcollections during the preceding 12 months, and to
ensure the billing of Transition Charges necessary to generate the collection of
amounts sufficient to timely provide all payments of principal and interest and
any other amounts due in connection with the Transition Bonds during the period
for which such adjusted Transition Charges are to be in effect (such amounts are
referred to as "Periodic Payment Requirements"). In addition to these annual
true-up adjustments, true-up adjustments may be made more frequently at any time
during the term of the Transition Bonds to correct any undercollection or
overcollection as provided for in the Application and the form of Transition
Charge tariff attached hereto as Appendix B based on rating agency and
bondholder considerations.
True-up filings will be based upon the cumulative differences which for
any reason might arise between the Transition Bond debt service requirements,
including scheduled principal and interest payments on the Transition Bonds and
other Periodic Payment Requirements, on the one hand, and the Transition Charge
remittances to the Indenture Trustee, on the other, so as to assure full
recovery of amounts sufficient to meet the Periodic Payment Requirements over
the expected life of the Transition Bonds. In order to assure adequate
Transition Charge revenues to fund all Periodic Payment Requirements and to
avoid large overcollections and undercollections over time, Applicant, as
Servicer, will be permitted to reconcile the Transition Charges using its most
recent forecast of electricity sales and estimates of transaction related
expenses. The calculation of the Transition Charges will also reflect both a
projection of uncollectible Transition Charges and payment lags between the
billing and collection of Transition Charges based upon Applicant's most recent
experience, taking into consideration the payment of Transition Charges. As set
forth in the letter of understanding between ORA and Applicant, the true-up
methodology has been revised to reflect proposals made by ORA and others. This
true-up process is supported by the testimony of ORA and Applicant.
8. Retail Electric Providers.
Beginning on the date of customer choice for any retail customers or
group of retail customers, the Servicer will bill the Transition Charges for
such customers to each such retail customer's REP and the REP will collect such
Transition Charges from its retail customers. Applicant proposes that the REP
will pay to the Servicer amounts due for Transition Charges for those retail
customers to which the REP provides service, subject to permitted charge-offs as
described in the form of Transition Charge tariff submitted by Applicant, but
otherwise without regard to whether or when the REP receives payments from its
retail customers. This collection procedure is supported by the testimony of ORA
and Applicant.
D. Transition Property
Utilities Code Section 39.304(a) states that "[t]he rights and interests of
an electric utility or successor under a financing order, including the right to
impose, collect, and receive transition charges authorized in the order, shall
be only contract rights until they are first transferred to an assignee or
pledged in connection with the issuance of transition bonds, at which time they
will become `transition property.'" Under Utilities Code Section 39.304(b),
transition property constitutes "a present property right for purposes of
contracts concerning the sale or pledge of property, even though the imposition
and collection of transition charges depends on further acts of the utility or
others that have not yet occurred." As used herein, "Transition Property"
includes all of Applicant's right, title and interest under this Financing
Order, when such right, title and interest are transferred to an Assignee.
E. Transition Bonds
1. Issuance
Applicant proposes that the SPE will issue and sell in reliance on this
Financing Order one or more series of Transition Bonds, and each series may be
issued in one or more classes or tranches. The legal final maturity date of any
series of Transition Bonds will not exceed 15 years from the date of issuance of
such series. Applicant will retain sole discretion regarding whether or when to
assign, sell, or otherwise transfer any rights concerning Transition Property
arising under this Financing Order, or to cause the issuance of any Transition
Bonds authorized hereby. The SPE may issue the Transition Bonds on or after the
third business day after Applicant has filed its Issuance Advice Letter in
accordance with Ordering Paragraph No. 3 of this Financing Order unless, prior
to such third business day, the Commission issues an order finding that the
proposed issuance does not comply with such Ordering Paragraph No. 3. 2.
Security for Bonds
The payment of the Transition Bonds authorized by this Financing Order is
to be secured by the Transition Property created by this Financing Order and by
certain other collateral as described in the Application. The Transition Bonds
will be issued pursuant to the Indenture administered by the Indenture Trustee.
3. Collection Account and Subaccounts
Pursuant to the Indenture, the SPE will establish a "Collection Account" as
a trust account to be held by the Indenture Trustee as collateral to ensure the
payment of the principal and interest on and other costs in connection with the
Transition Bonds in full and on a timely basis. The Collection Account will
include at least the following subaccounts: (a) The General Subaccount. The
Indenture Trustee will deposit the Transition Charge remittances that the
Servicer remits to the Indenture Trustee for the account of the SPE into a
"General Subaccount." Moneys in this subaccount will be applied by the Indenture
Trustee on a periodic basis to pay expenses of the SPE, to pay principal and
interest on the Transition Bonds, and to meet the funding requirements of the
other subaccounts. The moneys in this subaccount will be invested by the
Indenture Trustee in short-term high quality investments, and such moneys
(including investment earnings thereon) will be applied by the Indenture Trustee
to pay principal and interest on the Transition Bonds and other Periodic Payment
Requirements, and otherwise in accordance with the terms of the Indenture.
(b) The Overcollateralization Subaccount. An "Overcollateralization
Subaccount" established for the Transition Bonds will be periodically funded
from Transition Charge remittances over the life of the Transition Bonds. The
amount and timing of the actual aggregate funding will depend on tax and rating
agency requirements, and is expected to be not less than 0.5 % of the original
principal amount of the Transition Bonds. This subaccount will serve as
collateral to ensure timely payment of principal and interest on the Transition
Bonds and other Periodic Payment Requirements. To the extent that the
Overcollateralization Subaccount must be drawn upon to pay these amounts due to
a shortfall in the Transition Charge remittances, it will be replenished through
future Transition Charge remittances to its required level through the true-up
process or overcollection. The moneys in this subaccount will be invested by the
Indenture Trustee in short-term high quality investments, and such moneys
(including investment earnings thereon) will be used by the Indenture Trustee to
pay principal and interest on the Transition Bonds and other Periodic Payment
Requirements.
(c) The Capital Subaccount. When a series of Transition Bonds is issued, a
capital contribution by Applicant (which will be funded from Transition Bond
proceeds) to the SPE for such series will be deposited into a "Capital
Subaccount." This amount is expected to be not less than 0.5% of the original
principal amount of each series of Transition Bonds, although the actual amount
will depend on tax and rating agency requirements. The Capital Subaccount will
serve as collateral to ensure timely payment of principal and interest on the
Transition Bonds and other Periodic Payment Requirements. To the extent that the
Capital Subaccount must be drawn upon to pay these amounts due to a shortfall in
the Transition Charge remittances, it will be replenished through future
Transition Charge remittances to its original level through the true-up process
or overcollection. The moneys in this subaccount will be invested by the
Indenture Trustee in short-term high quality investments, and such moneys
(including investment earnings thereon) will be used by the Indenture Trustee to
pay principal and interest on the Transition Bonds and other Periodic Payment
Requirements. Upon the maturity of the Transition Bonds and the discharge of all
obligations in respect thereof, all amounts in this subaccount, including
investment earnings, shall be released to the SPE for payment to Applicant.
(d) The Reserve Subaccount. A "Reserve Subaccount" for Transition Bonds
will be established to hold any Transition Charge remittances and investment
earnings on the Collection Account in excess of the amounts needed to pay
current principal and interest on the Transition Bonds and to pay other Periodic
Payment Requirements (including, but not limited to, funding or replenishing the
Overcollateralization Subaccount and the Capital Subaccount). Any balance in the
Reserve Subaccount on a true-up adjustment date will be subtracted from the
Periodic Payment Requirements for purposes of the true-up adjustment. The moneys
in this subaccount will be invested by the Indenture Trustee in short-term high
quality investments, and such moneys (including investment earnings thereon)
will be used by the Indenture Trustee to pay principal and interest on the
Transition Bonds and other Periodic Payment Requirements.
(e) Miscellaneous Concerning Collection Account and Subaccounts. The
Collection Account and the subaccounts described above are intended to provide
for full and timely payment of scheduled principal and interest on the
Transition Bonds and other Periodic Payment Requirements. If Transition Charge
remittances to the General Subaccount are insufficient to make all scheduled
payments of principal and interest on the Transition Bonds and make other
Periodic Payment Requirements, the Reserve Subaccount, the Overcollateralization
Subaccount, and the Capital Subaccount will be drawn down, in that order, to
make those payments. Any deficiency in the Overcollateralization Subaccount or
the Capital Subaccount due to such withdrawals must be replenished first to the
Capital Subaccount and then to the Overcollateralization Subaccount on a
periodic basis through the true-up process. In addition to the foregoing, there
may be such additional accounts and subaccounts as are necessary to segregate
amounts received from various sources (i.e., amounts received from REPs), or to
be used for specified purposes. Such accounts will be administered and utilized
as set forth in the Servicing Agreement and the Indenture. Upon the maturity of
the Transition Bonds and the discharge of all obligations in respect thereof,
remaining amounts in the Collection Account will be released by the SPE to
Applicant and will be credited to customers consistent with Utilities Code
Section 39.262(g).
4. Other Credit Enhancement
Applicant may provide for various other forms of credit enhancement
including letters of credit, reserve accounts, surety bonds, swap arrangements,
hedging arrangements and other mechanisms designed to promote the credit quality
and marketability of the Transition Bonds.
5. Refinancing
Applicant also seeks authorization, as contemplated by Utilities Code
Section 39.303(g) and subject to an approved supplement to this Financing Order,
for it or any Assignee to refinance the Transition Bonds in a face amount not to
exceed the unamortized principal thereof, consistent with such Utilities Code
Section 39.303(g). It is proposed that, if Applicant or any Assignee refinances
the Transition Bonds, the Transition Charges authorized by this Financing Order
shall not be terminated, but such Transition Charges will be adjusted, in
accordance with the true-up mechanism described above in this Financing Order,
to ensure the receipt of revenues sufficient to pay the applicable remaining
Qualified Costs. Such Qualified Costs will include accrued interest and
premiums, if any, and other costs of retirement of the refunded Transition
Bonds, and all fees, costs and charges incurred to issue, support and service
the new Transition Bonds, as provided in the supplement to the Commission's
Financing Order. Such supplement to this Financing Order will be issued by the
Commission upon receipt from Applicant of a supplement to the Application that
describes the proposed reduction in the Transition Charge that will occur upon
issuance of the new Transition Bonds. Such reduction will be confirmed to the
Commission by the filing by Applicant of an Issuance Advice Letter in connection
with the issuance of the new Transition Bonds.
6. Use of Proceeds
Upon the issuance of Transition Bonds, the SPE will use the net
proceeds of issuance (after payment of transaction costs as provided in the
Application) to pay to Applicant the purchase price of the Transition Property.
Applicant will use the net proceeds of sale of the Transition Property for the
reduction of recoverable Regulatory Assets as described in this Financing Order.
III. FINDINGS OF FACT
A. Procedural History
1. Applicant is an investor-owned electric utility providing retail and
wholesale electric service in Texas. 2. On October 18, 1999, Applicant filed the
Application in proper and complete form pursuant to Subchapter G of Chapter 39
of the Utilities Code for a financing order to permit securitization of the
Regulatory Assets and other Qualified Costs. On December 17, 1999, the Applicant
agreed to modify the effective date of its request for a financing order
pursuant to Utilities Code Section 39.303(e) to November 3, 1999. By an order
issued December 17, 1999, the Administrative Law Judge agreed to accept that
modification. 3. Notice was provided through publication once a week for two
consecutive weeks in newspapers having general circulation in Applicant's Texas
service area, beginning shortly after the filing of the Application. In
addition, Applicant provided individual notice to the governing bodies of all
Texas incorporated municipalities served by Applicant retaining original
jurisdiction. Proof of publication was submitted in the form of publishers'
affidavits and verification of the mailing of individual notices and the
provision of notice to the municipalities. 4. A hearing was held before the
Commission on December 7 and 8, 1999.
B. Applicant's Request
5. Applicant requests approval of Transition Charges to be paid by retail
customers sufficient to support issuance of Transition Bonds in the original
principal amount of up to and including $949,137,000 of Regulatory Assets plus
an additional amount necessary to recover its other up-front Qualified Costs as
described in the letter of understanding agreed to by ORA and Applicant and in
the testimony of ORA and Applicant. The Transition Bonds will be secured by and
payable solely out of the Transition Property created pursuant to this Financing
Order and the other collateral described in the Application. 6. Under
Applicant's proposal, $949,137,000 of recoverable generation-related regulatory
assets on Applicant's regulatory books will be reduced through the
securitization, as more fully described herein.
C. Qualified Costs
7. The Qualified Costs proposed to be recovered by Applicant through the
issuance of Transition Bonds pursuant to this Financing Order include the $949.1
million of Regulatory Assets agreed to by ORA and Applicant and summarized on
Appendix A to this Financing Order. The qualification of these Regulatory Assets
for securitization is supported by the testimony of ORA and Applicant. The other
Qualified Costs proposed to be recovered by Applicant include costs of issuing,
supporting and servicing the Transition Bonds, costs of retiring and refunding
Applicant's existing debt and equity securities in connection with the issuance
of the Transition Bonds, costs of swap or hedge agreements entered into under
the circumstances described in the direct testimony of D. Greg Wilks and costs
to the Commission of acquiring professional services for the purpose of
evaluating Applicant's proposed transaction, also as described in the testimony
of ORA and Applicant, and summarized on Appendix A to this Financing Order.
Applicant has demonstrated that approval of the amount to be securitized as
agreed to by ORA and Applicant would be just and reasonable, in the public
interest and complies with the statutory standards in Utilities Code Sections
39.301 and 39.303. 8. The Commission finds that it is reasonable for Applicant
to recover through the issuance of Transition Bonds the Regulatory Assets and
other Qualified Costs listed on Appendix A to this Financing Order. Pursuant to
this Financing Order, Applicant is authorized to cause the SPE to issue
Transition Bonds in the original principal amount of up to and including the sum
of $949,137,000 plus such other up-front Qualified Costs as are included in the
calculations of the Issuance Advice Letter. Pursuant to this Financing Order,
$949,137,000 of recoverable generation-related regulatory assets on Applicant's
regulatory books will be reduced through the securitization.4 Pursuant to this
Financing Order, the Commission approves Transition Charges to be paid by retail
customers sufficient to support issuance by the SPE of Transition Bonds of up to
and including such original principal amount, secured by and payable solely out
of the Transition Property created pursuant to this Financing Order and the
other collateral described in the Application. 9. The actual costs of issuing
and supporting the Transition Bonds will not be known until the Transition Bonds
are issued, and certain ongoing costs relating to the Transition Bonds may not
be known until such costs are incurred. The actual amount of debt and equity
securities to be retired and refunded will be affected by market conditions at
the time such securities are retired or refunded, and, therefore, the actual
cost of retiring and refunding debt and equity securities in connection with the
issuance of the Transition Bonds will not be known until such securities are
retired and such refunding is complete. The costs of credit enhancement and
servicing, including third party fees and expenses, also will not be known until
the time the Transition Bonds are priced. For these purposes, therefore, the
estimated amount of such costs was agreed to by ORA and Applicant and summarized
on Appendix A to this Financing Order. 10. The Commission finds that the
estimates of the costs of issuing and supporting the Transition Bonds and of
retiring and refunding debt and equity set forth in Appendix A are reasonable
and are approved, provided that: (a) The amounts of upfront variable and ongoing
Qualified Costs described on Appendix A and incurred or to be incurred in
connection with the proposed transaction that are recoverable through
Transition Charges shall not exceed the percentage estimates of such costs set
forth on Appendix A to this Financing Order. Applicant shall securitize the
amounts of upfront fixed Qualified Costs which are described on Appendix A in
the amounts therein described, with any variation between such estimated amounts
and the actual amounts to be trued-up in subsequent proceedings before the
Commission. These limitations will not preclude Applicant from having an
opportunity to seek recovery of any excess costs in subsequent proceedings.
(b) The Applicant shall be entitled to recover through Transition Charges
Qualified Costs not described on Appendix A based on actual amounts
known or the best estimates provided by Applicant at the time the
Transition Bonds are priced and included in the Issuance Advice Letter
as described below.
(c) Qualified Costs may include the up-front costs of entering into hedge
or swap agreements under the circumstances described in Finding of Fact
No. 41.
(d) The precise amounts of up-front costs and expenses will be set forth in
an Issuance Advice Letter filed subsequently by Applicant in accordance
with Ordering Paragraph No. 3 of this Financing Order.
D. The SPE
11. The SPE will be a Delaware limited liability company or a Delaware business
trust created solely to issue the Transition Bonds.
12. The SPE will be wholly-owned directly by Applicant.
13. The initial capital of the SPE is expected to be not less than 0.5% of the
original principal amount of each series of Transition Bonds issued by the SPE.
14. Concurrently with the issuance of any of the Transition Bonds, Applicant
will transfer to the SPE all of Applicant's rights under this Financing Order,
including rights to impose, collect, and receive the Transition Charges, in a
transaction that will qualify as a "true sale" within the meaning of Utilities
Code Section 39.308. By virtue of the transfer, the SPE will acquire all of the
right, title, and interest of Applicant in the Transition Property arising under
this Financing Order.
15. The SPE will issue Transition Bonds in an aggregate
amount not to exceed the principal amount approved herein by the Commission and
will pledge to the Indenture Trustee, as collateral for payment of the
Transition Bonds, the Transition Property (including the SPE's right to receive
the Transition Charges as and when collected) and certain other collateral
described in the Application.
16. The Transition Property and all other
collateral will be held and administered by the Indenture Trustee pursuant to
the Indenture, as described in the Application.
17. The Indenture will include
provisions for a Collection Account and related subaccounts for the collection
and administration of the Transition Charges and payment or funding of the
principal and interest on the Transition Bonds and other Periodic Payment
Requirements, including fees and expenses, in connection with the Transition
Bonds, as described in the Application.
E. Transition Bonds
18. The Transition Bonds will be issued in one or more series comprised of one
or more classes or tranches having legal final maturity dates not exceeding 15
years from the date of issuance of such series.
19. The legal final maturity
date of each series and class or tranche within a series and amounts in each
series will be finally determined by Applicant,5 consistent with market
conditions and indications of the rating agencies, at the time the Transition
Bonds are issued.
20. The Commission finds that Applicant's proposal with
respect to the maturities and classes or tranches of the Transition Bonds is
reasonable and such proposal is approved; provided that the amortization of the
Transition Bonds shall be structured in accordance with the rebuttal testimony
of David G. Carpenter and D. Greg Wilks, as summarized in the letter of
understanding between ORA and Applicant. F. Servicer
21. Applicant and the SPE will enter into a Servicing Agreement pursuant to
which Applicant will act as the initial Servicer. The Servicer will be
responsible for billing and collecting Transition Charges on behalf of the SPE,
making filings in connection with the periodic true-ups described above in this
Financing Order, and certain related duties described in the Application and the
Servicing Agreement.
G. Retail Electric Providers
22. Prior to the introduction of competition, Applicant will collect Transition
Charge revenues as part of the current frozen bundled rates and will remit such
revenues to the SPE. With the introduction of the pilot program in June 2001 and
the subsequent introduction of retail competition in January 2002, Utilities
Code Section 39.107(d) will require that Applicant will bill a customer's REP
for the Transition Charges attributable to that customer. Utilities Code Section
39.107(d) provides that the REP must pay the Transition Charges.
23. In many of the jurisdictions that have approved the issuance of
transition bonds, the financing orders have typically provided that REPs (or the
equivalent entities in such other jurisdictions) must remit transition charges
to the Servicer within a specified number of days and that the Servicer would be
allowed to assume the billing and collection of transition charges in the event
of a default by an REP (or such equivalent party). Financing orders in other
jurisdictions also have typically established credit qualifications and/or
deposit requirements for REPs (or such equivalent parties) that intend to bill,
collect, and remit transition charges.
24. Applicant has asserted that rating
agencies that have rated transition bonds issued in other jurisdictions have
carefully evaluated the billing and credit requirements contained those
financing orders. Applicant has also asserted that if this Financing Order does
not contain minimum billing and credit standards acceptable to the rating
agencies, it will be impossible for the Transition Bonds to receive the desired
triple-A ratings without the inclusion of some additional form of credit
enhancement. Applicant, therefore, proposed minimum billing and credit standards
applicable to REPs.
25. The Commission finds that billing and credit standards
applicable to REPs should be standardized across all utilities and will be
decided in the Commission's Project No. 21082, Certification of Retail Electric
Providers and Registration of Power Generation Companies and Aggregators or
other rulemakings related to transmission and distribution access. Recognizing,
however, that this Financing Order must specify certain minimum remittance
timelines and deposit requirements so that rating agencies can analyze the
adequacy of the credit enhancement mechanisms incorporated herein, the
Commission approves certain minimum remittance procedures and deposit
requirements described in Ordering Paragraph Nos. 19 through 22 of this
Financing Order and set forth in the Transition Charge tariff attached to this
Financing Order as Appendix B. This approach will allow the Commission to
properly address REP billing and credit standards in Project No. 21082 while
still permitting the Transition Bonds to achieve triple-A ratings, with minimal
impact on customers, the competitive process, Applicant, or the proposed
transaction. H. Findings Required by Utilities Code ss. 39.301
Reduction of Recoverable Regulatory Assets Through
Refinancing or Retirement of Utility Debt or Equity
26. The proceeds of the securitization (net of transaction costs) will be used
to refinance or retire Applicant's debt or equity.
27. As agreed to between ORA
and Applicant, Applicant will use the proceeds of the securitization to
refinance or retire debt or equity in proportions that maintain a common equity
ratio of 45% to 48% (with a target of 45%), excluding consideration of the
Transition Bonds.
28. As of September 30, 1999, Applicant's common stock equity
was $1,366.8 million, or 51% of capitalization, Applicant's preferred stock was
$166 million, or 6% of capitalization, Applicant had trust preferred securities
of $144.9 million, or 5% of capitalization, and Applicant's long-term debt was
$1,015 million, or 38% of capitalization.
29. Under the securitization
transaction agreed to by ORA and Applicant, $949.1 million of recoverable
generation-related regulatory assets on Applicant's regulatory books will be
reduced through securitization.
30. In the April 2000 unbundling proceedings,
the effects on Applicant's capital structure of refinancing or retirement of
debt and/or equity with securitization proceeds will not be used in any way as a
means of setting a higher cost of capital for Applicant's transmission and
distribution system than would otherwise be calculated based upon the risks,
operations and business conditions of the regulated transmission and
distribution utility.
Tangible and Quantifiable Benefits
31. In his direct testimony, ORA witness Paul Bellon recommended that Applicant
receive a financing order authorizing securitization of $1,211.7 million of
regulatory assets, plus other qualified costs of $45 million. Mr. Bellon
calculated net present value benefits in the range of $275.6 million to $314.6
million from his recommended securitization compared to traditional financing,
depending on the period of recovery using traditional financing, using an
estimated compounded annual interest rate on the Transition Bonds of 7.43% for
the discount rate. Mr. Bellon's analysis, which is described in his direct
testimony, was conducted on an asset-by-asset basis.
32. In his rebuttal
testimony, Applicant witness John Jeter analyzed the benefits of securitization
of the modified amount of $1,241.4 million of regulatory assets, plus other
qualified costs of $47.4 million, in Applicant's rebuttal case. Mr. Jeter
calculated net present value benefits of $274.4 million from the securitization
in Applicant's rebuttal case compared to conventional financing, using an
estimated annual interest rate of 7.3% on the Transition Bonds for the discount
rate. Mr. Jeter's analysis, which is set forth in Exhibit JAJ-6R to his rebuttal
testimony, was performed on an aggregate basis; however, there should be no
difference between the aggregate and asset-by-asset analysis because all of the
regulatory assets to be securitized in Applicant's rebuttal case consisted of
regulatory assets that earn a return. In Exhibit JAJ-7R to his rebuttal
testimony, Mr. Jeter also calculated that net present value benefits of $59.6
million would result from the securitization of $1,241.4 million in regulatory
assets, plus estimated other qualified costs of $61.4 million when compared to
conventional financing, using a discount rate of 8.8%.
33. The Commission finds
the methodology used by Mr. Bellon to calculate the net present value of the
benefits of securitization compared to conventional financing is reasonable. The
Commission also finds Mr. Jeter's methodology produces equivalent results where
no significant amount of regulatory assets evaluated are ones that do not earn a
return and is reasonable.
34. The amount of regulatory assets to be securitized
under the agreement of ORA and Applicant of $949.1 million is made up of items
that were included in the evaluations performed by Mr. Bellon and Mr. Jeter and
consists entirely of items that earn a return. Based on the evaluations of Mr.
Bellon and Mr. Jeter, it is appropriate to conclude from the record in this case
that the amount securitized in this proceeding of $949.1 million of regulatory
assets, plus other qualified costs estimated at $36,371,039, will produce net
present value benefits when compared to traditional financing. The benefits
produced by such securitization are proportional to the benefits described in
Findings of Fact Nos. 31 and 32 calculated by Mr. Bellon and Mr. Jeter.
35. Based on the foregoing, the Commission finds that it is reasonable to
conclude that the securitization agreed to by ORA and Applicant of $949.1
million, plus other qualified costs estimated at $36,371,039, produces benefits
compared to traditional financing, even using a discount rate of 8.8%. At a
discount rate of 7.43%, the net present value of the benefits of securitization
of $949.1 million of regulatory assets, plus other qualified costs estimated at
$36,371,039, when compared to traditional financing, is in excess of $200
million.
36. Applicant will demonstrate that the net present value of the revenue
requirements pursuant to securitization is lower than the net present value of
revenue requirements for the securitized assets recovered under conventional
financing, by performing an analysis at the time the price and structure of the
Transition Bonds is known. Applicant will provide confirmation of such benefits
to the Commission in an Issuance Advice Letter in the form of Appendix C to this
Financing Order.
37.Further confirmation of the tangible and quantifiable benefits of the
securitization is provided by the testimony of Applicant witness Wendy Hargus.
In her direct testimony, Ms. Hargus showed that Applicant's overall cost of
capital would be reduced as a result of issuing the Transition Bonds. In her
rebuttal testimony, Ms. Hargus demonstrated that the proceeds from the
Transition Bonds bearing an estimated coupon rate of 7.3% will be used to retire
common equity that currently bears a pre-tax cost of capital of 15.52% and to
retire first mortgage bonds that currently have a cost rate of 8.58%, including
the annual amounts to amortize unamortized bond discount, debt discount and
issuance costs currently on Applicant's books.
38. The Commission finds that the securitization agreed to by ORA and
Applicant will reduce Applicant's cost of capital.
39. The Commission finds that the securitization agreed to by ORA and
Applicant will provide tangible and quantifiable benefits to ratepayers greater
than would have been achieved absent the issuance of Transition Bonds.
Lowest Transition Bond Charges
40. In their direct testimony, Applicant witnesses Wendy Hargus, Curtis Probst
and Greg Wilks set forth the plan to assure a structure and pricing for
Applicant's proposed securitization transaction that results in the lowest
Transition Bond charges consistent with market conditions and the terms of the
Financing Order.
41. The following is a summary of the plan described by Ms. Hargus, Mr.
Probst and Mr. Wilks in their direct testimony. (a) The issuer of Transition
Bonds is a special purpose bankruptcy-remote entity (SPE) that is unlikely to
become a subject to a bankruptcy proceeding of its parent or any affiliate and
will be protected if such a proceeding were to occur; (b) The right to impose
and collect the Transition Charges is recognized as a separate property right
that is transferred to the SPE and the transition charges are nonbypassable;
(c) The transaction provides credit enhancement in the form of a mechanism
to periodically adjust or "true-up" the Transition Charges annually,
and in certain limited circumstances, as frequently as every payment
date, in order to assure the timely payment of the debt service and
other ongoing transaction costs;
(d) The transaction provides for additional credit enhancement in the form
of a collection account which includes (i) a capital subaccount of not
less than 0.5% of the initial principal amount of the Transition Bonds
and (ii) an additional overcollateralization subaccount which builds up
over time to equal not less than an additional 0.5% of the initial
principal amount of the Transition Bonds. These credit enhancements
provide assurance of certainty of payment of interest and principal to
investors and are consistent with the informal requirements of the
Internal Revenue Service in order to receive the desired federal income
tax treatment for the Transition Bond transaction;
(e) The transaction is structured to protect bondholders against potential
defaults by the Servicer and/or REPs that may become responsible for
billing and collecting the Transition Charges from existing or future
retail customers;
(f) The transaction is structured so that for federal income tax purposes
(i) the transfer of the rights under the Financing Order to the SPE
does not result in gross income to Applicant and the future revenues
under the transition charges will be included in Applicant's gross
income in the year in which the related electric service is provided to
customers, (ii) the issuance of the Transition Bonds and the transfer
of the proceeds of the Transition Bonds to Applicant will not result in
gross income to Applicant and (iii) the Transition Bonds will
constitute obligations of Applicant; and
(g) The Transition Bonds will be marketed using proven underwriting
processes by which, after testing the market and investors'
preferences, the final structure of the Transition Bonds, the timing of
the issuance and the terms and conditions, related to maturities, type
of interest (fixed or variable) and other aspects, will be established
to obtain the structure and pricing that result in the lowest
transition bond charges.
(h) If the general level of interest rates begins to rise such that it may
be prudent to mitigate the risk of future increases in rates, then CPL
may enter into hedge or swap agreements to mitigate such risks.
Ms. Hargus stated that the objectives of the elements of Applicant's plan set
forth above are to obtain the highest possible credit rating for the transition
bonds and to achieve the lowest transition bond charges. 42. The Commission
finds that the elements of Applicant's plan to ensure the lowest transition bond
charges consistent with market conditions and this Financing Order, as set forth
in the preceding three Findings of Fact, are reasonable and should be adopted.
43. The Commission finds that the structuring and pricing of the Transition
Bonds in accordance with the Applicant's plan set forth above will ensure that
the Transition Bonds have been issued at the lowest transition bond charges
consistent with market conditions and the terms of this Financing Order. As set
forth in the Issuance Advice Letter attached to this Financing Order as Appendix
[ ], Applicant will confirm the actions taken by it as set forth therein in
connection with testing the market and investors' preferences to obtain the
structure and pricing that result in the lowest transition bond charges.6 44.
Based on the preceding Findings of Fact Nos. 40 through 42, the proposed
Transition Bond transaction will be consistent with the standards set forth in
Utilities Code Section 39.301.
Amount Securitized
45. In his direct testimony, ORA witness Paul Bellon presented a methodology to
compare the amount securitized to the net present value of the revenue
requirement over the life of the proposed Transition Bonds associated with the
regulatory assets sought to be securitized, under which the revenue requirement
on the regulatory assets is calculated based on the interest rate of the
Transition Bonds and the net present value of these revenue requirements is
calculated using that interest rate as the discount rate. Mr. Bellon's
methodology led him to conclude that, as long as the regulatory assets sought to
be securitized earn a return, the amount that can be securitized is capped at
the book value of the regulatory assets. Mr. Bellon's methodology and conclusion
with respect to this matter are reasonable.
46. The $949.1 million amount of regulatory assets that ORA and Applicant
have agreed should be securitized under the Financing Order in this case
constitutes the sum of the net book value of these regulatory assets as of
December 31, 1998. The Commission finds that since each of these regulatory
assets earns a return, the amount of regulatory assets agreed to by ORA and
Applicant of $949.1 million does not exceed the present value of the revenue
requirements over the life of the proposed transition bonds associated with the
regulatory assets sought to be securitized.
I. Findings Required by Utilities Code Section 39.303(a)
47. In his rebuttal testimony, Applicant witness John Jeter presented a
methodology by which the total amount of revenues to be collected under this
financing order is compared to the revenue requirements that would be recovered
over the remaining life of the regulatory assets using conventional financing
methods. This analysis which is set forth in Exhibit JAJ-6R of Mr. Jeter's
rebuttal testimony indicated that for the securitization in Applicant's rebuttal
case of $1,241.4 million of regulatory assets, plus other qualified costs of
$47.4 million, the revenue requirements under securitization, assuming
Transition Bonds issued at a 7.3% weighted average interest rate, would be
$1,273.5 million less than the revenue requirements over the remaining life of
the regulatory assets using conventional financing. Mr. Jeter also calculated in
Exhibit JAJ-7R to his rebuttal testimony that for the securitization of $1,241.4
million of regulatory assets, plus other qualified costs of $61.4 million, the
revenue requirements under securitization, assuming Transition Bonds issued at
an 8.8% weighted average interest rate, would be $882 million less than the
revenue requirements over the remaining life of the regulatory assets using
conventional financing.
48. The methodology set forth in Mr. Jeter's Exhibits
JAJ-6R and JAJ-7R to his rebuttal testimony is reasonable. Because of the higher
carrying charges under traditional financings that include income taxes on the
equity portion of the return, as compared to the lower carrying charges under
the securitization financing, securitization of $949.1 million of regulatory
assets, plus estimated other qualified costs of $36,371,039, approved by this
Financing Order will result in revenues to be collected under this Financing
Order compared to the revenue requirements under conventional financing over the
remaining life of the regulatory assets that are proportional to the revenue
requirements in Mr. Jeter's analysis, under which the revenue requirements under
conventional financing substantially exceeded, by multiples of $100 millions,
the revenues under the securitization transaction.
49. Based on the foregoing, the Commission finds that the total amount of
revenues to be collected under this Financing Order is less than the revenue
requirements that would be recovered over the remaining life of the regulatory
assets using conventional financing methods. The authorized securitization will
result in reduced revenue requirements to customers of over $900 million,
assuming a 7.3% weighted average interest rate, or over $600 million, assuming a
8.8% weighted average interest rate. Applicant will confirm this calculation in
the Issuance Advice Letter in the form of Appendix C to this Financing Order.
J.Information Required by Utilities Code Section 39.303 (b)
50. The Commission approves as reasonable the recovery by Applicant of the
amount of Regulatory Assets listed on Appendix A to this Financing Order. 51.
The Transition Charges related to a series of Transition Bonds will be recovered
over a period of not more than 15 years from the date of issuance of such series
of the Transition Bonds, it being recognized that delinquencies and end of
period billings may be collected after the conclusion of such 15-year period. K.
Transition Charges per Utilities Code Section 39.303 (c)
52. ORA witness Harika Basaran testified that many of Applicant's
generation-related regulatory assets were properly allocated 100% to the Texas
retail jurisdiction. To determine the Texas jurisdictional portion of those
assets that are not directly allocated 100% to the Texas retail jurisdiction,
Ms. Basaran recommended that a jurisdictional allocation factor of 95.837% be
used to allocate these generation-related regulatory assets to the Texas retail
jurisdiction.
53. The Commission finds the methodology recommended by Ms.
Basaran to allocate generation-related assets to the Texas retail jurisdiction
is reasonable and should be adopted for purposes of this case, but the use of
such methodology and the resulting jurisdictional allocation factor shall not be
precedential for future proceedings and no party shall be estopped from
advocating a different jurisdictional allocation methodology in any such future
proceedings.
54. Ms. Basaran recommended that the energy allocator used to
allocate transition charge revenue requirements among retail transition charge
(TC) customer classes be based on energy consumption for the twelve months
ending immediately prior to May 1, 1999, adjusted only for weather and line
losses. This energy allocator was used by Ms. Basaran to calculate the
Regulatory Asset Allocation Factors ("RAAFs").
55. The Commission finds the energy allocator recommended by Ms. Basaran
and used by her to calculate the RAAFs is reasonable and should be adopted.
56. ORA and Applicant agreed that the
demand allocators used to develop the RAAFs for the TC customer classes should
be based on the approach supported by Applicant witness Donald Moncrief in his
testimony. ORA and Applicant agreed that this methodology should include pro
forma adjustments necessary to comply with removal of qualifying cogeneration
projects under Utilities Code ss. 39.267(k) and to add the associated standby
usage related to these projects and to reflect a new industrial customer.
57.
Mr. Moncrief's demand allocators were developed based on the generation-related
base revenues by class resulting from the Joint Revenue Requirement Spread
("JRRS") agreed to by the participants to Docket No. 14965, Applicant's last
base rate proceeding in which rates were designed. Mr. Moncrief testified that
the JRRS constituted the best representation of the demand allocation method
adopted in Docket No. 14965.
58. The Commission finds the demand allocation
method recommended by Mr. Moncrief to be reasonable. His methodology allocates
responsibility for the regulatory assets authorized to be securitized by this
Financing Order in accordance with the methodology used to allocate the costs of
the underlying assets in the most recent Commission order addressing Applicant's
rate design.
59. The Commission finds that pro forma adjustments should be made
to the demand allocators developed from the generation-related base rate
revenues by class resulting from the JRRS to remove reasonably anticipated
qualifying cogeneration projects under Utilities Code Section 39.262(k), as
proposed by ORA and Applicant. These pro forma adjustments are necessary to
develop appropriate demand allocators to compute the RAAFs. The Commission also
finds that, as proposed by ORA and Applicant, related pro forma adjustments
should be made to account for the associated increase in standby usage for such
projects and to reflect a new industrial customer in developing appropriate
demand allocators to compute the RAAFs.
60. The adjustments to billing
determinants to account for the qualifying cogeneration projects under Utilities
Code ss. 39.262(k) are set forth in Mr. Moncrief's direct testimony. The
Commission finds the adjustments made for this purpose by Mr. Moncrief are
reasonable. Should subsequent information become available that alters the
assumptions that served as the basis for these adjustments, Applicant will make
modifications to the pro forma adjustments as part of the non-standard true-up
process under the Transition Charge tariff attached to this Financing Order as
Appendix B. The adjustment to billing determinants for the new industrial
customer is set forth in Ms. Basaran's testimony. The Commission finds the
adjustment made by Ms. Basaran for this purpose to be reasonable. 61. The
Commission finds the treatment of the pro forma adjustments for qualifying
cogeneration projects set forth in the preceding Findings of Fact is reasonable
and should be adopted. 62. ORA and Applicant have agreed that in developing the
RAAFs for the non-firm TC customer classes, both the pro forma adjustments
described above and the allocation to the residential TC customer class will be
made prior to adjusting the non-firm TC customer class allocations by 150%. The
RAAFs for the remaining classes will then be recalculated to allocate the
remaining transition charge billing requirements to the remaining TC customer
classes in the manner proposed by Ms. Basaran in her direct testimony. 63. The
Commission finds the procedure for developing the RAAFs for the non-firm TC
customer classes and for the remaining TC customer classes as set forth in the
preceding Finding of Fact is reasonable and should be adopted. 64. In their
direct testimony, Ms. Basaran and Mr. Moncrief described the methodology for
developing the allocation of billing requirements for the Transition Charges for
the regulatory assets securitized under this Financing Order. As described in
their testimony, this methodology: (a) allocated the residential TC class' share
by allocating to all customer classes 50% of the billing requirements using the
demand allocators derived from the generation-related base revenues resulting
from the JRRS and allocating the remainder of the billing requirement on the
basis of energy consumption of the classes; (b) after the allocation to the
residential TC customer class set forth in the preceding clause, the remaining
billing requirement was allocated to the remaining TC customer classes using the
demand allocators derived from the generation-related base revenues resulting
from the JRRS, with the non-firm TC classes being allocated billing requirements
equal to 150% of the amount allocated to those classes; (c) after allocation to
the residential TC class set forth in the penultimate clause above was
calculated, the remaining billing requirements were allocated to the remaining
TC customer classes using the demand allocators derived from the
generation-related base revenues resulting from the JRRS. 65. The Commission
finds the methodology set forth in the preceding Finding of Fact, modified to
reflect the matters set forth in Findings of Fact Nos. 59 through 62, is
reasonable and should be adopted. 66. The RAAFs resulting from the methodology
adopted in the preceding Finding of Fact are set forth in the Transition Charge
tariff attached to this Financing Order as Appendix B and are reasonable. 67.
The Transition Charge tariff attached to this Financing Order as Appendix B
provides for adjustment of the RAAFs in the event the Commission enters an order
that finds the total statewide stranded costs to exceed $5 billion and requires
the Transition Charges to be adjusted accordingly. This provision of the
Transition Charge tariff appropriately addresses and provides a reasonable
mechanism for adjustment in the event statewide stranded costs exceed $5
billion. 68. The Transition Charge tariff attached to this Financing Order as
Appendix B also provides for adjustment of the RAAFs: (a) in the event the
Commission requires competition transition charges for Applicant to be collected
and allocated in a different manner than the manner approved in this Financing
Order and requires the Transition Charges to be adjusted accordingly; (b)
expected loss of load in terms of forecasted billing units for one or more TC
customer classes for an upcoming period that is 10% or more as a percentage of
the forecasted billing units for the immediately preceding period; and (c)
customers who are exempted from stranded cost responsibility under Utilities
Code Sections 39.252(b) and 39.262(k), as implemented by P.U.C. Subst. Rule
25.345. The RAAFs as so adjusted from time to time will always equal 100% in the
aggregate. 69. The Commission finds the adjustments contemplated in the RAAFs in
the event of the occurrence of the circumstances set forth in the preceding
Finding of Fact are reasonable and are appropriate to be included in the
Transition Charge tariff. The first adjustment provides a mechanism to permit
the transition charge allocations among customer classes to be consistent with
the allocation of stranded costs for purposes of developing competition
Transition Charges. The second adjustment protects against Transition Charge
collections being jeopardized by a substantial loss of sales in any given TC
customer class and provides assurance of collection of Transition Charges
sufficient to satisfy the debt service on and the other Periodic Payment
Requirements in connection with the Transition Bonds issued under this Financing
Order. The third adjustment will ensure that any shortfalls resulting from the
provisions of the Utilities Code Sections 39.252(b) and 39.262(k) are spread
equitably among all customers. 70. The TC customer classes agreed to by ORA and
Applicant and the method (i.e., energy or demand) of billing transition charges
to those TC customer classes are set forth in the Transition Charge tariff
attached to this Financing Order as Appendix B. These TC customer classes and
the method of billing transition charges to these TC customer classes are
supported by the testimony of Mr. Moncrief and ORA witness Brian Lloyd. 71. The
Commission finds the TC customer classes and the method of billing transition
charges to these TC customer classes set forth in the Transition Charge tariff
attached as Appendix B to this Financing Order are reasonable and should be
adopted. 72. ORA and Applicant agreed that Transition Charges should not apply
to the Economic As-Available Power Service (EAPS) customers through December 31,
2001. The exclusion of EAPS customers during this period was supported by the
rebuttal testimony of Mr. Moncrief. Mr. Moncrief explained that EAPS customers
take service under a tariff that provides flexibility in identifying and using
economical power supplies. EAPS customers pay charges based on marginal power
costs, and it would not be appropriate to apply transition charges based on
fixed cost revenue requirements to these customers during this period. Mr.
Moncrief's position on this matter was supported by TIEC witness Jeffry Pollock.
73. The Commission finds the agreement of ORA and Applicant to exclude EAPS
customers from Transition Charges through December 31, 2001, is reasonable given
the nature of EAPS service. However, after December 31, 2001, should a REP
provide service comparable to EAPS, that service will be subject to industrial
TC customer class transition charges. 74. The Commission finds the methodology
described in the direct testimony of Mr. D. Greg Wilks for calculating the
Periodic Billing Requirement for Transition Charges and the forecasting
methodology described in the testimony of Mr. Donald R. Moncrief for using that
information to calculate the actual Transition Charges are reasonable and should
be approved. L. Accumulated Deferred Income Taxes
75. The amount of regulatory assets authorized to be securitized by this
Financing Order does not include the associated accumulated deferred income
taxes (ADIT). 76. As discussed in the testimony of ORA witness Paul Bellon and
Applicant witness David Carpenter, it is proper for the customers who pay
Transition Charges under this Financing Order to receive the cost-free capital
benefit of ADIT associated with the securitized regulatory assets. ORA and
Applicant have agreed that the mechanism to be used to provide to the customers
the cost-free capital benefits of the ADIT associated with the securitized
regulatory assets should be a negative non-securitized competition transition
charge (CTC) that credits customers with the reduced revenue requirements
representing those cost-free capital benefits in the same manner as the
Transition Charges under this Financing Order. 77. In their testimony, Mr.
Bellon, Mr. Carpenter and Applicant witness John Jeter demonstrated that the
negative CTC provides greater benefits to customers than including the cost-free
capital benefits of the ADIT associated with the securitized regulatory assets
in the amount securitized. 78. The Commission finds the positions of ORA and
Applicant witnesses that customers should receive the cost-free capital benefits
of the ADIT associated with the securitized regulatory assets and that providing
such benefits to the customers through a negative CTC provides customers greater
benefits than including such benefit in the calculation of the amount
securitized are reasonable and should be implemented. 79. The securitization
methodology requested by, and granted to, the Applicant excludes ADIT associated
with the securitized regulatory assets from the securitization financing. The
benefits related to ADIT will be returned to ratepayers through a negative
non-securitized CTC. This negative non-securitized CTC will be adjusted to
reflect the balance of the ADIT applicable to the unamortized securitized
regulatory assets. The benefits related to the ADIT will be determined using
Applicant's cost of capital as determined in Docket No. 14965. 80. The benefits
related to the ADIT will be calculated by applying the applicable rate of
return, as ordered in Docket No. 14965, to the balance of ADIT. The benefits
will be increased to reflect the reduction to federal income taxes and other
revenue related taxes and fees related to the reduction in return. 81.
Applicant's blended rate of return granted in Docket No. 14965 is 8.765% with an
underlying weighted common equity cost component of 5.04%. The blended rate of
return is applicable to the ADIT associated with all regulatory assets except
for those related to accounting order deferrals. The rate of return granted in
Docket No. 14965 that is applicable to the ADIT related to the accounting order
deferrals is 9.13%. The weighted common equity cost component associated with
the accounting order deferrals is 5.41%. 82. Applicant will be required to
maintain sufficient books and records that will allow the identification of the
ADIT balance associated with the unrecovered principal balance and the portion
related to the unrecovered portion of accounting order deferrals. 83. In the
event that Applicant is prevented from crediting all or a portion of the
negative CTC to customers through actions of the Legislature, and the economic
benefits that would have been obtained from application of the negative CTC are
not credited to customers through another rate mechanism, Applicant shall
provide the economic benefits that would have been obtained from application of
the negative CTC to customers through an alternative mechanism approved by the
Commission. 84. The ADIT associated with the securitized regulatory assets as of
December 31, 1998, is $332.2 million. The Commission finds that it is reasonable
to implement the negative CTC tariff attached to this Financing Order as
Appendix D. The negative CTC and the associated ADIT balance will be treated
consistent with the treatment of Transition Charges and Transition Bonds
described in Findings of Fact Nos. 89 and 90 for purposes of the Annual Report
under Utilities Code ss. 39.257. 85. ADIT related to assets other than those
securitized under this Financing Order or subsequent financing orders will be
included in any future determinations of Applicant's stranded costs. M. Annual
Report Under Utilities Code Section 39.257 and Stranded Cost-Related Issues
86. As described in Finding of Fact No. 46, the $949.1 million of regulatory
assets authorized to be securitized by this Financing Order is the sum of the
net book value amounts of these regulatory assets as of December 31, 1998. 87.
To ensure tangible and quantifiable benefits to customers from the
securitization approved by this Financing Order, the Commission finds that, as a
result of securitization, the treatments of the regulatory assets securitized,
the loss on reacquired debt securitized, the amortization expense related to
such assets, the Transition Bonds and the Transition Charge revenues for
purposes of the Annual Report under Utilities Code ss. 39.257 and future
determinations of stranded costs, set forth in Findings of Fact Nos. 88 through
90, should be implemented. 88. The loss on reacquired debt authorized to be
securitized shall be removed from Applicant's cost of capital calculation for
purposes of computing excess cost over market (ECOM) in any future
determinations of stranded costs and the Annual Report submitted pursuant to
Utilities Code ss. 39.257. 89. The amortization expense for the regulatory
assets securitized and the effect of related ADIT will be excluded from the
Annual Report submitted pursuant to Utilities Code ss. 39.257 for 1999 and
subsequent years. 90. The balance of the securitized regulatory assets
authorized by this Financing Order and the related ADIT will be excluded from
rate base in the Annual Report submitted pursuant to Utilities Code ss. 39.257
for the year in which the Transition Bonds are issued and the associated
adjustment will be prorated to reflect the portion of that year that the
Transition Bonds are outstanding. For all subsequent years, the unamortized
balance of regulatory assets securitized and the related ADIT will be excluded
from the Annual Report submitted pursuant to Utilities Code ss. 39.257. IV.
CONCLUSIONS OF LAW
1. Applicant is an "electric utility" as defined in Utilities Code Section
31.002(6) and is entitled to file an application for a financing order under
Utilities Code Section 39.301.
2. The SPE will be an "assignee" as defined in Utilities Code Section 39.302(1).
3. The holders of the Transition Bonds and the Indenture Trustee will each be a
"financing party" as defined in Utilities Code Section 39.302(3). 4. Applicant
may authorize the SPE to issue Transition Bonds upon the terms and conditions
approved in this Financing Order. 5. The Commission has authority to approve
this Financing Order under the Utilities Code Section 39.303(a). 6. Applicant's
securitization approved in this Financing Order satisfies the requirement of
Utilities Code Section 39.301 that the proceeds of the Transition Bonds shall be
used solely for the purposes of reducing the amount of recoverable regulatory
assets through the refinancing or retirement of utility debt or equity. 7.
Applicant's securitization approved in this Financing Order satisfies the
requirement of Utilities Code Section 39.301 that the securitization provides
tangible and quantifiable benefits to ratepayers greater than would have been
achieved absent the issuance of Transition Bonds. Applicant's issuance of the
Transition Bonds approved in this Financing Order under the terms and conditions
described herein satisfies the requirement of Utilities Code Section 39.301 that
the structuring and pricing of the Transition Bonds will result in the lowest
transition bond charges consistent with market conditions and the terms of this
Financing Order. 8. The amount of Regulatory Assets approved in this Financing
Order to be securitized will not exceed the present value of the revenue
requirement over the life of the Transition Bonds approved in this Financing
Order associated with the Regulatory Assets sought to be securitized as required
by Utilities Code Section 39.301. 9. Applicant's securitization approved in this
Financing Order satisfies the requirement of Utilities Code Section 39.303(a)
that the total amount of revenues to be collected under this Financing Order is
less than the revenue requirement that would be recovered over the remaining
life of the Regulatory Assets using conventional financing methods and that this
Financing Order is consistent with the standards of Utilities Code Section
39.301. 10. This Financing Order details the amount of Regulatory Assets to be
recovered and the period over which Applicant will be permitted to recover
non-bypassable Transition Charges in accordance with the requirements of
Utilities Code Section 39.303(b). 11. The method approved in this Financing
Order for collecting and allocating the Transition Charges among customers
described in Findings of Fact Nos. 52 through 74 of this Financing Order (and
set forth in the Transition Charge tariff attached hereto as Appendix B of this
Financing Order) satisfies the requirements of Utilities Code Sections 39.303(c)
and 39.253. 12. As provided in Utilities Code Section 39.303(d), this Financing
Order, together with the Transition Charges authorized herein, is irrevocable
and not subject to reduction, impairment, or adjustment by further act of the
Commission, except for the true-up procedures provided for herein, as permitted
by Utilities Code Section 39.307. 13. As provided in Utilities Code Section
39.304(a), the rights and interests of Applicant under this Financing Order,
including the right to impose, collect and receive the Transition Charges
authorized in this Financing Order, are assignable and shall become Transition
Property when they are first transferred to the SPE. The right, title, and
interest of Applicant and any Assignee in this Financing Order and the
Transition Charges, the rights to impose, collect, and receive, and obtain
periodic adjustments of such Transition Charges, and the rates and other charges
authorized hereby and all revenues, collections, claims, payments, money, or
proceeds of or arising from the Transition Charges upon transfer to an Assignee
will constitute Transition Property. 14. Transition Property will constitute a
present property right for purposes of contracts concerning the sale or pledge
of property, even though the imposition and collection of the Transition Charges
depend on further acts by Applicant or others that have not yet occurred. 15.
All revenues and collections resulting from the Transition Charges will
constitute proceeds only of the Transition Property arising from this Financing
Order. 16. Upon the transfer by Applicant of the Transition Property to the SPE,
the SPE will have all of the rights of Applicant with respect to such Transition
Property, including, without limitation, the right to exercise any and all
rights and remedies with respect thereto, including the right to authorize
disconnection of electric service and to assess and collect any amounts payable
by any retail customer in respect of the Transition Property. 17. Any payment of
Transition Charges by a retail customer will discharge the retail customer's
obligations in respect of that payment, but will not discharge the obligations
of any REP to remit such payments to the Servicer on behalf of the Assignee. 18.
As provided in Utilities Code Section 39.305, the interests of the Assignee, the
Indenture Trustee, and the holders of the Transition Bonds in the Transition
Property and in the revenues and collections arising from that property are not
subject to setoff, counterclaim, surcharge, or defense by Applicant or any other
person or in connection with the bankruptcy of Applicant or any other entity.
Without limiting the foregoing, negative CTCs authorized by this Financing Order
shall reduce Applicant's bundled rates and, after unbundling, such other rates
described in Utilities Code Section 39.262(g), but shall not operate to reduce
Transition Charges. 19. The methodology described in Findings of Fact Nos. 52
through 74 for allocating Transition Charges complies with Utilities Code
Section 39.303(c) and is hereby approved. The methodology approved in this
Financing Order to true-up the Transition Charges, as described in Ordering
Paragraph No. 8 of this Financing Order (and set forth in the Transition Charge
tariff attached hereto as Appendix B), satisfies the requirements of Utilities
Code Section 39.307. True-up adjustments shall be made pursuant to such
methodology. 20. If and when Applicant transfers to the SPE the right to impose,
collect, and receive the Transition Charges and to issue the Transition Bonds,
the Servicer will be able to recover the Transition Charges associated with such
Transition Property only for the benefit of the SPE and the holders of the
Transition Bonds in accordance with the Servicing Agreement. 21. If and when
Applicant transfers its rights under this Financing Order to the SPE under an
agreement that expressly states that the transfer is a sale or other absolute
transfer in accordance with the "true sale" provisions of Utilities Code Section
39.308, then, pursuant to that section, such transfer will be a true sale of an
interest in Transition Property for all purposes and not a secured transaction
or other financing arrangement (except for federal or state income or franchise
tax purposes, or financial reporting purposes) and title, legal and equitable,
to the Transition Property will thereby pass to the SPE. 22. As provided in
Utilities Code Section 39.309(b), a valid and enforceable lien and security
interest in the Transition Property in favor of the holders of the Transition
Bonds or a trustee on their behalf will be created by this Financing Order and
the execution and delivery of a security agreement with the holders of the
Transition Bonds or a trustee on their behalf in connection with the issuance of
the Transition Bonds. The lien and security interest will attach automatically
from the time that value is received for the Transition Bonds and, on perfection
through the filing of notice with the Secretary of State in accordance with the
rules prescribed by the Secretary of State under Utilities Code Section
39.309(d), will be a continuously perfected lien and security interest in the
Transition Property and all proceeds of the Transition Property, whether accrued
or not, will have priority in the order of filing and will take precedence over
any subsequent judicial or other lien creditor. 23. As provided in Utilities
Code Section 39.309(c), transfer of an interest in the Transition Property to an
Assignee will be perfected against all third parties, including subsequent
judicial or other lien creditors, when this Financing Order becomes effective,
transfer documents have been delivered to the Assignee, and a notice of that
transfer has been filed in accordance with the rules prescribed by the Secretary
of State under Utilities Code Section 39.309(d); provided, however, that if
notice of the transfer has not been filed in accordance with this paragraph
within 10 days after the delivery of transfer documentation, the transfer of the
interest will not be perfected against third parties until the notice is filed.
The proposed transfer to the SPE of Applicant's rights under this Financing
Order will constitute the transfer "of an interest in transition property" for
purposes of Utilities Code Section 39.309(c). 24. As provided in Utilities Code
Section 39.309(e), the priority of a lien and security interest perfected in
accordance with Utilities Code Section 39.309 will not be impaired by any later
change in the Transition Charges pursuant to Utilities Code Section 39.307 or by
the commingling of funds arising from Transition Charges with other funds, and
any other security interest that may apply to those funds will be terminated
when they are transferred to a segregated account for the Assignee or a
financing party. To the extent that Transition Charges are not collected
separately from other funds owed by retail customers or REPs, the amounts to be
remitted to such segregated account for the Assignee or a financing party may be
determined according to system-wide charge off percentages, collection curves or
such other reasonable methods of estimation as are set forth in the Servicing
Agreement 25. As provided in Utilities Code Section 39.309(e), if Transition
Property is transferred to an Assignee, any proceeds of the Transition Property
will be treated as held in trust for the Assignee. 26. As provided in Utilities
Code Section 39.309(f), if a default or termination occurs under the Transition
Bonds, the financing parties or their representatives may foreclose on or
otherwise enforce their lien and security interest in any Transition Property as
if they were secured parties under Chapter 9, Texas Business and Commerce Code;
and, upon application by or on behalf of the financing parties, the Commission
may order that amounts arising from the Transition Charges be transferred to a
separate account for the financing parties' benefit, to which their lien and
security interest may apply. 27. As provided in Utilities Code Section
39.309(f), if a default or termination occurs under the Transition Bonds, on
application by or on behalf of the financing parties, a district court of Travis
County, Texas shall order the sequestration and payment to them of revenues
arising from the Transition Charges. 28. As provided in Utilities Code Section
39.311, transactions involving the transfer and ownership of the Transition
Property and the receipt of Transition Charges are exempt from state and local
income, sales, franchise, gross receipts, and other taxes or similar charges.
29. This Financing Order will remain in full force and effect and unabated
notwithstanding the bankruptcy of Applicant, its successors, or assignees. 30.
The Transition Bonds authorized by this Financing Order are not a debt or
obligation of the State of Texas and are not a charge on its full faith and
credit or taxing power. 31. Applicant retains sole discretion regarding whether
or when to assign, sell or otherwise transfer the Transition Property created
hereby or any interest therein, or to cause the issuance of any Transition Bonds
authorized hereby. 32. Pursuant to Utilities Code Section 39.310, the State of
Texas has pledged (and the Commission as an agency of the State of Texas does
hereby confirm such pledge on its own behalf) for the benefit and protection of
all financing parties with rights in the Transition Property (including without
limitation the holders of the Transition Bonds) and Applicant, that neither the
State of Texas nor the Commission will take or permit any action that would
impair the value of the Transition Property authorized hereunder, or, except as
permitted by Utilities Code Section 39.307, reduce, alter or impair the
Transition Charges to be imposed, collected, and remitted to any financing
parties, until the principal, interest and premium, and any other charges
incurred and contracts to be performed in connection with the Transition Bonds
have been paid and performed in full. Applicant or any Assignee issuing
Transition Bonds is authorized pursuant to Utilities Code Section 39.310 and
this Financing Order to include this pledge in any documentation relating to the
Transition Bonds. 33. This Financing Order is final, is not subject to rehearing
by this Commission, and is not subject to review or appeal except as expressly
provided in Utilities Code Section 39.303(f). 34. Applicant's proposal meets the
requirements for a "financing order" under Title 2, Subtitle B, Chapter 39,
Subchapter G, of the Utilities Code and is hereby approved. 35. The Commission
has the authority under Utilities Code ss. 14.001 and Chapter 39 to implement a
negative non-securitized CTC in the manner set forth in this Financing Order and
to approve the negative CTC tariff attached as Appendix D to this Financing
Order. 36. The provisions of this Financing Order relating to the treatment of
the securitized regulatory assets, the securitized loss on reacquired debt, the
amortization expense on the securitized regulatory assets, the Transition Bonds
and the transition charge revenues for purposes of the Annual Report under
Utilities Code ss. 39.257 and subsequent determinations of Applicant's stranded
costs comport with the applicable provisions of Utilities Code, Chapter 39. V.
ORDERING PARAGRAPHS
Based upon the record, the Findings of Fact and Conclusions of Law set
forth herein, and for the reasons stated above, this Commission hereby orders
that:
1. Approval of Application.
The Application of Applicant for the issuance of a financing order
under Utilities Code Sections 39.201(i) and 39.303 is hereby approved, subject
to the terms and conditions of this Financing Order.
2. Recovery of Transition Charges.
Applicant shall impose on, and the Servicer shall collect from, retail
customers and REPs, as herein provided, Transition Charges in an amount
sufficient to provide for the timely recovery of its aggregate Qualified Costs
described herein (including payment of principal and interest on the Transition
Bonds) and in the Application, including those approved in Findings of Fact Nos.
7 through 10 of this Financing Order.
3. Issuance Advice Letter.
Following determination of the final terms of the Transition Bonds and
prior to issuance thereof, Applicant7 shall file with the Commission an Issuance
Advice Letter in substantially the form attached as Appendix C to this Financing
Order. The Issuance Advice Letter will be completed and evidence the actual
dollar amount of the initial Transition Charges and other information specific
to the Transition Bonds to be issued. All amounts which require computation
shall be computed using the mathematical formulas contained in the form of
Issuance Advice Letter and the attached form of Transition Charge tariff. The
Commission's review of the Issuance Advice Letter shall be limited to the
arithmetic accuracy of the calculations and to compliance with the specific
requirements which are set forth in this Financing Order and which are contained
in the Issuance Advice Letter. The initial Transition Charges and the final
terms of the Transition Bonds set forth in the Issuance Advice Letter shall
become effective on the later of the third business day after submission to the
Commission or the date of issuance of the Transition Bonds unless, prior to such
third business day, the Commission issues an order finding that the proposed
issuance does not conform with the requirements set forth above in this
Paragraph No. 3.
Transition Charges
4. Imposition.
Applicant is authorized to impose on, and the Servicer is authorized to
collect from, retail customers (during the years 2000 and 2001) and REPs (during
subsequent years), as herein provided, Transition Charges in an amount
sufficient to provide for the timely recovery of the aggregate Qualified Costs
(including payment of principal and interest on the Transition Bonds), as
approved in this Financing Order. The tariff for Transition Charges set forth in
Appendix B is approved and shall be implemented. The methodology described in
Findings of Fact Nos. 52 through 74, for calculating the specific levels of
Transition Charges to be included in such tariff is hereby approved and shall be
implemented. Any shortfalls in payments shall be allocated as between Transition
Charges and other billed amounts in the manner set forth in the Transition
Charge tariff attached hereto as Appendix B.
5. Collection Period.
The Transition Charges related to a series of Transition Bonds will be
recovered over a period of not more than 15 years from the date of issuance of
such series of the Transition Bonds, it being recognized that delinquencies and
end of period billings may be collected after the conclusion of such 15-year
period. 6. Allocation.
Applicant shall allocate the Transition Charges among customers in the
manner described in Findings of Fact Nos. 52 through 74 of this Financing Order
and set forth in the Transition Charge tariff attached hereto as Appendix B. On
or before September 1, 2001, Applicant or representatives of industrial
customers shall provide evidence to the Commission which supports the continued
exclusion of qualifying co-generation projects which supports the proforma
adjustments described in such Findings.
7. Non-Bypassability.
Applicant and any other entity providing electric transmission or
distribution services and any REP providing services to any retail customer
within Applicant's certificated service area as it existed on May 1, 1999 ,
except for former customers not taking service from Applicant pursuant to
Commission Docket No. 20292, is entitled to collect and must remit, consistent
with this Financing Order, the Transition Charges from such retail customers
and, except as provided under Utilities Code Sections 39.252(b) and 39.262 (k),
as implemented by P.U.C. Subst. Rule 25.345, from retail customers that switch
to "new on-site generation." The Commission will ensure that such obligations
are undertaken and performed by Applicant, any other entity providing electric
transmission or distribution services within Applicant's certificated service
area as of May 1, 1999 and any REP providing services to any retail customer
within Applicant's certificated service area. All retail customers within
Applicant's certificated service area as it existed on May 1, 1999 including,
except as provided under Utilities Code Section 39.262(k), retail customers that
switch to "new on-site generation" as defined in Utilities Code Section 39.252,
shall be obligated to pay the Transition Charges.
8. True-ups.
(a) The Servicer shall make reconciliation adjustment filings pursuant to the
true-up mechanism and the reconciliation procedures as described in the
Transition Charge tariff attached hereto as Appendix B. (b) The Servicer shall
allocate the upcoming period's Periodic Billing Requirement based on the RAAFs
approved in this proceeding as described in Findings of Fact Nos. 52 through 74
of this Financing Order and the provisions of clause (c) of this Paragraph 8.
(c) The Servicer shall allocate any undercollections or overcollections from the
previous period also using the RAAFs approved in this proceeding as described in
Findings of Fact Nos. 52 through 74 of this Financing Order and the provisions
of clause (d) and (e) of this Paragraph 8. (d) The Servicer shall divide each
Transition Charge customer class's total allocation of the Periodic Billing
Requirement by the appropriate forecasted billing units to determine the
Transition Charge for the upcoming period for that class. (e) In the event that
an adjustment to the RAAFs is needed in order to account for (i) expected load
loss in any one class sufficient to cause forecasted billing units for one or
more Transition Charge customer classes for an upcoming period to decline by 10%
or more as a percentage of the forecasted billing units from the immediately
preceding period, (ii) an adjustment, if needed, of allocation factors if
state-wide stranded costs exceed $5 billion as set forth in Utilities Code
Section 39.253(f), (iii) a change in the class allocation required by the
Commission as a result of competition transition charges for Applicant being
allocated and collected in a manner different than the manner approved in this
Financing Order, or (iv) a need to make additional adjustments to allocation
factors for those customers who are exempted from stranded cost responsibility
under Utilities Code Sections 39.252(b) and 39.262 (k), as implemented by P.U.C.
Subst. Rule 25.345, the Servicer shall make a non-standard true-up filing at
least 90 days before the date of the next true-up adjustment detailing the
proposed changes to the allocation factors or true-up methodology along with the
justification for the changes. ORA will advise Applicant by the 45th day after
filing if there are modifications to the proposed methodology that ORA believes
are appropriate. If ORA and Applicant cannot resolve any differences, the
Commission shall issue an order resolving the differences before the 90 day
period has elapsed. In the event that the Commission cannot issue an order by
that date, Applicant will be allowed to implement its proposed changes with any
modifications ordered by the Commission made in the next true-up filing.. The
RAAFs as so adjusted from time to time will always equal 100% in the aggregate.
(f) With respect to any series of Transition Bonds, the Servicer must make
true-up adjustment filings with the Commission at least annually, within 45 days
of the anniversary of the date of the original issuance of the Transition Bonds
of that series. In addition, the Servicer may make true-up adjustment filings
more frequently than annually under the circumstances described in the form of
Transition Charge tariff attached to this Financing Order. (g) A true-up
adjustment filing will set forth the Servicer's calculation of the true-up
adjustment to the Transition Charges. Except for the non-standard true-up
procedure described in clause (e) above, the Commission will have 15 days after
the date of a true-up adjustment filing in which to confirm the mathematical
accuracy of the Servicer's adjustment. (h) Except for the non-standard true-up
procedure described in clause (d) above, any true-up adjustment filed with the
Commission shall be effective immediately upon filing. Any necessary corrections
to the true-up adjustment, due to mathematical errors in the calculation of such
adjustment or otherwise, will be made in future true-up adjustment filings. 9.
SPE Remedies with respect to Transition Charges.
Upon the transfer by Applicant of the Transition Property to
the SPE, the SPE will have all of the rights of Applicant with respect to such
Transition Property, including, without limitation, the right to exercise any
and all remedies with respect thereto. The Applicant shall have the right to
disconnect electric service for failure to pay Transition Charges and to assess
and collect any amounts payable by any retail customer in respect of the
Transition Property.
10. Ownership Notification.
Any entity that bills Transition Charges to customers shall, at least
annually, provide written notification to each retail customer for which the
entity bills Transition Charges that the Transition Charges are the property of
the SPE and not of the entity issuing such bill.
Transition Bonds
11. Issuance.
The issuance of Transition Bonds as described herein is hereby
approved, subject to the terms and conditions of this Financing Order. The
aggregate amount of other Qualified Costs described on Appendix A which may be
recovered through the Transition Charges shall be limited in accordance with
Finding of Fact No. 10. These limitations shall not preclude Applicant from
having an opportunity to seek recovery of any excess costs in subsequent
proceedings and Applicant shall credit any excess recoveries to ratepayers in
accordance with Utilities Code Section 39.262(g). 12. Refinancing.
Applicant or any Assignee may, pursuant to one or more new financing
orders issued pursuant to Utilities Code Section 39.303(g), refinance the
Transition Bonds in a face amount not to exceed the unamortized principal
thereof, provided that Transition Charges will thereby be reduced. If Applicant
or any Assignee refinances the Transition Bonds, and the Transition Charges
authorized by this Financing Order are not thereupon terminated, such Transition
Charges shall be adjusted or replaced by new transition charges sufficient to
produce revenues to pay the remaining Qualified Costs of Applicant approved by
this Commission. Such Qualified Costs shall include accrued interest and
premiums, if any, and other costs of retirement of the refunded Transition
Bonds, and all fees, costs and charges incurred to issue, service or refinance
the new transition bonds, as provided in such new financing order or orders.
13. Credit Enhancement.
Applicant may provide for various forms of credit enhancement including
letters of credit, reserve accounts, surety bonds, swap arrangements, hedging
arrangements and other mechanisms designed to promote the credit quality and
marketability of the Transition Bonds, provided that the costs of such credit
enhancement must be included in the calculations set forth in the Issuance
Advice Letter.8 14. Scheduled Amortization.
The principal of the Transition Bonds shall be amortized as described in
the rebuttal testimony of Mr. David G. Carpenter and Mr. D. Greg Wilks, as
summarized in the letter of understanding between ORA and Applicant and as
specifically stated in the Issuance Advice Letter.
15. Structuring and Pricing of the Transition Bonds.
The Transition Bonds shall be structured and priced in accordance with
Findings of Fact Nos. 40 through 43, and as evidenced in the Issuance Advice
Letter.9
Servicing
16. Servicing Agreement.
The Commission hereby authorizes Applicant to enter into the Servicing
Agreement with the SPE and to perform the servicing duties provided for therein.
Without limiting the foregoing, in its capacity as initial Servicer of the
Transition Property, Applicant is authorized to calculate, bill and collect for
the account of the SPE, the Transition Charges initially authorized hereby, as
adjusted from time to time to meet the Periodic Payment Requirements as provided
in this Financing Order; and to make such filings and take such other actions as
are required or permitted by this Financing Order in connection with the
periodic true-ups described in this Financing Order. The Servicer shall be
entitled to collect servicing fees in accordance with the provisions of the
Servicing Agreement, provided that (i) the annual servicing fee payable to
Applicant while it is serving as Servicer (or to any other Servicer affiliated
with Applicant) shall not at any time exceed the 0.05% of the original principal
amount of the Transition Bonds and (ii) the annual servicing fee payable to any
other Servicer not affiliated with Applicant shall not at any time exceed 0.60%
of the original principal amount of the Transition Bonds. 17. Replacement of
Applicant as Servicer.
In the event of a default by Applicant in any of its servicing
functions with respect to the Transition Charges, the financing parties may
replace Applicant as Servicer in accordance with the terms of the Servicing
Agreement. No replacement Servicer may replace Applicant as Servicer in any of
its servicing functions with respect to the Transition Charges and the
Transition Property authorized by this Financing Order if such replacement would
cause the then current credit rating of the Transition Bonds to be suspended,
withdrawn, or downgraded. 18. Collection Terms.
The Servicer shall remit collections of the Transition Charges to the
Assignee (or for its account) in accordance with the terms of the Servicing
Agreement.
Retail Electric Providers
19. Project No. 21082 Billing and Credit Standards.
REPs authorized by the Commission to bill and collect Transition
Charges will be subject to the billing and credit standards established by the
Commission in the Commission's Project No. 21082, Certification of Retail
Electric Providers and Registration of Power Generation Companies and
Aggregators or other rulemakings related to transmission and distribution
access. Such REPs shall also be subject to the minimum standards set forth in
this Financing Order and contained in the Transition Charge tariff attached to
this Financing Order as Appendix B. 20. Transition Charge Remittance Procedures.
The Commission will not authorize a REP to bill and collect Transition
Charges unless the REP agrees to remit to the Servicer the full amount of
Transition Charges it bills to its retail customers, regardless of whether
payments are received from such retail customers, within [16] [20] calendar days
of the billing from the Servicer. If such Transition Charges are not received by
the Servicer within such [16] [20] calendar day period, the REP shall be in
default with respect thereto. Upon request from the Servicer, the REP shall
promptly provide the Servicer with all information required for billing, for
computing true-up adjustments and for fulfilling its obligations to the
Indenture Trustee and the SPE. The REP will be allowed to hold back from
remittances an allowance for charge-offs to be calculated and periodically
adjusted as described in the proposed Transition Charge tariff attached to this
Financing Order as Appendix B. 21. Default and Assumption of Servicing.
Five business days after a default by a REP in remitting any Transition
Charges billed or providing the necessary information to the Servicer, the
Servicer shall be entitled to assume responsibility for billing and collecting
Transition Charges or, to the extent it does not retain such ability, to assign
responsibility to another REP which meets the deposit and/or credit requirements
set forth in Ordering Paragraph No. 22. If the Servicer is providing the
metering data, the metering data will be provided to the REP at the time of
billing. If the Servicer is not providing the metering, the entity providing the
metering service(s) will be responsible for ensuring that the Servicer and the
REP receive timely and accurate metering data in order for the Servicer to meet
its obligations under the Servicing Agreement and this Financing Order with
respect to billing and true-up adjustments. Deficiencies in payments from REPs
shall be taken into consideration in the periodic true-up of the Transition
Charges.
22. Deposit Standards.10
Each REP must either (i) maintain at least a BBB/Baa2 (or the
equivalent) long term unsecured credit rating from Moody's Investors Service and
Standard & Poor's Rating Services (so long as the Servicer maintains an
unqualified ability to assume the REP's billing and collecting function and
separately bill and collect Transition Charges upon a REP default) or (ii)
provide to the Servicer or Indenture Trustee security equal to two months'
maximum estimated collections of Transition Charges as determined by the
Servicer; such security may take the form of a cash deposit or an affiliate
guarantee, surety bond or letter of credit in form reasonably acceptable to
Applicant and the rating agencies. The provider of the affiliate guarantee,
surety bond or letter of credit must have a long-term unsecured credit rating of
at least "AAA" (or the equivalent) by Standard & Poor's Ratings Services and
Moody's Investors Service, respectively, except under the limited circumstances
described in the rebuttal testimony of D. Greg Wilks. In the event of a default
in the remittance of Transition Charges by the REP, the Servicer or Indenture
Trustee shall collect such Transition Charges from the cash deposit or other
security as described in this paragraph in accordance with the Indenture, and
any remaining deficiency in collections and in the amount of such deposit shall
be taken into consideration in the periodic true-up of the Transition Charges.
Miscellaneous
23. Continuing Issuance Right.
Applicant has the continuing irrevocable right to cause the issuance of
Transition Bonds in one or more series in accordance with this Financing Order
for a period of twenty-four months following the date on which this Financing
Order becomes final and non-appealable or, if appealed, the date on which all
judicial decisions on appeal have become final and non-appealable.
24. Internal Revenue Service Private Letter or Other Rulings.
Promptly upon receipt, Applicant shall deliver to the Commission a copy
of each private letter or other ruling issued by the Internal Revenue Service
with respect to the proposed transaction, the Transition Bonds or any other
matter related thereto. Applicant shall not cause Transition Bonds to be issued
absent receipt of a private letter ruling as described in its Application.
25. Binding on Successors.
This Financing Order, together with the Transition Charges authorized
hereby, shall be binding upon Applicant, which term includes any
successor-in-interest to Central Power and Light Company that provides
transmission and distribution service in Central Power and Light Company's
existing certificated service area as of May 1, 1999, or, if transmission and
distribution services are not provided by a single entity, the successor entity
providing wire service directly to retail customers, in Central Power and Light
Company's existing service area, or any other entity that provides transmission
and distribution or wire services to retail customers within such area, each REP
that sells electric energy to retail customers located within such service area,
any successor-in-interest to such REP, any other entity responsible for billing
and collecting Transition Charges on behalf of the SPE, and any successor to the
Commission. The term "successor-in-interest" includes successors in interest by
way of merger, assignment, pledge, or other security or otherwise. 26.
Flexibility.
Subject to compliance with the requirements of this Financing Order,
Applicant and the SPE shall be afforded flexibility in establishing the terms
and conditions of the Transition Bonds, including the final structure of the SPE
as a Delaware business trust or Delaware limited liability company, repayment
schedules, term, payment dates, collateral, credit enhancement, required debt
service, reserves, interest rates, indices and other financing costs and the
ability of Applicant, at its option, to effect a series of issuances of
Transition Bonds. 27. Effectiveness of Order.
This Financing Order becomes effective upon issuance. Notwithstanding
the foregoing, no Transition Property shall be created hereunder, and Applicant
shall not be authorized to impose, collect and receive Transition Charges, until
the transfer of Applicant's rights hereunder to the SPE in conjunction with the
issuance of the Transition Bonds.
28. Regulatory Approvals.
All regulatory approvals within the jurisdiction of the Commission that
are necessary for the securitization of the Regulatory Assets and other
Qualified Costs that are the subject of the Application, and all related
transactions contemplated in the Application, are hereby granted. 29. Payment of
Commission's Costs for Professional Services.
In accordance with Utilities Code Section 39.302(4), Applicant shall
pay the costs to the Commission of acquiring professional services for the
purpose of evaluating Applicant's proposed transaction, including, without
limitation, the fees of the Commission's outside attorneys. 30. Negative CTC
Applicant shall implement the negative CTC tariff attached to this
Financing Order as Appendix D. As part of the Issuance Advice Letter, Applicant
shall submit the Initial Negative CTC amounts, together with supporting
calculations, to be applied to customers' bills during the period that the
Initial Transition Charge Rates are in effect. As set forth in the negative CTC
tariff attached to this Financing Order as Appendix D, Applicant shall submit
Adjusted Negative CTC amounts, together with supporting calculations, at the
time that any Adjusted Transition Charge Rates are submitted. The negative CTCs
shall be credited in accordance with Conclusion of Law No. 18. 31. Effect.
It is the Commission's intent that this Financing Order constitute a
legal financing order for Central Power and Light Company under Utilities Code
Chapter 39, Subchapter G. Accordingly, the Commission finds this Financing Order
to be in compliance with the provisions of Utilities Code Chapter 39, Subchapter
G. The Commission recognizes that a legal financing order gives rise to rights,
interests, obligations and duties as expressed in Utilities Code Chapter 39,
Subchapter G and the terms of the financing order. It is the Commission's
express intent to give rise to those rights, interests, obligations and duties
by issuing this Financing Order. Except as permitted in conjunction with a
financing order issued under Utilities Code Chapter 39, Subchapter G, this
Financing Order is not intended to expand or diminish the jurisdiction of the
Commission expressed in other sections of the Utilities Code or under other
applicable law. Applicant and Servicer are hereby authorized to take such
actions as are required to effectuate the transactions approved herein and to
carry out and effectuate the requirements contained herein. All other motions,
requests for entry of specific findings of fact and conclusions of law, and any
other requests for general or specific relief, if not expressly granted herein,
are hereby denied for want of merit.
<PAGE>
SIGNED AT AUSTIN, TEXAS the ____ day of _______________, 2000.
___________________________
Pat Wood, III, Chairman
____________________________
Judy Walsh, Commissioner
______________________________
Brett A. Perlman, Commissioner
<PAGE>
APPENDIX A TO FINANCING ORDER
(Page 1 of 3)
Description of Regulatory Assets and Other Qualified Costs
and Estimated Costs and Expenses
REGULATORY ASSETS TO SECURITIZE
Balance at Related SFAS 109 Regulatory
December 31, 1998 Regulatory Assets Related ADIT
Description Securitized Asset Securitized Balance
(Thousands of Dollars)
Mirror CWIP 253,657 136,584 390,241 136,584
Deferred Accounting 482,447 - 482,447 168,856
Deferred Accounting deficiency 4,824 2,598 7,422 2,598
Loss on Reacquired Debt-
PCB direct 28,922 - 28,922 10,123
Loss on Reacquired Debt-
Other 35,429 - 35,429 12,400
Demand side management 4,676 - 4,676 1,637
Total Regulatory Assets
Securitized 809,955 139,182 949,137 332,198
<PAGE>
APPENDIX A TO FINANCING ORDER
(Page 2 of 3)
Upfront Transition Bond Issuance Costs for CPL
Maximum
Variable Costs Amounts (%)
Original Issue Discount 0.1000%
Underwriting Spread 0.4850%
SEC Registration Fee (1/36th of 1%) 0.0278%
Subtotal Variable Upfront Expense 0.6128%
Maximum
Fixed Costs Amounts ($s)
Printing Fees $350,000
Trustee Fee and Counsel 50,000
Company Legal Fees and Expenses 2,500,000
Underwriters' Legal Fees and Expenses 300,000
Accountant's/Auditor's Fees 500,000
Rating Agency Fees 600,000
Legal Fees for Commission's Counsel 100,000
Miscellaneous Fees 1,000,000
(Including CPL Cities' rate case expense)
SPE Setup Costs 25,000
Upfront Servicer Setup Costs 500,000
Subtotal Fixed Upfront Expenses 5,925,000
Costs to Reacquire Debt and Equity: To be based on actual
amounts or Applicant's best estimates known at time of pricing (estimated as of
1/12/00 to be $19,600,000).
<PAGE>
APPENDIX A TO FINANCING ORDER
(Page 3 of 3)
Ongoing Transition Bond
Support and Servicing Costs for CPL
Ongoing Servicing Fees Percentages (%)
Annual Fee as Percent of Initial Balance 0.0500%
Ongoing Third-Party Servicing Fees Percentages (%)
Annual Fee as Percent of Initial Balance 0.6000%
Fixed Operating Expenses
Trustee Fee and Expenses
Independent Managers Fee To be recovered based on
Rating Agency Fees amounts actually incurred.
Miscellaneous Fees Annual true-up proceedings to
Subtotal Fixed Operatig Expenses be used to ensure this result.
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
TARIFF FOR ELECTRIC SERVICE
Applicable: Entire system
Section: B Sheet: 36
Revision:Original. Effective Date:
Negative Competitive Transition Charge Credits - Schedule NCTC
APPLICABILITY
This schedule is applicable to energy consumption and demands of retail
customers taking transmission and/or distribution service from the Company
subject to the terms and conditions of Schedule NCTC and Rider NCTC. This
schedule, along with Service Rider 30, Initial/Adjusted Negative Competitive
Transition Charge Credits, sets out the rates, terms, and conditions under which
negative Competitive Transition Charges amounts will be credited by the Company
to all retail customers who are taking either bundled electric service or
transmission and distribution service from the Company and who are also
responsible for payment of Transition Charges pursuant to Schedule TC and
Service Rider 29 pursuant to the terms of the Financing Order approved by the
Public Utility Commission of Texas (Commission) in Docket No. 21528.
For purposes of this schedule, the term "Company" means Central Power and Light
Company and its successors and assigns that provide transmission and
distribution service, or if transmission and distribution services are not
provided by a single entity, the successor entity providing wire service
directly to customers taking service at facilities, premises, or loads located
within Central Power and Light Company's certificated service area as it existed
on May 1, 1999.
For retail customers of the Company, the Negative Competitive Transition Charge
Credits provided for in this rate schedule are reductions in the rates and
charges payable by such customers to the Company, such rates and charges (A)
being a component of the rates (exclusive of Transition Charges) under which the
customer takes service prior to the unbundling of transmission and distribution
rates specified by PURA Section 39.201 and (B) after such unbundling, being a
component of the Company's transmission and distribution rates and other
nonbypassable delivery rates (exclusive of Transition Charges but including
competition transition charges (CTC) under PURA Section 39.201, to the extent
they have not been securitized).
TERM
This schedule is effective beginning with the effective date and remains in
effect until Negative Competitive Transition Charge Credits applied pursuant to
this schedule are sufficient to fully amortize the balance of accumulated
deferred income taxes related to securitized regulatory assets, pursuant to the
Financing Order approved by the Public Utility Commission of Texas (Commission)
in Docket No. 21528.
RATE CLASSES
For the purposes of applying Negative Competitive Transition Charge
Credits, each retail end-use customer will be designated as a customer in
one of the following eight customer classes:
Residential - This service is applicable to customers consisting of
individual private dwellings and individually metered apartments. In
addition, security or flood lighting services provided on residential
end-use customers premises shall be included in this rate class.
Commercial and Small Industrial - Energy - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage is billed without any demand
charges. In addition, security or flood lighting services provided on
applicable end-use customer's premises shall be included in this rate
class.
Commercial and Small Industrial - Demand - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage requires a demand meter.
Large Industrial - Firm - This service is applicable to non-residential
customers taking non-interruptible service with annual maximum measured
demands equal to 12,500 KVA or more whose service is provided to the
entire premises at not less than 60,000 volts.
Standby - Firm - This service is applicable to non-residential
customers taking non-interruptible standby service from the Company
during the years 2000 and 2001 and from a retail electric provider
during subsequent years when such service may be substituted, either
directly or indirectly, for customer-owned and operated power
production equipment.
Standby - Non-Firm - This service is applicable to non-residential
customers whose service is provided to the entire premises at not less
than 60,000 volts who are taking as-available standby service from the
Company during the years 2000 and 2001 and from a retail electric
provider during subsequent years when such service may be substituted,
either directly or indirectly, for customer-owned and operated power
production equipment not held primarily for emergency use.
Large Industrial - Non-firm - This service is applicable to
non-residential customers taking interruptible service with annual
maximum measured demands equal to 12,500 KVA or more whose service is
provided to the entire premises at not less than 60,000 volts. In
addition, this service is applicable to customers whose service is
provided to the entire premises at not less than 60,000 volts and who
have self-generation capability equal to or greater than 25,000 kW and
who purchase a minimum of 25,000 kW as Standby - Firm service for that
portion of the customer's load which displaces, in total or in part,
the customer's self-generating capability.
Municipal and Cotton Gin - This service is applicable to
municipalities, other utilities, and other public agencies for electric
service for the operation of water supply, sewage, and/or drainage
systems serving the general public supplied at one point of delivery
and measured by one meter. In addition, this service is applicable to
political subdivisions and eleemosynary institutions for traffic
lighting, flood lighting and street lighting service on public streets
and highways, in public areas, and upon the grounds of public
schoolyard or educational institutions not organized for profit. This
service is further applicable to all electric service other than
lighting service furnished to cotton gins.
INITIAL COMPETITIVE TRANSITION CHARGE CREDIT ALLOCATION FACTORS
The Initial Negative Competitive Transition Charge Credits are calculated using
the methods approved in the Financing Order referred to above. The Negative
Competitive Transition Charge Credit Allocation Factors (NCTCAF) to be used in
the initial calculation of the Negative Competitive Transition Charge Credits
(Initial Negative Competitive Transition Charge Credits) to be applied beginning
with the effective date of this schedule shall be the following percentages:
Transition Charge Class NCTCAF
------
Residential 37.4432%
Commercial and Small Industrial - Energy 22.3410%
Commercial and Small Industrial - Demand 27.9134%
Large Industrial - Firm 3.7359%
Large Industrial - Non-Firm 3.4728%
Standby - Firm 1.7018%
Standby - Non-Firm 0.7144%
Municipal and Cotton Gin 2.6775%
The Negative Competitive Transition Charge Credits to be applied in subsequent
periods (Adjusted Negative Competitive Transition Charge Credits) will be
determined in the manner described below. Prior to the implementation of
customer choice, Initial and Adjusted Negative Competitive Transition Charge
Credits applied to demand metered customers will be applied to the billing
demands of customers pursuant to the underlying transmission and/or distribution
utility's rates.
The Competitive Transition Charge Credit Allocation Factors may be revised from
time to time in accordance with the adjustment procedures described in the
Financing Order referred to above. When the Initial Competitive Transition
Charge Credit Allocation Factors have been adjusted in accordance with the
procedures described in the Financing Order, such Adjusted Competitive
Transition Charge Credit Allocation Factors will be used to determine the
Adjusted Negative Competitive Transition Charge Credits in future periods. The
effective Adjusted Negative Transition Charge Credits are set forth in Service
Rider 30, which, as amended and filed in accordance with the procedure set out
in this schedule, becomes a part of this schedule.
DETERMINATION OF INITIAL/ADJUSTED TRANSITION CHARGE RATES
Negative Competitive Transition Charge Credits will be adjusted no less
frequently than annually in order to ensure that the expected refund of the
revenue requirement impacts of the accumulated deferred income taxes related to
regulatory assets securitized is sufficient to amortize the balance of the
related accumulated deferred income taxes in a manner consistent with the
application of the Transition Charges as set forth in Schedule TC and Rider TC.
TRUE-UP ADJUSTMENT PROCEDURE
On [February 15, 2001], and no less frequently than annually thereafter, the
Company will file a revised Service Rider 30 setting forth the Adjusted Negative
Competitive Transition Charge Credits, complete with all supporting materials.
The Adjusted Negative Competitive Transition Charge Credits will be determined
using the methodology described below. The Adjusted Negative Competitive
Transition Charge Credits will become effective on the first billing cycle of
the month of [March]. After [February 15, 2001], but prior to the effective date
of the filed revision, the Commission may review the filing to determine that
the calculation contains no arithmetical errors. If arithmetical errors are
found, the Adjusted Negative Competitive Transition Charge Credits shall be
promptly corrected to address such errors.
Both annual and interim true-up adjustments to the Negative Competitive
Transition Charge Credits will be computed as follows:
NCTCc = RRADIT X NTCTAFc / FBUc)
where,
NCTCc= Negative Competitive Transition Charge Credit
applicable to a NCTC rate class during the
applicable period;
RRADIT= Revenue Requirement Impact of the amortization of
the accumulated deferred income taxes related to the
securitized generating assets for the applicable
period;
NCTCAFc= The Revenue Asset Allocation Factor for such class in
effect at such time as set forth above;
FBUc= Forecasted Billing Units (i.e., class specific
energy and demand billing units) currently forecast
for a class for the applicable period.
NEGATIVE COMPETITIVE TRANSITION CHARGE CREDIT ALLOCATION FACTOR ADJUSTMENTS
In addition to the annual and interim true-up adjustments described above, new
Negative Competitive Transition Charge Credit Allocation Factors (NCTCAF) shall
be determined and a special prospective adjustment may be performed if (A) the
loss of load in terms of Forecasted Billing Units (FBU) as defined above for any
or all classes in the upcoming applicable period is 10% or greater as a
percentage of the FBU for the immediately preceding period; or (B) the
Commission enters an Order which (i) requires that Negative Competitive
Transition Charges Credits for the Company be collected and allocated in a
different manner than the manner approved for allocation and collection of NCTCs
in the Commission's Order in Docket No. 21528 and reflected herein, and (ii)
requires that the NCTCs be adjusted accordingly; or (C) the Commission enters an
Order which (i) finds that the total statewide retail stranded costs exceed $5
billion and, as a result of that finding, requires a change in allocation of
Negative Competitive Transition Charge Credits, and (ii) requires that the NCTCs
be adjusted accordingly; or (D) the Company determines or the Commission orders
that an adjustment is needed to account for those customers who are exempted
from the stranded cost responsibility under Sections 39.252(b) or 39.262(k) of
the Texas Utilities Code. Any such required adjustment will be performed by the
Company and the resulting revised Rider 30 will be filed with the Commission in
accordance with the provisions of the Financing Order in Docket No. 21528. The
Rider 30 so filed will reflect the new Negative Competitive Transition Charge
Credit Allocation Factors and the new Adjusted Negative Transition Charge
Credits resulting from the changes to the Negative Competitive Transition Charge
Credit Allocation Factors. The Negative Competitive Transition Charge Credit
Allocation Factors shall at all times equal 100% in the aggregate.
AVAILABILITY
This schedule is applicable to energy consumption and demands of retail
customers taking service from the Company during the term that this schedule is
in effect subject to the provisions of Schedule NCTC, Section B, Sheet 36. This
schedule is effective beginning with its effective date and shall remain in
effect until changed in accordance with the procedures set forth in Rate
Schedule NCTC.
RATE CLASSES
For purposes of billing Initial/Adjusted Negative Competitive Transition Charge
Credits, each retail end-use customer will be designated as a customer belonging
to one of eight classes as defined by Schedule NCTC.
INITIAL/ADJUSTED NEGATIVE COMPETITIVE TRANSITION CHARGE CREDIT ALLOCATION
FACTORS
The Initial/Adjusted Negative Competitive Transition Charge Credit Allocation
Factors shall be determined in accordance with and are subject to the provisions
set forth in Rider NCTC. The Initial/Adjusted Negative Competitive Transition
Charge Credit Allocation Factors are set forth below:
Transition Charge Class NCTCAF
------
Residential 37.4432%
Commercial and Small Industrial - Energy 22.3410%
Commercial and Small Industrial - Demand 27.9134%
Large Industrial - Firm 3.7359%
Large Industrial - Non-Firm 3.4728%
Standby - Firm 1.7018%
Standby - Non-Firm 0.7144%
Municipal and Cotton Gin 2.6775%
INITIAL / ADJUSTED NEGATIVE COMPETITIVE TRANSITION CHARGE CREDITS
The Initial/Adjusted Negative Competitive Transition Charge Credits shall be
determined in accordance with and are subject to the provisions set forth in
Rate Schedule NCTC. On [February 15, 2001], and no less frequently than annually
thereafter, the Company or successor Servicer, as defined in Rate Schedule NCTC,
will file a Revision to Service Rider 30 setting forth the Initial/Adjusted
Negative Competitive Transition Charge Credits. The Initial/Adjusted Negative
Competitive Transition Charge Credits will become effective on the first billing
cycle of the succeeding month of March.
Competitive Transition Charge Class Initial / Adjusted Negative CTC Credits
Residential $________ per kWh
Commercial and Small Industrial
- - Energy $________ per kWh
Commercial and Small Industrial
- - Demand $________ per kW or kVa
Large Industrial - Firm $________ per kW or kVa
Large Industrial - Non-Firm $________ per kW or kVa
Standby - Firm $________ per kW or kVa plus Daily Credit
Standby - Non-Firm $________ per kW or kVa plus Daily Credit
Municipal and Cotton Gin $________ per kWh
The Daily Credit for Standby - Firm service shall be calculated as 1.75% of the
Large Industrial - Firm Initial/Adjusted Negative CTC Credit per day for up to
and including seven days and 3.29% of the Large Industrial - Firm
Initial/Adjusted Negative CTC Credit per day for additional days or portions of
days thereafter.
The Daily Credit for Standby - Non-Firm service shall be calculated as 1.75% of
the Large Industrial - Non-Firm Initial/Adjusted Negative CTC Credit per day for
up to and including seven days and 1.65% of the Large Industrial - Non-Firm
Initial/Adjusted Negative CTC Credit per day for additional days or portions of
days thereafter.
Appendix C
ISSUANCE ADVICE LETTER
[Date]
ADVICE ________
THE PUBLIC UTILITY COMMISSION OF TEXAS
SUBJECT: ISSUANCE ADVICE LETTER FOR TRANSITION BONDS
Pursuant to the Financing Order adopted in Docket No. [ ] (the
"Financing Order"), CENTRAL POWER AND LIGHT COMPANY, ("Applicant") hereby
submits, no later than the [second] business day after the pricing date of this
series of Transition Bonds, the information referenced below. This Issuance
Advice Letter is for the [INSERT TITLE] Transition Bond series _______ class(es)
_____________. Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Financing Order.
PURPOSE
This filing establishes the following:
(a) the actual terms and structure of the Transition Bonds
being issued;
(b) confirmation of compliance with issuance
standards;
(c) the initial Transition Charge for retail users;
(d) the identification of the Transition Property to be sold
to a special purpose entity (the "SPE"); and
(e) the identification of the SPE.
<PAGE>
COMPLIANCE WITH ISSUANCE STANDARDS
The Financing Order requires Applicant to confirm, using the methodology
approved therein, that the actual terms of the Transition Bonds result in
compliance with the standards set forth in the Financing Order. These standards
are:
1. The securitization of Qualified Costs will provide tangible and
quantifiable benefits to ratepayers, greater than would be achieved absent
the issuance of Transition Bonds (See Attachment 4, Schedule A);
2. The total amount of revenues to be collected under the Financing Order is
less than the revenue requirement that would be recovered over the
remaining life of the Stranded Costs using conventional financing methods
(See Attachment 4, Schedule A);
3. The structuring and pricing of the Transition Bonds proposed by the
Applicant in its Application will result in the lowest transition bond
charges consistent with market conditions and the terms of the Financing
Order (See Attachment 4, Schedule B);
4. The amount securitized will not exceed the present value of the revenue
requirement over the life of the proposed Transition Bonds associated with
the securitized Regulatory Assets when the present value calculation is
made using a discount rate equal to the proposed interest rate on the
Transition Bonds (See Attachment 4, Schedule C);
5. The annual servicing fee payable to Applicant while it is serving as
Servicer (or to any other Servicer affiliated with Applicant) shall not at
any time exceed the greater of $500,000 and 0.5% of the original principal
amount of the Transition Bonds of each series (See Attachment 2);
6. The annual servicing fee payable to any other Servicer not affiliated with
Applicant shall not at any time exceed 0.60% of the original principal
amount of the Transition Bonds (See Attachment 2);
7. The underwriting spread included in the Qualified Costs securitized under
the Financing Order shall not exceed 0.485% of the principal amount of the
Transition Bonds issued and sold (See Attachment 1);
8. The other up-front and ongoing fees and expenses incurred or to be incurred
in connection with the proposed transaction and included in the Qualified
Costs securitized under the Financing Order shall not exceed the amounts
set forth on Appendix C to the Financing Order (See Attachments 1 and 2);
9. The Transition Bonds will be issued in one or more series comprised of one
or more classes or tranches having legal final maturities not exceeding 15
years from the date of issuance of such series (See Attachment 3); and
10. The principal of the Transition Bonds shall be amortized as described in
the rebuttal testimony of Mr. David G. Carpenter and Mr. D. Greg Wilks, as
summarized in the letter of understanding between ORA and Applicant.(See
Attachment 3).
ACTUAL TERMS OF ISSUANCE
Transition Bond Series: ______________________________________
Transition Bond Issuer: ______________________________________
Trustee(s): __________________________________________________
Closing Date: ________________________________________________
Bond Ratings: ________________________________________________
Amount Issued: ______________________________________________
Transition Bond Issuance Costs: See Attachment 1
Transition Bond Support and Servicing: See Attachment 2
Coupon Rate(s): See Attachment 3
Call Features: See Attachment 3
Expected Principal Amortization Schedule: See Attachment 3
Expected Final Maturity Date(s): See Attachment 3
Legal Final Maturity Date(s): See Attachment 3
Payments to Investors (quarterly or semiannually): ________________,
beginning _______________
Initial annual Servicing Fee as a percent of the outstanding
Transition Bond principal balance: ________%
Cumulative Overcollateralization amount for the Transition Bonds, as
a percent of the initial Transition Bond principal
balance: ________________________%
Annual Overcollateralization funding requirements: (See Attachment 3.)
Description of type, amount and maturity (if applicable) of outstanding
debt and equity securities of Applicant to be redeemed or retired with
proceeds of the Transition Bonds (to the extent known) as shown below:
<PAGE>
INITIAL TRANSITION CHARGE
Table I below shows the current assumptions for each of the variables used in
the calculation of the initial Transition Charges.
TABLE I
Input Values For Initial Transition Charges
Forecasted retail kWh/kW sales: ______________________________
Transition Bond debt service for applicable period: ___________________________
Percent of billed amounts expected to be charged-off: ________________________
Weighted average days sales outstanding: _____________________________________
Forecasted annual ongoing transaction expenses (excluding Transition Bond
principal and interest):
Required overcollateralization amount for applicable period: _________________
Current Transition Bond outstanding balance: _________________________________
Expected Transition Bond outstanding balance as of ___/___/____: ____________
Total Periodic Billing Requirement for applicable period: ____________________
Allocation of such total among customer classes, in accordance with Utilities
Code Section 39.303(c): See Attachment 5
<PAGE>
Based on the foregoing, the initial Transition Charges calculated for retail
users are as follows:
TABLE II
Rate Class Initial Transition Charge
Residential ____________$/kWh
Commercial and Small Industrial
- - Energy ____________$/kWh
Commercial and Small Industrial
- - Demand ____________$/kW or KVa
Large Industrial - Firm ____________$/kW or KVa
Large Industrial - Non-Firm ____________$/kW or KVa
Standby--Firm ____________$/kW or Kva plus Daily Rate
Standby--Non-Firm ____________$/kW or Kva plus Daily Rate
Municipal and Cotton Gin _ ____________$/kWh
IDENTIFICATION OF SPE
The owner of the Transition Property (the "SPE") will be: ___________________.
EFFECTIVE DATE
In accordance with the Financing Order, the Transition Charge shall be
automatically effective upon the Applicant's receipt of payment in the amount of
$______________ from [SPE], following Applicant's execution and delivery to
[SPE] of the [Bill of Sale/Deed of Transfer] transferring Applicant's interest
in the Transition Property described in the Financing Order.
<PAGE>
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at the Company's corporate headquarters.
Enclosures
<PAGE>
ATTACHMENT 1
TRANSITION BOND ISSUANCE COSTS
Variable Costs Actual Cap
Costs
Original Issue Discount 0.1000%
Underwriting Spread 0.4850%
SEC Regulation Fee (1/36th of 1%) 0.0278%
Subtotal Variable Upfront Expense 0.6128%
Fixed Costs
Printing Fees $ 350,000
Trustee Fee and Counsel $ 50,000
Company Legal Fees and Expenses $2,500,000
Underwriters' Legal Fees and Expenses $ 300,000
Accountant's/Auditor's Fees $ 500,000
Rating Agency Fees $ 600,000
Legal Fees for Commission's Counsel $ 100,000
SPE Startup Costs $ 25,000
Miscellaneous Fees (including Applicant's
rate case expense) $1,000,000
Upfront Servicer Setup Costs $ 500,000
Sub-Total Fixed Upfront Expenses $5,925,000
REACQUISITION COSTS:
Original Estimate $19,600,000
Current Estimate $_________ 1
HEDGING ISSUANCE COSTS:
[Describe if applicable].
<PAGE>
ATTACHMENT 2
TRANSITION BOND SUPPORT AND SERVICING COSTS
Servicing Fees Actual Costs Cap
Annual Fee as Percent of
Initial Balance 0.0500%
Third Party Servicing Fee
Annual Fee as Percent of
Original Balance 0.6000%
Fixed Operating Expenses
Trustee Fee and Expenses
Independent Managers Fee To be recovered based on
Rating Agency Fees amounts actually incurred.
Miscellaneous Fees and Expenses Annual true-up proceedings to
Subtotal Fixed Operating Expenses be used to ensure this result.
<PAGE>
ATTACHMENT 3
TRANSITION BOND REVENUE REQUIREMENT INFORMATION
SERIES [ ], CLASS [ ]
Complete this table for each class of each series of the Transition Bonds.
Principal Overcollaterilization Other Total
Balance Interest Principal Amount Expenses Revenues
Payment
Dates
Payment
Dates
Payment
Dates
Totals
Effective Annual Weighted Average Interest Rate of the Transition Bonds,
Excluding Up-Front and Ongoing Costs: ______%
Weighted Average Life of Series. [ ] years
Combined Weighted Average Life of This and All Previously Issued
Series: [ ] years
Call provisions (including premium, if any): _______________________________
Expected Final Maturity Dates: See Attached.
Legal Final Maturity Dates: See Attached.
Annual Overcollateralization Funding Requirements: See Attached
<PAGE>
ATTACHMENT 4
COMPLIANCE WITH SUBCHAPTER G OF THE UTILITIES CODE
SCHEDULE A
Tangible & Quantifiable Benefits and Revenue Requirements Tests:
(a) (b) (c) (d) (e)
Present
Present Value Value of Savings/Costs
of Securitization Total Costs of
Conventional Financing Present Value of Securitization
Name of Financing Over (excluding up of up front Financing
Asset Current Life front and and ongoing Securitization
ongoing costs costs (b)+(c) (a)-(d)
Regulatory Assets
(1) The discount rate to be used for determining the present value of columns
(b) and (c) is the weighted average annual interest rate of the transition
bonds, excluding up-front and ongoing costs.
(2) The present value of up-front and ongoing costs are allocated based on the
proportion of each asset's securitized present value in column (b) to the
total of column (b).
(3) The values for column (a) shall be calculated in accordance with
the methodoogy used in Exhibit JAJ-6R submitted by Applicanat in Docket
No. 21528.
<PAGE>
SCHEDULE B
Lowest Transition Bond Charge Test:
Applicant hereby confirms compliance with the following requirements set forth
in the Financing Order:
a. The issuer of Transition Bonds is the SPE;
b. The right to impose and collect the Transition Charges has been
transferred to the SPE as a separate property right and the Transition Charges
are nonbypassable; 42. 43.
c. The transaction provides credit enhancement in the
form of a mechanism to periodically adjust or "true-up" the transition charges
not less frequently than annually; 44. 45.
d. The transaction provides for
additional credit enhancement in the form of a collection account which includes
(i) a capital subaccount of not less than 0.5% of the initial principal amount
of the Transition Bonds and (ii) an additional overcollateralization subaccount
which builds up over time to equal not less than an additional 0.5% of the
initial principal amount of the Transition Bonds; 46. 47.
e. The Applicant has
received a revenue ruling that for federal income tax purposes (i) the transfer
of the rights under the Financing Order to the SPE does not result in gross
income to Applicant and the future revenues under the Transition Charges will be
included in Applicant's gross income in the year in which the related electric
service is provided to customers, (ii) the issuance of the Transition Bonds and
the transfer of the proceeds of the Transition Bonds to Applicant will not
result in gross income to Applicant and (iii) the Transition Bonds will
constitute obligations of Applicant; and 48. 49.
g. The Transition Bonds have
been marketed using proven underwriting and selling processes through which,
after testing the market and investors' preferences, the final structure of the
Transition Bonds, the timing of the issuance, and the terms and conditions,
related to maturities, type of interest (fixed or variable) and other aspects,
were established. 50.
<PAGE>
SCHEDULE C
Securitization Cap:
Transition Bond Securitization Amount $[ ]
Present Value of Regulatory Assets Revenue
Requirements $[ ]
Discount Rate [ ]%
<PAGE>
ATTACHMENT 5
ALLOCATION OF COSTS TO CUSTOMER CLASSES
Periodic Billing Requirement Forecasted Transition
Allocation Billing Per kWh/kW Charge
Rate Class Factor Requirement Rate Class (5)
(1) (2) (3) (4)=(2)*(3) (6)=(4)/(5)
Residental
Service 0.____
Commercial&
Small
Industrial
Energy 0.____
Commercial &
Small
Industrial
Demand 0.____
Large
Industrial
Firm 0.____
Large
Industrial
Non-Firm 0.____
Standby
Firm 0.____
Standby
Non-Firm 0.____
Municipal and
Cotton Gin
Total 1.00000
Transition Charge Rates - Schedule TC
APPLICABILITY
This schedule, along with Service Rider 29, Adjusted Transition Charge Rates,
sets out the rates, terms and conditions under which Transition Charges will be
billed and collected by the Company, any successor Servicer(s) and any Retail
Electric Providers (REP) billing or collecting Transition Charges (or TCs)
pursuant to the Transition Charge Rates hereunder on behalf of the owner of
Transition Property pursuant to the terms of the Financing Order approved by the
Public Utility Commission of Texas (Commission) in Docket No. 21528.
For purposes of this schedule, the term "Company" means Central Power and Light
Company and its successors and assigns that provide transmission and
distribution service, or if transmission and distribution services are not
provided by a single entity, the successor entity providing wire service
directly to customers taking service at facilities, premises, or loads located
within Central Power and Light Company's certificated service area as it existed
on May 1, 1999.
This schedule is applicable to energy consumption and demands of retail
customers taking transmission and/or distribution service from the Company
during the term that this schedule is in effect and to the facilities, premises
and loads of such retail customers.
This schedule also applies to:
1. Retail customers taking service at facilities, premises, or loads located
within the Company's certificated service area as it existed on May 1,
1999 who are not presently receiving transmission and/or distribution
service from the Company, but whose present facilities, premises, or
loads received transmission and/or distribution service from the Company
at any time on or after May 1, 1999 when a request to change service to
another utility was not pending.
2. Retail customers located within the Company's certificated service area
as it existed on May 1, 1999 and prior retail customers of the Company
who are served by new Non-Eligible Self-Generation (NESG) to the extent
that the new generation materially reduces or reduced customer loads on
the Company's transmission and distribution system. All new on-site
generation as defined in PURA Section 39.252(b) is NESG unless it is
excluded from that classification under PURA Section 39.262(k) and any
rules subsequently adopted by the Commission pursuant thereto.
This schedule does not apply to the facilities, premises, and loads of customers
described above who are not taking retail service from the Company pursuant to
the Commission Order in Docket No. 20292.
For retail customers of the Company, the Transition Charges provided for in this
rate schedule are charges that are a component of the other Company rates under
which the customer takes service prior to the unbundling of transmission and
distribution rates specified by PURA Section 39.201. Accordingly, prior to such
unbundling, Transition Charges are not charges that apply in addition to the
charges paid by retail customers under other applicable rate schedules. For
retail customers who are not retail customers of CPL, but whose facilities,
premises, and loads are subject to Transition Charges billed and collected
pursuant to the Transition Charge Rates under this schedule, and for retail
customers of the Company who take service after transmission and distribution
rates have been unbundled, the Transition Charge Rates shall constitute a
separate charge.
The assessment of Transition Charges will be separately identified on each
customer's bill.
IDENTIFICATION OF PARTIES
Transition Charges are collected on behalf of the owner of Transition Property,
a Special Purpose Entity (SPE). With the advent of customer choice, each
customer will receive service through a REP whom, in addition to serving the
customer's energy needs, will remit to the Servicer Transition Charges billed in
accordance with this schedule.
On the effective date of this tariff, the Company will act as Servicer. However,
the SPE may select another party to serve as Servicer or the Company may resign
as Servicer in accordance with terms of the Servicing Agreement and Financing
Order issued in Docket No. 21528. A Servicer selected under these conditions
will assume the obligations of the Company as Servicer under this schedule. As
used in this schedule, the term "Servicer" includes any successor Servicer.
Transition Charges are non-bypassable charges computed on the basis of
individual end-use retail customer consumption, except for Transition Charges
applicable to NESG for which charges are based on the output of the on-site
generation. Individual end-use retail customers are responsible for paying
Transition Charges billed to them in accordance with the terms of this schedule.
Payment is to be made to the entity that bills the customer in accordance with
the terms of the Servicing Agreement and Financing Order issued in Docket No.
21528, which entity may be the Company, a successor Servicer, an REP or an
entity designated to collect Transition Charges in place of the REP. The REP or
entity designated to collect Transition Charges in place of the REP will pay
Transition Charges to the Servicer. The Servicer will remit collections to the
SPE in accordance with the terms of the Servicing Agreement.
TERM
This schedule is effective beginning with the effective date and remains in
effect until Transition Charges have been collected and remitted to the SPE
which are sufficient in amount to satisfy all obligations of the SPE in regard
to paying principal and interest on the Transition Bonds together with all other
Qualified Costs as provided in PURA Section 39.302(4). However, in no event will
the Transition Charges provided for in this schedule be billed for service
provided after 15 years from issuance of Transition Bonds, or sooner if the
Transition Bonds are paid in full at an earlier date. Delinquencies and end of
period billings may be collected after such period. This schedule is irrevocable
and non-bypassable for the full term during which it applies.
RATE CLASSES
For the purposes of billing Transition Charges, each retail end-use customer
will be designated as a customer in one of eight customer classes. In the case
of Commercial and Small Industrial customers, demand metered rates will be
applicable to those transmission and distribution rate classes which bill all
customers on a demand basis. All other customers, including those served on rate
schedules which feature some (but not all) retail end-use rates without kilowatt
demand charges, will be billed on a kilowatt-hour, non-demand metered basis. A
new customer shall be assigned to the appropriate customer class. The rate
classes are defined below as:
Residential - This service is applicable to customers consisting of
individual private dwellings and individually metered apartments. In
addition, security or flood lighting services provided on residential
end-use customers premises shall be included in this rate class.
Commercial and Small Industrial - Energy - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage is billed without any demand
charges. In addition, security or flood lighting services provided on
applicable end-use customer's premises shall be included in this rate
class.
Commercial and Small Industrial - Demand - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage requires a demand meter.
Large Industrial - Firm - This service is applicable to non-residential
customers taking non-interruptible service with annual maximum measured
demands equal to 12,500 KVA or more whose service is provided to the
entire premises at not less than 60,000 volts.
Standby - Firm - This service is applicable to non-residential
customers taking non-interruptible standby service from the Company
during the years 2000 and 2001 and from a retail electric provider
during subsequent years when such service may be substituted, either
directly or indirectly, for customer-owned and operated power
production equipment.
Standby - Non-Firm - This service is applicable to non-residential
customers whose service is provided to the entire premises at not less
than 60,000 volts who are taking as-available standby service from the
Company during the years 2000 and 2001 and from a retail electric
provider during subsequent years when such service may be substituted,
either directly or indirectly, for customer-owned and operated power
production equipment not held primarily for emergency use.
Large Industrial - Non-firm - This service is applicable to
non-residential customers taking interruptible service with annual
maximum measured demands equal to 12,500 KVA or more whose service is
provided to the entire premises at not less than 60,000 volts. In
addition, this service is applicable to customers whose service is
provided to the entire premises at not less than 60,000 volts and who
have self-generation capability equal to or greater than 25,000 kW and
who purchase a minimum of 25,000 kW as Standby - Firm service for that
portion of the customer's load which displaces, in total or in part,
the customer's self-generating capability.
Municipal and Cotton Gin - This service is applicable to
municipalities, other utilities, and other public agencies for electric
service for the operation of water supply, sewage, and/or drainage
systems serving the general public supplied at one point of delivery
and measured by one meter. In addition, this service is applicable to
political subdivisions and eleemosynary institutions for traffic
lighting, flood lighting and street lighting service on public streets
and highways, in public areas, and upon the grounds of public
schoolyard or educational institutions not organized for profit. This
service is further applicable to all electric service other than
lighting service furnished to cotton gins.
INITIAL REGULATORY ASSET ALLOCATION FACTORS
The Initial Transition Charge Rates are calculated using the methods approved in
the Financing Order of the Public Utility Commission of Texas (Commission) in
Docket No. 21528. The Regulatory Asset Allocation Factors (RAAF) to be used in
the initial calculation of the Transition Charge Rates to be applied beginning
with the effective date of this schedule (the Initial Transition Charge Rates)
shall be the percentages set forth below. The Regulatory Asset Allocation
Factors shall be the percentage of cost responsibility for each Transition
Charge class as defined in PURA ss.39.253, as adjusted pursuant to the True-Up
Adjustment Procedure described below. Transition Charge Rates to be applied in
subsequent periods (Adjusted Transition Charge Rates) will be determined in the
manner described below. Prior to the implementation of customer choice, Initial
and Adjusted Transition Charge Rates applied to demand metered customers will be
applied to the billing demands of customers pursuant to the underlying
transmission and/or distribution utility's rates.
Transition Charge Class RAAF
----
Residential 37.4432%
Commercial and Small Industrial - Energy 22.3410%
Commercial and Small Industrial - Demand 27.9134%
Large Industrial - Firm 3.7359%
Large Industrial - Non-Firm 3.4728%
Standby - Firm 1.7018%
Standby - Non-Firm 0.7144%
Municipal and Cotton Gin 2.6775%
The Regulatory Asset Allocation Factors may be revised from time to time in
accordance with the adjustment procedures described in the Financing Order
referred to above. When the initial Regulatory Asset Allocation Factors have
been adjusted in accordance with the procedures described in the Financing
Order, such adjusted Regulatory Asset Allocation Factors will be used to
determine the Adjusted Transition Charge Rates in future periods. The effective
Initial/Adjusted Transition Charge Rates are set forth in Service Rider 29,
which, as amended and filed in accordance with the procedure set out in this
schedule, becomes a part of this schedule.
DETERMINATION OF INITIAL/ADJUSTED TRANSITION CHARGE RATES
Transition Charge Rates will be adjusted no less frequently than annually in
order to ensure that the expected collection of Transition Charges is adequate
to pay when due, pursuant to the expected amortization schedule, principal and
interest on Transition Bonds and pay on a timely basis other Qualified Costs.
The Initial/Adjusted Transition Charge Rates are computed by multiplying the
Regulatory Asset Allocation Factors set forth in Rider 29 times the Periodic
Billing Requirement (BR) for the projected Transition Charge period (TC Period).
TRUE-UP ADJUSTMENT PROCEDURE
On [February 15, 2001], and no less frequently than annually thereafter, the
Servicer will file a revised Service Rider 29 setting forth the Adjusted
Transition Charge Rates, complete with all supporting materials. The Adjusted
Transition Charge Rates will be determined using the methodology described
below. The Adjusted Transition Charge Rates will become effective following
notification on the first billing cycle of the month of [March]. After [February
15, 2001], but prior to the effective date of the filed revision, the Commission
may review the filing to determine that the calculation contains no arithmetical
errors. If arithmetical errors are found, the Adjusted Transition Charge Rates
shall be promptly corrected to address such errors.
In addition to the foregoing provisions, if in the month prior to an upcoming
Transition Bond principal payment date (A) the Servicer determines that
collections of Adjusted Transition Charge Rates available for the upcoming
payment date will result in a difference between (i) the actual outstanding
principal balances of the Transition Bonds plus amounts on deposit in the
Reserve Subaccount and (ii) the outstanding principal balances anticipated in
the Expected Amortization Schedule which is greater than 5% (up or down), or if
any series of Transition Bonds that matures after ___________ would not be paid
in full by its expected maturity date, then an interim true-up adjustment will
be filed on the fifteenth day of the current month for implementation in the
first billing cycle in the following month. Filing and notification to the
Commission will be accomplished in the manner set forth above. In no event will
such interim true-up adjustments occur more frequently than every three months
if quarterly Transition Bond payments are required or every six months if
semi-annual Transition Bond payments are required. Both annual and interim
true-up adjustments will be adjustments to the Initial/Adjusted Transition
Charge Rates computed as follows:
TCc = BR X RAAFc / FBUc)
where,
TCc= Transition Charge Rate applicable to a TC rate class during the TC
Period;
BR= Periodic Billing Requirement for the TC Period;
RAAFc= The Revenue Asset Allocation Factor for such class in effect at
such time;
FBUc= Forecasted Billing Units (i.e., class specific energy and demand
billing units) currently forecast for a class for the TC period.
If, for any reason, the above-described formula causes the Adjusted Transition
Charge Rate for any class to exceed the maximum rate, if any, which customers in
such class may then be obligated to pay under Sections 39.502(b) or 39.202(a) of
the Texas Utilities Code, as applicable, then (i) the Adjusted Transition Charge
Rate for such class shall equal such maximum rate and (ii) the rates for the
remaining classes shall be recalculated using such maximum rate as the
Transition Charge for such class (which exceeded the maximum rate), and
assessing the deficiency to the remaining classes on an equal percentage basis.
REGULATORY ASSET ALLOCATION FACTOR ADJUSTMENTS
In addition to the annual and interim true-up adjustments described above, new
Regulatory Asset Allocation Factors shall be determined and a special
prospective adjustment may be performed if (A) the loss of load in terms of
Forecasted Billing Units (FBU) as defined above for any or all classes in the
upcoming TC Period is 10% or greater as a percentage of the FBU for the
immediately preceding TC Period; or (B) the Commission enters an Order which (i)
requires that Competitive Transition Charges for the Company be collected and
allocated in a different manner than the manner approved for allocation and
collection of TCs in the Commission's Order in Docket No. 21528 and reflected
herein, and (ii) requires that the TCs be adjusted accordingly; (C) the
Commission enters an Order which (i) finds that the total statewide retail
stranded costs exceed $5 billion and, as a result of that finding, requires a
change in allocation of Competitive Transition Charges, and (ii) requires that
the TCs be adjusted accordingly; or (D) the Servicer determines or the
Commission orders that an adjustment is needed to account for those customers
who are exempted from the stranded cost responsibility under Sections 39.252(b)
or 39.262(k) of the Texas Utilities Code as implemented by Commission
Substantive Rule 25.345. Any such required adjustment will be performed by the
Servicer and the resulting revised Rider 29 will be filed with the Commission in
accordance with the provisions of the Financing Order in Docket No. 21528. The
Rider 29 so filed will reflect the new Regulatory Asset Allocation Factors and
the new Adjusted Transition Charge Rates resulting from the changes to the
Regulatory Asset Allocation Factors. The Adjusted Regulatory Asset Allocation
Factors shall at all times equal 100% in the aggregate.
BILLING AND COLLECTION TERMS AND CONDITIONS
The billing and collection of Transition Charge Rates may differ from time to
time as set forth in this schedule. The terms and conditions for each party are
set forth below:
Billing and Collection Prior to Customer Choice
Billing by the Servicer to end-use customers:
1. Applicable to consumption of all current retail customers.
2. Payment terms identical to present retail rates.
3. Right to terminate for non-payment pursuant to the
Commission's rules.
Billings by Servicer to other electric utilities, municipally owned
utilities, and cooperatives:
1. Applicable to former retail customers of the Company in multiply
certificated service areas now taking service from other utilities
or cooperatives.
2. Charges subject to this tariff must be paid in full by the other
utility or cooperative to the Servicer 16 days after billing by
the Servicer regardless of whether the utility or cooperative
collects such charges from the end-use retail customer.
Billings by Servicer to NESG:
1. Applicable to end use consumption served by on-site self-generation.
2. Payment terms pursuant to the Commission's rules.
3. Rate class determined by summing loads on the transmission and
distribution system with loads served by non-eligible generation.
4. Right to terminate for non-payment pursuant to the Commission's
rules.
Billing and Collection Subsequent to Customer Choice
Billings by Servicer to other electric utilities, municipally owned
utilities, and cooperatives:
1. Applicable to former retail customers of the Company in multiply
certificated service areas now taking service from other utilities
or cooperatives.
2. Charges subject to this tariff must be paid in full by the other
electric utility or cooperative to the Servicer 16 days after
billing by the Servicer regardless of whether the utility or
cooperative collects such charges from the end-use retail
customer.
Billings by Servicer to NESG:
1. Applicable to end use consumption served by on-site self-generation.
2. Payment terms pursuant to the Commission's rules.
3. Rate class determined by summing loads on the transmission and
distribution system with loads served by non-eligible generation.
4. Right to terminate for non-payment pursuant to the Commission's
rules.
Billings by the REP or its replacement to end-use customers:
1. Applicable to consumption of all retail end-use customers served
by the REP for which TCs apply, including applicable former
customers and NESG, under the following conditions:
2. REPs will provide the Servicer with full and timely information
necessary to provide proper reporting and for billing and true-up
adjustments.
3. Prior to billing or collecting any Transition Charge Rates,
the REP must provide a deposit in the form of cash, an affiliate
guarantee, surety bond, or letter of credit equal to two months'
maximum estimated collections of TCs; provided that REPs who
maintain an unsecured credit rating of BBB/Baa2 or better from
S&P and Moody's will be exempt from such deposit requirements.
Any provider of the affiliate guarantee, surety bond, or letter
of credit must have an unsecured credit rating of BBB and Baa2 or
better from S&P and Moody's; provided that if the Servicer is not
allowed to take over the billing and collection function due to
an REP default, the provider of the guarantee, surety bond, or
letter of credit must have an unsecured credit rating of AAA from
each of S&P and Moody's. Deposits made by REPs will be maintained
with the indenture trustee in the REP Deposit Subaccount.
4. Servicer shall have the right to terminate transmission and
distribution service for non-payment by end-use customers pursuant
to the Commission's rules.
Billings by the Servicer to the REP or its replacement (when applicable):
1. Applicable to all consumption subject to REP billing of
Transition Charges.
2. Charges subject to this tariff are paid by the REP to the Servicer
16 calendar days after billing by the Servicer regardless of
whether the REP collects such charges from the end-use retail
customer.
3. In the event that the REP defaults, the Servicer will be entitled,
within five business days thereafter, to assume responsibility for
billing and collecting the Transition Charge Rates or (b) to the
extent it does not retain such ability, to assign responsibility
to a new REP which meets the deposit requirements set forth above
in paragraph 3. of Billings by the REP or its replacement to
end-use customers. In addition, Servicer may bill and collect from
retail end use customers any accrued Transition Charges which were
not billed by the REP or which were unpaid by the customer at the
time that billing responsibility was so transferred.
4. Servicer shall have the right to terminate transmission and
distribution service for non-payment by end-use customers pursuant
to the Commission's rules.
5. Notwithstanding item 2. above, the REPs will be allowed to remit
payments based on the same system-wide charge off percentage used
by the Servicer to remit payments to the indenture trustee for the
holders of Transition Bonds. On an annual basis in connection with
the true-up adjustment process, the REP and the Servicer will be
responsible for reconciling the amounts held back with amounts
actually written off as uncollectible in accordance with the terms
agreed to by the REP and the Servicer, provided that:
(a) The REP's right to reconciliation for write-offs will be
limited to customers whose service has been permanently
terminated and whose entire accounts (i.e., all amounts due
the REP for its own account as well as the portion
representing Transition Charges) have been written off.
(b) The REP's recourse will be limited to a credit against future
TC payments unless the REP and the Servicer agree to
alternative arrangements, but in no event will the REP have
recourse to the SPE or its funds for such payments.
(c) The REP shall provide information on a timely basis to the
Servicer to that the Servicer can include the REP's default
experience and any subsequent credits into its calculation of
the Adjusted Transition Charge Rates for the next TC Period
and the REP's rights to credits will not take effect until
after such Adjusted Transition Charge Rates have been
implemented.
OTHER TERMS AND CONDITIONS
If the customer or REP pays only a portion of its bill, a pro-rata share amount
of Transition Charge revenues shall be deemed to be collected. The Company will
allocate any shortfall first, ratably based on the amount owed for Transition
Charges and the amount owed for other fees and charges, other than late charges,
owed to the Company or any successor, and second, all late charges shall be
allocated to the Company or any successor.
At least once each year, (i) the Company shall, to the extent that it does not
include the notice described below in the bills regularly sent by it to REPs or
customers, as applicable, cause to be prepared and delivered to REPs and such
customers a notice stating, in effect, that the Transition Property and the
Transition Charge Rates are owned by the SPE and not the Company; and (ii) each
REP which bills Transition Charge Rates shall, to the extent that it does not
include the notice described below in the bills regularly sent by it to
customers, cause to be prepared and delivered to such customers a notice
stating, in effect, that the Transition Property and the Transition Charge Rates
are owned by the SPE and not the REP or the Company. Such notice shall be
included either as an insert to or in the text of the bills delivered to such
REPs or customers, as applicable, or shall be delivered to customers by
electronic means or such other means as the Servicer or the REP may from time to
time use to communicate with their respective customers.
APPLICABILITY
This schedule, along with Service Rider 29, Adjusted Transition Charge Rates,
sets out the rates, terms and conditions under which Transition Charges will be
billed and collected by the Company, any successor Servicer(s) and any Retail
Electric Providers (REP) billing or collecting Transition Charges (or TCs)
pursuant to the Transition Charge Rates hereunder on behalf of the owner of
Transition Property pursuant to the terms of the Financing Order approved by the
Public Utility Commission of Texas (Commission) in Docket No. 21528.
For purposes of this schedule, the term "Company" means Central Power and Light
Company and its successors and assigns that provide transmission and
distribution service, or if transmission and distribution services are not
provided by a single entity, the successor entity providing wire service
directly to customers taking service at facilities, premises, or loads located
within Central Power and Light Company's certificated service area as it existed
on May 1, 1999.
This schedule is applicable to energy consumption and demands of retail
customers taking transmission and/or distribution service from the Company
during the term that this schedule is in effect and to the facilities, premises
and loads of such retail customers.
This schedule also applies to:
3. Retail customers taking service at facilities, premises, or loads located
within the Company's certificated service area as it existed on May 1,
1999 who are not presently receiving transmission and/or distribution
service from the Company, but whose present facilities, premises, or
loads received transmission and/or distribution service from the Company
at any time on or after May 1, 1999 when a request to change service to
another utility was not pending.
4. Retail customers located within the Company's certificated service area
as it existed on May 1, 1999 and prior retail customers of the Company
who are served by new Non-Eligible Self-Generation (NESG) to the extent
that the new generation materially reduces or reduced customer loads on
the Company's transmission and distribution system. All new on-site
generation as defined in PURA Section 39.252(b) is NESG unless it is
excluded from that classification under PURA Section 39.262(k) and any
rules subsequently adopted by the Commission pursuant thereto.
This schedule does not apply to the facilities, premises, and loads of customers
described above who are not taking retail service from the Company pursuant to
the Commission Order in Docket No. 20292.
For retail customers of the Company, the Transition Charges provided for in this
rate schedule are charges that are a component of the other Company rates under
which the customer takes service prior to the unbundling of transmission and
distribution rates specified by PURA Section 39.201. Accordingly, prior to such
unbundling, Transition Charges are not charges that apply in addition to the
charges paid by retail customers under other applicable rate schedules. For
retail customers who are not retail customers of CPL, but whose facilities,
premises, and loads are subject to Transition Charges billed and collected
pursuant to the Transition Charge Rates under this schedule, and for retail
customers of the Company who take service after transmission and distribution
rates have been unbundled, the Transition Charge Rates shall constitute a
separate charge.
The assessment of Transition Charges will be separately identified on each
customer's bill.
IDENTIFICATION OF PARTIES
Transition Charges are collected on behalf of the owner of Transition Property,
a Special Purpose Entity (SPE). With the advent of customer choice, each
customer will receive service through a REP whom, in addition to serving the
customer's energy needs, will remit to the Servicer Transition Charges billed in
accordance with this schedule.
On the effective date of this tariff, the Company will act as Servicer. However,
the SPE may select another party to serve as Servicer or the Company may resign
as Servicer in accordance with terms of the Servicing Agreement and Financing
Order issued in Docket No. 21528. A Servicer selected under these conditions
will assume the obligations of the Company as Servicer under this schedule. As
used in this schedule, the term "Servicer" includes any successor Servicer.
Transition Charges are non-bypassable charges computed on the basis of
individual end-use retail customer consumption, except for Transition Charges
applicable to NESG for which charges are based on the output of the on-site
generation. Individual end-use retail customers are responsible for paying
Transition Charges billed to them in accordance with the terms of this schedule.
Payment is to be made to the entity that bills the customer in accordance with
the terms of the Servicing Agreement and Financing Order issued in Docket No.
21528, which entity may be the Company, a successor Servicer, an REP or an
entity designated to collect Transition Charges in place of the REP. The REP or
entity designated to collect Transition Charges in place of the REP will pay
Transition Charges to the Servicer. The Servicer will remit collections to the
SPE in accordance with the terms of the Servicing Agreement.
TERM
This schedule is effective beginning with the effective date and remains in
effect until Transition Charges have been collected and remitted to the SPE
which are sufficient in amount to satisfy all obligations of the SPE in regard
to paying principal and interest on the Transition Bonds together with all other
Qualified Costs as provided in PURA Section 39.302(4). However, in no event will
the Transition Charges provided for in this schedule be billed for service
provided after 15 years from issuance of Transition Bonds, or sooner if the
Transition Bonds are paid in full at an earlier date. Delinquencies and end of
period billings may be collected after such period. This schedule is irrevocable
and non-bypassable for the full term during which it applies.
RATE CLASSES
For the purposes of billing Transition Charges, each retail end-use customer
will be designated as a customer in one of eight customer classes. In the case
of Commercial and Small Industrial customers, demand metered rates will be
applicable to those transmission and distribution rate classes which bill all
customers on a demand basis. All other customers, including those served on rate
schedules which feature some (but not all) retail end-use rates without kilowatt
demand charges, will be billed on a kilowatt-hour, non-demand metered basis. A
new customer shall be assigned to the appropriate customer class. The rate
classes are defined below as:
Residential - This service is applicable to customers consisting of
individual private dwellings and individually metered apartments. In
addition, security or flood lighting services provided on residential
end-use customers premises shall be included in this rate class.
Commercial and Small Industrial - Energy - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage is billed without any demand
charges. In addition, security or flood lighting services provided on
applicable end-use customer's premises shall be included in this rate
class.
Commercial and Small Industrial - Demand - This service is applicable
to non-residential customers (1) with annual maximum measured demands
less than 12,500 KVA and (2) whose current rate class for the purpose
of transmission and distribution usage requires a demand meter.
Large Industrial - Firm - This service is applicable to non-residential
customers taking non-interruptible service with annual maximum measured
demands equal to 12,500 KVA or more whose service is provided to the
entire premises at not less than 60,000 volts.
Standby - Firm - This service is applicable to non-residential
customers taking non-interruptible standby service from the Company
during the years 2000 and 2001 and from a retail electric provider
during subsequent years when such service may be substituted, either
directly or indirectly, for customer-owned and operated power
production equipment.
Standby - Non-Firm - This service is applicable to non-residential
customers whose service is provided to the entire premises at not less
than 60,000 volts who are taking as-available standby service from the
Company during the years 2000 and 2001 and from a retail electric
provider during subsequent years when such service may be substituted,
either directly or indirectly, for customer-owned and operated power
production equipment not held primarily for emergency use.
Large Industrial - Non-firm - This service is applicable to
non-residential customers taking interruptible service with annual
maximum measured demands equal to 12,500 KVA or more whose service is
provided to the entire premises at not less than 60,000 volts. In
addition, this service is applicable to customers whose service is
provided to the entire premises at not less than 60,000 volts and who
have self-generation capability equal to or greater than 25,000 kW and
who purchase a minimum of 25,000 kW as Standby - Firm service for that
portion of the customer's load which displaces, in total or in part,
the customer's self-generating capability.
Municipal and Cotton Gin - This service is applicable to
municipalities, other utilities, and other public agencies for electric
service for the operation of water supply, sewage, and/or drainage
systems serving the general public supplied at one point of delivery
and measured by one meter. In addition, this service is applicable to
political subdivisions and eleemosynary institutions for traffic
lighting, flood lighting and street lighting service on public streets
and highways, in public areas, and upon the grounds of public
schoolyard or educational institutions not organized for profit. This
service is further applicable to all electric service other than
lighting service furnished to cotton gins.
INITIAL REGULATORY ASSET ALLOCATION FACTORS
The Initial Transition Charge Rates are calculated using the methods approved in
the Financing Order of the Public Utility Commission of Texas (Commission) in
Docket No. 21528. The Regulatory Asset Allocation Factors (RAAF) to be used in
the initial calculation of the Transition Charge Rates to be applied beginning
with the effective date of this schedule (the Initial Transition Charge Rates)
shall be the percentages set forth below. The Regulatory Asset Allocation
Factors shall be the percentage of cost responsibility for each Transition
Charge class as defined in PURA ss.39.253, as adjusted pursuant to the True-Up
Adjustment Procedure described below. Transition Charge Rates to be applied in
subsequent periods (Adjusted Transition Charge Rates) will be determined in the
manner described below. Prior to the implementation of customer choice, Initial
and Adjusted Transition Charge Rates applied to demand metered customers will be
applied to the billing demands of customers pursuant to the underlying
transmission and/or distribution utility's rates.
Transition Charge Class RAAF
----
Residential 37.4432%
Commercial and Small Industrial - Energy 22.3410%
Commercial and Small Industrial - Demand 27.9134%
Large Industrial - Firm 3.7359%
Large Industrial - Non-Firm 3.4728%
Standby - Firm 1.7018%
Standby - Non-Firm 0.7144%
Municipal and Cotton Gin 2.6775%
The Regulatory Asset Allocation Factors may be revised from time to time in
accordance with the adjustment procedures described in the Financing Order
referred to above. When the initial Regulatory Asset Allocation Factors have
been adjusted in accordance with the procedures described in the Financing
Order, such adjusted Regulatory Asset Allocation Factors will be used to
determine the Adjusted Transition Charge Rates in future periods. The effective
Initial/Adjusted Transition Charge Rates are set forth in Service Rider 29,
which, as amended and filed in accordance with the procedure set out in this
schedule, becomes a part of this schedule.
DETERMINATION OF INITIAL/ADJUSTED TRANSITION CHARGE RATES
Transition Charge Rates will be adjusted no less frequently than annually in
order to ensure that the expected collection of Transition Charges is adequate
to pay when due, pursuant to the expected amortization schedule, principal and
interest on Transition Bonds and pay on a timely basis other Qualified Costs.
The Initial/Adjusted Transition Charge Rates are computed by multiplying the
Regulatory Asset Allocation Factors set forth in Rider 29 times the Periodic
Billing Requirement (BR) for the projected Transition Charge period (TC Period).
TRUE-UP ADJUSTMENT PROCEDURE
On [February 15, 2001], and no less frequently than annually thereafter, the
Servicer will file a revised Service Rider 29 setting forth the Adjusted
Transition Charge Rates, complete with all supporting materials. The Adjusted
Transition Charge Rates will be determined using the methodology described
below. The Adjusted Transition Charge Rates will become effective following
notification on the first billing cycle of the month of [March]. After [February
15, 2001], but prior to the effective date of the filed revision, the Commission
may review the filing to determine that the calculation contains no arithmetical
errors. If arithmetical errors are found, the Adjusted Transition Charge Rates
shall be promptly corrected to address such errors.
In addition to the foregoing provisions, if in the month prior to an upcoming
Transition Bond principal payment date (A) the Servicer determines that
collections of Adjusted Transition Charge Rates available for the upcoming
payment date will result in a difference between (i) the actual outstanding
principal balances of the Transition Bonds plus amounts on deposit in the
Reserve Subaccount and (ii) the outstanding principal balances anticipated in
the Expected Amortization Schedule which is greater than 5% (up or down), or if
any series of Transition Bonds that matures after ___________ would not be paid
in full by its expected maturity date, then an interim true-up adjustment will
be filed on the fifteenth day of the current month for implementation in the
first billing cycle in the following month. Filing and notification to the
Commission will be accomplished in the manner set forth above. In no event will
such interim true-up adjustments occur more frequently than every three months
if quarterly Transition Bond payments are required or every six months if
semi-annual Transition Bond payments are required. Both annual and interim
true-up adjustments will be adjustments to the Initial/Adjusted Transition
Charge Rates computed as follows:
TCc = BR X RAAFc / FBUc)
where,
TCc= Transition Charge Rate applicable to a TC rate class during the TC Period;
BR= Periodic Billing Requirement for the TC Period;
RAAFc=The Revenue Asset Allocation Factor for such class in effect at such time;
FBUc= Forecasted Billing Units (i.e., class specific energy and demand billing
units) currently forecast for a class for the TC period.
If, for any reason, the above-described formula causes the Adjusted Transition
Charge Rate for any class to exceed the maximum rate, if any, which customers in
such class may then be obligated to pay under Sections 39.502(b) or 39.202(a) of
the Texas Utilities Code, as applicable, then (i) the Adjusted Transition Charge
Rate for such class shall equal such maximum rate and (ii) the rates for the
remaining classes shall be recalculated using such maximum rate as the
Transition Charge for such class (which exceeded the maximum rate), and
assessing the deficiency to the remaining classes on an equal percentage basis.
REGULATORY ASSET ALLOCATION FACTOR ADJUSTMENTS
In addition to the annual and interim true-up adjustments described above, new
Regulatory Asset Allocation Factors shall be determined and a special
prospective adjustment may be performed if (A) the loss of load in terms of
Forecasted Billing Units (FBU) as defined above for any or all classes in the
upcoming TC Period is 10% or greater as a percentage of the FBU for the
immediately preceding TC Period; or (B) the Commission enters an Order which (i)
requires that Competitive Transition Charges for the Company be collected and
allocated in a different manner than the manner approved for allocation and
collection of TCs in the Commission's Order in Docket No. 21528 and reflected
herein, and (ii) requires that the TCs be adjusted accordingly; (C) the
Commission enters an Order which (i) finds that the total statewide retail
stranded costs exceed $5 billion and, as a result of that finding, requires a
change in allocation of Competitive Transition Charges, and (ii) requires that
the TCs be adjusted accordingly; or (D) the Servicer determines or the
Commission orders that an adjustment is needed to account for those customers
who are exempted from the stranded cost responsibility under Sections 39.252(b)
or 39.262(k) of the Texas Utilities Code as implemented by Commission
Substantive Rule 25.345. Any such required adjustment will be performed by the
Servicer and the resulting revised Rider 29 will be filed with the Commission in
accordance with the provisions of the Financing Order in Docket No. 21528. The
Rider 29 so filed will reflect the new Regulatory Asset Allocation Factors and
the new Adjusted Transition Charge Rates resulting from the changes to the
Regulatory Asset Allocation Factors. The Adjusted Regulatory Asset Allocation
Factors shall at all times equal 100% in the aggregate.
BILLING AND COLLECTION TERMS AND CONDITIONS
The billing and collection of Transition Charge Rates may differ from time to
time as set forth in this schedule. The terms and conditions for each party are
set forth below:
Billing and Collection Prior to Customer Choice
Billing by the Servicer to end-use customers:
1. Applicable to consumption of all current retail customers.
2. Payment terms identical to present retail rates.
3. Right to terminate for non-payment pursuant to the
Commission's rules.
Billings by Servicer to other electric utilities, municipally
owned utilities, and cooperatives:
1. Applicable to former retail customers of the Company in multiply
certificated service areas now taking service from other utilities
or cooperatives.
2. Charges subject to this tariff must be paid in full by the other
utility or cooperative to the Servicer 16 days after billing by
the Servicer regardless of whether the utility or cooperative
collects such charges from the end-use retail customer.
Billings by Servicer to NESG:
1. Applicable to end use consumption served by on-site self-generation.
2. Payment terms pursuant to the Commission's rules.
3. Rate class determined by summing loads on the transmission and
distribution system with loads served by non-eligible generation.
4. Right to terminate for non-payment pursuant to the Commission's
rules.
Billing and Collection Subsequent to Customer Choice
Billings by Servicer to other electric utilities, municipally
owned utilities, and cooperatives:
1. Applicable to former retail customers of the Company in multiply
certificated service areas now taking service from other utilities
or cooperatives.
2. Charges subject to this tariff must be paid in full by the other
electric utility or cooperative to the Servicer 16 days after
billing by the Servicer regardless of whether the utility or
cooperative collects such charges from the end-use retail
customer.
Billings by Servicer to NESG:
1. Applicable to end use consumption served by on-site self-generation.
2. Payment terms pursuant to the Commission's rules.
3. Rate class determined by summing loads on the transmission and
distribution system with loads served by non-eligible generation.
4. Right to terminate for non-payment pursuant to the Commission's
rules.
Billings by the REP or its replacement to end-use customers:
1. Applicable to consumption of all retail end-use customers served
by the REP for which TCs apply, including applicable former
customers and NESG, under the following conditions:
2. REPs will provide the Servicer with full and timely information
necessary to provide proper reporting and for billing and true-up
adjustments.
3. Prior to billing or collecting any Transition Charge Rates,
the REP must provide a deposit in the form of cash, an affiliate
guarantee, surety bond, or letter of credit equal to two months'
maximum estimated collections of TCs; provided that REPs who
maintain an unsecured credit rating of BBB/Baa2 or better from
S&P and Moody's will be exempt from such deposit requirements.
Any provider of the affiliate guarantee, surety bond, or letter
of credit must have an unsecured credit rating of BBB and Baa2 or
better from S&P and Moody's; provided that if the Servicer is not
allowed to take over the billing and collection function due to
an REP default, the provider of the guarantee, surety bond, or
letter of credit must have an unsecured credit rating of AAA from
each of S&P and Moody's. Deposits made by REPs will be maintained
with the indenture trustee in the REP Deposit Subaccount.
4. Servicer shall have the right to terminate transmission and
distribution service for non-payment by end-use customers pursuant
to the Commission's rules.
Billings by the Servicer to the REP or its replacement (when
applicable):
1. Applicable to all consumption subject to REP billing of Transition
Charges.
2. Charges subject to this tariff are paid by the REP to the Servicer
16 calendar days after billing by the Servicer regardless of
whether the REP collects such charges from the end-use retail
customer.
3. In the event that the REP defaults, the Servicer will be entitled,
within five business days thereafter, to assume responsibility for
billing and collecting the Transition Charge Rates or (b) to the
extent it does not retain such ability, to assign responsibility
to a new REP which meets the deposit requirements set forth above
in paragraph 3. of Billings by the REP or its replacement to
end-use customers. In addition, Servicer may bill and collect from
retail end use customers any accrued Transition Charges which were
not billed by the REP or which were unpaid by the customer at the
time that billing responsibility was so transferred.
4. Servicer shall have the right to terminate transmission and
distribution service for non-payment by end-use customers pursuant
to the Commission's rules.
5. Notwithstanding item 2. above, the REPs will be allowed to remit
payments based on the same system-wide charge off percentage used
by the Servicer to remit payments to the indenture trustee for the
holders of Transition Bonds. On an annual basis in connection with
the true-up adjustment process, the REP and the Servicer will be
responsible for reconciling the amounts held back with amounts
actually written off as uncollectible in accordance with the terms
agreed to by the REP and the Servicer, provided that:
(a) The REP's right to reconciliation for write-offs will be
limited to customers whose service has been permanently
terminated and whose entire accounts (i.e., all amounts due
the REP for its own account as well as the portion
representing Transition Charges) have been written off.
(b) The REP's recourse will be limited to a credit against future
TC payments unless the REP and the Servicer agree to
alternative arrangements, but in no event will the REP have
recourse to the SPE or its funds for such payments.
(c) The REP shall provide information on a timely basis to the
Servicer to that the Servicer can include the REP's default
experience and any subsequent credits into its calculation of
the Adjusted Transition Charge Rates for the next TC Period
and the REP's rights to credits will not take effect until
after such Adjusted Transition Charge Rates have been
implemented.
OTHER TERMS AND CONDITIONS
If the customer or REP pays only a portion of its bill, a pro-rata share amount
of Transition Charge revenues shall be deemed to be collected. The Company will
allocate any shortfall first, ratably based on the amount owed for Transition
Charges and the amount owed for other fees and charges, other than late charges,
owed to the Company or any successor, and second, all late charges shall be
allocated to the Company or any successor.
At least once each year, (i) the Company shall, to the extent that it does not
include the notice described below in the bills regularly sent by it to REPs or
customers, as applicable, cause to be prepared and delivered to REPs and such
customers a notice stating, in effect, that the Transition Property and the
Transition Charge Rates are owned by the SPE and not the Company; and (ii) each
REP which bills Transition Charge Rates shall, to the extent that it does not
include the notice described below in the bills regularly sent by it to
customers, cause to be prepared and delivered to such customers a notice
stating, in effect, that the Transition Property and the Transition Charge Rates
are owned by the SPE and not the REP or the Company. Such notice shall be
included either as an insert to or in the text of the bills delivered to such
REPs or customers, as applicable, or shall be delivered to customers by
electronic means or such other means as the Servicer or the REP may from time to
time use to communicate with their respective customers.
1 [Editorial Footnote] Footnotes labeled "[Editorial Footnote]" are
included herein for reference only and are NOT intended to be retained in the
final financing order adopted by the Commission. Subsequent footnotes not so
labeled ARE intended to be so retained.
2 Interventions were filed by the following parties: Office of Public
Utility Counsel (OPC), Certain Cities served by CPL (Cities), Texas Retailers
Association and Texas Hospital Association (TRA), Texas Industrial Energy
Consumers (TIEC), the State of Texas (the State), New Energy Texas, L.L.C. (New
Energy), South Texas Electric Cooperative Inc. (STEC), Aluminum Company of
America (Alcoa), Occidental Chemical Corporation (Oxychem), Enron Capital and
Trade Resources (Enron) and Power Choice Inc. (Power Choice), Enron Energy
Services, Inc., Sharyland Utilities, L.P., Competitive Power Advocates, Entergy
Gulf States, Inc., and the United States Department of the Navy. Additional
testimony was filed on November 29, 1999 by the Office of Regulatory Affairs
(ORA).
3 [Editorial Footnote] This change is designed to avoid double payment
of transition charges.
4 [Editorial Footnote] If the Commission does not approve the amount of
qualified costs agreed upon by ORA and Applicant, an Appendix B showing the
approved amount will be necessary. A discussion of why the Commission approved
different numbers should also be included.
5 If the Commission is to have ongoing participation in structuring and
pricing, insert "and the Commission through its designated Staff member."
6 Alternative if Commission is to have ongoing participation in
structuring and pricing:
(#) In order to ensure, pursuant to Utilities Code Section 39.301, that
the structuring and pricing of the Transition Boards result in the lowest
transition bond charges consistent with market conditions and the terms of this
Financing Order, the Commission finds that the Commission, through a designated
Staff member, should participate directly with Applicant in negotiations
regarding the pricing and structuring of the Transition Bonds, with equal rights
with Applicant to approve or disapprove of the proposed pricing and structuring.
(#) The Commission and its designated Staff member may consult with the
Commission's financial advisor in carrying out the duties described in Finding
of Fact No. [__]. The Commission's financial advisor shall not be involved as an
underwriter or as lead underwriter/bookrunner for the Transtion Bonds.
7 If Commision is to have ongoing participation in structuring and
pricing, insert "in consultation with the Commission through its designated
Staff member."
8 If the Commission is to have ongoing participation in structuring and
pricing, insert "and that the decision to use such credit enhancement shall be
made in conjunction with the Commission through its designated Staff member."
9 If the Commission is to have ongoing participation in structuring and
pricing, insert:
(#)......Commission Involvement in Structuring and Pricing.
The Commission, through a designated Staff member, shall
participate directly with Applicant in negotiations regarding the pricing and
structuring of the Transition Bonds, with equal rights with Applicant to approve
or disapprove of the proposed pricing and structuring.
10 Is a discussion of disconnection as a remedy for single customer
REPs acceptable?
11 To be recovered based on actual or best estimated cost at time of
issuance; his amount may exceed original estimate per agreement with ORA.
INDEX EXHIBIT
TO F-2 (b)
FINANCIAL STATEMENTS
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets - Per Books and Pro Forma
as of September 30, 1999
Consolidated Statement of Income for the Twelve Months Ended
September 30, 1999
Consolidated Statement of Retained Earnings for the Twelve Months Ended
September 30, 1999
CENTRAL AND SOUTH WEST CORPORATION (CORPORATE)
Balance Sheets - Per Books and Pro Forma as of September 30, 1999
Statement of Income for the Twelve Months Ended September 30, 1999
CENTRAL POWER AND LIGHT COMPANY
Balance Sheets - Per Books and Pro Forma as of September 30, 1999
Statement of Income for the Twelve Months Ended September 30, 1999
Statement of Retained Earnings for the Twelve Months Ended
September 30, 1999
SOUTHWESTERN ELECTRIC POWER COMPANY
Balance Sheets - Per Books and Pro Forma as of September 30, 1999
Statement of Income for the Twelve Months Ended September 30, 1999
Statement of Retained Earnings for the Twelve Months Ended
September 30, 1999
WEST TEXAS UTILITIES COMPANY
Balance Sheets - Per Books and Pro Forma as of September 30, 1999
Statement of Income for the Twelve Months Ended September 30, 1999
Statement of Retained Earnings for the Twelve Months Ended
September 30, 1999
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS
STATEMENT OF CHANGES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $5,883 $5,883
Transmission 1,636 1,636
Distribution 4,843 4,843
General 1,418 1,418
Construction work in progress 214 214
Nuclear fuel 219 219
Other Diversified 452 452
-------------------------------
14,665 14,665
Less - Accumulated depreciation 5,941 5,941
-------------------------------
8,724 8,724
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 160 160
Accounts receivable 1,462 1,462
Materials and supplies, at average cost 145 145
Electric fuel inventory 112 112
Under-recovered fuel costs 45 45
Notes receivable 119 119
Prepayments and other 126 126
-------------------------------
2,169 2,169
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets 1,251 1,251
Other non-utility investments 406 406
Securities available for sale 62 62
Goodwill 1,362 1,362
Other 457 47 504
-------------------------------
3,538 47 3,585
-------------------------------
$14,431 $47 $14,478
===============================
Page 2
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity -
Common stock, $3.50 par value,
authorized 350,000,000 shares;
issued and outstanding 212,600,000 shares $744 $744
Paid-in capital 1,051 1,051
Retained earnings 1,915 1,915
Accumulated other comprhensive income (33) (33)
-------------------------------
Total Common Stock Equity 3,677 3,677
-------------------------------
Preferred stock 176 176
Certain Subsidiary-obligated, mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
Junior Subordinated Debentures of such
Subsidiaries 335 335
Long-term debt 3,804 787 4,591
-------------------------------
Total Capitalization 7,992 787 8,779
-------------------------------
CURRENT LIABILITIES
Long-term debt/preferred stock
due within twelve months 223 223
Short-term debt 1,064 (740) 324
Short-term debt - CSW Credit 944 944
Loan Notes 30 30
Accounts payable 501 501
Accrued taxes 280 280
Accrued interest 107 107
Customer deposits 78 78
Other 200 200
-------------------------------
3,427 (740) 2,687
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 2,406 2,406
Investment tax credits 257 257
Other 349 349
-------------------------------
3,012 3,012
-------------------------------
$14,431 $47 $14,478
===============================
Page 3
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
OPERATING REVENUES $5,461
----------
OPERATING EXPENSES AND TAXES
U.S. Electric fuel 1,159
U.S. Electric purchased power 144
United Kingdom cost of sales 1,072
Other diversified cost of sales 5
Other operating 1,136
Maintenance 198
Depreciation and amortization 570
Taxes, other than income 196
Income taxes 147
----------
4,627
----------
OPERATING INCOME 834
----------
OTHER INCOME AND DEDUCTIONS
Other 59
Non-operating income taxes (29)
----------
30
----------
INCOME BEFORE INTEREST CHARGES 864
----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 300
Distributions on trust preferred securities 27
Interest on short-term debt and other 111
Preferred stock dividends 8
----------
446
----------
INCOME BEFORE EXTRAORDINARY ITEM 418
EXTRAORDINARY ITEM, net of tax of $5 (8)
----------
NET INCOME FOR COMMON STOCK $410
==========
Page 4
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
RETAINED EARNINGS AT SEPTEMBER 30, 1998 $1,874
Add: Net income for common stock 410
----------
2,284
----------
Deduct: Common stock dividends 369
----------
RETAINED EARNINGS AT SEPTEMBER 30, 1999 $1,915
==========
Page 5
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
General $0 $0
Less - Accumulated depreciation 0 0
-------------------------------
NET PLANT 0 0
INVESTMENTS IN COMMON STOCK
OF SUBSIDIARY COMPANIES (at equity) 4,030 (740) 3,290
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 441 441
Accounts and interest receivable - Affiliated 299 299
Prepayments and other 10 10
-------------------------------
750 750
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS 57 57
-------------------------------
$4,837 ($740) $4,097
===============================
CAPITALIZATION
Common Stock Equity -
Common stock, $3.50 par value;
authorized 350,000,000 shares;
issued and outstanding 212,600,000 shares $744 $744
Paid-in capital 1,051 1,051
Retained earnings 1,915 1,915
Accumulated other comprhensive income (6) (6)
-------------------------------
Total Common Stock Equity 3,704 3,704
-------------------------------
Long-term debt 0 0
-------------------------------
Total Capitalization 3,704 3,704
-------------------------------
CURRENT LIABILITIES
Short-term debt 1,064 (740) 324
Accounts payable and other 21 21
-------------------------------
1,085 (740) 345
-------------------------------
DEFERRED CREDITS 48 48
-------------------------------
$4,837 ($740) $4,097
===============================
Page 6
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
INCOME
Equity in earnings of subsidiaries
Central Power and Light Company $165
Public Service Company of Oklahoma 66
Southwestern Electric Power Company 85
West Texas Utilities Company 25
SEEBOARD U.S.A. 95
CSW Credit, Inc. 13
CSW Energy, Inc. 12
CSW Leasing, Inc. 3
CSW International, Inc. 3
CSW Communications, Inc. 1
Enershop Inc. (5)
CSW Energy Services, Inc. (7)
Other Income 22
----------
478
----------
EXPENSES AND TAXES
General and administrative expenses 44
Interest expense 54
Taxes, other than income 2
Federal income taxes (32)
----------
68
----------
NET INCOME $410
==========
Page 7
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $3,151 $3,151
Transmission 547 547
Distribution 1,134 1,134
General 298 298
Construction work in progress 101 101
Nuclear fuel 218 218
-------------------------------
5,449 5,449
Less - Accumulated depreciation
and amortization 2,231 2,231
-------------------------------
3,218 3,218
-------------------------------
CURRENT ASSETS
Cash 12 12
Accounts receivable from affiliates 14 14
Accounts receivable 47 47
Materials and supplies, at average cost 58 58
Fuel inventory 23 23
Under-recovered fuel costs 23 23
Prepayments and other 10 10
-------------------------------
187 187
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets 1,184 1,184
Nuclear decommissioning trust 77 77
Other 108 47 155
-------------------------------
1,369 47 1,416
-------------------------------
$4,774 $47 $4,821
===============================
Page 8
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustment Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $25 par value;
authorized 12,000,000 shares;
issued and outstanding 6,755,535 shares $169 ($91) $78
Paid-in capital 405 (219) 186
Retained earnings 796 (430) 366
-------------------------------
Total common stock equity 1,370 (740) 630
Preferred stock 163 163
CPL-obligated, mandatorily redeemable
preferred securities of subsidiary
trusts holding solely Junior Subordinated
Debentures of CPL 150 150
Long-term debt 1,101 787 1,888
-------------------------------
Total capitalization 2,784 47 2,831
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 125 125
Advances from affiliates 252 252
Accounts payable 99 99
Payables to affiliates 19 19
Customer deposits 12 12
Accrued taxes 75 75
Accrued interest 27 27
Accumulated deferred income taxes 4 4
Other 11 11
-------------------------------
624 624
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 1,221 1,221
Investment tax credits 135 135
Other 10 10
-------------------------------
1,366 1,366
-------------------------------
$4,774 $47 $4,821
===============================
Page 9
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
ELECTRIC OPERATING REVENUE $1,475
----------
OPERATING EXPENSES AND TAXES
Fuel 396
Purchased power 65
Other operating 279
Maintenance 70
Depreciation and amortization 212
Taxes, other than income 76
Income taxes 93
----------
1,191
----------
OPERATING INCOME 284
----------
OTHER INCOME AND DEDUCTIONS
Other (3)
Non-operating income taxes 5
----------
2
----------
INCOME BEFORE INTEREST CHARGES 286
----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 88
Distributions on trust preferred securities 12
Interest on short-term debt and other 17
Allowance for borrowed funds used during
construction (3)
----------
114
----------
NET INCOME 172
Less: preferred stock dividends 7
----------
NET INCOME FOR COMMON STOCK $165
==========
Page 10
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
RETAINED EARNINGS AT SEPTEMBER 30, 1998 $819
Add: Net income (loss) for common stock 165
----------
984
Deduct: Common stock dividends 188
----------
RETAINED EARNINGS AT SEPTEMBER 30, 1999 $796
==========
Page 11
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $1,393 $1,393
Transmission 481 481
Distribution 946 946
General 329 329
Construction work in progress 55 55
-------------------------------
3,204 3,204
Less - Accumulated depreciation 1,368 1,368
-------------------------------
1,836 1,836
-------------------------------
CURRENT ASSETS
Cash and temporary cash investments 3 3
Accounts receivable 56 56
Accounts receivable from affiliates 18 18
Materials and supplies, at average costs 26 26
Fuel inventory 56 56
Accumulated deferred income taxes 3 3
Prepayments and other 18 18
-------------------------------
180 180
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS 95 95
-------------------------------
$2,111 $0 $2,111
===============================
Page 12
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $18 par value;
authorized 7,600,000 shares;
issued and outstanding 7,536,640 shares $136 $136
Paid-in capital 245 245
Retained earnings 296 296
-------------------------------
Total common stock equity 677 677
Preferred stock 5 5
SWEPCO-obligated, mandatorily redeemable
preferred securities of subsidiary trusts holding solely
Junior Subordinated Debentures of SWEPCO 110 110
Long-term debt 496 496
-------------------------------
Total capitalization 1,288 1,288
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 48 48
Advances from affiliates 88 88
Accounts payable 65 65
Payable to affiliates 41 41
Customer deposits 14 14
Accrued taxes 58 58
Accrued interest 13 13
Over-recovered fuel costs 5 5
Other 14 14
-------------------------------
346 346
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 382 382
Investment tax credits 59 59
Other 36 36
-------------------------------
477 477
-------------------------------
$2,111 $0 $2,111
===============================
Page 13
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
ELECTRIC OPERATING REVENUE $949
----------
OPERATING EXPENSES AND TAXES
Fuel 366
Purchased power 32
Other Operating 145
Maintenance 65
Depreciation and amortization 101
Taxes, other than income 54
Income taxes 40
----------
803
----------
OPERATING INCOME 146
----------
OTHER INCOME AND DEDUCTIONS
Other (7)
Non-operating income taxes 5
----------
(2)
----------
INCOME BEFORE INTEREST CHARGES 144
----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 39
Distributions on trust preferred securities 9
Interest on short-term debt and other 10
Allowance for borrowed funds used during
construction (2)
----------
56
----------
INCOME BEFORE EXTRAORDINARY ITEM 88
EXTRAORDINARY LOSS, net of tax of $2 (3)
----------
NET INCOME FOR COMMON STOCK $85
==========
Page 14
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
RETAINED EARNINGS AT SEPTEMBER 30, 1998 $334
Add: Net income (loss) for common stock 85
----------
419
Deduct: Common stock dividends 123
----------
RETAINED EARNINGS AT SEPTEMBER 30, 1999 $296
==========
Page 15
<PAGE>
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $425 $425
Transmission 218 218
Distribution 397 397
General 113 113
Construction work in progress 19 19
-------------------------------
1,172 1,172
Less - Accumulated depreciation 490 490
-------------------------------
682 682
-------------------------------
CURRENT ASSETS
Cash 5 5
Advances to affiliates 13 13
Accounts receivable from affiliates 4 4
Accounts receivable 27 27
Materials and supplies, at average cost 14 14
Fuel inventory 15 15
Under-recovered fuel costs 13 13
Prepayments and other 11 11
-------------------------------
102 102
-------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Deferred Oklaunion costs 9 9
Other 67 67
-------------------------------
76 76
-------------------------------
$860 $0 $860
===============================
Page 16
<PAGE>
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF SEPTEMBER 30, 1999
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustments Forma
-------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $25 par value;
authorized 7,800,000 shares;
issued and outstanding 5,488,560 shares $137 $137
Paid-in capital 2 2
Retained earnings 124 124
-------------------------------
Total common stock equity 263 263
Preferred stock 2 2
Long-term debt 264 264
-------------------------------
Total capitalization 529 529
-------------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 40 40
Payables to affiliates 17 17
Accounts payable 44 44
Accrued taxes 17 17
Accrued interest 8 8
Customer deposits 2 2
Accumulated deferred income taxes 1 1
Other 13 13
-------------------------------
142 142
-------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 146 146
Investment tax credits 26 26
Income tax related regulatory liabilities, net 13 13
Other 4 4
-------------------------------
189 189
-------------------------------
$860 $0 $860
===============================
Page 17
<PAGE>
WEST TEXAS UTILITIES COMPANY
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
ELECTRIC OPERATING REVENUE $432
----------
OPERATING EXPENSES AND TAXES
Fuel 121
Purchased power 60
Other Operating 92
Maintenance 20
Depreciation and amortization 43
Taxes, other than income 27
Income taxes 15
----------
378
----------
OPERATING INCOME 54
----------
OTHER INCOME AND DEDUCTIONS
Other 1
----------
1
INCOME BEFORE INTEREST CHARGES 55
----------
INTEREST CHARGES
Interest on long-term debt 20
Interest on short-term debt and other 6
Allowance for borrowed funds used during
construction (1)
----------
25
----------
INCOME BEFORE EXTRAORDINARY ITEM 30
EXTRAORDINARY LOSS, net of tax of $3 (5)
----------
NET INCOME FOR COMMON STOCK $25
==========
Page 18
<PAGE>
WEST TEXAS UTILITIES COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
(Millions)
RETAINED EARNINGS AT SEPTEMBER 30, 1998 $142
Add: Net income (loss) for common stock 25
----------
167
Deduct: Common stock dividends 43
----------
RETAINED EARNINGS AT SEPTEMBER 30, 1999 $124
==========
Page 19
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS
September 30, 1999
UNAUDITED
(Millions)
DR CR
---------------------
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
1) To record issuance of debt related to securitization at CPL
Cash 1,270
Deferred Charges and Other Assets, Other 47
Long-term Debt 1,317
2) To record the retirement of Common Stock Equity and Long-term Debt at
CPL
Common Stock * 91
Paid-in Capital * 219
Retained Earnings * 430
Long-term debt 530
Cash 1,270
3) To record the change in Investment in Subsidiary resulting from the
retirement of equity at CSW Corporate
Cash 740
Investment in Subsidiaries 740
4) To record the payment of short-term debt at CSW Corporate with proceeds
from CPL's retirement of equity
Short-term Debt 740
Cash 740
5) To eliminate CPL equity and CSW Corporate investment account
Investment in Subsidiaries 740
Common Stock * 91
Paid-in Capital * 219
Retained Earnings * 430
CENTRAL AND SOUTH WEST CORPORATION (CORPORATE)
1) To record the change in Investment in Subsidiary resulting from the
retirement of equity
Cash 740
Investment in Subsidiaries 740
2) To record the payment of short-term debt with proceeds from CPL's
retirement of equity
Short-term Debt 740
Cash 740
CENTRAL POWER AND LIGHT COMPANY
1) To record issuance of debt related to securitization
Cash 1,270
Deferred Charges and Other Assets, Other 47
Long-term Debt 1,317
2) To record the retirement of Common Stock Equity and Long-term Debt
Common Stock * 91
Paid-in Capital * 219
Retained Earnings * 430
Long-term debt 530
Cash 1,270
* the actual allocation may be different
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
STATEMENT OF CHANGES
Reference is made to current reports filed on form 8-K dated
December 7, 1999 and December 17, 1999 for significant changes
to Central and South West Corporation's financial statements
since September 30, 1999.
Page 20
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes to consolidated financial statements included in Central and
South West Corporation's 1998 Combined Annual Report on Form 10-K are hereby
incorporated by reference and made a part of this report.
Page
Reference
1998 Combined Annual Report on Form 10-K pages 2-45 through 2-92
Page 21
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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