File No. 70 -
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
DECLARATION WITH RESPECT TO
THE GUARANTY OF CERTAIN PERFORMANCE OBLIGATIONS
OF EUA COGENEX CORPORATION BY EASTERN UTILITIES ASSOCIATES
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
________________________________
EASTERN UTILITIES ASSOCIATES ("EUA")
750 West Center Street, P.O. Box 543, West Bridgewater, MA 02379
_________________________________
Clifford J. Hebert, Jr.
Treasurer
Eastern Utilities Associates
750 West Center Street,
P.O. Box 543,
West Bridgewater, MA 02379
(Name and address of agent for service)
The Commission is requested to mail signed copies of
all orders, notices and communications to:
Arthur I. Anderson, P.C.
McDermott, Will & Emery
28 State Street
Boston, MA 02109-1775
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTION.
A. Proposed Transaction
Eastern Utilities Associates ("EUA"), a Massachusetts business trust and a
registered holding company under the Public Utility Holding Company Act of 1935
(the "Act") files this declaration with the Securities and Exchange Commission
(the "Commission") seeking Commission approval to guaranty certain performance
obligations of EUA Cogenex Corporation ("Cogenex"), a Massachusetts corporation
and a wholly-owned subsidiary of EUA, in connection with (i) Cogenex's sale of
certain assets to Fleet Business Credit Corporation ("Fleet Business Credit")
(the "Asset Sale"), and (ii) the proposed restructuring and additional funding
by Fleet Business Credit of certain Cogenex contracts previously sold to Fleet
Business Credit under a separate program agreement (the "Restructuring").
In accordance with that certain term sheet, dated December 3, 1999 by and
between Cogenex and Fleet Business Credit (the "Term Sheet"), Cogenex proposes
to sell to Fleet Business Credit in consideration for $75 million approximately
$81 million worth of assets which will include energy service contracts
(including those under the Restructuring), notes receivable, and energy
efficient equipment (collectively the "Assets").
The total proposed contracts to be sold under the Asset Sale and the residual
balance of those previously sold under the Restructuring (the "Contracts") will
generate as of January 1, 2000 approximately $110 million of gross cash flow.
The net present value of the cash flow related to the Assets based upon a
projected discount rate of 8.45% is approximately $86 million with a book value
of approximately $81 million as of January 1, 2000. The total amount to be
funded to Cogenex by Fleet Business Credit under the Asset Sale and the
Restructuring, is estimated to be approximately $75 million.
Cogenex calculates that the Asset Sale and the Restructuring will generate a
gross book gain of approximately $5 million. Cogenex proposes to record
against such gain an estimated $3 million necessary to provide the future
servicing of all the Contracts under the Asset Sale and the Restructuring. The
approximate $2 million balance of the book gain remaining will be used by
Cogenex in connection with the retirement of all of its outstanding debt to pay
off the "make whole premiums" on its 10.56 % and 9.6% long-term debt issues.
B. Request for Performance Guaranty
Fleet Business Credit has requested as a condition to entering into the Asset
Sale and the Restructuring, that EUA or its agreed upon successor (i) maintain
a fifty-one percent (51%) ownership of Cogenex, and (ii) guaranty Cogenex's
obligations under the Asset Sale and the Restructuring, including without
limitation the continued service and performance of the Contracts thereunder
(which shall include ensuring measurement and verification, billing and
collection and that the contracts are administered according to their
contractual terms) (the "Performance Guaranty"). Under the Asset Sale and the
Restructuring, Fleet Business Credit will assume all third party credit risk
under the Contracts. The total principal subject to the Performance Guaranty
will be approximately $100 million ($75 million for the Asset Sale and
Restructuring and $25 million previously funded by Fleet Business Credit prior
to the Restructuring).
C. Potential Risks Associated with Guaranty
EUA believes that the risk posed by entering into the Performance
Guaranty with Fleet Business Credit is not significant. The first potential
risk to EUA is the cost of servicing the Contracts under the Asset Sale and
the Restructuring. At the close of the transactions, Cogenex estimates that
the balance in the total accrued servicing costs for the Contracts under the
Asset Sale and the Restructuring, will be $4 million. EUA calculates that the
excess net present value of the cash flow of $11 million (total estimated net
present value of the portfolio of $111 million less the total amount owed
Fleet Business Credit of $100 million) should be more than adequate to fund
all the ongoing servicing obligations of the Contract under t he Asset Sale
and the Restructuring.
The second risk posed by the Performance Guaranty relates to the
potential voluntary termination of the Contracts. The total termination value
of the Contracts at January 1, 2000 is estimated to be approximately $85
million. If all the host customers were to voluntarily terminate their
contracts at the same time, the maximum amount of termination shortfall as of
January 1, 2000 would be $15 million ($85 million less the funded amount of
$100 million).
EUA believes the termination risk, however, is minimal based upon the
following facts and circumstances. Historically, very few customers
voluntarily terminate their contracts. Many of the Contracts form part of
Demand-Side Management programs which do not allow host customers to receive
Demand-Side Management payments. As a result, there is no economic incentive
under such programs for the host customer to voluntary terminate its contract.
Additionally, all Demand-Side Management contracts allow for providers to
replace lost capacity through the assignment and/or replacement of such
contracts, which would further enable Cogenex to mitigate potential termination
losses.
After the completion of the Asset Sale, the Restructuring and the
discharge of its third party debt, Cogenex will still retain approximately $50
million in assets, including accounts receivable, residual cash flow for
projects sold in excess of the funded amount and other performing Demand-Side
Management assets, all of which will be available on a stand alone basis to
satisfy any Performance Guaranty shortfalls.
Finally, if Cogenex were ever dissolved for whatever reason, EUA would
be liable to Fleet Business Credit for up to $100 million, equal to the full
amount of the credit under the Performance Guaranty. Such a scenario,
nevertheless, is highly unlikely. Cogenex receives significant cash flow from
its Contracts and EUA has no intention of dissolving Cogenex.
D. Request for Authorization to Issue Performance Guaranty
EUA hereby proposes and requests authorization to enter into the
Performance Guaranty with Fleet Business Credit in order to enable Cogenex to
go forward with the Asset Sale and the Restructuring and to extinguish all of
its third party debt.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, commissions and expenses of the Applicants expected to be
paid or incurred, directly or indirectly, in connection with the transactions
described will be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that the
applicants believe are or may be applicable to the transactions proposed are
set forth below:
Guaranty of obligations of Cogenex Section 12(b); Rule 45(a).
ITEM 4. REGULATORY APPROVALS.
No state commission and no Federal commission, other than the
Commission, has jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE.
(a) In order to enable EUA to enter into the Performance Guaranty and for
Cogenex to undertake the other related transactions contemplated in Item 1,
EUA requests that the Commission issue and publish not later than January 31,
2000 a notice with respect to the filing of this declaration and issue its
order herein on the earliest practicable date.
(b) No recommended decision by a hearing officer or other responsible
officer of the Commission is necessary or required in this matter. The
Division of Investment Management of the Commission may assist in the
preparation of the Commission's decision in this matter. There should be no
thirty-day waiting period between the issuance and the effective date of any
order issued by the Commission in this matter, and it is respectfully requested
that any such order be made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits.
* To be filed by Amendment
Exhibit B-1 Term Sheet
Exhibit B-3 Performance Guaranty *
Exhibit F Opinion of Counsel *
Exhibit G Proposed Form of Notice
(b) Financial Statements
* To be filed by Amendment
ITEM 7. ENVIRONMENTAL EFFECTS.
The proposed transactions do not involve major Federal action having a
significant effect on the human environment. No Federal agency has prepared
or is preparing an environmental impact statement with respect to the proposed
transactions.
S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding Company Act of 1935,
as amended, the undersigned company has duly caused this statement to be duly
signed on its behalf by the undersigned thereunto duly authorized.
Date: January 19, 2000
EASTERN UTILITIES ASSOCIATES
By /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
Friday, December 03, 1999
Mr. Mark White
Executive Vice President
EUA COGENEX, Inc.
100 Foot of John Street
Boott Mills South
Lowell, MA
Dear Mark:
Fleet Business Credit Corporation proposed funding to EUA COGENEX, Inc. of
selected Eligible Contracts in the portfolio. All capitalized terms used in
this term sheet will be defined herein or have the meanings as provided in the
Program Agreement.
NON-RECOURSE PORTFOLIO FINANCING PROPOSAL FOR
EUA COGENEX, INC.
I. PARTIES
Seller: EUA COGENEX, INC. (COGENEX), a Massachusetts
Corporation. A wholly owned subsidiary of Eastern
Utilities Associates, Inc.
Purchaser: FLEET BUSINESS CREDIT CORPORATION, its subsidiaries,
affiliates and assigns (FLEET), (Formerly, Sanwa Business
Credit Corporation).
Contracts: Various firm term and performance related payment
obligations from the existing customer portfolio of
COGENEX, where COGENEX bears varying degrees of risk for
non-payment due to Energy Conservation Measure (ECM)
performance, regulatory changes, and operating changes.
Contract Obligors: Various Obligors that are receiving the benefits of the
ECM's, and are obligated to make payments under the
Contract.
Performance
Guarantor: Eastern Utilities Associates, Inc. (EUA) and subsequently
New England Electric System, Inc. (NEES), a publicly held
utility, will guarantee all of COGENEX's performance
obligations under the Contracts and the Purchase
Agreement.
I. TRANSACTION
Summary
Structure: FLEET will purchase payments representing the balance of
payments under the Eligible Contracts due after January
1, 2000. Fleet will advance based upon a percentage of
the expected monthly payments of newly offered Contracts,
and make further advances on previously purchased
Eligible Contracts. The purchases are all secured by a
cross collateralized and cross defaulted position in the
portfolio using in large measure existing documentation.
This structure gives COGENEX the highest possible
liquidity, the best interest rate available, and the
retention of the most control.
Anticipated
Closing/Funding Date: On or before December 31, 1999.
Contract Cash Flow: COGENEX will present to FLEET a statements of Contract
cash flows in the form of an Excel spread sheet that
FLEET will rely upon to determine advances. COGENEX will
present a payment and performance history for each
contract.
Performance
Obligation: COGENEX will continue to perform all of its obligations
under the Contracts. Including but not limited to:
billing and collecting, monitoring performance, verifying
engineering estimates, conducting "true-up" as required,
managing or conducting maintenance as obligated. COGENEX
will warrant specified minimum EMC performance levels
under the contracts. In the event a Contractor or group
of Contracts do not generate the amounts warranted, the
contract or group of contracts will be subject to the
remedies in the Purchase Agreement (see Purchase
Agreement). In the event that an Obligor has an option
to Terminate a Contract, and elects to do so, COGENEX
will indemnify the variance between FLEET's Investment
Balance in the Contract and the Termination
Value provided in the Contract (if any).
II. ADMINISTRATION
Payment Proceeds: All Contract proceeds collected under the portfolio will
be allocated on a monthly basis as follows:
1. To FLEET up to monthly obligation.
2. Remaining balance to COGENEX.
Lock box: All customer payments will be directed to the Lock Box account.
COGENEX will manage the lock box and pay Fleet monthly. In the event
of default FLEET will have rights to take control of the Lockbox.
III. ECONOMICS
Purchase Price: We currently estimate the Purchase Price at or near $80
Million. The advance rate takes into account the COGENEX
service obligation and FLEET's credit exposure. The Purchase
Price paid to COGENEX by FLEET will be the sum of:
1. 90% of the Present Value of all Eligible lighting
related Payments.
2. 80% of the Present Value of all Eligible non-
non-lighting related Payments.
3. 90% of the Present Value of the Eligible
unfunded remaining payments from previously
purchased lighting related Contracts, where
FLEET only funded up to published Termination
Values or shortened term.
4. 80% of the Present Value of all the Eligible
unfunded remaining payments from previously
purchased non-lighting related Contracts, where
FLEET only funded up to published Termination
Values or shortened term.
Discount Rate: Unless the Discount Rate is locked-in prior to the date
of the Assignment, by the mutual written agreement of
COGENEX and FLEET, the per annum Discount Rate shall be
the sum of: (i) the greater of, the yield on the closest
to but not shorter than Four Year Treasury Note Rate, as
stated in the Wall Street Journal, or the Treasury Note
comparable to the weighted average life of the portfolio,
five days prior to the date of the Assignment, and (ii)
235 basis points. If more than one issue is reported we
will use the one closest to par.
Legal/Due
Diligence Fee: Fleet will use inside and outside counsel to aid in
closing the transaction. COGENEX will pay FLEET's
outside counsel. COGENEX's obligation to FLEET's outside
counsel will be capped at $200,000.
Other Fees
and Expenses: None.
Contract
Termination: COGENEX will not be permitted to voluntarily repurchase
the Contract Payments.
IV. COVENANTS & SECURITY
Structure: Security interest in the Purchased Contracts per the
terms of the Program Agreement.
Change of Control: FLEET will amend the change of control provisions of the
1994 Purchase Agreement. COGENEX will submit a list of
potential purchasers of COGENEX and (or), assume the
guaranty of performance obligations under the Purchase
Agreement. The pre-approval will be subject to no
material adverse change, in FLEET's sole discretion, in
the potential purchasers financial condition.
V. MISCELLANEOUS
Due Diligence: FLEET will send a team of auditors and attorneys to
COGENEX who will review the contracts, Y2K compliance,
credit files, and account receivable aging of all the
Contract Obligors. FLEET's internal and outside counsel
will review Contracts.
Reporting: COGENEX shall prepare monthly a Collection Report, which
shall include a summary of past due Contract Payments and
such other information as FLEET shall reasonably request.
Reports shall be due to FLEET no later than the 20th day
of the month following.
Offered by: FLEET Business Credit Corporation
/s/ Mark J. Sullivan
By: Mark J. Sullivan
Its: Vice President
Dated: Friday, December 03, 1999
THIS IS NOT A COMMITMENT FROM FLEET OR ANY OF THE PARITES, NOR AN OFFER TO
ENTER INTO A CONTRACT AND DOES NOT OBLIGATE FLEET OR ANY OF THE PARTIES IN ANY
WAY. IF SUCH A CONTRACT IS ISSUED IN THE FUTURE, IT MAY CONTAIN CONDITIONS,
TERMS, AND FEES THAT ARE DIFFERENT FROM OR IN ADDITION TO THIS CONDITIONS,
TERMS, AND FEES.
COGENEX acknowledges that it has reviewed the terms and conditions set forth in
this Term Sheet and finds said terms and conditions to be acceptable.
Agreed and Accepted for COGENEX by:
/s/ Mark White, Executive Vice President
Mark White, Executive Vice President
Dated: 12/3/99
Wednesday, December 19, 1999
Mr. Mark White
Executive Vice President
EUA COGENEX, Inc.
100 Foot of John Street
Boott Mills South
Lowell, MA
Dear Mark:
Fleet Business Credit Corporation (Fleet) and EUA COGENEX, Inc. (Cogenex) would
like to amend and update the executed Proposal dated December 1, 1999, to
include the following:
SEC Approval: The proposed guaranty requires SEC approval. Approval is
anticipated by March 31, 2000.
Program
Approvals: Fleet is seeking all necessary internal approvals to provide
for execution and closing by January 31, 2000. It is Fleets
intention to make up to $80MM available for new Contract
purchases, and to amend the existing Program Agreement.
Obligor
Approvals: Fleet will see individual credit decisions for purchases of
Assigned Payments associated with individual contracts and
Obligors. Fleet will complete this process by January 21,
2000.
Documentation
Review: Fleet will complete the legal and documentary review of
individual Contracts and Obligors and advise Cogenex of any
additional requirements by January 14, 2000.
Documentation
Drafting: Fleet (or if necessary outside Counsel) will draft all
necessary amendment and assignment documentation. A first
draft of the Program Agreement amendment will be completed
for review by January 14, 2000.
It is our mutual intention to have a complete set of documentation executed by
January 31, 2000. Upon receipt of the executed guaranty and other final
closing documentation, we will establish a purchase date. The discount rate
will be set 5 days prior to the purchase date in accordance with the December
1, 1999 Proposal. It is still COGENEX's intention to close this transaction
upon receipt of SEC approval of the guaranty.
Offered By: FLEET Business Credit Agreed and Accepted for Cogenex
Corporation by:
/s/ Mark J. Sullivan /s/ Mark S. White
By: Mark J. Sullivan By: Mark S. White
Its: Vice President Its: Executive Vice President
Dated: Wednesday, December 29, 1999 Dated: 1/3/00
Exhibit H
(PROPOSED FORM OF NOTICE)
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- , 70- )
Eastern Utilities Associates ("EUA"), a Massachusetts business trust
and a registered holding company, has filed a declaration with this Commission
pursuant to Section 12(b) of the Public Utility Holding Company Act of 1935
(the "Act") and Rule 45(a) promulgated thereunder.
EUA has requested Commission approval to the extent required under the
Act for EUA to guaranty certain performance obligations of EUA Cogenex
Corporation ("Cogenex"), a Massachusetts corporation and a wholly-owned
subsidiary of EUA, in connection with (i) Cogenex's sale of certain assets to
Fleet Business Credit Corporation ("Fleet Business Credit") (the "Asset Sale"),
and (ii) the proposed restructuring and additional funding by Fleet Business
Credit of certain Cogenex contracts previously sold to Fleet Business Credit
under a separate program agreement (the "Restructuring").
Under the Asset Sale and the Restructuring, Cogenex proposes to sell to
Fleet Business Credit in consideration for $75 million approximately $81
million dollars worth of assets which will include energy service contracts,
notes receivable, and energy efficient equipment (collectively the "Assets").
The total proposed contracts to be sold under the Asset Sale and those
previously sold under the Restructuring (the "Contracts") will generate as of
January 1, 2000 approximately $110 million of gross cash flow. The net present
value of the cash flow related to the Assets based upon a projected discount
rate of 8.45% is approximately $86 million with a book value of approximately
$81 million as of January 1, 2000. The total amount to be funded to Cogenex by
Fleet Business Credit under the Asset Sale and the Restructuring, is estimated
to be approximately $75 million.
Fleet Business Credit has requested as a condition to entering into the
Asset Sale and the Restructuring, that EUA or its agreed upon successor (i)
maintain a fifty-one percent (51%) ownership of Cogenex, and (ii) guaranty
Cogenex's obligations under the Asset Sale and the Restructuring, including
without limitation the continued service and performance of the Contracts
thereunder (which shall include ensuring measurement and verification, billing
and collection and that the contracts are administered according to their
contractual terms) (the "Performance Guaranty"). Under the Asset Sale and the
Restructuring, Fleet Business Credit will assume all third party credit risk
under the Contracts. The total principal subject to the Performance Guaranty
will be approximately $100 million ($75 million for the Asset Sale and
Restructuring and $25 million previously funded by Fleet Business Credit prior
to the Restructuring).
NOTICE IS FURTHER GIVEN that any interested person may, not later than
_________, 2000, request in writing that a hearing beheld on such matter,
stating the nature of his interest, the reasons for such request, and the
issues of fact or law raised by said declaration which he desires to
controvert; or he may request that he be notified if the Commission should
order a hearing thereon. Any such request should be addressed: Secretary,
Securities and Exchange Commission, 450 5th Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. A copy of such request should be served personally or
by mail upon the declarant at the above-stated address and proof of service (by
affidavit or, in case of an attorney at law, by certificate) should be filed
with the request. At any time after said date the declaration, as filed or as
it may be amended, may be granted and permitted to become effective as provided
in Rule 23 of the General Rules and Regulations promulgated under the Act, or
the Commission may grant exemption from such rules as provided in Rules 20(a)
and 100 thereof or take such other action as it may deem appropriate. Persons
who request a hearing or advice as to whether a hearing is ordered will receive
any notices and orders issued in this matter, including the date of the hearing
(if ordered) and any postponements thereof.
For the Commission, by the Division of Corporate Regulation, pursuant
to delegated authority.
Secretary
