SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
ALABAMA POWER COMPANY
600 North 18th Street
Birmingham, Alabama 35291
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent
of each applicant or declarant)
Art P. Beattie
Vice President, Secretary
and Treasurer
Alabama Power Company
600 North 18th Street
Birmingham, Alabama 35291
(Names and addresses of agents for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
W. L. Westbrook
Financial Vice President
The Southern Company
64 Perimeter Center East
Atlanta, Georgia 30346
John D. McLanahan Walter M. Beale, Jr.
Troutman Sanders LLP Balch & Bingham
600 Peachtree Street, N. E. 1901 Sixth Avenue North
Suite 5200 Suite 2600
Atlanta, Georgia 30308-2216 Birmingham, Alabama 35203
<PAGE>
INFORMATION REQUIRED
Item 1. Description of Proposed Transactions.
Alabama Power Company ("Alabama") is a wholly-owned subsidiary of The
Southern Company, a registered holding company under the Public Utility Holding
Company Act of 1935 (the "Act").
In order to comply with prescribed environmental standards of the State
of Alabama with respect to air and water quality, it has been and will be
necessary to construct facilities for this purpose.
Alabama entered into Installment Sale Agreements and supplements
thereto (the "Agreements") with the Industrial Development Boards of various
cities within the State of Alabama (the "Boards") to finance and refinance
certain pollution control facilities at Alabama's plants located in or near such
cities (such facilities at such plants being referred to hereafter as the
"Projects"). Pursuant to such Agreements, the Boards purchased the then existing
portions of the Projects, undertook to complete their construction and to sell
the completed Projects to Alabama for a purchase price payable in semi-annual
installments over a term of years. Each such Board issued its Series A pollution
control revenue bonds (the "Original Bonds"), and, in certain cases, subsequent
series of pollution control revenue bonds (the "Additional Bonds") pursuant to
various Trust Indentures and supplements thereto (the "Indentures"), in various
amounts, then estimated to be sufficient to cover the Cost of Construction (as
defined in the Agreements) of the Projects. To secure its obligations under the
Agreements, Alabama granted to certain Boards a security interest in such
Board's Project subordinate to the lien of the Indenture dated as of January 1,
1942, between Alabama and Chemical Bank, as Trustee, as supplemented and amended
(the "First Mortgage Indenture"). In other instances, Alabama issued and pledged
bonds under the First Mortgage Indenture (the "Mortgage") (the "Collateral First
Mortgage Bonds") as security for its obligations under the Agreements. Each such
Board assigned all its right, title and interest in the applicable Agreement,
including either the Collateral First Mortgage Bonds or the subordinate security
interest, to the trustee under the applicable Indenture (the "Revenue Bond
Trustee") as security for the pollution control revenue bonds, including the
Original Bonds and Additional Bonds to be issued under such Indenture. The
proceeds of the sale of the Original Bonds and the Additional Bonds were
deposited by each Board with the appropriate Revenue Bond Trustee. Such proceeds
have been applied to payment of the Cost of Construction of the respective
Projects. The total Cost of Construction of one or more of the Projects may
exceed the proceeds of the Original Bonds and the Additional Bonds.
Additionally, it may be necessary or appropriate to refund one of more series of
such bonds. Consequently, Alabama proposes to request that the appropriate Board
or Boards issue up to an aggregate of $500,000,000 principal amount of revenue
bonds (the "new Bonds") through December 31, 2000. Upon issuance of the new
Bonds, Alabama and the Board will execute and deliver to the Revenue Bond
Trustee, as required by the Indenture, a supplement to the Agreement (the
"Supplemental Agreement") providing for (i) any required revision to assure that
the semi-annual purchase price payments will be sufficient (together with other
moneys held by the Revenue Bond Trustee under the Indenture for that purpose) to
pay the principal of, premium (if any), and interest on the new Bonds as they
become due and payable, and (ii) the payment of all expenses and costs incurred
or to be incurred by virtue of the issuance of the new Bonds. The Board and the
Revenue Bond Trustee will enter into a supplement (the "Supplement") to the
Indenture providing for the new Bonds. The Supplement will provide for
redemption provisions for the new Bonds comparable to those provided for the
Original Bonds and the Additional Bonds. It is proposed that the new Bonds will
mature not more than 40 years from the first day of the month in which they are
initially issued. The new Bonds may be entitled to the benefit of serial
maturities and/or a mandatory redemption sinking fund calculated to retire a
portion of the new Bonds prior to maturity.
The Supplement may give the holders of the related new Bonds the right,
during such time, if any, as such new Bonds bear interest at a fluctuating rate,
to require Alabama to purchase such new Bonds from time to time, and
arrangements may be made for the remarketing of any such new Bonds through a
remarketing agent. Alabama also may be required to purchase the new Bonds, or
the new Bonds may be subject to mandatory redemption, at any time if the
interest thereon is determined to be subject to federal income tax. Also, in the
event of taxability, interest on the new Bonds may be effectively converted to a
higher variable or fixed rate, and Alabama also may be required to indemnify the
bondholders against any other additions to interest, penalties, and additions to
tax.
Alternatively, Alabama may enter into a new Agreement with the
appropriate Board, and such Board may enter into a new Indenture with the
appropriate Revenue Bond Trustee pursuant to which the new Bonds will be issued.
In such event, such Agreement and such Indenture will contain provisions of the
type described herein.
In order to obtain the benefit of ratings for the new Bonds equivalent
to the rating of Alabama's first mortgage bonds outstanding under the Mortgage,
which ratings Alabama has been advised may be thus attained, Alabama may
determine to secure its obligations under the Agreements by delivering to the
Revenue Bond Trustee, to be held as collateral, a series of Collateral First
Mortgage Bonds in principal amount either (i) equal to the principal amount of
the new Bonds or (ii) equal to the sum of such principal amount of the new Bonds
plus interest payments thereon for a specified period. Such series of Collateral
First Mortgage Bonds will be issued under an indenture supplemental to the
Mortgage (the "Supplemental Indenture") to be dated as of the first day of the
month in which the Collateral First Mortgage Bonds are to be issued and
delivered, will mature on the maturity date of such new Bonds and will be
non-transferable by the Revenue Bond Trustee. The Collateral First Mortgage
Bonds, in the case of clause (i) above, would bear interest at a rate or rates
equal to the interest rate or rates to be borne by the related new Bonds and in
the case of clause (ii) above, would be non-interest bearing.
The Supplemental Indenture will provide, however, that the obligation
of Alabama to make payments with respect to the Collateral First Mortgage Bonds
will be satisfied to the extent that payments are made under the Agreement
sufficient to meet the payments when due in respect of the related new Bonds.
The Supplemental Indenture will provide that, upon acceleration by the Revenue
Bond Trustee of the principal amount of all related outstanding new Bonds under
the Indenture, the Revenue Bond Trustee may demand the mandatory redemption of
the related Collateral First Mortgage Bonds then held by it as collateral at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date fixed for redemption. The Supplemental Indenture may also
provide that, upon the optional redemption of the new Bonds, in whole or in
part, at any time after they have been outstanding for a specified period, a
related principal amount of the Collateral First Mortgage Bonds will be redeemed
at the redemption price of the new Bonds.
In the case of interest bearing Collateral First Mortgage Bonds,
because interest accrues in respect of such Collateral First Mortgage Bonds
until satisfied by payments under the Agreement, "annual interest charges" in
respect of such Collateral First Mortgage Bonds will be included in computing
the "interest earnings requirement" of the Mortgage which restricts the amount
of first mortgage bonds which may be issued and sold to the public in relation
to Alabama's net earnings. In the case of non-interest bearing Collateral First
Mortgage Bonds, since no interest would accrue in respect of such Collateral
First Mortgage Bonds, the "interest earnings requirement" would be unaffected.
The Indenture will provide that, upon deposit with the Revenue Bond
Trustee of funds sufficient to pay or redeem all or any part of the related new
Bonds, or upon direction to the Revenue Bonds Trustee by Alabama to so apply
funds available therefor, or upon delivery of such outstanding new Bonds to the
Revenue Bond Trustee by or for the account of Alabama, the Revenue Bond Trustee
will be obligated to deliver to Alabama the Collateral First Mortgage Bonds then
held as collateral in an aggregate principal amount as they relate to the
aggregate principal amount of such new Bonds for the payment or redemption of
which such funds have been deposited or applied or which shall have been so
delivered.
Alabama may determine to secure its obligations under any Agreement by
causing an irrevocable letter of credit (the "Letter of Credit") of a bank (the
"Bank") to be delivered to the Trustee. The Letter of Credit would be an
irrevocable obligation of the Bank to pay to the Trustee, upon request, up to an
amount necessary in order to pay principal of and premium (if any) and certain
accrued interest on the related new Bonds when due. Pursuant to a separate
agreement with the Bank, Alabama would agree to pay to the Bank on demand all
amounts that are drawn under the Letter of Credit, as well as certain fees and
expenses. Such delivery of the Letter of Credit to the Trustee would obtain for
the related new Bonds the benefit of a rating equivalent to the credit rating of
the Bank.
As an alternative to, or in conjunction with, securing its obligations
under any Agreement as described above, and in order to obtain a "AAA" rating
for the related new Bonds by one or more nationally recognized securities rating
agencies, Alabama may cause an insurance company to issue a policy of insurance
guaranteeing the payment when due of the principal of and interest on such new
Bonds. Such insurance policy would extend for the term of the related new Bonds
and would be non-cancelable by the insurance company for any reason. Alabama's
payment in respect of said insurance policy could be in various forms, including
a non-refundable, one-time insurance premium paid at the time the policy is
issued, and/or an additional interest percentage to be paid to said issuer in
correlation with regular interest payments. In addition, Alabama may be
obligated to make payments of certain specified amounts into separate escrow
funds and to increase the amounts on deposit in such funds under certain
circumstances. The amount in each escrow fund would be payable to the insurance
company as indemnity for any amounts paid pursuant to the related insurance
policy in respect of principal of or interest on the related new Bonds.
It is contemplated that any new Bonds will be sold by the Board
pursuant to arrangements with a purchaser or purchasers to be selected. In
accordance with the laws of the State of Alabama, the interest rate to be borne
by any series of new Bonds will be fixed by the Board and will be either a fixed
rate, which fixed rate may be convertible to a rate which will fluctuate in
accordance with a specified prime or base rate or rates or be determined through
auction or remarketing procedures, or a fluctuating rate, which fluctuating rate
may be convertible to a fixed rate. Bond counsel will issue an opinion that
interest on the new Bonds will generally be exempt from federal income taxation.
Alabama has been advised that the annual interest rates on obligations, the
interest on which is tax exempt, recently have been and can be expected at the
time of issue of any series of new Bonds to be approximately one to three
percentage points lower that the rates on obligations of like tenor and
comparable quality, interest on which is fully subject to federal income tax.
Alabama also proposes that it may enter into arrangements providing for
the delayed or future delivery of new Bonds to one or more purchasers, placement
agents or underwriters. The obligations of the purchasers, placement agents or
underwriters to purchase new Bonds under any such arrangements may be secured by
U.S. Treasury securities, letters of credit or other collateral.
Alabama may determine to use the proceeds from the sale of the new
Bonds to redeem or otherwise retire its presently outstanding pollution control
bonds if such use is considered advisable. Such outstanding pollution control
bonds retired or redeemed by Alabama may be purchased on the open market or by
tender offer as authorized by HCAR No. 35-25751, dated February 26, 1993.
Alabama will not use the proceeds from securities sales proposed herein
to refund outstanding securities unless the estimated present value savings
derived from the net difference between interest payments on any new Bonds to be
issued for refunding purposes and the specific securities to be refunded is, on
an after-tax basis, greater than the present value of all redemption and issuing
costs, assuming an appropriate discount rate. Such discount rate is based on the
estimated after-tax interest rate on the new Bonds issued for refunding
purposes.
Pursuant to orders of the Commission, Alabama has authority with
respect to the issuance and sale of $450,000,000 of pollution control revenue
bonds (of which the record was completed and supplemental orders have been
issued relating to $372,640,000) as set forth in Commission File No. 70-8069
(HCAR No. 35-25809, dated May 11, 1993; HCAR No. 35-25831, dated June 18, 1993;
HCAR No. 35-25864, dated August 6, 1993; HCAR No. 35-25978, dated January 24,
1994; HCAR No. 35-26069, dated June 20, 1994; HCAR No. 35-26131, dated September
26, 1994; and HCAR No. 35-26284, dated April 28, 1995). Alabama hereby requests
that the authority described in the above-mentioned orders remain in effect
until December 31, 1995 or until such earlier time as the order with respect to
the matters requested herein is issued. Unless otherwise ordered by the
Commission, Alabama's common stock equity ratio will not be less than 30%.
None of the proceeds from any Agreement proposed herein will be used by
Southern or any subsidiary thereof for the acquisition of any interest in an
"exempt wholesale generator" or a "foreign utility company", each as defined in
the Act.
The effective cost to Alabama of any series of the new Bonds will not
exceed the yield on U.S. Treasury securities having a maturity comparable to
that of such series of new Bonds. Such effective cost will reflect the
applicable interest rate or rates and any underwriters' discount or commission.
The premium (if any) payable upon the redemption of any new Bonds at
the option of Alabama will not exceed the greater of (i) 5% of the principal
amount of the new Bonds so to be redeemed, or (ii) a percentage of such
principal amount equal to the rate of interest per annum borne by such new
Bonds.
The purchase price payable by or on behalf of Alabama in respect of new
Bonds tendered for purchase at the option of the holders thereof will not exceed
100% of the principal amount thereof, plus accrued interest to the purchase
date.
Any Letter of Credit issued as security for the payment of new Bonds
will be issued pursuant to a Reimbursement Agreement between Alabama and the
financial institution issuing such Letter of Credit. Pursuant to the
Reimbursement Agreement, Alabama will agree to pay or cause to be paid to the
financial institution, on each date that any amount is drawn under such
institution's Letter of Credit, an amount equal to the amount of such drawing,
whether by cash or by means of a borrowing from such institution pursuant to the
Reimbursement Agreement. Any such borrowing may have a term of up to 10 years
and will bear interest at the lending institution's prevailing rate offered to
corporate borrowers of similar quality which will not exceed the prime rate or
(i) the London Interbank Offered Rate plus up to 3/8 of 1%, (ii) the lending
institution's certificate of deposit rate plus up to 1/2 of 1%, or (iii) a rate
not to exceed the prime rate, to be established by agreement with the lending
institution prior to the borrowing.
Item 2. Fees, Commissions and Expenses.
The fees and expenses to be paid or incurred by Alabama, directly or
indirectly, in connection with each granting of the security interest (as
distinguished from and excluding fees, commissions and expenses incurred or to
be incurred in connection with the sale of the new Bonds by the Board and in
connection with the determination of the tax exempt status of the new Bonds) are
as follows:
Fee of counsel for Alabama...................................... $ 40,000
Fee of accountants, Arthur Andersen LLP......................... 25,000
Fee of trustee, including counsel............................... 25,000
Services of Southern Company Services, Inc...................... 25,000
Miscellaneous, including telephone charges
and traveling expenses...................................... 5,000
--------
Total........................................................... $120,000
========
Item 3. Applicable Statutory Provisions.
Alabama considers that the issuance of the Collateral First Mortgage
Bonds is exempt from the provisions of Sections 6(a) and 7 of the Act pursuant
to Rule 52 thereunder.
Alabama considers that the acquisition of the Project from each Board
pursuant to the Supplemental Agreement may be subject to Section 9(a) of the
Act.
Alabama further considers that the sale or granting of subordinated
security interests in the Projects or other property of Alabama, as set forth
above, may be subject to Section 12(d) of the Act, and that the exception
afforded by subparagraph (b)(3) of Rule 44 thereunder may be applicable.
Alabama considers that any guarantee of payment of the new Bonds may be
subject to Sections 6(a) and 7 of the Act.
Alabama considers that Sections 9(a) and 10 of the Act may be
applicable to any purchase of new Bonds by Alabama as described herein and to
the extent that the transactions contemplated herein in connection with the new
Bonds involve an Installment Sale Agreement or Agreements pursuant to which the
Authority undertakes to sell the related Project to Alabama.
The proposed transactions will be carried out in accordance with the
procedure specified in Rule 23 and pursuant to an order of the Commission in
respect thereto.
Item 4. Regulatory Approval.
The incurring of the obligations have or will have been expressly
authorized by the Alabama Public Service Commission, which has jurisdiction over
the issuance of securities by public utility companies operating in Alabama. The
incurring of the obligations are not subject to the jurisdiction of any federal
commission other than the Securities and Exchange Commission.
Item 5. Procedures.
Alabama requests that the Commission's order herein be issued as soon
as the rules allow, and that there be no thirty-day waiting period between the
issuance of the Commission's order and the date on which it is to become
effective. Alabama hereby waives a recommended decision by a hearing officer or
other responsible officer of the Commission and hereby consents that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or herein unless such Division opposes the matters
covered hereby.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
A - None.
B-1 - Form of Supplemental Installment Sale Agreement
between Alabama and the Board. (To
be filed by amendment.)
B-2 - Form of Supplemental Indenture between the Board
and the Revenue Bond Trustee. (To be filed by
amendment.)
B-3 - Form of Installment Sale Agreement between Alabama
and the Board. (To be filed by amendment.)
B-4 - Form of Indenture between the Board and the
Revenue Bond Trustee. (To be filed by amendment.)
B-5 - Indenture dated as of January 1, 1942, between
Alabama and Chemical Bank, as Trustee, and
indentures supplemental thereto through that
dated as of December 1, 1994. (Designated in
Registration Nos. 2-59843 as Exhibit 2(a)-2,
2-60484 as Exhibits 2(a)-3 and 2(a)-4, 2-60716
as Exhibit 2(c), 2-67574 as Exhibit 2(c),
2-68687 as Exhibit 2(c), 2-69599 as Exhibit
4(a)-2, 2-71364 as Exhibit 4(a)-2, 2-73727 as
Exhibit 4(a)-2, 33-5079 as Exhibit 4(a)-2,
33-17083 as Exhibit 4(a)-2, 33-22090 as Exhibit
4(a)-2, in Form 10-K for the year ended December
31, 1990 as Exhibit 4(c), in 33-43917 as Exhibit
4(a)-2, in 33-45492 as Exhibit 4(a)-2, in
33-48885 as Exhibit 4(a)-2, 33-48917 as Exhibit
4(a)-2 in Form 8-K dated January 20, 1993, File
No. 1-3436, as Exhibit 4(a)-3, in Form 8-K dated
February 17, 1993, File No. 1-3436, as Exhibit
4(a)-3, in Form 8-K dated March 10, 1993, File No.
1-3436, as Exhibit 4(a)-3, in Certificate of
Notification, File No. 70-8069, as Exhibits A and
B, in Form 8-K dated June 24, 1993, File No.
1-3436, as Exhibit 4, in Certificate of
Notification, File No. 70-8069, as Exhibit A, in
Form 8-K dated November 16, 1993, File No. 1-3436,
as Exhibit 4(b), in Certificate of Notification,
File No. 70-8069, as Exhibits A and B, in
Certificate of Notification, File No. 70-8069,
as Exhibit A and in Form 8-K dated November 30,
1994, File No. 1-3436, as Exhibit 4.)
B-6 - Draft of Supplemental Indenture between Alabama and
Chemical Bank, as Trustee, relating to the
Collateral First Mortgage Bonds. (To be filed by
amendment.)
C - None.
D-1 - Copy of application of Alabama to Alabama Public
Service Commission relating to the financing of
additional Projects. (To be filed by amendment.)
D-2 - Order of Alabama Public Service Commission
relating to the financing of additional Projects.
(To be filed by amendment.)
E - None.
F - Opinion of Balch & Bingham. (To be filed by
amendment.)
G - Form of Notice of Filing.
(b) Financial Statements. (To be filed by amendment.)
Item 7. Information as to Environmental Effects.
(a) As described in Item 1, the proposed transactions are of a routine
and strictly financial nature in the ordinary course of Alabama's business.
Accordingly, the Commission's action in this matter will not constitute any
major federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: July 19, 1995 ALABAMA POWER COMPANY
By /s/Wayne Boston
Wayne Boston
Assistant Secretary
EXHIBIT G
FORM OF NOTICE
Alabama Power Company ("Alabama"), 600 North 18th Street, Birmingham,
Alabama 35291, an electric utility subsidiary of The Southern Company, a
registered holding company, has filed an application declaration with this
Commission pursuant to Sections 6(a), 7, 9(a), 10 and 12(d) of the Public
Utility Holding Company Act of 1935 ("Act") and Rules 23, 44 and 52 thereunder.
In order to comply with prescribed environmental standards of the State
of Alabama with respect to air and water quality, it has been and will be
necessary to construct facilities for this purpose.
Alabama entered into Installment Sale Agreements and supplements
thereto (the "Agreements") with the Industrial Development Boards of various
cities within the State of Alabama (the "Boards") to finance and refinance
certain pollution control facilities at Alabama's plants located in or near such
cities (such facilities at such plants being referred to hereafter as the
"Projects"). Pursuant to such Agreements, the Boards purchased the then existing
portions of the Projects, undertook to complete their construction and to sell
the completed Projects to Alabama for a purchase price payable in semi-annual
installments over a term of years. Each such Board issued its Series A pollution
control revenue bonds (the "Original Bonds"), and, in certain cases, subsequent
series of pollution control revenue bonds (the "Additional Bonds") pursuant to
various Trust Indentures and supplements thereto (the "Indentures"), in various
amounts, then estimated to be sufficient to cover the Cost of Construction (as
defined in the Agreements) of the Projects. To secure its obligations under the
Agreements, Alabama granted to certain Boards a security interest in such
Board's Project subordinate to the lien of the Indenture dated as of January 1,
1942, between Alabama and Chemical Bank, as Trustee, as supplemented and amended
(the "First Mortgage Indenture"). In other instances, Alabama issued and pledged
bonds under the First Mortgage Indenture (the "Mortgage") (the "Collateral First
Mortgage Bonds") as security for its obligations under the Agreements. Each such
Board assigned all its right, title and interest in the applicable Agreement,
including either the Collateral First Mortgage Bonds or the subordinate security
interest, to the trustee under the applicable Indenture (the "Revenue Bond
Trustee") as security for the pollution control revenue bonds, including the
Original Bonds and Additional Bonds to be issued under such Indenture. The
proceeds of the sale of the Original Bonds and the Additional Bonds were
deposited by each Board with the appropriate Revenue Bond Trustee. Such proceeds
have been applied to payment of the Cost of Construction of the respective
Projects. The total Cost of Construction of one or more of the Projects may
exceed the proceeds of the Original Bonds and the Additional Bonds.
Additionally, it may be necessary or appropriate to refund one of more series of
such bonds. Consequently, Alabama proposes to request that the appropriate Board
or Boards issue up to an aggregate of $500,000,000 principal amount of revenue
bonds (the "new Bonds") through December 31, 2000. Upon issuance of the new
Bonds, Alabama and the Board will execute and deliver to the Revenue Bond
Trustee, as required by the Indenture, a supplement to the Agreement (the
"Supplemental Agreement") providing for (i) any required revision to assure that
the semi-annual purchase price payments will be sufficient (together with other
moneys held by the Revenue Bond Trustee under the Indenture for that purpose) to
pay the principal of, premium (if any), and interest on the new Bonds as they
become due and payable, and (ii) the payment of all expenses and costs incurred
or to be incurred by virtue of the issuance of the new Bonds. The Board and the
Revenue Bond Trustee will enter into a supplement (the "Supplement") to the
Indenture providing for the new Bonds. The Supplement will provide for
redemption provisions for the new Bonds comparable to those provided for the
Original Bonds and the Additional Bonds. It is proposed that the new Bonds will
mature not more than 40 years from the first day of the month in which they are
initially issued. The new Bonds may be entitled to the benefit of serial
maturities and/or a mandatory redemption sinking fund calculated to retire a
portion of the new Bonds prior to maturity.
The Supplement may give the holders of the related new Bonds the right,
during such time, if any, as such new Bonds bear interest at a fluctuating rate,
to require Alabama to purchase such new Bonds from time to time, and
arrangements may be made for the remarketing of any such new Bonds through a
remarketing agent. Alabama also may be required to purchase the new Bonds, or
the new Bonds may be subject to mandatory redemption, at any time if the
interest thereon is determined to be subject to federal income tax. Also, in the
event of taxability, interest on the new Bonds may be effectively converted to a
higher variable or fixed rate, and Alabama also may be required to indemnify the
bondholders against any other additions to interest, penalties, and additions to
tax.
Alternatively, Alabama may enter into a new Agreement with the
appropriate Board, and such Board may enter into a new Indenture with the
appropriate Revenue Bond Trustee pursuant to which the new Bonds will be issued.
In such event, such Agreement and such Indenture will contain provisions of the
type described herein.
In order to obtain the benefit of ratings for the new Bonds equivalent
to the rating of Alabama's first mortgage bonds outstanding under the Mortgage,
which ratings Alabama has been advised may be thus attained, Alabama may
determine to secure its obligations under the Agreements by delivering to the
Revenue Bond Trustee, to be held as collateral, a series of Collateral First
Mortgage Bonds in principal amount either (i) equal to the principal amount of
the new Bonds or (ii) equal to the sum of such principal amount of the new Bonds
plus interest payments thereon for a specified period. Such series of Collateral
First Mortgage Bonds will be issued under an indenture supplemental to the
Mortgage (the "Supplemental Indenture") to be dated as of the first day of the
month in which the Collateral First Mortgage Bonds are to be issued and
delivered, will mature on the maturity date of such new Bonds and will be
non-transferable by the Revenue Bond Trustee. The Collateral First Mortgage
Bonds, in the case of clause (i) above, would bear interest at a rate or rates
equal to the interest rate or rates to be borne by the related new Bonds and in
the case of clause (ii) above, would be non-interest bearing.
The Supplemental Indenture will provide, however, that the obligation
of Alabama to make payments with respect to the Collateral First Mortgage Bonds
will be satisfied to the extent that payments are made under the Agreement
sufficient to meet the payments when due in respect of the related new Bonds.
The Supplemental Indenture will provide that, upon acceleration by the Revenue
Bond Trustee of the principal amount of all related outstanding new Bonds under
the Indenture, the Revenue Bond Trustee may demand the mandatory redemption of
the related Collateral First Mortgage Bonds then held by it as collateral at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date fixed for redemption. The Supplemental Indenture may also
provide that, upon the optional redemption of the new Bonds, in whole or in
part, at any time after they have been outstanding for a specified period, a
related principal amount of the Collateral First Mortgage Bonds will be redeemed
at the redemption price of the new Bonds.
In the case of interest bearing Collateral First Mortgage Bonds,
because interest accrues in respect of such Collateral First Mortgage Bonds
until satisfied by payments under the Agreement, "annual interest charges" in
respect of such Collateral First Mortgage Bonds will be included in computing
the "interest earnings requirement" of the Mortgage which restricts the amount
of first mortgage bonds which may be issued and sold to the public in relation
to Alabama's net earnings. In the case of non-interest bearing Collateral First
Mortgage Bonds, since no interest would accrue in respect of such Collateral
First Mortgage Bonds, the "interest earnings requirement" would be unaffected.
The Indenture will provide that, upon deposit with the Revenue Bond
Trustee of funds sufficient to pay or redeem all or any part of the related new
Bonds, or upon direction to the Revenue Bonds Trustee by Alabama to so apply
funds available therefor, or upon delivery of such outstanding new Bonds to the
Revenue Bond Trustee by or for the account of Alabama, the Revenue Bond Trustee
will be obligated to deliver to Alabama the Collateral First Mortgage Bonds then
held as collateral in an aggregate principal amount as they relate to the
aggregate principal amount of such new Bonds for the payment or redemption of
which such funds have been deposited or applied or which shall have been so
delivered.
Alabama may determine to secure its obligations under any Agreement by
causing an irrevocable letter of credit (the "Letter of Credit") of a bank (the
"Bank") to be delivered to the Trustee. The Letter of Credit would be an
irrevocable obligation of the Bank to pay to the Trustee, upon request, up to an
amount necessary in order to pay principal of and premium (if any) and certain
accrued interest on the related new Bonds when due. Pursuant to a separate
agreement with the Bank, Alabama would agree to pay to the Bank on demand all
amounts that are drawn under the Letter of Credit, as well as certain fees and
expenses. Such delivery of the Letter of Credit to the Trustee would obtain for
the related new Bonds the benefit of a rating equivalent to the credit rating of
the Bank.
As an alternative to, or in conjunction with, securing its obligations
under any Agreement as described above, and in order to obtain a "AAA" rating
for the related new Bonds by one or more nationally recognized securities rating
agencies, Alabama may cause an insurance company to issue a policy of insurance
guaranteeing the payment when due of the principal of and interest on such new
Bonds. Such insurance policy would extend for the term of the related new Bonds
and would be non-cancelable by the insurance company for any reason. Alabama's
payment in respect of said insurance policy could be in various forms, including
a non-refundable, one-time insurance premium paid at the time the policy is
issued, and/or an additional interest percentage to be paid to said issuer in
correlation with regular interest payments. In addition, Alabama may be
obligated to make payments of certain specified amounts into separate escrow
funds and to increase the amounts on deposit in such funds under certain
circumstances. The amount in each escrow fund would be payable to the insurance
company as indemnity for any amounts paid pursuant to the related insurance
policy in respect of principal of or interest on the related new Bonds.
It is contemplated that any new Bonds will be sold by the Board
pursuant to arrangements with a purchaser or purchasers to be selected. In
accordance with the laws of the State of Alabama, the interest rate to be borne
by any series of new Bonds will be fixed by the Board and will be either a fixed
rate, which fixed rate may be convertible to a rate which will fluctuate in
accordance with a specified prime or base rate or rates or be determined through
auction or remarketing procedures, or a fluctuating rate, which fluctuating rate
may be convertible to a fixed rate. Bond counsel will issue an opinion that
interest on the new Bonds will generally be exempt from federal income taxation.
Alabama has been advised that the annual interest rates on obligations, the
interest on which is tax exempt, recently have been and can be expected at the
time of issue of any series of new Bonds to be approximately one to three
percentage points lower that the rates on obligations of like tenor and
comparable quality, interest on which is fully subject to federal income tax.
Alabama also proposes that it may enter into arrangements providing for
the delayed or future delivery of new Bonds to one or more purchasers, placement
agents or underwriters. The obligations of the purchasers, placement agents or
underwriters to purchase new Bonds under any such arrangements may be secured by
U.S.
Treasury securities, letters of credit or other collateral.
Alabama may determine to use the proceeds from the sale of the new
Bonds to redeem or otherwise retire its presently outstanding pollution control
bonds if such use is considered advisable. Such outstanding pollution control
bonds retired or redeemed by Alabama may be purchased on the open market or by
tender offer as authorized by HCAR No. 35-25751, dated February 26, 1993.
Alabama will not use the proceeds from securities sales proposed herein
to refund outstanding securities unless the estimated present value savings
derived from the net difference between interest payments on any new Bonds to be
issued for refunding purposes and the specific securities to be refunded is, on
an after-tax basis, greater than the present value of all redemption and issuing
costs, assuming an appropriate discount rate. Such discount rate is based on the
estimated after-tax interest rate on the new Bonds issued for refunding
purposes.
Pursuant to orders of the Commission, Alabama has authority with
respect to the issuance and sale of $450,000,000 of pollution control revenue
bonds (of which the record was completed and supplemental orders have been
issued relating to $372,640,000) as set forth in Commission File No. 70-8069
(HCAR No. 35-25809, dated May 11, 1993; HCAR No. 35-25831, dated June 18, 1993;
HCAR No. 35-25864, dated August 6, 1993; HCAR No. 35-25978, dated January 24,
1994; HCAR No. 35-26069, dated June 20, 1994; HCAR No. 35-26131, dated September
26, 1994; and HCAR No. 35-26284, dated April 28, 1995). Alabama hereby requests
that the authority described in the above-mentioned orders remain in effect
until December 31, 1995 or until such earlier time as the order with respect to
the matters requested herein is issued. Unless otherwise ordered by the
Commission, Alabama's common stock equity ratio will not be less than 30%.
None of the proceeds from any Agreement proposed herein will be used by
Southern or any subsidiary thereof for the acquisition of any interest in an
"exempt wholesale generator" or a "foreign utility company", each as defined in
the Act.
The effective cost to Alabama of any series of the new Bonds will not
exceed the yield on U.S. Treasury securities having a maturity comparable to
that of such series of new Bonds. Such effective cost will reflect the
applicable interest rate or rates and any underwriters' discount or commission.
The premium (if any) payable upon the redemption of any new Bonds at
the option of Alabama will not exceed the greater of (i) 5% of the principal
amount of the new Bonds so to be redeemed, or (ii) a percentage of such
principal amount equal to the rate of interest per annum borne by such new
Bonds.
The purchase price payable by or on behalf of Alabama in respect of new
Bonds tendered for purchase at the option of the holders thereof will not exceed
100% of the principal amount thereof, plus accrued interest to the purchase
date.
Any Letter of Credit issued as security for the payment of new Bonds
will be issued pursuant to a Reimbursement Agreement between Alabama and the
financial institution issuing such Letter of Credit. Pursuant to the
Reimbursement Agreement, Alabama will agree to pay or cause to be paid to the
financial institution, on each date that any amount is drawn under such
institution's Letter of Credit, an amount equal to the amount of such drawing,
whether by cash or by means of a borrowing from such institution pursuant to the
Reimbursement Agreement. Any such borrowing may have a term of up to 10 years
and will bear interest at the lending institution's prevailing rate offered to
corporate borrowers of similar quality which will not exceed the prime rate or
(i) the London Interbank Offered Rate plus up to 3/8 of 1%, (ii) the lending
institution's certificate of deposit rate plus up to 1/2 of 1%, or (iii) a rate
not to exceed the prime rate, to be established by agreement with the lending
institution prior to the borrowing.
