Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-43895
333-43895-01
333-43895-02
333-43895-03
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 15, 1998)
$200,000,000
(GPC LOGO)
SERIES B 6.60% SENIOR NOTES
DUE DECEMBER 31, 2038
---------------------------
The Series B Senior Notes bear interest at the rate of 6.60% per year.
Interest on the Series B Senior Notes is payable quarterly on March 31, June 30,
September 30 and December 31 of each year, beginning December 31, 1998. The
Series B Senior Notes will mature on December 31, 2038. The Senior B Senior
Notes are redeemable by Georgia Power Company on or after November 25, 2003. The
Series B Senior Notes do not have the benefit of any sinking fund.
The Series B Senior Notes are unsecured and rank equally with all of
Georgia Power Company's other unsecured indebtedness and will be effectively
subordinated to all secured debt of Georgia Power Company. The Series B Senior
Notes will be issued only in registered form in denominations of $25.
Payments of principal and interest on the Series B Senior Notes when due
will be insured by a financial guarantee insurance policy to be issued by Ambac
Assurance Corporation.
(AMBAC LOGO)
Georgia Power Company plans to list the Series B Senior Notes on the New
York Stock Exchange. Trading of the Series B Senior Notes is expected to begin
on the New York Stock Exchange within 30 days after the Series B Senior Notes
are first issued.
---------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- ------------
<S> <C> <C>
Public Offering Price(1).................................... $ 25.00 $200,000,000
Underwriting Discount....................................... $ .7875 $ 6,300,000
Proceeds, before expenses, to Georgia Power Company......... $24.2125 $193,700,000
</TABLE>
(1) Interest will accrue from the date of original issuance of the Series B
Senior Notes, which is expected to be November 25, 1998.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
It is expected that the Series B Senior Notes will be ready for delivery in
book-entry form only through The Depository Trust Company, on or about November
25, 1998.
---------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
---------------------------
The date of this prospectus supplement is November 19, 1998.
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained or incorporated by reference
in this prospectus supplement or the accompanying prospectus. You must not rely
on any unauthorized information or representations. This prospectus supplement
and accompanying prospectus is an offer to sell only the Series B Senior Notes
offered hereby, and only under circumstances and in jurisdictions where it is
lawful to do so. The information incorporated by reference or contained in this
prospectus supplement and accompanying prospectus is current only as of its
date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company................................................. S-3
Capitalization.............................................. S-3
Use of Proceeds............................................. S-3
Recent Results of Operations; Recent Developments........... S-4
Description of the Series B Senior Notes.................... S-4
The Policy and the Insurer.................................. S-7
Ratings..................................................... S-9
Experts..................................................... S-10
Underwriting................................................ S-11
Appendix A -- Form of Policy................................ A-1
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
Selected Information........................................ 3
Georgia Power Company....................................... 4
The Trusts.................................................. 5
Accounting Treatment........................................ 5
Use of Proceeds............................................. 5
Recent Results of Operations................................ 5
Description of the Senior Notes............................. 6
Description of the Junior Subordinated Notes................ 9
Description of the Preferred Securities..................... 15
Description of the Guarantees............................... 15
Relationship Among the Preferred Securities, the Junior
Subordinated Notes and the Guarantees..................... 17
Plan of Distribution........................................ 19
Legal Matters............................................... 19
Experts..................................................... 20
</TABLE>
S-2
<PAGE>
THE COMPANY
Georgia Power Company (the "Company") is a corporation organized under the
laws of the State of Georgia on June 26, 1930. The Company has its principal
office at 241 Ralph McGill Boulevard, N.E., Atlanta, Georgia 30308-3374,
telephone (404) 506-6526. The Company is a wholly owned subsidiary of The
Southern Company.
The Company is a regulated public utility engaged in the generation,
transmission, distribution and sale of electric energy within an approximately
57,200 square mile service area comprising most of the State of Georgia.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, and as adjusted to reflect the transactions described in
note (1) below. The following data is qualified in its entirety by reference to
and, therefore, should be read together with the detailed information and
financial statements appearing in the documents incorporated herein by
reference. See also "Selected Information" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
------- ----------------
(MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
Common Stock Equity......................................... $4,121 $4,121 53.1%
Cumulative Preferred Stock.................................. 52 16 0.2
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiaries Substantially All of Whose
Assets are Junior Subordinated Debentures or Notes(2)..... 689 689 8.9
Senior Notes................................................ 145 495 6.4
Other Long-Term Debt........................................ 2,789 2,439 31.4
------ ------ -----
Total, excluding amounts due within one year of $360
million............................................... $7,796 $7,760 100.0%
====== ====== =====
</TABLE>
- ---------------
(1) Reflects (i) the redemption in December 1998 of $70,000,000 principal amount
of First Mortgage Bonds, 7.75% Series due April 1, 2023, $117,790,000
principal amount of First Mortgage Bonds, 7.95% Series due February 1, 2023
and $150,000,000 principal amount of First Mortgage Bonds, 6.875% Series due
September 1, 2002; (ii) the redemption in January 1999 of $11,995,000
principal amount of First Mortgage Bonds, 7.625% Series due March 1, 2023;
(iii) the redemption in January 1999 of issues of preferred stock in an
amount aggregating $36,407,300; (iv) the issuance of the Series B Senior
Notes; and (v) the proposed issuance in December 1998 of $150,000,000
aggregate principal amount of Series C 5.50% Senior Notes due December 1,
2005 (the "Series C Senior Notes").
(2) Substantially all of the assets of the respective Trusts are Junior
Subordinated Debentures or Notes of the Company, and upon redemption of such
debt, the related Preferred Securities will be mandatorily redeemable.
USE OF PROCEEDS
The proceeds from the sale of the Series B Senior Notes, together with the
proceeds from the sale of the Series C Senior Notes, will be applied by the
Company to redeem in December 1998 the $70,000,000 outstanding principal amount
of its First Mortgage Bonds, 7.75% Series due April 1, 2023, the $117,790,000
outstanding principal amount of its First Mortgage Bonds, 7.95% Series due
February 1, 2023 and the $150,000,000 outstanding principal amount of its First
Mortgage Bonds, 6.875% Series due September 1, 2002, and for other general
corporate purposes.
S-3
<PAGE>
RECENT RESULTS OF OPERATIONS; RECENT DEVELOPMENTS
For the twelve months ended September 30, 1998, the unaudited amounts for
"Operating Revenues," "Income Before Interest Charges" and "Net Income After
Dividends on Preferred Stock" were $4,746,000,000, $875,000,000 and
$598,000,000, respectively. In the opinion of the management of the Company, the
above unaudited amounts for the twelve months ended September 30, 1998 reflect
all adjustments (which were only normal recurring adjustments) necessary to
present fairly the results of operations for such period, subject to the effect
of such adjustments, if any, as might have been required had the outcome of the
uncertainty with respect to the actions of the regulators regarding the
recoverability of the Company's investment in the Rocky Mountain hydroelectric
project been known (see following paragraph). The "Ratio of Earnings to Fixed
Charges" and the "Ratio of Earnings to Fixed Charges Plus Preferred Dividend
Requirements (Pre-Income Tax Basis)" for the twelve months ended September 30,
1998 were 4.67 and 4.54, respectively. The "Ratio of Earnings to Fixed Charges"
and the "Ratio of Earnings to Fixed Charges Plus Preferred Dividend Requirements
(Pre-Income Tax Basis)" for the year ended December 31, 1997 were 4.66 and 4.19,
respectively.
For information regarding the uncertainty referred to in the preceding
paragraph, reference is made to "Item 1 -- Business -- Rate Matters" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 and to
note (N) to the condensed financial statements included in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, each
incorporated herein by reference.
On November 18, 1998, the board of directors of the Company approved
revisions to its capital budget resulting from management's annual review
process. The Company now estimates that construction expenditures for 1999 and
2000 will total approximately $689,000,000 and $702,000,000, respectively,
representing increases of $128,000,000 and $153,000,000, respectively, over the
prior estimates. These increases are primarily attributable to 413 megawatts of
combustion turbine generation now planned for service in 2000 and 360 megawatts
of combined cycle generation planned for service in 2003, as well as additional
expenditures for transmission improvements and environmental compliance.
Reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 under "Item 1 -- Business -- Construction Programs"
for a discussion of the Company's continuous construction program.
DESCRIPTION OF THE SERIES B SENIOR NOTES
Set forth below is a description of the specific terms of the Series B
6.60% Senior Notes due December 31, 2038 (the "Series B Senior Notes"). This
description supplements, and should be read together with, the description of
the general terms and provisions of the Senior Notes set forth in the
accompanying Prospectus under the caption "Description of the Senior Notes." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Senior Note Indenture dated as of January 1, 1998, as
supplemented (the "Senior Note Indenture"), between the Company and The Chase
Manhattan Bank, as trustee (the "Senior Note Indenture Trustee").
GENERAL
The Series B Senior Notes will be issued as a series of Senior Notes under
the Senior Note Indenture. The Series B Senior Notes will be limited in
aggregate principal amount to $200,000,000.
The entire principal amount of the Series B Senior Notes will mature and
become due and payable, together with any accrued and unpaid interest thereon,
on December 31, 2038. The Series B Senior Notes are not subject to any sinking
fund provision. The Series B Senior Notes are available for purchase in
denominations of $25 and any integral multiple thereof.
S-4
<PAGE>
INTEREST
Each Series B Senior Note shall bear interest at the rate of 6.60% per
annum (the "Securities Rate") from the date of original issuance, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year to the person in whose name such Series B Senior Note is registered at the
close of business on the fifteenth calendar day prior to such payment date. The
initial Interest Payment Date is December 31, 1998. The amount of interest
payable will be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which interest is payable on the Series B Senior
Notes is not a Business Day, then payment of the interest payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
SPECIAL INSURANCE PROVISIONS OF THE SENIOR NOTE INDENTURE
Notwithstanding any other provision of the Senior Note Indenture, so long
as the Insurer is not in default under the Policy (each as defined herein), the
Insurer shall be entitled to control and direct the enforcement of all rights
and remedies with respect to the Series B Senior Notes upon the occurrence and
continuation of an Event of Default (as defined in the Senior Note Indenture).
RANKING
The Series B Senior Notes will be direct, unsecured and unsubordinated
obligations of the Company ranking pari passu with all other unsecured and
unsubordinated obligations of the Company. The Series B Senior Notes will be
effectively subordinated to all secured debt of the Company, including its first
mortgage bonds, aggregating approximately $2,504,000,000 outstanding at
September 30, 1998. The Senior Note Indenture contains no restrictions on the
amount of additional indebtedness that may be incurred by the Company.
TRADING CHARACTERISTICS
The Series B Senior Notes are expected to trade at a price that takes into
account the value, if any, of accrued but unpaid interest; thus, purchasers will
not pay and sellers will not receive accrued and unpaid interest with respect to
the Series B Senior Notes that is not included in the trading price thereof. Any
portion of the trading price of a Series B Senior Note received that is
attributable to accrued interest will be treated as ordinary interest income for
federal income tax purposes and will not be treated as part of the amount
realized for purposes of determining gain or loss on the disposition of the
Series B Senior Note.
The trading price of the Series B Senior Notes is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Series B Senior Notes may decline to reflect the additional
yield requirements of the purchasers. Conversely, a decline in interest rates
may increase the trading price of the Series B Senior Notes, although any
increase will be moderated by the Company's ability to call the Series B Senior
Notes at any time on or after November 25, 2003 at a redemption price (the
"Redemption Price") equal to 100% of the principal amount to be redeemed plus
accrued but unpaid interest.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Series B Senior Notes, in
whole or in part, without premium, from time to time, on or after November 25,
2003, upon not less than 30 nor more than 60 days' notice, at a Redemption Price
equal to 100% of the principal amount to be redeemed plus any accrued and unpaid
interest to the date of redemption (the "Redemption Date").
If notice of redemption is given as aforesaid, the Series B Senior Notes so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price together with any accrued interest thereon, and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued interest) such Series B Senior Notes shall cease to bear
interest. If any Series B Senior
S-5
<PAGE>
Note called for redemption shall not be paid upon surrender thereof for
redemption, the principal shall, until paid, bear interest from the Redemption
Date at the Securities Rate. See "Description of the Senior Notes -- Events of
Default" in the accompanying Prospectus.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding Series B
Senior Notes by tender, in the open market or by private agreement.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as the initial securities
depositary for the Series B Senior Notes. The Series B Senior Notes will be
issued only as fully registered securities registered in the name of Cede & Co.,
DTC's nominee. One or more fully registered global Series B Senior Notes
certificates will be issued, representing in the aggregate the total principal
amount of Series B Senior Notes, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, 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 (the "1934 Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc. (the "NYSE"), the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission (the
"Commission").
Purchases of Series B Senior Notes within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Series B Senior
Notes on DTC's records. The ownership interest of each actual purchaser of
Series B Senior Notes ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Series B Senior
Notes. Transfers of ownership interests in the Series B Senior Notes are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Series B Senior Notes, except in the event that use
of the book-entry system for the Series B Senior Notes is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Series B Senior
Notes. DTC's records reflect only the identity of the Direct Participants to
whose accounts such Series B Senior Notes are credited, which may or may not be
the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Series B
Senior Notes are being redeemed, DTC will reduce the amount of the interest of
each Direct Participant in the Series B Senior Notes in accordance with its
procedures.
S-6
<PAGE>
Although voting with respect to the Series B Senior Notes is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Series B Senior Notes. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Company as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Series B Senior
Notes are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Payments on the Series B Senior Notes will be made to DTC. DTC's practice
is to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers registered in "street name," and will be the
responsibility of such Participant and not of DTC or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment to DTC is the responsibility of the Company, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner of a global Series B Senior
Note will not be entitled to receive physical delivery of Series B Senior Notes.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Series B Senior Notes. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Series B Senior Note.
DTC may discontinue providing its services as securities depositary with
respect to the Series B Senior Notes at any time by giving reasonable notice to
the Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, Series B Senior Notes certificates will be printed
and delivered to the holders of record. Additionally, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary) with respect to the Series B Senior Notes. In that event,
certificates for the Series B Senior Notes will be printed and delivered to the
holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof. The Company has no
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
THE POLICY AND THE INSURER
The information set forth in this section has been provided by Ambac
Assurance Corporation (the "Insurer"). No representation is made by the Company
or the Underwriters as to the accuracy or completeness of any such information.
THE POLICY
The Insurer will issue a financial guaranty insurance policy relating to
the Series B Senior Notes (the "Policy"), the form of which is attached to this
Prospectus Supplement as Appendix A. The following summary of the terms of the
Policy does not purport to be complete and is qualified in its entirety by
reference to the Policy.
The Insurer has made a commitment to issue the Policy effective as of the
date of issuance of the Series B Senior Notes. Under the terms of the Policy,
the Insurer will pay to the United States Trust Company of New York, in New
York, New York, or any successor thereto (the "Insurance Trustee") that portion
of the principal of and interest on the Series B Senior Notes which shall become
Due for Payment but shall be unpaid by reason of Nonpayment (as such terms are
defined in the Policy) by the Company. The Insurer will make such payments to
the Insurance Trustee on the later of the date on which such principal and
interest becomes Due for Payment or within one business day following the date
on which the Insurer shall have received notice of Nonpayment from the Senior
Note Indenture Trustee. The insurance will extend for the term of the Series B
Senior Notes and, once issued, cannot be canceled by the Insurer.
S-7
<PAGE>
The Policy will insure payment only on the stated maturity date, in the
case of principal, and on Interest Payment Dates, in the case of interest. In
the event of any acceleration of the principal of the Series B Senior Notes, the
insured payments will be made at such times and in such amounts as would have
been made had there not been an acceleration.
In the event the Senior Note Indenture Trustee has notice that any payment
of principal of or interest on a Series B Senior Note which has become Due for
Payment and which is made to a holder by or on behalf of the Company has been
deemed a preferential transfer and theretofore recovered from its registered
owner pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such registered owner
will be entitled to payment from the Insurer to the extent of such recovery if
sufficient funds are not otherwise available.
The Policy does NOT insure any risk other than Nonpayment, as defined in
the Policy. Specifically, the Policy does NOT cover:
1. payment on acceleration, as a result of a call for redemption or as a
result of any other advancement of maturity.
2. payment of any redemption, prepayment or acceleration premium.
3. nonpayment of principal or interest caused by the insolvency or
negligence of the Senior Note Indenture Trustee.
If it becomes necessary to call upon the Policy, payment of principal
requires surrender of Series B Senior Notes to the Insurance Trustee together
with an appropriate instrument of assignment so as to permit ownership of such
Series B Senior Notes to be registered in the name of the Insurer to the extent
of the payment under the Policy. Payment of interest pursuant to the Policy
requires proof of holder entitlement to interest payments and an appropriate
assignment of the holder's right to payment to the Insurer.
Upon payment of the insurance benefits, the Insurer will become the owner
of the Series B Senior Note or the right to payment of principal or interest on
such Series B Senior Note and will be fully subrogated to the surrendering
holder's rights to payment.
THE INSURER
The Insurer is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico and Guam. The Insurer primarily insures newly issued municipal
and structured finance obligations. The Insurer is a wholly-owned subsidiary of
Ambac Financial Group, Inc. (formerly AMBAC Inc.), a 100% publicly-held company.
Moody's, S&P (each as defined herein) and Fitch IBCA, Inc. have each assigned a
triple-A claims-paying ability rating to the Insurer.
The consolidated financial statements of the Insurer and its subsidiaries
as of December 31, 1997 and December 31, 1996 and for the three years ended
December 31, 1997 prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of Ambac Financial Group,
Inc. (which was filed with the Commission on March 31, 1998; Commission File No.
1-10777) and the consolidated financial statements of the Insurer and its
subsidiaries as of September 30, 1998 and for the periods ending September 30,
1998 and September 30, 1997, included in the Quarterly Report on Form 10-Q of
Ambac Financial Group, Inc. for the period ended September 30, 1998 (which was
filed with the Commission on November 13, 1998), are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated herein by reference
shall be modified or superseded for the purposes of this Prospectus Supplement
to the extent that a statement contained herein or in any other subsequently
filed document which also is incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by Ambac Financial Group, Inc. with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act
S-8
<PAGE>
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Series B Senior Notes shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The following table sets forth the capitalization of the Insurer as of
December 31, 1995, December 31, 1996, December 31, 1997 and September 30, 1998,
respectively, in conformity with generally accepted accounting principles.
AMBAC ASSURANCE CORPORATION
CONSOLIDATED CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, DECEMBER 31, DECEMBER 31, 30, 1998
1995 1996 1997 (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Unearned premiums.............................. $ 906 $ 995 $1,184 $1,260
Other liabilities.............................. 295 259 562 803
------ ------ ------ ------
Total liabilities.............................. 1,201 1,254 1,746 2,063
------ ------ ------ ------
Stockholder's equity (1)
Common Stock................................. 82 82 82 82
Additional paid-in capital................... 481 515 521 527
Accumulated other comprehensive income....... 87 66 118 167
Retained earnings............................ 907 992 1,180 1,341
------ ------ ------ ------
Total stockholder's equity..................... $1,557 $1,655 $1,901 $2,117
------ ------ ------ ------
Total liabilities and stockholder's equity..... $2,758 $2,909 $3,647 $4,180
====== ====== ====== ======
</TABLE>
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance
with the Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" adopted by the Insurer effective January 1, 1998. As
this new standard only requires additional information in the financial
statements, it does not affect the Insurer's financial position or results
of operations.
For additional financial information concerning the Insurer, see the
audited financial statements of the Insurer incorporated by reference herein.
Copies of the financial statements of the Insurer incorporated herein by
reference and copies of the Insurer's annual statement for the year ended
December 31, 1997 prepared in accordance with statutory accounting standards are
available, without charge, from the Insurer. The address of the Insurer's
administrative offices and its telephone number are One State Street Plaza, 17th
Floor, New York, New York 10004 and (212) 668-0340.
The Insurer makes no representation regarding the Series B Senior Notes or
the advisability of investing in the Series B Senior Notes and makes no
representation regarding, nor has it participated in the preparation of, this
Prospectus Supplement other than the information supplied by the Insurer and
presented under this heading "The Policy and the Insurer" and in the financial
statements incorporated herein by reference.
RATINGS
It is anticipated that Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies ("S&P"), and Moody's Investors Service, Inc.
("Moody's") will assign the Series B Senior Notes the ratings of "AAA" and
"Aaa", respectively, conditioned upon the issuance and delivery by the Insurer
at the time of delivery of the Series B Senior Notes of the Policy, insuring the
timely payment of the principal of and interest on the Series B Senior Notes.
Such ratings reflect only the views of such ratings agencies, and an explanation
of the significance of such ratings may be obtained only from such rating
agencies at the following addresses: Moody's Investors Service, Inc., 99 Church
Street, New York, New York 10007; Standard & Poor's, 25 Broadway, New York, New
York 10004. There is no assurance that such ratings will remain in effect for
any
S-9
<PAGE>
period of time or that they will not be revised downward or withdrawn entirely
by said rating agencies if, in their judgment, circumstances warrant. Neither
the Company nor any Underwriter has undertaken any responsibility to oppose any
proposed downward revision or withdrawal of a rating on the Series B Senior
Notes. Any such downward revision or withdrawal of such ratings may have an
adverse effect on the market price of the Series B Senior Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for S&P -- AAA, AA, A and BBB and for
Moody's -- Aaa, Aa, A and Baa. S&P defines "AAA" as the highest rating assigned
to a debt obligation. Moody's defines "Aaa" as representing the best quality
debt obligation carrying the smallest degree of investment risk.
EXPERTS
The financial statements and schedules of the Company included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
incorporated by reference herein, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports. With respect to
the Company's unaudited interim financial information for the periods ended
March 31, 1998 and 1997, June 30, 1998 and 1997 and September 30, 1998 and 1997,
included in the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, respectively, and
incorporated by reference herein, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for review of such
information. However, their separate reports thereon state that they did not
audit and they do not express an opinion on such interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures employed.
In addition, the accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933, as amended (the "1933 Act"), for their
reports on the unaudited interim financial information because these reports are
not "reports" or "parts" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of said Act.
Statements as to matters of law and legal conclusions in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, relating to
titles to property of the Company under "Item 2 -- Properties -- Titles to
Property," and relating to the Company under "Item 1 -- Business -- Regulation,"
"Item 1 -- Business -- Rate Matters" and "Item 1 -- Business -- Competition,"
have been reviewed by Troutman Sanders LLP, general counsel for the Company, and
such statements are made upon the authority of such firm as experts.
The consolidated financial statements of the Insurer, Ambac Assurance
Corporation, as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, are incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
S-10
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc.,
Morgan Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential
Securities Incorporated and Salomon Smith Barney Inc. are acting as
Representatives) and each of the Underwriters has severally agreed to purchase
from the Company the respective principal amount of Series B Senior Notes set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
SERIES B
SENIOR NOTES
NAME -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $ 28,750,000
A.G. Edwards & Sons, Inc.................................... 28,250,000
Morgan Stanley & Co. Incorporated........................... 28,250,000
PaineWebber Incorporated.................................... 28,250,000
Prudential Securities Incorporated.......................... 28,250,000
Salomon Smith Barney Inc.................................... 28,250,000
ABN AMRO Incorporated....................................... 1,250,000
Robert W. Baird & Co. Incorporated.......................... 1,250,000
Bear, Stearns & Co. Inc..................................... 1,250,000
J.C. Bradford & Co.......................................... 1,250,000
CIBC Oppenheimer Corp....................................... 1,250,000
Credit Suisse First Boston Corporation...................... 1,250,000
Dain Rauscher Incorporated.................................. 1,250,000
EVEREN Securities, Inc...................................... 1,250,000
Goldman, Sachs & Co......................................... 1,250,000
Interstate/Johnson Lane Corporation......................... 1,250,000
Edward D. Jones & Co., L.P.................................. 1,250,000
Legg Mason Wood Walker, Incorporated........................ 1,250,000
Lehman Brothers Inc......................................... 1,250,000
Morgan Keegan & Company, Inc................................ 1,250,000
J.P. Morgan Securities Inc.................................. 1,250,000
Piper Jaffray Inc........................................... 1,250,000
Raymond James & Associates, Inc............................. 1,250,000
Regions Investment Company, Inc............................. 1,250,000
The Robinson-Humphrey Company, LLC.......................... 1,250,000
Roney Capital Markets....................................... 1,250,000
Muriel Siebert & Co., Inc................................... 1,250,000
Tucker Anthony Incorporated................................. 1,250,000
Utendahl Capital Partners, L.P.............................. 1,250,000
Wheat First Securities, Inc................................. 1,250,000
------------
Total......................................... $200,000,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Series B Senior
Notes offered hereby if any of the Series B Senior Notes are purchased.
The expenses associated with the offer and sale of the Series B Senior
Notes are expected to be $2,295,000, which includes the initial premium for the
Policy.
The Underwriters propose to offer the Series B Senior Notes in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession not in excess of $.50 per Series B
Senior Note. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.30 per Series B Senior Note to certain brokers and
dealers. After the Series B Senior Notes are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Representatives.
S-11
<PAGE>
Prior to this offering, there has been no public market for the Series B
Senior Notes. The Series B Senior Notes are expected to be approved for listing
on the NYSE, subject to official notice of issuance. Trading of the Series B
Senior Notes on the NYSE is expected to commence within a 30-day period after
the initial delivery of the Series B Senior Notes. The Representatives have
advised the Company that they intend to make a market in the Series B Senior
Notes prior to the commencement of trading on the NYSE. The Representatives will
have no obligation to make a market in the Series B Senior Notes, however, and
may cease market making activities, if commenced, at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the 1933 Act. The Underwriters have
agreed to reimburse the Company for certain expenses.
In connection with the offering, the Underwriters may purchase and sell the
Series B Senior Notes in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Series B Senior Notes and
syndicate short positions involve the sale by the Underwriters of a greater
number of Series B Senior Notes than they are required to purchase from the
Company in the offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker dealers in
respect of the securities sold in the offering for their account may be
reclaimed by the syndicate if such Series B Senior Notes are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Series B Senior
Notes, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its affiliates in the
ordinary course of business.
S-12
<PAGE>
APPENDIX A -- FORM OF POLICY
A-1
<PAGE>
APPENDIX A
[SPECIMEN]
[AMBAC LETTERHEAD]
FINANCIAL GUARANTY INSURANCE POLICY
Obligor: Policy Number:
Obligations: Premium:
AMBAC ASSURANCE CORPORATION (AMBAC) A Wisconsin Stock Insurance Company in
consideration of the payment of the premium and subject to the terms of this
Policy, hereby agrees to pay to United States Trust Company of New York, as
trustee, or its successor (the "Insurance Trustee"), for the benefit of the
Obligees, that portion of the principal of and interest on the above-described
obligations (the "Obligations") which shall become Due for Payment but shall be
unpaid by reason of Nonpayment by the Obligor.
Ambac will make such payments to the Insurance Trustee within one (1) business
day following notification to Ambac of Nonpayment. Upon an Obligee's
presentation and surrender to the Insurance Trustee of such unpaid Obligations
or appurtenant coupons, uncanceled and in bearer form and free of any adverse
claim, the Insurance Trustee will disburse to the Obligee the face amount of
principal and interest which is then Due for Payment but is unpaid. Upon such
disbursement, Ambac shall become the owner of the surrendered Obligations and
coupons and shall be fully subrogated to all of the Obligee's rights to payment.
In cases where the Obligations are issuable only in a form whereby principal is
payable to registered Obligees or their assigns, the Insurance Trustee shall
disburse principal to an Obligee as aforesaid only upon presentation and
surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free
of any adverse claim, together with an instrument of assignment, in form
satisfactory to the Insurance Trustee duly executed by the Obligee or such
Obligee's duly authorized representative, so as to permit ownership of such
Obligation to be registered in the name of Ambac or its nominee. In cases where
the Obligations are issuable only in a form whereby interest is payable to
registered Obligees or their assigns the Insurance Trustee shall disburse
interest to an Obligee as aforesaid only upon presentation to the Insurance
Trustee of proof that the claimant is the person entitled to the payment of
interest on the Obligation and delivery to the Insurance Trustee of an
instrument of assignment, in form satisfactory to the Insurance Trustee, duly
executed by the claimant Obligee or such Obligee's duly authorized
representative, transferring to Ambac all rights under such Obligation to
receive the interest in respect of which the insurance disbursement was made.
Ambac shall be subrogated to all of the Obligees' rights to payment on
registered Obligations to the extent of the insurance disbursements so made.
In the event that a trustee or paying agent for the Obligations has notice that
any payment of principal of or interest on an Obligation which has become Due
for Payment and which is made to an Obligee by or on behalf of the Obligor has
been deemed a preferential transfer and theretofore recovered from the Obligee
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such Obligee will be
entitled to payment from Ambac to the extent of such recovery if sufficient
funds are not otherwise available.
As used herein, the term "Obligee" means any person other than the Obligor who,
at the time of Nonpayment, is the owner of an Obligation or of a coupon
appertaining to an Obligation. As used herein, "Due for Payment", when referring
to the principal of Obligations, is when the stated maturity date or mandatory
redemption date for the application of a required sinking fund installment has
been reached and does not refer to any earlier date on which payment is due by
reason of call for redemption (other than by application of required sinking
fund installments), acceleration or other advancement of maturity; and, when
referring to interest on the Obligations, is when the stated date for payment of
interest has been reached. As used herein, "Nonpayment" means the failure of the
Obligor to have provided sufficient funds to the paying agent for payment in
full of all principal of and interest on the Obligations which are Due for
Payment.
This Policy is noncancelable. The premium on this Policy is not refundable for
any reason, including payment of the Obligations prior to maturity. This Policy
does not insure against loss of any prepayment or other acceleration payment
which at any time may become due in respect of any Obligation, other than at the
sole option of Ambac, nor against any risk other than Nonpayment.
In witness whereof, Ambac has caused this Policy to be affixed with a facsimile
of its corporate seal and to be signed by its duly authorized officers in
facsimile to become effective as its original seal and signatures and binding
upon Ambac by virtue of the countersignature of its duly authorized
representative.
/s/ P. LASSITER /s/ STEPHEN D. COOKE
[SEAL]
President Secretary
Effective Date:
UNITED STATES TRUST COMPANY OF NEW YORK acknowledges that it has agreed to
perform the duties of Insurance Trustee under this Policy.
Authorized Representative
/s/ H. WILLIAM WEBER
Authorized Officer
<PAGE>
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$200,000,000
(GPC LOGO)
SERIES B 6.60% SENIOR NOTES DUE DECEMBER 31, 2038
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
NOVEMBER 19, 1998
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