UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 18, 1999
Commission Registrants; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification
No.
1-11327 Illinova Corporation 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
Total number of sequentially numbered pages is 9.
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Item 5. Other Events
Merger Agreement
On June 14, 1999, Illinova Corporation, an Illinois corporation
("Illinova"),parent of Illinois Power, and Dynegy Inc., a Delaware corporation
("Dynegy"), agreed to combine in a transaction in which each of Illinova and
Dynegy will become wholly owned subsidiaries of Energy Convergence Holding
Company, a newly formed Illinois corporation ("Newco"). Energy Convergence
Acquisition Corporation, an Illinois corporation and a wholly owned subsidiary
of Newco, will be merged with and into Illinova, and Dynegy Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Newco, will
be merged with and into Dynegy. The terms of the Merger are set forth in an
Agreement and Plan of Merger (the "Merger Agreement") dated as of June 14, 1999,
among Newco, Illinova, Energy Convergence Acquisition Corporation, Dynegy and
Dynegy Acquisition Corporation.
Consummation of the combination is subject to various conditions,
including: (i) receipt of necessary approvals by the stockholders of each of
Illinova and Dynegy; (ii) the expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended; (iii) the exemption of the acquisition by one of Dynegy's major
shareholders of Newco's Class B Common Stock under the Public Utility Holding
Company Act and the receipt of necessary Federal Energy Regulatory Commission
and Illinois Commerce Commission approvals; (iv) the consummation by Illinois
Power of its previously announced sale of its Clinton nuclear facility; (v)
registration of the shares of Newco Common Stock to be issued in the merger
under the Securities Act of 1933, as amended; and (vi) satisfaction of certain
other conditions. For more information, please see the Illinova 8K filed on June
14, 1999.
Illinova Power Marketing, Inc.
Illinois Power and Illinova are proceeding with plans to transfer Illinois
Power's fossil generating assets and liabilities to a newly created Illinova
subsidiary, Illinova Power Marketing, Inc. ("IPMI"). The proposed transfer is
subject to a number of conditions, including receipt of approvals from the
Illinois Commerce Commission ("ICC") and the Federal Energy Regulatory
Commission ("FERC"). In April 1999, Illinois Power filed with the ICC a Notice
with respect to the proposed transfer as required by Section 16-111(g) of the
Public Utilities Act (the "Act"). The Act permits transfers of utility assets
upon proper demonstration that the utility will satisfy certain financial and
reliability criteria. The ICC is required to render its decision by July 14,
1999. The FERC's approval is necessary for the transfer of assets to IPMI as
well as IPMI's sale of electric energy at wholesale under a proposed Power
Purchase Agreement between IPMI and Illinois Power. Under the terms of the
proposed Power Purchase Agreement, IPMI will be obligated to provide Illinois
Power with a reliable generation supply through December 31, 2004, to grant
Illinois Power the ability to reserve capacity and energy from IPMI's generating
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units, and to require IPMI to acquire replacement power as necessary to meet its
capacity obligations to Illinois Power. The proposed Power Purchase Agreement is
further expected to provide that Illinois Power generally will pay market-based
prices for capacity and energy, and that Illinois Power may reduce required
capacity and energy on an annual basis. The parties filed the proposed Power
Purchase Agreement with FERC on June 11, 1999.
Under the transaction as currently contemplated by the parties, Illinois
Power will sell its fossil generating assets and liabilities to Illinova in
exchange for a promissory note in an amount equal to the net book value of the
assets and liabilities as of the date of the transaction. At March 31, 1999, the
net book value of Illinois Power's fossil generating assets and liabilities was
approximately $2.7 billion. The promissory note is expected to be an
interest-bearing unsecured note and to mature in approximately 10 years, subject
to earlier prepayment. Illinova will then contribute the fossil generating
assets and liabilities to IPMI. The terms of the sale remain subject to change.
Securitization
In December 1998, Illinois Power caused the issuance of $864 million of
Transitional Funding Trust Notes (the "Notes") through Illinois Power
Securitization Limited Liability Company, a special purpose Delaware limited
liability company (the "Grantee") and Illinois Power Special Purpose Trust, a
special purpose Delaware business trust (the "Note Issuer"). As required by
generally accepted accounting principles, the accounts of the Grantee and the
Note Issuer are included in the consolidated financial statements of Illinois
Power and Illinova, and the Notes are reflected as long-term debt on their
consolidated balance sheets. However, the Grantee and the Note Issuer are
special purpose entities that are legally separate from Illinois Power and
Illinova. Accordingly, the holders of the Notes do not have recourse to any
assets or revenues of Illinois Power or Illinova, and the creditors of Illinois
Power or Illinova do not have recourse to any assets or revenues of the Grantee
or the Note Issuer, including without limitation, the Intangible Transition
Property. Intangible Transition Property, in the amount of $1.634 billion, was
created by a transitional funding order of the ICC on September 10, 1998.
Intangible Transition Property includes the right to impose and receive certain
nonbypassable, usage-based, per kilowatt hour instrument funding charges
("IFCs") on designated consumers of electricity in Illinois Power's service
territory, regardless of their electric supplier. The Grantee initially owned
and then assigned all of its right, title and interest in the Intangible
Transition Property to the Note Issuer, in exchange for the net proceeds of the
Notes. For the three months ended March 31, 1999, approximately $43 million of
electric operating revenues included in the consolidated statements of income of
Illinois Power and Illinova consisted of IFCs. The Notes are primarily secured
by, and payable from, the Intangible Transition Property. Illinois Power
received the net proceeds from the sale of the Notes in consideration of the
creation of the Intangible Transition Property. For accounting purposes,
Illinois Power accounts for the net proceeds of the Notes as an intercompany
payable owing to the Grantee, but it has no payment obligation in respect of
such payable except to remit IFC collections as required by the Servicing
Agreement between Illinois Power and the Grantee. For additional information
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about the Notes, the Intangible Transition Property and the IFC collections,
please refer to Illinova's and Illinois Power's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, and the Grantee's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
Clinton Power Station
Illinois Power's Clinton Power Station returned to service on May 27, 1999,
and is currently operating at full capacity. Illinois Power and AmerGen Energy
Company are continuing to negotiate the terms of a definitive agreement for the
sale of Clinton to AmerGen. AmerGen's exclusive right to negotiate with Illinois
Power for the sale of Clinton has been extended from June 15, 1999, to July 2,
1999, and discussions continue between the two companies.
* * * * *
This report contains statements that may be deemed to be forward-looking
information such as the possible consummation of the merger and other
transactions contemplated by Illinova and Dynegy; the terms of Illinois Power's
proposed transfer of fossil generating assets to IPMI; the proposed terms and
expected prepayment of the Power Purchase Agreement between Illinois Power and
IPMI; the proposed terms of the Illinova promissory note to Illinois Power and
certain matters relating to the proposed Clinton sale. Although Illinova and
Illinois Power believe that this forward-looking information is accurate, its
businesses are dependent on various regulatory issues, general economic
conditions and future trends, and these factors can cause actual results to
differ materially from the forward-looking information that has been provided.
The reader is cautioned not to put undue reliance on this forward-looking
information, which is not a guarantee of future performance and is subject to a
number of uncertainties and other factors, many of which are outside the control
of Illinova and Illinois Power.
The following factors, in addition to those discussed in Illinova's and
Illinois Power's Annual Report on Form 10-K for the year ended December 31,
1998, could cause results to differ materially from management expectations as
suggested by such forward-looking information: the results of regulatory
proceedings at the ICC and FERC; the negotiations between the parties with
respect to the Power Purchase Agreements; the negotiations between the parties
with respect to the sale of Clinton; the operating performance of Clinton; the
impact of recent and future Federal and state regulatory changes; the effects of
increased competition; the impact of fluctuations in commodity prices and
customer demand, the impact of new environmental laws and regulations; factors
affecting non-utility investments, such as the risk of doing business in foreign
countries, construction and operation risks, and increases in financing costs.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
Exhibit 12: Statements Re Computation of Ratios.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOVA CORPORATION
(Registrant)
By /s/Leah Manning Stetzner
---------------------------
Leah Manning Stetzner
General Counsel and
Corporate Secretary
on behalf of
Illinova Corporation
Date: June 18, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOIS POWER COMPANY
(Registrant)
By /s/Leah Manning Stetzner
---------------------------
Leah Manning Stetzner
Vice President, General
Counsel and Corporate
Secretary on behalf of
Illinois Power Company
Date: June 18, 1999
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Exhibit Index
The following Exhibits are hereby filed as part of this Current Report on Form
8-K:
Exhibit
Number Description
12 Statements re computation of ratios
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<TABLE>
<CAPTION>
ILLINOVA CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
Twelve Three
Months Ended Months Ended
March March
(Thousands of Dollars)
1999 1999 ** 1999
-------------------------- -------------
Earnings Available for Fixed Charges:
<S> <C> <C> <C>
Net Income (Loss) ($1,369,306) ($1,369,306) $21,870
Add:
Income Taxes:
Current (2,533) (2,533) -
Deferred - Net (18,393) (18,393) 14,100
Allocated income taxes (7,393) (7,393) (2,410)
Investment tax credit - deferred (6,897) (6,897) (365)
Income tax effect of CPS impairment (1,014,047) (1,014,047) -
Interest on long-term debt 118,972 118,972 31,085
Amortization of debt expense and
premium-net, and other interest charges 33,528 33,528 12,041
One-third of all rentals (Estimated to be
representative of the interest component) 4,002 4,002 946
Interest on in-core fuel 3,872 3,872 966
FAS 71 Regulatory Write-Offs - - -
CPS Impairment - 2,341,185 -
------------ ----------- -------------
Earnings (loss) available for fixed charges ($2,258,195) $82,990 $78,233
============ =========== =============
Fixed charges:
Interest on long-term debt $118,972 $118,972 $31,085
Amortization of debt expense and
premium-net, and other interest charges 41,410 41,410 13,860
One-third of all rentals (Estimated to be
representative of the interest component) 4,002 4,002 946
------------ ----------- -------------
Total Fixed Charges $164,384 $164,384 $45,891
============ =========== =============
Ratio of earnings to fixed charges (13.74) * 0.50 1.70
============ =========== =============
* Earnings are inadequate to cover fixed charges. Additional earnings (thousands) of $2,422,579 are required to
attain a one-to-one ratio of Earnings to Fixed Charges.
** Supplemental ratio of earnings to fixed charges presented to exclude write-off related to Clinton Impairment.
Additional earnings (thousands) of $81,394 are required to attain a one-to-one ratio of Earnings to Fixed Charges.
</TABLE>
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<TABLE>
<CAPTION>
ILLINOIS POWER COMPANY
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
Twelve Three
Months Ended Months Ended
March March
(Thousands of Dollars)
1999 1999 ** 1999
-------------------------- --------------
Earnings Available for Fixed Charges:
<S> <C> <C> <C>
Net Income (Loss) ($1,363,422) ($1,363,422) $22,911
Add:
Income
Taxes:
Current (2,533) (2,533) -
Deferred - Net (18,393) (18,393) 14,100
Allocated income taxes (2,249) (2,249) (2,121)
Investment tax credit - deferred (6,897) (6,897) (365)
Income tax effect of CPS impairment (1,014,047) (1,014,047) -
Interest on long-term debt 108,562 108,562 28,523
Amortization of debt expense and
premium-net, and other interest charges 32,179 32,179 11,384
One-third of all rentals (Estimated to be
representative of the interest component) 4,002 4,002 946
Interest on in-core fuel 3,872 3,872 966
FAS 71 Regulatory Write-Offs - - -
CPS Impairment - 2,341,185 -
------------- ------------ --------------
Earnings (loss) available for fixed charges ($2,258,926) $82,259 $76,344
============= ============ ==============
Fixed charges:
Interest on long-term debt $108,562 $108,562 $28,523
Amortization of debt expense and
premium-net, and other interest charges 40,061 40,061 13,203
One-third of all rentals (Estimated to be
representative of the interest component) 4,002 4,002 946
------------- ------------ --------------
Total Fixed Charges $152,625 $152,625 $42,672
============= ============ ==============
Ratio of earnings to fixed charges (14.80) * 0.54 1.79
============= ============ ==============
* Earnings are inadequate to cover fixed charges. Additional earnings (thousands) $2,411,551 are required
to attain a one-to-one ratio of Earnings to Fixed Charges.
** Supplemental ratio of earnings to fixed charges presented to exclude write-off related to Clinton Impairment.
Additional earnings (thousands) of $70,366 are required to attain a one-to-one ratio of Earnings to Fixed Charges.
</TABLE>
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