Amendment No. 3 to
SEC File No. 70-9529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
Jersey Central Power & Light Company ("JCP&L")
2800 Pottsville Pike
Reading, Pennsylvania 19605
(Name of company filing this statement and address of principal executive
office)
GPU, INC. ("GPU")
(Name of top registered holding company parent of applicant)
Terrance G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman LLP
Scott L. Guibord, Secretary 120 West 45th Street
Michael J. Connolly, Esq. New York, New York 10036
Vice President - Law
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Scott L. Guibord, Secretary
Jersey Central Power & Light
Company
2800 Pottsville Pike
Reading, Pennsylvania 19605
(Names and addresses of agents for service)
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JCP&L hereby amends its Application on Form U-1, docketed in SEC
File No. 70-9529, as heretofore amended, as follows:
1. By amending the second paragraph of Paragraph O of Item 1
thereof to read in its entirety as follows:
The Special Purpose Issuer may issue transition bonds in one or more
series, and each such series may be issued in one or more classes. Different
series may have different maturities and interest rates and each series may have
classes with such maturities, interest rates and other terms as JCP&L shall
determine from time to time in the future. The transition bonds of each series
and class will bear interest at rates determined based on prevailing market
conditions at the time of sale. The rates will be comparable to those on
transition bonds having similar terms, conditions and features issued under
similar market conditions by issuers of comparable credit quality similarly
situated. The TBC for each series will be structured to provide for the recovery
of the principal amount of the related transition bonds and the related
interest, fees and expenses. There will be a date on which each of the
transition bonds is expected to be repaid and a legal final maturity date by
which the transition bonds must be repaid. Neither the expected final maturity
nor the legal final maturity will be later than 15 years and 17 years,
respectively, from the date of issuance of the related transition bonds. The
expected final maturity date must be earlier than the legal final maturity date
to meet rating agency requirements because the TBC is calculated by taking into
account projections of such variables as the anticipated level of charge-offs,
delinquencies, and usage, which may differ from the amounts actually
experienced.
2. By amending Paragraph Q of Item 1 thereof to read in its
entirety as follows:
Q. JCP&L will receive a servicing fee for its servicing activities
and reimbursement for certain of its expenses in the manner set forth in the
Servicing Agreement. JCP&L's servicing fee will be set at an amount equal to a
fixed percentage of the initial principal amount of the transition bonds,
designed to collect approximately $400,000 annually. This fee may not reflect
JCP&L's actual costs of providing the related services and therefore may not
meet the "at cost" requirements of Section 13(b) of the Act and Rules 90 and 91
thereunder. Thus, JCP&L is seeking an exemption from these requirements. The
credit rating agencies will require that the servicing fee be set at a level
comparable to one negotiated at arms-length and which would thus be reasonable
and sufficient for a third party
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performing similar services.(1) These rating agencies are accustomed to
evaluating securitization transactions that include servicing fees based on a
fixed percentage of the initial principal amount of the related bonds, rather
than a fee based on actual costs as would otherwise be required by the Act when
JCP&L is the servicer. The lack of certainty engendered by a fee that is not
fixed, with the potential to fluctuate with costs, could have a negative impact
on the credit rating of the transition bonds. In addition to the certainty
provided by the pre-set fee, an "arms-length" fee helps to assure that the
Special Purpose Issuer would be able to operate independently and thus
strengthens the position that it is a "bankruptcy remote"(2) entity.
JCP&L is the most logical and cost-effective choice for servicer for
a number of reasons. JCP&L is already performing many of the servicer's tasks in
its capacity as the local distribution utility, such as metering and billing,
and, thus, the servicing fee JCP&L collects, even when determined on an
"arms-length" basis, will be substantially lower than the fee any other entity
would charge. Having JCP&L act as servicer is therefore beneficial to ratepayers
because, ultimately, it is the ratepayers who will pay the servicing fee through
the TBC.
3. By filing the following exhibits on Item 6 thereof.
F - Opinion of Berlack, Israels & Liberman, LLP
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1 Of course, as noted in the following paragraph, an arms-length fee for an
entity that also serves as the local distribution utility is likely to be less
than an arms-length fee for another entity.
2 A "bankruptcy remote" entity would not be impacted by a bankruptcy of JCP&L
and is, therefore, expected to have a credit rating different from (and, indeed,
higher than) that of JCP&L.
2
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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.
Jersey Central Power & Light Company
By:/s/ T. G. Howson
----------------
T. G. Howson
Vice President and Treasurer
Date: April 28, 2000
3
EXHIBIT TO BE FILED BY EDGAR
Exhibit:
F - Opinion of Berlack, Israels & Liberman, LLP
Exhibit F-1
April 28, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: SEC File No. 70-9529
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Ladies and Gentlemen:
We have examined the Application on Form U-1, dated July 15, 1999,
under the Public Utility Holding Company Act of 1935, as amended (the "Act"),
filed by Jersey Central Power & Light Company ("JCP&L") with the Securities and
Exchange Commission and docketed in SEC File No. 70-9529, as amended by
Amendment No. 1 thereto, dated September 24, 1999, Amendment No. 2 thereto,
dated February 18, 2000, and Amendment No. 3 thereto, dated this date, of which
this opinion is to be a part. (The Application, as so amended and as thus to be
amended, is hereinafter referred to as the "Application".)
The Application contemplates, among other things, the organization
by JCP&L of a Delaware limited liability company (the "Special Purpose Issuer"),
which will be a direct or indirect subsidiary of JCP&L and will issue and sell
up to $587 of transition bonds ("Transition Bonds"), in accordance with the New
Jersey Electric Discount and Energy Competition Act of 1999.
We have been counsel to JCP&L and its parent, GPU, Inc. and its
subsidiaries for many years. In such capacity, we have participated in various
proceedings relating to JCP&L, GPU and its other subsidiaries, and we are
familiar with the terms of the outstanding securities of the corporations
comprising the GPU holding company system.
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Securities and Exchange Commission
April 28, 2000
Page 2
We have examined such records of JCP&L and its subsidiaries
including the Special Purpose Issuer, and have made such further investigation
as we have deemed necessary as a basis for this opinion.
We are members of the Bar of the State of New York and do not
purport to be experts on the laws of any jurisdiction other than the laws of the
State of New York and the federal laws of the United States. We have, however,
reviewed the General Corporation Law of the State of Delaware, the applicable
provisions of the Delaware Constitution and the reported judicial decisions
interpreting those laws to the extent required to express the opinions set forth
herein.
We have assumed that (i) all necessary action, corporate or
otherwise, required on the part of JCP&L, and other relevant entities, including
the Special Purpose Issuer, shall have been duly taken; (ii) the Commission
shall have entered an order forthwith granting the Application; and (iii) all
action under the Federal securities laws and state "Blue Sky" laws to permit the
proposed transaction shall have been completed.
Based upon and subject to the foregoing, and assuming that the
transactions therein proposed are carried out in accordance with the
Application, we are of the opinion that:
(a) all State laws applicable to the proposed
transactions will have been complied with;
(b) the Special Purpose Issuer is validly organized
and duly existing;
(c) upon payment of the purchase price therefor by the
purchasers thereof, the Transition Bonds will be the valid and
binding obligations of the Special Purpose Issuer in accordance with
their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors rights
generally and general equitable principles; and
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Securities and Exchange Commission
April 28, 2000
Page 3
(d) the consummation of the transactions proposed in the
Application will not violate the legal rights of the holders of any
securities issued by GPU or any "associate company" thereof, as
defined in the Act.
We hereby consent to the filing of this opinion as an exhibit to the
Application and in any proceedings before the Commission that may be held in
connection therewith.
Very truly yours,
BERLACK, ISRAELS & LIBERMAN LLP
