FILE No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION/DECLARATION
WITH RESPECT TO INTEREST RATE MANAGEMENT INSTRUMENTS
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES HOLYOKE WATER POWER COMPANY
174 Brush Hill Avenue 1 Canal Street
West Springfield, MA 01090-0010 Holyoke, MA 01040
THE CONNECTICUT LIGHT AND PUBLIC SERVICE COMPANY
POWER COMPANY OF NEW HAMPSHIRE
107 Selden Street 1000 Elm Street
Berlin, CT 06037 Manchester, NH 03101
WESTERN MASSACHUSETTS NORTH ATLANTIC
ELECTRIC COMPANY ENERGY CORPORATION
174 Brush Hill Avenue 1000 Elm Street
West Springfield, MA 01090-0010 Manchester, NH 03101
(Names of companies filing this application and addresses of principal
offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Jeffrey C. Miller
Assistant General Counsel
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
Jane P. Seidl David R. McHale
Senior Counsel Assistant Treasurer
Northeast Utilities Service Northeast Utilities Service
Company Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
I. DESCRIPTION OF PROPOSED TRANSACTIONS
(a). Description of Proposed Transactions
1. Northeast Utilities ("NU"), a registered holding company, and
certain of its subsidiaries, The Connecticut Light and Power Company
("CL&P"), Western Massachusetts Electric Company ("WMECO"), Public Service
Company of New Hampshire ("PSNH"), North Atlantic Energy Corporation ("NAEC")
and Holyoke Water Power Company ("HWP") (collectively NU, CL&P, WMECO, PSNH,
NAEC and HWP are referred to herein as "System Companies"), hereby request
approval, if and to the extent required under the Public Utility Holding
Company Act of 1935 (the "Act"), to enter into, perform, purchase and sell
financial instruments intended to manage the volatility of interest rates,
including but not limited to interest rate swaps, caps, floors, collars and
forward rate agreements or any other similar agreements ("Interest Rate
Management Instruments") to the extent any such transactions are
jurisdictional under the Act, for the period ending December 31, 2001, in a
total notional principal amount not to exceed 25% of the total outstanding
debt at any one time for each System Company individually (with the exception
of NAEC, for which the maximum would be 65%).
2. The System Companies propose to employ various types of Interest
Rate Management Instruments as a means of (i) prudently managing their
portfolios of outstanding long-term and short-term debt, such that they can
achieve some degree of control over the impact on earnings and customer rates
resulting from movements in interest rates, and (ii) prudently managing the
risk associated with the issuance of new long-term and short-term debt.
3. The System Companies have used Interest Rate Management Instruments
in the past primarily to manage floating interest rate exposure through the
use of interest rate swaps and interest rate caps. Exhibit G lists the
System Companies' use of Interest Rate Management Instruments since 1990,
including both outstanding and matured positions.
4. With the objectives of optimizing the variable-to-outstanding debt
ratio and mitigating the exposure of customer rates and earnings to changes
in interest rates, the System Companies will manage the debt portfolio in
accordance with prudent financial management practices and make an assessment
of the projected impact on the companies' rate tariffs (for those System
Companies serving customers pursuant to rate tariffs) and earnings per share.
Such management includes but is not limited to an analysis of (i) current and
projected level of interest rates, (ii) the current level of each System
Company's debt, (iii) future debt maturities, and (iv) future financing
requirements.
5. Interest Rate Management Instruments are the tools by which the
System Companies can achieve such balance by, in effect, synthetically (i)
converting variable rate debt to fixed rate debt, (ii) converting fixed rate
debt to variable rate debt, (iii) limiting the impact of changes in interest
rates resulting from variable rate debt, and (iv) providing an option to
enter into Interest Rate Management Instrument transactions in future periods
for both existing exposures and planned issuances of debt securities.
6. The notional principal amount of Interest Rate Management
Instruments for each System Company individually will not exceed 25% of the
total outstanding debt, with the exception of NAEC for which the maximum
would be 65%, at any one time. This exception results from an existing
interest rate swap associated with a $225 million term note and NAEC's
anticipated future total outstanding debt levels when taking into account the
$20 million annual sinking fund provision on its 9.05% first mortgage
bonds. "Total outstanding debt" is defined as the sum of the outstanding
short-term and long-term debt rounded to the nearest million dollars. For
each individual company the table below lists the level of total outstanding
debt at June 30, 1996, the proposed sub-limits as a percentage of total
outstanding debt, and the resulting indicative dollar limit of notional
principal based on the levels of total outstanding debt at June 30, 1996.
Indicative
Dollar
Limit -
% of
Total Out-
Outstanding % Hedge Standing
Company Debt (6/30/96) Limit Debt
The Connecticut Light and Power Company $1,990,000,000 25% $497,500,000
Public Service Company of New Hampshire $736,000,000 25% $184,000,000
Western Massachusetts Electric Company $366,000,000 25% $91,500,000
North Atlantic Energy Corporation $520,000,000 65% $338,000,000
Holyoke Water Power Company $38,000,000 25% $9,500,000
Northeast Utilities (Parent) $244,000,000 25% $61,000,000
Totals $3,894,000,000 30% $1,181,500,000
7. In no case will the notional principal amount of any Interest Rate
Management Instrument exceed that of the underlying debt instrument and
related interest rate exposure, i.e., no System Company will engage in
"leveraged" or "speculative" transactions. In addition, System Companies
propose to limit the tenor of Interest Rate Management Instruments to the
maximum maturity of the underlying System Company debt, or the maturity of
anticipated specific future debt issuances, proportionate to the amount of
indebtedness at each maturity level.
8. The underlying interest rate indices of such Interest Rate
Management Instruments will closely correspond to the underlying interest
rate indices of the System Companies' debt to which such Interest Rate
Management Instruments relate. Such indices currently include but are not be
limited to (i) floating rate indices such as the London Interbank Offered
Rate (LIBOR), prime rate, certificate of deposit rates, commercial paper
indices, the Federal funds rate, the J.J. Kenny high grade tax-exempt rate,
and the Public Securities Association Index tax-exempt rate, and (ii) fixed
rate indices such as United States Treasury note and bond rates and long-term
municipal bond rates.
9. The terms and conditions of the proposed Interest Rate Management
Instrument transactions will be the same or substantially similar to those of
the International Swap Dealers Association, Inc. (ISDA) Master Agreement,
the form of which is filed as Exhibit B.1. Each System Company would enter
into an individual Master Agreement with each proposed counterparty. A
confirmation pursuant to the Master Agreement would identify the nature of
each individual transaction, the applicable notional principal amount,
effective date, maturity, rates involved and other pertinent terms and
conditions. The System Companies will enter into Interest Rate Management
Instruments with counterparties whose senior secured debt ratings, as
published by Standard & Poor's Corporation, are greater than or equal to
"BBB+", or an equivalent rating from Moody's Investor Service, Inc., Fitch
Investor Service or Duff & Phelps. Additionally, at all times at least 75%
of the outstanding aggregate principal amount of Interest Rate Management
Instruments will be held by counterparties possessing Standard & Poor's
Corporation credit ratings of "A" rating or higher or equivalent rating. In
accordance with the ISDA Master Agreement, it is anticipated that each party
to a proposed Interest Rate Management Instrument transaction will have the
right to terminate such transactions by making early termination payments.
10. Interest Rate Management Instruments are subject to numerous
variables which will affect their cost, including (i) tenor, (ii) the strike
rate, or the rate at which it becomes effective, (iii) volatility of interest
rates, (iv) the current and projected level of interest rates, (v) the
notional principal amount of the Interest Rate Management Instrument, and
(vi) market variables such as the liquidity of the specific Interest Rate
Management Instrument. As such, it is difficult for the System Companies to
estimate the price they will pay for Interest Rate Management Instruments.
However, the System Companies will undertake to limit the transaction costs
of Interest Rate Management Instruments. The cost of instruments requiring
upfront payments such as interest rate caps will be limited to five percent
of the principal amount of the transaction. In the case of a sale of an
Interest Rate Management Instrument such as one with an interest rate floor,
the company could use such proceeds to lower the purchase price of a
corresponding Interest Rate Management Instrument, such as an interest rate
cap pertaining to the same debt obligation. For instruments that do not
require upfront payments, such as interest rate swaps, the System Companies
undertake to limit transaction costs as measured by a "swap spread" (the
difference between comparable interest rates; e.g. difference between a
5-year swap fixed rate to the 5-year Treasury) to 1.00% (100 basis points).
11. The System Companies will fully disclose in their financial
statements the extent of their Interest Rate Management Instrument
transactions in accordance with current and future Commission requirements,
generally accepted accounting principles, and Financial Accounting Standards
Board ("FASB") practices. Current financial statements disclosures include
(i) notional principal amount and (ii) market value of outstanding Interest
Rate Management Instruments outstanding. In addition, the System Companies
propose to submit an annual informational report to the Commission and to any
state commissions with jurisdiction over the transactions in a format
specifying, as to each System Company, the specific debt security subject to
the Interest Rate Management Instrument, the Interest Rate Management
Instrument's type, the notional principal amount, the Interest Rate
Management Instrument's features, cost, timing and any other relevant
features designed to show compliance with all applicable limits imposed by
regulatory authorities.
12. Exhibit H provides a list of all outstanding Interest Rate
Management Instruments in a form consistent with the above proposed annual
filing to the Commission and to any state commissions with jurisdiction over
the transactions.
13. Pro forma financial statements are not included in this filing
because the System Companies believe it is difficult to reflect the impact of
what could be numerous strategies designed to meet the System Companies'
objectives outlined in this Application, namely management of the System
Companies' existing and future portfolio of long-term and short-term debt,
such that the System Companies achieve a balanced exposure to changes in
interest rates as measured by a ratio of total variable rate debt to total
debt and the resulting impact of System Companies' earnings, and management
of the risks associated with the issuance of new short-term and long-term
debt.
14. No associate company or affiliate of the System Companies has any
material interest, directly or indirectly, in the proposed transactions.
15. Except in accordance with the Act, neither NU nor any subsidiary
thereof (1) has acquired an ownership interest in an exempt wholesale
generator ("EWG") or a foreign utility company ("FUCO") as defined in
Sections 32 and 33 of the Act, or (2) now is or as a consequence of the
transactions proposed herein have a right under, a service, sales or
construction contract with an EWG or FUCO. None of the proceeds from the
transactions proposed herein will be used by the System Companies to acquire
any securities of, or any interest in, an EWG or FUCO.
The NU system is in compliance with Rule 53(a), (b) and (c), as
demonstrated by the following determinations:
(i) NU's aggregate investment in EWGs and FUCOs (e.g. amounts
invested in or committed to be invested in EWGs and FUCOs, for which there is
recourse to NU) does not exceed 50 percent of NU system's consolidated
retained earnings as reported for the four most recent quarterly periods on
NU's Form 10-K and 10-Qs. At June 30, 1996, the ratio of such investment
($40 million) to such consolidated retained earnings ($1.0 billion) was 4.2
percent.
(ii) Encoe Partners, Central Termica San Miguel de Tucuman, S.A. Ave
Fenix and Plantas Eolicas, S. A. (NU's only EWGs or FUCOs at this time)
(collectively, "EWGs/FUCOs") maintain books and records and prepare financial
statements in accordance with Rule 53 (a)(2). Furthermore, NU has undertaken
to provide the Commission access to such books and records and financial
statements, as it may request.
(iii) No employees of the NU system's public utility companies have
rendered services to the EWGs/FUCOs.
(iv) NU has submitted (1) a copy of each Form U-1 and Rule 24
certificates that have been filed with the Commission under Rule 53 and (b)
copy of Item 9 of Form U5S and Exhibits G and H thereof to each state
regulator having jurisdiction over the retail rates of the NU system public
utility companies.
(v) Neither NU nor any NU subsidiary has been subject of a bankruptcy
or similar proceeding unless a plan of reorganization has been confirmed in
such proceeding. In addition, NU's average consolidated retained earnings
for the four most recent quarterly periods has not decreased by 10 percent or
more from the average for the previous four quarterly periods.
(vi) In the previous fiscal year, NU's operating losses attributable
to its investment in the EWGs/FUCOs did not exceed 5 percent of NU's
consolidated retained earnings.
(b). Consideration for Proposed Transactions
No consideration is to be given or received in connection with the
proposed transactions except for the fees, commissions and expenses set forth
in Section II, and amounts payable in accordance with the terms and
conditions of Interest Rate Management Instrument's contract documents the
same or substantially similar to that of the International Swap Dealers
Association, Inc. Master Agreement filed as Exhibit B.1. hereto, and within
the ranges specified in the description of Interest Rate Management
Instruments set forth in Paragraph 4 above.
II. FEES, COMMISSIONS AND EXPENSES
1. Except for the $2,000 fee payable to the Commission and as
otherwise described herein, there are no fees, commissions or expenses other
than legal fees, out-of-pocket expenses of any counterparty and intermediary
and similar expenses to be paid or incurred, directly or indirectly in
connection with the proposed transactions.
2. None of such fees, commissions or expenses are to be paid to any
associate company except for financial, legal and other services to be
performed at cost by Northeast Utilities Service Company, an associate
service company of the System Companies, in an amount not expected to exceed
$10,000 for each Interest Rate Management Instrument transaction.
III. APPLICABLE STATUTORY PROVISIONS
1. Sections 6, 7, 9(a) and 10 of the Act thereunder are or may be
applicable to the proposed Interest Rate Management Instrument transactions
proposed herein. If and to the extent that the Commission determines that
some or all of the proposed transactions are jurisdictional under the Act,
the System Companies request approval of any and all such transactions.
IV. REGULATORY APPROVALS
1. The System Companies (other than NU) will file applications for
waivers of jurisdiction over, or if applicable, approval of the various
transactions proposed herein with the Connecticut Department of Public
Utility Control ("DPUC") as to CL&P transactions, the Massachusetts
Department of Public Utilities ("MDPU") as to WMECO transactions, and the New
Hampshire Public Utilities Commission ("NHPUC") as to PSNH and NAEC
transactions and the Massachusetts Department of Finance ("MDF") as to HWP
transactions. A copy of each such application will be filed by amendment
respectively, as Exhibits D.1, D.3 and D.5, D.7 and D.9 hereto. A certified
copy of the findings and orders of the various regulatory commissions
regarding such applications will be filed by amendment as Exhibits D.2, D.4,
D.6, D.8 and D.10 hereto.
2. No other state commission, and no other federal commission (other
than the Commission pursuant to the Act) has jurisdiction over the
transactions as proposed.
V. PROCEDURE
1. The System Companies respectfully request that the Commission's
order herein be issued, subject to completion of this Application and receipt
of all necessary State approvals, on or before sixty (60) days from the date
of filing.
2. The System Companies hereby waive a recommended decision by a
hearing officer or other responsible officer of the Commission and consent
that the Division of Investment Management may assist in the preparation of
the Commission's finding and/or order and hereby requests that the
Commission's order become effective forthwith upon issuance.
VI. EXHIBITS AND FINANCIAL STATEMENTS
(a). Exhibits
A. Not Applicable
B.1. International Swap Dealers Association Master Agreement
C. Not Applicable
*D.1. CL&P Application to DPUC
*D.2. Order of DPUC
*D.3. WMECO Application to MDPU
*D.4. Order of MDPU
*D.5. PSNH Application to NHPUC
*D.6. Order of NHPUC
*D.7. NAEC Application to NHPUC
*D.8. Order of NHPUC
*D.9. HWP Application to MDF
*D.10. Order of MDF
E. Not Applicable
*F.1. Opinion of Counsel
G. Northeast Utilities and Subsidiaries Interest Rate Management
Instruments Outstanding and Matured as of June 30, 1996
H. Proposed Form of Quarterly Report of Interest Rate Management
Instrument Transactions
I. Proposed Form of Notice Under the Public Utility Holding Company
Act of 1935
* To be filed by amendment
(b). Financial Statements*
1. Northeast Utilities (parent only)
1.1 Balance Sheet, per books, as of June 30, 1996
1.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
2. Northeast Utilities and Subsidiaries (consolidated)
2.1 Balance Sheet, per books, as of June 30, 1996
2.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
3. The Connecticut Light and Power Company
3.1 Balance Sheet, per books, as of June 30, 1996
3.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
4. Western Massachusetts Electric Company
4.1 Balance Sheet, per books, as of June 30, 1996
4.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
5. Holyoke Water Power Company
5.1 Balance Sheet, per books, as of June 30, 1996
5.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
6. Public Service Company of New Hampshire
6.1 Balance Sheet, per books, as of June 30, 1996
6.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
7. North Atlantic Energy Corporation
7.1 Balance Sheet, per books, as of June 30, 1996
7.2 Statement of Income, per books, for the twelve months ended
June 30, 1996
* to be filed by amendment when available (anticipated mid-August 1996)
VII. INFORMATION AS TO ENVIRONMENTAL EFFECTS
1. The proposed transaction has no environmental effects in terms of
the standards set forth in Section 102(2) of the National Environmental
Policy Act (42 U.S.C. 4232(2)), as it involves only the execution, delivery
and performance of financial instruments.
2. No federal agency has prepared or is preparing an environmental
impact statement ("EIS") with respect to the proposed transaction.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned have duly caused this Application to be
signed on behalf of each of them by the undersigned thereunto duly
authorized.
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
HOLYOKE WATER POWER COMPANY
NORTH ATLANTIC ENERGY CORPORATION
By: /s/David R. McHale
Assistant Treasurer
Date: August 6, 1996
EXHIBIT B.1
Local Currency-Single Jurisdiction
ISDA
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of:
and
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other
confirming evidence (e.g., a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:
1. Interpretation
(a) Definitions. The terms defined in Section 12 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the
Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value on
that date in the place of the account specified in the relevant Confirmation
or otherwise pursuant to this Agreement, in freely transferable funds and in
the manner customary for payments in the required currency. Where settlement
is by delivery (that is, other than by payment), such delivery will be made
for receipt on the due date in the manner customary for the relevant
obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3) each
other applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to
which such change applies unless such other party gives timely notice of a
reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction.
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an obligation upon the party by
whom the larger aggregate amount would have been payable to pay to the other
party the excess of the larger aggregate amount over the smaller aggregate
amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election
may be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case, subparagraph
(ii) above will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of branches or offices
through which the parties make and receive payment for deliveries.
(d) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section 6(c),
be required to pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as such overdue
amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment, as the Default Rate. Such
interest will be calculated on the basis of daily compounding and the actual
number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party
defaults in the performance of any obligation required to be settled by
delivery, it will compensate the other party on demand if and to the extent
provided for in the relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into) that:
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under such
laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that it
is required by this Agreement to deliver and to perform its obligations under
this Agreement and any obligations it has under any Credit Support Document
to which it is a party and has taken all necessary action to authorize such
execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any contractual
restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to have
been obtained by it with respect to this Agreement or any Credit Support
Document to which it is a party have been obtained and are in full force and
effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors rights generally and subject
as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at
law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as a
result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suite or
proceeding at law or in equity or before any court, tribunal, governmental
body, agency or official or any arbitrator that is likely to affect the
legality, validity or enforceability against it of this Agreement or any
Credit Support Document to which it is a party or its ability to perform its
obligations under this Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of the
date of the information, true, accurate and complete in every material
respect.
4. Agreements
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support Document
to which it is a party:
(a) Furnish Specified Information. It will deliver to the other party any
forms, documents or certificates specified in the Schedule or any
Confirmation by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain
in full force and effect, all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(d)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any
agreement or obligation (other than an obligation to make any payment under
this Agreement or delivery under Section 2(a)(i) or 2(d) or to give notice of
a Termination Event or any agreement or obligation under Section 4(a)) to be
complied with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after notice of
such failure is given to the party.
(iii) Credit Support Default. (1) Failure by the party or any Credit
Support Provider of such party to comply with or perform any agreement or
obligation to be complied with or performed by it in accordance with any
Credit Support Document if such failure is continuing after any applicable
grace period has elapsed; (2) the expiration or termination of such Credit
Support Document or the failing or ceasing of such Credit Support Document to
be in full force and effect for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the satisfaction of all
obligations of such party under each Transaction to which such Credit Support
Document relates without the written consent of the other party; or (3) the
party or such Credit Support Provider disaffirms, disclaims, repudiates or
rejects, in whole or in part, or challenges the validity of such Credit
Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to have
been made or repeated by the party or any Credit Support Provider of such
party in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated or
deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation of,
an acceleration of obligations under, or an early termination of, that
Specified Transaction; (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due on
the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Day if there is no applicable notice requirement
or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in
whole or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event of
default, or other similar conditions or event (however described) in respect
of such party, any Credit Support Provider of such party or any applicable
Specified Entity of such party under one or more agreements or instruments
relating to Specified Indebtedness of any of them (individually or
collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under such
agreements or instruments (after giving effect to any applicable notice
requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation, amalgamation or
merger); (2) becomes insolvent or is unable to pay its debts or fails or
admits in writing its inability generally to pay its debts as they become
due; (3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting
creditors' rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or petition instituted
or presented against it, such proceeding or petition (A) results in a
judgment of insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within 30 days of
the institution or presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject to the
appointment of an administrator, provisional liquidator, conservator,
receiver, trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take possession of all
or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against
all or substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter; (8) causes or is subject
to any event with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified in
clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to, another entity
and, at the time of such consolidation, amalgamation, merger or transfer:
(1) the resulting, surviving or transferee entity fails to assume all the
obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor was a
party by operation of law or pursuant to an agreement reasonably satisfactory
to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the
consent of the other party) to the performance by such resulting, surviving
or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality
if the event is specified in (i) below, and, if specified to be applicable, a
Credit Event Upon Merger if the event is specified pursuant to (ii) below or
an Additional Termination Event if the event is specified pursuant to (iii)
below:
(i) Illegality. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court, tribunal
or regulatory authority with competent jurisdiction of any applicable law
after such date, if becomes unlawful (other than as a result of a breach by
the party of Section 4(b)) for such party (which will be the Affected Party):
(1) to perform any absolute or contingent obligation to make a payment or
delivery or to receive a payment or delivery in respect of such Transaction
or to comply with any other material provision of this Agreement relating to
such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform,
any contingent or other obligation which the party (or such Credit Support
Provider) has under any Credit Support Document relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in
the Schedule as applying to the party, such party ("X"), and Credit Support
Provider of X or any applicable Specified Entity of X consolidates or
amalgamates with, or merges with or into, or transfers all or substantially
all its assets to, another entity and such action does not constitute an
event described in Section 5(a)(viii) but the creditworthiness of the
resulting, surviving or transferee entity is materially weaker than that of
X, such Credit Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its successor or
transferee, as appropriate, will be the Affected Party); or
(iii) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event and, in such event, the Affected Party or Affected
Parties shall be as specified for such Additional Termination Event in the
Schedule or such Confirmation.
(c) Event of Default and Illegality. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also
constitutes an Illegality, it will be treated as an Illegality and will not
constitute an Event of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and
is then continuing, the other party (the "Non-defaulting Party") may, by not
more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in
Section 5(a)(vii),(3),(5),(6) or, to the extent analogous thereto, (8), and
as of the time immediately preceding the institution of the relevant
proceeding or the presentation of the relevant petition upon the occurrence
with respect to such party of an Event of Default specified in
Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give such
other information about that Termination Event as the other party may
reasonably require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(1) occurs and
there are two Affected Parties, each party will use all reasonable efforts to
reach agreement within 30 days after notice thereof is given under
Section 6(b)(i) on action to avoid that Termination Event.
(iii) Right to Terminate, If:
(1) an agreement under Section 6(b)(ii) has not been effected with respect
to all Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality other than that referred to in Section 6(b)(ii), a Credit
Event Upon Merger or an Additional Termination Event occurs.
either party in the case of an Illegality, any Affected Party in the case of
an Additional Termination Event if there is more than one Affected Party, or
the party which is not the Affected Party in the case of a Credit Event Upon
Merger or an Additional Termination Event if there is only one Affected Party
may, by not more than 20 days notice to the other party and provided that the
relevant Termination Event is then continuing, designate a day not earlier
than the day such notice is effective as an Early Termination Date in respect
of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination Event
is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in
respect of the Termination Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining a
Market Quotation, the records of the party obtaining such quotation will be
conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early
Termination Date under Section 6(e) will be payable on the day that notice of
the amount payable is effective (in the case of an Early Termination Date
which is designated or occurs as a result of an Event of Default) and on the
day which is two Local Business Days after the day on which notice of the
amount payable is effective (in the case of an Early Termination Date which
is designated as a result of a Termination Event). Such amount will be paid
together with (to the extent permitted under applicable law) interest thereon
(before as well as after judgement), from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the
Applicable Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of
an Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) Events of Default. If the Early Termination Date result from an Event
of Default:
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting Party
the excess, if a positive number of (A) the sum of the Settlement Amount
(determined by the Non-defaulting Party) in respect of the Terminated
Transactions and the Unpaid Amounts owing to the Non-defaulting Party over
(B) the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive number,
the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market
Quotation apply, an amount will be payable equal to (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect of the
Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting
Party less (B) the Unpaid Amounts owing to the Defaulting Party. If that
amount is a positive number, the Defaulting Party will pay it to the Non-
defaulting Party; if it is a negative number, the Non-defaulting Party will
pay the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount
will be payable equal to the Non-defaulting Party's Loss in respect of this
Agreement. If that amount is a positive number, the Defaulting Party will
pay it to the Non-defaulting Party; if it is a negative number, the Non-
defaulting Party will pay the absolute value of that amount to the Defaulting
Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:
(1) One Affected Party. If there is one Affected Party, the amount payable
will be determined in accordance with Section 6(e)(i)(3), if Market Quotation
applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-defaulting Party will be
deemed to be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a Settlement
Amount in respect of the Terminated Transactions, and an amount will be
payable equal to (I) the sum of (a) one-half of the difference between the
Settlement Amount of the party with the higher Settlement Amount ("X") and
the Settlement Amount of the party with the lower Settlement Amount ("Y") and
(b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to Y;
and
(B) if Loss applies, each party will determine its Loss in respect of this
Agreement (or, if fewer than all the Transactions are being terminated, in
respect of all Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party with the higher
Loss ("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under this
Agreement (and retained by such other party) during the period from the
relevant Early Termination Date to the date for payment determined under
Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise provided
in this Agreement, neither party will be entitled to recover any additional
damages as a consequence of such losses.
7. Transfer
Neither this Agreement nor any interest or obligation in or under this
Agreement may be transferred (whether by way of security or otherwise) by
either party without the prior written consent of the other party, except
that:
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without prejudice
to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the Parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced
by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or electronic messages on an electronic messaging
system.
(c) Survival of Obligations. Without prejudice to Section 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to this
Agreement. The parties will specify therein or through another effective
means that any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as
a waiver, and a single or partial exercise of any right, power or privilege
will not be presumed to preclude any subsequent or further exercise, of that
right, power or privilege or the exercise of any other right, power or
privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
9. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including legal
fees, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
to which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to, costs of
collection.
10. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form, it being
agreed that the burden of proving receipt will be on the sender and will not
be met by a transmission report generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or
its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received.
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered
(or attempted) or received, as applicable, after the close of business on a
Local Business Day, in which case that communication shall be deemed given
and effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may be notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
11. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the nonexclusive jurisdiction
of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City, if this Agreement is
expressed to be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such court
does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section 1(3)
of the Civil Jurisdiction and Judgments Act of 1982 or any modification,
extension or reenactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues
and assets (irrespective of their use or intended use), all immunity on the
grounds of sovereignty or other similar grounds from (i) suit,
(ii) jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, (iv) attachment of its
assets (whether before or after judgment) and (v) execution or enforcement of
any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and irrevocably
agrees, to the extent permitted by applicable law, that it will not claim any
such immunity in any Proceedings.
12. Definitions
As used in this Agreement:
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality all Transactions affected by the occurrence of
such Termination Event and (b) with respect to any other Termination Event,
all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control"
of any entity or person means ownership of a majority of the voting power of
the entity or person.
"Applicable Rate" means:
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with
Section 6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1 percent annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with
Section 6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and
"unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant Confirmation
or, if not so specified, as otherwise agreed by the parties in writing or
determined pursuant to provisions contained, or incorporated by reference, in
this Agreement, (b) in relation to any other payment, in the place where the
relevant account is located, (c) in relation to any notice or other
communication, including notice contemplated under Section 5(a)(i), in the
city specified in the address for notice provided by the recipient and, in
the case of a notice contemplated by Section 2(b), in the place where the
relevant new account is to be located and (d) in relation to
Sections 5(a)(v)(2), in the relevant locations for performance with respect
to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party
reasonably determines in good faith to be its total losses and costs (or
gain, in which case expressed as a negative number) in connection with this
Agreement or that Terminated Transaction or group of Terminated Transactions,
as the case may be, including any loss of bargain, cost of funding or, at the
election of such party but without duplication, loss or cost incurred as a
result of its terminating, liquidating, obtaining or reestablishing any hedge
or related trading position (or any gain resulting from any of them). Loss
includes losses and costs (or gains) in respect of any payment or delivery
required to have been made (assuming satisfaction of each applicable
condition precedent on or before the relevant Early Termination Date and not
made, except so as to avoid duplication, if Section 6(e)(i)(1) or (3) or
6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-
of-pocket expenses referred to under Section 9. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable.
A party may (but need not) determine its Loss by reference to quotations, of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for amount,
if any, that would be paid to such party (expressed as a negative number) or
by such party (expressed as a positive number) in consideration of an
agreement between such party (taking into account any existing Credit Support
Document with respect to the obligations of such party) and the quoting
Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in
respect of such Terminated Transaction or group of Terminated Transactions
that would, but for the occurrence of the relevant Early Termination Date,
have been required after that date. For this purpose, Unpaid Amounts in
respect of the Terminated Transaction or group of Terminated Transactions are
to be excluded but, without limitation, any payment or delivery that would,
but for the relevant Early Termination Date, have been required (assuming
satisfaction of each applicable condition precedent) after that Early
Termination Date is to be included. The Replacement Transaction would be
subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the
extent reasonably practicable as of the same day and time (without regard to
different time zones) on or as soon as reasonably practicable after the
relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations
are provided, the Market Quotation will be the arithmetic means of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation
will be the quotation remaining after disregarding the highest and lowest
quotations. For this purpose, if more than one quotation has the same
highest value or lowest value, then one of such quotations shall be
disregarded. If fewer than three quotations are provided, it will be deemed
that the Market Quotation in respect of such Terminated Transaction or group
of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention
or withholding or similar right or requirement to which the payer of an
amount under Section 6 is entitled or subject (whether arising under this
Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:
(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market Quotation
is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transaction for which a Market Quotation cannot be determined or would not
(in the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principle or surety
or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"Terminated Transaction" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or
prior to such Early Termination Date and which remain unpaid as at such Early
Termination Date and (b) in respect of each Terminated Transaction, for each
obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii)) required to be settled by delivery to such party on or
prior to such Early Termination Date and which has not been so settled as at
such Early Termination Date, an amount equal to the fair market value of that
which was (or would have been) required to be delivered as of the originally
scheduled date for delivery, in each case together with (to the extent
permitted under applicable law) interest, in the currency of such amounts,
from (and including) the date such amounts or obligations were or would have
been required to have bee paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b)
above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page
of this document.
(Name of Party)
By:
Name:
Title:
Date:
(Name of Party)
By:
Name:
Title:
Date:
EXHIBIT G
The System Companies have previously entered into the following Interest Rate
Management Instruments:
NORTHEAST UTILITIES AND SUBSIDIARIES INTEREST RATE MANAGEMENT INSTRUMENTS
OUTSTANDING AND MATURED AS OF JUNE 30, 1996
Notional Up-Front
Security Instrument Amount Instrument Cost
Company Managed Type (000s) Features (000s) Term
OUTSTANDING
NAEC Term Note Swap $25,000 5.99% Fixed <F1> $0 1996-2000
NAEC Term Note Swap 25,000 5.99% Fixed <F1> 0 1996-2000
NAEC Term Note Swap 70,000 5.88% Fixed <F1> 0 1996-2000
NAEC Term Note Swap 30,000 5.99% Fixed <F1> 0 1996-2000
NAEC Term Note Swap 50,000 6.28% Fix,Cncl <F2> 0 1996-2000
NAEC Term Note Swap 25,000 6.28% Fix,Cncl <F2> 0 1996-2000
MATURED
CL&P Term Note Option $340,000 4.50% Cap $2,890 1993-1996
WMECO Term Note Option 52,000 4.50% Cap 442 1993-1996
PSNH Term Note Option 75,000 4.50% Cap 637 1993-1996
PSNH PCRB Option 100,000 5.00% Cap 164 1993-1994
PSNH PCRB Option 50,000 4.50% Cap 33 1993-1994
PSNH PCRB Option 50,000 4.50% Cap 2 1993-1993
PSNH PCRB Option 75,000 8.00% Cap 683 1991-1993
PSNH PCRB Option 75,000 8.00% Cap 244 1991-1992
PSNH PCRB Option 75,000 8.00% Cap 6 1991-1991
PSNH Term Note Option 22,000 8.00% Cap 166 1991-1993
PSNH Term Note Option 132,000 8.00% Cap 653 1991-1993
PSNH Term Note Option 22,000 8.00% Cap 121 1991-1993
PSNH Term Note Option 22,000 8.00% Cap 80 1991-1993
PSNH Term Note Option 22,000 8.00% Cap 44 1991-1992
PSNH Term Note Option 22,000 8.00% Cap 22 1991-1992
PSNH Term Note Option 22,000 8.00% Cap 10 1991-1992
<F1> Swapped 3-month LIBOR to fixed.
<F2> Swapped 3-month LIBOR to fixed plus an NAEC option to cancel after the
third year.
EXHIBIT H
PROPOSED FORM OF QUARTERLY REPORT OF INTEREST RATE MANAGEMENT INSTRUMENTS
OUTSTANDING AND MATURED
NORTHEAST UTILITIES AND SUBSIDIARIES INTEREST RATE
MANAGEMENT INSTRUMENTS OUTSTANDING AS OF JUNE 30, 1996
Notional Up-Front
Security Instrument Amount Instrument Cost
Company Managed Type (000s) Features (000s) Term
NAEC Term Note Swap $25,000 5.99% Fixed <F3> $0 1996-2000
NAEC Term Note Swap 25,000 5.99% Fixed <F3> 0 1996-2000
NAEC Term Note Swap 70,000 5.88% Fixed <F3> 0 1996-2000
NAEC Term Note Swap 30,000 5.99% Fixed <F3> 0 1996-2000
NAEC Term Note Swap 50,000 6.28% Fix,Cncl <F4> 0 1996-2000
NAEC Term Note Swap 25,000 6.28% Fix,Cncl <F4> 0 1996-2000
<F3> Swapped 3-month LIBOR to fixed.
<F4> Swapped 3-month LIBOR to fixed plus an NAEC option to cancel after the
third year
EXHIBIT I
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filings Under the Public Utility Holding Company Act of 1935 ("Act")
, 1996
Northeast Utilities, The Connecticut Light and Power Company, Western
Massachusetts Electric Company, Public Service Company of New Hampshire,
North Atlantic Energy Corporation, and Holyoke Water Power Company
Northeast Utilities ("NU"), a registered public utility holding company, and
its subsidiaries, The Connecticut Light and Power Company ("CL&P"), Western
Massachusetts Electric Company ("WMECO"), Public Service Company of New
Hampshire ("PSNH"), North Atlantic Energy Corporation ("NAEC") and Holyoke
Water Power Company ("HWP") (collectively NU, CL&P, WMECO, PSNH, NAEC and HWP
are referred to herein as "System Companies"), have filed an application /
declaration requesting: approval to the extent required to enter into,
perform, purchase and sell financial instruments intended to manage the
volatility of interest rates, including but not limited to interest rate
swaps, caps, floors, collars and forward rate agreements or any other similar
agreement ("Interest Rate Management Instruments") to the extent any such
transaction is jurisdictional under the Act, in an aggregate amount not
exceeding 25% of the total outstanding debt at any time for any NU System
Company (with the exception of NAEC, for which the maximum would be 65%), for
the period ending December 31, 2001.
Managing interest rate risk through Interest Rate Management Instruments
will allow the System Companies to prudently manage the risk inherent in
their debt positions and thus control the impact on earnings and customer
rates resulting from movements in interest rates. Interest Rate Management
Instruments are the tools necessary to create and implement an interest rate
risk management program.
The System Companies (other than NU) will file applications for waivers
of jurisdiction over, or if applicable, approval of the various transactions
proposed herein with the Connecticut Department of Public Utility Control
("DPUC") as to CL&P transactions, the Massachusetts Department of Public
Utilities ("MDPU") as to WMECO transactions, and the New Hampshire Public
Utilities Commission ("NHPUC") as to PSNH and NAEC transactions and the
Massachusetts Department of Finance ("MDF") as to HWP transactions. No other
state commission, and no other federal commission (other than the Commission
pursuant to the Act) has jurisdiction over the transactions as proposed.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
