File No. ____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form U-1
APPLICATION/DECLARATION WITH RESPECT TO THE ORGANIZATION
OF A WHOLLY OWNED SUBSIDIARY RELATED TO AN ACCOUNTS RECEIVABLE
PURCHASE AND SALE PROGRAM AND RELATED TRANSACTIONS
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
WESTERN MASSACHUSETTS ELECTRIC COMPANY
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
(Name of companies filing this statement and address of principal
executive office)
NORTHEAST UTILITIES
(Name of top registered holding company parent of declarant)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all
orders, notices, and communications to
David R. McHale, Esq. Jeffrey C. Miller, Esq.
Assistant Treasurer - Finance Assistant General Counsel
Northeast Utilities Service Northeast Utilities Service
Company Company
P.O. Box 270 P.O. Box 270
Hartford, CT 06141-0270 Hartford, CT 06141-0270
Thomas R. Wildman, Esq.
Day, Berry & Howard
CityPlace
Hartford, CT 06103-3499
<PAGE>
ITEM I
DESCRIPTION OF PROPOSED TRANSACTIONS
1. Western Massachusetts Electric Company ("WMECO" or the
"Company"), a wholly-owned electric utility subsidiary of Northeast Utilities
("NU"), a registered holding company, hereby submits this
Application/Declaration pursuant to the Public Utility Holding Company Act of
1935, as amended (the "Act"), with respect to proposed transactions relating to
the formation by the Company of a wholly owned subsidiary related to an
accounts receivable purchase and sale program and related transactions. As set
forth in paragraphs 12 and 13 below, the Company will use the proposed
transactions to accelerate its receipt of anticipated cash income from certain
accounts receivable.
2. WMECO proposes to organize a wholly owned special purpose
corporation ("NewCo") for the sole purpose of purchasing certain categories of
WMECO*s accounts receivable and related assets, as described below. A Draft of
NewCo*s Certificate of Incorporation will be filed by amendment as Exhibit A.1,
and a draft of the Bylaws of NewCo will be filed by amendment as Exhibit A.2.
WMECO will subscribe to and purchase all of NewCo*s Common Stock at a price yet
to be determined which will be sufficient to meet NewCo*s equity capital
requirements, including the organizational expenses of NewCo. All or part of
such purchase price may be paid by the transfer by WMECO to NewCo of accounts
receivables of WMECO. A copy of WMECO*s authorizing resolution for this
purchase will be filed by amendment as Exhibit A.3. All fees, commissions and
expenses expected to be paid or incurred by WMECO in connection with the
creation of NewCo will be filed by amendment in Exhibit H.1; those by NewCo in
Exhibit H.2.
3. On September 13, 1996, the Company entered into a Receivables
Purchase and Sale Agreement (the "Existing Agreement")with Monte Rosa Capital
Corporation (the "Purchaser") and Union Bank of Switzerland, New York Branch
(the "Agent") under which the Company may sell (from time to time in its
discretion and subject to the satisfaction of certain conditions precedent)
fractional, undivided ownership interests expressed as a percentage ("Undivided
Interests") in (i) billed and unbilled indebtedness of customers
("Receivables") and (ii) certain related assets, including any security or
guaranty for any Receivables, all collections thereon, and related records and
software (the "Related Assets"). The Purchaser is a special purpose Delaware
corporation which acquires receivables and other assets and issues commercial
paper (and draws on its bank facilities) to finance these acquisitions. The
Agent will act as agent for the Purchaser for transactions under the Existing
Agreement. As of the date of this filing, the Company has not made any sales
under the Existing Agreement.
4. The Existing Agreement is structured so that any sales made
thereunder will be accounted for as sales under generally accepted accounting
principles. In order for such sales made on or after January 1, 1997 to be so
treated, they must comply with the requirements of the Statement of Financial
Accounting Standards No. 125 issued in June 1996 ("FAS 125"). The formation of
NewCo is intended to satisfy one of the requirements of FAS 125: the
requirement that the transferred assets be isolated from the Company and its
creditors, even in bankruptcy or receivership of the Company. The Existing
Agreement contemplates that a restructured sales arrangement involving NewCo
will be in place by February 1, 1997, at which date the Existing Agreement will
terminate.
5. The restructured accounts receivable sales program will consist
of two agreements which will replace the Existing Agreement. Under the first
agreement (the "Company Agreement"), the Company will sell all of its
Receivables and Related Assets to NewCo. The purchase price for any
Receivables and the Related Assets with respect thereto will take into account
historical loss statistics on the Company*s receivables pool. Under the second
agreement (the "NewCo Agreement"), NewCo will sell Undivided Interests to the
Purchaser from time to time. Such Undivided Interests may be funded and repaid
on a revolving basis. The purchase price for an Undivided Interest will be
calculated according to a formula. Such formula will include reserves based on
(among other things) a multiple of historical losses, a multiple of historical
dilution (such as, e.g., adjustments due to billing errors), customer
concentrations that exceed specified levels and carrying costs and other costs
associated with the agreements.
6. The purchase price paid by the Purchaser for Undivided Interests
will be lower than the purchase price paid by NewCo to the Company for
Receivables and Related Assets. Generally, NewCo will make up this difference
from collections on the Receivables that are not allocated to the Undivided
Interests.
7. Under the NewCo Agreement, purchases may be funded by the
Purchaser*s issuance of commercial paper or drawing under its bank facilities.
Initially, the aggregate purchase price paid by the Purchaser for Undivided
Interests is not intended to exceed $50,000,000. The minimum purchase price
for an Undivided Interest which may be sold in a single transaction will be
$1,000,000.
8. The Agent will have the right to appoint a servicer on behalf of
the Purchaser and NewCo, to administer and collect receivables and to notify
the obligors of the sale of their receivables, at the Agent*s option. WMECO
will be appointed as the initial servicer, and only under certain adverse
conditions can the Agent appoint a successor servicer. WMECO will continue to
utilize the services of its affiliate, Northeast Utilities Service Company, in
performing WMECO*s servicing obligations. Therefore, WMECO*s customers are not
expected to experience any change in current collection procedures.
9. Certain obligations under the Company Agreement create limited
recourse against the Company. Such recourse claims include liability for (i)
failure to transfer to NewCo a first priority ownership interest in the
Receivables and Related Assets, (ii) the Company*s breach of its
representations, warranties and covenants, and (iii) certain indemnity
obligations. In order to secure these obligations, the Company has granted to
the Agent a lien on, and security interest in, any rights which the Company may
have in respect of Receivables and Related Assets. The NewCo Agreement creates
comparable recourse obligations against NewCo, and NewCo grants a security
interest in the Receivables, the Related Assets and certain other rights and
remedies (including its rights and remedies under the Company Agreement) to
secure such recourse obligations.
10. The Company and NewCo will be obligated to reimburse the
Purchaser and the Agent for various costs and expenses associated with the
Company Agreement and the NewCo Agreement. NewCo will also be required to pay
to the Agent certain fees for services in connection with such agreements.
WMECO as collection agent will receive fees from the Purchaser. See Exhibits
H.1 and H.2 (to be filed by amendment).
11. The arrangements under the Company Agreement and the NewCo
Agreement are scheduled to terminate on September 4, 2001. NewCo may, upon at
least five business days* notice to the Agent, terminate in whole or reduce in
part the unused portion of its purchase limit in accordance with the terms and
conditions of the NewCo Agreement. The NewCo Agreement allows the Purchaser to
assign all of its rights and obligations under the NewCo Agreement (including
its Undivided Interests and the obligation to fund Undivided Interests) to
other persons, including the providers of its bank facilities. However, any
such assignment will not change the nature of the obligations of WMECO or NewCo
under the Company Agreement and the NewCo Agreement. All references herein to
the Purchaser include reference to its assignees.
12. WMECO intends that the above-described transactions will permit
it to accelerate its receipt of cash collections from accounts receivable and
thereby allow it to maintain an adequate level of working capital and to
finance short term cash needs. WMECO believes that the planned purchase and
sale transactions will provide it with needed financial flexibility at a time
when the Company expects to incur substantial costs as a result of the outages
of the Millstone nuclear plants. As the Commission is aware, the NU companies
are engaging in a series of financial transactions to permit them to meet their
financial needs in the near future. See, e.g., File No. 70-8875.
13. WMECO believes that, based on indicative pricing, funding under
the proposed transactions will be more advantageous than other sources of funds
that WMECO and other NU companies are seeking.
14. Except in accordance with the Act, neither NU nor any subsidiary
thereof (a) 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 (b) now is or as a consequence of the transactions proposed
herein will become a party to, or has or will as a consequence of the
transactions proposed herein have a right under, a service, sales, or
construction contract with an exempt wholesale generator or a foreign utility
company. None of the proceeds from the transactions proposed herein will be
used by the Company to acquire any securities of, or any interest in, an exempt
wholesale generator or a foreign utility company.
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 (i.e. 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 the 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 September 30, 1996,
the ratio of such investment ($41.1 million) to such consolidated
retained earnings ($941.3 million) was 4.36 percent.
(ii) Encoe Partners, Central Termica San Miguel de Tucuman, S.A., Ave
Fenix Energia S.A. and Plantas Eolicas, S.A. (N.U.*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 (a) a copy of each Form U-1 and Rule 24
certificates that have been filed with the Commission under Rule 53 and
(b) a 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.
ITEM II
FEES, COMMISSIONS, AND EXPENDITURES
15. The estimated fees, commissions, and expenses paid or incurred,
or to be paid or incurred, directly or indirectly, in connection with the
proposed transactions by the Company or any associate company thereof will be
specified in Exhibits H.1 and H.2 (to be filed by amendment).
16. None of such fees, commissions, or expenses are to be paid to
any associate company or affiliate of the Companies or any affiliate of any
such associate company except for financial, legal, and other services to be
performed at cost by NUSCO, an affiliated service company.
ITEM III
APPLICABLE STATUTORY PROVISIONS
17. The formation of and issuance of shares by NewCo, the making,
directly and indirectly, of the general and initial equity contributions and
the potential acquisition by the Company of shares of the capital stock of
NewCo may be subject to Sections 6(a), 7, 9(a) and 10 of the Act except to the
extent permitted by Rule 45(b)(4).
18. The Company believes that the sale of Receivables and Related
Assets to NewCo and the subsequent sale by NewCo to the Purchaser or its
assigns will be exempt from the declaration and application requirements of the
Act under Sections 6(a), 7, 9(a), 10, 12(b) and (d) or any other provisions of
the Act and requests that the Commission state in any order related to the
herein described transactions that it does not intend to regulate and disclaims
jurisdiction over such transactions. The Company believes that these
transactions fall outside the Commission*s jurisdiction. The Company has been
unable to find any indication in the Act, its regulations or interpretive
materials that a sale or purchase of accounts receivables is considered a sale
or purchase of a "security" as defined in Section 2(a)(16) of the Act. Nor are
interests in accounts receivable "utility assets" as defined in Section
2(a)(18) of the Act which is directed at physical facilities used to provide
utility service. Nor are interests in accounts receivable "any other interest
in any business" within the meaning of Section 9(a)(1) of the Act. If,
however, the Commission disagrees with the Company*s conclusion, the Company
requests that the Commission approve all of the transactions described herein.
ITEM IV
REGULATORY APPROVAL
19. In a petition to be filed with the Massachusetts Department of
Public Utilities ("DPU"), the Company will seek (a) approval for the creation
of NewCo and (b) a disclaimer of jurisdiction with respect to the sales by the
Company and NewCo of Receivables, Related Assets and Undivided Interests. A
copy of this filing will be filed by amendment as Exhibit D.1 hereto. A copy
of the order of the DPU will be filed by amendment as Exhibit D.2 hereto upon
issuance.
20. No other state commission has jurisdiction with respect to any
aspect of the proposed transaction, and no Federal commission other than the
Securities and Exchange Commission has jurisdiction with respect to any aspect
thereof.
ITEM V
PROCEDURE
21. The Company respectfully requests the Commission*s approval,
pursuant to this Application/Declaration, of the transactions described herein,
whether under the sections of the Act and rules thereunder enumerated in Item
III or otherwise. The Company also requests that the Commission disclaim
jurisdiction over the sales of Receivables and Related Assets (or Undivided
Interests therein) as described herein, or, in the alternative, that it approve
such transactions.
22. The Company hereby waives any recommended decision by a hearing
officer or by any other responsible officer of the Commission and waives the
30-day waiting period between the issuance of the Commission*s order and the
date on which it is to become effective, since it is desired that the
Commission*s order, when issued, become effective forthwith. The Company
consents that the Office of Public Utility Regulation within the Division of
Investment Management may assist in the preparation of the Commission*s
decision and/or order unless the Office opposes the transactions covered by
this Application. It is requested that the Commission issue an order
authorizing the jurisdictional transactions proposed herein and disclaiming
jurisdiction over the sales and purchases of Receivables, Related Assets and
Undivided Interests at the earliest practicable date but in any event not later
than 40 days from filing date. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other responsible
officer of the Commission, (ii) the Office of Public Utility Regulation be
permitted to assist in the preparation of the Commission*s decision, and (iii)
the Commission*s order become effective forthwith upon issuance.
ITEM VI
EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
A.1 Draft of the Certificate of Incorporation of NewCo. (To be filed
by amendment.)
A.2. Draft of the Bylaws of NewCo. (To be filed by amendment.)
A.3. WMECO*s authorizing resolution for purchase of NewCo Common
Stock. (To be filed by amendment.)
B. Not applicable.
C. Not applicable.
D.1 Application to the DPU for approval of the creation of NewCo and
request for disclaimer of jurisdiction over the purchase and sales
transactions. (To be filed by amendment.)
D.2 Copy of the Order of the DPU with respect to WMECO's proposed
transactions. (To be filed by amendment.)
E. Not applicable.
F. Opinion of Counsel to WMECO. (To be filed by amendment.)
G.1 WMECO Financial Data Schedule. (To be filed by amendment.)
G.2 NU Financial Data Schedule. (To be filed by amendment.)
H.1 Estimated Expenses--WMECO. (To be filed by amendment.)
H.2 Estimated Expenses--NewCo. (To be filed by amendment.)
I. Proposed notice of the proceeding initiated by the filing of
this Application/Declaration.
(b) Financial Statements. (All to be filed by amendment.)
1. Western Massachusetts Electric Company
1.1 Balance Sheet, per books and pro forma, as of September
30, 1996.
1.2 Income Statement, per books and pro forma, twelve months
ended September 30, 1996.
1.3 Statement of Retained Earnings, per books and pro forma,
twelve months ended September 30, 1996 and Statement of
Capital Structure, per books and pro forma, as of June
30, 1996.
1.4 Explanation of Pro Forma Adjustments.
2. Northeast Utilities and Subsidiaries
2.1 Consolidated Balance Sheet, per books and pro forma, as
of September 30, 1996.
2.2 Consolidated Income Statement, per books and pro forma,
twelve months ended September 30, 1996.
2.3 Consolidated Statement of Retained Earnings, per books
and pro forma, twelve months ended June 30, 1996, and
Consolidated Statement of Capital Structure, per books
and pro forma, as of September 30, 1996.
2.4 Explanation of Pro Forma Adjustments.
VII
INFORMATION AS TO ENVIRONMENTAL EFFECTS
(a) The issuance of an order with respect to this
Application/Declaration is not a major federal action significantly affecting
the quality of the human environment.
(b) No Federal agency has prepared or is preparing an environmental
impact statement with respect to the subject transactions.
<PAGE>
-1-
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 12, 1996
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By_________________________/s/David R. McHale
David R. McHale
Assistant Treasurer
<PAGE>
File No. _______
INDEX TO EXHIBITS FILED WITH
FORM U-1
of
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(a) Exhibits
I. Proposed notice of the proceeding initiated by the filing of
this Application/Declaration.
(b) Financial Statements
All to be filed by amendment.
EXHIBIT I
PROPOSED FORM OF NOTICE
(Release No. 35-____; 70- ____)
APPLICATION/DECLARATION WITH RESPECT TO THE ORGANIZATION
OF A WHOLLY OWNED SUBSIDIARY RELATED TO AN ACCOUNTS RECEIVABLE
PURCHASE AND SALE PROGRAM AND
RELATED TRANSACTIONS
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_____________, 1996
Western Massachusetts Electric Company ("WMECO" or the "Company"), a
wholly-owned electric utility subsidiary of Northeast Utilities ("NU"), a
public utility holding company, has filed an Application/Declaration pursuant
to Sections 6(a), 7, 9(a) and 10 of the Public Utility Holding Company Act of
1935, as amended (the "Act"). WMECO is located at 174 Brush Hill Avenue, West
Springfield, Massachusetts 01089.
Authorization is requested at this time for (i) WMECO to organize a
wholly owned special purpose corporation ("NewCo") for the sole purpose of
purchasing certain of WMECO*s eligible accounts receivable; (ii) NewCo to issue
shares of Common Stock; (iii) WMECO to make, directly and indirectly, general
and initial equity contributions to NewCo; and (iv) WMECO to acquire shares of
capital stock of NewCo.
The Company has entered into a Receivables Purchase and Sale Agreement
(the "Existing Agreement") under which the Company may sell (from time to time
in its discretion and subject to the satisfaction of certain conditions
precedent) fractional, undivided ownership interests expressed as a percentage
("Undivided Interests") in (i) billed and unbilled indebtedness of customers
("Receivables") and (ii) certain related assets, including any security or
guaranty for any Receivables, all collections thereon, and related records and
software (the "Related Assets"). The Purchaser is a special purpose Delaware
corporation which acquires receivables and other assets and issues commercial
paper to finance these acquisitions. The Agent will act as agent for the
Purchaser for transactions under the Existing Agreement.
The Existing Agreement is structured so that any sales made thereunder
be accounted for as sales. In order for such sales made on or after January 1,
1997 to be so treated, they must comply with the requirements of the Statement
of Financial Accounting Standards No. 125 ("FAS 125") issued in June 1996. The
formation of NewCo is intended to satisfy one of the requirements of FAS 125:
the requirement that the transferred assets be isolated from the Company and
its creditors, even in bankruptcy or receivership of the Company. The Existing
Agreement contemplates that a restructured sales arrangement involving NewCo
will be in place by February 1, 1997, at which date the Existing Agreement will
terminate.
The restructured accounts receivable sales program will consist of two
agreements which will replace the Existing Agreement. Under the first
agreement (the "Company Agreement"), the Company will sell all of its
receivables and related assets to NewCo. Under the second agreement (the
"NewCo Agreement"), NewCo will sell Undivided Interests to the Purchaser from
time to time. Such Undivided Interests may be funded and repaid on a revolving
basis. The purchase price for an Undivided Interest will be calculated
according to a formula. Such formula will include reserves based on (among
other things) a multiple of historical losses, a multiple of historical
dilution (such as, e.g., adjustments due to billing errors), customer
concentrations that exceed specified levels and carrying costs and other costs
associated with the agreements.
The purchase price paid by the Purchaser for Undivided Interests will
be lower than the purchase price paid by NewCo to the Company for Receivables
and Related Assets. Generally, NewCo will make up this difference from
collections on the Receivables that are not allocated to the Undivided
Interests. Under the NewCo Agreement, purchases may be funded by the
Purchaser*s issuance of commercial paper or drawing under its bank facilities.
Initially, the aggregate purchase price paid by the Purchaser for Undivided
Interests is not intended to exceed $50,000,000.
The Agent will have the right to appoint a servicer on behalf of it and
NewCo, to administer and collect receivables and to notify the obligors of the
sale of their receivables, at the Agent*s option. WMECO will be appointed as
the initial servicer.
Certain obligations under the Company Agreement create limited recourse
against the Company. In order to secure these obligations, the Company has
granted to the Agent a lien on, and security interest in, any rights which the
Company may have in respect of Receivables and Related Assets. The NewCo
Agreement creates comparable recourse obligations against NewCo, and NewCo
grants a security interest in the Receivables, the Related Assets and certain
other rights and remedies (including its rights and remedies under the Company
Agreement) to secure such recourse obligations.
The Company and NewCo will be obligated to reimburse the Purchaser and
the Agent for various costs and expenses associated with the Company Agreement
and the NewCo Agreement. NewCo will also be required to pay to the Agent
certain fees for services in connection with such agreements. WMECO as
collection agent will receive fees from the Purchaser.
The arrangements under the Company Agreement and the NewCo Agreement
are scheduled to terminate on September 4, 2001. NewCo may, upon at least five
business days* notice to the Agent, terminate in whole or reduce in part the
unused portion of its purchase limit in accordance with the terms and
conditions of the NewCo Agreement. The NewCo Agreement allows the Purchaser to
assign all of its rights and obligations under the NewCo Agreement (including
its Undivided Interests and the obligation to fund Undivided Interests) to
other persons, including the providers of its bank facilities.
As described in the Application/Declaration, WMECO intends that the
above-described transactions will permit it to accelerate its receipt of cash
collections from accounts receivable and thereby allow it to maintain an
adequate level of working capital and to finance short term cash needs.
The Application/Declaration and any amendments thereto are available
for public inspection through the Commission*s Office of Public Reference. Any
interested persons wishing to comment or request a hearing on the Application
should submit their views in writing by ________, 1996, to the Secretary,
Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on
the Company at the address specified above. Proof of service (by affidavit or,
in the case of an attorney at law, by certificate) should be filed with the
request. Any request for hearing shall identify specifically the issues of
fact or law that are disputed. A person who so requests will be notified of
any hearing, if ordered, and will receive a copy of any notice or order issued
in this matter. After said date, the Application/Declaration, as filed or as
it may be further amended, may be granted.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
__________________________
Secretary
