File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________________________
Cinergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45202
(Name of company filing this statement
and address of principal executive office)
Cinergy Corp.
(Name of top registered holding company parent)
William L. Sheafer
Treasurer
Cinergy Corp.
(address above)
(Name and address of agent of service)
Applicant requests that the Commission send copies of all notices, orders
and communications in connection herewith to:
Jerome A. Vennemann James R. Lance
Associate General Counsel Manager Corporate Finance Cinergy
Corp. & Financial Risk Management
(address above) Cinergy Corp. (address above)
Item 1. Description of Proposed Transactions
A. Summary of Requested Authorization
Cinergy Corp. ("Cinergy"), a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the "Act"),
requests authorization through December 31, 2001 to issue from time to time
up to $200 million principal amount of unsecured notes and to organize and
issue guarantees in respect of a statutory business trust that, if
utilized, will issue trust securities, all as described below.
B. Proposed Transactions
1. Junior Subordinated Notes
Cinergy hereby requests authorization to issue up to $200 million
principal amount of its junior subordinated notes (the "Junior Subordinated
Notes") in one or more series from time to time through December 31, 2001.
Cinergy requests authorization to issue and sell the Junior Subordinated
Notes on a stand-alone basis or in conjunction with the utilization of the
Trust and the issuance and sale of Trust Securities as described below.
The determination by Cinergy whether or not in the particular instance to
issue Junior Subordinated Notes independently of or in conjunction with the
issuance of one or more series of Trust Securities will be based upon
market and other relevant considerations.
The Junior Subordinated Notes will be unsecured and will not be
convertible into any other securities or assets of Cinergy or the Trust
(defined below). Further, the Indenture (defined below) will provide that
unless otherwise provided in a Supplemental Indenture (defined below) or a
resolution of the Board of Directors of Cinergy, the Junior Subordinated
Notes will be subordinate and subject in right of payment to the prior
payment in full of all senior obligations of Cinergy, with the Junior
Subordinated Notes being junior in such rights to any senior obligations,
whether outstanding as of the date of the Indenture and each Supplemental
Indenture or thereafter incurred.
The Junior Subordinated Notes, whether or not issued in conjunction
with one or more series of corresponding Trust Securities, will be issued
under an Indenture to be dated as of February 1, 1997 between Cinergy and
The Fifth Third Bank, as Trustee (the "Indenture"; exhibit B-1 hereto). A
separate supplemental indenture to the Indenture (each, a "Supplemental
Indenture"; exhibit B-2 hereto) will be executed by Cinergy and the Trustee
covering the terms of the Junior Subordinated Notes for each separate
offering.
2. Issuance of Junior Subordinated Notes in connection with
issuance of Trust Securities
As noted, Cinergy seeks authorization also to issue Junior
Subordinated Notes in conjunction with issuances of Trust Securities.
Specifically, Cinergy proposes to organize a special-purpose statutory
business trust under Delaware law (the "Trust") for the exclusive purpose
of (a) issuing from time to time through December 31, 2001 (x) trust
preferred securities in one or more series ("Trust Preferred Securities")
to certain underwriters and (y) trust common securities ("Trust Common
Securities"; together with the Trust Preferred Securities, the "Trust
Securities") to Cinergy; (b) investing the gross proceeds from sales of the
Trust Securities in corresponding Junior Subordinated Notes issued to the
Trust by Cinergy in exchange for the Trust's loan to Cinergy of such gross
proceeds, as more fully described below; and (c) engaging in only those
other activities necessary, appropriate, convenient or incidental thereto.
The Trust Preferred Securities would represent undivided beneficial
interests aggregating 97% of the Trust's assets and would be issued in
amounts and with other terms and conditions corresponding to the related
series of Junior Subordinated Notes, as more fully discussed below. (The
Trust Preferred Securities and the Junior Subordinated Notes whether or
not the latter are issued in conjunction with the Trust Preferred
Securities are collectively referred to as the "Securities.") The Trust
Common Securities, to be registered in the name of and issued exclusively
to Cinergy, will represent approximately 3% of the total undivided
beneficial interests in the assets of the Trust.
The Trust will have a term not to exceed 40 years. It is contemplated
that the Trust will be treated as a passive grantor trust for Federal
income tax purposes and not as a partnership. Accordingly, the Trust will
be subject to tax and Cinergy as the holder of the Trust Common Securities
and investors holding Trust Preferred Securities will be treated as the
owners of the Trust and will be required to include in income their
proportionate shares of the income of the Trust. Investors would receive
tax reporting information from their brokers on an IRS Form 1099. The
Trust will conduct its business activities pursuant to and as provided in a
certificate of trust ("Trust Certificate") to be filed with the Delaware
Secretary of State (exhibit A-1 hereto) and a trust agreement ("Trust
Agreement"; exhibit A-2 hereto) to be executed by Cinergy, as depositor,
and The Fifth Third Bank, as trustee (the "Trustee").
Cinergy (in the case of the Junior Subordinated Notes to be issued and
sold on a stand-alone basis) or the Trust (where the Trust Preferred
Securities are to be issued and sold), as the case may be, would issue and
sell the applicable Securities pursuant to an underwriting agreement (each,
an "Underwriting Agreement"; exhibit B-4 hereto) to be entered into among
Cinergy and/or the Trust and the underwriters named therein. Cinergy has
informed Merrill Lynch, Morgan Stanley, Smith Barney and Salomon Brothers
that such firms will act as lead underwriters for the sale of the
Securities. It is anticipated that the underwriters would sell the
Securities in transactions exempt from registration under the Securities
Act of 1933.
The gross proceeds realized by the Trust from the sale of Trust
Preferred Securities, together with Cinergy's payment to the Trust for the
sale to Cinergy of Trust Common Securities, will be loaned to Cinergy and
evidenced by a related series of Junior Subordinated Notes equal in
aggregate principal amount to the aggregate liquidation amount of the
corresponding Trust Securities.
Pursuant to the Trust Agreement, holders of Trust Securities will have
only the rights expressly granted to them thereunder, including the right
to receive cash distributions and certain consensual rights expressly
provided therein. The holders of Trust Securities will receive as cash
distributions on payment dates their pro rata shares of payments received
by the Trust on its investment in Cinergy's Junior Subordinated Notes,
provided, however, that in the event of a default by Cinergy on such Junior
Subordinated Notes, the payment entitlement of Cinergy as holder of the
Trust Common Securities will be subordinated to the payment entitlement of
the holders of Trust Preferred Securities. Cash distributions on any Trust
Preferred Securities will be cumulative from the date of original issuance
thereof and will be payable periodically in arrears. Cinergy will have the
right from time to time to defer the payment of interest on Junior
Subordinated Notes for a period specified in the related Supplemental
Indenture, with all accrued and unpaid interest (together with interest
thereon) becoming due and payable at the end of each such extension period.
As a consequence of any such extension of the interest payment period on
the Junior Subordinated Notes, periodic distributions on any Trust
Preferred Securities would be correspondingly deferred.
Cinergy further seeks authorization to guarantee (see the form of
Guarantee Agreement to be filed herewith as exhibit B-3) the following
payments with respect to the Trust Preferred Securities to the extent not
paid by the Trust: (i) any accrued and unpaid distributions that are
required to be paid on the Trust Preferred Securities but if and only if
and to the extent the Trust shall have funds legally and immediately
available therefor, (ii) the redemption price, including all accrued and
unpaid distributions to the date of redemption, with respect to any Trust
Preferred Securities called for redemption by the Trust but if and only to
the extent that the Trust has funds legally and immediately available
therefor, and (iii) upon a dissolution, winding-up or termination of the
Trust (other than in connection with the distribution of Junior
Subordinated Notes to the holders of its Trust Preferred Securities or the
redemption of all of the Trust Preferred Securities of the Trust), the
lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on its Trust Preferred Securities to the date of
payment, to the extent the Trust has funds legally and immediately
available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of its Trust Preferred Securities in
liquidation of the Trust.
Each issue of the Trust Preferred Securities will be subject to
mandatory redemption upon repayment of the related Junior Subordinated
Notes at maturity or upon their earlier redemption. Each series of the
Junior Subordinated Notes may be redeemed, in whole or in part, at the
option of Cinergy at any time on or after the date set forth in the related
Supplemental Indenture. In addition, upon the occurrence of certain
special events arising from a change in law or a change in legal
interpretation or other specified circumstances relating to tax matters and
the Investment Company Act of 1940, as amended (the "1940 Act"), Cinergy
shall have the option to redeem the Junior Subordinated Notes (and thus
cause the redemption of the Trust Securities).
3. Certain parameters applicable to issuances of the Securities
In conjunction with the underwriters, Cinergy has developed certain
parameters under which the Securities are to be sold to provide a
reasonable allowance for potential changes in financial market conditions
between the date of Commission authorization herein and the actual sales of
the Securities. The parameters allow Cinergy to sell the Securities on any
day when it believes it is prudent to do so provided the terms are within
the parameters. Cinergy understands and represents that Commission
authorization of the sale of the Securities consistent with the parameters
listed below in no way relieves Cinergy of its responsibility to obtain the
best terms available for the structure selected.
Cinergy proposes the following parameters: (i) the Securities be
issued for a term not to exceed 40 years, (ii) the Securities have a par,
stated or liquidation value (as the case may be) of up to $100 per
security, (iii) the Securities be issued at a price no higher than 102% nor
less than 98% of the applicable par, stated or liquidation value, (iv) the
applicable interest or distribution rate, as the case may be, shall not
exceed 225 basis points above the yield on 30-year United States Treasury
Bonds at the time of pricing the Securities, and (v) underwriting
commissions not to exceed 3.50% of the principal amount or stated or
liquidation value (i.e., in the case of Trust Preferred Securities) of the
Securities. Redemption provisions, interest deferral periods, and other
terms incidental to the sale of the Securities will be established as a
result of negotiations with the underwriters, and reflected in the
respective Supplemental Indenture setting forth such terms to be executed
by Cinergy and the Trustee.
4. Use of proceeds by Cinergy
The proceeds from sales of the Securities (including proceeds loaned
by the Trust to Cinergy in exchange for Junior Subordinated Notes, as
described above) will be used by Cinergy for general corporate purposes,
including repayment of outstanding short-term debt incurred by Cinergy,
primarily in connection with Cinergy's 1996 joint venture acquisition of a
50% ownership interest in Midlands Electricity plc, an electric
distribution company in the United Kingdom ("Midlands"). Without further
authorization from the Commission, Cinergy shall not apply any of such
proceeds to the acquisition of an ownership interest in an exempt wholesale
generator ("EWG") or foreign utility company ("FUCO") within the meaning of
sections 32 and 33 of the Act respectively.
5. Benefits to Cinergy of proposed transactions
Cinergy believes the transactions proposed herein will provide at
least two substantial economic benefits.
First, by virtue of funding its equity investment in Midlands through
short-term, floating interest rate bank debt, Cinergy is exposed to
fluctuations in interest rates. Since Cinergy considers the Midlands
investment to be a long-term investment, Cinergy considers it prudent to
fund at least a portion of this long-term asset with long-term securities.
In this way, Cinergy locks in long-term capital at today's known fixed
rates.
Second, issuance of the Securities will likely be viewed positively by
major credit rating agencies. Certain provisions of the Securities, such
as the ability to defer distribution or interest payments, as the case may
be, and deep subordination of the Junior Subordinated Notes, allow these
securities to be viewed as providing a measure of equity content by rating
agencies.
G. Rule 54 Statement
Under Rule 54, in determining whether to approve the issue or sale of
a security by a registered holding company for purposes other than the
acquisition of an EWG or a FUCO other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs and
FUCOs, the Commission shall not consider the effect of the capitalization
or earnings of any subsidiary which is an EWG or a FUCO if the conditions
in Rule 53(a), (b) and (c) are satisfied.
As set forth below, all applicable conditions of Rule 53(a) are and,
upon consummation of the proposed transactions, will be satisfied, and none
of the conditions specified in Rule 53(b) exists or, as a result of the
proposed transactions, will exist.
Rule 53(a)(1): At September 30, 1996, Cinergy had invested, directly
or indirectly, an aggregate of approximately $482 million in EWGs and
FUCOs. The average of the consolidated retained earnings of Cinergy
reported on Form 10-K or Form 10-Q, as applicable, for the four consecutive
quarters ended September 30, 1996 was $979 million. Accordingly, based on
Cinergy's "consolidated retained earnings" at September 30, 1996, and
taking into account investments as of said date, the current Rule 53
aggregate investment limitation is approximately $8 million (i.e., 50% of
"consolidated retained earnings" $490 million minus "aggregate
investment" at September 30, 1996 $482 million).
Rule 53(a)(2): Cinergy maintains books and records enabling it to
identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly holds an interest. At present, Cinergy does not
hold any interest in a domestic EWG; Rule 53(a)(2)(i) is therefore
inapplicable.
In accordance with Rule 53(a)(2)(ii), the books and records and
financial statements of each foreign EWG and FUCO which is a "majority-owned
subsidiary company" of Cinergy are kept in conformity with and
prepared according to U.S. generally accepted accounting principles
("GAAP"). Cinergy will provide the Commission access to such books and
records and financial statements, or copies thereof, in English, as the
Commission may request.
In accordance with Rule 53(a)(2)(iii), for each foreign EWG and FUCO
in which Cinergy directly or indirectly owns 50% or less of the voting
securities, Cinergy will proceed in good faith, to the extent reasonable
under the circumstances, to cause each such entity's books and records to
be kept in conformity with, and the financial statements of each such
entity to be prepared according to, GAAP. If such books and records are
maintained, or such financial statements are prepared, according to a
comprehensive body of accounting principles other than GAAP, Cinergy will,
upon request of the Commission, describe and quantify each material
variation from GAAP in the accounting principles, practices and methods
used to maintain such books and records and each material variation from
GAAP in the balance sheet line items and net income reported in such
financial statements, as the case may be. In addition, Cinergy will
proceed in good faith, to the extent reasonable under the circumstances, to
cause access by the Commission to such books and records and financial
statements, or copies thereof, in English, as the Commission may request,
and in any event will make available to the Commission any such books and
records that are available to Cinergy.
Rule 53(a)(3): No more than 2% of the employees of Cinergy's
operating utility subsidiaries will, at any one time, directly or
indirectly, render services to EWGs and FUCOs.
Rule 53(a)(4): Cinergy will simultaneously submit a copy of this
statement and of any Rule 24 certificate hereunder, as well as a copy of
Cinergy's Form U5S and Exhibits H and I thereto, to each public utility
commission having jurisdiction over the retail rates of any Cinergy utility
subsidiary.
Rule 53(b): The provisions of Rule 53(a) are not made inapplicable to
the authorization herein requested by reason of the provisions of Rule
53(b).
Rule 53(b)(1): Neither Cinergy nor any subsidiary thereof is the
subject of any pending bankruptcy or similar proceeding.
Rule 53(b)(2): Cinergy's average consolidated retained earnings for
the four quarters ended September 30, 1996 are $979 million, versus $908
million for the four quarters ended September 30, 1995, a difference of
approximately $71 million (representing an increase of 7.8%).
Rule 53(b)(3): For the twelve months ended September 30, 1996,
Cinergy did not report operating losses attributable to its direct and
indirect investments in EWGs and FUCOs aggregating in excess of 5% of
consolidated retained earnings.
Item 2. Fees, Commissions and Expenses
In addition to the underwriting commissions described in Item 1, the
fees, commissions and expenses ("Fees") to be incurred, directly or
indirectly, by Applicant or any associate company thereof in connection
with the proposed transactions are estimated as follows:
Legal Fees $40,000
Trustees Fees $11,000
Printing Fees $25,000
Rating agency Fees $94,000
Fees of Cinergy Services $15,000
Blue sky Fees $5,000
Accountant Fees $15,000
TOTAL $205,000
Item 3. Applicable Statutory Provisions
The acquisition by Cinergy of Trust Common Securities and by the Trust
of Junior Subordinated Notes is subject to sections 9(a) and 10 of the Act.
The issuance and sale by Cinergy of Junior Subordinated Notes and the
issuance by Cinergy of guarantees in respect of Trust Preferred Securities
is subject to sections 6(a), 7 and 12(b) of the Act and rules 45 and 54.
The issuance and sale by the Trust of Trust Securities is subject to
sections 6(a) and 7 of the Act and rule 54.
Item 4. Regulatory Approval
No state or federal regulatory agency other than the Commission under
the Act has jurisdiction over the proposed transactions. It is anticipated
that the Trust will be exempt from registration as an "investment company"
under the 1940 Act pursuant to rule 3a-5 thereunder.
Item 5. Procedure
Applicant requests that the Commission's order be issued as soon as
the rules allow, and that there be no waiting period between the issuance
of the Commission's order and the date on which it is effective.
Applicants waive a recommended decision by a hearing officer or other
responsible officer of the Commission; consent that the Staff of the
Division of Investment Management may assist in the preparation of the
Commission's order; and request that there be no waiting period between the
issuance of the Commission's order and its effectiveness.
Item 6. Exhibits and Financial Statements
(a) Exhibits:
A-1 Form of Trust Certificate (to be filed by amendment)
A-2 Form of Trust Agreement (to be filed by amendment)
B-1 Indenture dated as of February 1, 1997 between Cinergy
and The Fifth Third Bank (to be filed by amendment)
B-2 Form of Supplemental Indenture (to be filed by
amendment)
B-3 Form of Guarantee Agreement (to be filed by amendment)
B-4 Form of Underwriting Agreement (to be filed by
amendment)
C Not applicable
D Not applicable
E Not applicable
F Preliminary opinion of counsel (to be filed by
amendment)
G Form of notice of proposed transactions for publication
in Federal Register
(b) Financial Statements:
FS-1 Cinergy Unaudited Consolidated Balance Sheet at
December 31, 1996 (to be filed by amendment)
FS-2 Cinergy Unaudited Consolidated Statement of Income for
the twelve months ended December 31, 1996 (to be filed by amendment)
FS-3 Cinergy Unaudited Consolidated Statement of Changes in
Retained Earnings for the twelve months ended December 31, 1996 (to be
filed by amendment)
FS-4 Cinergy Unaudited Consolidated Journal Entries (to be
filed by amendment)
FS-5 Cinergy Unaudited Balance Sheet at December 31, 1996
(to be filed by amendment)
FS-6 Cinergy Unaudited Statement of Income for the twelve
months ended December 31, 1996 (to be filed by amendment)
FS-7 Cinergy Unaudited Statement of Changes in Retained
Earnings for the twelve months ended December 31, 1996 (to be filed by
amendment)
FS-8 Cinergy Unaudited Journal Entries (to be filed by
amendment)
FS-9 Cinergy Unaudited Consolidated Financial Data Schedule
(included as part of electronic submission only) (to be filed by amendment)
FS-10 Cinergy Unaudited Financial Data Schedule (included as
part of electronic submission only) (to be filed by amendment)
Item 7. Information as to Environmental Effects
(a) The Commission's action in this matter will not constitute major
federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the undersigned company has
duly caused this statement to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: January 30, 1997
CINERGY CORP.
By: /s/ William L. Sheafer
Treasurer
Exhibit G
Cinergy Corp.
Notice of proposal to issue securities and establish related special
purpose business trust.
Cinergy Corp. ("Cinergy"), a registered holding company, 139 East
Fourth Street, Cincinnati, Ohio 45202, has filed an application-declaration
under sections 6(a), 7, 9(a), 10 and 12(b) of the Act and rules 45 and 54
thereunder.
As detailed below, Cinergy requests authorization through December 31,
2001 to issue from time to time up to $200 million principal amount of
unsecured notes and to organize and issue guarantees in respect of a
statutory business trust that, if utilized, will issue trust securities.
Specifically, Cinergy requests authorization to issue up to $200
million principal amount of its junior subordinated notes (the "Junior
Subordinated Notes") in one or more series from time to time through
December 31, 2001. Cinergy requests authorization to issue and sell the
Junior Subordinated Notes on a stand-alone basis or in conjunction with the
utilization of the Trust and the issuance and sale of Trust Securities as
described below. The determination by Cinergy whether or not in the
particular instance to issue Junior Subordinated Notes independently of or
in conjunction with the issuance of one or more series of Trust Securities
will be based upon market and other relevant considerations.
The Junior Subordinated Notes will be unsecured and will not be
convertible into any other securities or assets of Cinergy or the Trust
(defined below). Further, the Indenture (defined below) will provide that
unless otherwise provided in a Supplemental Indenture (defined below) or a
resolution of the Board of Directors of Cinergy, the Junior Subordinated
Notes will be subordinate and subject in right of payment to the prior
payment in full of all senior obligations of Cinergy, with the Junior
Subordinated Notes being junior in such rights to any senior obligations,
whether outstanding as of the date of the Indenture and each Supplemental
Indenture or thereafter incurred.
The Junior Subordinated Notes, whether or not issued in conjunction
with one or more series of corresponding Trust Securities, will be issued
under an Indenture to be dated as of February 1, 1997 between Cinergy and
The Fifth Third Bank, as Trustee (the "Indenture"). A separate
supplemental indenture to the Indenture (each, a "Supplemental Indenture")
will be executed by Cinergy and the Trustee covering the terms of the
Junior Subordinated Notes for each separate offering.
As noted, Cinergy seeks authorization also to issue Junior
Subordinated Notes in conjunction with issuances of Trust Securities.
Specifically, Cinergy proposes to organize a special-purpose statutory
business trust under Delaware law (the "Trust") for the exclusive purpose
of (a) issuing from time to time through December 31, 2001 (x) trust
preferred securities in one or more series ("Trust Preferred Securities")
to certain underwriters and (y) trust common securities ("Trust Common
Securities"; together with the Trust Preferred Securities, the "Trust
Securities") to Cinergy; (b) investing the gross proceeds from sales of the
Trust Securities in corresponding Junior Subordinated Notes issued to the
Trust by Cinergy in exchange for the Trust's loan to Cinergy of such gross
proceeds, as more fully described below; and (c) engaging in only those
other activities necessary, appropriate, convenient or incidental thereto.
The Trust Preferred Securities would represent undivided beneficial
interests aggregating 97% of the Trust's assets and would be issued in
amounts and with other terms and conditions corresponding to the related
series of Junior Subordinated Notes, as more fully discussed below. (The
Trust Preferred Securities and the Junior Subordinated Notes whether or
not the latter are issued in conjunction with the Trust Preferred
Securities are collectively referred to as the "Securities.") The Trust
Common Securities, to be registered in the name of and issued exclusively
to Cinergy, will represent approximately 3% of the total undivided
beneficial interests in the assets of the Trust.
The Trust will have a term not to exceed 40 years. It is contemplated
that the Trust will be treated as a passive grantor trust for Federal
income tax purposes and not as a partnership. Accordingly, the Trust will
be subject to tax and Cinergy as the holder of the Trust Common Securities
and investors holding Trust Preferred Securities will be treated as the
owners of the Trust and will be required to include in income their
proportionate shares of the income of the Trust. The Trust will conduct
its business activities pursuant to and as provided in a certificate of
trust ("Trust Certificate") to be filed with the Delaware Secretary of
State and a trust agreement ("Trust Agreement") to be executed by Cinergy,
as depositor, and The Fifth Third Bank, as trustee (the "Trustee").
Cinergy (in the case of the Junior Subordinated Notes to be issued and
sold on a stand-alone basis) or the Trust (where the Trust Preferred
Securities are to be issued and sold), as the case may be, would issue and
sell the applicable Securities pursuant to an underwriting agreement (each,
an "Underwriting Agreement") to be entered into among Cinergy and/or the
Trust and the underwriters named therein. Cinergy has informed Merrill
Lynch, Morgan Stanley, Smith Barney and Salomon Brothers that such firms
will act as lead underwriters for the sale of the Securities. It is
anticipated that the underwriters would sell the Securities in transactions
exempt from registration under the Securities Act of 1933.
The gross proceeds realized by the Trust from the sale of Trust
Preferred Securities, together with Cinergy's payment to the Trust for the
sale to Cinergy of Trust Common Securities, will be loaned to Cinergy and
evidenced by a related series of Junior Subordinated Notes equal in
aggregate principal amount to the aggregate liquidation amount of the
corresponding Trust Securities.
Pursuant to the Trust Agreement, holders of Trust Securities will have
only the rights expressly granted to them thereunder, including the right
to receive cash distributions and certain consensual rights expressly
provided therein. The holders of Trust Securities will receive as cash
distributions on payment dates their pro rata shares of payments received
by the Trust on its investment in Cinergy's Junior Subordinated Notes,
provided, however, that in the event of a default by Cinergy on such Junior
Subordinated Notes, the payment entitlement of Cinergy as holder of the
Trust Common Securities will be subordinated to the payment entitlement of
the holders of Trust Preferred Securities. Cash distributions on any Trust
Preferred Securities will be cumulative from the date of original issuance
thereof and will be payable periodically in arrears. Cinergy will have the
right from time to time to defer the payment of interest on Junior
Subordinated Notes for a period specified in the related Supplemental
Indenture, with all accrued and unpaid interest (together with interest
thereon) becoming due and payable at the end of each such extension period.
As a consequence of any such extension of the interest payment period on
the Junior Subordinated Notes, periodic distributions on any Trust
Preferred Securities would be correspondingly deferred.
Cinergy further seeks authorization to guarantee the following
payments with respect to the Trust Preferred Securities to the extent not
paid by the Trust: (i) any accrued and unpaid distributions that are
required to be paid on the Trust Preferred Securities but if and only if
and to the extent the Trust shall have funds legally and immediately
available therefor, (ii) the redemption price, including all accrued and
unpaid distributions to the date of redemption, with respect to any Trust
Preferred Securities called for redemption by the Trust but if and only to
the extent that the Trust has funds legally and immediately available
therefor, and (iii) upon a dissolution, winding-up or termination of the
Trust (other than in connection with the distribution of Junior
Subordinated Notes to the holders of its Trust Preferred Securities or the
redemption of all of the Trust Preferred Securities of the Trust), the
lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on its Trust Preferred Securities to the date of
payment, to the extent the Trust has funds legally and immediately
available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of its Trust Preferred Securities in
liquidation of the Trust.
Each issue of the Trust Preferred Securities will be subject to
mandatory redemption upon repayment of the related Junior Subordinated
Notes at maturity or upon their earlier redemption. Each series of the
Junior Subordinated Notes may be redeemed, in whole or in part, at the
option of Cinergy at any time on or after the date set forth in the related
Supplemental Indenture. In addition, upon the occurrence of certain
special events arising from a change in law or a change in legal
interpretation or other specified circumstances relating to tax matters and
the Investment Company Act of 1940, as amended (the "1940 Act"), Cinergy
shall have the option to redeem the Junior Subordinated Notes (and thus
cause the redemption of the Trust Securities).
In conjunction with the underwriters, Cinergy has developed certain
parameters under which the Securities are to be sold to provide a
reasonable allowance for potential changes in financial market conditions
between the date of Commission authorization and the actual sales of the
Securities. The parameters allow Cinergy to sell the Securities on any day
when it believes it is prudent to do so provided the terms are within the
parameters. Cinergy represents that Commission authorization of the sale
of the Securities consistent with the parameters listed below in no way
relieves Cinergy of its responsibility to obtain the best terms available
for the structure selected.
Cinergy proposes the following parameters: (i) the Securities be
issued for a term not to exceed 40 years, (ii) the Securities have a par,
stated or liquidation value (as the case may be) of up to $100 per
security, (iii) the Securities be issued at a price no higher than 102% nor
less than 98% of the applicable par, stated or liquidation value, (iv) the
applicable interest or distribution rate, as the case may be, shall not
exceed 225 basis points above the yield on 30-year United States Treasury
Bonds at the time of pricing the Securities, and (v) underwriting
commissions not to exceed 3.50% of the principal amount or stated or
liquidation value (i.e., in the case of Trust Preferred Securities) of the
Securities. Redemption provisions, interest deferral periods, and other
terms incidental to the sale of the Securities will be established as a
result of negotiations with the underwriters, and reflected in the
respective Supplemental Indenture setting forth such terms to be executed
by Cinergy and the Trustee.
The proceeds from sales of the Securities (including proceeds loaned
by the Trust to Cinergy in exchange for Junior Subordinated Notes, as
described above) will be used by Cinergy for general corporate purposes,
including repayment of outstanding short-term debt incurred by Cinergy,
primarily in connection with Cinergy's 1996 joint venture acquisition of a
50% ownership interest in Midlands Electricity plc, an electric
distribution company in the United Kingdom ("Midlands").
Cinergy states that the proposed transactions herein will provide at
least two substantial economic benefits.
First, by virtue of funding its equity investment in Midlands through
short-term, floating interest rate bank debt, Cinergy states that it is
exposed to fluctuations in interest rates. Since Cinergy considers the
Midlands investment to be a long-term investment, Cinergy considers it
prudent to fund at least a portion of this long-term asset with long-term
securities. In this way, Cinergy locks in long-term capital at current
known fixed rates.
Second, Cinergy states that issuance of the Securities will likely be
viewed positively by major credit rating agencies. Certain provisions of
the Securities, such as the ability to defer distribution or interest
payments, as the case may be, and deep subordination of the Junior
Subordinated Notes, allow these securities to be viewed as providing a
measure of equity content by rating agencies.
Cinergy estimates total fees and expenses in connection with the
proposed transactions of approximately $207,000.
Cinergy states that as of September 30, 1996 its total direct or
indirect investment within the meaning of rule 53 in exempt wholesale
generators and foreign utility companies was approximately $482 million.
Cinergy represents that it is in compliance with the applicable conditions
of rule 54.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
