File No. 70-8961
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 2
to
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent of each applicant or declarant)
Tommy Chisholm, Secretary
The Southern Company
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to the above agent for service and to:
W. L. Westbrook
Financial Vice President
The Southern Company
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
John D. McLanahan Walter M. Beale, Jr.
Troutman Sanders LLP Balch & Bingham LLP
600 Peachtree Street, N.E., Suite 5200 1901 Sixth Avenue North, Suite 2600
Atlanta, Georgia 30308-2216 Birmingham, Alabama 35203
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INFORMATION REQUIRED
The statement on Form U-1 as initially filed and heretofore amended
in this proceeding is hereby further amended and restated in its entirety as
follows:
Item 1. Description of Proposed Transactions.
1.1 Southern Company Services, Inc. ("Services") is a wholly-owned
subsidiary of The Southern Company ("Southern"), a registered holding company
under the Public Utility Holding Company Act of 1935, as amended (the "Act").
Services provides certain services for Southern and its associate companies in
the Southern electric system pursuant to authorization of the Commission.
Southern proposes that, from time to time on or before June 30, 2004, it may
guarantee indebtedness or other obligations incurred by Services as described
herein in an aggregate principal amount up to $200,000,000 at any time
outstanding.
1.2 Services may issue and sell new notes (the "Proposed Notes") to a
lender or lenders other than Southern. The Proposed Notes would be issued
pursuant to an agreement or agreements with such lender or lenders and may be
guaranteed by Southern as to principal, premium, if any, and interest. Southern
hereby requests authority for such guarantee. The Proposed Notes may have terms
of up to 50 years, contain sinking funds and bear interest at a rate or rates
not to exceed 3 1/2 percentage points per annum over the rate for United States
Treasury securities of corresponding maturity at the time the lender or lenders
commit to purchase the particular issue. Services may engage an agent to place
the Proposed Notes for a commission based upon the principal amount borrowed.
1.3 Services also may effect short-term or term-loan borrowings under
one or more revolving credit commitment agreements. Short-term borrowings under
such agreement or agreements would have a maximum maturity of one year; term
loans would have maturities up to 10 years. It is expected that the borrowings
would be evidenced by a "grid" promissory note to be dated the date of the
initial borrowing and the date of each borrowing thereafter when a "grid"
short-term or term-loan note, as the case may be, is not outstanding.
Such borrowings would bear interest at rates to be negotiated
with the lending financial institution or institutions. In addition, it is
expected that Services will be obligated to pay fees in connection with the
credit arrangements.
Such interest rates and fees will be negotiated based upon prevailing market
conditions.
1.4 Services also may effect borrowings from certain banks and other
institutions. Such institutional borrowings will be evidenced by notes to be
dated as of the date of such borrowings and to mature in not more than 10 years
after the date of borrowing, or by "grid" notes evidencing all outstanding
borrowings from each lender to be dated as of the date of the initial borrowing
and to mature in not more than 10 years after the date of borrowing. Generally,
borrowings will be prepayable in whole, or in part, without penalty or premium,
and will be at rates to be negotiated with the lending institutions based upon
prevailing market conditions. Services also may negotiate separate rates for,
and/or agree not to prepay, particular borrowings if it is considered more
favorable to Services.
1.5 The net proceeds realized by Services from borrowings guaranteed
by Southern pursuant to authorization granted hereunder will be used to fund the
general requirements of Services' business, including the possible refunding of
outstanding indebtedness. The proceeds will be used in the routine course of
business for funding required capital expenditures, including computer
equipment, software, office equipment and office facilities, other requirements
as approved by the Commission and maintaining an adequate working capital level.
None of the proceeds from any borrowings or from the sale of any of the Notes
proposed to be guaranteed by Southern herein will be used by Southern or any
subsidiary company thereof for the acquisition of an interest in an EWG or a
FUCO (each as defined in Item 3.2 hereof). Services will not use the proceeds of
borrowings guaranteed by Southern as authorized hereunder to refund outstanding
indebtedness unless the estimated present value savings derived from the net
difference between interest payments on a new issue of comparable securities and
those securities refunded is on an after tax basis greater than the estimated
present value of all redemption, tendering and issuing costs, assuming an
appropriate discount rate. Such discount rate is based on the estimated
after-tax interest rate on securities issued for refunding purposes.
1.6 Southern further proposes that it may guarantee obligations
incurred by Services in connection with installment purchases, sale-leasebacks,
leases or other acquisitions of equipment or other assets. Lease transactions
may include the procurement of office facilities.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses paid or incurred or to be
paid or incurred in connection with the proposed transactions of this
Application or Declaration are estimated not to exceed $20,000.
Item 3. Applicable Statutory Provisions.
3.1 Southern considers that its guaranty of indebtedness or other
obligations incurred by Services as described herein may be subject to Sections
6(a), 7 and 12(b) of the Act and Rule 45 thereunder.
3.2 Rule 54 Analysis: The proposed transactions are also subject to
Rule 54, which provides that, in determining whether to approve an application
which does not relate to any "exempt wholesale generator" ("EWG") or "foreign
utility company" ("FUCO"), the Commission shall not consider the effect of the
capitalization or earnings of any such EWG or FUCO which is a subsidiary of a
registered holding company if the requirements of Rule 53(a), (b) and (c) are
satisfied.
Southern currently meets all of the conditions of Rule 53(a), except
for clause (1). At March 31, 1999, Southern's "aggregate investment," as defined
in Rule 53(a)(1), in EWGs and FUCOs was approximately $3.548 billion, or about
89.96% of Southern's "consolidated retained earnings," also as defined in Rule
53(a)(1), for the year ended December 31, 1998 ($3.944 billion). With respect to
Rule 53(a)(1), however, the Commission has determined that Southern's financing
of investments in EWGs and FUCOs in an amount greater than the amount that would
otherwise be allowed by Rule 53(a)(1) would not have either of the adverse
effects set forth in Rule 53(c). See The Southern Company, Holding Company Act
Release No. 26501, dated April 1, 1996 (the "Rule 53(c) Order"); and Holding
Company Act Release No. 26646, dated January 15, 1997 (order denying request for
reconsideration and motion to stay).
In addition, Southern has complied and will continue to comply with the
record-keeping requirements of Rule 53(a)(2), the limitation under Rule 53(a)(3)
on the use of Operating Company personnel to render services to EWGs and FUCOs,
and the requirements of Rule 53(a)(4) concerning the submission of copies of
certain filings under the Act to retail rate regulatory commissions.
Further, none of the circumstances described in Rule 53(b) has occurred.
Moreover, even if the effect of the capitalization and earnings of EWGs
and FUCOs in which Southern has an ownership interest upon the Southern holding
company system were considered, there would be no basis for the Commission to
withhold or deny approval for the proposal made in this Application-Declaration.
The action requested in the instant filing (viz. Southern's guarantee of certain
obligations of Services) would not, by itself, or even considered in conjunction
with the effect of the capitalization and earnings of Southern's EWGs and FUCOs,
have a material adverse effect on the financial integrity of the Southern
system, or an adverse impact on Southern's public-utility subsidiaries, their
customers, or the ability of State commissions to protect such public-utility
customers.
The Rule 53(c) Order was predicated, in part, upon an assessment of
Southern's overall financial condition which took into account, among other
factors, Southern's consolidated capitalization ratio and the recent growth
trend in Southern's retained earnings. As of December 31, 1995, the most recent
fiscal year preceding the Rule 53(c) Order, Southern's consolidated
capitalization consisted of 49.3% equity (including mandatorily redeemable
preferred securities) and 50.7% debt (including $1.68 billion of long-term,
non-recourse debt and short-term debt related to EWGs and FUCOs). Southern's
consolidated capitalization as of December 31, 1998, was 47.5 percent equity,
52.5 percent debt including all non-recourse debt, and 59.1 percent equity and
40.9 percent debt excluding all non-recourse debt. Both are within accepted
industry ranges and within the limits set by independent rating agencies (such
as Standard and Poor's) for "A" rated utilities.
Thus, since the date of the Rule 53(c) Order, there has been no
material change in Southern's consolidated capitalization ratio, which remains
within acceptable ranges and limits of rating agencies as evident by the
continued "A" corporate credit rating of Southern. Specifically, in January 1997
Standard & Poor's assigned Southern its corporate credit rating of "A" which was
consistent with the implied corporate rating previously held by Southern. This
implied rating had been in effect since May 1995. Therefore, since the April
1996 issue of the Rule 53(c) Order, the Southern consolidated credit rating has
remained at "A" thereby demonstrating Southern's continued strong financial
integrity. In addition, the underlying ratings of the affiliated operating
companies, which have a strong influence on the Southern corporate rating, are
all "A+" or better. As a point of reference, the percentage of debt in the total
capital structure of the Southern domestic operating utility companies is 45.1%,
which is at the median total debt ratio of the Standard & Poor's "A" rated
vertically integrated utilities.1
Southern's consolidated retained earnings grew on average approximately
5.5% per year over the last five years. Excluding the $111 million one-time
windfall profits tax imposed on SWEB in 1997 and the write down of assets in
1998, the average growth would be 7.2%. In 1998, consolidated retained earnings
increased $36 million, or slightly less than 1%. Southern's interests in EWGs
and FUCOs have made a positive contribution to earnings in the three calendar
years ending after the Rule 53(c) order.
Accordingly, since the date of the Rule 53(c) Order, the capitalization
and earnings attributable to Southern's investments in EWGs and FUCOs has not
had any adverse impact on Southern's financial integrity.
3.3 With respect to the transactions proposed hereunder, Southern
hereby requests authority to file certificates of notification under Rule 24 on
a quarterly basis (within 45 days following the close of each calendar quarter).
____________________________________
1 Currently, capitalization ratios, including short-term debt, for "A" rated
vertically integrated electric utilities have a median total debt to total
capital ratio of 45% as noted by Standard & Poor's in May 1997 for companies
rated both publicly and confidentially. Prior to issuing this rating standard,
the Standard & Poor's total debt to total capital benchmark for an "A" rated
vertically integrated investor-owned-utility having an average business position
was 47%.
<PAGE>
Item 4. Regulatory Approval.
The proposed transactions are not subject to the jurisdiction of any
state commission or of any federal commission other than the Securities and
Exchange Commission.
Item 5. Procedure.
Southern requests that the Commission's order herein be issued as
soon as the rules allow, and that there be no thirty-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. Southern hereby waives a recommended decision by a hearing officer or
other responsible officer of the Commission and hereby consents that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order herein, unless such Division opposes the
transactions herein proposed.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
A - None.
B - None.
C - None.
D - None.
E - None.
F - Opinion of Troutman Sanders LLP, counsel for Southern. (To
be filed by amendment.)
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(b) Financial Statements.
Consolidated balance sheet of Southern and subsidiary
companies at March 31, 1999. (Designated in Southern's Form
10-Q for the quarter ended March 31, 1999, File no. 1-3526.)
Statements of income and cash flows of Southern for the
quarter ended March 31, 1999. (Designated in Southern's Form
10-Q for the year ended March 31, 1999, File no. 1-3526.)
Since March 31, 1999, there have been no material changes, not in the
ordinary course of business, in the financial condition of Southern from that
set forth in or contemplated by the foregoing financial statements.
Item 7. Information as to Environmental Effects.
(a) As described in Item 1, the proposed transactions are of a routine
and strictly financial nature in the ordinary course of the business of Services
and Southern. Accordingly, the Commission's action in these matters will not
constitute any 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.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this amendment to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated May 20, 1999 THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
