File No. 70-8789
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 3
(Post-Effective Amendment No. 1)
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
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to the above agents for service and to:
W. L. Westbrook John D. McLanahan, Esq.
Financial Vice President Troutman Sanders LLP
The Southern Company 600 Peachtree Street, N.E.
270 Peachtree Street, N.W. Suite 5200
Atlanta, Georgia 30303 Atlanta, Georgia 30308-2216
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Item 1. Description of Proposed Transactions.
The information previously set forth in Item 1 in this proceeding is
hereby deleted and replaced with the following:
1.1 Summary. The Southern Company ("Southern") is a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act"). Pursuant to an order dated March 13, 1996 (Holding Company Act Rel. No.
26489), Southern is currently authorized to issue and sell from time to time,
prior to April 1, 2001, short-term and/or term-loan notes to lenders and
commercial paper to dealers in an aggregate principal amount at any one time
outstanding of up to $2 billion.1 At December 31, 2000, commercial paper and
notes evidencing bank borrowings in an aggregate principal amount of
$558,000,000 were outstanding under such authorization.2
Southern now requests an extension of the authorization period to April
1, 2008. Southern proposes to use the proceeds of short-term and term-loan notes
and/or commercial paper sales to invest in subsidiaries in accordance with
authorizations obtained in separate proceedings, to make additional investments,
directly or indirectly, in one or more "exempt wholesale generators" (each, an
"EWG") and "foreign utility companies" (each, a "FUCO"), subject to the
_________________________
1 At September 30, 2000, the maximum aggregate principal amount of notes that
may be issued pursuant to the exemption from the provisions of Section 6(a) of
the Act afforded by the first sentence of Section 6(b) was $175,155,577.
2 Effective September 28, 1995, Southern established a commercial paper program
with J.P. Morgan Securities, Inc., Lehman Brothers, Inc. and Morgan Stanley &
Co. Incorporated, as dealers. At December 31, 2000, Southern had issued and
outstanding commercial paper notes in an aggregate principal amount of
$558,000,000.
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investment limitation as may be allowed in File No. 70-8725 or otherwise
authorized by the Commission, and to pay for environmental or other
contingencies.
1.2 Credit Facilities. Southern proposes to effect borrowings from one
or more banks or other lending institutions, provided that the aggregate amount
of borrowings by Southern from such institutions, together with the aggregate
amount of commercial paper at any time issued and outstanding, will not exceed
$2 billion. Such borrowings will be evidenced by notes to be dated as of the
date of such borrowings and to mature in not more than seven (7) years after the
date of issue, or by "grid" notes evidencing all outstanding borrowings from
each lender to be dated as of the date of the initial borrowings and to mature
in not more than seven (7) years after the date of issue. Southern proposes that
it may provide that any note evidencing such borrowings may not be prepayable,
or that it may be prepaid with payment of a premium that is not in excess of the
stated interest rate on the note to be prepaid, which premium, in the case of a
note having a maturity of more than one year, would generally thereafter decline
to the date of the note's final maturity.
Borrowings from the lending institutions will be at the lender's
prevailing rate offered to corporate borrowers of similar quality, which will
not exceed the prime rate or (i) LIBOR plus up to 3%, or (ii) a rate not to
exceed the prime rate to be established by bids obtained from the lenders prior
to a proposed borrowing.
Southern may pay a commitment fee based upon the unused portion of each
lender's commitment. The total fee is determined by multiplying the unused
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portion of the lender's commitment by up to 1/2 of 1%. Compensating balances may
be used in lieu of fees to compensate certain of the lenders.3
1.3 Commercial Paper Sales to or through Dealers. Southern also
proposes that its authority to issue and sell commercial paper to or through
dealers from time to time be extended to April 1, 2008. Such commercial paper
will be in the form of promissory notes with varying maturities not to exceed
one year, which maturities may be subject to extension to a final maturity not
to exceed 390 days. Actual maturities will be determined by market conditions,
the effective interest costs and Southern's anticipated cash flow, including the
proceeds of other borrowings, at the time of issuance. The commercial paper
notes will be issued in denominations of not less than $50,000 and will not by
their terms be prepayable prior to maturity.
The commercial paper will be sold by Southern directly to or through a
dealer or dealers (the "dealer"). The discount rate (or the interest rate in the
case of interest-bearing notes), including any commissions, will not be in
excess of the discount rate per annum (or equivalent interest rate) prevailing
at the date of issuance for commercial paper of comparable quality of the
particular maturity sold by issuers thereof to commercial paper dealers.
No commission or fee will be payable in connection with the issuance
and sale of commercial paper, except for a commission not to exceed 1/8 of 1%
per annum payable to the dealer in respect of commercial paper sold through the
dealer as principal. The dealer will reoffer such commercial paper at a discount
rate of up to 1/8 of 1% per annum less than the prevailing discount rate to the
issuer or at an equivalent cost if sold on an interest-bearing basis.
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3 Currently, Southern has two syndicated credit facilities with 34 banks
totaling commitments of $2.1 billion, as well as several uncommitted facilities.
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Each certificate under Rule 24 with respect to the issue and sale of
commercial paper will include the name or names of the commercial paper dealers,
the amount of commercial paper outstanding as of the end of each quarter and
information with respect to the discount rate and interest rate.
1.4 Use of Proceeds. Southern proposes that the proceeds of the
short-term and term-loan notes and/or commercial paper for which Southern is
hereby requesting an extension of authorization be utilized to acquire the
securities of associate companies in transactions that are exempt from Section
9(a)(1) of the Act pursuant to Rule 52(d), to make capital contributions or open
account advances to subsidiaries in transactions that are exempt from Section
12(b) of the Act pursuant to Rule 45(b)(4), to acquire the securities of one or
more EWGs, FUCOs or "exempt telecommunications companies" in transactions that
are exempt from the application requirements of the Act pursuant to Section
32(g), Section 33(c) or Section 34(d) of the Act, as applicable, and/or as
authorized pursuant to orders of the Commission issued in separate proceedings
or as permitted under other rules of general applicability (including general
corporate purposes such as repayment of indebtedness). Southern states that it
will not use any portion of the proceeds from the borrowings and/or commercial
paper sales for which authority is sought to be extended herein to make
investments in subsidiaries, except in accordance with and subject to any
limitations contained in the Commission's orders granting the applications in
those related proceedings and/or in accordance with any applicable exemption,
including Rules 45(b) and 52.
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A portion of the borrowings and commercial paper for which Southern is
hereby requesting an extension of authorization is required to enable Southern
to fund possible future investments in EWGs and FUCOs, subject to any investment
limitation as may be provided by the Commission, and for bridge financing for
other equity investments in Southern's wholesale generation subsidiary. Southern
may also use a portion of such borrowings and commercial paper to pay for
environmental or other contingencies.
1.5 Retirement of Notes. Any short-term borrowings outstanding
hereunder after March 31, 2008 will be retired from internal sources of cash or
the proceeds of financings heretofore or hereafter approved in separate filings,
including but not limited to File Nos. 70-8277 and 70-8435, refinancings of EWG
and FUCO indebtedness on a non-recourse basis and other distributions from EWGs
and FUCOs.
1.6 Filing of Certificates. Southern hereby requests authority to file
certificates of notification under Rule 24 relating to the financing
transactions proposed herein on a quarterly basis (within 45 days following the
close of each calendar quarter).
Item 2. Fees, Commissions and Expenses
The information previously set forth in Item 2 in this proceeding is
hereby amended and restated in its entirety to read as follows:
The fees, commission and expenses paid or to be incurred in connection
with this Post-Effective Amendment (in addition to those described in Item 1
hereof) are estimated not to exceed $15,000, which includes the fees of counsel
for the applicant.
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Item 3. Applicable Statutory Provisions.
The information previously set forth in Item 3 in this proceeding is
hereby deleted and replaced with the following:
The transactions proposed herein are subject to Sections 6(a), 7, 32
and 33 of the Act (to the extent not exempt from the provisions of Sections 6(a)
and 7 by reason of the first sentence of Section 6(b)) and to Rules 23, 42, 53
and 54 thereunder. The proposed transactions will be carried out in accordance
with the procedures specified in Rule 23 and pursuant to an order of the
Commission with respect thereto.
Rule 54 Analysis: The proposed transactions are subject to Rule 54,
which provides that, in determining whether to approve an application which does
not relate to any EWG or 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 September 30, 2000, Southern's "aggregate investment," as
defined in Rule 53(a)(1), in EWGs and FUCOs was approximately $2.565 billion, or
about 58.14% of Southern's "consolidated retained earnings," also as defined in
Rule 53(a)(1), for the four quarters ended September 30, 2000 ($4.412 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,
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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 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
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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 September 30, 2000 was 40.4% equity,4 59.6%
debt including all non-recourse debt, and 55.7% equity and 44.3% debt excluding
all non-recourse debt. On a pro forma basis, taking into consideration the
transactions contemplated hereby and the sale by Southern in December 2000 of
27,972,000 shares of common stock ($771.4 million), such ratios are 41.0% and
59.0%, respectively, for equity and debt. The common equity component of
Southern's pro forma consolidated capitalization represents 32.4% of total
capitalization at September 30, 2000.
Since the date of the Rule 53(c) Order, there has been a reduction in
Southern's consolidated equity capitalization ratio; however, it remains within
acceptable ranges and limits of rating agencies for strong investment grade
corporate credit ratings. In addition, the affiliated operating companies, which
have a significant influence on the Southern corporate rating, continue to show
strong financial statistics as measured by the rating agencies. The following
table presents the senior secured ratings history for each as rated by S&P,
Moody's and Fitch:5
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4 Excluding preferred stock and preferred securities from the equity component
of Southern's consolidated capitalization, the equity component was 31.4% of
total capitalization.
5 Southern's current corporate credit rating is A by S&P.
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----------- --------- ----------- ----------- ----------- ----------- ---------
Company Agency 1996 1997 1998 1999 20006
----------- --------- ----------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ----------- ---------
Alabama S&P A+ A+ A+ A+ A
Moody's A1 A1 A1 A1 A1
Fitch AA- AA- AA- AA- AA-
----------- --------- ----------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ----------- ---------
Georgia S&P A+ A+ A+ A+ A
Moody's A1 A1 A1 A1 A1
Fitch AA- AA- AA- AA- AA-
----------- --------- ----------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ----------- ---------
Gulf S&P A+ AA- AA- AA- A+
Moody's A1 A1 A1 A1 A1
Fitch AA- AA- AA- AA- AA-
----------- --------- ----------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ----------- ---------
Mississippi S&P A+ AA- AA- AA- A+
Moody's Aa3 Aa3 Aa3 Aa3 Aa3
Fitch AA- AA- AA- AA- AA-
----------- --------- ----------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ----------- ---------
Savannah S&P A+ AA- AA- AA- A+
Moody's A1 A1 A1 A1 A1
Fitch Not rated Not rated Not rated Not rated Not rated
----------- --------- ----------- ----------- ----------- ----------- ---------
Southern's consolidated retained earnings grew on average approximately
5.9% per year over the last five years. Excluding the $111 million one-time
windfall profits tax imposed on South Western Electricity plc ("SWEB") in 1997,
the $221 million write down of assets in 1998, the $69 million write down of the
Mobile Energy investment in 1999 and the $78 million gain on the sale of the
SWEB supply business in 1999, the average growth would be 7.4%. In 1999,
consolidated retained earnings increased $354 million, or 9.1%. Southern's
interests in EWGs and FUCOs have made a positive contribution to earnings over
the four calendar years ending after the Rule 53(c) Order.
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6 Although the senior secured ratings were downgraded one notch by S&P in 2000,
the unsecured ratings were affirmed at A for each of the affiliated operating
companies.
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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 an adverse impact on Southern's financial integrity. Item 6. Exhibits and
Financial Statements.
(a) Exhibits.
A-1 - Form of note. (Previously filed).
A-2 - Form of commercial paper note. (Previously filed).
F - Opinion of Counsel. (To be filed by amendment).
H - Form of Federal Register Notice.
(b) Financial Statements:
Consolidated balance sheet of Southern and its subsidiaries at
September 30, 2000. (Designated in Southern's Form 10-Q for
the quarter ended September 30, 2000, File No. 1-3526.)
Consolidated statements of income and cash flows for Southern
and its subsidiaries for the period ended September 30, 2000.
(Designated in Southern's Form 10-Q for the quarter ended
September 30, 2000, File No. 1-3526.)
Since September 30, 2000, there have been no material adverse changes,
not in the ordinary course of business, in the financial condition of Southern
and its subsidiaries from that set forth in or contemplated by the foregoing
financial statements.
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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: January 9, 2001 THE SOUTHERN COMPANY
By /s/Tommy Chisholm
Tommy Chisholm
Secretary
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