<PAGE>
File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________
SOUTHWESTERN ELECTRIC POWER COMPANY
428 Travis Street
Shreveport, Louisiana 71101
(Name of company filing this statement and address
of principal executive office)
_________________________
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
_________________________
Shirley S. Briones, Treasurer
Southwestern Electric Power Company
428 Travis Street
Shreveport, Louisiana 71101
Stephen J. McDonnell, Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266-0164
Joris M. Hogan, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
(Names and addresses of agents for service)
Southwestern Electric Power Company (the "Company"), a
Delaware corporation, is a wholly-owned electric public utility
subsidiary of Central and South West Corporation ("CSW"), a
Delaware corporation and a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the
"Act").
Item 1. Description of Proposed Transaction.
The Company is seeking authority through December 31, 1999,
to incur obligations in connection with the proposed issuance by
Sabine River Authority of Texas ("Sabine" or the "Issuer") in
one or more series of up to $131,700,000 aggregate principal
amount of Pollution Control Revenue Bonds of which (i) up to
$81,700,000 aggregate principal amount may be Pollution Control
Revenue Refunding Bonds (Southwestern Electric Power Company
Project) (the "Refunding Bonds"), and (ii) up to $50,000,000
aggregate principal amount may be new money Revenue Bonds
(Southwestern Electric Power Company Project) (the "New Money
Bonds" and, together with the Refunding Bonds, the "New Bonds").
The issuance of New Money Bonds may be combined with the
issuance of Refunding Bonds.
The purpose of the issuance of the Refunding Bonds is to
reacquire all or a portion of Sabines $81,700,000 of
outstanding 8.20% Pollution Control Revenue Refunding Bonds
(Southwestern Electric Power Company Project) Series 1986 (the
"Old Bonds"). The purpose of the issuance of the New Money
Bonds is to reimburse the Company's treasury for any
expenditures made that qualify for tax-exempt financing or to
provide for current solid waste expenditures. See "Use of
Proceeds" below.
As discussed below under the headings "Managing Interest
Rates" and "Forward Underwritings", the Company also seeks
authorization to manage interest rate risk or lower its interest
rate costs through the use of forward refinancing techniques and
the use of hedging products, including interest rate swaps,
forward swaps, caps, collars and floors through the life of the
Old Bonds and/or New Bonds.
The Old Bonds
In July 1986, Sabine issued the Series 1986 Bonds pursuant
to the Indenture of Trust dated as of October 15, 1981, as
supplemented, between Sabine and The Bank of New York, New York,
New York (successor to RepublicBank Dallas, N.A.), as Trustee.
The Indenture of Trust for the Old Bonds is referred to herein
as the "Indenture". The Bank of New York, New York, New York is
referred to herein as the "Trustee".
Certain terms of the Indenture include the following:
Interest
Series Rate Maturity Date First Redemption Date (1)
(per annum)
1986 8.20% July 1, 2014 July 1, 1996
____________________________
(1) The Indenture provides that the bonds may not be redeemed
prior to their First Redemption Date and thereafter may be
redeemed at the then applicable redemption price plus accrued
interest to the redemption date. The Old Bonds will be
redeemable on July 1, 1996 at 102% of par.
The Company and the Issuer entered into an Installment Sale
Agreement, as supplemented, (the "Sale Agreement") between the
Issuer and the Company to provide for the issuance of the Old
Bonds. In connection with the issuance of the New Bonds, the
Company will (i) amend or supplement the Sale Agreement, (ii)
enter into an agreement with substantially the same terms as the
Sale Agreement and/or (iii) enter into a new installment sale
agreement (an "Amended Sale Agreement").
The Old Bonds were originally issued to redeem all the then
outstanding $81,700,000 principal amount of the Issuers
Adjustable Rate Pollution Control Revenue Bonds (Southwestern
Electric Power Company Project) Series 1984. The Series 1984
Bonds were issued to pay at maturity the Issuer's 11-1/2%
Pollution Control Revenue Bonds (Southwestern Electric Power
Company Project) Series 1981 in the aggregate principal amount
of $72,500,000 and to pay additional costs of the Facilities as
hereinafter defined and to pay various costs incurred in
connection with the issuance of the Series 1984 Bonds. A
portion of the proceeds of the Series 1984 Bonds and the
proceeds of the Series 1981 Bonds were used to acquire,
construct and improve certain air and water pollution control
and solid waste disposal facilities (the " Facilities") at the
Pirkey Power Plant (the "Plant") which is operated by the
Company and located in Harrison County, Texas. By refunding the
Old bonds, the Company will preserve tax-exempt financing on the
$81,700,000 aggregate principal amount of the Old Bonds.
Terms of the New Bonds
The New Bonds will bear interest at a fixed or floating
rate, may or may not be secured with First Mortgage Bonds and
will mature in not more than forty years. The interest rate,
redemption provisions and other terms and conditions applicable
to the New Bonds will be determined by negotiations between the
Company and one or more investment banking firms or other
entities that will purchase or underwrite the New Bonds (the
"Purchasers"). It is anticipated that (i) the New Bonds will be
redeemable at any time in whole at the option of the Company at
the principal amount thereof plus accrued interest, upon the
occurrence of various extraordinary events specified in the
Amended Sale Agreement, as supplemented, or similar documents
utilized in connection with the issuance of the New Bonds, and
the Indentures as amended by one or more supplements (each a
"Supplemental Indenture"), or a new indenture (the "New
Indenture"), relating generally to (a) destruction or
condemnation of the Facilities or the Plant, (b) conditions
rendering operation of the Facilities or the Plant infeasible,
(c) the imposition on the Company or the Issuer of unreasonable
burdens or excessive liabilities with respect to the Facilities
or the Plant, or (d) if a constitutional amendment or
legislative, administrative or judicial action causes the
obligations of the Company under the Sale Agreement to become
unenforceable or impossible of performance in any material
respect with the expressed intention of the parties; (ii) the
New Bonds will be subject to optional redemption in whole or in
part at times and with premiums to be determined by negotiations
between the Company and the Purchaser(s); and (iii) the New
Bonds will be subject to special mandatory redemption, in whole
or in part, at the principal amount thereof plus accrued
interest, in the event the interest on the New Bonds becomes
subject to federal income tax.
Pursuant to the Sale Agreement, the Company transferred
the Facilities to Sabine, which financed the acquisitions and
related costs thereof with the proceeds of the Old Bonds. The
Sale Agreement contains commitments by the Company to pay to the
Issuer at specified times amounts sufficient to enable the
Issuer to pay debt service on the Old Bonds, including
principal, interest and redemption premium, if any.
The Company may obtain credit enhancement for the New
Bonds, which could include bond insurance, a letter of credit or
a liquidity facility. Due to heightened credit sensitivity in
the short-term tax-exempt market, the Company anticipates it may
be required to provide credit enhancement if it were to issue
floating rate bonds, whereas credit enhancement would be a
purely economic decision for the Company if it were to issue
fixed rate bonds. The Company anticipates that even though it
would be required to pay a premium or fee to obtain the credit
enhancement, it would realize a net benefit through a reduced
interest rate on the New Bonds. The Company would obtain credit
enhancement only if it determines it would be economically
beneficial to do so.
If bond insurance is obtained, the Company may be required
to enter into an agreement with the insurer and an escrow agent
pursuant to which the Company would be obligated to make
payments of certain amounts into an escrow fund upon the
Company's failure to maintain certain financial ratios and on
the occurrence of certain other events. Amounts held in such an
escrow fund would be payable to the insurer as an indemnity for
any amounts paid by the insurer with respect to principal or
interest on the New Bonds. The New Bonds may also contain other
terms and conditions deemed necessary or desirable to take
maximum advantage of the then current market conditions.
The Company also requests authority to issue First
Mortgage Bonds as security for the payment of the New Bonds, at
its option, depending upon market conditions at the time of
issuance of the New Bonds. The Company will issue First
Mortgage Bonds, subject to applicable indenture restrictions
upon the issuance thereof, by executing a Supplemental Indenture
to its Mortgage Indenture dated February 1, 1940 to the
Continental Bank, National Association and M. J. Kruger as
trustees (the "Mortgage Indenture"). Such First Mortgage Bonds
will be issued to the Trustee for the New Bonds pursuant to the
Mortgage Indenture. The First Mortgage Bonds will be held by
the Trustee solely for the benefit of the holders of the New
Bonds and will not be transferable except to a successor
Trustee. The First Mortgage Bonds will be issued in the exact
amounts and have substantially the same terms as the New Bonds.
The Supplemental Indenture or New Indenture for the New Bonds
may provide that the New Bonds will cease to be secured by the
First Mortgage Bonds when all other First Mortgage Bonds have
been retired. To the extent payments in respect of the New
Bonds are made in accordance with their terms, corresponding
payment obligations under the First Mortgage Bonds will be
deemed satisfied.
As applied to any First Mortgage Bonds that may be issued
as collateral for the New Bonds, the optional redemption
provisions described herein may deviate from the Securities and
Exchange Commission's (the "Commission") Statement of Policy
Regarding First Mortgage Bonds Subject to the Public Utility
Holding Company Act of 1935, Release No. 35-13105, 21 Fed. Reg.
1286 (1956), as supplemented by Commission Release No. 35-16369,
34 Fed. Reg. 9553 (1969) (together, the "Statement of Policy"),
in that the First Mortgage Bonds may be subject to a redemption
limitation of up to fifteen years while the Statement of Policy
requires that first mortgage bonds be subject to redemption at
any time upon reasonable notice and with reasonable redemption
premiums, if any. The Company has been advised by several
investment banks that purchasers of fixed-rate, tax-exempt bonds
generally expect a ten year redemption limitation and that
failure to include such a limitation may cause the New Bonds to
be unmarketable to a large pool of such purchasers, and may
result in an increase in the effective interest cost to the
Company. In consideration of current and future market
expectations with regard to redemption limitations, the Company
hereby requests that the Commission approve the above-described
deviation from the Statement of Policy so that the First
Mortgage Bonds, and therefore the New Bonds, may contain up to a
15 year optional redemption limitation.
As applied to the First Mortgage Bonds, any sinking fund
provisions may also deviate from the Statement of Policy, in
that the First Mortgage Bonds will not have sinking fund
provisions unless the New Bonds have sinking fund provisions.
The Statement of Policy requires the Company to deposit annually
with the trustee for the First Mortgage Bonds an amount of cash
equal to not less than one percent of the aggregate principal
amount of Bonds of all series authenticated under the First
Mortgage Bond indenture. The Company has been advised by
several investment bankers that purchasers of private activity
bonds generally do not expect sinking fund provisions. In light
of market expectations, and the Company's desire to retain
'permanent' tax-exempt financing (see "The Old Bonds" above),
the Company hereby requests that the Commission approve the
above-described deviation from the Statement of Policy so that
the First Mortgage Bonds, and therefore the New Bonds, may omit
sinking fund provisions.
The Company also requests a waiver from the requirement in
the Statement of Policy for a limitation on dividends. The
Company believes that dividend limitations, if any, are a matter
best left to the financial marketplace and the state regulatory
commissions. The limitation on dividends provision in the
Statement of Policy was adopted when accounting standards and
ratemaking practices were very different from today. For
example, ratemaking disallowances on grounds of alleged lack of
prudence or alleged excess capacity have become more prevalent
today. Under today's accounting requirements, disallowances
might result in charges to the income statement and current
retained earnings, which could preclude the payment of dividends
on common stock.
All of the Company's bonds of Series V contain dividend
restrictions in the supplemental indenture which will continue
to limit the Company's dividend payments until all such bonds
mature or are retired. In light of these dividend restrictions
and provisions in the Company's Restated Certificate of
Incorporation restricting the payment of dividends to a
percentage of net income available for dividends on common stock
if the Company's common stock equity is not maintained at a
certain percentage of total capitalization, the Company believes
that the omission of the limitation on dividends as contemplated
by the Statement of Policy will not materially and adversely
affect the holders of the New Bonds. The terms and provisions
of the First Mortgage Bonds will not otherwise materially
deviate from the Statement of Policy.
Messrs. McCall, Parkhurst & Horton, who are anticipated to
act as Bond Counsel, have informed the Company that they will be
prepared to give a legal opinion that interest on the New Bonds
will be excluded from gross income for federal income tax
purposes.
The Company anticipates that the New Bonds will be sold by
the Issuer(s) pursuant to a Bond Purchase Agreement (the
"Purchase Agreement") between the Issuer(s) and one or more
Purchasers. The Company may or may not be a party to the
Purchase Agreement, but if it is not a party, the Purchase
Agreement will be subject to approval by the Company and the
Company will enter into a letter of representation with the
Purchasers, containing various warranties, representations and
indemnities upon which the Purchasers will rely in entering into
the Purchase Agreement.
The Company requests authority to enter into negotiations
with Purchasers with respect to the interest rate, redemption
provisions and other terms and conditions applicable to the New
Bonds and to set the terms of the New Bonds subject to the
receipt of an order under the Act if an order has not been
issued when the Company enters into the Purchase Agreement.
Use of Proceeds
The proceeds of the offering of the New Bonds will be used
to (i) redeem the Old Bonds pursuant to the terms of the
Indenture (the "Redemption") and (ii) reimburse the Company's
treasury for any expenditures made that qualify for tax-exempt
financing or to provide for current solid waste expenditures.
The proceeds of any offering may also be used to reimburse the
Company's treasury for Old Bonds previously acquired.
The Company may be required to deposit the proceeds of the
New Bonds with the Trustee in connection with the Redemption of
the Old Bonds. Any additional funds required to pay for the
Redemption of Old Bonds and the costs of issuance of the New
Bonds will be provided by the Company from internally generated
funds and short-term borrowings pursuant to orders of the
Commission dated March 31, 1993 (HCAR No. 35-25777), September
28, 1993 (HCAR No. 35-25897), March 18, 1994 (HCAR No. 35-
26007), June 15, 1994 (HCAR No. 35-26066) and March 21, 1995
(HCAR No. 35-26254), or subsequent orders (the "Short-Term
Borrowing Orders").
The Company believes that the Redemption of the Old Bonds
and the issuance of floating rate Refunding Bonds could result
in substantial savings to the Company and benefit the Company's
ratepayers. Based on the average of the last 10 years J.J.
Kenny Index, it is estimated that the Issuer could issue
floating rate Refunding Bonds at an interest rate of
approximately 4.29%. As set forth in Exhibit 11 hereto, the
acquisition of the Old Bonds and the issuance of the floating
rate Refunding Bonds based upon the J.J. Kenny 10 year average
would result in an estimated annual aggregate reduction in
interest costs to the Company of $3,140,003, if all of the Old
Bonds were reacquired. Total interest savings to the Company
over the remaining life of the Old Bonds would aggregate
$56,520,054.
No proceeds from the sale of New Bonds will be used by CSW
or any subsidiary thereof for the direct or indirect acquisition
of an interest in an exempt wholesale generator, as defined in
Section 32 of the Act ("EWG"), or a foreign utility company, as
defined in Section 33 of the Act ("FUCO"). Rule 54 promulgated
under the Act states that 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, or
other transactions by such registered holding company or its
subsidiaries other than with respect to EWGs or FUCOs, the
Commission shall not consider the effect of the capitalization
or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rule 53(a), (b) and (c) are
satisfied. As set forth below, all applicable conditions set
forth in Rule 53(a) are, and, assuming the consummation of the
transactions proposed herein, will be, satisfied and none of the
conditions set forth in Rule 53(b) exist or will exist as a
result of the transactions proposed herein.
CSW's "aggregate investment" (as defined under Rule 53(a)
of the Act) in EWGs and FUCOs as of February 1, 1996 was
approximately $825 million, or approximately 45% of CSW's
"consolidated retained earnings" as of December 31, 1995. CSW
thus satisfies Rule 53(a)(1). CSW will maintain and make
available the books and records required by Rule 53(a)(2). No
more than 2% of the employees of CSW's operating subsidiaries
will, at any one time, directly or indirectly, render services
to an EWG or FUCO in which CSW directly or indirectly owns an
interest, satisfying Rule 53(a)(3). And lastly, CSW will submit
a copy of Item 9 and Exhibits G and H of CSW's Form U5S to each
of the public service commissions having jurisdiction over the
retail rates of CSW's operating utility subsidiaries, satisfying
Rule 53(a)(4).
None of the conditions described in Rule 53(b) exist with
respect to CSW or any of its subsidiaries, thereby satisfying
such rule and making Rule 53(c) inapplicable.
Managing Interest Rates
The Company proposes to manage interest rate risk, as
appropriate, through the use of hedging products, including
interest rate swaps, forward swaps, caps, collars and floors,
and through forward transactions as described under the heading
"Forward Underwritings" below. The Company may also use
interest rate swaps for the purpose of effectively lowering its
interest costs on one or more series of Old Bonds and/or New
Bonds. The Company requests authority to enter into the
foregoing types of transactions from time to time either in
connection with the issuance of New Bonds or otherwise.
The Company could use the interest rate swap market to
hedge against changes in the interest rates of variable rate
securities by entering into a fixed-for-floating swap
arrangement (the Company pays a fixed rate to a counterparty and
receives, in return, a floating rate). In addition, the Company
may be able to realize a lower all-in rate in the synthetic
fixed market than in the natural cash fixed market. A synthetic
fixed rate issuance is achieved by issuing variable rate
securities and simultaneously entering into a fixed-for-floating
interest rate swap. The variable rate amounts received by the
Company on the swap are used to pay the variable rate interest
on the bonds, thereby leaving the Company with a net fixed rate
payment. A natural cash fixed rate issuance is achieved by
simply issuing fixed rate securities.
The Company may also issue fixed rate New Bonds and then
seek to effectively lower its interest costs on such New Bonds
by entering into a floating-for-fixed interest rate swap
arrangement (the Company pays a floating rate to a counterparty
and receives, in return, a fixed rate). In this manner, the
Company would hope to take advantage of interest cost savings
associated with short-term interest rates. The floating rate
payable by the Company would be based upon a market index, such
as LIBOR (London Interbank Deposit Offered Rate), Federal Funds,
reserve-adjusted certificate of deposit or commercial paper
rates or the J.J. Kenny or PSA tax-exempt indices. The Company
may be required to pay a margin in addition to such floating
rate, which margin shall not be greater than 5%. In such event,
the fixed interest rate payable by the counterparty would
include the amount of such margin.
None of the interest rate swaps would be "leveraged." This
means that changes in interest payments or receipts under any
interest rate swap due to changes in the floating rate index
used in the swap will not exceed the product of the change in
such index and the notional amount of that swap. In no event
would the aggregate notional amount of the interest rate swaps,
at any one time, exceed $131,700,000.
The interest rate swaps mentioned above may also be forward
swaps, whereby a swap agreement is entered into but the exchange
of fixed and floating payments does not begin until a future
date, which is generally the call date on outstanding bonds.
It is anticipated that any interest rate swap agreement
entered into would provide that redemption, reacquisition or
maturation of the corresponding Old Bonds and/or New Bonds would
terminate the Company's obligations to the counterparty under
the swap agreement for a corresponding notional amount. If an
interest rate swap with automatic termination is not available
or economically appropriate, the Company will enter into a swap
permitting termination at the option of the Company and the
Company would exercise such option for a corresponding notional
amount upon the redemption, reacquisition or maturation of the
corresponding Old Bonds and/or New Bonds. The Company's
termination of its obligations under the interest rate swap
agreement may require the Company to pay an additional amount
under the terms of the swap agreement, which may be substantial
depending upon market conditions at the time of the termination.
In order to obtain flexibility in the event that market
conditions with respect to interest rates change after the
Company has entered into an interest rate swap agreement as
described herein, the Company also requests authorization to
enter into reverse (or offsetting) interest rate swap
agreements, or other contractual arrangements, in order to limit
the impact of anticipated movements in interest rates or offset
the effect of existing interest rate swap agreements.
If the Company issues variable rate New Bonds, it proposes
to manage interest rate risk through the use of interest rate
caps ("Caps) and interest rate collars ("Collars"). The Company
therefore requests authority from time to time during the life
of the New Bonds to purchase Caps and Collars in respect of
outstanding New Bonds. Caps and Collars are designed to
mitigate and/or transfer interest rate risk and, from the
Company's perspective, are not for speculation purposes. The
Company may elect to purchase a Cap to limit its exposure to
rising interest rates. The Company may also elect to enter into
a Collar, which consists of purchasing a Cap together with the
sale of an interest rate floor ("Floor"). The Company will only
sell a Floor if it is part of a Collar.
The parties to a Cap agree upon a set interest rate, or
"strike rate" that will apply to a series of New Bonds. If the
interest rate on the capped bonds exceeds the strike rate during
the term of the Cap, the Cap provider pays to the Company the
difference between the strike rate and the actual interest rate
of the New Bonds. The Company, however, continues to make
interest payments on the New Bonds at the actual interest rate.
A Floor is essentially the opposite of a Cap. As with a
Cap, the parties to a Floor agree on a strike rate. When the
actual interest rate on the New Bonds subject to a Floor falls
below the Floor strike rate, the Company must pay to the Floor
provider the difference between the actual interest rate and the
Floor strike rate. The Company continues to make interest
payments on the bonds at the actual interest rate.
Caps and Collars are purchased from a Cap or Collar
"provider", at a purchase price based on a percentage of the
aggregate principal amount of the bonds to be capped or
collared. The cost of a Cap or a Collar is determined by
reference to prevailing interest rates, the proposed duration of
the Cap or Collar and the proposed Cap and Floor strike rates.
The longer the duration of a Cap or Collar, the higher the
price. The lower the Cap strike rate, the more expensive the
Cap is and the higher the Floor strike rate, the greater the
offset from the Cap price. The maximum the Company would spend
on a ten year Cap would be 10% of the aggregate principal amount
of the New Bonds then outstanding, and the actual cost would be
expected to be less than 10%.
Caps and Collars are designed to mitigate interest rate
risk and do not expose the Company to financial or other risks.
If the actual interest rate on the New Bonds does not exceed the
Cap strike rate at any time during the term of the Cap, then the
Company will neither benefit from or be exposed to risk by the
Cap or Collar; the Company will only risk the initial cost of
the Cap or Collar. If the actual interest rate falls below and
remains below the Floor strike rate, the Company will be
required to pay interest at the Floor strike rate. Also, the
Company is subject to the credit risk on the Cap provider's
ability to make payments on the Cap.
While Caps and Collars purchased for the New Bonds may
technically exist when the underlying bonds are retired, the
Company proposes to terminate any Caps or Collars upon
retirement of the New Bonds. If the Company wishes to terminate
a Cap or Collar when interest rates on the New Bonds are between
the Floor strike rate and the Cap strike rate, it would receive
a portion of the original cost of the Cap or Collar in return,
or receive nothing, depending on interest rates and the
remaining term of the Cap or Collar. If the Company seeks to
terminate a Collar when the actual interest rate is below the
Floor strike rate, the Company may be required to pay a
termination fee based upon the value of the Collar to the Floor
provider at the time.
Under Rule 24, within 45 days after the end of each quarter
in which the Company has outstanding any Caps or Collars as
described herein relating to the Series 1995 Bonds, the Company
shall file a certificate with the Commission disclosing the
following information with respect to each such Cap or Collar:
(a) the transaction date, (b) the type of transaction (either a
Cap or a Collar), (c) the notional amount, (d) the name of the
counterparty and (e) a description of the material terms,
including the maturity or termination date and the Cap and/or
Floor strike rates. Such certificate shall also disclose the
market value of all open Cap or Collar positions at the end of
each quarter and any gains or losses realized from the
liquidation of any Cap or Collar positions during such quarter.
Forward Underwritings
Under a forward underwriting, the Company would price the
New Bonds based upon then current rates. The settlement date,
however, would not occur until 90 days or less prior to the date
at which the Old Bonds become refundable pursuant to terms of
the Indenture. A forward underwriting locks in refunding
savings with no incremental market risk to the Company until
such Old Bonds become refundable. The Company would eliminate
all exposure to future movements in its tax-exempt refunding
rates. Although the Company may elect a different term,
historical forward commitment underwriting premiums indicate the
Company will have to pay up to approximately 25, 35, or 60 basis
points on a 6, 12, or 18 month forward transaction,
respectively, subject to changes in market conditions. The
Company would only enter into a forward transaction if it
appears attractive rates will not be available once the Old
Bonds become refundable pursuant to their terms.
Conclusion
The Company believes that the consummation of the
transactions proposed herein will be in the best interests of
its consumers and investors and consistent with sound and
prudent financial policy.
Item 2. Fees, Commissions and Expenses.
An estimate of the appropriate amount of the fees and
expenses, other than underwriting commissions or discounts, to
be paid or incurred by the Company in connection with the
proposed transaction is as follows:
Approximate
Amount
-----------
Holding Company Act filing fee ........................$ 2,000*
Printing of Official Statement
and Bonds .......................................... 20,000
Fees of Public Accountant ............................ 7,500
Fee of Trustee ....................................... 20,000
Fee of District ...................................... 100,000
Fees of Rating Agencies .............................. 40,000
Expenses of Central and South West
Services, Inc ..................................... 3,500
Counsel fees:
Milbank, Tweed, Hadley & McCloy,
New York, New York ..................... 65,000
Sidley & Austin,
Chicago, Illinois ...................... 25,000
Friday, Eldredge & Clark,
Little Rock, Arkansas .................. 3,000
Wilkinson, Carmody & Gilliam,
Shreveport, Louisiana .................. 1,000
Coghlan, Crowson, Robertson & Ylitalo,
Longview, Texas ........................ 1,000
McCall, Parkhurst & Horton
Dallas, Texas (Bond Counsel) ........... 70,000
Blue Sky and investment fees
and expenses ........................... 5,000
Miscellaneous expenses, including
travel, telephone, copying,
postage ................................ 2,000
----------
TOTAL $ 365,000
==========
_______________
* Actual Amount.
The fees and expenses include those charges incurred for
the services of Central and South West Services, Inc. ("CSWS"),
an affiliated service company of CSW operating pursuant to
Section 13 of the Act and the rules thereunder. The services of
CSWS will consist principally of services performed by the
Treasury Department and the Controller's Department.
Item 3. Applicable Statutory Provisions.
Sections 6(a) and 7 of the Act are or may be applicable
with respect to the Company's obligations under the Sale
Agreements to make debt service payments with respect to the New
Bonds.
Section 9(a)(1) and 10 of the Act are applicable with
respect to the repurchase by the Company of the Company's
portion of the Facilities. Section 12(d) and Rule 44 thereunder
of the Act are applicable to the sale of any completed portions
of the Facilities, but such sale would be excepted from Section
12(d) and from Rule 44 under subsection (b)(3) of said rule.
If the Company enters into a Preliminary Agreement, as
defined in Rule 51, such Agreement will satisfy the conditions
set forth in paragraphs (a) through (d) of said Rule. Sections
6(a), 7, 9(a) and 10 of the Act are or may be applicable to the
proposed entering into of hedging products, including interest
rate swaps, forward swaps, caps, collars, floors and related
instruments.
To the extent any other provisions of the Act or the rules
promulgated thereunder may be applicable to the proposed
transactions, the Company hereby requests appropriate orders to
such effect.
Item 4. Regulatory Approval.
No state regulatory authority and no federal regulatory
authority, other than the Commission under the Act, has
jurisdiction over the proposed transaction.
The Company believes (based on a review of applicable
state laws) that no state approvals are required in connection
with the entering into by the Company of one or more hedging
products, including interest rate swaps, forward swaps, caps,
collars and floors, and forward transactions ("Instruments") to
manage interest rate risk or to effectively lower the Company's
interest cost on the Old Bonds and/or New Bonds. The Company
will, however, prior to entry into any such Instruments, provide
information on such products to members of the staff of the
Public Utility Commission of Texas.
Item 5. Procedure.
The Company requests that the Commission issue and publish
no later than April 26, 1996, the requisite notice under Rule 23
with respect to the filing of this Application-Declaration, such
notice to specify a date not later than May 13, 1996, as the
date after which an order granting and permitting this
Application-Declaration to become effective may be entered by
the Commission and the Commission enter not later than May 14,
1996, an appropriate order granting and permitting this
Application-Declaration to become effective with respect to the
proposed transactions.
The Company respectfully requests that appropriate and
timely action be taken by the Commission in this matter in order
to permit consummation of the proposed transactions in
accordance with the schedule outlined above.
No recommended decision by a hearing officer or any other
responsible officer of the Commission is necessary or required
in this matter. The Division of Investment Management of the
Commission may assist in the preparation of the Commission's
decision in this matter. There should be no 30-day waiting
period between the issuance and the effective date of any order
issued by the Commission in this matter; and it is respectfully
requested that any such order be made effective immediately upon
the entry thereof.
Item 6. Exhibits and Financial Statements.
Exhibit 1 - Form of Installment Sale Agreement between
the Company and the District (to be filed
by amendment).
Exhibit 2 - Form of Indenture of Trust between the
District and the Trustee (to be filed by
amendment).
Exhibit 3 - Form of Bond Purchase Agreement between the
District and the Purchasers (to be filed by
amendment).
Exhibit 4 - Form of Letter of Representation from the
Company to the Purchasers (to be filed by
amendment).
Exhibit 5 - Preliminary Official Statement relating to
the Bonds (to be filed by amendment).
Exhibit 6 - Preliminary opinion of Milbank, Tweed,
Hadley & McCloy, counsel for the Company (to
be filed by amendment).
Exhibit 7 - Final or "past tense" opinion of counsel for
the Company (to be filed with Certificate of
Notification).
Exhibit 8 - Financial Statements per books and pro forma
as of December 31, 1995 (to be filed by
amendment).
Exhibit 9 - Proposed Notice of Proceeding.
Exhibit 10- Form of Proposed Supplemental Indenture to
First Mortgage Indenture (to be filed by
amendment, if applicable).
Exhibit 11- Illustration of hypothetical interest
savings.
Item 7. Information as to Environmental Effects.
The proposed transaction does not involve major federal
action having a significant effect on the human environment. To
the best of the Company's knowledge, no federal agency has
prepared or is preparing an environmental impact statement with
respect to the proposed transactions.
S I G N A T U R E
- - - - - - - - - -
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned Company has
duly caused this document to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 18, 1996
SOUTHWESTERN ELECTRIC POWER COMPANY
By:/s/SHIRLEY S. BRIONES
Shirley S. Briones
Treasurer
INDEX OF EXHIBITS
EXHIBIT TRANSMISSION
NUMBER EXHIBITS METHOD
- ------- -------- ------------
1 Form of Installment Sale Agreement ---
between the Company and the Issuer
(to be filed by amendment).
2 Form of Indenture of Trust between the ---
Issuer and the Trustee (to be filed
by amendment).
3 Form of Bond Purchase Agreement between ---
the Issuer and the Underwriters (to
be filed by amendment).
4 Form of Letter of Representation from ---
the Company to the Purchasers (to be
filed by amendment).
5 Preliminary Official Statement relating ---
to the Bonds (to be filed by amendment).
6 Preliminary opinion of Milbank, Tweed, ---
Hadley & McCloy, counsel for the Company
(to be filed by amendment).
7 Final or "past tense" opinion of counsel ---
for the Company (to be filed with
Certificate of Notification).
8 Financial Statements per books and pro ---
forma as of December 31, 1995 (to be filed
by amendment).
9 Proposed Notice of Proceeding. Electronic
10 Form of Proposed Supplemental Indenture ---
to First Mortgage Indenture (to be
filed by amendment).
11 Illustration of hypothetical interest Electronic
savings.
<PAGE>
EXHIBIT 9
---------
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35 - __________)
Filings Under the Public Utility Holding Company Act of 1935
("Act")
______________, 1996
Notice is hereby given that the following filings(s)
has/have been made with the Commission pursuant to provisions of
the Act and rules promulgated thereunder. All interested persons
are referred to the application(s) and/or declaration(s) for
complete statements of the proposed transactions(s) summarized
below. The application(s) and/or declaration(s) and any
amendment(s) thereto is/are available for public inspection
through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a
hearing on the application(s) and/or declaration(s) 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 relevant applicant(s) and/or
declarant(s) at the address(es) specified below. Proof of
service (by affidavit or, in 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 the manner. After said date, the application(s)
and/or declaration(s), as filed or as amended, may be granted
and/or permitted to become effective.
Southwestern Electric Power Company (File No. 70-____)
Southwestern Electric Power Company ("SWEPCO"), 428
Travis Street, Shreveport, Louisiana 71101, a wholly-owned
electric utility subsidiary of Central and South West
Corporation, a registered holding company, has filed an
application-declaration pursuant to Sections 6(a), 7, 9(a), 10
and 12(d) of the Act and Rules 44 and 54 promulgated thereunder.
SWEPCO seeks authorization, through December 31, 1999,
to incur obligations in connection with the proposed issuance by
Sabine River authority of Texas ("Sabine") in one or more series
of up to $131,700,000 aggregate principal amount of Pollution
Control Revenue Bonds. Of this amount, up to $81,700,000
aggregate principal amount may be Pollution Control Revenue
Refunding Bonds (Southwestern Electric Power Company Project)
(the "Refunding Bonds") and up to $50,000,000 aggregate principal
amount may be new money Revenue Bonds (Southwestern Electric
Power Company Project) (the "New Money Bonds" and, together with
the Refunding Bonds, the "New Bonds"). The issuance of New Money
Bonds may be combined with the issuance of Refunding Bonds.
The purpose of the Refunding Bonds is to reacquire all
or a portion of Sabine's $81,700,000 of outstanding 8.20%
Pollution Control Revenue Refunding Bonds (Southwestern Electric
Power Company Facilities) Series 1986 (the "Old Bonds"). Sabine
is referred to herein as "Issuer". The purpose of the New Money
Bonds is to reimburse SWEPCO for expenditures that qualify for
tax-exempt financing or to provide for current solid waste
expenditures.
SWEPCO also seeks authorization to manage interest rate
risk or lower its interest costs through the use of forward
refinancing techniques and the use of hedging products, including
interest rate swaps, forward swaps, caps, collars and floors
during the life of the Old Bonds and/or New Bonds. The Company
requests authority to enter into the foregoing types of
transactions from time to time either in connection with the
issuance of New Bonds or otherwise.
It is anticipated that any interest rate swap agreement
entered into would provide that redemption, reacquisition or
maturation of the corresponding Old Bonds and/or New Bonds would
terminate the Company's obligations to the counterparty under the
swap agreement for a corresponding notional amount. If an
interest rate swap with automatic termination is not available or
economically appropriate, the Company will enter into a swap
permitting termination at the option of the Company and the
Company would exercise such option for a corresponding notional
amount upon the redemption, reacquisition or maturation of the
corresponding Old Bonds and/or New Bonds.
The Company also requests authorization to enter into
reverse (or offsetting) interest rate swap agreements, or other
contractual arrangements, in order to limit the impact of
anticipated movements in interest rates or offset the effect of
an existing interest rate swap agreement.
The Old Bonds were originally issued to redeem all the
then outstanding $81,700,000 principal amount of the Issuer's
Adjustable Rate Pollution Control Revenue Bonds (Southwestern
Electric Power Company Power Project) Series 1984. The Old Bonds
were issued pursuant to the Indenture of Trust with The Bank of
New York, New York, New York, as Trustee (the "Trustee"), and had
the following terms:
Interest First Redemption
Series Rate Maturity Date Date
(per annum)
1986 8.20% July 1, 2014 July 1, 1996
SWEPCO and the Issuer entered into an installment sale
agreement (the "Sale Agreement") for the issuance of the Old
Bonds. In connection with the issuance of the New Bonds, SWEPCO
will amend the Sale Agreement, enter into agreements with
substantially the same terms as the Sale Agreement and/or enter
into new installment sale agreements (collectively "Amended Sale
Agreements").
The New Bonds will bear interest at a fixed or floating
rate, may be secured with First Mortgage Bonds and will mature in
not more than forty years. The interest rate, redemption
provisions and other terms and conditions applicable to the New
Bonds will be determined by negotiations between SWEPCO and one
or more investment banking firms or other entities that will
purchase or underwrite the New Bonds (the "Purchasers").
SWEPCO anticipates that the New Bonds will be redeemable at
its option upon the occurrence of various events specified in the
Amended Sale Agreements and the Indentures, which may be amended or
supplemented ("Supplemental Indentures"), or a new indenture ("New
Indenture"). The New Bonds will be subject to optional redemption
with premiums to be determined by negotiations between SWEPCO and
the Purchasers and will be subject to mandatory redemption if the
interest on the New Bonds become subject to federal income tax.
SWEPCO may obtain a credit enhancement for the New Bonds,
which could include bond insurance, a letter of credit or a
liquidity facility. SWEPCO anticipates it may be required to
provide credit enhancement if it issues floating rate bonds. A
premium or fee would be paid for the credit enhancement, which would
still result in a net benefit through a reduced interest rate on the
New Bonds. SWEPCO will not provide credit enhancement unless it is
economically beneficial.
SWEPCO also seeks authority to issue First Mortgage Bonds as
security for the New Bonds, subject to applicable indenture
restrictions under its Mortgage Indenture dated February 1, 1940 to
the Continental Bank, National Association and M. J. Kruger (the
"Mortgage Indenture"). The First Mortgage Bonds will be held by the
Trustee for the New Bonds for the benefit of the New Bond holders
and will not be transferable, except to a successor trustee. The
First Mortgage Bonds will be issued in the exact amount and have
substantially the same terms as the New Bonds. The Supplemental
Indenture or New Indenture for the New Bonds may provide that the
New Bonds will cease to be secured by First Mortgage Bonds when all
other First Mortgage Bonds have been retired. To the extent
payments in respect of the New Bonds are made in accordance with
their terms, corresponding payment obligations under the First
Mortgage Bonds will be deemed satisfied.
The redemption, sinking fund, and dividend provisions of the
First Mortgage Bonds may deviate from the Statement of Policy
Regarding First Mortgage Bonds. SWEPCO anticipates that the New
Bonds will be sold by the Issuer pursuant to a Bond Purchase
Agreement between the Issuer and one or more Purchasers.
The proceeds of the offering of the New Bonds will be used to
redeem the Old Bonds pursuant to the terms of the Indentures (the
"Redemption") and reimburse SWEPCO for expenditures made that
qualify for tax-exempt financing or to provide for current solid
waste expenditures. The proceeds of any offering may also be used
to reimburse SWEPCO for Old Bonds previously acquired. Additional
funds required to pay for the Redemption and the costs of issuance
of the New Bonds will be provided by SWEPCO from internally
generated funds and short-term borrowings.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz
Secretary
<PAGE>
EXHIBIT 11
- ----------
SOUTHWESTERN ELECTRIC POWER COMPANY
ESTIMATED INTEREST SAVINGS
SERIES 1986
EXISTING SECURITIES BONDS
- ------------------- ---------------
Amount Outstanding $ 81,700,000
Coupon Rate 8.2%
---------------
Annual Interest Expense $ 6,699,400
===============
Amount Redeemed $ 81,700,000
Redemption Price 102.00
---------------
Aggregate Redemption Price $ 83,334,000
NEW SECURITIES
- --------------
Principal Amount $ 81,700,000
Coupon Rate 4.29%*
---------------
Annual Interest $ 3,504,930
Amortization of Redemption
Premium** 54,467
---------------
Annual Interest Cost $ 3,559,397
===============
Annual Interest Savings by
Refunding $ 3,140,003
Total Interest Savings over
the remaining life of the
Old Bonds $ 56,520,054
===============
* Based on the average of the last 10 years J. J. Kenny Index
** Amortized over an assumed 30-year life of New Bonds
