File No. 70-9729
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
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(Name of company or companies filing this statement
and address of principal executive office)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
A. A. Pena, Senior Vice President and Treasurer
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215
Susan Tomasky, General Counsel
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215
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(Names and addresses of agents for service)
American Electric Power Company, Inc., a registered holding company
under the Public Utility Holding Company Act of 1935, hereby amends its
Application or Declaration on Form U-1 in File No. 70-9729 by restating Item
1 as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
American Electric Power Company, Inc. ("AEP") is a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act"). AEP proposes to organize and acquire all of the common stock or other
equity interests of one or more subsidiaries (collectively, the "Financing
Subsidiary") for the purpose of effecting various financing transactions from
time to time through June 30, 2004 involving the issuance and sale of up to an
aggregate of $1.5 billion (cash proceeds to AEP) in any combination of Preferred
Securities, Debt Securities, Stock Purchase Contracts and Stock Purchase Units,
as well as its common stock issuable pursuant to such Stock Purchase Contracts
and Stock Purchase Units, all as described herein. AEP further proposes that it
may effect directly (i.e., without the Financing Subsidiary) any such
transaction involving Preferred Securities, Debt Securities, Stock Purchase
Contracts or Stock Purchase Units as described herein, provided that AEP shall
not issue any secured indebtedness. No Finance Subsidiary or Special Purpose
Subsidiary, as defined below, shall acquire or dispose of, directly or
indirectly, any interest in any Utility Asset, as that term is defined under the
Act.
AEP's consolidated net income for the year ended December 31, 1999 was
$520 million. Reference is made to note 13 to the consolidated financial
statements included in AEP's Annual Report on Form 10-K for the year ended
December 31, 1999 for certain business segment information. AEP's traditional
core business served approximately three million retail customers as of December
31, 1999. On June 15, 2000, AEP acquired all of the outstanding common equity of
Central and South West Corporation, a Delaware corporation and a registered
holding company under the Act. See the Current Report on Form 8-K of AEP dated
June 15, 2000.
Financing Subsidiary
1.1 AEP will acquire all of the outstanding shares of common stock or
other equity interests of the Financing Subsidiary for amounts (inclusive of
capital contributions that may be made from time to time to the Financing
Subsidiary by AEP) aggregating up to 35% of the total capitalization of the
Financing Subsidiary (i.e., the aggregate of the equity accounts and
indebtedness of the Financing Subsidiary). Such investment by AEP will not in
any event be less than the minimum required by any applicable law. The business
of the Financing Subsidiary will be limited to effecting financing transactions
for AEP and its affiliates. In connection with such financing transactions, AEP
will enter into one or more guarantee or other credit support agreements in
favor of the Financing Subsidiary. Effecting financings through the Financing
Subsidiary would have the benefit of better distinguishing securities issued by
AEP to finance its investments in non-core businesses from those issued to
finance its investments in core business operating companies. A separate
Financing Subsidiary may be used by AEP with respect to different types of
non-core businesses.
Preferred Securities
1.2 In connection with the issuance of Preferred Securities (as
hereinafter defined), AEP or the Financing Subsidiary proposes to organize one
or more separate special purpose subsidiaries as any one or any combination of
(a) a limited liability company under the Limited Liability Company Act (the
"LLC Act") of the State of Delaware or other jurisdiction considered
advantageous by AEP, (b) a limited partnership under the Revised Uniform Limited
Partnership Act of the State of Delaware or other jurisdiction considered
advantageous by AEP, (c) a business trust under the laws of the State of
Delaware or other jurisdiction considered advantageous by AEP, or (d) any other
entity or structure, foreign or domestic, that is considered advantageous by
AEP. The special purpose subsidiaries to be so organized are hereinafter
referred to individually as a "Special Purpose Subsidiary" and collectively as
the "Special Purpose Subsidiaries". In the event that any Special Purpose
Subsidiary is organized as a limited liability company, AEP or the Financing
Subsidiary may also organize a second special purpose wholly-owned subsidiary
under the General Corporation Law of the State of Delaware or other jurisdiction
("Investment Sub") for the purpose of acquiring and holding Special Purpose
Subsidiary membership interests so as to comply with any requirement under the
applicable LLC Act that a limited liability company have at least two members.
In the event that any Special Purpose Subsidiary is organized as a limited
partnership, AEP or the Financing Subsidiary also may organize an Investment Sub
for the purpose of acting as the general partner of such Special Purpose
Subsidiary and may acquire, either directly or indirectly through such
Investment Sub, a limited partnership interest in such Special Purpose
Subsidiary to ensure that such Special Purpose Subsidiary will at all times have
a limited partner to the extent required by applicable law.
The respective Special Purpose Subsidiaries then will issue and sell to
public or private investors at any time or from time to time unsecured preferred
securities described hereinbelow (the "Preferred Securities"), with a specified
par or stated value or liquidation preference per security.
1.3 AEP, the Financing Subsidiary and/or an Investment Sub will acquire
all of the common stock or all of the general partnership or other common equity
interests, as the case may be, of any Special Purpose Subsidiary for an amount
not less than the minimum required by any applicable law and not exceeding 21%
of the total equity capitalization from time to time of such Special Purpose
Subsidiary (i.e., the aggregate of the equity accounts of such Special Purpose
Subsidiary) (the aggregate of such investment by AEP, the Financing Subsidiary
and/or an Investment Sub being herein referred to as the "Equity Contribution").
The Financing Subsidiary may issue and sell to any Special Purpose Subsidiary,
at any time or from time to time in one or more series, unsecured subordinated
debentures, unsecured promissory notes or other unsecured debt instruments
(individually, a "Note" and collectively, the "Notes") governed by an indenture
or other document, and such Special Purpose Subsidiary will apply both the
Equity Contribution made to it and the proceeds from the sale of Preferred
Securities by it from time to time to purchase Notes. Alternatively, the
Financing Subsidiary may enter into a loan agreement or agreements with any
Special Purpose Subsidiary under which such Special Purpose Subsidiary will loan
to the Financing Subsidiary (individually, a "Loan" and collectively, the
"Loans") both the Equity Contribution to such Special Purpose Subsidiary and the
proceeds from the sale of the Preferred Securities by such Special Purpose
Subsidiary from time to time, and the Financing Subsidiary will issue to such
Special Purpose Subsidiary Notes evidencing such borrowings.
1.4 AEP or the Financing Subsidiary also proposes to guarantee
(individually, a "Guaranty" and collectively, the "Guaranties") (i) payment of
dividends or distributions on the Preferred Securities of any Special Purpose
Subsidiary if and to the extent such Special Purpose Subsidiary has funds
legally available therefor, (ii) payments to the Preferred Securities holders of
amounts due upon liquidation of such Special Purpose Subsidiary or redemption of
the Preferred Securities of such Special Purpose Subsidiary, and (iii) certain
additional amounts that may be payable in respect of such Preferred Securities.
AEP's credit would support any such Guaranty by the Financing Subsidiary.
1.5 Each Note will have a term of up to 50 years. Prior to maturity, the
Financing Subsidiary will pay interest only on the Notes at a rate equal to the
dividend or distribution rate on the related series of Preferred Securities,
which dividend or distribution rate may be either a fixed rate or an adjustable
rate to be determined on a periodic basis by auction or remarketing procedures,
in accordance with a formula or formulae based upon certain reference rates, or
by other predetermined methods. Such interest payments will constitute each
respective Special Purpose Subsidiary's only income and will be used by it to
pay dividends or distributions on the Preferred Securities issued by it and
dividends or distributions on the common stock or the general partnership or
other common equity interests of such Special Purpose Subsidiary. Dividend
payments or distributions on the Preferred Securities will be made on a monthly
or other periodic basis and must be made to the extent that the Special Purpose
Subsidiary issuing such Preferred Securities has legally available funds and
cash sufficient for such purposes. However, the Financing Subsidiary may have
the right to defer payment of interest on any issue of Notes for up to five or
more years. Each Special Purpose Subsidiary will have the parallel right to
defer dividend payments or distributions on the related series of Preferred
Securities for up to five or more years, provided that if dividends or
distributions on the Preferred Securities of any series are not paid for up to
18 or more consecutive months, then the holders of the Preferred Securities of
such series may have the right to appoint a trustee, special general partner or
other special representative to enforce the Special Purpose Subsidiary's rights
under the related Note and Guaranty. The dividend or distribution rates, payment
dates, redemption and other similar provisions of each series of Preferred
Securities will be substantially identical to the interest rates, payment dates,
redemption and other provisions of the Note issued by the Financing Subsidiary
with respect thereto. The Preferred Securities may be convertible or
exchangeable into common stock of AEP.
1.6 The Notes and related Guaranties will be subordinate to all other
existing and future unsubordinated indebtedness for borrowed money of the
Financing Subsidiary (or AEP, as the case may be) and may have no cross-default
provisions with respect to other indebtedness of the Financing Subsidiary (or
AEP), i.e., a default under any other outstanding indebtedness of the Financing
Subsidiary (or AEP) would not result in a default under any Note or Guaranty.
However, AEP and/or the Financing Subsidiary may be prohibited from declaring
and paying dividends on its outstanding capital stock and making payments in
respect of pari passu debt unless all payments then due under the Notes and
Guaranties (without giving effect to the deferral rights discussed above) have
been made.
1.7 It is expected that the Financing Subsidiary's interest payments on
the Notes will be deductible for federal income tax purposes and that each
Special Purpose Subsidiary will be treated as either a partnership or a passive
grantor trust for federal income tax purposes. Consequently, holders of the
Preferred Securities and AEP (and any Investment Sub) will be deemed to have
received distributions in respect of their ownership interests in the respective
Special Purpose Subsidiary and will not be entitled to any "dividends received
deduction" under the Internal Revenue Code. The Preferred Securities of any
series, however, may be redeemable at the option of the Special Purpose
Subsidiary issuing such series (with the consent or at the direction of AEP) at
a price equal to their par or stated value or liquidation preference, plus any
accrued and unpaid dividends or distributions, (i) at any time after a specified
date not later than approximately 10 years from their date of issuance, or (ii)
upon the occurrence of certain events, among them that (x) such Special Purpose
Subsidiary is required to withhold or deduct certain amounts in connection with
dividend, distribution or other payments or is subject to federal income tax
with respect to interest received on the Notes issued to such Special Purpose
Subsidiary, or (y) it is determined that the interest payments by the Financing
Subsidiary on the related Notes are not deductible for income tax purposes, or
(z) such Special Purpose Subsidiary becomes subject to regulation as an
"investment company" under the Investment Company Act of 1940. The Preferred
Securities of any series may also be subject to mandatory redemption upon the
occurrence of certain events. The Financing Subsidiary also may have the right
in certain cases or in its discretion to exchange the Preferred Securities of
any Special Purpose Subsidiary for the Notes or other junior subordinated debt
issued to such Special Purpose Subsidiary.
In the event that any Special Purpose Subsidiary is required to withhold
or deduct certain amounts in connection with dividend, distribution or other
payments, such Special Purpose Subsidiary may also have the obligation to "gross
up" such payments so that the holders of the Preferred Securities issued by such
Special Purpose Subsidiary will receive the same payment after such withholding
or deduction as they would have received if no such withholding or deduction
were required. In such event, the Financing Subsidiary's obligations under its
related Note and Guaranty may also cover such "gross up" obligation. In
addition, if any Special Purpose Subsidiary is required to pay taxes with
respect to income derived from interest payments on the Notes issued to it, the
Financing Subsidiary may be required to pay such additional interest on the
related Notes as shall be necessary in order that net amounts received and
retained by such Special Purpose Subsidiary, after the payment of such taxes,
shall result in the Special Purpose Subsidiary's having such funds as it would
have had in the absence of such payment of taxes.
1.8 In the event of any voluntary or involuntary liquidation, dissolution
or winding up of any Special Purpose Subsidiary, the holders of the Preferred
Securities of such Special Purpose Subsidiary will be entitled to receive, out
of the assets of such Special Purpose Subsidiary available for distribution to
its shareholders, partners or other owners (as the case may be), an amount equal
to the par or stated value or liquidation preference of such Preferred
Securities plus any accrued and unpaid dividends or distributions.
1.9 The constituent instruments of each Special Purpose Subsidiary,
including its Limited Liability Company Agreement, Limited Partnership Agreement
or Trust Agreement, as the case may be, will provide, among other things, that
such Special Purpose Subsidiary's activities will be limited to the issuance and
sale of Preferred Securities from time to time and the lending to the Financing
Subsidiary or Investment Sub of (i) the proceeds thereof and (ii) the Equity
Contribution to such Special Purpose Subsidiary, and certain other related
activities. Accordingly, it is proposed that no Special Purpose Subsidiary's
constituent instruments include any interest or dividend coverage or
capitalization ratio restrictions on its ability to issue and sell Preferred
Securities as each such issuance will be supported by a Note and Guaranty and
such restrictions would therefore not be relevant or necessary for any Special
Purpose Subsidiary to maintain an appropriate capital structure.
Each Special Purpose Subsidiary's constituent instruments will further
state that its common stock or general partnership or other common equity
interests are not transferable (except to certain permitted successors), that
its business and affairs will be managed and controlled by AEP, the Financing
Subsidiary and/or its Investment Sub (or permitted successor), and that AEP or
the Financing Subsidiary (or permitted successor) will pay all expenses of such
Special Purpose Subsidiary.
1.10 The distribution rate to be borne by the Preferred Securities and the
interest rate on the Notes will not exceed the greater of (i) 300 basis points
over U.S. Treasury securities having comparable maturities or (ii) a gross
spread over U.S. Treasury securities that is consistent with similar securities
having comparable maturities and credit quality issued by other companies.
Current market conditions suggest the costs for issuing long-term indebtedness
with a three to five year maturity are less than or equal to the costs for
issuing short-term indebtedness over the same time period.
Debt Securities
1.11 AEP proposes that, in addition to, or as an alternative to, any
Preferred Securities financing as described hereinabove, AEP and/or the
Financing Subsidiary may issue and sell Notes directly to public or private
investors without an intervening Special Purpose Subsidiary. It is proposed that
any Notes so issued will be unsecured, may be either senior or subordinated
obligations of AEP or the Financing Subsidiary, as the case may be, may be
convertible or exchangeable into common stock of AEP or Preferred Securities,
may have the benefit of a sinking fund and otherwise will have terms and
provisions substantially as described hereinabove (the "Debt Securities"). Debt
Securities of the Financing Subsidiary will have the benefit of a guarantee or
other credit support by AEP. AEP will not issue the Debt Securities, either
directly or through the Financing Subsidiary, unless it has evaluated all
relevant financial considerations (including, without limitation, the cost of
equity capital) and has determined that to do so is preferable to issuing common
stock or short-term debt. Current market conditions suggest the costs for
issuing long-term indebtedness with a three to five year maturity are less than
or equal to the costs for issuing short-term indebtedness over the same time
period.
1.12 The interest rate on the Debt Securities will not exceed the greater
of (i) 300 basis points over U.S. Treasury securities having comparable
maturities or (ii) a gross spread over U.S. Treasury securities that is
consistent with similar securities having comparable maturities and credit
quality issued by other companies.
Stock Purchase Contracts and Stock Purchase Units
1.13 It is proposed that AEP or the Financing Subsidiary may issue and
sell to public or private investors from time to time stock purchase contracts
("Stock Purchase Contracts"), including contracts obligating holders to purchase
from AEP, and AEP to sell to the holders, a specified number of shares or
aggregate offering price of common stock of AEP at a future date or dates up to
ten years from the date of issuance. The consideration per share of common stock
may be fixed at the time the Stock Purchase Contracts are issued or may be
determined by reference to a specific formula set forth in the Stock Purchase
Contracts. The Stock Purchase Contracts may be issued separately or as a part of
units ("Stock Purchase Units") consisting of a Stock Purchase Contract and Debt
Securities, Preferred Securities or other debt obligations of third parties,
including U.S. Treasury securities, securing holders' obligations to purchase
the common stock of AEP under the Stock Purchase Contracts. The funds to
purchase such obligations would be provided by, and the interest income thereon
would generally be for the benefit of, the investors. The Stock Purchase
Contracts may require AEP or the Financing Subsidiary to make periodic payments
to the holders of the Stock Purchase Units or vice versa (any such payments by
AEP or the Financing Subsidiary not to exceed 5% per annum), and such payments
may be unsecured or prefunded on some basis. The Stock Purchase Contracts may
require holders to secure their obligations thereunder in a specified manner,
which may include the pledging of U.S. Treasury securities.
Interest Rate Hedges
1.14 AEP requests authorization for it and/or the Financing Subsidiary to
enter into interest rate hedging transactions with respect to existing
indebtedness ("Interest Rate Hedges"), subject to certain limitations and
restrictions, in order to reduce or manage interest rate cost or risk. Interest
Rate Hedges would only be entered into with counterparties ("Approved
Counterparties") whose senior debt ratings, or whose parent companies' senior
debt ratings, as published by Standard and Poor's Ratings Group, are equal to or
greater than BBB, or an equivalent rating from Moody's Investors' Service or
Fitch Investor Service. Interest Rate Hedges will involve the use of financial
instruments and derivatives commonly used in today's capital markets, such as
interest rate swaps, options, caps, collars, floors, and structured notes (i.e.,
a debt instrument in which the principal and/or interest payments are indirectly
linked to the value of an underlying asset or index), or transactions involving
the purchase or sale, including short sales, of U.S. Treasury obligations. The
transactions would be for fixed periods and stated notional amounts. In no case
will the notional principal amount of any interest rate swap exceed that of the
underlying debt instrument and related interest rate exposure. AEP and/or the
Financing Subsidiary will not engage in speculative transactions. Fees,
commissions and other amounts payable to the counterparty or exchange
(excluding, however, the swap or option payments) in connection with an Interest
Rate Hedge will not exceed those generally obtainable in competitive markets for
parties of comparable credit quality.
Anticipatory Hedges
1.15 In addition, AEP requests authorization for it and/or the Financing
Subsidiary to enter into interest rate hedging transactions with respect to
anticipated debt offerings (the "Anticipatory Hedges"), subject to certain
limitations and restrictions. Such Anticipatory Hedges would only be entered
into with Approved Counterparties, and would be utilized to fix and/or limit the
interest rate risk associated with any new issuance through (i) a forward sale
of exchange-traded U.S. Treasury futures contracts, U.S. Treasury obligations
and/or a forward swap (each a "Forward Sale"); (ii) the purchase of put options
on U.S. Treasury obligations (a "Put Options Purchase"); (iii) a Put Options
Purchase in combination with the sale of call options on U.S. Treasury
obligations (a "Zero Cost Collar"); (iv) transactions involving the purchase or
sale, including short sales, of U.S. Treasury obligations; or (v) some
combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or
other derivative or cash transactions, including, but not limited to structured
notes, options, caps and collars, appropriate for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with
brokers through the opening of futures and/or options positions traded on the
Chicago Board of Trade or the Chicago Mercantile Exchange, the opening of
over-the-counter positions with one or more counterparties ("Off-Exchange
Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. AEP
and/or the Financing Subsidiary will determine the optimal structure of each
Anticipatory Hedge transaction at the time of execution. AEP may decide to lock
in interest rates and/or limit its exposure to interest rate increases. AEP
represents that each Interest Rate Hedge and Anticipatory Hedge will qualify for
hedge accounting treatment under generally accepted accounting principles. AEP
will comply with the then existing financial disclosure requirements of the
Financial Accounting Standards Board associated with hedging transactions.1
Use of Proceeds
1.16 The proceeds of any financing by the Financing Subsidiary or any
Special Purpose Subsidiary will be remitted, paid as a dividend, loaned or
otherwise transferred to AEP or its designee. The proceeds of the Preferred
Securities, Debt Securities, Stock Purchase Contracts and Stock Purchase Units
will be used to acquire the securities of associate companies and interests in
other businesses, including interests in "exempt wholesale generators" ("EWGs")
and "foreign utility companies" ("FUCOs"), or in any transactions permitted
under the Act and for other general corporate purposes, including the reduction
of short-term indebtedness. No proceeds will be used to purchase generation
assets currently owned by AEP or any affiliate unless such purchase has been
approved by order of this Commission pursuant to File No. 70-9785 or other
similar applications. AEP had approximately $2.3 billion outstanding short-term
indebtedness as of September 30, 2000. AEP represents that no financing proceeds
will be used to acquire the equity securities of any company unless such
acquisition has been approved by the Commission in this proceeding or in a
separate proceeding or is in accordance with an available exemption under
Sections 32, 33 and 34 of the Act or Rule 58 under the Act. AEP does not seek in
this proceeding any increase in the amount it is permitted to invest in EWGs and
FUCOs.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this statement to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
By: _/s/ Thomas G. Berkemeyer_
Thomas G. Berkemeyer
Assistant Secretary
Dated: March 8, 2001
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1 The proposed terms and conditions of the Interest Rate Hedges and
Anticipatory Hedges are substantially the same as the Commission has approved
in other cases. See New Century Energies, Inc., et al., HCAR No. 27000
(April 7, 1999); and Ameren Corp., et al., HCAR No. 27053 (July 23, 1999).