As filed with the U.S. Securities and Exchange Commission on May 26, 2022
Registration Nos. 333-264319
and 333-264319-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SF-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CLECO POWER LLC | | | CLECO SECURITIZATION I LLC |
(Exact name of registrant, sponsor and depositor as specified in its charter) | | | (Exact name of registrant and issuing entity as specified in its charter) |
Louisiana | | | Louisiana |
(State or other jurisdiction of incorporation or organization) | | | (State or other jurisdiction of incorporation or organization) |
1-05663 | | | |
(Commission File Number) | | |
0000018672 | | | 0001910923 |
(Central Index Key Number) | | | (Central Index Key Number) |
72-0244480 | | | 87-4333832 |
(I.R.S. Employer Identification Number) | | | (I.R.S. Employer Identification Number) |
2030 Donahue Ferry Road Pineville, Louisiana 71360-5226 (318) 484-7400 (Address, including zip code, and telephone number, including area code, of depositor’s principal executive offices) | | | 505 Cleco Drive, Office Number 16 Pineville, Louisiana 71360 (318) 484-4183 (Address, including zip code, and telephone number, including area code, of issuing entity’s principal executive offices) |
Jeremy Kliebert
Vice President Corporate Development and
Associate General Counsel
Cleco Power LLC
2030 Donahue Ferry Road
Pineville, Louisiana 71360-5226
(318) 484-7400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With Copies to:
Timothy S. Taylor Clinton W. Rancher Jamie L. Yarbrough Baker Botts L.L.P. 910 Louisiana Street Houston, Texas 77002-4995 (713) 229-1234 | | | Michael F. Fitzpatrick, Jr. Adam R. O’Brian Hunton Andrews Kurth LLP 200 Park Avenue New York, NY 10166 (212) 309-1000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.☐
The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUSSubject to Completion, dated May 26, 2022
$425,000,000 Series 2022-A Senior Secured Storm Recovery Bonds
Cleco Power LLC
Sponsor, Depositor and Initial Servicer
Central Index Key Number: 0000018672
Cleco Securitization I LLC
Issuing Entity
Central Index Key Number: 0001910923
Tranche | | | Expected Weighted Average Life (Years) | | | Principal Amount Offered* | | | Scheduled Final Payment Date | | | Final Maturity Date | | | Interest Rate | | | Initial Price to Public | | | Underwriting Discounts and Commissions | | | Proceeds to issuing entity (Before Expenses) | | | CUSIP | | | ISIN |
A-1 | | | | | $125,000,000 | | | | | | | % | | | % | | | % | | | $ | | | | | |||||
A-2 | | | | | $300,000,000 | | | | | | | % | | | % | | | % | | | $ | | | | |
* | Principal amounts are approximate and subject to change. |
The total initial price to the public is $ . The total amount of the underwriting discounts and commissions is $ . The total amount of proceeds to the issuing entity before deduction of expenses (estimated to be $ ) is $ . The distribution frequency is semi-annually. The first expected payment date is March 1, 2023.
Investing in the Series 2022-A Senior Secured Storm Recovery Bonds involves risks. Please read “Risk Factors” beginning on page 23 to read about factors you should consider before buying the storm recovery bonds.
Cleco Power LLC, as “depositor”, is offering up to $425,000,000 aggregate principal amount of Series 2022-A storm recovery bonds (referred to herein as the “storm recovery bonds”) in multiple tranches to be issued by Cleco Securitization I LLC, a Louisiana limited liability company (the “issuing entity”) and wholly owned subsidiary of Cleco Power LLC. Cleco Power LLC is the “seller,” the “initial servicer” and the “sponsor” with regard to the storm recovery bonds. The storm recovery bonds are senior secured obligations of the issuing entity and will be secured by the storm recovery property, which includes the right to a special, irrevocable nonbypassable charge, known as the “storm recovery charge,” paid by all existing and future Louisiana Public Service Commission jurisdictional customers of Cleco Power LLC as discussed herein. Storm recovery charges are required to be adjusted at least semi-annually, and more frequently as necessary, to ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal, interest and other required amounts in connection with the storm recovery bonds during the subsequent 12-month period. Credit enhancement for the storm recovery bonds will be provided by such statutory true-up mechanism, as well as by general, excess funds and capital subaccounts held under the indenture governing the storm recovery bonds.
Each storm recovery bond will be entitled to interest on March 1 and September 1 of each year, beginning on March 1, 2023. The first scheduled payment date is March 1, 2023. Interest will accrue from the date of issuance and must be paid by the purchaser of the storm recovery bonds if the storm recovery bonds are delivered after that date. On each payment date, scheduled principal payments shall be paid sequentially in accordance with the expected sinking fund schedule in this prospectus, but only to the extent funds are available in the collection account after payment of certain fees and expenses and after payment of interest.
The storm recovery bonds represent obligations only of the issuing entity, Cleco Securitization I LLC, and are secured only by the assets of the issuing entity, consisting principally of the storm recovery property and related assets to support its obligations under the storm recovery bonds. Please read “Description of the Storm Recovery Bonds—The Security for the Storm Recovery Bonds,” and “Description of the Storm Recovery Property” in this prospectus. The storm recovery property includes the right to impose, bill, charge, collect and receive storm recovery charges from Cleco Power LLC’s customers in amounts sufficient to make payments on the storm recovery bonds, as described further in this prospectus. Cleco Power LLC and its affiliates, other than the issuing entity, are not liable for any payments on the storm recovery bonds. The storm recovery bonds are not a debt or a general obligation of the State of Louisiana or any of its political subdivisions, agencies, or instrumentalities and are not a charge on the full faith and credit or the taxing power of the State of Louisiana or any of its political subdivisions, agencies or instrumentalities.
All matters relating to the structuring and pricing of the storm recovery bonds have been considered by Cleco Power LLC and the Louisiana Public Service Commission, acting through its financial advisor.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the storm recovery bonds through the book-entry facilities of The Depository Trust Company for the accounts of its participants including Clearstream Banking, S.A. and Euroclear Banks SA/NV, as operator of the Euroclear System against payment on or about , 2022. There currently is no secondary market for the storm recovery bonds, and we cannot assure you that one will develop.
The Louisiana Public Service Commission has pledged that it will act under its irrevocable financing order as expressly authorized by the securitization provisions of the Securitization Act to ensure that expected storm recovery charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the storm recovery bonds. The Louisiana Public Service Commission’s obligations relating to the storm recovery bonds, including the specific actions that it has guaranteed to take, are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the Louisiana Public Service Commission, which is a United States public sector entity, in accordance with Louisiana law.
J.P. Morgan
Sole Structuring Agent and Joint Bookrunner
The date of this prospectus is , 2022.
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This prospectus is part of a registration statement filed with the Securities and Exchange Commission or SEC. This prospectus provides information about us, the storm recovery bonds and Cleco Power LLC, as depositor, sponsor and initial servicer. This prospectus describes the terms of the storm recovery bonds offered hereby. You should carefully review this prospectus, any free writing prospectus the issuing entity files with the SEC, and the information, if any, contained in the documents referenced in this prospectus under the heading “Where You Can Find More Information.”
References in this prospectus to the terms “we,” “us,” “our” or “the issuing entity” mean Cleco Securitization I LLC. References to “Cleco Power,” “the sponsor,” “the initial servicer,” “the depositor” or “the seller” mean Cleco Power LLC. References to “Cleco Holdings” mean Cleco Corporate Holdings LLC, the parent company of Cleco Power. References to “the storm recovery bonds” or “the bonds” mean our Series 2022-A Senior Secured Storm Recovery Bonds offered pursuant to this prospectus. References to “the servicer” refer to Cleco Power and any successor servicer under the servicing agreement referred to in this prospectus. References to the “Securitization Act” mean the Louisiana Electric Utility Storm Recovery Securitization Act, established by the Louisiana Legislature, providing for a financing mechanism through which electric utilities can use securitization financing for storm recovery costs, including the financing of storm recovery reserves, by issuing “storm recovery bonds.” The Securitization Act is codified at La. R.S. 45:1226-1240. Unless the context otherwise requires, the term “customer” means any existing or future Louisiana commission-jurisdictional customer who remains attached to Cleco Power’s (or its successors) electric transmission or distribution lines, and who, via such lines, receives any type of service from Cleco Power (or its successors) under rate schedules or special contracts approved by the Louisiana Public Service Commission. We also refer to the Louisiana Public Service Commission as “the Louisiana commission” or “the LPSC.” You can find a glossary of some of the other defined terms we use in this prospectus on page 134 of this prospectus.
We have included cross-references to sections in this prospectus where you can find further related discussions. You can also find references to key topics in the table of contents.
You should rely only on the information contained in this prospectus. Neither we nor any underwriter, agent, dealer, salesperson, the LPSC or Cleco Power has authorized anyone else to provide you with any different information. Neither we nor any underwriter, agent, dealer, salesperson, the LPSC or Cleco Power take any responsibility for, and can provide any assurance as to the reliability of, any different information that others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not offering to sell the storm recovery bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is current only as of the date of this prospectus.
We expect to deliver the storm recovery bonds against payment for the storm recovery bonds on or about the date specified in the last paragraph of the cover page of this prospectus, which will be the business day following the date of pricing of the storm recovery bonds. Since trades in the secondary market generally settle in two business days, purchasers who wish to trade storm recovery bonds on the date of pricing or the succeeding business days will be required, by virtue of the fact that the storm recovery bonds initially will settle in T + , to specify alternative settlement arrangements to prevent a failed settlement.
Certain statements included in this prospectus may be “forward-looking statements” within the meaning of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates” and similar expressions are used to identify these forward-looking statements. Forward-looking statements are based upon assumptions about future events that may not be accurate. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we and Cleco Power undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
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Specific factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, those set forth below:
• | the accuracy of the servicer’s estimates of market demand and prices for energy, |
• | the accuracy of the servicer’s estimates of industrial, commercial and residential growth in Cleco Power’s customer base, |
• | the accuracy of the servicer’s forecast of electrical consumption or the payment of storm recovery charges, |
• | economic, regulatory, or workforce impacts related to pandemics, including the COVID-19 pandemic, |
• | changes in climate and weather conditions, including natural disasters such as wind and ice storms, hurricanes, floods, and droughts, |
• | the ability of Cleco Power’s customers to continue paying their utility bills, |
• | economic conditions in Cleco Power’s service territories, including the economy’s effects on customer demand for utility services, |
• | mechanical breakdowns or other incidents that could impair assets and disrupt operations of any of Cleco Power’s generation facilities, transmission and distribution systems, or other operations, |
• | wholesale and retail competition, including alternative energy sources, growth in customer-owned power resource technologies that displace utility-supplied energy or that may be sold back to the utility, and alternative energy suppliers and delivery arrangements, |
• | blackouts or disruptions of interconnected transmission systems (the regional power grid), |
• | terrorist attacks, cyberattacks, or other malicious acts that may damage or disrupt operating or information technology systems, |
• | the impact of Cleco Power’s credit ratings, changes in interest rates, other capital market conditions, and global market conditions on financing, |
• | declining energy demand related to customer energy efficiency, conservation measures, technological advancements, or increased distributed generation, and |
• | the unpredictability of civil unrest and its direct and indirect impact on Cleco Power. |
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this prospectus, and, except as required by law, we undertake no obligation to update or revise any forward-looking statement, including unanticipated events, after the date of this prospectus. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
All subsequent written and oral forward-looking statements attributable to us and Cleco Power or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in this prospectus are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances.
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The following section is only a summary of selected information and does not provide you with all the information you will need to make your investment decision. There is more detailed information in this prospectus. To understand all of the terms of the offering of the storm recovery bonds, carefully read this entire prospectus. You should carefully consider the Risk Factors beginning on page 23 of this prospectus before you invest in the storm recovery bonds.
Securities offered:
$425,000,000 Series 2022-A Senior Secured Storm Recovery Bonds, scheduled to pay principal semi-annually and sequentially in accordance with the expected amortization schedule. Only the storm recovery bonds are being offered through this prospectus.
Tranche | | | Principal Amount* |
A-1 | | | $125,000,000 |
A-2 | | | $300,000,000 |
* | Principal amounts are approximate and subject to change |
Issuing Entity and Capital Structure:
Cleco Securitization I LLC is a direct, wholly owned subsidiary of Cleco Power and a limited liability company formed under Louisiana law. We were formed solely to purchase and own storm recovery property, including the storm recovery property, to issue one or more series of storm recovery bonds, including the storm recovery bonds, and to perform activities incidental thereto. We may issue additional storm recovery bonds secured by additional storm recovery property, subject to certain conditions and only as authorized under a separate financing order. Please read “Cleco Securitization I LLC, The Issuing Entity” in this prospectus.
In addition to the storm recovery property, our assets will include a capital investment by Cleco Power (and not from the proceeds of the sale of the storm recovery bonds) which will not be less than 0.50% of the original principal amount of the storm recovery bonds (to be held in the capital subaccount). We will also have an excess funds subaccount to retain, until the next payment date, any amounts collected and remaining after all scheduled payments on the storm recovery bonds have been timely made.
Issuing Entity’s address:
505 Cleco Drive, Office Number 16, Pineville, Louisiana 71360
Issuing Entity’s telephone number:
(318) 484-4183
Depositor, Seller, Initial Servicer and Sponsor:
Cleco Power is a regulated electric utility engaged principally in the generation, transmission, distribution, and sale of electricity within Louisiana. As of December 31, 2021, Cleco Power owns 9 generating units with a total rated capacity of 3,035 MW and serves approximately 291,000 customers in Louisiana through its retail business. Additionally, Cleco Power supplies wholesale power in Louisiana and Mississippi. Cleco
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Power is a Louisiana limited liability company and a wholly owned subsidiary of Cleco Holdings, a public utility holding company. Cleco Power, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the “servicer,” will service the storm recovery property securing the storm recovery bonds under a servicing agreement with us. Please read the section entitled “The Depositor, Seller, Initial Servicer and Sponsor” in this prospectus. Neither Cleco Power nor Cleco Holdings nor any other affiliate (other than us) is an obligor on the storm recovery bonds.
Cleco Power’s address:
2030 Donahue Ferry Road Pineville, Louisiana 71360-5226
Cleco Power’s phone number:
(318) 484-7400
Our relationship with the Louisiana commission:
The Louisiana commission or its designated representatives are participating with Cleco Power with respect to the structuring, marketing and pricing of the storm recovery bonds.
Cleco Power is directed to take all necessary steps to ensure that the Louisiana commission or its designated representatives are provided sufficient and timely information to allow the Louisiana commission or its designated representatives to fully participate in the proposed securitization. The servicer will file periodic adjustments to the storm recovery charges with the Louisiana commission on our behalf.
We have agreed that certain reports concerning storm recovery charge collections will be provided to the Louisiana commission.
Trustee:
The Bank of New York Mellon Trust Company, National Association. Please read “The Trustee” in this prospectus for a description of the trustee’s duties and responsibilities under the indenture.
Purpose of transaction:
This issuance of the storm recovery bonds will enable Cleco Power to recover certain storm recovery costs related to Hurricanes Laura, Delta, Zeta, and Ida, and winter storms Uri and Viola, fund a new restricted storm recovery reserve in the amount of $100.9 million, and fund a separate restricted special Hurricane Ida reserve in the amount of $95.0 million. Please read “Cleco Power’s Financing Order” in this prospectus.
Transaction overview:
Cleco Power’s service territories were impacted by three hurricanes in 2020 and one in 2021: Laura on August 27, 2020, Delta on October 9, 2020, Zeta on October 28, 2020, and Ida on August 29, 2021. Additionally in 2021, Cleco Power’s service territories were impacted by two winter ice storms: Uri on February 14, and Viola on February 17. The Securitization Act permits electric utilities to recover certain losses sustained as a result of these storms through the issuance of storm recovery bonds pursuant to and supported by an irrevocable
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financing order issued by the Louisiana commission. The Securitization Act also permits the Louisiana commission to impose an irrevocable nonbypassable storm recovery charge on all of an electric utility’s customers that are subject to the Louisiana commission’s jurisdiction, for payment of the storm recovery charges. The amount and terms for collections of these storm recovery charges are governed by one or more financing orders issued to an electric utility by the Louisiana commission. The Securitization Act permits an electric utility to transfer its rights and interests under a financing order, including the right to impose, bill, charge, collect and receive storm recovery charges, to a special purpose entity formed by the electric utility to issue debt securities secured by the right to receive revenues arising from the storm recovery charges. Under the Securitization Act, as of the effective date of a financing order, there is created and established for Cleco Power storm recovery property, which is a present contract right in favor of Cleco Power, its transferees and other financing parties. Unless the context infers otherwise, references in this prospectus to the “financing order” are to the financing order issued by the Louisiana commission in Cleco Power’s Docket U-35807 on April 1, 2022, which is further described below.
On April 1, 2022, the Louisiana commission issued the financing order determining that Cleco Power is entitled, pursuant to the Securitization Act, to finance, through the issuance of storm recovery bonds in the aggregate principal amount of up to $425.0 million. The financing order also authorized (1) Cleco Power’s proposed financing structure and the issuance of the storm recovery bonds; (2) creation of the storm recovery property, including the right for the imposition, collection and periodic adjustments of storm recovery charges sufficient to pay principal of and interest on the storm recovery bonds and associated financing costs; (3) the sale of the storm recovery property by Cleco Power to us; (4) a rate schedule to implement the storm recovery charges; and (5) another rate schedule to implement a surcredit to provide Cleco Power customers the benefit of all non-ratepayer recoveries and to address ancillary cost recovery relating to the storm recovery cost process.
The primary transactions underlying the issuance and sale of the storm recovery bonds are as follows:
• | Cleco Power will transfer and sell the storm recovery property to us in exchange for the net proceeds from the sale of the storm recovery bonds, |
• | we will sell the storm recovery bonds, which will be secured primarily by the storm recovery property, to the underwriters named in this prospectus, and |
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• | Cleco Power will act as the initial servicer of the storm recovery property. |
The storm recovery bonds are not obligations of the trustee, our managers, Cleco Power, Cleco Holdings or of any of their affiliates other than us. The storm recovery bonds are also not debt or obligations of the State of Louisiana, the Louisiana commission or any other public subdivision, agency or instrumentality of the State of Louisiana.
Parties to Transaction and Responsibilities
The following chart represents a general summary of the parties to the transactions underlying the offering of the storm recovery bonds, their roles and their various relationships to the other parties:
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Flow of Funds
The following chart represents a general summary of the flow of funds:
The Security for the Storm Recovery Bonds:
The storm recovery bonds will be secured by the collateral pledged pursuant to the indenture. The principal asset of the trust estate will be the storm recovery property. Under the Securitization Act, as of the effective date of the financing order, there is created and established for Cleco Power storm recovery property, which is a present contract right in favor of Cleco Power, its transferees and other financing parties, to impose, bill, charge, collect and receive storm recovery charges from Cleco Power’s customers, as well as to obtain periodic adjustments to such charges as provided in the financing order, except for the Retained Rights (as defined herein) of Cleco Power. In addition, the storm recovery property consists of all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the aforementioned rights and interests.
The indenture’s trust estate will also consist of:
• | our rights under the sale agreement pursuant to which we will acquire the storm recovery property, under an administration agreement and under the bill of sale delivered by Cleco Power pursuant to the sale agreement, |
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• | our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement, |
• | the collection account for the storm recovery bonds and all subaccounts of the collection account, |
• | all rights to compel the servicer to file for and obtain periodic adjustments to the storm recovery charges in accordance with the Securitization Act and the financing order, |
• | all of our other property related to the storm recovery bonds, other than any cash released to us by the trustee on any payment date to be distributed to Cleco Power as a return of its invested capital in us, |
• | all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and |
• | all payments on or under and all proceeds in respect of any or all of the foregoing. |
The subaccounts consist of a capital subaccount, which will be funded at closing in the amount of 0.50% of the initial aggregate principal amount of the storm recovery bonds, a general subaccount, into which the servicer will deposit all storm recovery charge collections, and an excess funds subaccount, into which we will transfer any amounts collected and remaining on a payment date after all payments to storm recovery bondholders and other parties have been made. Amounts on deposit in each of these subaccounts will be available to make payments on the storm recovery bonds on each payment date. For a description of the storm recovery property, please read “Description of the Storm Recovery Property” in this prospectus.
For a description of the storm recovery bonds, please read “Description of the Storm Recovery Bonds” in this prospectus.
The Storm Recovery Property:
In general terms, all of the rights and interests of Cleco Power that are transferred to us pursuant to the sale agreement are referred to in this prospectus as the “storm recovery property.” The storm recovery property includes the right to impose, bill, charge, collect and receive storm recovery charges in amounts sufficient to pay principal and interest and ongoing financing costs in connection with the storm recovery bonds, to obtain periodic adjustments to such charges as provided in the financing order and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. The storm recovery property does not include the Retained Rights
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of Cleco Power. Storm recovery charges are payable by Cleco Power’s customers. During the twelve months ended December 31, 2021, approximately 25% of Cleco Power’s total deliveries (based on MWh) were to industrial customers, approximately 30% were to commercial customers and approximately 43% were to residential customers.
The storm recovery property is the principal collateral securing the storm recovery bonds. Storm recovery charges authorized in a financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Louisiana commission, except for semi-annual and interim true-up adjustments to correct over-collections or under-collections and to provide for the expected recovery of amounts sufficient to timely provide payments of scheduled debt service and ongoing financing costs in connection with the storm recovery bonds. See “Cleco Power’s Financing Order—True-Ups.” All revenues and collections resulting from storm recovery charges are part of the storm recovery property.
We will purchase the storm recovery property from Cleco Power to support the issuance of the storm recovery bonds. Cleco Power, as the initial servicer, will bill and collect the storm recovery charges from its customers. Cleco Power will include the storm recovery charges in its bills to its customers and is required to show the storm recovery charges as a separate line item or footnote. The servicer is also required to send a written notification at least annually to all customers that we are the owner of the rights to the storm recovery property and that the servicer is acting as our collection agent.
State and Louisiana commission pledges:
The State of Louisiana has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana commission to create a present contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that impairs or would impair the value of the storm recovery property, or, except for adjustments discussed in “Cleco Power’s Financing Order—True-ups” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process” in this prospectus, reduce, alter or impair the storm recovery charges to be imposed, collected and remitted for the benefit of the storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery
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bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions” and “The Securitization Act—Cleco Power and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs” in this prospectus.
The Louisiana commission has jurisdiction over Cleco Power pursuant to Article 4, Section 21, of the Louisiana Constitution. The Louisiana commission has pledged in the financing order that (i) the financing order is irrevocable until the indefeasible (i.e., not voidable) payment in full of the storm recovery bonds and (ii) except in connection with a refinancing or refunding, it may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order, provided that nothing in clause (ii) shall preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions” and “Cleco Power’s Financing Order—Louisiana Commission Pledge” in the prospectus.
True-up mechanism for payment of scheduled principal and interest:
Storm recovery charges are required to be adjusted semi-annually to:
• | correct, over a period of up to 12 months covering the next two succeeding payment dates, any under-collections or over-collections, for any reason, during the prior payment period, and |
• | ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal, interest and other required amounts in connection with the storm recovery bonds during the subsequent 12-month period (or, in the case of certain quarterly true-up adjustments, the period ending on the next bond payment date). |
The servicer may also make interim true-up adjustments more frequently if the servicer forecasts that storm recovery charge collections will be insufficient to make, on a timely basis, all scheduled payments of interest and other financing costs in respect of the storm recovery bonds during the current or next succeeding payment period or bring all principal payments on schedule over the next two succeeding payment dates and/or to replenish any draws upon the capital subaccount.
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Any delinquencies or under-collections in one customer class will be taken into account in the true-up mechanism to adjust the storm recovery charge for all customers, not just the class of customers from which the delinquency or under-collection arose.
The financing order provides that the true-up mechanism and all other obligations of the State of Louisiana and the Louisiana commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State of Louisiana and the Louisiana commission. Please read “The Storm Recovery Charges,” “Cleco Power’s Financing Order” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process” in this prospectus.
Nonbypassable storm recovery charges:
The nonbypassable storm recovery charges are applied to all existing and future Louisiana commission jurisdictional customers who remain attached to Cleco Power’s (or its successor’s) electric transmission or distribution lines, and who, via such lines, receive any type of service from Cleco Power (or its successor) under rate schedules or special contracts approved by the Louisiana commission, even if the customer elects to purchase electricity from alternative electricity suppliers due to a fundamental change in the regulation of public utilities in Louisiana or due to any other reason. Any customer who self-generates or co-generates electricity will be assessed storm recovery charges based upon the total firm and standby load served by Cleco Power. Customers utilizing standby service will continue to pay a proportional share of the storm recovery charges, so that even accounts which require no energy usage on a monthly basis will contribute to the collection of storm recovery charges. Any customer who completely severs interconnection with Cleco Power may become exempt from continued payment of the storm recovery charges. In the financing order, the Louisiana commission committed to ensure that such obligations are undertaken and performed by Cleco Power or any other entity providing electric transmission and distribution services, or in the event that transmission and distribution services are not provided by a single entity, by an entity providing transmission or distribution services to Cleco Power’s Louisiana commission-jurisdictional customers designated by the Louisiana commission in connection with an order relating to such split. Please read “The Storm Recovery Charges,” “Cleco Power’s Financing Order” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process” in this prospectus.
Cleco Power’s prior experience with securitizations:
The storm recovery bonds are the second issuance of bonds Cleco Power has sponsored that are secured by storm recovery property created under the Securitization
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Act. The prior issuance was made in March 2008 by Cleco Katrina/Rita Hurricane Recovery Funding LLC, a special purpose, wholly owned subsidiary of Cleco Power (the “Katrina/Rita Securitization Bonds”). The storm recovery property securitized in the prior transaction by Cleco Power enabled Cleco Power to recover its costs of capital associated with the two worst natural disasters ever to strike its system to that date, Hurricanes Katrina and Rita. The statutory framework with respect to the right to recover costs and regarding securitization are the same here as they were in the prior securitization. The Katrina/Rita Securitization Bonds were repaid in full in March 2020. Final interest and principal payments on the Katrina/Rita Securitization Bonds were paid on a timely basis, with all interest and principal payments throughout the life of the Katrina/Rita Securitization Bonds made in accordance with such bonds’ expected amortization schedules.
Initial storm recovery charge as a percentage of customer’s total electricity bill:
The initial storm recovery charge would represent approximately 4% of the total bill received by a 1,000 kWh residential customer of Cleco Power as of December 31, 2021.
Payment Dates:
Interest on the storm recovery bonds is payable semi-annually on March 1 and September 1. Interest will be calculated on a 30/360 basis. The first scheduled interest and principal payment date is March 1, 2023.
Interest Payments:
Interest is due on each payment date. Interest will accrue with respect to each tranche of the storm recovery bonds from the date we issue the storm recovery bonds at the interest rate specified for such tranche in the table below.
Tranche | | | Interest Rate |
A-1 | | | % |
A-2 | | | % |
If any payment date is not a business day, payments scheduled to be made on such date may be made on the next succeeding business day and no interest shall accrue upon such payment during the intervening period.
On each payment date, we will pay interest on each tranche of the storm recovery bonds equal to the following amounts:
• | if there has been a payment default, any interest payable but unpaid on any prior payment dates, together with interest on such unpaid interest, if any, and |
• | accrued interest on the principal balance of each tranche of the storm recovery bonds from the close of business on the preceding payment date, or the date of the original issuance of the |
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storm recovery bonds, as applicable, after giving effect to all payments of principal made on the preceding payment date, if any.
We will pay interest on each tranche of the storm recovery bonds before we pay the principal of any tranche of the storm recovery bonds. Please read “Description of the Storm Recovery Bonds—Payments of Interest and Principal on the Storm Recovery Bonds” in this prospectus. If there is a shortfall in the amounts available in the collection account to make interest payments, the trustee will distribute interest pro rata to each tranche of the storm recovery bonds based on the amount of interest payable on each outstanding tranche. We will calculate interest on the basis of a 360-day year of twelve 30-day months.
Principal Payments and Record Dates and Payment Sources:
On each payment date for the storm recovery bonds, referred to in this prospectus as a “payment date,” we will pay amounts of principal and interest then due or scheduled to be paid on each outstanding tranche of the storm recovery bonds from amounts available in the collection account and the related subaccounts held by the trustee. We will make these payments to the holders of record of the storm recovery bonds on each record date, referred to in this prospectus as a “record date.” These available amounts, which will include the applicable storm recovery charges collected by the servicer and remitted to us since the last payment date, are described in greater detail under “Description of the Storm Recovery Bonds—The Collection Account for the Storm Recovery Bonds.” The trustee will pay the principal of each outstanding tranche of storm recovery bonds in the amounts and on the payment dates specified in the expected amortization schedule described in this prospectus, but only to the extent storm recovery charge collections received from the servicer and amounts available from trust accounts held by the trustee are sufficient to make principal payments after payment of amounts having a higher priority of payment. Please read “Description of the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated.”
Failure to pay a scheduled principal payment on any payment date or the entire outstanding amount of the storm recovery bonds of any tranche by the scheduled final payment date will not result in a default. The failure to pay the entire outstanding principal balance of the storm recovery bonds of any tranche will result in a default only if such payment has not been made by the final maturity date for the tranche.
If there is a shortfall in the amounts available to make principal payments on the storm recovery bonds that are due and payable, on or after a tranche’s final maturity date or upon an acceleration following an event of
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default, the trustee will distribute principal from the collection account pro rata to each tranche of the storm recovery bonds based on the principal amount then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the storm recovery bonds that are scheduled to be paid, and if more than one tranche is scheduled to be paid on such payment date, the trustee will distribute principal from the collection account sequentially in the numerical order of such tranches.
Weighted Average Life:
Tranche | | | Expected Weighted Average Life (years) |
A-1 | | | |
A-2 | | |
Scheduled Final Payment Date and Final Maturity Date:
The scheduled final payment date and the final maturity date of each tranche of the storm recovery bonds are as set forth in the table below.
Tranche | | | Scheduled Final Payment Date | | | Final Maturity Date |
A-1 | | | | | ||
A-2 | | | | |
Optional Redemption:
None. Non-call for the life of the storm recovery bonds.
Mandatory Redemption:
None. We are not required to redeem the storm recovery bonds at any time prior to maturity.
Priority of Payments:
On each payment date for the storm recovery bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account in the following order of priority:
1. | payment of the trustee’s fees, plus expenses and any outstanding indemnity amounts not to exceed $100,000.00 in any 12-month period, provided, however, that such cap shall be disregarded and inapplicable upon the acceleration of the storm recovery bonds following the occurrence of an event of default, |
2. | payment of the servicing fee relating to the storm recovery bonds with respect to such payment date, plus any unpaid servicing fees relating to the storm recovery bonds from prior payment dates, |
3. | payment of the due and unpaid administration fee, which will be a fixed amount specified in the administration agreement between us and Cleco Power, and the due and unpaid fees of our independent manager (or an allocable share of the administration fee and fees of our independent managers, if one or more series of |
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additional storm recovery bonds are issued by us), which will be in an amount specified in an agreement between us and our independent manager,
4. | payment of all of our other ordinary periodic operating expenses relating to the storm recovery bonds for such payment date, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the servicing agreement, |
5. | payment of the interest then due on the storm recovery bonds, including any past-due interest, |
6. | payment of the principal due to be paid on the storm recovery bonds at final maturity or acceleration upon an event of default, |
7. | payment of the principal then scheduled to be paid on the storm recovery bonds, including any previously unpaid scheduled principal, |
8. | payment of any of our remaining unpaid operating expenses (or any allocable share of such unpaid operating expenses, if one or more series of additional storm recovery bonds are issued by us) and any remaining amounts owed pursuant to the basic documents, including all remaining amounts owed to the trustee, |
9. | replenishment of the amount, if any, by which the initial balance of the capital subaccount of the storm recovery bonds exceeds the amount in the capital subaccount as of such payment date, |
10. | the return on invested capital then due and payable, which shall be the sum of the rate of return payable to Cleco Power on its capital contribution which has been deposited into the capital subaccount equal to the rate of interest payable on the longest maturing tranche of the storm recovery bonds calculated on the basis of a 360-day year of twelve 30-day months plus any return on invested capital not paid on any prior payment date, shall be paid to Cleco Power, |
11. | allocation of the remainder, if any, to the excess funds subaccount, and |
12. | after the storm recovery bonds have been paid in full and discharged, and all of the other foregoing amounts have been paid in full, the balance, together with all amounts in the capital subaccount and the excess funds subaccount, released to us free and clear of the lien of the indenture, which funds, less an |
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amount equal to the initial deposit into the capital subaccount plus any unpaid return on invested capital, will be credited to Cleco Power’s customers through the normal ratemaking processes consistent with the financing order.
The amount of the servicer’s fee referred to in clause 2 above will be 0.05% of the aggregate initial principal amount of the storm recovery bonds (for so long as Cleco Power is the servicer) on an annualized basis. The priority of distributions for the collected storm recovery charges, as well as available amounts in the subaccounts, are described in more detail under “Description of the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated.”
Issuance of Additional Storm Recovery Bonds/ Allocation among series of Storm Recovery Bonds:
Our organizational documents and the basic documents give us the authority and flexibility to issue additional storm recovery bonds in the future, subject to the satisfaction of each of the following conditions as more fully described in “Description of the Storm Recovery Bonds—Issuance of Additional Storm Recovery Bonds” in this prospectus:
• | pursuant to an additional financing order from the LPSC to Cleco Power to recover storm recovery costs under the Securitization Act, |
• | Cleco Power must serve as the initial servicer and administrator for the series of additional storm recovery bonds and the servicer and administrator cannot be replaced without the requisite approval of all series of storm recovery bonds issued by us, including the storm recovery bonds, |
• | satisfaction of the rating agency condition, |
• | each series of additional storm recovery bonds will have recourse only to the storm recovery property of that series, |
• | delivery of a true sale and substantive non-consolidation legal opinion to the trustee and the rating agencies then rating the storm recovery bonds, |
• | transaction documentation for any other series provides that holders of additional storm recovery bonds of the other series will not file or join in filing of any bankruptcy petition against us, |
• | if holders of any other series of additional storm recovery bonds are deemed to have any interest in any of the collateral dedicated to the storm recovery bonds, holders of such |
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additional storm recovery bonds must agree that their interest in the collateral dedicated to the additional storm recovery bonds is only a first priority perfected interest in the collateral relating to such additional storm recovery bonds, and not to the collateral dedicated to the storm recovery bonds;
• | certain provisions are included in the transaction documents for the other series of additional storm recovery bonds, and |
• | each series of additional storm recovery bonds, if any, will be issued under a separate indenture, will have a separate collection account, bank account or trustee account, and will bear its own trustee fees, servicer fees and administration fees. |
The storm recovery bonds will not be subordinated in right of payment to any series of additional storm recovery bonds. Each series of storm recovery bonds would be secured by its own separate storm recovery property, which will include the right to impose, bill, charge, collect and receive storm recovery charges calculated in respect of that series of additional storm recovery bonds, and the right to implement the true-up mechanism to correct overcollections or undercollections in respect of that series. Each series of additional storm recovery bonds, if any, would also have its own collection account, including any related subaccounts, into which revenue from the storm recovery charges relating to that series of additional storm recovery bonds will be deposited and from which amounts would be withdrawn to pay the related series of storm recovery bonds. Holders of one series of storm recovery bonds would have no recourse to collateral, including the collection account or capital subaccount, for a different series of storm recovery bonds and there will not be any cross defaults among the series. The administration fees, independent manager fees and other operating expenses payable by us on a payment date would be assessed to each series of storm recovery bonds issued by us on a pro rata basis, based upon the respective outstanding principal amounts of each series of storm recovery bonds issued by us. See “Description of the Storm Recovery Bonds—The Collection Account for the Storm Recovery Bonds” and “—How Funds in the Collection Account will be Allocated” in this prospectus.
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Credit Enhancement:
Credit enhancement for the storm recovery bonds will be as follows:
• | The Louisiana commission will approve adjustments to the storm recovery charges, but only upon petition of the servicer, to make up for any shortfall or reduce any excess in collected storm recovery charges. We sometimes refer to these adjustments as “true-up adjustments” or the “true-up mechanism.” Storm recovery charges are required to be adjusted at least semi-annually to: |
• | correct, over a period of up to 12 months covering the next two succeeding payment dates, any under-collections or over-collections, for any reason, during the preceding six months, and |
• | ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal, interest and other ongoing financing costs in connection with the storm recovery bonds during the subsequent 12-month period. The servicer may also make interim true-up adjustments more frequently under certain circumstances. Please read “Cleco Power’s Financing Order—True-Ups.” |
Collection Account—Under the indenture, the trustee will hold a collection account for the storm recovery bonds, divided into various subaccounts. The primary subaccounts for credit enhancement purposes are:
• | the general subaccount—the trustee will deposit into the general subaccount all storm recovery charge collections remitted to it by the servicer with respect to the storm recovery bonds and investment earnings on amounts in the general subaccount; |
• | the capital subaccount—Cleco Power will deposit an amount equal to 0.50% of the original principal amount of the storm recovery bonds into the capital subaccount on the date of issuance of the storm recovery bonds; and |
• | the excess funds subaccount—any excess amount of collected storm recovery charges and investment earnings on amounts in the excess funds subaccount of storm recovery bonds will be held in the excess funds subaccount. |
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Each of these subaccounts for the storm recovery bonds, in addition to any other subaccounts that may be created pursuant to the indenture, will be available to make payments on the storm recovery bonds on each payment date.
Reports to storm recovery bondholders:
Pursuant to the indenture, the trustee shall deliver to each of the storm recovery bondholders and the Louisiana commission a statement provided and prepared by the servicer containing information concerning, among other things, us and the collateral for the storm recovery bonds. Unless and until the storm recovery bonds are issued in definitive certificated form, the reports for the storm recovery bonds will be provided to The Depository Trust Company. The reports will be available to beneficial owners of the storm recovery bonds upon written request to the trustee or the servicer. These reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Furthermore, if required by the Trust Indenture Act, the trustee will be required to mail a brief annual report to all storm recovery bondholders containing information concerning the trustee. Please read “Description of the Storm Recovery Bonds—Reports to Holders of the Storm Recovery Bonds” and “—The Trustee Must Provide an Annual Report to All Storm Recovery Bondholders.”
Servicing Compensation:
We will pay the servicer on each payment date the servicing fee with respect to the storm recovery bonds. As long as Cleco Power or any affiliated entity acts as servicer, this fee will be 0.05% of the initial principal amount of the storm recovery bonds on an annualized basis, plus reimbursement for its out-of-pocket costs for external accounting and legal services. If a successor servicer is appointed, the servicing fee will be negotiated by the successor servicer and the trustee, but will not, unless the Louisiana commission consents, exceed 0.60% of the initial principal amount of the storm recovery bonds on an annualized basis. In no event will the trustee be liable for any servicing fee in its individual capacity.
Federal Income Tax Status:
In the opinion of Phelps Dunbar, L.L.P., counsel to us and to Cleco Power, interest paid on the storm recovery bonds generally will be taxable to a U.S. bondholder as ordinary interest income at the time it accrues or is received in accordance with the U.S. bondholder’s method of accounting for U.S. federal income tax purposes. Phelps Dunbar, L.L.P. expects to issue an opinion, that, for federal income tax purposes (1) we will not be treated as a taxable entity separate and apart from Cleco Power, our sole member, and (2) based on Revenue Procedure 2005-62, 2005-2 CB 507, the storm recovery bonds will constitute indebtedness of Cleco Power. Each beneficial owner of a storm recovery bond, by acquiring a beneficial interest, agrees to treat such
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storm recovery bond as indebtedness of our sole member secured by the collateral for federal (and, to the extent applicable, state) income tax purposes unless otherwise required by appropriate taxing authorities. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus.
Louisiana State Income Tax Status:
In the opinion of Phelps Dunbar, L.L.P., counsel to us and to Cleco Power, interest paid on the storm recovery bonds generally will be taxed for Louisiana income tax purposes consistently with its taxation for U.S. federal income tax purposes (although certain corporate bondholders may be entitled to a deduction from Louisiana gross income for interest received on the storm recovery bonds) and (assuming that the storm recovery bonds will be treated as debt obligations of Cleco Power for U.S. federal income tax purposes) such interest received by a person who is not otherwise subject to corporate or personal income tax in the state of Louisiana will not be subject to tax in Louisiana. Phelps Dunbar, L.L.P. expects to issue an opinion, that, for Louisiana income tax purposes (1) we will not be treated as a taxable entity separate and apart from Cleco Power, our sole member, and (2) the storm recovery bonds will constitute indebtedness of Cleco Power, assuming, in each case, that such treatment applies for U.S. federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences” and “Material Louisiana Income Tax Consequences” in this prospectus.
ERISA Considerations:
Employee benefit plans or other arrangements that are subject to ERISA or Section 4975 of the Internal Revenue Code and investors acting on behalf of, or using assets of, such plans may acquire the storm recovery bonds subject to specified conditions. The acquisition, holding or disposition of the storm recovery bonds could be treated as a direct or indirect prohibited transaction under ERISA and/or Section 4975 of the Internal Revenue Code. Accordingly, by purchasing and holding the storm recovery bonds, each investor that is or is acting on behalf of, or using assets of, such an employee benefit plan or arrangement subject to ERISA and/or Section 4975 of the Internal Revenue Code will be deemed to certify that the purchase, holding and subsequent disposition of the storm recovery bonds will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code or applicable similar law. For further information, please read “ERISA Considerations” in this prospectus.
Credit ratings:
The storm recovery bonds are expected to receive credit ratings from at least two nationally recognized statistical rating organizations. See “Ratings for the Storm Recovery Bonds” in this prospectus.
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Use of proceeds:
Upon the issuance and sale of the storm recovery bonds, we will use the net proceeds to pay to Cleco Power the purchase price of Cleco Power’s rights under the financing order, which are storm recovery property.
The net proceeds from the sale of the storm recovery property (after payment of upfront financing costs) will be used by Cleco Power as follows: Cleco Power will use $100.9 million to fund a restricted storm recovery reserve to be held in a segregated restricted account and $95.0 million to fund the separate restricted special Hurricane Ida reserve held in a separate segregated restricted account. Cleco Power will use the remaining portion of the proceeds (approximately $230 million), which is reimbursement for storm recovery costs previously expended by Cleco Power from internally-generated funds, towards repayment of the interim short-term floating rates notes issued in September 2021 by Cleco Power. Please read “Use of Proceeds” in the prospectus.
1940 Act Registration:
We expect to rely on an exclusion from the definition of “investment company” under the 1940 Act contained in Section 3(c)(5) of the 1940 Act, although there may be additional exclusions or exemptions available to us. We are being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.
Risk Retention:
The storm recovery bonds are not subject to the 5% risk retention requirements imposed by Section 15G of the Exchange Act due to the exemption provided in Rule 19(b)(8) of the risk retention regulations in 17 C.F.R. Part 246 of the Exchange Act or Regulation RR. For information regarding the requirements of the EU Securitization Regulation as to risk retention and other matters, please read “Risk Factors—Other Risks Associated with an Investment in the Storm Recovery Bonds—Regulatory provisions affecting certain investors could adversely affect the liquidity of the storm recovery bonds” in this prospectus.
Minimum denomination:
$2,000, or integral multiples of $1,000 in excess thereof, except for one bond of each tranche which may be of a smaller denomination.
Expected settlement:
, 2022, settling flat. DTC, Clearstream and Euroclear.
Continuing disclosure:
Neither we nor Cleco Power is an asset-backed issuer and the storm recovery bonds are not asset-backed securities as such terms are defined by the SEC in governing regulations Item 1101 of Regulation AB. However, we are filing offering documents and plan to file with the SEC required periodic and current reports related to the storm recovery bonds consistent with the disclosure and reporting regime established in Regulation AB.
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Risk factors:
You should consider carefully the risk factors beginning on page 23 of this prospectus before you invest in the storm recovery bonds.
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SUMMARY OF RISK FACTORS
Set forth below is a summary of the material risk factors which you should consider before deciding whether to invest in the storm recovery bonds. These risks can affect the timing or ultimate payment of the storm recovery bonds and the value of your investment in the storm recovery bonds.
• | You may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited. |
Risks associated with potential judicial, legislative or regulatory actions
• | We and Cleco Power are not obligated to indemnify you for changes in law. |
• | Future judicial action could reduce the value of your investment in the storm recovery bonds. |
• | Future state action could reduce the value of your investment in the storm recovery bonds. |
• | The Louisiana commission might attempt to take actions that could reduce the value of your investment in the storm recovery bonds. |
• | The servicer may not fulfill its obligations to act on behalf of the storm recovery bondholders to protect bondholders from actions by the Louisiana commission or the State of Louisiana, or the servicer may be unsuccessful in any such attempt. |
• | A municipal entity may seek to acquire portions of Cleco Power’s electric distribution facilities and avoid payment of the storm recovery charges. |
Servicing Risks
• | Your investment in the storm recovery bonds depends on Cleco Power or its successor or assignee, acting as servicer of the storm recovery property. |
• | Inaccurate forecasting of electricity consumption or unanticipated delinquencies or write-offs might reduce scheduled payments on the storm recovery bonds. |
• | If we have to replace Cleco Power as the servicer, we may experience difficulties finding and using a replacement servicer. |
• | Changes to billing and collection practices might reduce the value of your investment in the storm recovery bonds. |
• | Limits on rights to terminate service might make it more difficult to collect the storm recovery charges. |
Storm related risks
• | Storm damage to Cleco Power’s service territories could impair payment of the storm recovery bonds. |
Risks associated with the unusual nature of the storm recovery property
• | Future adjustments to the storm recovery charges by customer class might result in insufficient collection. |
• | Foreclosure of the trustee’s lien on the storm recovery property might not be practical, and acceleration of the storm recovery bonds before maturity might have little practical effect. |
Risks associated with potential bankruptcy proceedings of the seller or the servicer
• | The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the storm recovery bonds. |
• | The bankruptcy of Cleco Power might result in losses or delays in payments on the storm recovery bonds. |
• | The sale of the storm recovery property might be construed as a financing and not a sale in a case of Cleco Power’s bankruptcy which might delay or limit payments on the storm recovery bonds. |
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• | If the servicer enters bankruptcy proceedings, the remittance of certain storm recovery charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owed on the storm recovery bonds. |
• | Claims against Cleco Power might be limited in the event of a bankruptcy of Cleco Power. |
• | The bankruptcy of Cleco Power might limit the remedies available to the trustee. |
Other risks associated with an investment in the storm recovery bonds
• | Cleco Power’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the storm recovery bonds. |
• | The credit ratings are no indication of the expected rate of payment of principal on the storm recovery bonds. |
• | Cleco Power’s or Cleco Holdings’ credit ratings might affect the market value of the storm recovery bonds. |
• | Alternatives to purchasing electricity through Cleco Power’s distribution facilities may be more widely utilized by customers in the future. |
• | The absence of a secondary market for the storm recovery bonds might limit your ability to resell the storm recovery bonds. |
• | You might receive principal payments for a tranche of storm recovery bonds later than you expect. |
• | Cleco Power may cause the issuance, by us or another subsidiary or affiliated entity, of additional storm recovery bonds secured by additional storm recovery property that includes a nonbypassable charge on customers. |
• | Cleco Power’s operations are subject to risks beyond its control, including cyber-security intrusions, terrorist attacks or other catastrophic events, which could limit Cleco Power’s operations and ability to service the storm recovery property. |
• | If the investment of collected storm recovery charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the storm recovery bonds later than you expect. |
• | Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the storm recovery bonds. |
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Please carefully consider all the information we have included or incorporated by reference in this prospectus, including the risks described below and in “Cautionary Statement Regarding Forward-Looking Information,” before deciding whether to invest in the storm recovery bonds.
You may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited.
The only source of funds for payment of the storm recovery bonds will be our assets, which consist of:
• | the storm recovery property securing the storm recovery bonds, including the right to impose, bill, charge, collect and receive storm recovery charges; |
• | the funds on deposit in the accounts held by the trustee; and |
• | our rights under various contracts we describe in this prospectus. |
The storm recovery bonds are not a charge on the full faith and credit or taxing power of the State of Louisiana or any governmental agency or instrumentality, nor will the storm recovery bonds be insured or guaranteed by Cleco Power, including in its capacity as the sponsor, depositor, seller or initial servicer, or by its parent, Cleco Holdings, any of their respective affiliates (other than us), the trustee or any other person or entity. The storm recovery bonds will be nonrecourse obligations, secured only by the collateral. Delays in payment on the storm recovery bonds might result in a reduction in the market value of the storm recovery bonds and, therefore, the value of your investment in the storm recovery bonds. Thus, you must rely for payment of the storm recovery bonds solely upon the collections of the storm recovery charges, and funds on deposit in the accounts held by the trustee. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please read “Cleco Securitization I LLC, The Issuing Entity” in this prospectus.
We and Cleco Power are not obligated to indemnify you for changes in law.
Neither we nor Cleco Power, nor any affiliate, successor or assignee, will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Securitization Act, that might affect the value of the storm recovery bonds. Cleco Power will agree in the sale agreement to institute any legal or administrative action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment of the Securitization Act that would be materially adverse to us, the trustee or the storm recovery bondholders. However, we cannot assure you that Cleco Power would be able to take this action or that any such action would be successful. Although Cleco Power or any successor assignee might be required to indemnify us if legal action based on the law in effect at the time of the issuance of the storm recovery bonds invalidates the storm recovery property, such indemnification obligations do not apply for any changes in law after the date the storm recovery bonds are issued, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision. Please read “The Sale Agreement—Cleco Power’s Covenants” in this prospectus.
Future judicial action could reduce the value of your investment in the storm recovery bonds.
The storm recovery property is the creation of the Securitization Act and the financing order that has been issued by the Louisiana commission to Cleco Power pursuant to the Securitization Act. The Securitization Act was enacted in May 2006. There is uncertainty associated with investing in bonds payable from an asset that depends for its existence on legislation because there is limited judicial or regulatory experience implementing and interpreting the legislation. The Securitization Act or any financing order or any provisions thereof might be directly contested in courts or otherwise become the subject of litigation. Because the storm recovery property is a creation of the Securitization Act and the financing order, any judicial determination affecting the validity of or interpreting the Securitization Act or the financing order, the storm recovery property or our ability to make payments on the storm recovery bonds might have an adverse effect on the value of the storm recovery bonds or cause a delay in the recovery of your investment. As of the date of this prospectus, no such litigation has arisen; however, we
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cannot assure you that a lawsuit challenging the validity of the Securitization Act or any financing order will not be filed in the future or that, if filed, such lawsuit will not be successful. If an invalidation of any relevant underlying legislative provision or any financing order provision were to result from such litigation, you might lose some or all of your investment or might experience delays in recovering your investment. Please read “The Securitization Act—Constitutional Matters” in this prospectus.
Other states have passed laws with financing provisions similar to some provisions of the Securitization Act, and some of these laws have been challenged by judicial actions or utility commission proceedings. To date, none of these challenges has succeeded, but future judicial challenges might be made. An unfavorable decision regarding another state’s law would not automatically invalidate the Securitization Act or the financing order, but it might provoke a challenge to the Securitization Act or the financing order, establish a legal precedent for a successful challenge to the Securitization Act or the financing order or heighten awareness of the political and other risks of the storm recovery bonds, and in that way may limit the liquidity and value of the storm recovery bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the storm recovery bonds.
Future state action could reduce the value of your investment in the storm recovery bonds.
Despite their pledges in the Securitization Act and the financing order, respectively, not to take or permit certain actions that would impair the value of the storm recovery property or the storm recovery charges, the Louisiana legislature might attempt to repeal or amend the Securitization Act in a manner that limits or alters the storm recovery property so as to reduce its value. For a description of the State’s pledge, please read “The Securitization Act—Cleco Power and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs” in this prospectus. As of the date of this prospectus, we are not aware of any pending legislation in the Louisiana legislature, other than Senate Bill No. 352, that would affect any provisions of the Securitization Act. If adopted by the legislature and signed into law by the governor of Louisiana, Senate Bill No. 352 would amend the provisions of the Securitization Act to require the Louisiana commission to adopt a rule or order to ensure that all eligible customers of an electric or gas utility subject to the general jurisdiction of the Louisiana commission, who experience an outage of utility service for a period longer than twenty-four hours, would receive an automatic credit to their utility service bill. There can be no assurance that Senate Bill No. 352 will not become law or if it does become law, how any such automatic credit might be structured.
It might be possible for the Louisiana legislature to repeal or amend the Securitization Act notwithstanding the State’s pledge if the legislature acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety, or responding to a national or regional catastrophe or emergency affecting Cleco Power’s service territories, or if such action or inaction otherwise is in the valid exercise of the State’s police power. Similarly, it might be possible for the Louisiana commission to repeal or amend the financing order notwithstanding the Louisiana commission’s pledge, if it acts in order to serve a significant and legitimate public purpose. Any such action, as well as the costly and time-consuming litigation that likely would ensue, might adversely affect the price and liquidity, the dates of payment of interest and principal and the weighted average lives of the storm recovery bonds. Moreover, the outcome of any litigation cannot be predicted. Accordingly, you might incur a loss on or delay in recovery of your investment in the storm recovery bonds.
Except as described in “The Sale Agreement—Cleco Power's Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus, neither we, Cleco Power, nor any of its successors, assignees or affiliates will indemnify you for any change in law, including any amendment or repeal of the Securitization Act, that might affect the value of the storm recovery bonds.
If an action of the Louisiana legislature or the Louisiana commission adversely affecting the storm recovery property or the ability to collect storm recovery charges were considered a “taking” under the United States or Louisiana Constitutions, the State of Louisiana might be obligated to pay compensation in an amount equal to the estimated value of the storm recovery property at the time of the taking. However, even in that event, there is no assurance that any amount provided as compensation would be sufficient for you to recover fully your investment in the storm recovery bonds or to offset interest lost pending such recovery.
Nothing in the State’s or Louisiana commission’s pledge precludes any limitation or alteration of the Securitization Act or the financing order if full compensation is made by law for the full protection of the storm recovery charges
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collected pursuant to the financing order and of the holders of the storm recovery bonds. It is unclear what “full compensation” and “full protection” would be afforded to the holders of storm recovery bonds by the State of Louisiana or the Louisiana commission if such limitation or alteration were attempted.
Unlike the citizens of some other states, the citizens of the State of Louisiana currently do not have the constitutional right to adopt or revise state laws by initiative or referendum. Thus, absent an amendment to the Louisiana Constitution, the Securitization Act cannot be amended or repealed by direct action of the electorate of the State of Louisiana.
The enforcement of any rights against the State of Louisiana or the Louisiana commission under their respective pledges may be subject to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against state and local governmental entities in Louisiana. These limitations might include, for example, the necessity to exhaust administrative remedies prior to bringing suit in a court, or limitations on type and locations of courts in which the State of Louisiana or the Louisiana commission may be sued, or limitations on awards or collection of damages.
The Louisiana commission might attempt to take actions that could reduce the value of your investment in the storm recovery bonds.
The Securitization Act provides that for a financing order issued to create storm recovery property, the financing order must provide that the financing order is irrevocable and that the Louisiana commission may not directly or indirectly, by any subsequent action, rescind or amend a financing order or reduce, alter or impair the storm recovery charges authorized under a financing order, except for the true-up adjustments to the storm recovery charges. In addition, pursuant to its constitutional plenary authority and the Securitization Act, the Louisiana commission had pledged in the financing order that it will not amend, modify, or rescind the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust the storm recovery charges. However, the Louisiana commission retains the power to adopt, revise or rescind rules or regulations affecting Cleco Power or a successor utility. The Louisiana commission also retains the power to interpret the financing order granted to Cleco Power, and in that capacity might be called upon to rule on the meanings of provisions of the financing order that might need further elaboration. Any new or amended regulations or orders from the Louisiana commission might adversely affect the ability of the servicer to disconnect customers for nonpayment, assess late fees, impose deposit requirements or collect the storm recovery charges in full and on a timely basis, which may negatively impact the rating of the storm recovery bonds or their price and, accordingly, the amortization of the storm recovery bonds and their weighted average lives.
The servicer is required to file with the Louisiana commission, on our behalf, certain periodic true-up adjustments of the storm recovery charges. The Louisiana commission is obligated under the financing order to administratively approve the requested adjustment (including, if applicable, the correction of any mathematical error in such calculations) within 15 days of the date of the request for adjustment. Please read “Cleco Power’s Financing Order—True-Ups” and “—Adjustments to Allocation of Storm Recovery Charges” in this prospectus. True-up adjustment procedures may be challenged in the future. Challenges to or delays in the true-up process might adversely affect the market perception and valuation of the storm recovery bonds. Also, any litigation might materially delay storm recovery charge collections due to delayed implementation of true-up adjustments and might result in missing payments or payment delays and lengthened weighted average life of the storm recovery bonds.
The servicer may not fulfill its obligations to act on behalf of the storm recovery bondholders to protect bondholders from actions by the Louisiana commission or the State of Louisiana, or the servicer may be unsuccessful in any such attempt.
The servicer will agree in the servicing agreement to take any action or proceeding reasonably necessary to compel performance by the Louisiana commission and the State of Louisiana of any of their obligations or duties under the securitization provisions of the Securitization Act or the financing order, including any actions reasonably necessary to block or overturn any attempts to cause a repeal, or modification of, or supplement to the securitization provisions of the Securitization Act or the financing order or the rights of bondholders in the storm recovery property by executive action, legislative enactment, constitutional amendment or other means that would be adverse to the bondholders. The servicer, however, may not be able to take those actions for a number of reasons, including due to legal or regulatory restrictions, financial constraints and practical difficulties in
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successfully challenging any such legislative enactment or constitutional amendment. Additionally, any action the servicer is able to take may not be successful. Any such failure to perform its obligations or to successfully compel performance by the Louisiana commission or the State of Louisiana could negatively affect bondholders’ rights and result in a loss of their investment in the storm recovery bonds.
A municipal entity may seek to acquire portions of Cleco Power’s electric distribution facilities and avoid payment of the storm recovery charges.
Louisiana law authorizes municipalities to seek to acquire portions of an electric utility’s electric distribution facilities through voluntary transactions or the power of expropriation for use as part of municipally-owned utility systems. There can be no assurance that one or more municipalities will not seek to acquire some or all of Cleco Power’s electric distribution facilities while the storm recovery bonds remain outstanding. The Securitization Act specifies that storm recovery charges approved by a financing order shall be collected by an electric utility as well as its “successors or assignees.” In the servicing agreement, Cleco Power has covenanted to assert in an appropriate forum that any municipality that acquires any portion of Cleco Power’s electric distribution facilities by expropriation, including upon the expiration of any franchise agreement, must be treated as a successor to Cleco Power under the Securitization Act and the financing order and that customers in such municipalities remain responsible for payment of storm recovery charges. However, the involved municipality might assert that it should not be treated as a successor to Cleco Power for these purposes and that its distribution customers are not responsible for payment of storm recovery charges. In any case, we cannot assure you that the storm recovery charges will be collected from customers of municipally owned utilities who were formerly customers of Cleco Power and that such an occurrence might not affect the timing or receipt of payments with respect to the storm recovery bonds.
Your investment in the storm recovery bonds depends on Cleco Power or its successor or assignee, acting as servicer of the storm recovery property.
Cleco Power, as initial servicer, will be responsible for, among other things, calculating, billing and collecting the storm recovery charges from its customers, submitting requests to the Louisiana commission to adjust these charges, monitoring the collateral for the storm recovery bonds and taking certain actions in the event of non-payment by a customer. The trustee’s receipt of collections in respect of the storm recovery charges, which will be used to make payments on the storm recovery bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems that the servicer has in place for storm recovery charge billings and collections, together with the regulations of the Louisiana commission governing electric utilities such as Cleco Power might, in particular circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. If the servicer fails to make storm recovery charge collections for any reason, then the servicer’s payments to the trustee in respect of the storm recovery charges might be delayed or reduced. In that event, our payments on the storm recovery bonds might be delayed or reduced.
Inaccurate forecasting of electricity consumption or unanticipated delinquencies or write-offs might reduce scheduled payments on the storm recovery bonds.
The storm recovery charges are generally assessed based on forecasted customer usage, i.e., kilowatt-hours of electricity consumed by customers. The amount and the rate of storm recovery charge collections will depend in part on actual electricity usage and the amount of collections and write-offs. If the servicer inaccurately forecasts electricity consumption or uses inaccurate customer delinquency or write-off data when setting or adjusting the storm recovery charges, or if the effectiveness of the adjustments is delayed for any reason, there could be a shortfall or material delay in storm recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the storm recovery bonds. Please read “Cleco Power’s Financing Order—True-Ups” and “—Adjustments to Allocation of Storm Recovery Charges” in this prospectus.
Inaccurate forecasting of electricity consumption by the servicer might result from, among other things, unanticipated weather or economic conditions, resulting in less electricity consumption than forecast; general economic conditions, including the economic downturn caused by the COVID-19 pandemic being worse than
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expected, causing customers to leave Cleco Power or reduce their electricity consumption; the occurrence of a natural disaster, such as a hurricane or winter storm, or an act of terrorism, cyberattack or other catastrophic event, including pandemics, unexpectedly disrupting electrical service and reducing electricity consumption and demand; changes in the market structure of the electric industry; customers consuming less electricity than anticipated because of increased energy prices, increased conservation efforts, worse economic conditions or unanticipated increases in electric usage efficiency; or customers switching to alternative sources of energy, including self-generation of electric power.
The servicer’s use of inaccurate delinquency or write-off rates might result also from, among other things, unexpected deterioration of the economy or the occurrence of a natural disaster or extreme weather, an act of terrorism, cyberattack or other catastrophic event or the unanticipated declaration of a moratorium on terminating electric service to customers in the event of such occurrences, any of which would cause greater delinquencies or write-offs than expected or force Cleco Power to grant additional payment relief to more customers, or any other change in law that makes it more difficult for Cleco Power to terminate service to nonpaying customers or that requires Cleco Power to apply more lenient credit standards in accepting customers. For example, under its emergency powers, the State legislature or the Louisiana commission could impose a moratorium on the payment of consumer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana commission, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the LPSC issued an order ending the moratorium on disconnections effective July 16, 2020. Cleco Power resumed disconnections and late fees beginning October 1, 2020.
If we have to replace Cleco Power as the servicer, we may experience difficulties finding and using a replacement servicer.
If Cleco Power ceases to service the storm recovery property, it might be difficult to find a successor servicer. Under the financing order, the annual servicing fee payable to a successor servicer is capped and the payment of compensation in excess of the cap is dependent upon Louisiana commission approval. Also, any successor servicer might have less experience and ability than Cleco Power and might experience difficulties in collecting storm recovery charges and determining appropriate adjustments to the storm recovery charges and billing and/or payment arrangements may change, resulting in delays or disruptions in collections. A successor servicer might charge fees that, while permitted under the financing order, are substantially higher than the fees paid to Cleco Power as the initial servicer. Although a True-Up Adjustment may be required to allow for the increase in fees, there could be a gap between the incurrence of those fees and the implementation of the True-Up Adjustment to adjust for the increase that might adversely affect distributions from the collection account. In the event of the commencement of a case by or against the servicer under the Bankruptcy Code or similar laws, we and the trustee might be prevented from effecting a transfer of servicing due to operation of the Bankruptcy Code. Any of these factors and others might delay the timing of payments and may reduce the value of your investment. Please read “The Servicing Agreement” in this prospectus.
Changes to billing and collection practices might reduce the value of your investment in the storm recovery bonds.
The financing order specifies the methodology for determining the amount of the storm recovery charges we may impose. The servicer may not change this methodology without approval from the Louisiana commission. However, the servicer may set its own billing and collection arrangements with its customers, provided that these arrangements comply with the Louisiana commission’s customer safeguards. For example, to recover part of an outstanding bill, the servicer may agree to extend a customer’s payment schedule or to write-off the remaining unpaid portion of the bill, including the storm recovery charges. Also, the servicer may change billing and collection practices, which might adversely impact the timing and amount of customer payments and might reduce storm recovery charge collections, thereby limiting our ability to make scheduled payments on the storm recovery bonds. Separately, the Louisiana commission might require changes to these practices. Any changes in billing and collection practices regulations might make it more difficult for the servicer to collect the storm recovery charges and adversely affect the value of your investment in the storm recovery bonds. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Forecasting Electricity Consumption” in this prospectus.
Consumer protection measures may limit the ability of Cleco Power to collect all charges owed by consumers, including the storm recovery charges. In addition, the State legislature or the Louisiana commission may take
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additional actions in response to COVID-19 or any future pandemic or other situation which may adversely affect the timing of storm recovery charge collections. For example, under its emergency powers, the State legislature or the Louisiana commission could impose a moratorium on the payment of consumer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana commission, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the LPSC issued an order ending the moratorium on disconnections effective July 16, 2020. Cleco Power resumed disconnections and late fees beginning October 1, 2020. Any such additional action could result in a shortfall or material delay in storm recovery charge collections, which in turn might result in missed or delayed payments of principal and interest, lengthened weighted average life of the storm recovery bonds and downgrade of the credit ratings on the storm recovery bonds. Please read “The Depositor, Seller, Initial Servicer and Sponsor—COVID-19 Consumer Protections” in this prospectus.
In addition, COVID-19 or any future pandemic may impact the ability of Cleco Power to maintain operations at the same level as it was able prior to the pandemic. For instance, a large portion of Cleco Power’s workforce, including employees of their contractors, may be unable to perform their job functions effectively due to illness, family illness, quarantine requirements, social-distancing, telework requirements and other impacts of the COVID-19 or any future pandemic. Such potential impacts may limit the ability of Cleco Power to service the storm recovery charges.
Limits on rights to terminate service might make it more difficult to collect the storm recovery charges.
If Cleco Power, as the servicer, is billing customers for storm recovery charges, it may terminate service to the customer for non-payment of storm recovery charges pursuant to the applicable rules of the Louisiana commission. Nonetheless, the rules and regulations of the Louisiana commission, which may change from time to time, regulate and control the right to disconnect service. For example, electric utilities generally may not terminate service to a customer (i) on a holiday or weekend day, (ii) during certain extreme weather conditions or (iii) during a federal government shutdown who timely provides proof that such customer is a federal government employee whose pay is suspended. To the extent these customers do not pay for their electric service, Cleco Power will not be able to collect storm recovery charges from these customers.
In addition, Cleco Power may be limited in the future in its ability to terminate service or collect storm recovery charges. The Louisiana commission, in response to a federal mandate or otherwise, could impose restrictions on the rates Cleco Power charges to provide its services, including the inability to implement approved rates, or delay actions with respect to Cleco Power’s base rate case and filings. For example, under its emergency powers, the State legislature or the Louisiana commission could impose a moratorium on the payment of consumer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana commission, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the LPSC issued an order ending the moratorium on disconnections effective July 16, 2020. Cleco Power resumed disconnections and late fees beginning October 1, 2020.
Storm damage to Cleco Power’s service territories could impair payment of the storm recovery bonds.
Cleco Power’s service territories were impacted by three hurricanes in 2020 and one in 2021, as well as two winter storms in 2021, disrupting Cleco Power’s operations and depleting its storm recovery reserve. Future storms could have similar effects. Transmission, distribution and usage of electricity could be interrupted temporarily, reducing the collections of storm recovery charges. There could be longer-lasting weather-related adverse effects on residential and commercial development and economic activity in Cleco Power’s service territories, which could cause the per-kWh storm recovery charge to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as violative of the State of Louisiana’s or the Louisiana commission’s pledge, might be defended on the basis of public necessity. Please read “The Securitization Act—Cleco Power and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs—State and Louisiana Commission Pledges” and “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state action could reduce the value of your investment in the storm recovery bonds” in this prospectus.
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Future adjustments to storm recovery charges by customer class might result in insufficient collection.
The customers who pay the storm recovery charges are divided into customer classes. Storm recovery charges will be allocated among customer classes and assessed in accordance with the formula specified in the financing order.
A shortfall in the collections of storm recovery charges in one customer class may be corrected by making adjustments to the storm recovery charges payable by that customer class and any other customer class. If enough customers in a class fail to pay storm recovery charges or cease to be customers, the servicer might have to substantially increase the storm recovery charges for the remaining customers in that customer class and for other customer classes. These increases could lead to further unanticipated failures by the remaining customers to pay storm recovery charges, thereby increasing the risk of a shortfall in funds to pay interest and principal on the storm recovery bonds.
Foreclosure of the trustee’s lien on the storm recovery property might not be practical, and acceleration of the storm recovery bonds before maturity might have little practical effect.
Under the Securitization Act and the indenture, the trustee or the storm recovery bondholders have the right to foreclose or otherwise enforce the lien on the storm recovery property securing the storm recovery bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of the storm recovery bonds will be due and payable upon acceleration of the storm recovery bonds before maturity, storm recovery charges likely would not be accelerated and the nature of our business will result in the principal of the storm recovery bonds being paid as funds become available. If there is an acceleration of the storm recovery bonds, all outstanding tranches of the storm recovery bonds will be paid pro rata; therefore, some tranches might be paid earlier than expected and some tranches might be paid later than expected.
For a detailed discussion of the following bankruptcy risks, please read “How a Bankruptcy May Affect Your Investment” in this prospectus.
The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the storm recovery bonds.
The servicer will be required to remit collections to the trustee on our behalf each business day based on estimated daily collections, using a weighted average balance of days outstanding on Cleco Power’s retail bills. The servicer will not segregate the storm recovery charges from the other funds it collects from customers or its general funds. The storm recovery charges will be segregated only when the servicer pays them to the trustee.
Despite this requirement, the servicer might fail to remit the full amount of the storm recovery charges to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of storm recovery charge collections available to make payments on the storm recovery bonds.
The Securitization Act provides that the priority of a security interest perfected in storm recovery property is not impaired by the commingling of the funds arising from storm recovery charges with any other funds of the servicer. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law does not recognize our right to collections of the storm recovery charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the storm recovery charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owed on the storm recovery bonds. In this case, we would have only a general unsecured claim against the servicer for those amounts. This decision could cause material delays in payments of principal or interest, or losses, on the storm recovery bonds and could materially reduce the value of your investment in the storm recovery bonds. Please read “How a Bankruptcy May Affect Your Investment” in this prospectus.
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The bankruptcy of Cleco Power might result in losses or delays in payments on the storm recovery bonds.
The Securitization Act and the financing order provide that as a matter of Louisiana state law:
• | the rights and interests of a selling utility under a financing order, including the right to impose, bill, charge, collect and receive storm recovery charges, are contract rights of the seller, |
• | the seller may make a present transfer of its rights under a financing order, including the right to impose, bill, charge, collect and receive future storm recovery charges that customers do not yet owe, |
• | the storm recovery property constitutes a present contract right, even though the imposition and collection of storm recovery charges depend on further acts that have not yet occurred, and |
• | a transfer of the storm recovery property from the seller, or its affiliate, to us, under an agreement that expressly states the transfer is a sale or other absolute transfer, is a true sale of the storm recovery property and not a pledge of the storm recovery property to secure a financing by the seller. |
Please read “The Securitization Act” in this prospectus. These provisions are important to maintaining payments on the storm recovery bonds in accordance with their terms during any bankruptcy of Cleco Power. In addition, the transaction has been structured with the objective of keeping us legally separate from Cleco Power and its affiliates in the event of a bankruptcy of Cleco Power or any such affiliates.
A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above. However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a Cleco Power bankruptcy refused to enforce one or more of the state property law provisions described above, the effect of this decision on you as a beneficial owner of the storm recovery bonds might be similar to the treatment you would receive in a Cleco Power bankruptcy if the storm recovery bonds had been issued directly by Cleco Power. A decision by the bankruptcy court that, despite our separateness from Cleco Power, our assets and liabilities and those of Cleco Power should be consolidated would have a similar effect on you as a bondholder.
We have taken steps together with Cleco Power, as the seller, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with those of Cleco Power or an affiliate. Nonetheless, these steps might not be completely effective, and thus if Cleco Power or an affiliate were to become a debtor in a bankruptcy case, a court might order that our assets and liabilities be consolidated with those of Cleco Power or such affiliate. This might cause material delays in payment of, or losses on, the storm recovery bonds and might materially reduce the value of your investment in the storm recovery bonds. For example:
• | without permission from the bankruptcy court, the trustee might be prevented from taking actions against Cleco Power or recovering or using funds on your behalf or replacing Cleco Power as the servicer; |
• | the bankruptcy court might order the trustee to exchange the storm recovery property for other property, of lower value; |
• | tax or other government liens on Cleco Power’s property might have priority over the trustee’s lien and might be paid from collected storm recovery charges before payments on the storm recovery bonds; |
• | the trustee’s lien might not be properly perfected in the collected storm recovery property collections prior to or as of the date of Cleco Power’s bankruptcy, with the result that the storm recovery bonds would represent only general unsecured claims against Cleco Power; |
• | the bankruptcy court might rule that neither our property interest nor the trustee’s lien extends to storm recovery charges in respect of electricity consumed after the commencement of Cleco Power’s bankruptcy case, with the result that the storm recovery bonds would represent only general unsecured claims against Cleco Power; |
• | we and Cleco Power might be relieved of any obligation to make any payments on the storm recovery bonds during the pendency of the bankruptcy case and might be relieved of any obligation to pay interest accruing after the commencement of the bankruptcy case; |
• | Cleco Power might be able to alter the terms of the storm recovery bonds as part of its plan of reorganization; |
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• | the bankruptcy court might rule that the storm recovery charges should be used to pay, or that we should be charged for, a portion of the cost of providing electric service; |
• | the bankruptcy court might rule that the remedy provisions of the sale agreement are unenforceable, leaving us with an unsecured claim for actual damages against Cleco Power that may be difficult to prove or, if proven, to collect in full; |
• | if the servicer defaults or enters bankruptcy proceedings, it might be difficult to find a successor servicer and payments on the storm recovery bonds might be suspended; |
• | the mere fact of a servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the storm recovery bonds and on the value of the storm recovery bonds; or |
• | the servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the bankruptcy of the servicer and reduce the value of your investment in the storm recovery bonds. |
Please read “How a Bankruptcy May Affect Your Investment.”
The sale of the storm recovery property might be construed as a financing and not a sale in a case of Cleco Power’s bankruptcy which might delay or limit payments on the storm recovery bonds.
The Securitization Act provides that the characterization of a transfer of storm recovery property as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and Cleco Power will treat the transaction as a sale under applicable law, although for financial reporting and federal and state tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of Cleco Power, a party in interest in the bankruptcy might assert that the sale of the storm recovery property to us was a financing transaction and not a “sale or other absolute transfer” and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the transaction as a financing, we expect that we would, on behalf of ourselves and the trustee, be treated as a secured creditor of Cleco Power in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against Cleco Power. See “— The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the storm recovery bonds” above. Even if we had a security interest in the storm recovery property, we would not likely have access to the related storm recovery charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of the storm recovery bonds might be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to us of the storm recovery charge collections and therefore the amount and timing of funds available to us to pay storm recovery bondholders.
If the servicer enters bankruptcy proceedings, the remittance of certain storm recovery charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owed on the storm recovery bonds.
In the event of a bankruptcy of the servicer, a party in interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement, constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that storm recovery charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. Also, if we are considered to be an “insider” of the servicer, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, we or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, we would expect that the amount of any future storm recovery charges would be increased through the true-up mechanism to recover such amount, though this would not eliminate the risk of payment delays or losses on your investment in the storm recovery bonds.
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Claims against Cleco Power might be limited in the event of a bankruptcy of the seller.
If the seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement would be unsecured claims and would be disposed of in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A party in interest in the bankruptcy of Cleco Power, as the seller, might challenge the enforceability of the indemnity provisions in the sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against the seller based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving Cleco Power.
The bankruptcy of Cleco Power might limit the remedies available to the trustee.
Upon an event of default for the storm recovery bonds under the indenture, the Securitization Act permits the trustee to enforce the security interest in the storm recovery property in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the 19th Judicial District Court of Louisiana to order the sequestration and payment to all storm recovery bondholders of all revenues arising with respect to the related storm recovery property. There can be no assurance, however, that the 19th Judicial District Court of Louisiana would issue this order after a Cleco Power bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the Louisiana court, and an order requiring an accounting and segregation of the revenues arising from the storm recovery property. There can be no assurance that a court would grant either order.
Cleco Power’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the storm recovery bonds.
Cleco Power is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the storm recovery bondholders, only in specified circumstances and will not be obligated to repurchase any storm recovery property in the event of a breach of any of its representations, warranties or covenants regarding the storm recovery property. Similarly, Cleco Power is obligated under the servicing agreement to indemnify us and the trustee, for itself and on behalf of the storm recovery bondholders only in specified circumstances. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus.
Neither the trustee nor the storm recovery bondholders will have the right to accelerate payments on the storm recovery bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture governing the storm recovery bonds as described in “Description of the Storm Recovery Bonds—What Constitutes an Event of Default on the Storm Recovery Bonds.” Furthermore, Cleco Power might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by Cleco Power might not be sufficient for you to recover all of your investment in the storm recovery bonds. In addition, if Cleco Power becomes obligated to indemnify storm recovery bondholders, the ratings on the storm recovery bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that storm recovery bondholders will be unsecured creditors of Cleco Power with respect to any of these indemnification amounts. Cleco Power will not indemnify any person for any loss, damages, liability, obligation, claim, action, suit or payment resulting solely from a downgrade in the ratings on the storm recovery bonds, or for any consequential damages, including any loss of market value of the storm recovery bonds resulting from a default or a downgrade of the ratings of the storm recovery bonds. Please read “The Sale Agreement—Cleco Power’s Representations and Warranties” and “—Cleco Power’s Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus.
The credit ratings are no indication of the expected rate of payment of principal on the storm recovery bonds.
We expect that the storm recovery bonds will receive credit ratings from at least two nationally recognized statistical rating organizations (“NRSRO”). A rating is not a recommendation to buy, sell or hold the storm recovery
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bonds. The ratings merely analyze the probability that we will repay the total principal amount of the storm recovery bonds at the final maturity date (which is later than the scheduled final payment date) and will make timely interest payments. The ratings are not an indication that the rating agencies believe that principal payments are likely to be paid on time according to the expected sinking fund schedule.
Under Rule 17g-5 of the Exchange Act, NRSROs providing Cleco Power, as the sponsor, with the requisite certification will have access to all information posted on a website by Cleco Power for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the storm recovery bonds. As a result, an NRSRO other than the NRSRO hired by Cleco Power (the “hired NRSRO”) may issue ratings on the storm recovery bonds (“Unsolicited Ratings”), which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSROs. The Unsolicited Ratings may be issued prior to, or after, the issuance date of the storm recovery bonds. Issuance of any Unsolicited Rating will not affect the issuance of the storm recovery bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSRO on the storm recovery bonds might adversely affect the value of the storm recovery bonds and, for regulated entities, could affect the status of the storm recovery bonds as a legal investment or the capital treatment of the storm recovery bonds. Investors in the storm recovery bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO. None of Cleco Power, us, the underwriters or any of their affiliates will have any obligation to inform you of any Unsolicited Ratings assigned after the date of this prospectus. In addition, if we or Cleco Power fail to make available to a non-hired NRSRO any information provided to any hired rating agency for the purpose of assigning or monitoring the ratings on the storm recovery bonds, a hired NRSRO could withdraw its ratings on the storm recovery bonds, which could adversely affect the market value of the storm recovery bonds and/or limit your ability to resell the storm recovery bonds.
Cleco Power’s or Cleco Holdings’ credit ratings might affect the market value of the storm recovery bonds.
Although Cleco Power is not an obligor on the storm recovery bonds, a downgrading of the credit ratings on the debt of Cleco Power or Cleco Holdings might have an adverse effect on the market value of the storm recovery bonds. Credit ratings may change at any time. A NRSRO has the authority to revise or withdraw its rating based solely upon its own judgment.
Alternatives to purchasing electricity through Cleco Power’s distribution facilities may be more widely utilized by customers in the future.
Broader use of distributed generation by Cleco Power’s customers may result from customers’ changing perceptions of the merits of utilizing existing generation technology or from technological developments resulting in smaller-scale, more fuel efficient, more environmentally friendly and/or more cost effective distributed generation. Storm recovery charges, which generally are consumption-based, are applied to all existing and future Louisiana commission-jurisdictional customers who remain attached to Cleco Power’s (or its successors) electric transmission or distribution lines, and who, via such lines, receive any type service from Cleco Power (or its successors) under rate schedules or special contracts approved by the Louisiana commission. Storm recovery charges will not be imposed on customers who do not receive transmission or distribution services from Cleco Power. Any customer who self-generates or co-generates electricity will be assessed storm recovery charges based upon the total firm and standby load served by Cleco Power. Technological developments and/or more widespread use of distributed generation might allow greater numbers of customers to reduce or eliminate their payment of storm recovery charges.
The absence of a secondary market for the storm recovery bonds might limit your ability to resell the storm recovery bonds.
The underwriters for the storm recovery bonds might assist in resales of the storm recovery bonds, but they are not required to do so. A secondary market for the storm recovery bonds might not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of the storm recovery bonds. We do not anticipate that the storm recovery bonds will be listed on any securities exchange. Please read “Plan of Distribution” in this prospectus.
You might receive principal payments for a tranche of storm recovery bonds later than you expect.
The amount and the rate of collection of the storm recovery charges for the storm recovery bonds, together with the related storm recovery charge adjustments, will generally determine whether there is a delay in the scheduled repayments for any tranche of the storm recovery bond principal. If the servicer collects the storm recovery
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charges at a slower rate than expected, it might have to request adjustments of the storm recovery charges. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in such tranche of storm recovery bonds. Please read “Description of the Storm Recovery Bonds” in this prospectus.
Cleco Power may cause the issuance, by us or another subsidiary or affiliated entity, of additional storm recovery bonds secured by additional storm recovery property that includes a nonbypassable charge on customers.
Any new issuance of storm recovery bonds by us or another subsidiary or affiliated entity of Cleco Power may include terms and provisions that would be unique to that particular issuance. Cleco Power has covenanted in the sale agreement that the satisfaction of the rating agency condition and the execution and delivery of an intercreditor agreement are conditions precedent to the sale of additional storm recovery property or similar property consisting of nonbypassable charges payable by customers comparable to the storm recovery property to another subsidiary or affiliated entity. Please read “Sale Agreement—Covenants of the Seller” in this prospectus.
In the event a customer does not pay in full all amounts owed under any bill, including storm recovery charges, Cleco Power, as servicer, is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owed in respect of the storm recovery bonds, and amounts owed in respect of additional storm recovery bonds. However, if a dispute arises with respect to the allocation of such storm recovery charges or other delays occur on account of the administrative burdens of making such allocation, we cannot assure you that any new issuance of storm recovery bonds by us or another subsidiary or affiliated entity of Cleco Power would not cause reductions or delays in payment of principal and interest on your storm recovery bonds.
In addition, actions taken by the holders of one or more series of additional storm recovery bonds might conflict with the interests of the beneficial owners of the storm recovery bonds, and could result in an outcome that is materially unfavorable to you.
Cleco Power’s operations are subject to risks beyond its control, including cyber-security intrusions, terrorist attacks or other catastrophic events, which could limit Cleco Power’s operations and ability to service the storm recovery property.
Cleco Power operates in an industry that requires the use of sophisticated information technology systems and network infrastructure, which control an interconnected system of generation, distribution, and transmission systems shared with third parties. Cleco Power’s continued efforts to integrate, consolidate, and streamline its operations have also resulted in increased reliance on current and recently completed projects for technology systems, including but not limited to, a customer information and billing system, automated meter reading systems, and other similar technological tools and initiatives.
Cleco Power has been subject to attempted cyberattacks from time to time, but these attacks have not had a material impact on its system or business operations. A successful physical or cyber-security intrusion may occur despite Cleco Power’s security measures or those that it requires its vendors to take, which include compliance with reliability standards and critical infrastructure protection standards. Despite the implementation of security measures, all assets and systems are potentially vulnerable to disability, failures, or unauthorized access due to physical or cyber-security intrusions caused by human error, vendor bugs, terrorist attacks, or other malicious acts. If Cleco Power’s assets or systems were to fail, be physically damaged, or be breached, and were not recovered in a timely manner, Cleco Power may be unable to perform critical business functions, including the distribution of electricity and the metering and billing of customers, all of which could materially affect Cleco Power’s ability to bill and collect storm recovery charges or otherwise service the storm recovery property.
If the investment of collected storm recovery charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the storm recovery bonds later than you expect.
Funds held by the trustee in the collection account will be invested in eligible investments at the written direction of the servicer. Eligible investments include money market funds having a rating from Moody’s, S&P and Fitch of “Aaa,” “AAA,” and “AAA,” respectively. Although investments in these money market funds have traditionally been viewed as highly liquid with a low probability of principal loss, illiquidity and principal losses have been
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experienced by investors in certain of these funds as a result of disruptions in the financial markets in recent years. If investment losses or illiquidity is experienced, you might experience a delay in payments of principal and interest on the storm recovery bonds and a decrease in the value of your investment in the storm recovery bonds.
Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the storm recovery bonds.
European Union (“EU”) legislation comprising Regulation (EU) 2017/2402 (as amended, the “EU Securitization Regulation”) and certain related regulatory technical standards, implementing technical standards and official guidance (together, the “European Securitization Rules”) imposes certain restrictions and obligations with regard to securitisations (as such term is defined for purposes of the EU Securitization Regulation). The European Securitization Rules are in force throughout the EU (and are expected also to be implemented in the non-EU member states of the European Economic Area).
Pursuant to the European Securitization Rules, EU Institutional Investors investing in a securitisation (as so defined) must, amongst other things, verify that (a) certain credit-granting requirements are satisfied, (b) the originator, sponsor or original lender retains on an ongoing basis a material net economic interest which, in any event, shall not be less than 5%, determined in accordance with Article 6 of the EU Securitization Regulation, and discloses that risk retention, (c) the originator, sponsor or relevant securitization special purpose entity has, where applicable, made available information as required by Article 7 of the EU Securitization Regulation and (d) they have carried out a due-diligence assessment that enables the EU Institutional Investors to assess the risks involved, considering at least (i) the risk characteristics of the securitisation position and the underlying exposures and (ii) all the structural features of the securitization that can materially impact the performance of the securitisation position. EU Institutional Investors include: (a) insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC, as amended; (b) institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 (subject to certain exceptions), and certain investment managers and authorized entities appointed by such institutions; (c) alternative investment fund managers as defined in Directive 2011/61/EU which manage and/or market alternative investment funds in the EU; (d) certain internally-managed investment companies authorized in accordance with Directive 2009/65/EC, and managing companies as defined in that Directive; (e) credit institutions as defined in Regulation (EU) No 575/2013 (CRR) (and certain consolidated affiliates thereof); and (f) investment firms as defined in CRR (and certain consolidated affiliates thereof).
With respect to the United Kingdom (UK), relevant UK established or UK regulated persons (as described below) are subject to the restrictions and obligations of the EU Securitization Regulation as it forms part of UK domestic law by operation of the European Union (Withdrawal) Act 2018 (as amended, the EUWA), and as amended by the Securitisation (Amendment) (EU Exit) Regulations 2019, and as further amended from time to time, the UK Securitization Regulation. The UK Securitization Regulation, together with (a) all applicable binding technical standards made under the UK Securitization Regulation, (b) any EU regulatory technical standards or implementing technical standards relating to the EU Securitization Regulation (including such regulatory technical standards or implementing technical standards that are applicable pursuant to any transitional provisions of the EU Securitization Regulation) forming part of UK domestic law by operation of the EUWA, (c) all relevant guidance, policy statements or directions relating to the application of the UK Securitization Regulation (or any binding technical standards) published by the Financial Conduct Authority (the FCA) and/or the Prudential Regulation Authority (the PRA) (or their successors), (d) any guidelines relating to the application of the EU Securitization Regulation that are applicable in the UK, (e) any other transitional, saving or other provision relevant to the UK Securitization Regulation by virtue of the operation of the EUWA and (f) any other applicable laws, acts, statutory instruments, rules, guidance or policy statements published or enacted relating to the UK Securitization Regulation, in each case, as may be further amended, supplemented or replaced, from time to time, are referred to in this prospectus as the UK Securitization Rules.
Article 5 of the UK Securitization Regulation places certain conditions on investments in a “securitisation” (as defined in the UK Securitization Regulation) by a UK Institutional Investor. UK Institutional Investors include: (a) an insurance undertaking as defined in section 417(1) of the Financial Services And Markets Act 2000 (as amended, the FSMA); (b) a reinsurance undertaking as defined in section 417(1) of the FSMA; (c) an occupational pension scheme as defined in section 1(1) of the Pension Schemes Act 1993 that has its main administration in the UK, or a fund manager of such a scheme appointed under section 34(2) of the Pensions Act 1995 that, in respect of activity undertaken pursuant to that appointment, is authorized for the purposes of section 31 of the FSMA; (d) an
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alternative investment fund manager as defined in regulation 4(1) of the Alternative Investment Fund Managers Regulation 2013 that markets or manages alternative investments funds (as defined in regulation 3 of the Alternative Investment Fund Managers Regulation 2013) in the UK; (e) a management company as defined in section 237(2) of the FSMA; (f) an undertaking for collective investment in transferable securities as defined by section 236A of the FSMA, which is an authorized open ended investment company as defined in section 237(3) of the FSMA; and (g) a CRR firm as defined in Regulation (EU) No 575/2013, as it forms part of UK domestic law by virtue of the EUWA (and certain consolidated affiliates thereof).
Prior to investing in (or otherwise holding an exposure to) a “securitisation position” (as defined in the UK Securitization Regulation), a UK Institutional Investor, other than the originator, sponsor or original lender (each as defined in the UK Securitization Regulation), must, among other things: (a) verify that, where the originator or original lender is established in a third country (i.e. not within the UK), the originator or original lender grants all the credits giving rise to the underlying exposures on the basis of sound and well-defined criteria and clearly established processes for approving, amending, renewing and financing those credits and has effective systems in place to apply those criteria and processes to ensure that credit-granting is based on a thorough assessment of the obligor’s creditworthiness; (b) verify that, if established in the third country (i.e. not within the UK), the originator, sponsor or original lender retains on an ongoing basis a material net economic interest that, in any event, shall not be less than 5%, determined in accordance with Article 6 of the UK Securitization Regulation, and discloses the risk retention to the affected investors; (c) verify that, where established in a third country (i.e. not within the UK), the originator, sponsor or relevant securitization special purpose entity, where applicable, made available information that is substantially the same as that which it would have made available under Article 7 of the UK Securitization Regulation (which sets out certain transparency requirements) if it had been established in the UK and has done so with such frequency and modalities as are substantially the same as those with which it would have made information available if it had been established in the UK; and (d) carry out a due-diligence assessment that enables the UK Institutional Investors to assess the risks involved, considering at least (i) the risk characteristics of the securitisation position and the underlying exposures and (ii) all the structural features of the securitization that can materially impact the performance of the securitisation position.
We and Cleco Power do not believe that the storm recovery bonds fall within the definition of a “securitization” for purposes of the EU Securitization Regulation or the UK Securitization Regulation as there is no tranching of credit risk associated with exposures under the transactions described in this prospectus. Therefore, we and Cleco Power believe such transactions are not subject to the European Securitization Rules or the UK Securitization Rules. As such, neither we nor Cleco Power, nor any other party to the transactions described in this prospectus, intend, or are required under the transaction documents, to retain a material net economic interest in respect of such transactions, or to take, or to refrain from taking, any other action, in a manner prescribed or contemplated by the European Securitization Rules or the UK Securitization Rules. In particular, no such Person undertakes to take, or to refrain from taking, any action for purposes of compliance by any investor (or any other Person) with any requirement of the European Securitization Rules or the UK Securitization Rules to which such investor (or other Person) may be subject at any time.
However, if a competent authority were to take a contrary view and determine that the transactions described in this prospectus do constitute a securitization for purposes of the EU Securitization Regulation or the UK Securitization Regulation, then any failure by an EU Institutional Investor or a UK Institutional Investor (as applicable) to comply with any applicable European Securitization Rules or UK Securitization Rules (as applicable) with respect to an investment in the storm recovery bonds may result in the imposition of a penalty regulatory capital charge on that investment or of other regulatory sanctions and remedial measures.
Consequently, the storm recovery bonds may not be a suitable investment for EU Institutional Investors or UK Institutional Investors. As a result, the price and liquidity of the storm recovery bonds in the secondary market may be adversely affected.
Prospective investors are responsible for analyzing their own legal and regulatory position and are advised to consult with their own advisors and any relevant regulator or other authority regarding the scope, applicability and compliance requirements of the European Securitization Rules and the UK Securitization Rules, and the suitability of the storm recovery bonds for investment. Neither we nor Cleco Power, nor any other party to the transactions described in this prospectus, make any representation as to any such matter, or have any liability to any investor (or any other Person) for any non-compliance by any such Person with the European Securitization Rules, the UK Securitization Rules or any other applicable legal, regulatory or other requirements.
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Pursuant to the rules of the SEC, Cleco Power, as sponsor, has performed, as described below, a review of the storm recovery property underlying the storm recovery bonds. As required by these rules, the review was designed and effected to provide reasonable assurance that disclosure regarding the storm recovery property is accurate in all material respects. Cleco Power did not engage a third party in conducting its review.
The storm recovery bonds will be secured under the indenture by the indenture’s trust estate. The principal asset of the indenture’s trust estate is the storm recovery property. The storm recovery property is a present contract right authorized and created pursuant to the securitization provisions of the Securitization Act and an irrevocable financing order. The storm recovery property includes the irrevocable right to impose, bill, charge, collect and receive nonbypassable storm recovery charges in amounts sufficient to pay scheduled principal and interest and ongoing financing costs in connection with the storm recovery bonds, but excludes the Retained Rights of Cleco Power. The storm recovery charges are payable by all existing and future Louisiana commission jurisdictional customers who remain attached to Cleco Power’s (or its successor’s) electric transmission and distribution lines and who, via such lines and subject to certain limitations specified in the securitization provisions of the Securitization Act and the financing order, receive any type of service from Cleco Power (or its successor) under rate schedules or special contracts approved by the Louisiana commission. During the twelve months ended December 31, 2021, approximately 25% of Cleco Power’s total deliveries in the Louisiana commission jurisdictional area were to industrial customers, approximately 30% were to commercial customers and approximately 43% were to residential customers. During this period, approximately 88% were to retail customers at distribution voltage and 12% were to customers at transmission voltage. During this period, the State of Louisiana and other federal, state and local governmental entities comprised approximately 2% of Cleco Power’s total retail electric revenues in the Louisiana commission jurisdictional area.
The storm recovery property is not a static pool of receivables or assets. Storm recovery charges authorized in the financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Louisiana commission except that storm recovery charges are subject to annual and semi-annual and other interim true-up adjustments to correct over-collections or under-collections and to provide the expected recovery of amounts sufficient to timely provide all scheduled payments of debt service and other required amounts and charges in connection with the storm recovery bonds. There is no “cap” on the level of storm recovery charges that may be imposed on consumers of electricity to meet scheduled principal of and interest on the storm recovery bonds. All revenues and collections resulting from storm recovery charges provided for in the financing order are part of the storm recovery property. The storm recovery property is described in more detail under “Description of the Storm Recovery Property” in this prospectus.
In the financing order, the Louisiana commission, among other things:
• | orders that Cleco Power, as servicer, shall impose and collect from all Louisiana commission-jurisdictional customers required to pay or collect storm recovery charges under the financing order, storm recovery charges in an amount sufficient to provide for the timely recovery of Cleco Power’s costs approved in the financing order (including payment of principal and interest on the storm recovery bonds and financing costs related to the storm recovery bonds on a timely basis), |
• | orders that upon the transfer of the storm recovery property to us by Cleco Power, we shall be the owner of the rights to the storm recovery property and that Cleco Power as servicer is merely the collection agent for us, and |
• | pledges that it will act under the financing order as expressly authorized by the securitization provisions of the Securitization Act to ensure the projected recovery of storm recovery charge revenues are sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all other financing costs. |
Please read “The Securitization Act” and “Cleco Power’s Financing Order” in this prospectus for more information.
The characteristics of storm recovery property are unlike the characteristics of assets underlying mortgage and other commercial asset securitizations because storm recovery property is a creature of statute and state regulatory commission proceedings. Because the nature and characteristics of the storm recovery property and many elements of the storm recovery bonds securitization are set forth and constrained by the securitization provisions of the Securitization Act, Cleco Power, as sponsor, does not select the assets to be securitized in ways
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common to many securitizations. Moreover, the storm recovery bonds do not contain origination or underwriting elements similar to typical mortgage or other loan transactions involved in other forms of asset-backed securities. The securitization provisions of the Securitization Act and the Louisiana commission require the imposition on, and collection of storm recovery charges from, existing and future electric customers located within Cleco Power’s service area that is within the jurisdiction of Louisiana commission, subject to limited exceptions. Since the storm recovery charges are assessed against all such customers and the true-up adjustment mechanism adjusts for the impact of customer defaults, the collectability of the storm recovery charges is not ultimately dependent upon the credit quality of particular Cleco Power customers, as would be the case in the absence of the true-up adjustment mechanism.
The review by Cleco Power of the storm recovery property underlying the storm recovery bonds has involved a number of discrete steps and elements as described in more detail below. First, Cleco Power has analyzed and applied the securitization provisions of the Securitization Act’s requirements for securitization of storm recovery costs in seeking approval of the Louisiana commission for the issuance of the financing order and in its application for a financing order with respect to the characteristics of the storm recovery property to be created pursuant to the financing order. In preparing this application, Cleco Power analyzed the terms of the previous securitization it sponsored under the same securitization provisions of the Securitization Act and the practical experience gained in structuring, issuing through a special purpose entity subsidiary and servicing the storm recovery bonds issued in that prior securitization. Cleco Power worked with its counsel and its structuring agent in preparing the application for a financing order and with the Louisiana commission on the terms of the financing order. Moreover, Cleco Power worked with its counsel, its structuring agent and counsel to the underwriters in preparing the legal agreements that provide for the terms of the storm recovery bonds and the security for the storm recovery bonds. Cleco Power has analyzed economic issues and practical issues for the scheduled payment of the storm recovery bonds and reviewed its prior securitization experience in terms of impacts of economic factors, potentials for disruptions due to weather or catastrophic events and its own forecasts for customer growth as well as the historic accuracy of its prior forecasts.
In light of the unique nature of the storm recovery property, Cleco Power has taken (or prior to the offering of the storm recovery bonds, will take) the following actions in connection with its review of the storm recovery property and the preparation of the disclosure for inclusion in this prospectus describing the storm recovery property, the storm recovery bonds and the proposed securitization:
• | reviewed the securitization provisions of the Securitization Act, the rules and regulations of the Louisiana commission as they relate to the storm recovery property in connection with the preparation and filing of the application with the Louisiana commission for the approval of the financing order in order to confirm that the application and proposed financing order satisfied applicable statutory and regulatory requirements; |
• | actively participated in the proceeding before the Louisiana commission relating to the approval of the requested financing order; |
• | compared the financing order, as issued by the Louisiana commission, to the securitization provisions of the Securitization Act and the rules and regulations of the Louisiana commission as they relate to the storm recovery property to confirm that the financing order met such requirements; |
• | compared the proposed terms of the storm recovery bonds to the applicable requirements in the securitization provisions of the Securitization Act, the financing order and the regulations of the Louisiana commission to confirm that they met such requirements; |
• | prepared and reviewed the agreements to be entered into in connection with the issuance of the storm recovery bonds and compared such agreements to the applicable requirements in the securitization provisions of the Securitization Act, the financing order and the regulations of the Louisiana commission to confirm that they met such requirements; |
• | reviewed the disclosure in this prospectus regarding the securitization provisions of the Securitization Act, the financing order and the agreements to be entered into in connection with the issuance of the storm recovery bonds, and compared such descriptions to the relevant securitization provisions of the Securitization Act, the financing order and such agreements to confirm the accuracy of such descriptions; |
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• | consulted with legal counsel to assess if there is a basis upon which the storm recovery bondholders (or the trustee acting on their behalf) could successfully challenge the constitutionality of any legislative action by the State of Louisiana (including the Louisiana commission) that could repeal or amend the securitization provisions of the Securitization Act that could substantially impair the value of the storm recovery property, or substantially reduce, alter or impair the storm recovery charges; |
• | reviewed the process and procedures in place for it, as servicer, to perform its obligations under the servicing agreement, including without limitation, billing and collecting the storm recovery charges to be provided for under the storm recovery property, forecasting storm recovery charge revenues, preparing and filing applications for true-up adjustments to the storm recovery charges and enforcing credit standards, and reviewed its experience and performance of such obligations as servicer under the previous securitization which it sponsored under the securitization provisions of the Securitization Act; |
• | reviewed the operation of the true-up mechanism for adjusting storm recovery charge levels to meet the scheduled payments on the storm recovery bonds and in this context took into account its experience with the Louisiana commission in implementing the true-up mechanism for the prior securitization for which it is the sponsor; and |
• | with the assistance of its structuring agent and the underwriters, prepared financial models in order to set the initial storm recovery charges to be provided for under the storm recovery property at a level sufficient to pay on a timely basis scheduled principal and interest on the storm recovery bonds. |
In connection with the preparation of such models, Cleco Power:
• | reviewed (i) the historical electric usage and customer growth within Cleco Power’s customer base and (ii) forecasts of expected energy sales and customer growth; |
• | reviewed its historical collection of storm recovery charges and storm recovery charges with respect to the Cleco Katrina/Rita Securitization Bonds, and reviewed the resulting payment history and semi-annual true-up adjustment experiences with respect to those bonds; and |
• | analyzed the sensitivity of the weighted average life of the storm recovery bonds in relation to variances in actual energy consumption levels (electric sales at distribution voltage) from forecasted levels and in relation to the true-up mechanism in order to assess the probability that the weighted average life of the storm recovery bonds may be extended as a result of such variances, and in the context of the operation of the true-up mechanism for adjustment of storm recovery charges to address under- or over-collections in light of scheduled payments on the storm recovery bonds. |
As a result of this review, Cleco Power has concluded that:
• | the storm recovery property, the financing order and the agreements to be entered into in connection with the issuance of the storm recovery bonds meet in all material respects the applicable statutory and regulatory requirements; |
• | the disclosure in this prospectus regarding the securitization provisions of the Securitization Act, the financing order and the agreements to be entered into in connection with the issuance of the storm recovery bonds is as of its date, accurate in all material respects; |
• | the servicer has adequate processes and procedures in place to perform its obligations under the servicing agreement; |
• | storm recovery charge revenues, as adjusted from time to time as provided in the securitization provisions of the Securitization Act and the financing order, are expected to be sufficient to pay on a timely basis scheduled principal and interest on the storm recovery bonds; and |
• | the design and scope of Cleco Power’s review of the storm recovery property as described above is effective to provide reasonable assurance that the disclosure regarding the storm recovery property in this prospectus is accurate in all material respects. |
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The Securitization Act defines storm recovery property as the rights and interests of an electric utility or successor or assignee of the electric utility under a financing order, including the right to impose, bill, charge, collect and receive storm recovery charges authorized in the financing order and to obtain periodic adjustments to such charges as may be provided in the financing order. The storm recovery bonds will be secured by the storm recovery property, as well as the other collateral described under “Description of the Storm Recovery Bonds—The Security for the Storm Recovery Bonds.”
In addition to the right to impose, bill, charge, collect and receive storm recovery charges, the financing order:
• | authorizes the transfer of the storm recovery property to us and the issuance of storm recovery bonds; |
• | establishes procedures for periodic true-up adjustments to storm recovery charges in the event of over-collection or under-collection; and |
• | provides and pledges that after the earlier of the transfer of the storm recovery property to an assignee or the issuance of storm recovery bonds authorized by the financing order, the financing order is irrevocable and may not be amended, modified, or terminated by any subsequent action of the Louisiana commission (except for the true-up mechanism adopted by the Louisiana commission or in connection with a refinancing or refunding). |
A form of issuance advice letter and a form of rate schedule are attached to the financing order. We will complete and file both documents with the Louisiana commission immediately after the pricing of the storm recovery bonds. The issuance advice letter confirms to the Louisiana commission the interest rate and expected sinking fund schedule for the storm recovery bonds and sets forth the actual dollar amount of the initial storm recovery charges as described below under “Cleco Power’s Financing Order—Issuance Advice Letter.” The Louisiana commission’s review of the issuance advice letter will be limited to determining that the final structuring, terms and pricing of the storm recovery bonds are consistent with the criteria established in the financing order and that the mathematical calculations are accurate.
The rate schedule establishes the initial storm recovery charges. It also implements the procedures for periodic adjustments to the storm recovery charges, the payment of storm recovery charges and the semi-annual procedures allowing Cleco Power as servicer to reconcile the amount of storm recovery charges remittances with the periodic payment requirement.
The storm recovery charges will be payable by all existing and future Louisiana commission-jurisdictional customers who remain attached to Cleco Power’s (or its successor’s) electric transmission or distribution lines, and who, via such lines, receive any type of service from Cleco Power’s (or its successor) under rate schedules or special contracts approved by the Louisiana commission.
For purposes of billing storm recovery charges, each customer will be designated as a customer belonging to one of the storm recovery charge customer classes set forth below. Under the terms of the financing order, Cleco Power will initially allocate the storm recovery charges among the storm recovery charge customer classes as follows:
Storm Recovery Charge Customer Classes
Storm Recovery Charge Customer Class | | | Allocation Percentage |
Residential | | | 50.56% |
General Non-Demand | | | 5.38% |
General Secondary | | | 23.33% |
General Primary | | | 7.21% |
School & Church Non-Demand | | | 0.44% |
School & Church Demand | | | 3.32% |
Municipal | | | 1.19% |
Large Power | | | 5.22% |
Standby Power Subscription | | | 0.39% |
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Storm Recovery Charge Customer Class | | | Allocation Percentage |
Standby Power Back-up | | | 0.57% |
Standby Power Maintenance | | | 0.31% |
Unmetered and OLS (Outdoor Lighting Service) | | | 2.07% |
Total | | | 100.00% |
* | Totals may not add up due to rounding. |
The nonbypassable charge applicable to each storm recovery charge customer class for any period will be determined based on the allocation percentage of such class, the amount necessary to make payments on the storm recovery bonds for the related period, and the most recent annual base revenue forecast. The true-up adjustment methodology approved in the financing order requires that any delinquencies or under-collections in one customer class will be taken into account in the application of the true-up mechanism to adjust the storm recovery charges for all customers, not just the class of customers from which the delinquency or under-collection arose.
The percentage of the total bill received by an average customer that such storm recovery charges represent, is set forth below. These storm recovery charges will be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Louisiana commission.
An estimate of the initial storm recovery charges for the storm recovery bonds would represent approximately 4% of the total bill received by a 1,000 kWh residential customer served at distribution voltage as of December 31, 2021.
Generally, bills are rendered monthly to all customers and are payable within 20 days from date of bill. Residential and most commercial customers are billed in established cycles, with the total number of days between meter readings ranging from 28 to 32 days. Commercial and industrial customers with more complex billing arrangements (normally dictated by contractual terms) are manually billed on a calendar month basis.
Storm recovery charges will be assessed by the servicer, for our benefit as owner of the storm recovery property, based on the total firm and standby load served by Cleco Power. Storm recovery charges will be collected by the servicer. Storm recovery charges will be deposited by the servicer into the collection account under the terms of the indenture and the servicing agreement. The servicer will deposit in the collection accounts payments of storm recovery charges each business day based on estimated daily collections (subject to subsequent reconciliation with actual customer receipts) in accordance with the procedures described below under “The Servicing Agreement —Remittances to Collection Account.”
If any customer does not pay the full amount of any bill to the servicer, Cleco Power, the amount paid by the customer will be applied to all charges on the bill, including without limitation electric service charges and all storm recovery charges under the financing order and all similar securitization charges, based, as to a bill with charges covering more than one month, on the chronological order of billing, and, as to those charges with the same billing date, pro rata. In addition, such partial collections representing storm recovery charges (including if the Company has issued multiple series of storm recovery bonds under separate financing orders) and any other similar securitization charges shall be allocated to the storm recovery bonds among all the securitization bonds on a pro rata basis, based upon the amounts billed with respect to each issuance of securitization bonds (including the storm recovery bonds), provided that late fees and charges may be allocated to the servicer as provided in the rate schedule.
The obligation to pay storm recovery charges is not subject to any right of set-off in connection with the bankruptcy of Cleco Power, as the seller, or any other entity. Storm recovery charges are “nonbypassable” in accordance with the provisions set forth in the Securitization Act and the financing order. If a distribution or transmission customer pays only a portion of its bill, a pro rata amount (based on all charges billed to such customer) of storm recovery charge revenues will be deemed to be collected. In the case of any shortfall, Cleco Power will allocate that shortfall, first, ratably based on the amount owed to Cleco Power or other parties (including those amounts associated with the storm recovery bonds and similar securitization charges) and the amount owed for other fees and charges, other than late charges, and, second, all remaining collections will be allocated to late charges. The obligation to continue to provide service and to collect and account for storm recovery charges will be binding upon Cleco Power and any other entity that provides transmission and distribution electric services to Cleco Power’s Louisiana commission-jurisdictional customers.
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In May 2006, the Louisiana Legislature established the Louisiana Electric Utility Storm Recovery Securitization Act, providing for a financing mechanism though which electric utilities can use securitization financing for storm recovery costs, including the financing of storm recovery reserves, by issuing “storm recovery bonds.” Storm recovery bonds must be approved in a financing order issued by the Louisiana commission. This provision of Louisiana law, the Securitization Act, as amended, is codified at La. R.S. 45:1226-1240. A Louisiana electric utility subject to the jurisdiction of the Louisiana commission needs to apply to the Louisiana commission in order for a financing order under the Securitization Act to authorize the issuance of storm recovery bonds.
Cleco Power’s service territories were impacted by three hurricanes in 2020 and one in 2021: Laura on August 27, 2020, Delta on October 9, 2020, Zeta on October 28, 2020, and Ida on August 29, 2021. Additionally in 2021, Cleco Power’s service territories were impacted by two winter ice storms: Uri on February 14, and Viola on February 17. Cleco Power has already funded and paid most of the storm recovery costs relating to these storms. Cleco Power applied for a financing order under the Securitization Act, which was issued by the Louisiana commission on April 1, 2022.
Under the Securitization Act and the financing order, Cleco Power’s customers will pay storm recovery charges, which are nonbypassable charges included in their monthly charges for electric service. Storm recovery charges will fund payments of principal and interest on the storm recovery bonds, together with related financing costs. Storm recovery charges will be collected by Cleco Power, as initial servicer, or its successor, as provided for in the financing order. Storm recovery charges are required to be adjusted at least semi-annually, and more frequently as necessary, to ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal, interest and other required amounts in connection with the storm recovery bonds during the subsequent 12-month period (or, in the case of certain quarterly true-up adjustments, the period ending on the next bond payment date).
Cleco Power and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs
We May Issue Storm Recovery Bonds to Recover Cleco Power’s Storm Recovery Costs.
Under the Securitization Act and the plenary power granted to the Louisiana commission under the Louisiana Constitution, the Louisiana commission may issue financing orders approving the issuance of storm recovery bonds, such as the storm recovery bonds, to recover certain costs of an electric utility, including storm recovery costs, costs associated with the issuance of storm recovery bonds and the cost of funding storm recovery reserves. A utility, its successors or a third-party assignee of a utility may issue storm recovery bonds. The Securitization Act requires the proceeds of the storm recovery bonds to be used for the purposes of recovering or financing storm recovery costs, financing costs and costs to replenish or fund storm recovery reserves, solely as determined by the Louisiana commission. The storm recovery bonds are secured by and payable from storm recovery property, which includes the right to impose, bill, charge, collect and receive storm recovery charges, to obtain periodic adjustments to such charges as provided in the financing order (but excludes the Retained Rights of Cleco Power) and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. The storm recovery property does not include Cleco Power’s rights to: recover prudently incurred storm recovery costs for additional Hurricane Laura related work in excess of the $1.4 million estimated amount in projected costs, to earn and recover the authorized rate of return on Cleco Power’s capital investment in us, or to receive the annual administrative fee and annual servicing fee and expenses under the contracts approved pursuant to the financing order (collectively, the “Retained Rights”). Under the financing order, the storm recovery bonds may have a legal maximum maturity of 23 years. Cleco Power’s 2022 revenue requirement order fixed a 29% transmission to 71% distribution functionalization of storm recovery costs. Under Cleco Power’s 2022 revenue requirement order, storm recovery costs generally are to be allocated to customers in the same manner as the corresponding facilities and related expenses are allocated in Cleco Power’s base rates, provided that Cleco Power’s Large Power Service customer class will be allocated none of the 71% distribution portion of the storm recovery cost revenue requirement. Storm recovery charges can be imposed only when and to the extent that storm recovery bonds are issued.
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The Securitization Act contains a number of provisions designed to facilitate the securitization of storm recovery costs and related upfront and ongoing financing costs.
Creation of Storm Recovery Property.
As authorized by the Securitization Act, and provided by the financing order, as of the effective date of the financing order, there was created and established for Cleco Power storm recovery property, which is a present contract right in favor of Cleco Power, its transferees and other financing parties, to impose, bill, charge, collect and receive storm recovery charges from Cleco Power’s customers.
A Financing Order is Irrevocable.
A financing order, once effective, together with the storm recovery charges authorized in such financing order, is irrevocable and not subject to amendment or modification by the Louisiana commission, except for adjustments pursuant to the Securitization Act in order to correct over-collections or under-collections and to ensure the projected recovery of amounts sufficient to provide timely payment of debt service and all other upfront and ongoing financing costs in connection with the related storm recovery bonds. Although a financing order is irrevocable, the Securitization Act allows for applicants to apply for one or more new financing orders to provide for retiring and refunding storm recovery bonds if such retirement or refunding would result in lower storm recovery charges.
State and Louisiana Commission Pledges.
The State of Louisiana has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana commission to create a present contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that would impair the value of the storm recovery property, or, except for adjustments discussed in “Cleco Power’s Financing Order—True-ups” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process,” reduce, impair, postpone, terminate or otherwise adjust the storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the related storm recovery bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”
The Louisiana commission has jurisdiction over Cleco Power pursuant to Article 4, Section 21, of the Louisiana Constitution. The plenary powers granted to the Louisiana commission under the Louisiana Constitution means that the Louisiana commission has power independent of the State legislature. Accordingly, independent from and in addition to the pledge contained in the Securitization Act, the Louisiana commission has pledged in the financing order that (i) the financing order is irrevocable until the indefeasible (i.e., not voidable) payment in full of the storm recovery bonds and the related financing costs, and (ii) it may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order, provided that nothing in clause (ii) shall preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”
To date, no federal or Louisiana cases addressing the repeal or amendment of securitization provisions analogous to those contained in the Securitization Act have been decided. There have been cases in which courts have applied the Contract Clause of the United States Constitution and the Contract Clause of the Louisiana Constitution to strike down legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing other types of bonds issued by public instrumentalities or private issuers, or otherwise substantially impairing or eliminating the security for bonds or other indebtedness. Based upon this
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case law, Phelps Dunbar, L.L.P., counsel to Cleco Power and us, expects to deliver an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that the State Pledge described above unambiguously indicates the State’s intent to be bound with the storm recovery bondholders and, subject to all of the qualifications, limitations and assumptions set forth in its opinion, supports the conclusion that the State Pledge constitutes a binding contractual relationship between the State and the storm recovery bondholders for purposes of both the Federal Contract Clause and Louisiana Contract Clause. Subject to all of the qualifications, limitations and assumptions set forth in its opinion, including that any impairment of the contract be “substantial,” Phelps Dunbar, L.L.P.’s opinion is expected to state that a reviewing court of competent jurisdiction would hold that the State of Louisiana could not constitutionally repeal or amend the Securitization Act or take any other action contravening the State Pledge and creating an impairment (without, as the Securitization Act requires, providing full compensation by law for the full protection of the storm recovery charges to be collected pursuant to the financing order and full protection of the storm recovery bondholders), unless such court would determine that such impairment clearly is a reasonable and necessary exercise of the State of Louisiana’s sovereign powers based upon reasonable conditions and of a character reasonable and appropriate to the emergency or other significant and legitimate public purpose justifying such action.
Phelps Dunbar, L.L.P., subject to all of the qualifications, limitations and assumptions (including the assumption that any impairment would be “substantial”) is expected also to set forth in its opinion, that a Louisiana state court reviewing an appeal of Louisiana commission action of a legislative character would conclude that the Louisiana commission pledge (i) creates a binding contractual obligation of the State of Louisiana for purposes of the Federal Contract Clause and the Louisiana Contract Clause and (ii) provides a basis upon which the storm recovery bondholders could challenge successfully on appeal any such action by the Louisiana commission of a legislative character, including the rescission or amendment of the financing order, that such court determines violates the Louisiana commission pledge in a manner that substantially reduces, limits or impairs the value of the storm recovery property including the storm recovery charges, prior to the time that the storm recovery bonds are fully paid and discharged, unless there is a judicial finding that the Louisiana commission action clearly is exercised for a public end and is reasonably necessary to the accomplishment of that public end so as not to be arbitrary, capricious or an abuse of authority.
In addition, any action of the Louisiana legislature adversely affecting the storm recovery property or the ability to collect storm recovery charges may be considered a “taking” under the United States or Louisiana Constitutions. Phelps Dunbar, L.L.P. has advised us that it is not aware of any federal or Louisiana court cases addressing the applicability of the Takings Clause of the United States or Louisiana Constitution in a situation analogous to that which would be involved in an amendment or repeal of the Securitization Act. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Securitization Act, since, for example, a court might determine that a Contract Clause analysis rather than a Takings Clause analysis should be applied. Assuming a Takings Clause analysis were applied under the United States Constitution or the Louisiana Constitution, Phelps Dunbar, L.L.P. expects to render an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that under existing case law, a reviewing court of competent jurisdiction would hold, subject to all of the qualifications, limitations and assumptions set forth in its opinion, if it concludes that the storm recovery property is protected by the Takings Clause of the United States Constitution and Takings Clause of the Louisiana Constitution, that the State would be required to pay just compensation to bondholders, as determined by such court, if the State Legislature repealed or amended the Securitization Act or took any other action contravening the State Pledge, if the court determines doing so constituted a permanent appropriation of a substantial property interest of the storm recovery bondholders in the storm recovery property and deprived the storm recovery bondholders of their reasonable expectations arising from their investments in the storm recovery bonds. In examining whether action of the Louisiana legislature amounts to a regulatory taking, both federal and state courts will consider the character of the governmental action, the economic impact of the governmental action on the storm recovery bondholders, and the extent to which the governmental action interferes with distinct investment-backed expectations. There is no assurance, however, that, even if a court were to award just compensation, it would be sufficient for you to recover fully your investment in the storm recovery bonds.
In connection with the foregoing, Phelps Dunbar, L.L.P. has advised us that issues relating to the Contract and Takings Clauses of the United States and Louisiana Constitutions are essentially decided on a case-by-case basis and that the courts’ determinations, in most cases, appear to be strongly influenced by the facts and circumstances of the particular case, and has further advised us that there are no reported controlling judicial
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precedents that are directly on point. The opinions described above will be subject to the qualifications included in them. The degree of impairment necessary to meet the standards for relief under a Takings Clause analysis or Contract Clause analysis could be substantially in excess of what a storm recovery bondholder would consider material.
In addition, Phelps Dunbar, L.L.P. expects to render an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that under existing case law, a reviewing court of competent jurisdiction would hold that the Securitization Act is constitutional in all material respects under the United States Constitution and, subject to all of the qualifications, limitations and assumptions set forth in its opinion, that the State Pledge does not constitute an impermissible attempt to “contract away” the police power of the State of Louisiana, and will not be disregarded under the reserved powers doctrine, and that the Securitization Act is constitutional in all material respects under the Louisiana Constitution.
We and Cleco Power will file a copy of the Phelps Dunbar, L.L.P. opinion as an exhibit to an amendment to the registration statement of which this prospectus is a part, or to one of our periodic filings with the SEC.
For a discussion of risks associated with potential judicial, legislation or regulatory actions, please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”
The Securitization Act authorizes the Louisiana commission to provide, and the Louisiana commission has provided, in the financing order, that storm recovery charges be adjusted at least semi-annually. The purposes of these adjustments are:
• | to correct any over-collections or under-collections during the preceding six months, and |
• | to ensure the projected recovery of amounts sufficient to provide timely payment of debt service and all other financing costs during the subsequent 12-month period in connection with the storm recovery bonds. |
The Securitization Act provides that the storm recovery charges are nonbypassable subject to the terms of the financing order. Under the financing order, “nonbypassable” means Cleco Power and any other entity providing electric transmission or distribution services are required to collect and must remit, consistent with the financing order, the nonbypassable storm recovery charges that are applied to all existing and future Louisiana commission-jurisdictional customers who remain attached to Cleco Power’s (or its successor’s) electric transmission or distribution lines, and who, via such lines, receive any type service from Cleco Power (or its successor) under rate schedules or special contracts approved by the Louisiana commission, even if the customer elects to purchase electricity from alternative electricity suppliers due to a fundamental change in the regulation of public utilities in Louisiana or due to any other reason. Any customer who self-generates or co-generates electricity will be assessed storm recovery charges based upon the total firm and standby load served by Cleco Power. Customers utilizing standby service will continue to pay a proportional share of the storm recovery charges, so that even accounts which require no energy usage on a monthly basis will pay some storm recovery charges. Any customer who completely severs interconnection with Cleco Power may become exempt from continued payment of the storm recovery charges. The Louisiana commission will ensure that such obligations are undertaken and performed by Cleco Power or any other entity providing electric transmission and distribution services, or in the event that transmission and distribution services are not provided by a single entity, by an entity providing transmission or distribution services to Cleco Power’s Louisiana commission-jurisdictional customers designated by the Louisiana commission in connection with an order relating to such split. If the retail sale and distribution of electricity in Louisiana becomes restructured so that customers may elect to receive their supply service from another provider, such selection of another provider will not allow such customers to bypass the storm recovery charge, so long as they continue to be attached to Cleco Power’s transmission or distribution lines. In the event of such restructuring, those customers who choose another provider for partial or full electricity supply requirements, but remain attached to Cleco Power transmission or distribution lines, would be assessed storm recovery charges at the highest peak demand imposed on Cleco Power’s system by demand metered customers and the highest peak consumption level of customers who are not demand metered, in each case during the twelve months immediately preceding the switch.
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The Securitization Act Protects the Storm Recovery Bondholders’ Security Interest on Storm Recovery Property
The Securitization Act provides that a valid and enforceable security interest in storm recovery property will attach only after the issuance of a financing order, the execution and delivery of a security agreement in connection with the issuance of the storm recovery bonds and the receipt of value for the storm recovery bonds. The security interest attaches automatically at the time when all of the foregoing conditions have been met.
Upon perfection by filing a financing statement, under Section 1231(D) of the Securitization Act and otherwise in accordance with the Louisiana Uniform Commercial Code, the security interest will be a perfected security interest in the storm recovery property and all proceeds of the storm recovery property, whether accrued or not, and will have priority in the order of perfection and take precedence over any subsequent lien creditor. The servicer pledges in the servicing agreement to file all necessary continuation statements.
The Securitization Act provides that priority of transfers of and security interests in storm recovery property will not be impaired by:
• | commingling of funds arising from storm recovery charges with other funds, or |
• | modifications to the financing order. |
Please read “Risk Factors—Risks Associated with the Unusual Nature of the Storm Recovery Property.”
The Securitization Act provides that an electric utility’s or an assignee’s transfer of storm recovery property is a “true sale” under Louisiana law and is not a secured transaction, and that the transferor’s right, title, and interest in, to, and under the storm recovery property passes to the transferee, if the agreement governing that transfer expressly states that the transfer is a sale or other absolute transfer. Please read “The Sale Agreement” and “Risk Factors— Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer.”
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Background. Cleco Power’s service territories were impacted by three hurricanes in 2020 and one hurricane in 2021: Laura on August 27, 2020, Delta on October 9, 2020, Zeta on October 28, 2020, and Ida on August 29, 2021. Additionally in 2021, Cleco Power’s service territories were impacted by two winter ice storms: Uri on February 14, and Viola on February 17. Cleco Power has already funded and paid most of the storm recovery costs relating to these storms. On August 5, 2021, Cleco Power made a filing with the Louisiana commission requesting authorization for Cleco Power to securitize its storm recovery costs for Hurricanes Laura, Delta, and Zeta, and Winter Storms Uri and Viola, including the financing of a storm recovery reserve. On September 28, 2021, Cleco Power made a supplemental filing with the LPSC requesting a separate storm reserve to cover costs associated with Hurricane Ida. On April 1, 2022, the Louisiana commission issued its final order determining that Cleco Power is entitled, pursuant to the Securitization Act, to finance, through the issuance of storm recovery bonds in the amount of up to $425.0 million, equal to the sum of: (a) up to $242.4 million of Louisiana commission-jurisdictional storm recovery costs, plus (b) the costs of funding a regular restricted storm recovery reserve in the amount of $100.9 million in a segregated restricted account for future storms, plus (c) the costs of funding a special Hurricane Ida restricted storm recovery reserve in the amount of $95.0 million in a separate segregated restricted account, plus (d) upfront financing costs, which are estimated and capped at $9.0 million, and are subject to further review by the Louisiana commission, plus or minus (e) adjustments, including reductions for certain items agreed by Cleco Power and the Louisiana commission staff and addition of carrying costs through June 30, 2022 (to be later reconciled and adjusted outside of the financing order), minus a portion of interim storm revenues collected by Cleco Power as required by Cleco Power's revenue requirement order, with such sum being further subject to any plus or minus adjustment pursuant to the issuance advice letter, including to reflect the costs of any approved credit enhancement. The financing order also authorized: (1) Cleco Power’s proposed financing structure and issuance of the storm recovery bonds; (2) creation of the storm recovery property, including the right for the imposition, collection and periodic adjustments of storm recovery charges sufficient to pay the storm recovery bonds and associated financing costs; (3) the sale of the storm recovery property by Cleco Power to us; (4) a rate schedule to implement the storm recovery charges; and (5) another rate schedule to implement a surcredit to provide customers the benefit of all non-ratepayer recoveries and to address ancillary cost recovery relating to the storm recovery cost process. The financing order became final and nonappealable no later than April 19, 2022 and the revenue requirement order became final and nonappealable no later than May 20, 2022.
We have filed the financing order with the SEC as an exhibit to the registration statement of which this prospectus forms a part.
The financing order provides that the true-up mechanism and all other obligations of the State of Louisiana and the Louisiana commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State of Louisiana and the Louisiana commission.
Issuance of Storm Recovery Bonds. The financing order authorizes Cleco Power to cause us to issue storm recovery bonds in an aggregate principal amount of up to $425.0 million.
Collection of Storm Recovery Charges. The financing order authorizes Cleco Power to collect storm recovery charges from its customers in an amount sufficient at all times to provide for recovery of Cleco Power’s remaining unrecovered storm recovery costs and upfront and ongoing financing costs, which include principal and interest and certain ongoing fees and expenses associated with the storm recovery bonds.
There is no “cap” on the level of storm recovery charges that may be imposed on customers to pay on a timely basis scheduled principal and interest on the storm recovery bonds. There is also no limit on how long storm recovery charges may be imposed; pursuant to the financing order, the charges will be imposed until the storm recovery bonds and all related financing costs have been paid in full.
Issuance Advice Letter. Following the determination of the final terms of the storm recovery bonds and prior to their issuance, Cleco Power is required to submit to the Louisiana commission no later than two (2) business days after the pricing of the storm recovery bonds an issuance advice letter, which will:
• | demonstrate compliance with the standards of the financing order, |
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• | evidence the actual financial terms on which the storm recovery bonds will be issued, including the estimated total upfront financing costs and the estimated ongoing financing costs of administrating and supporting the storm recovery bonds, |
• | to the extent necessary, adjust for the change in carrying costs to account for the number of days between the actual issuance date of the storm recovery bonds and the date used to calculate the storm recovery costs, , 2022, |
• | show the actual dollar amount of the initial storm recovery charges for each customer rate class relating to the storm recovery bonds, |
• | identify us, |
• | certify that the structure and pricing of the storm recovery bonds complies with the terms of the financing order, including without limitation, a certification attached to the issuance advice letter from each of the bookrunning underwriters providing that, based on its review of the final terms of the storm recovery bonds and its assumptions and qualifications stated therein, the marketing, pricing and structuring (including the sizing and principal amortization of each tranche of storm recovery bonds) have resulted in the lowest yield to bondholders consistent with market conditions at the time of pricing and the terms of the financing order, and |
• | provide an updated analysis of the net present value benefit to customers, and lower customer bills, each as compared to traditional methods of finance. |
Both the issuance advice letter and the accompanying rate schedule become effective on the date of issuance of the storm recovery bonds.
Subsequently, within one business day of receipt of the issuance advice letter, a designee of the Louisiana commission (the “designee”) shall either (a) approve the final terms, structuring and pricing of the transaction by executing a concurrence and delivering a copy to Cleco Power or (b) reject the issuance advice letter and state the reasons therefor. The designee’s review of and concurrence with the issuance advice letter will be limited to determining that (i) the final structuring, terms and pricing of the storm recovery bonds in the issuance advice letter are consistent with the criteria established in the financing order and (ii) the mathematical calculations are accurate. The designee shall approve the final issuance advice letter if he or she determines that those two standards are met and such approval will be final, irrevocable and incontestable without need of further action by the Louisiana commission. The designee’s approval by means of executing of a concurrence shall establish and evidence the binding approval by the Louisiana commission of the structuring, terms and pricing of the storm recovery bonds. A change in market conditions between the date and time of the actual pricing of the storm recovery bonds and that of the designee’s review of the issuance advice letter shall not constitute grounds for rejecting the issuance advice letter.
Rate Schedules. We are required, prior to the issuance of any storm recovery charges, to complete and file rate schedules in the form attached to the financing order. The rate schedules establish the initial storm recovery charges. They also implement the procedures for periodic adjustments to the storm recovery charges.
True-Ups. The financing order provides that storm recovery charges will be reviewed and adjusted semi-annually to:
• | correct, over a period of up to 12 months covering the next two succeeding bond payment dates, any under-collections or over-collections, for any reason, during the preceding six months, and |
• | ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all other required amounts in connection with the storm recovery bonds during the subsequent 12-month period (or in the case of quarterly true-up adjustments, the period ending on the next bond payment date). |
To the extent any storm recovery bonds remain outstanding after the scheduled final payment date of the storm recovery bonds, mandatory true-up adjustments will be made quarterly until all storm recovery bonds and associated financing costs are paid in full. In addition, the servicer may also make interim true-up adjustments more frequently at any time during the term of the storm recovery bonds:
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• | if the servicer forecasts that storm recovery charge collections will be insufficient to make on a timely basis all scheduled payments of interest and other financing costs in respect of the storm recovery bonds during the current or next succeeding payment period or bring all principal payments on schedule over the next two succeeding payment dates, and/or |
• | to replenish any draws upon the capital subaccount. |
If required by the ratings agencies to obtain the highest credit ratings, the servicing agreement may also provide for quarterly true-up adjustments as and when so required.
Any delinquencies or under-collections in one customer class will be taken into account in the true-up mechanism to adjust the storm recovery charges for all customers of Cleco Power, not just the class of customers from which the delinquency or under-collection arose.
The financing order requires the servicer to request Louisiana commission approval of an amendment to the true-up mechanism that it deems necessary or appropriate to address any material deviations between storm recovery charge collections and the periodic revenue requirement. No such change shall cause any of the then-current credit ratings of the storm recovery bonds to be suspended, withdrawn or downgraded.
The financing order provides that the true-up mechanism and all other obligations of the State of Louisiana and the Louisiana commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State of Louisiana and the Louisiana commission.
For more discussion of the true-up mechanism, see “The Servicing Agreement—Storm Recovery Charge Adjustment Process” in this prospectus.
Louisiana Commission Pledge. The State of Louisiana has pledged in the financing order that (i) the financing order is irrevocable until the indefeasible (i.e., not voidable) payment in full of the storm recovery bonds and (ii) it may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order, provided that nothing in clause (ii) shall preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party.
State Pledge and True-Up Mechanism. The State of Louisiana has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana commission to create a present contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that would impair the value of the storm recovery property, or, except for adjustments discussed in “—True-ups” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process,” reduce, alter or impair the storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”
Adjustments to Allocation of Storm Recovery Charges. The financing order provides that the allocation factors are reset annually for each customer rate class, in accordance with Cleco Power’s most recent annual base revenue forecast, for the distribution of the periodic billing requirement to each customer rate class, provided that Cleco Power’s Large Power Service customer class will not be allocated any of the distribution portion’s allocation of the storm recovery cost periodic billing requirements. The initial allocators will be determined in accordance with Cleco Power’s most recent annual base revenue forecast. The allocators will be reset in proportion to each customer class’ allocation percentage from the most recent base revenue forecast. The last utilized allocations will be used if no new allocations have been determined at a particular time. Adjustments to the allocation of the storm recovery charges will take place at the same time as one of the semi-annual true-up adjustments described above. Please read “—Additional Storm Recovery Bonds or Additional Other Similar Bonds.”
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Any delinquencies or under-collections in one customer class will be taken into account in the true-up mechanism to adjust the storm recovery charge for all customers of Cleco Power, not just the class of customers from which the delinquency or under-collection arose.
Servicing Agreement. In the financing order, the Louisiana commission authorized Cleco Power, as the initial servicer, to enter into the servicing agreement which is described under “The Servicing Agreement” in this prospectus.
Additional Storm Recovery Bonds or Additional Other Similar Bonds. Cleco Power, upon receipt of an additional financing order, may finance storm recovery costs through the issuance of additional storm recovery bonds issued by us or another subsidiary or affiliated entity of Cleco Power pursuant to a separate financing order and secured by separate storm recovery property. Our organizational documents, as well as the basic documents, give us the authority and flexibility to issue one or more series of additional storm recovery bonds authorized by additional financing orders and to acquire additional storm recovery property which will be pledged as collateral for any additional storm recovery bonds, subject to satisfaction of the rating agency condition, among other conditions precedent. Please read “Cleco Securitization I LLC, The Issuing Entity.”
In addition, Cleco Power has covenanted in the sale agreement that it will not sell storm recovery property or property comparable to the storm recovery property unless, among other conditions, the rating agency condition is satisfied and until it has entered into an intercreditor agreement. Please read “The Sale Agreement—Covenants of the Seller.”
Binding on Successors. The financing order, along with the storm recovery charges authorized in the financing order, is binding on:
• | Cleco Power, |
• | any successor to Cleco Power that provides transmission or distribution services to Cleco Power’s Louisiana commission-jurisdictional customers, and |
• | if Cleco Power or its successor no longer owns and operates both the transmission and distribution systems, then any entity that provides transmission or distribution services to Cleco Power’s Louisiana commission-jurisdictional customers designated by the Louisiana commission in connection with an order relating to such split. |
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Background Information. Cleco Power is a regulated electric utility engaged principally in the generation, transmission, distribution, and sale of electricity within Louisiana. As of December 31, 2021, Cleco Power owns 9 generating units with a total rated capacity of 3,035 MW and serves approximately 291,000 customers in Louisiana through its retail business. Additionally, Cleco Power supplies wholesale power in Louisiana and Mississippi. Cleco Power is a Louisiana limited liability company and a wholly owned subsidiary of Cleco Holdings, a public utility holding company. Cleco Power, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the “servicer,” will service the storm recovery property securing the storm recovery bonds under a servicing agreement with us. Neither Cleco Power nor Cleco Holdings nor any other affiliate (other than us) is an obligor on the storm recovery bonds.
Municipalization. Louisiana law authorizes municipalities to seek to acquire portions of an electric utility’s electric distribution facilities through voluntary transactions or the power of expropriation for use as part of municipally owned utility systems. The Securitization Act specifies that storm recovery charges approved by a financing order shall be collected by an electric utility as well as its “successors or assignees.” In the servicing agreement, Cleco Power has covenanted to assert in an appropriate forum that any municipality that acquires any portion of Cleco Power’s electric distribution facilities by expropriation, including upon the expiration of any franchise agreement, must be treated as a successor to Cleco Power under the Securitization Act and the financing order and that customers in such municipalities remain responsible for payment of storm recovery charges. However, the involved municipality might assert that it should not be treated as a successor to Cleco Power for these purposes and that its distribution customers are not responsible for payment of storm recovery charges. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—A municipal entity may seek to acquire portions of Cleco Power’s electric distribution facilities and avoid payment of the storm recovery charges” in this prospectus.
Service Territories. Cleco Power provides integrated electric utility services, including generation, transmission, distribution and sale of electricity, to approximately 291,000 customers in Louisiana. As of December 31, 2021, Cleco Power’s transmission system consisted of 1,384 miles of transmission lines and Cleco Power’s distribution system consisted of 12,192 miles of distribution lines. As of December 31, 2021, Cleco Power owned nine generating units with an aggregate net electric generating capacity of 2,889 MW. During 2021, Cleco Power generated 10,774 giga-watt hours of power with the following percentages of power generated from the following fuels: natural gas – 55.2%; petroleum coke – 23.9%; coal – 14.7%; lignite – 4.3%; and renewables – 1.9%. The map below sets forth Cleco Power’s service territories and the location of its electric generating units.
Environmental, Social, and Governance (ESG) Goals. Cleco Holdings, the parent company of Cleco Power, is accelerating its efforts to protect the environment, manage social relationships, govern responsibly, and ensure accountability. To protect the environment, Cleco Holdings aims to increase electrification initiatives and reduce greenhouse gas emissions by incorporating renewable energy resources into its generating fleet, as it replaces coal-fired generation units retired after serving their useful lives. Cleco Holdings aims to sustainably reduce its greenhouse gas emissions 60.0% by 2030 with aspirations of net zero emissions by 2050. To manage social
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relationships, Cleco Holdings plans to ensure that the electricity that it generates is affordable, reliable, and sustainable, as well as support community investment opportunities across its service territory and create a workforce culture that rewards inclusion, safety, and innovation. To govern responsibly, Cleco Holdings plans to continue operating according to the governance framework. To ensure accountability, Cleco Holdings has created an ESG Steering Committee and has appointed a Chief Sustainability Officer to oversee the continued implementation of the ESG goals.
Executive Offices. Cleco Power’s principal executive offices are located at 2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226. The phone number at this address is (318) 484-7400.
Where to Find Information About Cleco Power. Our sponsor and sole member, Cleco Power, together with Cleco Holdings, a public utility holding company that wholly owns Cleco Power, voluntarily files periodic reports with the SEC. These SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov. Our sponsor and sole member, Cleco Power, maintains a website at www.cleco.com, where it posts its and Cleco Holdings’ SEC filings. Except as provided in this prospectus, no other information contained on that website constitutes part of this prospectus.
From March 2008 to March 2020, Cleco Power sponsored and acted as servicer for the Katrina/Rita Securitization Bonds issued by Cleco Katrina/Rita Hurricane Recovery Funding LLC, which were issued in the original aggregate principal amount of $180.6 million. The Katrina/Rita Securitization Bonds were paid in full in March 2020. From the date of issuance of such bonds to their final maturity, Cleco Power filed on a timely basis all true-up filings required for such bonds, and the issuing entity of such bonds satisfied on a timely basis all interest payments on such bonds and made all principal payments on the such bonds in accordance with their expected amortization schedule.
Please read “Prior Experience Relating to Securitizations.” Cleco Power serviced the Katrina/Rita Securitization Bonds in accordance with servicing standards that were substantially similar to those set forth in Cleco Power’s servicing agreement with us.
The following tables show electric retail revenue, average retail customers and sales of electricity for each of Cleco Power’s customer classes for the five preceding years. There can be no assurances that the electric retail revenue, average number of retail customers and retail electricity sales, or the composition of any of the foregoing, will remain at or near the levels reflected in the following tables.
Retail Revenue by Customer Class
($000)
| | | Year ended December 31, | |||||||||||||
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Residential | | | $403,760 | | | $437,808 | | | $415,441 | | | $402,049 | | | $453,873 |
Commercial | | | 276,819 | | | 289,046 | | | 289,221 | | | 256,964 | | | 294,553 |
Industrial | | | 154,624 | | | 167,119 | | | 149,722 | | | 137,921 | | | 175,135 |
Other | | | 35,910 | | | 38,735 | | | 37,178 | | | 16,674 | | | 16,105 |
Total | | | $871,113 | | | $932,708 | | | $891,562 | | | $813,608 | | | $939,666 |
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Average Retail Customers by Customer Class(1)
| | | Year ended December 31, | |||||||||||||
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Residential | | | 247,635 | | | 248,168 | | | 245,969 | | | 247,357 | | | 248,376 |
Commercial | | | 39,033 | | | 39,028 | | | 38,485 | | | 39,153 | | | 39,482 |
Industrial | | | 573 | | | 568 | | | 540 | | | 565 | | | 539 |
Other | | | 2,971 | | | 2,976 | | | 2,927 | | | 2,946 | | | 2,973 |
Total | | | 290,212 | | | 290,740 | | | 287,921 | | | 290,021 | | | 291,370 |
(1) | Calculated as the average of the end-of-month customer counts for the applicable period. |
Retail Sales by Customer Class*
MWh
| | | Year ended December 31, | |||||||||||||
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Residential | | | 3,526,059 | | | 3,779,519 | | | 3,588,993 | | | 3,642,245 | | | 3,653,029 |
Commercial | | | 2,650,188 | | | 2,730,877 | | | 2,771,927 | | | 2,520,705 | | | 2,563,593 |
Industrial | | | 2,077,950 | | | 2,243,205 | | | 2,026,974 | | | 1,970,726 | | | 2,169,700 |
Other | | | 130,878 | | | 133,122 | | | 128,617 | | | 125,187 | | | 126,207 |
Total | | | 8,385,075 | | | 8,886,723 | | | 8,516,511 | | | 8,258,863 | | | 8,512,529 |
* | Numbers not exact due to rounding. |
For the year ended December 31, 2021, Cleco Power’s ten largest customers based on sales represented approximately 15% of Cleco Power’s retail electricity sales. All ten customers are industrial class accounts. There are no material concentrations in the residential and commercial classes.
For all classes, excluding residential and small commercial, Cleco Power forecasts electricity consumption based on trend and reasonable expectations of future growth. Past data for lighting and municipal customers is reviewed for any trends or patterns. Once a reasonable pattern becomes apparent, Cleco Power will assume this growth remains constant through the five forecast years. For Cleco Power’s larger industrial customers, Cleco Power will use three-year historical data and forecast these customers individually. Each individual customer’s historical data is reviewed to determine the most reasonable level to set growth in sales and demand by month.
Electricity consumption of Cleco Power’s residential and small commercial classes are forecasted using econometric models. The basic process to forecast electricity consumption of the residential and small commercial classes is to first derive a customer forecast. Use-per-consumer is estimated factoring in weather data and historical usage, and it is these two forecasts that calculate sales for the residential and small commercial class.
Economic drivers for the econometric models are obtained from Woods and Poole Economics, Washington, D.C., an independent firm that specializes in long-term county economic and demographic projections. The data includes both economic and demographic data for the State of Louisiana, as well as national data for a wide variety of economic variables. Weather data is obtained from the National Oceanographic and Atmospheric Administration (NOAA) and often is obtained in the form of cooling degree days and heating degree days. Normal degree days used in forecasts are defined by NOAA and are 30-year averages updated every decade.
Once per year (typically in the fourth quarter), Cleco Power completes a five-year sales forecast where the econometric models are completely re-estimated and where individual customers are evaluated. The output of this exercise is the sales forecast that underlies Cleco Power’s annual five-year business plan. This forecast is typically the first step in a multi-stage planning process that determines the hourly demand, generation mix, and fuel cost assumptions in the business plan.
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Annual Forecast Variance For Electric Consumption (MWh)*
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Residential | | | | | | | | | | | |||||
Forecast | | | 3,724,658 | | | 3,745,522 | | | 3,735,719 | | | 3,756,039 | | | 3,777,999 |
Actual | | | 3,526,059 | | | 3,779,519 | | | 3,588,993 | | | 3,642,245 | | | 3,653,029 |
Variance | | | -5% | | | 1% | | | -4% | | | -3% | | | -3% |
Commercial | | | | | | | | | | | |||||
Forecast | | | 2,748,901 | | | 2,752,487 | | | 2,701,987 | | | 2,707,733 | | | 2,692,244 |
Actual | | | 2,650,188 | | | 2,730,877 | | | 2,771,927 | | | 2,520,705 | | | 2,563,593 |
Variance | | | -4% | | | -1% | | | 3% | | | -7% | | | -5% |
Industrial | | | | | | | | | | | |||||
Forecast | | | 2,087,463 | | | 2,137,888 | | | 2,226,871 | | | 2,195,077 | | | 2,244,201 |
Actual | | | 2,077,950 | | | 2,243,205 | | | 2,026,974 | | | 1,970,726 | | | 2,169,700 |
Variance | | | — | | | 5% | | | -9% | | | -10% | | | -3% |
Other | | | | | | | | | | | |||||
Forecast | | | 133,197 | | | 131,931 | | | 132,719 | | | 132,830 | | | 132,006 |
Actual | | | 130,878 | | | 133,122 | | | 128,617 | | | 125,187 | | | 126,207 |
Variance | | | -2% | | | 1% | | | -3% | | | -6% | | | -4% |
Total | | | | | | | | | | | |||||
Forecast | | | 8,694,219 | | | 8,767,828 | | | 8,797,296 | | | 8,791,679 | | | 8,846,450 |
Actual | | | 8,385,075 | | | 8,886,723 | | | 8,516,511 | | | 8,258,863 | | | 8,512,529 |
Variance | | | -4% | | | 1% | | | -3% | | | -6% | | | -4% |
* | Forecast sales are temperature normal. Numbers not exact due to rounding. |
Under its emergency powers, the State legislature or the Louisiana commission could impose a moratorium on the payment of consumer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana commission, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the LPSC issued an order ending the moratorium on disconnections effective July 16, 2020. Cleco Power resumed disconnections and late fees beginning October 1, 2020. Any such additional action could result in a shortfall or material delay in storm recovery charge collections, which in turn might result in missed or delayed payments of principal and interest, lengthened weighted average life of the storm recovery bonds and downgrade of the credit ratings on the storm recovery bonds.
Cleco Power bills its customers directly, and its current credit policies, billing process, and termination of service policies are described below. All information below pertains only to Cleco Power’s customers.
Credit Policy
Cleco Power is required to provide electric utility service to applicants within its designated service territories once outstanding debts are cleared and any deposit requirements are met. Using information provided by the Customer Information System (CORS, Cleco Power’s Customer Order Request System), Cleco Power determines whether Cleco Power has previously provided service to an applicant. Certain accounts are secured with deposits or guarantees as a precautionary measure. The amount of the deposit for residential customers is $100.00 if property is owned by the customer and $150.00 for rental property and can be up to 2 times the maximum monthly bill. Cleco Power does not accept third party guarantors for commercial accounts. Cleco Power’s current business practices require industrial and commercial customers to provide deposits equal to two times the average monthly bill based on the location history.
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Louisiana commission rules require Cleco Power to pay simple interest at a rate determined annually, currently, at a rate of 5.00% for any cash deposits held by Cleco Power on a customer’s account. Cash deposits are accounted for as an obligation, but are not required to be escrowed, and are available in working capital.
Billing Process
Cleco Power bills its customers, on average, every 30 days. For the year ended December 31, 2021, Cleco Power mailed an average of 15,547 bills on each business day to its customers. For accounts with potential billing error exceptions, reports are generated for manual review. This review examines accounts that have abnormally high or low bills, potential meter reading errors, possible meter malfunctions and/or unbilled accounts. Louisiana commission rules require that each bill provided to customers shall include a payment due date that shall not be less than 20 days after issuance. Cleco Power’s billing system is designed to identify special tariffs and collections. Cleco Power, by order of the Louisiana commission, is required to identify various charges, including the storm recovery charge, on its customers’ bills as specific line items. Cleco Power tracks collection of various fees and tariffs to ensure that collections are aligned with their intended purpose.
Collection, Termination of Service and Write-Off Policy
In 2021, Cleco Power received approximately 18% of payments by mail, 15% from walk-in payments, and 68% electronically, either bank draft or electronic funds transfer. Walk-in payments are accepted by thirteen customer service offices located throughout our service territories.
Customer bills are due and payable upon receipt and considered past due if not paid within 20 calendar days from the bill date. If the bill is not paid by the date indicated on the statement, and the customer’s payment history makes the past-due amount eligible for collection activity, a disconnect notice is generated on the 10th calendar day after the past due date. The disconnect notice gives the customer an additional 10 calendar days to pay the bill. On the last day to pay indicated on the disconnect notice, a courtesy call may be attempted by the Customer Service Office. If the bill is not paid or if the customer has not called for extended payment arrangements, a disconnect order will be generated on the next business day. If the customer is disconnected, payment of the past due amount is required prior to restoration of service. In addition, the customer may be subject to an additional deposit and/or reconnection fee.
The rules and regulations of the Louisiana commission (which may change from time to time) regulate and control the right to disconnect service. For example, electric utilities generally may not terminate service to a customer (i) on a holiday or weekend, or (ii) during certain extreme weather conditions.
Cleco Power provides several payment options to customers including mail-in payments, telephone payments, electronic payments via third parties, and payments in Cleco Power’s customer service offices. Cleco Power customer service representatives in the call center and customer service offices are available during the week, while the Interactive Voice Response (IVR) is available 24/7. Most customers can receive an extension on their scheduled disconnect date through the IVR or by talking with a customer service representative. Extensions are denied in some cases based on the payment history of the account. Programs such as Budget Billing allow residential and some commercial customers to better manage their bill by averaging their energy costs over a 12-month period.
Write-off and Delinquency Experience
The following table shows gross write-offs for electricity and gross write-offs as a percentage of total retail revenue for the past five years for Cleco Power’s customers.
Gross Write-Offs as a Percentage of Retail Revenues*
| | | Year ended December 31, | |||||||||||||
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Total Retail Revenues ($000) | | | $871,113 | | | $932,708 | | | $891,562 | | | $813,608 | | | $939,666 |
Gross Write-Offs ($000) | | | $3,936 | | | $2,429 | | | $2,721 | | | $4,877 | | | $6,920 |
Percentage of Total Retail Revenue | | | 0.45% | | | 0.26% | | | 0.31% | | | 0.60% | | | 0.74% |
* | Numbers not exact due to rounding. |
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The following table shows, for its service territories, total Cleco Power net write-offs for electricity and total net write-offs as a percentage of total retail revenue for the past five years. Net write-offs include amounts recovered by Cleco Power from deposits, bankruptcy proceedings and payments received after an account has been either written-off by Cleco Power or transferred to one of its external collection agencies.
Net Write-Offs as a Percentage of Retail Revenues*
| | | Year ended December 31, | |||||||||||||
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
Total Retail Revenues ($000) | | | $871,113 | | | $932,708 | | | $891,562 | | | $813,608 | | | $939,666 |
Net Write-Offs ($000) | | | $3,136 | | | $1,610 | | | $2,129 | | | $3,906 | | | $5,578 |
Percentage of Total Retail Revenue | | | 0.36% | | | 0.17% | | | 0.24% | | | 0.48% | | | 0.59% |
* | Numbers not exact due to rounding. |
Delinquencies
The following table sets forth information relating to the delinquency experience of Cleco Power for residential, commercial, industrial and governmental customers for the past five years:
Delinquencies as a Percentage of Retail Revenues*
Delinquencies as a Percentage of Retail Revenues | | | | | | | | | | | |||||
As of December 31, | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 |
31 - 60 days past due | | | 0.06% | | | 0.04% | | | 0.21% | | | 0.14% | | | 0.13% |
61 - 90 days past due | | | 0.05% | | | 0.05% | | | 0.24% | | | 0.05% | | | 0.00% |
90+ days past due | | | N/A | | | N/A | | | 0.23% | | | 1.66% | | | 0.22% |
Total | | | 0.11% | | | 0.10% | | | 0.68% | | | 1.85% | | | 0.35% |
* | Delinquencies are calculated based upon the past due amounts as of December 31 for each year as a percentage of total billed electric retail revenue for the relevant year. Totals may not add due to rounding. Prior to 2019 and the implementation of SAP by Cleco Power, the legacy system grouped past due amounts of 91 days with past due amounts of 61-90 days. |
Cleco Power does not believe that the delinquency experience with respect to storm recovery charge collections will differ substantially from the approximate rates indicated above.
The following table sets forth information relating to Cleco Power’s average days sales outstanding for all electric consumers in its service territories for the past five years. Days sales outstanding is a measure of the average number of days that Cleco Power takes to collect its revenue. The average number of days for the collection of storm recovery charges relating to the storm recovery bonds is expected to be similar to Cleco Power’s revenue collection experience. The days sales outstanding numbers in the following table were generally calculated using a formula which we calculated as follows: on a billing cycle basis, the sum for all retail customers of the number of days between a bill being sent to a retail customer and such bill being paid multiplied by the amount of the bill paid by such retail customer, divided by the total amount paid by all retail customers for such billing cycle.
Average Days Sales Outstanding*
YEAR | | | Average Days Sales Outstanding |
2017 | | | 20 |
2018 | | | 20 |
2019 | | | 20 |
2020 | | | 21 |
2021 | | | 19 |
* | Numbers not exact due to rounding. Days Sales Outstanding excludes customers on deferred financing agreements/payment plans. |
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We are a special purpose limited liability company formed under the Louisiana Limited Liability Company Act pursuant to the limited liability company operating agreement executed by our sole member or owner, Cleco Power, and the filing of articles of organization with the Secretary of State of the State of Louisiana. We have filed our articles of organization and our limited liability company operating agreement with the SEC as exhibits to the registration statement of which this prospectus forms a part. We have summarized selected provisions of our limited liability company operating agreement below.
As of the date of this prospectus, we have not carried on any business activities and have no operating history. Our fiscal year is the calendar year. Immediately following the issuance of the storm recovery bonds, our assets will include:
• | the storm recovery property, |
• | our rights under the sale agreement, under the administration agreement and under the bill of sale delivered by Cleco Power pursuant to the sale agreement, |
• | our rights under the servicing agreement and any subservicing, agency, administration, intercreditor or collection agreements executed in connection with the servicing agreement, |
• | the collection account and all subaccounts of the collection account, |
• | all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and |
• | all payments on or under and all proceeds in respect of any or all of the foregoing. |
The indenture provides that the storm recovery property, as well as our other assets, other than any cash released to us by the trustee semi-annually from earnings on the capital subaccount, will be pledged by us to the trustee. Pursuant to the indenture, the collected storm recovery charges remitted to the trustee by the servicer must be used to pay principal and interest on the storm recovery bonds and our other obligations specified in the indenture.
We were created for the specific purposes of:
• | purchasing and owning storm recovery property and other storm recovery bond collateral, |
• | registering and issuing the storm recovery bonds and one or more series of additional storm recovery bonds, if any, |
• | pledging our interest in the storm recovery property and other storm recovery bond collateral to the trustee pursuant to the terms of the indenture in order to secure the storm recovery bonds, and if we issue any additional storm recovery bonds in the future, pledging our interest in storm recovery property created by an additional financing order relating to such additional storm recovery bonds and other collateral to the trustee of such additional storm recovery bonds under the indenture governing such additional storm recovery bonds in order to secure such additional storm recovery bonds, |
• | making payments on the storm recovery bonds and any series of additional storm recovery bonds we may issue in the future, if any, |
• | distributing amounts released to us, and |
• | performing other activities that are necessary, suitable or convenient to accomplish these purposes. |
Our limited liability company operating agreement does not permit us to engage in any activities not directly related to these purposes, including issuing securities (other than the storm recovery bonds and any series of additional storm recovery bonds we may issue in the future, if any), borrowing money or making loans to other persons. The list of permitted activities set forth in our limited liability company operating agreement may not be
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altered, amended or repealed without the affirmative vote of a majority of our managers, which vote must include the affirmative vote of our member and our independent manager.
On the date of issuance of the storm recovery bonds, Cleco Power will sell the storm recovery property to us pursuant to the sale agreement between us and Cleco Power. Pursuant to the servicing agreement between us and Cleco Power, Cleco Power will serve as the initial servicer of the storm recovery property. We will pay Cleco Power fixed fees for performing these services. Pursuant to an administration agreement between us and Cleco Power, Cleco Power will provide administrative services to us, for which we will also pay Cleco Power a fixed fee for performing these services.
Pursuant to our limited liability company operating agreement, our affairs will be managed by managers, whom we refer to in this prospectus as our “managers.” Cleco Power will appoint our managers from time to time or, in the event Cleco Power transfers its interest in us, the new owner or owners will appoint our managers. Prior to the issuance of the storm recovery bonds, and thereafter at all times until the storm recovery bonds are paid in full we will have at least one independent manager who, among other things, is not and has not been for at least five years prior to the date of his or her appointment:
• | a direct or indirect legal or beneficial owner of us, Cleco Power, any of our affiliates or any of Cleco Power’s affiliates, |
• | a relative, supplier, employee, officer, director or manager (other than as an independent director or manager of us), contractor or material creditor of us, Cleco Power or any of its affiliates, or |
• | a person who controls Cleco Power or any of its affiliates (whether directly, indirectly or otherwise) or any creditor, employee, officer, director, manager or material supplier or contractor of Cleco Power or its affiliates (other than as an independent director or manager of any other bankruptcy-remote subsidiary of Cleco Power or its affiliates); provided, that the indirect or beneficial ownership of stock of Cleco Power or its affiliates through a fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an independent manager. |
The managers (other than the independent manager) will be employees or officers of Cleco Power. The managers will devote the time necessary to conduct our affairs. Cleco Power, as our sole member, will appoint the independent manager prior to the issuance of the storm recovery bonds. Kevin P. Burns is expected to be appointed as the independent manager. In connection with this appointment, we, Mr. Burns, his employer, and Cleco Power entered into a services and indemnity agreement.
None of our managers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K.
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The following is a list of our managers as of the date of this prospectus and Mr. Burns who is expected to be appointed as the independent manager by Cleco Power, as our sole member, prior to the issuance of the storm recovery bonds:
Name | | | Age | | | Background |
William G. Fontenot (Manager) | | | 59 | | | President and Chief Executive Officer of Cleco Holdings since January 2018; Chief Executive Officer of Cleco Power since February 2019; President and Chief Executive Officer of Cleco Power from January 2018 to February 2019; Interim Chief Executive Officer of Cleco Power from February 2017 to December 2017; Chief Operating Officer of Cleco Power from April 2016 to February 2017 |
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F. Tonita Laprarie (Manager) | | | 56 | | | Controller and Chief Accounting Officer of Cleco Holdings and Cleco Power since July 2016; Interim Chief Financial Officer of Cleco Holdings and Cleco Power from May 2021 to July 2021 |
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Samantha McKee (Manager) | | | 42 | | | Assistant Treasurer of Cleco Holdings and Cleco Power since March 2021; Director – Tax of Cleco Holdings and Cleco Power from June 2018 to March 2021; Manager – Accounting Services of Cleco Holdings and Cleco Power from May 2016 to June 2018 |
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Stacy Stubbs (Manager) | | | 54 | | | Special Projects Advisor of Cleco Holdings and Cleco Power since May 2018; Manager – Tax of Cleco Holdings and Cleco Power from November 2013 to May 2018 |
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Kevin P. Burns (Independent Manager) | | | 52 | | | President and Co-founder of Global Securitization Services, LLC since 1996. Fortune 1000 companies have selected Mr. Burns to serve as independent director for their special purpose vehicle subsidiaries established to finance commercial real estate, energy infrastructure and many classes of financial assets. |
As of the date of this prospectus, we have not paid any compensation to any manager since the date we were formed. We will not compensate our managers, other than our independent manager, for their services performed on our behalf. The independent manager will be paid a manager’s fee from our assets. In the event that one or more series of additional storm recovery bonds is issued by us in the future, the administration fees, independent manager fees and other operating expenses payable by us on a payment date will be assessed to each such series of storm recovery bonds on a pro rata basis, based upon the respective outstanding principal amounts of each series.
Our limited liability company operating agreement provides that to the extent permitted by law, our managers will not be liable for our debts, obligations or liabilities.
Under our limited liability company operating agreement, we indemnify our managers to the fullest extent permitted by law against expenses incurred by them in connection with an action, suit or proceeding if they acted in good faith and in a manner in which they reasonably believed to be in or not opposed to our best interests, except for such judgments, penalties, fines or other expenses that were directly caused by their fraud, gross negligence or willful misconduct.
Under our limited liability company operating agreement, we may not file a voluntary petition for relief under the Bankruptcy Code without prior unanimous consent of our managers (including our independent manager). Cleco
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Power has agreed that it will not cause us to file a voluntary petition for relief under the Bankruptcy Code and, further, that it will not withdraw from or otherwise cease to be our member unless an acceptable new member is substituted until all storm recovery bonds issued pursuant to the financing order and all financing costs have been paid in full. Our limited liability company operating agreement, except for financing reporting purposes and for federal and state income tax purposes, requires us to:
• | take all steps necessary to continue our identity as a separate legal entity, |
• | make it apparent to third persons that we are an entity with assets and liabilities distinct from those of Cleco Power, other affiliates of Cleco Power, our managers or any other person, and |
• | make it apparent to third persons that we are not a division of Cleco Power or any of its affiliates or any other person. |
Our principal place of business is 505 Cleco Drive, Office Number 16, Pineville, Louisiana 71360, and our telephone number at such address is (318) 484-4183.
Cleco Power will, pursuant to an administration agreement between Cleco Power and us, provide administrative services to us, including services relating to the preparation of financial statements, required filings with the SEC, any tax returns we might be required to file under applicable law, qualifications to do business, and minutes of our managers’ meetings. We will pay Cleco Power a fixed fee of $100,000 per annum, which shall be prorated based on the fraction of a calendar year during which Cleco Power provides any of the services set forth in the administration agreement, on each payment date for performing these services, plus we will reimburse Cleco Power for all costs and expenses for services performed by unaffiliated third parties and actually incurred by Cleco Power in performing such services. In the event that one or more series of additional storm recovery bonds is issued by us in the future, we may amend the administration agreement between Cleco Power and us such that Cleco Power will provide administrative services to us with respect to any additional storm recovery bonds issued in connection with an additional financing order. In connection with any such amendments to the administration agreement, we will pay Cleco Power a fixed fee that will be paid pro rata as between the storm recovery bonds and any such additional series of storm recovery bonds issued in connection with an additional financing order.
The storm recovery bonds are the second issuance of storm recovery bonds Cleco Power has sponsored that are secured by storm recovery property created under the Securitization Act. The prior issuance of storm recovery bonds was made in March 2008, by Cleco Katrina/Rita Hurricane Recovery Funding LLC, a special purpose, wholly owned subsidiary of Cleco Power. The storm recovery property securitized in the prior transaction by Cleco Power enabled Cleco Power to recover its costs of capital associated with the two worst natural disasters ever to strike its system to that date, Hurricanes Katrina and Rita. The statutory framework with respect to the right to recover costs and regarding securitization are the same here as they were in the prior securitization. The Katrina/Rita Securitization Bonds were repaid in full in March 2020. Final interest and principal payments on the Katrina/Rita Securitization Bonds were paid on a timely basis, with all payments of principal made in accordance with the expected amortization schedules.
Cleco Power will be the initial servicer of the storm recovery bonds. Beginning on the first day of the first billing cycle of the revenue month for Cleco Power that begins at least forty-five (45) days after the date we issue the storm recovery bonds (which date shall not occur prior to the third business day after pricing of the storm recovery bonds), the initial storm recovery charges listed in the table below will be imposed on Cleco Power’s customers in each storm recovery charge customer class at the applicable rate for the class determined pursuant to the financing order. These storm recovery charges may be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Louisiana commission. Please read “Cleco Power’s Financing Order” in this prospectus.
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Initial Storm Recovery Charges
Storm Recovery Charge Customer Class | | | Initial Storm Recovery Charge Rate |
Residential | | | $ per month/$ per kWh |
General Non-Demand | | | $ per month/$ per kWh |
General Secondary | | | $ per kW |
General Primary | | | $ per kW |
School & Church Non-Demand | | | $ per month/$ per kWh |
School & Church Demand | | | $ per kW |
Municipal | | | $ per month/$ per kWh |
Large Power | | | $ per kW |
Standby Power Subscription | | | $ per kW |
Standby Power Back-up | | | $ per kW |
Standby Power Maintenance | | | $ per kW |
Unmetered and OLS (Outdoor Lighting Service) | | | $ per kWh |
During the twelve months ended December 31, 2021, approximately 25% of Cleco Power’s total deliveries (based on MWh) were to industrial customers (includes General Non-Demand, General Secondary, General Primary, Large Power, Standby Power Subscription, Standby Power Back-up and Standby Power Maintenance customer classes noted above), approximately 30% were to commercial customers (includes General Non-Demand, General Secondary, General Primary, School & Church Non-Demand and School & Church Demand customer classes noted above) and approximately 43% were to residential customers.
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We have summarized selected provisions of the indenture and the storm recovery bonds below. This summary is subject to the terms and provisions of the indenture and the series supplement for the storm recovery bonds, forms of which we have filed with the SEC as an exhibit to the registration statement of which this prospectus forms a part. You should carefully read the summary below and the terms and provisions of the indenture that may be important to you before investing in the storm recovery bonds. Please read “Where You Can Find More Information” in this prospectus.
The storm recovery bonds are not a debt, liability or other obligation of the State of Louisiana, the Louisiana commission or of any other political subdivision, governmental agency, authority or instrumentality of the State of Louisiana and do not represent an interest in or legal obligation of Cleco Holdings, Cleco Power or any of their affiliates, other than us. None of Cleco Holdings, Cleco Power or any of their affiliates will guarantee or insure the storm recovery bonds. The financing order authorizing the issuance of the storm recovery bonds does not constitute a pledge of the full faith and credit of the State of Louisiana, the Louisiana commission or of any other political subdivision of the State. The issuance of the storm recovery bonds under the Securitization Act will not directly, indirectly or contingently obligate the State of Louisiana, the Louisiana commission or any other political subdivision of the State to levy or to pledge any form of taxation for the storm recovery bonds or to make any appropriation for their payment.
We will issue the storm recovery bonds and secure their payment under an indenture that we will enter into with the Trustee. We will issue the storm recovery bonds in minimum denominations of $2,000 and in integral multiples of $1,000 in excess thereof, except that we may issue one bond in each tranche in a smaller denomination. The initial principal amount, scheduled final payment date, final maturity date and interest rate for each tranche of the storm recovery bonds are stated in the table below. In no event shall the scheduled final payment date for any tranche of the storm recovery bonds exceed 21 years from the date of issuance of the storm recovery bonds. The legal final maturity of any tranche of the storm recovery bonds shall not exceed 23 years from the date of issuance of the storm recovery bonds.
Tranche | | | Expected Weighted Average Life (Years) | | | Principal Amount Offered* | | | Scheduled Final Payment Date | | | Final Maturity Date | | | Interest Rate |
A-1 | | | | | $125,000,000 | | | | | | | % | |||
A-2 | | | | | $300,000,000 | | | | | | | % |
* | Principal amounts are approximate and subject to change. |
The scheduled final payment date for each tranche of the storm recovery bonds is the date when the outstanding principal balance of that tranche will be reduced to zero if we make payments according to the expected amortization schedule for that tranche. The final maturity date for each tranche of storm recovery bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding bonds of that tranche. The failure to pay principal of any tranche of storm recovery bonds by the final maturity date for that tranche is an event of default for the storm recovery bonds, but the failure to pay principal of any tranche of bonds by the respective scheduled final payment date will not be an event of default. Please read “—Payments of Interest and Principal on the Storm Recovery Bonds” and “—What Constitutes an Event of Default on the Storm Recovery Bonds” in this prospectus.
Interest will accrue on the principal balance of a tranche of storm recovery bonds at the interest rate of % with regard to the first tranche, and % with regard to the second tranche. Beginning March 1, 2023, we will make payments on the storm recovery bonds semi-annually on March 1 and September 1 of each year, or, if that day is not a business day, the following business day (each, a “payment date”). Interest payments on the storm recovery bonds will be made from collections of the storm recovery charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount.
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On each payment date, we will pay interest on each tranche of the storm recovery bonds equal to the following amounts:
• | any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any, and |
• | accrued interest on the principal balance of each tranche of the storm recovery bonds from the close of business on the preceding payment date, or the date of the original issuance of the storm recovery bonds, after giving effect to all payments of principal made on the preceding payment date, if any. |
We will pay interest on the storm recovery bonds before we pay principal on the storm recovery bonds. If there is a shortfall in the amounts available in the collection account to make interest payments on the storm recovery bonds, the trustee will distribute interest pro rata to each tranche of storm recovery bonds based on the amount of interest payable on each such outstanding tranche. We will calculate the interest on the storm recovery bonds on the basis of a 360-day year consisting of twelve 30-day months.
The failure to pay accrued interest on a tranche of storm recovery bonds on any payment date (even if the failure is caused by a shortfall in storm recovery charges received) will result in an event of default of storm recovery bonds unless such failure is cured within five business days. If interest is not paid within that five-day period, we will pay such defaulted interest (plus interest on such defaulted interest at the applicable interest rate to the extent lawful) to the persons who are storm recovery bondholders on a special record date (as defined in the indenture). The special record date will be at least fifteen business days prior to the date on which the trustee is to make a special payment (a special payment date). We will fix any special record date and special payment date and, at least 10 days before such special record date, we will mail to each affected storm recovery bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on such defaulted interest) to be paid. An event of default under any tranche of storm recovery bonds will automatically trigger an event of default under the storm recovery bonds. See “—What Constitutes an Event of Default on the Storm Recovery Bonds” below.
On any payment date with respect to the storm recovery bonds, we generally will pay principal of storm recovery bonds only until the outstanding principal balance has been reduced to the principal balance specified for that payment date in the expected amortization schedule for that tranche, but only to the extent funds are available. Accordingly, principal of any tranche of storm recovery bonds may be paid later, but generally not sooner, than reflected in the expected amortization schedule for such tranche, except in the case of an acceleration. Please read “Risk Factors—Other Risks Associated with an Investment in the Storm Recovery Bonds” and “Weighted Average Life and Yield Considerations for the Storm Recovery Bonds” in this prospectus.
The trustee will retain in the excess funds subaccount for payment on later payment dates any collections of storm recovery charges in excess of amounts payable as:
• | fees and expenses of the servicer (including the servicing fee), the independent manager and the trustee, |
• | payments of interest and principal on the storm recovery bonds, |
• | allocations to the capital subaccount, and |
• | investment earnings on amounts in the capital subaccount released to us. |
If the trustee receives insufficient collections of storm recovery charges for the storm recovery bonds for any payment date, and amounts in the collection account (and the applicable subaccounts of that collection account) are not sufficient to make up the shortfall, principal of a tranche of storm recovery bonds may be paid later than expected, as described in this prospectus. The failure to make a scheduled payment of principal on the storm recovery bonds of a tranche because there are not sufficient funds in the collection account does not constitute a default or an event of default under the indenture, except for the failure to make the scheduled payment of principal due upon the final maturity of that tranche of the storm recovery bonds.
The trustee will pay on each payment date to the storm recovery bondholders of a particular tranche to the extent of available funds in the collection account, all payments of principal and interest then due on such storm recovery bonds (other than special payments as defined in the indenture). The trustee will make each such payment to the storm recovery bondholders, other than the final payment, on the applicable payment date. If the storm recovery bonds are ever issued in definitive certificated form, however, the final payment with respect to the storm
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recovery bonds will be made only upon presentation and surrender of such storm recovery bond at the office or agency of the trustee specified in the notice given by the trustee with respect to such final payment. The trustee will mail notice of the final payment to the storm recovery bondholders no later than five days prior to the final payment date, specifying that such final payment will be payable only upon presentation and surrender of such storm recovery bond and the place where such storm recovery bond may be presented and surrendered for payment.
The storm recovery bonds will originally be issued in book-entry form, and we do not expect that the storm recovery bonds will be issued in definitive certificated form. At the time, if any, we issue the storm recovery bonds in the form of definitive storm recovery bonds and not to The Depository Trust Company (“DTC”) or its nominee, the trustee will make payments as described below under “—Definitive Certificated Storm Recovery Bonds.”
On each payment date, the amount to be paid as principal on the storm recovery bonds of a tranche will equal without duplication:
• | the unpaid principal amount of such tranche due on the final maturity date of that tranche, plus |
• | the unpaid principal amount of such tranche due upon acceleration following an event of default, plus |
• | the unpaid and previously scheduled payments of principal on such tranche, plus |
• | the principal scheduled to be paid on such tranche on that payment date; |
but only to the extent funds are available in the collection account (including all applicable subaccounts) after payment of certain of our fees and expenses and after payment of interest as described in the section above. To the extent funds are so available, we will make scheduled payments of principal on the storm recovery bonds of each tranche in the following order:
1. | to the holders of the tranche A-1 storm recovery bonds, until the principal balance of that tranche has been reduced to zero, and |
2. | then to the holders of the tranche A-2 storm recovery bonds, until the principal balance of that tranche has been reduced to zero. |
However, we will not pay principal of any tranche of the storm recovery bonds on any payment date if making the payment would reduce the principal balance of that tranche to an amount lower than the amount specified in the expected amortization schedule below for that tranche on that payment date. Any excess funds remaining in the collection account after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the collection account will be retained in the excess funds subaccount until applied on a subsequent payment date.
The entire unpaid principal amount of a tranche of storm recovery bonds will be due and payable:
• | on the final maturity date of that tranche, and |
• | if an event of default under the indenture occurs and is continuing and the trustee or the holders of a majority in principal amount of that series of the storm recovery bonds have declared that series of the storm recovery bonds to be immediately due and payable. |
If there is a shortfall in the amounts available to make principal payments on the storm recovery bonds that are due and payable at a tranche’s final maturity date or upon an acceleration following an event of default under the indenture, the trustee will distribute principal from the collection account pro rata to each tranche of the storm recovery bonds based on the principal amount of such tranche then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the storm recovery bonds that are scheduled to be paid, and if more than one tranche is scheduled to be paid on such payment date, the trustee will distribute principal from the collection account sequentially in the numerical order of such tranches.
However, the nature of our business will result in payment of principal upon an acceleration of the storm recovery bonds being made only as funds become available. Please read “Risk Factors— Risks Associated with the Unusual Nature of the Storm Recovery Property” and “—You may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited.”
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If any special payment date or other date specified herein for distribution of any payments to storm recovery bondholders is not a business day, payments scheduled to be made on such special payment date or other date may be made on the next succeeding business day, and no interest will accrue upon such payment during the intervening period. “Business day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York or New Orleans, Louisiana, are, or DTC is, required or authorized by law or executive order to remain closed.
Neither we nor Cleco Power makes any representation or warranty that any amounts actually collected arising from storm recovery charges will in fact be sufficient to meet payment obligations on the storm recovery bonds or that assumptions made in calculating storm recovery charges will in fact be realized.
The expected amortization schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for each tranche of the storm recovery bonds from the issuance date to the scheduled final payment date. Similarly, the expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for each tranche of the storm recovery bonds from the issuance date to the scheduled final payment date. In establishing these schedules, we have made the assumptions specified in the bullet points under the weighted average life sensitivity table below under “Weighted Average Life and Yield Considerations for the Storm Recovery Bonds,” among other assumptions.
Expected Amortization Schedule
Outstanding Principal Balance Per Tranche*
Payment Date | | | Tranche A-1 Amount | | | Tranche A-2 Amount |
Initial Principal Amount | | | $125,000,000 | | | $300,000,000 |
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* | Principal amounts are approximate and subject to change. Totals may not add up due to rounding. |
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On each payment date, the trustee will make principal payments to the extent the principal balance of each tranche of the storm recovery bonds exceeds the amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest. If sufficient funds are available on each payment date, principal payments will be in the amounts indicated for each payment date in the expected sinking fund schedule below.
Expected Sinking Fund Schedule*
Date | | | Tranche A-1 | | | Tranche A-2 |
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Total Payments | | | $ | | | $ |
* | Totals may not add up due to rounding. |
We cannot assure you that principal payments will be made or that the principal balance of any tranche of the storm recovery bonds will be reduced at the rates indicated in the schedules above. Principal payments and the actual reduction in tranche principal balances may occur more slowly. Principal payments and the actual reduction in tranche principal balances will not occur more quickly than indicated in the above schedules, except that the total outstanding principal balance of and interest accrued on the storm recovery bonds may be accelerated upon an event of default under the indenture. The storm recovery bonds will not be in default if principal is not paid as specified in the schedules above unless the principal of any tranche is not paid in full on or before the final maturity date of that tranche.
There are no redemption rights associated with the storm recovery bonds.
The storm recovery bonds will be available to investors only in the form of book-entry storm recovery bonds. You may hold your bonds through DTC in the United States, Clearstream Banking, Luxembourg, S.A., referred to as Clearstream, or Euroclear in Europe. You may hold the storm recovery bonds directly with one of these systems if you are a participant in the system or indirectly through organizations that are participants.
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The Role of DTC, Clearstream and Euroclear.
Cede & Co., as nominee for DTC, will hold the global bond or bonds representing the storm recovery bonds. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream customers and Euroclear participants, respectively, through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries. These depositaries will, in turn, hold these positions in customers’ securities accounts in the depositaries’ names on the books of DTC.
The Function of DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org. The contents of such websites do not constitute a part of the registration statement of which this prospectus forms a part.
The Function of Clearstream. Clearstream is incorporated under the laws of Luxembourg. Clearstream holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream customers through electronic book-entry changes in accounts of Clearstream customers, thereby eliminating the need for physical movement of securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in Luxembourg and therefore is subject to regulation by the Luxembourg Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream’s customers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of the storm recovery bonds. Clearstream’s U.S. customers are limited to securities brokers and dealers and banks. Clearstream has customers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has established an electronic bridge with Euroclear to facilitate settlement of trades between Clearstream and Euroclear.
The Function of Euroclear. The Euroclear System (“Euroclear”) was created in 1968 in Brussels. Euroclear holds securities and book-entry interests in securities for Euroclear participants and facilitates the clearance and settlement of securities transactions between Euroclear participants, and between Euroclear participants and participants of certain other securities intermediaries through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Such transactions may be settled in any of various currencies, including United States dollars. Euroclear includes various other services, including, among other things, safekeeping, administration, clearance and settlement, securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. Euroclear is operated by Euroclear Bank SA/NV. Euroclear participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of the storm recovery bonds. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.
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Terms and Conditions of Euroclear. Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of Euroclear, and applicable Belgian law (collectively, the “Terms and Conditions”). These Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants.
The Rules for Transfers Among DTC, Clearstream or Euroclear Participants. Transfers between DTC participants will occur in accordance with DTC rules. Transfers between Clearstream customers or Euroclear participants will occur in the ordinary way in accordance with their applicable rules and operating procedures and will be settled using procedures applicable to conventional securities held in registered form.
Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream customers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving storm recovery bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream customers and Euroclear participants may not deliver instructions directly to Clearstream’s and Euroclear’s depositaries.
Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream customer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream customer or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.
DTC Will Be the Holder of the Storm Recovery Bonds. Storm recovery bondholders that are not Direct Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, storm recovery bonds may do so only through Direct Participants and Indirect Participants. In addition, storm recovery bondholders will receive all distributions of principal of and interest on the storm recovery bonds from the trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, storm recovery bondholders may experience some delay in their receipt of payments because payments will be forwarded by the trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its Direct Participants, who thereafter will forward them to Indirect Participants or storm recovery bondholders. It is anticipated that the only “bondholder” will be Cede & Co., as nominee of DTC. The trustee will not recognize storm recovery bondholders as bondholders, as that term is used in the indenture, and storm recovery bondholders will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of storm recovery bondholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers of book-entry certificates among participants on whose behalf it acts with respect to the storm recovery bonds and is required to receive and transmit distributions of principal and interest on the storm recovery bonds. Direct Participants and Indirect Participants with whom storm recovery bondholders have accounts with respect to the storm recovery bonds similarly are required to make book-entry transfers and receive and transmit those payments on behalf of their respective storm recovery bondholders. Accordingly, although storm recovery bondholders will not possess storm recovery bonds, storm recovery bondholders will receive payments and will be able to transfer their interests.
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Because DTC can act only on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a storm recovery bondholder to pledge storm recovery bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those bonds, may be limited due to the lack of a physical certificate for those storm recovery bonds.
DTC has advised us that it will take any action permitted to be taken by a storm recovery bondholder under the indenture only at the direction of one or more participants to whose account with DTC the storm recovery bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of participants whose holdings include those interests.
Except as required by law, none of any underwriter, the servicer, Cleco Power, the trustee, us or any other party will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the certificates held by Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial interests.
How Storm Recovery Bond Payments Will Be Credited by Clearstream and Euroclear. Distributions with respect to storm recovery bonds held through Clearstream or Euroclear will be credited to the cash accounts of Clearstream customers or Euroclear participants in accordance with the relevant system’s rules and procedures, to the extent received by its depositary. Those distributions will be subject to tax reporting in accordance with relevant U.S. tax laws and regulations. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus. Clearstream or the Euroclear operator, as the case may be, will take any other action permitted to be taken by a storm recovery bondholder under the indenture on behalf of a Clearstream customer or Euroclear participant only in accordance with its relevant rules and procedures and subject to its depositary’s ability to effect those actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the storm recovery bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.
The Circumstances That Will Result in the Issuance of Definitive Certificated Storm Recovery Bonds. The storm recovery bonds will be issued in fully registered, certificated form to beneficial owners of storm recovery bonds or other intermediaries, rather than to DTC or its nominee, only under the circumstances provided in the indenture, which includes any event where:
• | we advise the trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities under any letter of representation executed by us in favor of DTC, and we are unable to locate a qualified successor, |
• | we, at our option, advise the trustee in writing that we elect to terminate the book-entry system through DTC, or |
• | after the occurrence of an event of default under the indenture, storm recovery bondholders representing at least a majority of the outstanding principal balance of the storm recovery bonds maintained in book-entry form advise us, the trustee and DTC through the financial intermediaries and the DTC participants in writing that the continuation of a book-entry system through DTC, or a successor to DTC, is no longer in the storm recovery bondholders’ best interest. |
The Delivery of Definitive Certificated Storm Recovery Bonds. Upon the occurrence of any event described in the immediately preceding paragraph (unless otherwise specified), we will be required to notify DTC, the trustee, and all affected beneficial owners of storm recovery bonds in writing of the occurrence of the event and of the availability through DTC of definitive certificated storm recovery bonds to such owners of storm recovery bonds. Upon surrender by DTC to the trustee of the global bond or bonds in the possession of DTC that had represented the applicable storm recovery bonds and receipt of instructions for re-registration, the trustee will authenticate and deliver definitive certificated storm recovery bonds to the beneficial owners, and the trustee will recognize the holders of the definitive certificate storm recovery bonds as bondholders under the indenture.
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The Payment Mechanism for Definitive Certificated Storm Recovery Bonds. Payments of principal of, and interest on, definitive certificated storm recovery bonds will be made by the trustee, as paying agent, in accordance with the procedures set forth in the indenture. These payments will be made directly to holders of definitive certificated storm recovery bonds in whose names the definitive certificated storm recovery bonds were registered at the close of business on the related record date. The trustee will make the final payment for each tranche of the storm recovery bonds, however, only upon presentation and surrender of the storm recovery bonds of that tranche at the office or agency of the trustee specified in the notice given by the trustee of the final payment. The trustee will mail notice of the final payment to the storm recovery bondholders no later than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.
The Transfer or Exchange of Definitive Certificated Storm Recovery Bonds. Definitive certificated storm recovery bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which will initially be the trustee. No service charge will be imposed for any registration of transfer or exchange, but we and the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection with the transfer or exchange.
We will only issue the storm recovery bonds in definitive form under limited circumstances as described above, which will be transferable and exchangeable as described above under “—Definitive Certificated Storm Recovery Bonds.” There will be no service charge for any registration or transfer of the storm recovery bonds, but the trustee may require the owner to pay a sum sufficient to cover any tax or other governmental charge.
We will issue each tranche of storm recovery bonds in the minimum initial denominations and integral multiples set forth in this prospectus.
The trustee will make payments of interest and principal on each payment date to the storm recovery bondholders in whose names the storm recovery bonds were registered on the applicable record date.
To secure the payment of principal, premium, if any, and interest on, and any other amounts owed in respect of, the storm recovery bonds pursuant to the indenture, we will grant to the trustee for the benefit of the storm recovery bondholders a security interest in all of our right, title and interest, whether now owned or later acquired, in and to the following collateral, which collectively constitutes the trust estate under the indenture:
• | the storm recovery property, |
• | the storm recovery charges related to the storm recovery property, |
• | our rights under the sale agreement, |
• | our rights under the bill of sale delivered by Cleco Power pursuant to the sale agreement, |
• | our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement, |
• | our rights under the administration agreement, |
• | our rights in the collection account and all subaccounts of the collection account, including the general subaccount, the capital subaccount and the excess funds subaccount and all cash, instruments, investment property or other assets credited to or deposited in the collection account or any subaccount of the collection account from time to time or purchased with funds from the collection account, and all financial assets and securities entitlements carried therein or credited thereto, |
• | all rights to compel the servicer to file for and obtain periodic adjustments to the storm recovery charges in accordance with the Securitization Act and the financing order, |
• | all of our other property related to the storm recovery bonds, other than any cash released to us by the trustee semi-annually from earnings on the capital subaccount, |
• | all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and |
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• | all payments on or under and all proceeds in respect of any or all of the foregoing, including all proceeds of the conversion, voluntary or involuntary, into cash or other liquid property of any or all of the foregoing, all cash proceeds, accounts, accounts receivable, general intangibles, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, payment intangibles, letter-of-credit rights, investment property, commercial tort claims, documents, rights to payment of any and every kind, and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing. |
The security interest does not extend to:
• | cash that has been released pursuant to the terms of the indenture, |
• | amounts deposited with us for payment of costs of issuance with respect to the storm recovery bonds (together with any interest earnings thereon), and |
• | proceeds from the sale of the storm recovery bonds that are required to pay the purchase price for the storm recovery property, paid pursuant to the sale agreement, and the costs of the issuance of the storm recovery bonds. |
Section 1231 of the Securitization Act provides that a valid and enforceable security interest in storm recovery property will attach and be perfected by the means set forth in Section 1231. Specifically, Section 1231 provides that a valid and enforceable security interest in storm recovery property may be created only after the issuance of a financing order, the execution and delivery of a security agreement in connection with issuance of financing instruments such as the storm recovery bonds and the receipt of value for the instruments. The security interest attaches automatically when all of the foregoing conditions are met. Upon perfection by filing a financing statement under Section 1231 of the Securitization Act and otherwise in accordance with the Louisiana UCC, the security interest will be a continuously perfected security interest in the storm recovery property and all proceeds of the property, whether accrued or not, and will have priority in the order of time of perfection and take precedence over any subsequent lien creditor.
Under the indenture, we will establish a collection account with the trustee or at another eligible institution for the storm recovery bonds. The collection account will be under the sole dominion and exclusive control of the trustee. Funds received from collections of the applicable storm recovery charges will be deposited into the collection account. The collection account for the storm recovery bonds will be divided into the following subaccounts, which need not be separate bank accounts:
• | the general subaccount, |
• | the capital subaccount, and |
• | the excess funds subaccount. |
For administrative purposes, the subaccounts may be established by the trustee as separate accounts that will be recognized individually as subaccounts and collectively as the collection account. Unless otherwise provided in the indenture, amounts in the collection account for the storm recovery bonds not allocated to any other subaccount by the servicer will be allocated to the general subaccount. Unless the context indicates otherwise, references in this prospectus to the collection account for the storm recovery bonds include all of the subaccounts contained therein. All monies deposited from time to time in the collection account, all deposits therein pursuant to the indenture, and all investments made in eligible investments with these monies will be held by the trustee in the collection account as part of the collateral. The following institutions are eligible institutions for the establishment of the collection account:
• | the corporate trust department of the trustee so long as any of the securities of the trustee are rated (i) either a short-term credit rating from Moody’s and Fitch of at least “P-1” and “F-1”, respectively or a long-term unsecured debt rating from Moody’s and Fitch of at least “A2” and “A”, respectively, and (ii) a credit rating from S&P of at least “A”, or |
• | the trust department of a depository institution organized under the laws of the United States of America or any state or domestic branch of a foreign bank whose deposits are insured by the Federal Deposit Insurance Corporation, and has either: |
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• | with respect to specified investments having a maturity of greater than one month, a long-term unsecured debt rating of “AA-” or higher by S&P, “A2” or higher by Moody’s and “A” or higher by Fitch, or |
• | a short-term issuer rating of “A-1” by S&P, “P-1” by Moody’s and “F1” or higher by Fitch; |
provided, however, that if an eligible institution then being utilized for any purposes under the indenture or the series supplement no longer meets the definition of eligible institution, then the issuing entity shall replace such eligible institution within sixty (60) days of such eligible institution no longer meeting the definition of eligible institution.
Appropriate Investments for Funds in the Collection Account. So long as no default or event of default has occurred and is continuing, all or a portion of the funds in the collection account for the storm recovery bonds must be invested by the trustee in accordance with the written direction of the servicer in any of the following, each of which is referred to as an eligible investment:
1. | direct obligations of, and obligations fully and unconditionally guaranteed as to timely payment by, the United States of America, |
2. | demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof, or any domestic branch of a foreign bank, and subject to supervision and examination by federal or state banking authorities, so long as the commercial paper or other short-term unsecured debt obligations of such depository institution are, at the time of deposit, rated not less than A-1, P-1 and F-1 or their equivalents by each of S&P, Moody's and Fitch, or such lower rating as will not result in the downgrading or withdrawal of the ratings of the storm recovery bonds, |
3. | commercial paper (including commercial paper of the trustee, acting in its commercial capacity, and other commercial paper issued by Cleco Power or any of its affiliates) having, at the time of investment or contractual commitment to invest, a rating of least “A-1”, “P-1” and “F1” or their equivalents by each of S&P, Moody’s and Fitch or such lower rating as not result in the downgrading or withdrawal of the ratings of the storm recovery bonds, |
4. | investments in money market funds having a rating from Moody’s, S&P and if Fitch provides a rating thereon, Fitch, of “Aaa”, “AAA” and “AAA”, respectively, including funds for which the trustee or any of its affiliates act as investment manager or advisor, |
5. | repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or its agencies or instrumentalities, entered into with Eligible Institutions, |
6. | repurchase obligations with respect to any security or whole loan entered into with an Eligible Institution or with a registered broker-dealer acting as principal and that meets certain ratings criteria, or |
7. | any other investment permitted by each of the rating agencies; |
Notwithstanding the foregoing: (a) no investments which mature in 30 days or more will be eligible investments unless the issuer thereof has either a short-term unsecured debt rating of at least “P-1” from Moody’s or a long-term unsecured debt rating of at least “A1” from Moody’s and has at least a debt rating of “F1+” or “AA-” from Fitch; (b) no investments described in clauses (2) through (4) above which have maturities of more than 30 days but less than or equal to 3 months will be eligible investments unless the issuer thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (c) no investments described in clauses (2) through (4) above which have maturities of more than 3 months will be eligible investments unless the issuer thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (d) no investments described in clauses (2) through (4) above which have a maturity of 60 days or less will be eligible investments unless such investments have a rating from S&P of at least “A-1”; and (e) no investments described in clauses (2) through (4) above which have a maturity of more than 60 days will be eligible investments unless such investments have a rating from S&P of at least “AA-”, “A-1+” or “AAA”.
Remittances to the Collection Account. On each remittance date, the servicer will remit all collected storm recovery charges, any indemnity amounts and any other proceeds of the trust estate securing the storm recovery bonds to the trustee for deposit in the collection account. Indemnity amount means any amount paid by the servicer or
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Cleco Power to the trustee, for the trustee or on behalf of the storm recovery bondholders, in respect of indemnification obligations pursuant to the servicing agreement or the sale agreement. Please read “The Servicing Agreement” and “The Sale Agreement” in this prospectus. To the extent that the combined amounts remitted by a Cleco Power customer are insufficient to satisfy amounts owed in respect of storm recovery charges relating to the storm recovery bonds or any other bonds being serviced by the servicer or for electricity service (other than late fees), the remitted amounts will be allocated pro rata among such storm recovery charges and electricity charges.
General Subaccount. Collected storm recovery charges and any indemnity amounts remitted to the trustee will be deposited into the general subaccount. On each payment date, the trustee will allocate amounts in the general subaccount among the other subaccounts as described under “—How Funds in the Collection Account Will Be Allocated.” Amounts in the general subaccount will be invested in the eligible investments described above.
Capital Subaccount. Upon the issuance of the storm recovery bonds, Cleco Power will make a capital contribution to us in an amount not to be less than 0.50% of the original principal amount of the storm recovery bonds, and such payment shall not come from the proceeds of the sale of the storm recovery bonds. We will pay this amount to the trustee for deposit into the capital subaccount which will be invested in eligible investments by the trustee in accordance with the written direction of the servicer. The trustee will draw on amounts in the capital subaccount to the extent that, in allocating funds in accordance with clauses 1 through 8 in “—How Funds in the Collection Account Will Be Allocated,” below, amounts on deposit in the general subaccount and, the excess funds subaccount are insufficient to make scheduled payments on the storm recovery bonds and payments of fees and expenses specified in clauses 1 through 8. The trustee will allocate collected storm recovery charges available on any payment date that are not necessary to pay amounts described in clauses 1 through 8 in “—How Funds in the Collection Account Will Be Allocated,” below, to the capital subaccount in an amount sufficient to replenish any amounts drawn from the capital subaccount (other than distributed investment earnings on the capital subaccount) and any shortfall of investment earnings on the capital subaccount. On each payment date, any excess investment earnings on the capital subaccount above the allowed rate of return shall be allocated to the excess funds subaccount.
Excess Funds Subaccount. The trustee will allocate collected storm recovery charges available on any payment date that are not necessary to pay clauses 1 through 10 in “—How Funds in the Collection Account Will Be Allocated,” below, to the excess funds subaccount. The trustee will invest amounts in the excess funds subaccount in eligible investments in accordance with the written direction of the servicer. On each payment date, the trustee will draw on the excess funds subaccount in allocating funds in accordance with clauses 1 through 10 in “—How Funds in the Collection Account Will Be Allocated,” below, to the extent that amounts on deposit in the general subaccount are insufficient to make scheduled payments on the storm recovery bonds and payments of fees and expenses specified in clauses 1 through 10.
Amounts remitted by the servicer to the trustee with respect to the storm recovery bonds, including any amounts received by us relating to the indemnification obligations payable by the seller pursuant to the sale agreement or the servicer pursuant to the servicing agreement and all investment earnings on amounts in the general subaccount of the collection account will be deposited into the general subaccount. Investment earnings on amounts in the capital subaccount (other than excess investment earnings that are allocated to the excess funds subaccount) and the excess funds subaccount will be deposited into the capital subaccount and the excess funds subaccount, respectively.
On each payment date for the storm recovery bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account for the storm recovery bonds in the following priority:
1. | payment of the trustee’s fees, plus expenses and any outstanding indemnity amounts not to exceed $100,000.00 in any 12-month period, provided, however, that such cap shall be disregarded and inapplicable upon the acceleration of the storm recovery bonds following the occurrence of an event of default, |
2. | payment of the servicing fee relating to the storm recovery bonds with respect to such payment date, plus any unpaid servicing fees relating to the storm recovery bonds from prior payment dates, |
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3. | payment of the due and unpaid administration fee, which will be a fixed amount specified in the administration agreement between us and Cleco Power, and the due and unpaid fees of our independent manager (or an allocable share of the administration fee and fees of our independent managers, if one or more series of additional storm recovery bonds are issued by us), which will be in an amount specified in an agreement between us and our independent manager, |
4. | payment of all of our other ordinary periodic operating expenses relating to the storm recovery bonds for such payment date, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the servicing agreement, |
5. | payment of the interest then due on the storm recovery bonds, including any past-due interest, |
6. | payment of the principal due to be paid on the storm recovery bonds at final maturity or acceleration upon an event of default, |
7. | payment of the principal then scheduled to be paid on the storm recovery bonds, including any previously unpaid scheduled principal, |
8. | payment of any of our remaining unpaid operating expenses (or any allocable share of such unpaid operating expenses, if one or more series of additional storm recovery bonds are issued by us) and any remaining amounts owed pursuant to the basic documents, including all remaining amounts owed to the trustee, |
9. | replenishment of the amount, if any, by which the initial balance of the capital subaccount exceeds the amount in the capital subaccount as of such payment date, |
10. | the return on invested capital then due and payable, which shall be the sum of the rate of return payable to Cleco Power on its capital contribution which has been deposited into the capital subaccount equal to the rate of interest payable on the longest maturing tranche of the storm recovery bonds calculated on the basis of a 360-day year of twelve 30-day months plus any return on invested capital not paid on any prior payment date, shall be paid to Cleco Power, |
11. | allocation of the remainder, if any, to the excess funds subaccount, and |
12. | after the storm recovery bonds have been paid in full and discharged, and all of the other foregoing amounts have been paid in full, the balance, together with all amounts in the capital subaccount and the excess funds subaccount, released to us free and clear of the lien of the indenture, which funds, less an amount equal to the initial deposit into the capital subaccount plus any unpaid return on invested capital, will be credited to Cleco Power’s customers through the normal ratemaking processes consistent with the financing order. |
The amount of the annual servicer’s fee referred to in clause 2 above shall be 0.05% of the initial principal amount of the storm recovery bonds. The amount of the annual administration fee referred to in clause 3 above shall be fixed at $100,000.
Interest means, for any payment date for the storm recovery bonds, the sum, without duplication, of:
• | an amount equal to the interest accrued on that tranche at the applicable interest rate from the prior payment date or, with respect to the first payment date, the amount of interest accrued since the issuance date, with respect to that tranche, |
• | any unpaid interest plus, to the fullest extent permitted by law, any interest accrued on this unpaid interest, and |
• | if the storm recovery bonds have been declared due and payable, all accrued and unpaid interest thereon. |
Principal means, with respect to any payment date and any tranche of the storm recovery bonds, the sum, without duplication, of:
• | the amount of principal due as a result of the occurrence and continuance of an event of default and acceleration of the storm recovery bonds, |
• | the amount of principal due on the final maturity date of any tranche, |
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• | any unpaid and previously scheduled payments of principal and overdue payments of principal, and |
• | the amount of principal scheduled to be paid on such payment date in accordance with the expected sinking fund schedule. |
If on any payment date funds in the general subaccount are insufficient to make the allocations or payments contemplated by clauses 1 through 9 of the first paragraph of this subsection with respect to the storm recovery bonds, the trustee will draw from amounts on deposit in the following subaccounts in the following order up to the amount of the shortfall:
1. | from the excess funds subaccount for allocations and payments contemplated in clauses 1 through 9, and |
2. | from the capital subaccount for allocations and payments contemplated by clauses 1 through 8. |
If, on any payment date, available collections of storm recovery charges allocable to the storm recovery bonds, together with available amounts in the related subaccounts, are not sufficient to pay interest due on all outstanding storm recovery bonds on that payment date, amounts available will be allocated pro rata based on the amount of interest payable on each tranche. If, on any payment date, remaining collections of storm recovery charges allocable to the storm recovery bonds, together with available amounts in the subaccounts, are not sufficient to pay principal due and payable at a tranche’s final maturity date or upon an acceleration following an event of default under the indenture, amounts available will be allocated pro rata based on the principal amount of each tranche then due and payable. If, on any payment date, remaining collections of storm recovery charges allocable to the storm recovery bonds, together with available amounts in the subaccounts, are not sufficient to pay principal scheduled to be paid, and if more than one tranche is scheduled to be paid on such payment date, the trustee will distribute principal from the collection account sequentially in the numerical order of such tranches. If the trustee uses amounts on deposit in the capital subaccount to pay those amounts or make those transfers, as the case may be, subsequent adjustments to the storm recovery charges related to that tranche will take into account, among other things, the need to replenish those amounts (plus any deficiency in the amount of investment earnings on the capital subaccount allowed by the financing order).
Upon the payment in full of all storm recovery bonds authorized in the financing order and the discharge of all obligations, including financing costs, all remaining amounts in the collection account (including investment earnings) shall be released by the trustee to us for distribution to Cleco Power. With regard to the remaining amounts in the collection account (excluding amounts in the capital subaccount), within thirty (30) days after the payment of all obligations (including the final financing costs) payable from those funds, Cleco Power shall notify the Louisiana commission of the amount of such funds available for crediting to the benefit of customers. With regard to the amounts in the capital subaccount of the collection account, all such funds shall be released to us for distribution to, and retention by, Cleco Power. Until such funds are returned by us to Cleco Power, Cleco Power may earn a rate of return on its capital investment in us equal to the rate of interest that was established in the longest maturity tranche of the storm recovery bonds. Such rate of return shall be paid by us by means of periodic distributions that are funded first by the income earned through investment by the trustee in eligible investments, and second by any deficiency being collected through the true-up adjustments. Any actual earnings in excess of that rate will instead be credited to customers.
On or before each payment date, the trustee shall deliver to each of the storm recovery bondholders and the Louisiana commission a statement provided and prepared by the servicer. This statement will include, to the extent applicable, the following information, as well as any other information so specified in the series supplement, as to the storm recovery bonds with respect to that payment date or the period since the previous payment date, as applicable:
• | the amount of the payment to storm recovery bondholders allocable to principal, |
• | the amount of the payment to storm recovery bondholders allocable to interest, |
• | the aggregate outstanding amount of the storm recovery bonds, before and after giving effect to any payments allocated to principal reported above, |
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• | the difference, if any between the aggregate outstanding amount specified immediately above and the outstanding amount specified in the sinking fund schedule, |
• | any other transfers and payments to be made on such payment date, including amounts paid to the trustee and to the servicer, and |
• | the amounts on deposit in the capital subaccount and the excess funds subaccount, after giving effect to the foregoing payments. |
Although neither we nor Cleco Power are an asset-backed issuer and the storm recovery bonds are not asset-backed securities as defined by the SEC in governing regulations Item 1101 of Regulation AB, we intend to file with the SEC reports related to the storm recovery bonds consistent with the disclosure and regulatory regime established by Regulation AB. Such reports will be filed under the name of Cleco Securitization I LLC and will include reports on Form 10-D, Form 10-K and Form 8-K. Please read “The Servicing Agreement—Evidence as to Compliance” in this prospectus.
We will, to the extent permitted by and consistent with our obligations under applicable law, cause to be posted on the website associated with Cleco Power:
• | the final prospectus for the storm recovery bonds, |
• | a statement reporting the balances in the collection account and in each subaccount as of all payment dates and as of the end of the year, |
• | the semi-annual servicer’s certificate as required to be submitted pursuant to the servicing agreement, |
• | the monthly servicer’s certificate as required to be submitted pursuant to the servicing agreement, |
• | the text (or a link to the website where a reader can find the text) of each filing of a true-up adjustment and the results of each such filing, |
• | any change in the long-term or short-term credit ratings of the servicer assigned by the rating agencies, |
• | any material legislative enactment or regulatory order or rule directly relevant to the storm recovery bonds, and |
• | any reports and other information that we are required to file with the SEC under the Exchange Act. |
We have been organized as a special purpose subsidiary of Cleco Power for the limited purpose of holding storm recovery property and issuing additional storm recovery bonds, including the storm recovery bonds and any additional storm recovery bonds. Each series of storm recovery bonds issued by us in the future, if any, will be secured by storm recovery property and other collateral pledged to secure such series of additional storm recovery bonds. As a result, we may acquire additional storm recovery property and issue one or more series of additional storm recovery bonds that are supported by such additional and separate storm recovery property or other collateral to finance the storm recovery costs approved by an additional financing order issued by the LPSC to Cleco Power.
We may issue additional storm recovery bonds in the future, if any, and acquire additional storm recovery property after the issuance of the storm recovery bonds described in this prospectus, subject to satisfaction of the following conditions, among others:
• | Cleco Power requests and receives an additional financing order from the LPSC to recover additional storm recovery costs through the issuance by us of additional storm recovery bonds; |
• | Cleco Power must serve as the initial servicer and administrator for such series of the additional storm recovery bonds and the servicer and administrator cannot be replaced without the requisite approval of the holders of all series of storm recovery bonds issued by us then-outstanding, including the storm recovery bonds; |
• | satisfaction of the rating agency condition; |
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• | each series of the additional storm recovery bonds has recourse only to the storm recovery property created by an additional financing order and funds on deposit in the trust accounts held by the trustee with respect to such additional storm recovery bonds, is nonrecourse to the storm recovery property securing the storm recovery bonds and does not constitute a claim against us if revenue from the storm recovery charges and funds on deposit in the trust accounts with respect to such other series of additional storm recovery bonds are insufficient to pay such other series in full; |
• | we have provided to the trustee and the rating agencies then rating any series of our outstanding storm recovery bonds an opinion of a nationally recognized law firm experienced in such matters to the effect that such issuance would not result in our substantive consolidation with Cleco Power and that there has been a true sale of the storm recovery property for such other series of additional storm recovery bonds, subject to the customary exceptions, qualifications and assumptions contained therein; |
• | transaction documents for other series of additional storm recovery bonds provide that the trustee on behalf of holders of such other series of additional storm recovery bonds will not file or join in filing of any bankruptcy petition against us; |
• | if holders of such other series of additional storm recovery bonds are deemed to have any interest in any of the collateral dedicated to the storm recovery bonds, holders of such additional storm recovery bonds must agree that their interest in the collateral dedicated to the additional storm recovery bonds is only a first priority perfected interest in the assets relating to such other series of additional storm recovery bonds, as the case may be; |
• | each series of additional storm recovery bonds will have its own bank accounts or trust accounts and funds for each series of storm recovery bonds shall be remitted in accordance with the related servicing agreement and related intercreditor agreement; |
• | no series of additional storm recovery bonds will be issued under the indenture governing the storm recovery bonds; and |
• | each series of additional storm recovery bonds will bear its own trustee fees, servicer fees and administration fees. |
The issuance of any additional storm recovery bonds, whether issued by us or any other subsidiary or affiliated entity of Cleco Power, is subject to satisfaction of the rating agency condition. In addition, Cleco Power has covenanted under the sale agreement that the execution of an intercreditor agreement is a condition precedent to the sale of storm recovery property by Cleco Power consisting of nonbypassable charges payable by customers comparable to the storm recovery property sold by Cleco Power pursuant to the sale agreement. Please read “Sale Agreement—Covenants of the Seller” in this prospectus.
Each series of storm recovery bonds that may be issued, whether issued by us or any other subsidiary or affiliated entity of Cleco Power, will be backed by separate storm recovery property. Any series of additional storm recovery bonds issued by us in the future may include terms and provisions that would be unique to that particular series of additional storm recovery bonds.
The storm recovery bonds will not be subordinated in right of payment to any series of additional storm recovery bonds. Each series of storm recovery bonds would be secured by its own separate storm recovery property, which will include the right to impose, bill, charge, collect and receive storm recovery charges calculated in respect of that series of additional storm recovery bonds, and the right to implement the true-up mechanism to correct overcollections or undercollections in respect of that series. Each series of additional storm recovery bonds, if any, would also have its own collection account, including any related subaccounts, into which revenue from the storm recovery charges relating to that series of additional storm recovery bonds will be deposited and from which amounts would be withdrawn to pay the related series of storm recovery bonds. Holders of one series of storm recovery bonds would have no recourse to collateral, including the collection account or capital subaccount, for a different series of storm recovery bonds and there will be no cross defaults between the series. The administration fees, independent manager fees and other operating expenses payable by us on a payment date would be assessed
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to each series of storm recovery bonds issued by us on a pro rata basis, based upon the respective outstanding principal amounts of each series of storm recovery bonds issued by us. Please read “—The Collection Account for the Storm Recovery Bonds” and “—How Funds in the Collection Account will be Allocated” in this prospectus.
Although each series of additional storm recovery bonds, whether issued by us or another issuing entity, would have its own storm recovery property reflecting the right in and to a separate storm recovery charge, storm recovery charges relating to the storm recovery bonds and storm recovery charges relating to any additional storm recovery bonds will be collected through single periodic bills to each customer, and all storm recovery charges might be combined into a single line item on those periodic bills. In the event a customer does not pay in full all amounts owed under any bill including storm recovery charges, the servicer is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owed in respect of each series of storm recovery bonds, including the storm recovery bonds. Please read “The Servicing Agreement—Remittances to Collection Account” in this prospectus.
Modifications of the Indenture That Do Not Require Consent of Storm Recovery Bondholders. Without the consent of any of the holders of the outstanding storm recovery bonds but with prior notice to the rating agencies and, with respect to amendments that would increase ongoing financing costs, with the consent or deemed consent of the Louisiana commission (other than with respect to the series supplement establishing the storm recovery bonds), we and the trustee may execute a supplemental indenture for any of the following purposes:
• | to correct or amplify the description of the collateral, or to better assure, convey and confirm unto the trustee the collateral, or to subject additional property to the lien of the indenture, |
• | to evidence the succession, in compliance with the applicable provisions of the indenture, of another entity to us, and the assumption by any applicable successor of our covenants contained in the indenture and in the storm recovery bonds, |
• | to add to our covenants, for the benefit of the holders of the storm recovery bonds, or to surrender any right or power therein conferred upon us, |
• | to convey, transfer, assign, mortgage or pledge any property to or with the trustee, |
• | to cure any ambiguity, to correct or supplement any provision of the indenture or series supplement which may be inconsistent with any other provision of the indenture or series supplement, to make any other provisions with respect to matters or questions arising under the indenture or series supplement; provided, however, that: |
• | this action shall not adversely affect in any material respect the interests of any storm recovery bondholder, and |
• | the rating agency condition shall have been satisfied with respect thereto, |
• | to evidence and provide for the acceptance of the appointment under the indenture by a successor trustee with respect to the storm recovery bonds and to add to or change any of the provisions of the indenture as shall be necessary to facilitate the administration of the trust estate under the indenture by more than one trustee, pursuant to the requirements specified in the indenture, |
• | to qualify the storm recovery bonds for registration with a clearing agency, |
• | to modify, eliminate or add to the provisions of the indenture to the extent necessary to effect the qualification of the indenture under the Trust Indenture Act and to add to the indenture any other provisions as may be expressly required by the Trust Indenture Act, |
• | to satisfy any rating agency requirements, or |
• | to authorize the appointment of any fiduciary for any tranche of the storm recovery bonds required or advisable with the listing of any such tranche on any stock exchange and otherwise amend the indenture to incorporate changes requested or required by any governmental authority, stock exchange authority or fiduciary for any tranche of the storm recovery bonds in connection with such listing. |
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Additional Modifications to the Indenture That Do Not Require the Consent of Storm Recovery Bondholders. We and the trustee may also, without the consent of any of the storm recovery bondholders but, with respect to amendments that would increase ongoing financing costs, with the consent or deemed consent of the Louisiana commission, execute one or more other agreements supplemental to the indenture as long as:
• | the supplemental agreement does not adversely affect in any material respect the interests of any storm recovery bondholder, and |
• | the rating agency condition shall have been satisfied with respect thereto. |
Any such amendment that may have the effect of increasing ongoing financing costs may be provided by us to the Louisiana commission, along with a statement as to the possible effect of the amendment on the ongoing financing costs, and such amendment shall become effective on the later of (i) the date proposed by the parties to the amendment or (ii) 31 days after such submission to the Louisiana commission, unless such commission issues an order disapproving the amendment within a 30-day period.
Modifications to the Indenture That Require the Approval of the Storm Recovery Bondholders. We and the trustee also may, with the consent of the holders of a majority of the outstanding amount of the storm recovery bonds of each tranche to be affected by the supplemental indenture and, with respect to amendments that would increase ongoing financing costs, with the consent or deemed consent of the Louisiana commission, execute a supplemental indenture to add any provisions to, or change in any manner or eliminate any of the provisions of, the indenture or modify in any manner the rights of the storm recovery bondholders under the indenture. Any such amendment that may have the effect of increasing ongoing financing costs shall be provided by us to the Louisiana commission, along with a statement as to the possible effect of the amendment on the ongoing financing costs, and such amendment shall become effective on the later of (i) the date proposed by the parties to the amendment or (ii) 31 days after such submission to the Louisiana commission, unless such commission issues an order disapproving the amendment within a 30-day period. Under no circumstance may the supplemental indenture without the consent of the holder of each tranche affected thereby:
• | change the date of payment of any installment of principal of or premium, if any, or interest on any storm recovery bond of such tranche, or reduce the principal amount thereof, the bond rate or interest rate thereon or the premium, if any, with respect thereto, |
• | change the provisions of the indenture and the series supplement relating to the application of collections on, or the proceeds of the sale of, the collateral to payment of principal of or premium, if any, or interest on the storm recovery bonds, or change any place of payment where, or the coin or currency in which, any storm recovery bond or any interest thereon is payable, |
• | reduce the percentage of the aggregate amount of the outstanding storm recovery bonds, the consent of the storm recovery bondholders of which is required for any supplemental indenture, or the consent of the storm recovery bondholders of which is required for any waiver of compliance with those certain provisions of the indenture specified therein or of certain defaults specified therein and their consequences provided for in the indenture, |
• | reduce the percentage of the outstanding amount of the storm recovery bonds required to direct the trustee to direct us to sell or liquidate the collateral, |
• | modify any provision of the section of the indenture relating to the consent of storm recovery bondholders with respect to supplemental indentures or any provision of the other basic documents similarly specifying the rights of the storm recovery bondholders to consent to modification thereof, except to increase any percentage specified therein or to provide that those provisions of the indenture or the basic documents specified in the indenture cannot be modified or waived without the consent of each outstanding storm recovery bondholder affected thereby, |
• | modify any of the provisions of the indenture in a manner as to affect the calculation of the amount of any payment of interest, principal or premium, if any, due on any storm recovery bond on any payment date (including the calculation of any of the individual components of such calculation) or change the expected sinking fund schedule or final maturity date of the storm recovery bonds, |
• | decrease the required capital amount, |
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• | permit the creation of any lien ranking prior to or on a parity with the lien of the indenture with respect to any of the collateral for the storm recovery bonds or, except as otherwise permitted or contemplated in the indenture, terminate the lien of the indenture on any property at any time subject thereto or deprive the holder of any storm recovery bond of the security provided by the lien of the indenture, |
• | cause any material adverse U.S. federal income tax consequence to us, Cleco Power, the managers, the trustee or the then-existing storm recovery bondholders, or |
• | impair the right to institute suit for the enforcement of the provisions of the indenture regarding payment or application of funds. |
Enforcement of the Sale Agreement, the Administration Agreement and the Servicing Agreement. The indenture provides that we will take all lawful actions to enforce our rights under the sale agreement, the administration agreement, the servicing agreement and other basic documents. The indenture also provides that we will take all lawful actions to compel or secure the performance and observance by Cleco Power, the administrator and the servicer of their respective obligations to us under or in connection with the sale agreement, the administration agreement, the servicing agreement and other basic documents. So long as no event of default occurs and is continuing, we may exercise any and all rights, remedies, powers and privileges lawfully available to us under or in connection with the sale agreement, the administration agreement, the servicing agreement and other basic documents; provided that such action shall not adversely affect the interests of the storm recovery bondholders in any material respect. However, if we or the servicer propose to amend, modify, waive, supplement, terminate or surrender in any material respect, or agree to any material amendment, modification, supplement, termination, waiver or surrender of, the process for adjusting the storm recovery charges, we must notify the trustee, the storm recovery bondholders and, when required, the Louisiana commission in writing of such proposal (or, if pursuant to a request by us, the trustee shall notify the storm recovery bondholders of such proposal). In addition, the trustee may consent to this proposal only with the written consent of the holders of a majority of the principal amount of the outstanding storm recovery bonds or tranche affected thereby and only if the rating agency condition is satisfied. In addition, any proposed amendment of the indenture, the sale agreement or the servicing agreement that would increase ongoing financing costs requires the prior written consent or deemed consent of the Louisiana commission.
If an event of default occurs and is continuing, the trustee may, and, at the written direction of the holders of a majority of the outstanding amount of the storm recovery bonds of the tranches affected thereby or of the Louisiana commission, shall exercise all of our rights, remedies, powers, privileges and claims against Cleco Power, the administrator and servicer, under or in connection with the sale agreement, administration agreement and servicing agreement, and any right of ours to take this action shall be suspended.
Modifications to the Sale Agreement, the Administration Agreement and the Servicing Agreement. The sale agreement, the administration agreement and the servicing agreement, may be amended, so long as the rating agency condition is satisfied in connection therewith, at any time and from time to time, without the consent of the storm recovery bondholders but with the acknowledgement of the trustee and, with respect to amendments that would increase ongoing financing costs, with the consent or deemed consent of the Louisiana commission. The trustee shall provide such consent upon receiving evidence of satisfaction of the rating agency condition and evidence that the amendment is in accordance with the terms of the agreement being amended. Furthermore, any amendment to any such agreement that may have the effect of increasing ongoing financing costs shall be provided by us to the Louisiana commission, along with a statement as to the possible effect of the amendment on the ongoing financing costs. The amendment shall become effective on the later of (i) the date proposed by the parties to the amendment or (ii) 31 days after such submission to the Louisiana commission unless such commission issues an order disapproving the amendment within a 30-day period.
Notification of the Rating Agencies, the Louisiana commission, the Trustee and the Storm Recovery Bondholders of any Modification.
If we, Cleco Power or the servicer or any other party to the applicable agreement:
• | proposes to amend, modify, waive, supplement, terminate or surrender, or agree to any other amendment, modification, waiver, supplement, termination or surrender of, the terms of the sale agreement or the servicing agreement, or |
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• | waives timely performance or observance by Cleco Power or the servicer under the sale agreement or the servicing agreement, |
in each case in a way which would materially and adversely affect the interests of storm recovery bondholders, we must first notify the rating agencies of the proposed action and must promptly notify the trustee, the Louisiana commission and the storm recovery bondholders in writing of the proposed action and whether the rating agency condition has been satisfied with respect thereto (or, if pursuant to a request by us, the trustee shall notify the storm recovery bondholders on our behalf). The trustee will consent to this proposed amendment, modification, supplement or waiver only if the rating agency condition is satisfied and only with the written consent of the holders of a majority of the outstanding principal amount of the storm recovery bonds of the tranche materially and adversely affected thereby and, if such action would increase ongoing financing costs, the consent of the Louisiana commission.
An event of default with respect to the storm recovery bonds is defined in the indenture as being:
1. | a default in the payment of any interest on any storm recovery bond when the same becomes due and payable and the continuation of this default for five business days, |
2. | a default in the payment of the then unpaid principal of any tranche of the storm recovery bonds on the final maturity date for that tranche, |
3. | a default in the observance or performance of any of our covenants or agreements made in the indenture, other than those specifically dealt with in clause 1 or 2 above, or any of our representations or warranties made in the indenture or the series supplement or in any certificate or other writing delivered pursuant to the indenture or in connection with the indenture proving to have been incorrect in any material respect as of the time when made, and if such default continues or is not cured for a period of 30 days after the earlier of (a) written notice of the default is given to us by the trustee or to us and the trustee by the holders of at least 25% of the outstanding principal amount of the storm recovery bonds or (b) the date we have actual notice of the default, |
4. | the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of us or any substantial part of the collateral in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of us or for any substantial part of the collateral, or ordering the winding-up or liquidation of our affairs, and such decree or order remains unstayed and in effect for a period of 90 consecutive days, |
5. | the commencement by us of a voluntary case under any applicable U.S. federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by us to the entry of an order for relief in an involuntary case or proceeding under any such law, or the consent by us to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of us or our property for any substantial part of the collateral, or the making by us of any general assignment for the benefit of creditors, or the failure by us generally to pay our debts as such debts become due, or the taking of action by us in furtherance of any of the foregoing, or |
6. | any act or failure to act by the State of Louisiana or any of its agencies (including the Louisiana commission), officers or employees that violates or is not in accordance with the pledge of the State of Louisiana in Section 1234 of the Securitization Act or the pledge of the Louisiana commission in the financing order including, without limitation, the failure of the Louisiana commission to implement the true-up mechanism. |
Remedies Available Following an Event of Default. If an event of default with respect to the storm recovery bonds, other than event number 5 above, occurs and is continuing, the trustee or holders holding not less than a majority in principal amount of the storm recovery bonds may declare the unpaid principal balance of storm recovery bonds, together with accrued interest, to be immediately due and payable. This declaration may, under the circumstances specified therein, be rescinded by the holders of a majority in principal amount of the storm recovery bonds. The nature of our business will result in payment of principal upon such a declaration being made as funds become available. Please read “Risk Factors—Risks Associated with the Unusual Nature of the Storm
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Recovery Property— Foreclosure of the trustee’s lien on the storm recovery property might not be practical, and acceleration of the storm recovery bonds before maturity might have little practical effect” and “—You may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited.”
In addition to acceleration of the storm recovery bonds described above, the trustee may exercise one or more of the following remedies upon an event of default (other than event number 5 above):
1. | the trustee may institute proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the storm recovery bonds or under the indenture with respect to the storm recovery bonds, whether by declaration of acceleration or otherwise, and, subject to the limitations on recovery set forth in the indenture, enforce any judgment obtained, and collect from us moneys adjudged due, upon the storm recovery bonds, |
2. | the trustee may institute proceedings from time to time for the complete or partial foreclosure of the indenture with respect to the collateral securing the storm recovery bonds, |
3. | the trustee may exercise any remedies of a secured party under the Uniform Commercial Code or the Securitization Act or any other applicable law and take any other appropriate action to protect and enforce the rights and remedies of the trustee and the storm recovery bondholders, |
4. | at the written direction of the holders of a majority in the principal amount of the storm recovery bonds, the trustee may either sell all or a portion of the collateral securing the storm recovery bonds or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by applicable law provided that certain conditions set forth in the indenture are met, or elect that we maintain possession of all or a portion of the collateral securing the storm recovery bonds pursuant to the terms of the indenture and continue to apply the storm recovery charges as if there had been no declaration of acceleration, and |
5. | the trustee may exercise all of our rights, remedies, powers, privileges and claims against the seller, administrator and the servicer under or in connection with the administration agreement, the sale agreement or the servicing agreement. |
If event of default number 5 above occurs, the trustee may to the extent allowed by applicable law institute or participate in proceedings necessary to compel performance of or to enforce the pledge of either the State of Louisiana or the Louisiana commission and to collect any monetary damages incurred by the storm recovery bondholders or the trustee as a result of such event of default. This is the only remedy the trustee may exercise if this event of default has occurred.
When the Trustee Can Sell the Collateral. If the storm recovery bonds have been declared to be due and payable following an event of default, the trustee may, at the written direction of the holders of a majority in principal amount of the storm recovery bonds, either:
• | subject to the paragraph immediately below, sell the collateral securing the storm recovery bonds, |
• | elect to have us maintain possession of the collateral securing the storm recovery bonds, or |
• | take such other remedial action as the trustee, at the written direction of the holders of a majority in principal amount of the storm recovery bonds then outstanding and declared to have been due and payable, may direct and continue to apply distributions on the collateral securing the storm recovery bonds as if there had been no declaration of acceleration. |
The trustee is prohibited from selling the collateral securing the storm recovery bonds following an event of default unless the final payment date of the storm recovery bonds has occurred or the storm recovery bonds have been declared due and payable and:
• | the holders of 100% of the principal amount of the storm recovery bonds consent to the sale, |
• | the proceeds of the sale or liquidation are sufficient to pay in full the principal of and premium, if any, and accrued interest on the outstanding storm recovery bonds, or |
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• | the trustee determines that funds provided by the collateral securing the storm recovery bonds would not be sufficient on an ongoing basis to make all payments on the storm recovery bonds as these payments would have become due if the storm recovery bonds had not been declared due and payable, and the trustee obtains the written consent of the holders of at least two-thirds of the aggregate outstanding principal amount of the storm recovery bonds. |
Right of Storm Recovery Bondholders to Direct Proceedings. Subject to the provisions for indemnification and the limitations contained in the indenture, the holders of a majority in principal amount of the outstanding storm recovery bonds of the affected tranche or tranches will have the right to direct the time, method and place of conducting any proceeding or any remedy available to the trustee or exercising any trust or power conferred on the trustee; provided that, among other things:
• | this direction does not conflict with any rule of applicable law or with the indenture or the series supplement and shall not involve the trustee in any personal liability or expense, |
• | any direction to the trustee to sell or liquidate any of the collateral securing the storm recovery bonds shall be by the holders of the storm recovery bonds representing not less than 100% of the outstanding storm recovery bonds, |
• | so long as the conditions specified in the indenture have been satisfied and the trustee elects to retain the collateral securing the storm recovery bonds pursuant to the indenture and elects not to sell or liquidate that collateral, any direction to the trustee to sell or liquidate the collateral securing the storm recovery bonds or any portion thereof by the holders representing not less than 100% of the outstanding amount of the storm recovery bonds, shall be of no force and effect, and |
• | the trustee may take any other action deemed proper by the trustee that is not inconsistent with this direction. |
However, in case an event of default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders of the storm recovery bonds if:
• | it reasonably believes it will not be indemnified to its satisfaction against any cost, expense or liabilities, or |
• | it determines that this action might materially adversely affect the rights of any storm recovery bondholder not consenting to the action. |
Waiver of Default. Prior to acceleration of the maturity of the storm recovery bonds or any tranche thereof, the holders of a majority in principal amount of the storm recovery bonds may, subject to certain conditions specified in the indenture, waive any default with respect to the storm recovery bonds. However, they may not waive a default in the payment of principal of or premium, if any, or interest on any of the storm recovery bonds or a default in respect of a covenant or provision of the indenture that cannot be modified without the waiver or consent of all of the holders of the outstanding storm recovery bonds of all tranches affected.
Limitation of Proceedings. Under the indenture, no storm recovery bondholder will have the right to institute any proceeding, judicial or otherwise, or to avail itself of the right to foreclose on the storm recovery property or otherwise enforce the lien in the storm recovery property pursuant to Section 1231 of the Securitization Act, unless:
• | the holder previously has given to the trustee written notice of a continuing event of default, |
• | the holders of a majority in principal amount of the outstanding storm recovery bonds have made written request of the trustee to institute the proceeding in its own name as trustee, |
• | the holder or holders have offered the trustee indemnity satisfactory to the trustee against the costs, expenses and liabilities to be incurred in complying with the request, |
• | the trustee for 60 days after its receipt of the notice, request and offer of indemnity has failed to institute the proceeding, and |
• | no direction inconsistent with this written request has been given to the trustee during the 60-day period referred to above by the holders of a majority in principal amount of the outstanding storm recovery bonds. |
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In addition, each of the trustee, the storm recovery bondholders and the servicer will covenant that it will not, prior to the date that is one year and one day after the termination of the indenture, acquiesce, petition or otherwise invoke or cause us or any manager to invoke against us or against our managers or our member or members any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law. By purchasing storm recovery bonds, each storm recovery bondholder will be deemed to have made this covenant.
Consolidation, Merger or Sale of Assets. We will keep in effect our existence, rights and franchises as a limited liability company under Louisiana law, provided that we may consolidate with, merge into or convert into another entity or sell substantially all of our assets to another entity if:
• | the entity formed by or surviving the consolidation, merger or conversion or to whom substantially all of our assets are sold is organized under the laws of the United States or any state thereof and expressly assumes by a supplemental indenture the due and punctual payment of the principal of and premium, if any, and interest on all outstanding storm recovery bonds and the performance of our obligations under the indenture, |
• | the entity formed by or surviving the consolidation, merger or conversion or to whom substantially all of our assets are sold expressly assumes all obligations and succeeds to all of our rights under the sale agreement, the administration agreement, the servicing agreement and any other basic document specified in the indenture to which we are a party (or under which we have rights) pursuant to an assignment and assumption agreement executed and delivered to the trustee, |
• | no default or event of default will have occurred and be continuing immediately after giving effect to the merger, consolidation, conversion or sale, |
• | prior notice will have been given to the rating agencies and the rating agency condition will have been satisfied with respect to the merger, consolidation, conversion or sale, |
• | we have received an opinion of independent counsel to the effect that the merger, consolidation, conversion or sale, will have no material adverse tax consequence to us or any storm recovery bondholder, complies with the indenture and all conditions precedent therein provided relating to the merger, consolidation, conversion or sale, and will result in the trustee maintaining a continuing valid first priority perfected security interest in the collateral, |
• | none of the storm recovery property, the financing order or our rights under the Securitization Act or the financing order are impaired thereby, and |
• | any action that is necessary to maintain the lien and security interest created by the indenture has been taken. |
Additional Covenants. We will from time to time execute and deliver all documents, make all filings and take any other action necessary or advisable to, among other things, maintain and preserve the lien of the indenture and the priority thereof. We will not, among other things:
• | permit the validity or effectiveness of the indenture or other basic documents to be impaired or the lien to be amended, hypothecated, subordinated, terminated or discharged, |
• | permit any person to be released from any covenants or obligations with respect to the storm recovery bonds except as expressly permitted by the indenture, |
• | permit any lien, charge, claim, security interest, mortgage or other encumbrance, other than the lien of the indenture, to be created on or extend to or otherwise arise upon or burden the collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens arising by operation of law with respect to amounts not yet due), |
• | permit the lien of the indenture not to constitute a valid first priority perfected security interest in the collateral securing the storm recovery bonds, |
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• | except as expressly permitted by the indenture, the series supplement, or other basic documents or in connection with the issuance of an additional series of storm recovery bonds, sell, transfer, convey, exchange or otherwise dispose of any of our properties or assets, including those included in the collateral securing the storm recovery bonds unless in accordance with the indenture, |
• | claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the storm recovery bonds, other than amounts properly withheld from such payments under the Internal Revenue Code of 1986, the Treasury regulations promulgated thereunder or other tax laws or assert any claim against any present or former storm recovery bondholder because of the payment of taxes levied or assessed upon any part of the collateral securing the storm recovery bonds, |
• | terminate our existence, dissolve or liquidate in whole or in part, except as otherwise permitted by the indenture, |
• | change our name, identity or structure or the location of our chief executive office or state of formation, unless, at least ten business days prior to the effective date of any such change, we deliver to the trustee, with copies to the rating agencies, such documents, instruments or agreements, executed by us, as are necessary to reflect such change and to continue the perfection of the security interest of the indenture, |
• | take any action which is the subject of a rating agency condition without satisfying the rating agency condition, |
• | elect to be classified as an association taxable as a corporation for federal income tax purposes or otherwise take any action inconsistent with our treatment for federal income tax purposes as a disregarded entity not separate from our sole owner, |
• | except to the extent permitted by applicable law, voluntarily suspend or terminate our filing obligations with the SEC as described in the indenture, or |
• | issue any debt obligations other than storm recovery bonds permitted by the indenture. |
We may not engage in any business other than financing, purchasing, owning, administering, managing and servicing storm recovery property and the assets in the collateral securing the storm recovery bonds and the issuance of storm recovery bonds in the manner contemplated by the financing order and the indenture and other basic documents and activities incidental thereto.
We may not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the storm recovery bonds permitted by the indenture and any other indebtedness expressly permitted by or arising under the basic documents. Also, we may not guarantee or otherwise become contingently liable in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire, or agree contingently to acquire, any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other person, except as otherwise contemplated by the indenture, the sale agreement, or the servicing agreement. We may not, except as contemplated by the indenture, the sale agreement, the servicing agreement and related documents (or as contemplated by an additional financing order issued by the LPSC to Cleco Power), including our limited liability company operating agreement, make any loan or advance or credit to any person. We will not make any expenditure for capital assets or lease any capital asset other than the storm recovery property purchased from Cleco Power pursuant to, and in accordance with, the sale agreement. We may not make any payments, distributions or dividends to any member in respect of its membership interest except in accordance with the indenture.
The servicer will deliver to the trustee the annual accountant’s report, compliance certificates and reports regarding distributions and other statements required by the servicing agreement. Please read “The Servicing Agreement” in this prospectus.
Any storm recovery bondholder, or group of storm recovery bondholders, owning at least ten percent of the outstanding amount of the storm recovery bonds may, by written request to the trustee, obtain access to the list of all storm recovery bondholders maintained by the trustee for the purpose of communicating with other storm recovery bondholders with respect to their rights under the indenture or the storm recovery bonds; provided, that the trustee gives prior written notice to us of such request.
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We will deliver to the trustee, the Louisiana commission and each rating agency not later than March 31 of each year (commencing with March 31, 2023), an officer’s certificate stating, as to the responsible officer signing such officer’s certificate, that:
• | a review of our activities during the preceding twelve months ended December 31, (or, in the case of the first such officer’s certificate, since the date of the indenture) and of performance under the indenture has been made; and |
• | to the best of such responsible officer’s knowledge, based on such review, we have in all material respects complied with all conditions and covenants under the indenture throughout such period, or, if there has been a default in the compliance of any such condition or covenant, specifying each such default known to the responsible officer and the nature and status thereof. |
If required by the Trust Indenture Act, the trustee will be required to mail each year to all storm recovery bondholders a brief report. This report may state, in accordance with the requirements of the Trust Indenture Act, among other items:
• | the trustee’s eligibility and qualification to continue as the trustee under the indenture, |
• | any amounts advanced by it under the indenture, |
• | the amount, interest rate and maturity date of specific indebtedness owed by us to the trustee in the trustee’s individual capacity, |
• | the property and funds physically held by the trustee, and |
• | any action taken by it that materially affects the storm recovery bonds and that has not been previously reported. |
The indenture will cease to be of further effect with respect to the storm recovery bonds, and the trustee, on our reasonable written demand and at our expense, will execute instruments acknowledging satisfaction and discharge of the indenture with respect to the storm recovery bonds, when:
• | either all storm recovery bonds which have already been authenticated or delivered, with certain exceptions set forth in the indenture, have been delivered to the trustee for cancellation or either scheduled final payment date has occurred with respect to all storm recovery bonds that have not been delivered to the trustee for cancellation or the storm recovery bonds will be due and payable on their respective scheduled final payment dates within one year, and we have irrevocably deposited in trust with the trustee cash or U.S. government obligations specified in the indenture, in an amount sufficient to make payments of principal of and premium, if any, and interest on the storm recovery bonds not theretofore delivered to the trustee for cancellation, ongoing financing costs and all other sums payable to us pursuant to the indenture with respect to the storm recovery bonds when scheduled to be paid and to discharge the entire indebtedness on those storm recovery bonds not previously delivered to the trustee when due, |
• | we have paid or caused to be paid all other sums payable by us under the indenture with respect to the storm recovery bonds, and |
• | we have delivered to the trustee an officer’s certificate, an opinion of external counsel, and if required by the Trust Indenture Act or the trustee, a certificate from a firm of independent certified public accountants, each stating that there has been compliance with the conditions precedent in the indenture or relating to the satisfaction and discharge of the indenture with respect to the storm recovery bonds. |
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We may, at any time, terminate:
• | all of our obligations under the indenture with respect to the storm recovery bonds, or |
• | our obligations to comply with some of the covenants in the indenture, including some of the covenants described under “—Our Covenants.” |
The legal defeasance option is our right to terminate at any time our obligations under the indenture with respect to the storm recovery bonds. The covenant defeasance option is our right at any time to terminate our obligations to comply with some of the covenants in the indenture. We may exercise the legal defeasance option with respect to the storm recovery bonds notwithstanding our prior exercise of the covenant defeasance option. If we exercise the legal defeasance option, the storm recovery bonds will be entitled to payment only from the funds or other obligations set aside under the indenture for payment thereof on the scheduled final payment date therefor as described below. The storm recovery bonds will not be subject to payment through acceleration prior to the scheduled final payment date. If we exercise the covenant defeasance option, the final payment of the storm recovery bonds may not be accelerated because of an event of default relating to a default in the observance or performance of our covenants or as described in “—What Constitutes an Event of Default on the Storm Recovery Bonds” above.
We may exercise the legal defeasance option or the covenant defeasance option with respect to storm recovery bonds only if:
• | we have irrevocably deposited or caused to be irrevocably deposited in trust with the trustee cash or U.S. government obligations specified in the indenture that through the scheduled payments of principal and interest in respect thereof in accordance with their terms are in an amount sufficient to pay principal, interest and premium, if any, on the storm recovery bonds not theretofore delivered to the trustee for cancellation and ongoing financing costs and all other sums payable under the indenture by us with respect to the storm recovery bonds when scheduled to be paid and to discharge the entire indebtedness on the storm recovery bonds when due, |
• | we deliver to the trustee a certificate from a nationally recognized firm of independent registered public accountants expressing its opinion that the payments of principal of and interest on the deposited U.S. government obligations when due and without reinvestment plus any cash deposited in the defeasance subaccount will provide cash at times and in sufficient amounts to pay in respect of the storm recovery bonds principal in accordance with the expected sinking fund schedule therefor, interest when due and ongoing financing costs and all other sums payable by us under the indenture with respect to the storm recovery bonds, |
• | in the case of the legal defeasance option, 95 days pass after the deposit is made and during the 95-day period no default relating to events of our bankruptcy, insolvency, receivership or liquidation occurs and is continuing at the end of the period, |
• | no default has occurred and is continuing on the day of this deposit and after giving effect thereto, |
• | in the case of an exercise of the legal defeasance option, we shall have delivered to the trustee an opinion external of counsel stating that we have received from, or there has been published by, the Internal Revenue Service a ruling, or since the date of execution of the indenture, there has been a change in the applicable federal income tax law, and in either case confirming that the holders of the storm recovery bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such legal defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the legal defeasance had not occurred, |
• | in the case of an exercise of the covenant defeasance option, we shall have delivered to the trustee an opinion of external counsel to the effect that the holders of the storm recovery bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the covenant defeasance had not occurred, |
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• | we deliver to the trustee a certificate of one of our officers and an opinion of counsel, each stating that all conditions precedent to the legal defeasance option or the covenant defeasance option, as applicable, have been complied with as required by the indenture, |
• | we deliver to the trustee an opinion of external counsel to the effect that (a) in a case under the Bankruptcy Code in which Cleco Power (or any of its affiliates, other than us) is the debtor, the court would hold that the deposited cash or U.S. government obligations would not be in the bankruptcy estate of Cleco Power (or any of its affiliates, other than us, that deposited the moneys or U.S. government obligations); and (b) in the event Cleco Power (or any of its affiliates, other than us, that deposited the moneys or U.S. government obligations), were to be a debtor in a case under the Bankruptcy Code, the court would not disregard the separate legal existence of Cleco Power (or any of its affiliates, other than us, that deposited the moneys or U.S. government obligations) and us so as to order substantive consolidation under the Bankruptcy Code of our assets and liabilities with the assets and liabilities of Cleco Power or such other affiliate, and |
• | each rating agency has notified us and the trustee that the exercise of the proposed defeasance option will not result in a downgrade or withdrawal of the then current rating of any then outstanding storm recovery bonds. |
No recourse may be taken directly or indirectly, by the holders of the storm recovery bonds with respect to our obligations on the storm recovery bonds, under the indenture or the series supplement or any certificate or other writing delivered in connection therewith, against (1) us, other than from the storm recovery bond collateral, (2) any owner of a beneficial interest in us (including Cleco Power) or (3) any shareholder, partner, owner, beneficiary, agent, officer, director or employee of the trustee, the managers or any owner of a beneficial interest in us (including Cleco Power) in its individual capacity, or of any successor or assign or any of them in their respective individual or corporate capacities, except as any such person may have expressly agreed in writing.
Notwithstanding any provision of the indenture or the series supplement to the contrary, bondholders shall look only to the storm recovery bond collateral with respect to any amounts due to the storm recovery bondholders under the indenture and the storm recovery bonds, and, in the event such collateral is insufficient to pay in full the amounts owed on the storm recovery bonds, shall have no recourse against us in respect of such insufficiency. Each bondholder by accepting a storm recovery bond specifically confirms the nonrecourse nature of these obligations, and waives and releases all such liability. The waiver and release are part of consideration for issuance of storm recovery bonds.
The indenture will be governed by the laws of the State of Louisiana.
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The Bank of New York Mellon Trust Company, National Association, a national banking association, will be the indenture trustee. The Bank of New York Mellon Trust Company, National Association will also act as paying agent and registrar for the storm recovery bonds. The Bank of New York Mellon Trust Company, National Association corporate trust businesses have office locations in various domestic and international cities. The Bank of New York Mellon Trust Company, National Association has acted as indenture trustee on numerous electric utility sponsored bond transactions. The indenture and series supplement will be administered from The Bank of New York Mellon Trust Company, National Association Corporate Trust Department located at 2 North LaSalle St., Suite 700, Chicago, Illinois 60602.
The trustee may resign at any time upon 30 days’ notice by so notifying us. The holders of a majority in principal amount of the storm recovery bonds then outstanding may remove the trustee by so notifying the trustee and us in writing and may appoint a successor trustee. We will remove the trustee by written notice if the trustee ceases to be eligible to continue in this capacity under the indenture, the trustee becomes a debtor in a bankruptcy proceeding or is adjudged insolvent, a receiver, administrator or other public officer takes charge of the trustee or its property or the trustee becomes incapable of acting. If the trustee gives notice of resignation or is removed or a vacancy exists in the office of trustee for any reason, we will be obligated promptly to appoint a successor trustee eligible under the indenture. We are responsible, initially, for payment of the expenses associated with any such removal or resignation, but any such expenses will be treated as an operating expense and paid out of the general subaccount on a payment date in accordance with the priority of payments set forth in “Description of the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus. No resignation or removal of the trustee will become effective until acceptance of the appointment by a successor trustee. The trustee shall at all times satisfy the requirements of certain provisions of the Trust Indenture Act, as amended, and the Investment Company Act of 1940, as amended, and have a combined capital and surplus of at least $50 million and a long-term debt rating from each of Moody’s, S&P and Fitch in one of its generic rating categories that specifies investment grade. If the trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another entity, the resulting, surviving or transferee entity shall without any further action be the successor trustee; provided, however, that if such successor trustee is not eligible under the indenture, the successor trustee will be replaced in accordance with the terms of the indenture. We and our affiliates may, from time to time, maintain various banking, investment banking and trust relationships with the trustee and its affiliates. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus for further information.
The trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers, provided that its conduct does not constitute willful misconduct, negligence or bad faith. We have agreed to indemnify the trustee and its officers, directors, employees and agents against any and all cost, damage, liability, tax or expense (including reasonable attorney’s fees and expenses) incurred by it in connection with the administration and enforcement of the indenture, the series supplement and the other basic documents and the performance of its duties under the indenture, the series supplement and the other basic documents, provided that we are not required to pay any expense or indemnify against any loss, liability or expense incurred by the trustee through the trustee’s own willful misconduct, negligence or bad faith. Please read “Prospectus Summary of Terms—Priority of Payments” and “Description of the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus for further information.
In the ordinary course of business, The Bank of New York Mellon Trust Company, National Association, is named as a defendant in or made a party to pending and potential legal actions. In connection with its role as the indenture trustee of certain residential mortgage-backed securitization (RMBS) transactions, The Bank of New York Mellon Trust Company, National Association was named as a defendant in a lawsuit brought in New York State court by RMBS investors. This lawsuit alleges that The Bank of New York Mellon Trust Company, National Association had expansive duties under the governing agreements, including the duty to investigate and pursue breach of representation and warranty claims against other parties to the RMBS transactions. While it is inherently difficult to predict the eventual outcomes of pending actions, The Bank of New York Mellon Trust Company, National Association denies liability and intends to defend the litigation vigorously.
We, Cleco Power and our respective affiliates may from time to time enter into normal banking and trustee relationships with The Bank of New York Mellon Trust Company, National Association and its affiliates. No relationships currently exist or existed during the past two years between Cleco Power, us and our respective
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affiliates, on the one hand, and The Bank of New York Mellon Trust Company, National Association and its affiliates, on the other hand, that would be outside the ordinary course of business or on terms other than would be obtained in an arm’s length transaction with an unrelated third party.
The rate of principal payments, the amount of each interest payment and the actual final payment date of each tranche of the storm recovery bonds and the weighted average life thereof will depend primarily on the timing of receipt of collected storm recovery charges by the trustee and the true-up mechanism. The aggregate amount of collected storm recovery charges and the rate of principal amortization on the storm recovery bonds will depend, in part, on actual energy usage and energy demands, and the rate of delinquencies and write-offs. The storm recovery charges are required to be adjusted from time to time based in part on the actual rate of collected storm recovery charges. However, we can give no assurance that the servicer will be able to forecast accurately actual electricity usage and the rate of delinquencies and write-offs or implement adjustments to the storm recovery charges that will cause collected storm recovery charges to be received at any particular rate. Please read “Risk Factors—Servicing Risks,” “—Other Risks Associated with an Investment in the Storm Recovery Bonds” and “Cleco Power’s Financing Order—True-Ups” in this prospectus.
If the servicer receives storm recovery charges at a slower rate than expected, the storm recovery bonds may be retired later than expected. Except in the event of the acceleration of the final payment date of the storm recovery bonds after an event of default, however, the storm recovery bonds will not be paid at a rate faster than that contemplated in the expected amortization schedule for each tranche of the storm recovery bonds even if the receipt of collected storm recovery charges is accelerated. Instead, receipts in excess of the amounts necessary to amortize the storm recovery bonds in accordance with the applicable expected amortization schedules, to pay interest and related fees and expenses and to fund subaccounts of the collection account will be allocated to the excess funds subaccount. Acceleration of the final maturity date after an event of default in accordance with the terms thereof may result in payment of principal earlier than the related scheduled final payment dates for Tranche A-2 and later than the related scheduled final payment dates for Tranche A-1. A payment on a date that is earlier than forecast might result in a shorter weighted average life, and a payment on a date that is later than forecast might result in a longer weighted average life. In addition, if a larger portion of the delayed payments on the storm recovery bonds is received in later years, the storm recovery bonds may have a longer weighted average life.
Weighted average life refers to the average amount of time from the date of issuance of a security until each dollar of principal of the security has been repaid to the investor. The rate of principal payments on each tranche of the storm recovery bonds, the aggregate amount of each interest payment on each tranche of the storm recovery bonds and the actual final payment date of each tranche of the storm recovery bonds will depend on the timing of the servicer’s receipt of storm recovery charges from Cleco Power’s customers. Changes in the expected weighted average lives of the tranches of the storm recovery bonds in relation to variances in actual energy consumption levels from forecast levels are shown below. Severe stress cases on electricity consumption result in very minor changes, if any, in the weighted average lives of each tranche.
The storm recovery bonds may be retired later than expected. Except in the event of an acceleration of the expected amortization schedule of the storm recovery bonds after an event of default, however, the storm recovery bonds will not be paid at a rate faster than that contemplated in the expected amortization schedule even if the receipt of storm recovery charges collections is accelerated. Instead, receipts in excess of the amounts necessary to amortize the storm recovery bonds in accordance with the expected amortization schedule, to pay interest, ongoing transaction costs and any other related fees and expenses, and to fund deficiencies in the capital subaccount of the collection account will be allocated to the excess funds subaccount. Amounts on deposit in the excess funds subaccount will be taken into consideration in calculating the next true-up adjustment. Acceleration of the storm recovery bonds after an event of default in accordance with the terms thereof may result in payment of principal earlier than the scheduled final payment date. A payment on a date that is earlier than forecast might result in a shorter weighted average life, and a payment on a date that is later than forecast might result in a longer weighted average life. In addition, if a larger portion of the delayed payments on the storm recovery bonds is received in later years, the storm recovery bonds may have a longer weighted average life.
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| | | | | Weighted Average Life Sensitivity | |||||||||||
| | | | | -5% ( Standard Deviations from Mean) | | | -15% ( Standard Deviations from Mean) | ||||||||
Tranche | | | Expected Weighted Average Life (Years) | | | WAL (yrs) | | | Change (days)* | | | WAL (yrs) | | | Change (days)* |
A-1 | | | | | | | | | | | |||||
A-2 | | | | | | | | | | | |||||
There can be no assurance that the weighted average lives of the various tranches of the storm recovery bonds will be as shown in the above table.
For the purposes of preparing the above chart, the following assumptions, among others, have been made: (i) in relation to the initial forecast, the forecast error stays constant over the life of the storm recovery bonds and is equal to an overestimate of electricity consumption of 5% ( standard deviations from mean) or 15% ( standard deviations from mean); (ii) the servicer makes timely and accurate filings to make a true-up adjustment to the storm recovery charges semi-annually; (iii) customers remit all storm recovery charges 60 days after such charges are billed; (iv) operating expenses are equal to projections; (v) there is no acceleration of the final maturity date of the storm recovery bonds; and (vi) the issuance date of the storm recovery bonds is , 2022.
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Estimated initial annual fees and expenses payable from the storm recovery charges are shown below. For the priorities in application of funds under the indenture and the series supplement, please refer to “The Security for the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus.
As set forth in the table below, we are obligated to pay fees to the trustee, Cleco Power, as servicer, Cleco Power, as administrator and our independent manager. We are also obligated to pay Cleco Power an annual return on its invested capital. The following table illustrates these arrangements:
Recipient | | | Source of Payment | | | Estimated Fees and Expenses Payable |
Trustee | | | Storm recovery charges and investment earnings | | | $5,000 per annum, plus certain additional charges, if applicable |
| | | | | |||
Servicer | | | Storm recovery charges and investment earnings | | | $212,500 per annum (so long as Cleco Power is servicer), payable in installments on each payment date, plus reimbursable expenses |
| | | | | |||
Administrator | | | Storm recovery charges and investment earnings | | | $100,000 per annum (so long as Cleco Power is servicer), payable in installments on each payment date, plus reimbursable expenses |
| | | | | |||
Independent manager | | | Storm recovery charges and investment earnings | | | $5,000 per annum |
| | | | | |||
Cleco Power return on invested capital | | | Storm recovery charges and investment earnings | | | $ per annum |
If Cleco Power or any of its affiliates is not the servicer, an amount agreed upon by the successor servicer and the trustee, provided, that the fee will not, unless the Louisiana commission consents, exceed 0.60% of the initial principal amount of the storm recovery bonds on an annualized basis.
The storm recovery charges will also be used by the trustee for the payment of our other financing costs and expenses relating to the storm recovery bonds, such as accounting and audit fees, rating agency fees and legal fees.
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The following summary describes particular material terms and provisions of the sale agreement pursuant to which we will purchase the storm recovery property from Cleco Power. We have filed the form of the sale agreement with the SEC as an exhibit to the registration statement of which this prospectus forms a part, and we urge you to read such document in its entirety.
In connection with the issuance of the storm recovery bonds, Cleco Power, as the seller, will offer and sell the storm recovery property to us pursuant to the terms and conditions of the sale agreement. The sale of the storm recovery property to us by Cleco Power will be financed through the corresponding issuance of the storm recovery bonds. Pursuant to the sale agreement, Cleco Power will sell and assign to us concurrently with the issuance and sale of the storm recovery bonds to the underwriters, without recourse, except as expressly provided therein, its rights and interests in and to the financing order. The storm recovery property will represent all rights and interests of Cleco Power under the financing order that are sold and transferred to us pursuant to the sale agreement and the related bill of sale, including the right to impose, bill, charge, collect and receive the storm recovery charges authorized in the financing order with respect to the storm recovery bonds, to obtain periodic adjustments to such charges as provided in the financing order and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. The storm recovery property does not include the rights of Cleco Power to earn and receive a rate of return on its invested capital in us, to receive administration and servicer fees, to withdraw funds from its restricted storm recovery reserves funded by the proceeds from the sale of the storm recovery property, or to use Cleco Power’s remaining portion of those proceeds. We will apply the net proceeds that we receive from the sale of the storm recovery bonds to the purchase of the storm recovery property.
As provided by the Securitization Act, our purchase of the storm recovery property from Cleco Power will be pursuant to the sale agreement, which will expressly provide that such transfer is a sale, will be a true sale, and is not a secured transaction, and all title and ownership to the storm recovery property will pass to us. Under the Securitization Act, such sale will constitute a true sale under state law whether or not:
• | we have any recourse against Cleco Power (except that any such recourse cannot arise from the inability or failure of one or more of Cleco Power’s customers to timely pay all or a portion of the storm recovery charge), |
• | Cleco Power retains any equity interest in the storm recovery property under state law, |
• | Cleco Power acts as a collector of the storm recovery charges, or |
• | Cleco Power treats the transfer as a financing for tax, financial reporting or other purposes. |
Under the Securitization Act, as of the effective date of a financing order, there is created and established for Cleco Power storm recovery property, which constitutes an existing, present, vested contract right constituting an individualized, separate incorporeal movable susceptible of ownership, sale, assignment, transfer, and security interest.
Upon the issuance of a financing order, the execution and delivery of the related sale agreement and bill of sale and the filing of a financing statement under the Securitization Act, our purchase of the storm recovery property from Cleco Power will be perfected as against all third persons, including subsequent judicial or other lien creditors.
The records and computer systems of Cleco Power and Cleco Holdings will reflect the sale and assignment of Cleco Power’s rights and interests under the financing order to us. However, we expect that the storm recovery bonds will be reflected as debt on Cleco Power’s financial statements. In addition, we anticipate that the storm recovery bonds will be treated as debt of Cleco Power for federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences.”
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Cleco Power’s obligation to sell, and our obligation to purchase, the storm recovery property on the issuance date, are both subject to and conditioned upon the satisfaction or waiver of each of the following conditions:
• | on or prior to the issuance date, Cleco Power must deliver to us a duly executed bill of sale identifying the storm recovery property to be conveyed on that date; |
• | as of the issuance date, the representations and warranties of Cleco Power in the sale agreement must be true and correct in all material respects and no material breach by Cleco Power of its covenants in the sale agreement shall exist, and no default by the servicer shall have occurred and be continuing under the servicing agreement, as certified by Cleco Power; |
• | as of the issuance date, we must have sufficient funds available to pay the purchase price for the storm recovery property to be conveyed, all conditions to the issuance of the storm recovery bonds to purchase the storm recovery property set forth in the indenture must have been satisfied or waived, and Cleco Power is not insolvent and will not have been made insolvent by the sale of the storm recovery property and Cleco Power is not aware of any pending insolvency with respect to itself; |
• | on or prior to the issuance date, Cleco Power must have taken all action required under the Securitization Act, the financing order and other applicable law for us to have ownership of the storm recovery property, free and clear of all liens other than liens created by us pursuant to the indenture; and we or the servicer, on our behalf, must have taken any action required for us to grant the trustee a first priority perfected security interest in the collateral securing the storm recovery bonds and maintain such security interest as of the issuance date (including all actions required under the Securitization Act, the financing order and the Uniform Commercial Code); |
• | Cleco Power must deliver to each rating agency and to us any opinion of counsel requested by the ratings agencies; |
• | Cleco Power must deliver to the trustee and to us an officers’ certificate confirming the satisfaction of each of these conditions as relevant; and |
• | we have received the purchase price in funds immediately available on the issuance date. |
In the sale agreement, Cleco Power will make representations and warranties to us, as of the issuance date, to the effect, among other things, that:
1. | subject to clause 9 below (assumptions used in calculating the storm recovery charges as of the applicable issuance date), all written information, as amended or supplemented from time to time, provided by Cleco Power to us with respect to the storm recovery property (including the financing order and the issuance advice letter) is correct in all material respects and does not omit any material facts required to be included therein and all historical data for the purpose of calculating the initial storm recovery charges in the issuance advice letter and the assumptions used for such calculations are reasonable and such calculations were made in good faith; |
2. | it is the intention of the parties to the sale agreement that, other than for specified tax purposes, the sale, transfer, assignment, setting over and conveyance of the storm recovery property contemplated by the sale agreement constitutes a sale or other absolute transfer of all right, title and interest of Cleco Power in and to the storm recovery property transferred to us; upon execution and delivery of the sale agreement and the related bill of sale and payment of the purchase price, Cleco Power will have no right, title or interest in, to or under the storm recovery property; and that the storm recovery property would not be a part of the estate of Cleco Power, as debtor, in the event of the filing of a bankruptcy petition by or against Cleco Power under any bankruptcy law; no portion of the storm recovery property has been sold, transferred, assigned, pledged or otherwise conveyed by Cleco Power to any person other than us, and, to Cleco Power’s knowledge, no security arrangement, financing statement or equivalent security or lien instrument listing Cleco Power, as debtor, and all or a portion of the storm recovery property, as collateral, is on file or of record in Louisiana, except such as may have been filed or recorded in favor of us or the trustee in connection with the basic documents; |
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3. a. | Cleco Power is the sole owner of the rights and interests under the financing order being sold to us on the issuance date, |
b. | on the issuance date, immediately upon the sale under the sale agreement, the storm recovery property will have been validly sold, assigned, transferred set over and conveyed to us free and clear of all liens (except for any lien created by us under the basic documents in favor of the storm recovery bondholders and in accordance with the Securitization Act), and |
c. | all actions or filings (including filings with the Louisiana UCC filing officer in accordance with the rules prescribed under the Securitization Act and the Uniform Commercial Code) necessary in any jurisdiction to give us a perfected ownership interest (subject to any lien created by us under the basic documents in favor of the storm recovery bondholders and in accordance with the Securitization Act) in the storm recovery property and to grant to the trustee a first priority perfected security interest in the storm recovery property, free and clear of all liens of Cleco Power or anyone else (except for any lien created by us under the basic documents in favor of the storm recovery bondholders and in accordance with the Securitization Act) have been taken or made; |
4. | the financing order has been issued by the Louisiana commission in accordance with the Securitization Act, the financing order and the process by which it was issued comply with all applicable laws, rules and regulations of the State of Louisiana and the federal laws of the United States, and the financing order is final, non-appealable and in full force and effect; |
5. | as of the date of issuance of the storm recovery bonds, the storm recovery bonds will be entitled to the protections provided by the Securitization Act and the financing order, the issuance advice letter and the storm recovery charges authorized therein will have become irrevocable and not subject to reduction, impairment or adjustment by further action of the Louisiana commission, except as permitted by Section 1228(c)(4) of the Securitization Act. The issuance advice letter and the rate schedule have been filed in accordance with the financing order and an officer of Cleco Power has provided the certification to the Louisiana commission required by the issuance advice letter. The initial storm recovery charges and the final terms of the storm recovery bonds set forth in the issuance advice letter have become effective. No other approval, authorization, consent, order or other action of, or filing with any Governmental Authority is required in connection with the creation of the storm recovery property, except those that have been obtained or made; |
6. a. | under the Securitization Act, the State of Louisiana has pledged that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana commission to create a present contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that would impair the value of the storm recovery property or, except as permitted by §1228(c)(5) of the Securitization Act, reduce, alter or impair the related storm recovery charges until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds, have been paid and performed in full, |
b. | under the laws of the State of Louisiana and the federal laws of the United States, a reviewing court of competent jurisdiction would hold that (x) the State of Louisiana could not constitutionally take any action of a legislative character, including the repeal or amendment of the Securitization Act, which would substantially limit, alter or impair the storm recovery property or other rights vested in the storm recovery bondholders pursuant to the financing order, or substantially limit, alter, impair or reduce the value or amount of the storm recovery property, unless that action is a reasonable and necessary exercise of the State of Louisiana’s sovereign powers based on reasonable conditions and of a character reasonable and appropriate to the emergency or other significant and legitimate public purpose justifying that action, and, (y) under the takings clauses of the Louisiana and United States Constitutions, if the court concludes that the storm recovery property is protected by the takings clauses, the State of Louisiana could not repeal or amend the Securitization Act or take any other action in contravention of its pledge referred to in subsection (a) above without paying just compensation to the storm recovery bondholders, as determined by a court of competent jurisdiction, if doing so would constitute a permanent appropriation of a substantial |
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property interest of the storm recovery bondholders in the storm recovery property and deprive the storm recovery bondholders of their reasonable expectations arising from their investments in the storm recovery bonds or substantially reduce, limit or impair the value of the storm recovery property or the storm recovery charges, prior to the time that the storm recovery bonds are fully paid and discharged; however, there is no assurance that, even if a court were to award just compensation, it would be sufficient to pay the full amount of principal and interest on the storm recovery bonds, and
c. | under the laws of the State of Louisiana and the United States Constitution, a Louisiana state court reviewing an appeal of Louisiana commission action of a legislative character would conclude that the Louisiana commission pledge (i) creates a binding contractual obligation of the State of Louisiana for purposes of the contract clauses of the United States and Louisiana Constitutions, and (ii) the Louisiana commission could not take any action of a legislative character, including the rescission or amendment of the financing order, which violates the Louisiana commission pledge in a manner that substantially reduces, limits or impairs the value of the storm recovery property or the storm recovery charges, prior to the time that the storm recovery bonds are paid in full and discharged, unless the Louisiana commission action clearly is exercised for a public end and is reasonably necessary to the accomplishment of that public end so as not to be arbitrary, capricious or an abuse of authority. There is no assurance, however, that even if a court were to award just compensation it would be sufficient to pay the full amount of principal and interest on the storm recovery bonds; |
7. | there is no order by any court providing for the revocation, alteration, limitation or other impairment of the Securitization Act, the financing order or issuance advice letter, the storm recovery property or the storm recovery charges or any rights arising under any of them or that seeks to enjoin the performance of any obligations under the financing order; |
8. | under the laws of the State of Louisiana and the federal laws of the United States in effect on the issuance date, no other approval, authorization, consent, order or other action of, or filing with any court, federal or state regulatory body, administrative agency or governmental instrumentality is required in connection with the creation or transfer of Cleco Power’s rights and interests related to the storm recovery bonds under the financing order and our purchase of the storm recovery property from Cleco Power, except those that have been obtained or made; |
9. | based on information available to Cleco Power on the issuance date, the assumptions used in calculating the storm recovery charges in the issuance advice letter are reasonable and made in good faith; however, notwithstanding the foregoing, Cleco Power makes no representation or warranty, express or implied, that billed storm recovery charges will be actually collected from customers, or that amounts actually collected arising from the storm recovery charges will in fact be sufficient to meet the payment obligations on the storm recovery bonds or that the assumptions used in calculating such storm recovery charges will in fact be realized; |
10. a. | upon the effectiveness of the financing order, the transfer of Cleco Power’s rights and interests related to the storm recovery bonds under the financing order and our purchase of the storm recovery property from Cleco Power pursuant to the sale agreement, the storm recovery property will constitute a present contract right vested in us, |
b. | upon the effectiveness of the financing order, the issuance advice letter and the rate schedules, the transfer of Cleco Power’s rights and interests under the financing order and our purchase of the storm recovery property from Cleco Power pursuant to the sale agreement, the storm recovery property will include, without limitation: |
(1) | the right to impose, bill, charge, collect and receive the storm recovery charges, including the right to receive storm recovery charges in amounts and at times sufficient to pay principal and interest on the storm recovery bonds, |
(2) | all rights and interest of Cleco Power under the financing order, except the rights of Cleco |
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Power to earn and receive a rate of return on its invested capital in us, to receive administration and servicer fees, to withdraw funds from its restricted storm recovery reserves funded by the proceeds from the sale of the storm recovery property, or to use Cleco Power’s remaining portion of those proceeds,
(3) | the rights to file for periodic adjustments of the storm recovery charges as provided in the financing order, and |
(4) | all revenues, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests resulting from the storm recovery charges. |
c. | upon the effectiveness of the issuance advice letter and the rate schedules, the transfer of Cleco Power’s rights and interests under the financing order and our purchase of the storm recovery property from Cleco Power on the issuance date pursuant to the sale agreement, the storm recovery property will not be subject to any lien created by a previous indenture; |
11. | Cleco Power is a limited liability company duly organized and in good standing under the laws of the State of Louisiana, with limited liability company power and authority to own its properties and conduct its business as currently owned or conducted; |
12. | Cleco Power has the power and authority to obtain the financing order and to execute and deliver the sale agreement and to carry out its terms, to own the storm recovery property under the financing order related to the storm recovery bonds, and to sell and assign the storm recovery property under the financing order to us, and the execution, delivery and performance of the sale agreement have been duly authorized by Cleco Power by all necessary limited liability company action; |
13. | the sale agreement constitutes a legal, valid and binding obligation of Cleco Power, enforceable against Cleco Power in accordance with its terms, subject to customary exceptions relating to bankruptcy, creditors’ rights and equitable principles; |
14. | the consummation of the transactions contemplated by the sale agreement and the fulfillment of the terms thereof do not (a) conflict with or result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or limited liability company operating agreement of Cleco Power, or any indenture, mortgage, credit agreement or other agreement or instrument to which Cleco Power is a party or by which it or its properties is bound; (b) result in the creation or imposition of any lien upon any of Cleco Power’s properties pursuant to the terms of any such indenture or agreement or other instrument (except for any lien created by us under the basic documents in favor of the storm recovery bondholders and in accordance with the Securitization Act) or (c) violate any existing law or any existing order, rule or regulation applicable to Cleco Power of any court or of any federal or state regulatory body, administrative agency or governmental instrumentality having jurisdiction over Cleco Power or its properties; |
15. | except for continuation filings under the Uniform Commercial Code and other filings under the Securitization Act and the Uniform Commercial Code, no approval, authorization, consent, order or other action of, or filing with, any court, federal or state regulatory body, administrative agency or governmental instrumentality is required under any applicable law, rule or regulation in connection with the execution and delivery by Cleco Power of the sale agreement, the performance by Cleco Power of the transactions contemplated by the sale agreement or the fulfillment by Cleco Power of the terms of the sale agreement, except those that have previously been obtained or made and those that Cleco Power, in its capacity as servicer under the servicing agreement, is required to make in the future pursuant to the servicing agreement; |
16. | except as disclosed in this prospectus, there are no proceedings pending, and to Cleco Power’s knowledge, (a) there are no proceedings threatened and (b) there are no investigations pending or threatened before any court, federal or state regulatory body, administrative agency or governmental instrumentality having jurisdiction over Cleco Power or its properties involving or related to Cleco Power or us or, to Cleco Power’s knowledge, to any other person: |
a. | asserting the invalidity of the sale agreement, any of the other basic documents, the storm recovery bonds, the Securitization Act or the financing order, |
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b. | seeking to prevent the issuance of the storm recovery bonds or the consummation of the transactions contemplated by the sale agreement or any of the other basic documents, |
c. | seeking any determination or ruling that could reasonably be expected to materially and adversely affect the performance by Cleco Power of its obligations under, or the validity or enforceability of, the sale agreement or any of the other basic documents or the storm recovery bonds, or |
d. | challenging Cleco Power’s treatment of the storm recovery bonds as debt of Cleco Holdings for federal or state income, gross receipts or franchise tax purposes; |
17. | after giving effect to the sale of the storm recovery property under the sale agreement, Cleco Power: |
a. | is solvent and expects to remain solvent, |
b. | is adequately capitalized to conduct its business and affairs considering its size and the nature of its business and intended purposes, |
c. | is not engaged and does not expect to engage in a business for which its remaining property represents an unreasonably small portion of its capital, |
d. | reasonably believes that it will be able to pay its debts as they become due, and |
e. | is able to pay its debts as they become due and does not intend to incur, or believes that it will incur, indebtedness that it will not be able to repay at its maturity; |
18. | Cleco Power is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualifications, licenses or approvals (except where the failure to so qualify or obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on Cleco Power’s business, operations, assets, revenues or properties); |
19. | Apart from amending the Constitution of the State of Louisiana, the citizens of the State of Louisiana currently do not have the constitutional right to adopt or revise state laws by initiative or referendum; and |
20. | Cleco Power is not aware of any judgment or tax lien filings against us or Cleco Power that would result in a lien on the storm recovery property. |
The representations and warranties made by Cleco Power survive the sale of the storm recovery property to us and the pledge thereof on the issuance date to the trustee. Any change in the law occurring after the issuance date that renders any of the representations and warranties untrue does not constitute a breach under the sale agreement.
Cleco Power makes no representation or warranty, express or implied, as to the solvency of any customer on any issuance date or as to the future solvency of any customer. Further, we waive any right to rescind the sale agreement or any conveyance pursuant to the sale agreement in case of insolvency of any customer, regardless of any actual or implied knowledge by Cleco Power at any time of the insolvency of any customer. Additionally, we agree that the sale agreement is not subject to a suspensive condition under Louisiana Civil Code Article 2450, notwithstanding that the imposition and collection of storm recovery charges depends upon future acts such as the servicer performing its servicing functions relating to the collection of storm recovery charges, the future provision of electric service to customers, and the future consumption by customers of electricity.
In the sale agreement, Cleco Power will make the following covenants:
1. | subject to its rights to assign its rights and obligations under the sale agreement, so long as any of the storm recovery bonds are outstanding, Cleco Power will (i) keep in full force and effect its existence and remain in good standing under the laws of the state of its organization, and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or will be necessary to protect the validity and enforceability of the sale agreement and each other instrument or agreement to which Cleco Power is a party necessary to the proper administration of the sale agreement and the transactions contemplated by the sale agreement and (ii) continue to operate its system to provide |
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transmission and distribution delivery service to its Louisiana commission-jurisdictional customers; and, to the extent that any interest in the storm recovery property is assigned, sold or transferred to another assignee, Cleco Power shall enter into a contract with that assignee that requires Cleco Power (or its successor) to continue to operate its transmission and distribution delivery system to provide service to Cleco Power’s Louisiana commission-jurisdictional customers; and further (in each case) Cleco Power will undertake to collect, account and remit amounts in respect of the storm recovery charges for the benefit and account of such assignee (or its financing party); provided, however, that this provision shall not prohibit Cleco Power from selling, assigning, or otherwise divesting its transmission system or distribution system (or any portions thereof) providing service to Cleco Power’s Louisiana commission-jurisdictional customers, by any method whatsoever, including those specified in the financing order pursuant to which an entity becomes a successor, so long as the entities acquiring either such system or portion thereof agree to continue operating such facilities to provide service to Louisiana commission-jurisdictional customers;
2. | except for the conveyances under the sale agreement or any lien under the basic documents pursuant to Section 1231 of the Securitization Act for our benefit, the storm recovery bondholders and the trustee, Cleco Power may not sell, pledge, assign or transfer to any other person, or grant, create, incur, assume or suffer to exist any lien on, any of the storm recovery property, whether then existing or thereafter created, or any interest therein. Cleco Power may not at any time assert any lien against or with respect to the storm recovery property, and Cleco Power shall defend the right, title and interest of us and of the trustee, as our assignee, in, to and under the storm recovery property against all claims of third parties claiming through or under Cleco Power; |
3. | in the event that Cleco Power receives collections in respect of the storm recovery charges or the proceeds thereof other than in its capacity as the servicer, Cleco Power agrees to pay to the servicer, on our behalf, all payments received by it in respect thereof as soon as practicable after receipt thereof; prior to such remittance to Cleco Power by us, we agree that such amounts are held by it in trust for us and the trustee; |
4. | Cleco Power will notify us and the trustee promptly after becoming aware of any lien on any of the storm recovery property, other than the conveyances under the sale agreement, any lien created in favor of the storm recovery bondholders or any lien created by us under the indenture; |
5. | Cleco Power agrees to comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any court or federal or state regulatory body, administrative agency or governmental instrumentality applicable to it, except to the extent that failure to so comply would not materially adversely affect our or the trustee’s interests in the storm recovery property or under the basic documents or Cleco Power’s performance of its obligations under the sale agreement or under any of the other basic documents; |
6. | so long as any of the storm recovery bonds are outstanding, Cleco Power: |
a. | will treat the storm recovery bonds as our debt and not debt of Cleco Power, except for financial reporting or tax purposes; |
b. | will disclose in its financial statements that it is not the owner of the storm recovery property and that our assets are not available to pay creditors of Cleco Power or its affiliates (other than us); |
c. | will not own or purchase any of the storm recovery bonds; and |
d. | will disclose the effects of all transactions between us and Cleco Power in accordance with generally accepted accounting principles; |
7. | so long as any of the storm recovery bonds are outstanding: |
a. | in all proceedings relating directly or indirectly to the storm recovery property, Cleco Power will affirmatively certify and confirm that it has sold all of its rights and interests in and to the storm recovery property to us (other than for financial reporting or tax purposes), and will not make any statement or reference in respect of the storm recovery property that is inconsistent with our ownership (other than for financial reporting or tax purposes), |
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b. | Cleco Power will not take any action in respect of the storm recovery property except solely in its capacity as servicer thereof pursuant to the servicing agreement or as contemplated by the basic documents, and |
c. | neither we nor Cleco Power will take any action, file any tax return, or make any election inconsistent with the treatment of us, for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, for purposes of state, local and other taxes, as a disregarded entity that is not separate from Cleco Power (or, if relevant, from another sole owner of us) |
8. | Cleco Power agrees that, upon the sale by Cleco Power of all of its rights and interests related to the storm recovery bonds to us pursuant to the sale agreement to the fullest extent permitted by law, including applicable Louisiana commission regulations and the Securitization Act, we shall have all of the rights originally held by Cleco Power with respect to the storm recovery property, including the right (subject to the terms of the servicing agreement) to exercise any and all rights and remedies to collect any amounts payable by any customer in respect of the storm recovery property, notwithstanding any objection or direction to the contrary by Cleco Power (and Cleco Power agrees not to make any such objection or to take any such contrary action) and any payment to the servicer by any person responsible for remitting storm recovery charges to the servicer under the terms of the financing order or the Securitization Act or the rate schedules shall discharge such person’s obligations in respect of the storm recovery property to the extent of such payment, notwithstanding any objection or direction to the contrary by Cleco Power; |
9. | Cleco Power will execute and file such filings, and cause to be executed and filed such filings in such manner and in such places as may be required by law fully to preserve, maintain and protect our and the trustee’s interests in the storm recovery property, including all filings required under the Securitization Act and the Uniform Commercial Code relating to the transfer of the ownership of the rights and interests under the financing order by Cleco Power to us and the pledge of the storm recovery property by us to the trustee. Cleco Power will deliver (or cause to be delivered) to us and the trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing; |
10. | Cleco Power will institute any action or proceeding reasonably necessary to compel performance by the Louisiana commission or the State of Louisiana of any of their obligations or duties under the Securitization Act, the financing order or the issuance advice letter relating to the transfer of the rights and interests under the financing order by Cleco Power to us, and shall notify the trustee of the institution of any such action. Cleco Power agrees to take such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, in each case as may be reasonably necessary: |
a. | to protect us and the storm recovery bondholders from claims, state actions or other actions or proceedings of third parties which, if successfully pursued, would result in a breach of any representation described above under the caption “—Cleco Power’s Representations and Warranties”; or |
b. | so long as Cleco Power is also the servicer, to block or overturn any attempts to cause a repeal of, modification of or supplement to the Securitization Act, the financing order, the issuance advice letter or the rights of storm recovery bondholders by legislative enactment (including any action of the Louisiana commission of a legislative character) or constitutional amendment that would be materially adverse to us, the trustee or the storm recovery bondholders. The costs of any such actions or proceedings would be reimbursed by us to Cleco Power from amounts on deposit in the collection account as an operating expense in accordance with the terms of the indenture. Cleco Power’s obligations pursuant to this covenant survive and continue notwithstanding that the payment of operating expenses pursuant to the indenture may be delayed. |
11. | so long as any of the storm recovery bonds are outstanding, Cleco Power will pay all material taxes, assessments and governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, businesses, income or property before any penalty accrues thereon if the failure to pay any such taxes, assessments and governmental charges would, after any applicable grace periods, |
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notices or other similar requirements, result in a lien on the storm recovery property; provided that no such tax need be paid if Cleco Power or any of its affiliates is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if Cleco Power or such affiliate has established appropriate reserves as shall be required in conformity with generally accepted accounting principles;
12. | Cleco Power will comply with all filing requirements imposed upon it in its capacity as seller of the storm recovery property under the financing order, including making any post-closing filings; |
13. | even if the sale agreement or the indenture providing for the storm recovery bonds is terminated, Cleco Power will not, prior to the date that is one year and one day after the termination of the indenture, petition or otherwise invoke or cause the process of any court or federal or state regulatory body, administrative agency or governmental instrumentality for the purpose of commencing or sustaining an involuntary case against us under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of ours, or any substantial part of the property of ours or ordering the winding up or liquidation of our affairs. We will also agree in the sale agreement not to petition or otherwise induce or cause Cleco Power to invoke such a process for the same period of time; |
14. | Cleco Power agrees not to withdraw the filing of the issuance advice letter with the Louisiana commission; |
15. | Cleco Power agrees to make all reasonable efforts to keep each rate schedule in full force and effect at all times; |
16. | Promptly after obtaining knowledge thereof, in the event of a breach in any material respect (without regard to any materiality qualifier contained in such representation, warranty or covenant) of any of Cleco Power’s representations, warranties or covenants contained in the sale agreement, Cleco Power shall promptly notify us, the trustee and the rating agencies of such breach. For the avoidance of doubt, any breach which would adversely affect scheduled payments on the storm recovery bonds will be deemed to be a material breach; |
17. | Cleco Power shall use the proceeds of the sale of the storm recovery property in accordance with the financing order and the Securitization Act; and |
18. | Upon the reasonable request of us, Cleco Power shall execute and deliver such further instruments and do such further acts as may be reasonably necessary to carry out more effectually the provisions and purposes of the sale agreement. |
Under the sale agreement, Cleco Power is obligated to indemnify us and the trustee, for itself and on behalf of the storm recovery bondholders and related parties specified therein, against:
1. | any and all taxes, other than any taxes imposed on the storm recovery bondholders solely as a result of their ownership of the storm recovery bonds, that may at any time be imposed on or asserted against any of those persons under existing law as of the issuance date as a result of the sale and assignment of Cleco Power’s rights and interests under the financing order by Cleco Power to us, the acquisition or holding of the storm recovery property by us or the issuance and sale by us of the storm recovery bonds, including any sales, gross receipts, tangible personal property, privilege, franchise or license taxes, but excluding any taxes imposed as a result of a failure of that person to properly withhold or remit taxes imposed with respect to payments on any storm recovery bond, in the event and to the extent such taxes are not recoverable as financing costs, it being understood that the storm recovery bondholders will be entitled to enforce their rights against Cleco Power solely through a cause of action brought for their benefit by the trustee in accordance with the terms of the indenture; and |
2. | any and all liabilities, obligations, claims, actions, suits or payments of any kind whatsoever that may be imposed on or asserted against any such person, which may include, without limitation, an amount equal |
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to principal and interest on the storm recovery bonds as a measure of Cleco Power’s indemnification obligations, together with any reasonable costs and expenses incurred by that person, in each case as a result of Cleco Power’s breach of any of its representations, warranties or covenants contained in the sale agreement.
However, Cleco Power is not required to indemnify the trustee or related parties against any liability, obligation, claim, action, suit or payment incurred by them through their own willful misconduct, negligence or bad faith. Cleco Power is not required to indemnify a party for any amount paid or payable by such party in the settlement of any action, proceeding or investigation without the prior written consent of Cleco Power which consent shall not be unreasonably withheld.
These indemnification obligations will rank equally in right of payment with other general unsecured obligations of Cleco Power. The indemnities described above will survive the resignation or removal of the trustee and the termination of the sale agreement and include reasonable fees and expenses of investigation and litigation (including reasonable attorneys’ fees and expenses). The representations and warranties described above under the caption “—Cleco Power’s Representations and Warranties” are made under existing law as in effect as of the date of issuance of the storm recovery bonds. Cleco Power will not indemnify any party for any changes of law after the issuance of the storm recovery bonds or for any liability resulting solely from a downgrade in the ratings on the storm recovery bonds.
Cleco Power’s Limited Obligation to Undertake Legal Action. As described in clause 10 above under “— Cleco Power’s Covenants,” the sale agreement will require Cleco Power to institute any action or proceeding reasonably necessary to compel performance by the Louisiana commission or the State of Louisiana of any of their obligations or duties under the Securitization Act, the financing order or the issuance advice letter with respect to the storm recovery property. Except for the foregoing and subject to Cleco Power’s further covenant to fully preserve, maintain and protect our interests in the storm recovery property, Cleco Power will not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its obligations under the sale agreement and that in its opinion may involve it in any expense or liability.
The sale agreement will provide that any person which succeeds by merger, conversion, consolidation, sale or other similar transaction to all or substantially all of the electric transmission and distribution business of Cleco Power (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split) will be the successor to Cleco Power with respect to Cleco Power’s ongoing obligations under the sale agreement without the execution or filing of any document or any further act by any of the parties to the sale agreement. The sale agreement will further require that:
• | immediately after giving effect to any transaction referred to in this paragraph, no representation, warranty or covenant made in the sale agreement will have been breached in any material respect, and no servicer default, and no event that, after notice or lapse of time, or both, would become a servicer default will have occurred and be continuing, |
• | the rating agencies specified in the sale agreement will have received prior written notice of the transaction, and |
• | officers’ certificates and opinions of counsel specified in the sale agreement will have been delivered to us and the trustee. |
The sale agreement may be amended in writing by the parties thereto, if notice of the amendment is provided by us to each rating agency and the rating agency condition has been satisfied, with the consent of the trustee and, with respect to amendments that would increase ongoing financing costs, the consent or deemed consent of the Louisiana commission.
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The following summary describes the material terms and provisions of the servicing agreement pursuant to which the servicer will undertake to service the storm recovery property. We have filed the form of the servicing agreement with the SEC as an exhibit to the registration statement of which this prospectus forms a part, and we urge you to read such document in its entirety.
General. The servicer, as our agent, will manage, service, administer and make collections in respect of the storm recovery property. The servicer’s duties will include:
• | calculating and billing the storm recovery charges, |
• | obtaining meter reads, |
• | collecting and remitting to the trustee the storm recovery charges and payments with respect to storm recovery property from all persons or entities responsible for paying storm recovery charges and other payments with respect to storm recovery property to the servicer under the financing order, Louisiana commission regulations or applicable tariffs and remitting these collections to the trustee, |
• | responding to inquiries from customers, the Louisiana commission or any federal, local or other state governmental authority with respect to the storm recovery property and the storm recovery charges, |
• | accounting for storm recovery charges, investigating and resolving delinquencies (and furnishing required reports with respect to such delinquencies to us), processing and depositing collections, making periodic remittances to the trustee and furnishing required periodic reports to us, the trustee, the Louisiana commission and the rating agencies, |
• | monitoring customer payments of storm recovery charges, |
• | notifying each customer of any defaults in its payment obligations and other obligations (including its credit standards), and shall follow such collection procedures as it follows with respect to comparable assets that it services for itself or others, |
• | making all required filings with the Louisiana commission and taking all other actions necessary to perfect our ownership interests in and the trustee’s first priority lien on the storm recovery property and other portions of the collateral, |
• | selling, as our agent, defaulted or written-off accounts in accordance with the servicer’s usual and customary practices, |
• | taking action in connection with true-up adjustments to the storm recovery charges and allocation of the charges among various classes of customers as described below and pursuant to the financing order, and |
• | any other duties specified for a servicer under the financing order or applicable law. |
Please read “Cleco Power’s Financing Order” in this prospectus. The servicer is required to notify us, the trustee, the Louisiana commission and the rating agencies in writing when it becomes aware of any laws, orders, directions or Louisiana commission regulations promulgated after the execution of the servicing agreement that have a material adverse effect on the servicer’s ability to perform its duties under the servicing agreement. The servicer is also authorized to execute and deliver documents and to make filings and participate in proceedings on our behalf.
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In the servicing agreement, the servicer will agree, among other things, that, in servicing the storm recovery property, except where the failure to comply with any of the following would not materially adversely affect our or the trustee’s respective interests in the storm recovery property:
• | it will manage, service, administer and make collections in respect of the storm recovery property with reasonable care and in material compliance with applicable laws and regulations, including all applicable Louisiana commission regulations and guidelines, using the same degree of care and diligence that the servicer exercises with respect to similar assets for its own account, |
• | it will follow standards, policies and practices in performing its duties as servicer that are customary in the electric transmission and distribution industry or that the Louisiana commission has mandated and that are consistent with the terms and provisions of the financing order, rate schedules and existing law, |
• | it will use all reasonable efforts, consistent with the policies and practices, to enforce and maintain the trustee’s and our rights in respect of the storm recovery property, |
• | it will calculate the storm recovery charges and the allocation of storm recovery charges among customer classes in compliance with the Securitization Act, the financing order, any Louisiana commission order related to storm recovery charge allocation and any applicable rate schedules, |
• | it will use all reasonable efforts consistent with the policies and practices, to collect all amounts owed in respect of the storm recovery property as they become due, |
• | it will make all filings required under the applicable Uniform Commercial Code or the Securitization Act to maintain the perfected security interest of the trustee in the collateral and use all reasonable efforts to otherwise enforce and maintain the trustee’s rights in respect of the storm recovery property and the collateral, |
• | it will petition the Louisiana commission for adjustments to the storm recovery charges that the servicer determines to be necessary in accordance with the financing order, and |
• | it will keep on file, in accordance with customary procedures, all documents pertaining to the storm recovery property and will maintain accurate and complete accounts, records and computer systems pertaining to the storm recovery property. |
The duties of the servicer set forth in the servicing agreement are qualified by any Louisiana commission regulations or orders in effect at the time those duties are to be performed.
Servicer Obligation to Undertake Legal Action. The servicer is required, subject to applicable law, to institute any action or proceeding reasonably necessary to compel performance by the Louisiana commission or the State of Louisiana of any of their respective obligations or duties under the Securitization Act or the financing order, as the case may be, with respect to the storm recovery charge adjustments. The costs of any such actions or proceedings would be reimbursed by us to the servicer from amounts on deposit in the collection account as an operating expense in accordance with the terms of the indenture. The servicer’s obligations pursuant to this covenant survive and continue notwithstanding that the payment of operating expenses pursuant to the indenture may be delayed.
Remittances to the Trustee. The servicer will remit storm recovery charges to the trustee each servicer business day (as defined in the servicing agreement), but in no event later than two servicer business days following such date, based on estimated daily collections using a weighted average balance of days outstanding on retail bills and prior year write-off experience as provided in the servicing agreement.
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Semi-Annual True-Ups. Among other things, the servicing agreement will require the servicer to file true-up adjustment requests at least semi-annually to correct any under-collections or over-collections during the preceding six months and to ensure the expected recovery of amounts sufficient to provide timely payment of principal and interest on the storm recovery bonds and all other financing costs. For more information on the true-up process, please read “Cleco Power’s Financing Order—True-Ups.” These adjustment requests are to be based on actual collected storm recovery charges and updated assumptions by the servicer as to projected future usage during the next period, expected delinquencies and write-offs and future payments and expenses relating to the storm recovery property and the storm recovery bonds. The servicer agrees to calculate these adjustments to:
• | correct, over a period of up to 12 months covering the next two succeeding payment dates as provided in the financing order, any under-collections or over-collections, for any reason, during the preceding six months; and |
• | to ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all other financing costs during the subsequent 12-month period (or, in the case of certain quarterly true-up adjustments, the period ending on the next storm recovery bond payment date), consistent with the methodology described in the financing order. |
The servicer will agree to file adjustment requests on each calculation date for us as specified in the servicing agreement. In accordance with the financing order, the Louisiana commission staff has 15 days to approve the adjustments. Any adjustment to the allocation of storm recovery charges must be filed with the Louisiana commission at least 15 days before the date the proposed adjustment will become effective. The adjustments to the storm recovery charges are expected to occur on each adjustment date. Adjustments to the storm recovery charges will cease with respect to the storm recovery bonds on the final adjustment date.
Interim True-Ups. The servicer may also make interim true-up adjustments more frequently at any time during the term of the storm recovery bonds: (i) if the servicer forecasts that storm recovery charge collections will be insufficient to make on a timely basis all scheduled payments of interest and other financing costs in respect of the storm recovery bonds during the current or next succeeding payment period or bring all principal payments on schedule over the next two succeeding payment dates and/or (ii) to replenish any draws upon the capital subaccount. If required by the ratings agencies to obtain the highest credit ratings, the servicing agreement may also provide for quarterly true-up adjustments as and when so required.
In addition to the semi-annual true-up adjustment, the servicer shall file for a non-standard true-up adjustment (under such procedures as shall be proposed by the servicer and approved by the Louisiana commission at the time) that it deems necessary or appropriate to address any material deviations between storm recovery charge collections and the periodic revenue requirement. No such change shall cause any of the then-current credit ratings of the storm recovery bonds to be suspended, withdrawn or downgraded.
The servicer will remit estimated collection payments on the storm recovery charges to the trustee for deposit in the collection account each servicer business day (as defined in the servicing agreement), but in no event later than two servicer business days following such date. For a description of the allocation of the deposits, please read “Description of the Storm Recovery Bonds—How Funds in the Collection Account will be Allocated.” Until storm recovery charge collections are remitted to the collection account, the servicer will not be required to segregate them from its general funds. Please read “Risk Factors—Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer” in this prospectus.
The servicer will remit to the trustee storm recovery charge collections based on its estimated daily collections using the prior year write-off experience and the weighted average balance of days outstanding of bills. Prior to, or concurrently with each such remittance to the general subaccount of the collection account, the servicer shall provide written notice to the trustee and, upon request, to us of such remittance. The servicer shall also, promptly upon receipt, remit to the collection account any other proceeds of the trust estate that it may receive from time to time. In the servicing agreement, the servicer will agree and acknowledge that it holds all storm recovery charge payments or any other proceeds for the trust estate received by it for the benefit of the trustee and the storm recovery bondholders and that all such amounts will be remitted by the servicer without any surcharge, fee, offset, charge or other deduction. The servicer shall not make any claim to reduce its obligation to remit all storm
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recovery charge payments collected by it in accordance with the servicing agreement. Unless otherwise directed to do so by us, the servicer shall be responsible for selecting eligible investments in which the funds in the collection account shall be invested pursuant to the indenture.
No less often than annually, the servicer will reconcile remittances of estimated payments arising from storm recovery charges with actual storm recovery charge payments received by the servicer to more accurately reflect the amount of billed storm recovery charges that should have been remitted, based on the amounts actually received. So long as the servicer faithfully makes all daily remittances based on weighted average days sales outstanding, as provided for in the servicing agreement, no actual or deemed investment earnings shall be payable in respect of such over-remittances or under-remittances.
Although the servicer will remit estimated payments arising from the storm recovery charge to the trustee, the servicer is not obligated to make any payments on the storm recovery bonds. In the case of any shortfall, Cleco Power will, first, allocate that shortfall ratably based on the amount owed to Cleco Power or other parties (including those amounts associated with the storm recovery bonds and similar securitization charges) and the amount owed for other fees and charges, other than late charges, and second, late fees and charges may be allocated to Cleco Power. The portion owed in respect of storm recovery charges may be further allocated ratably between us, as issuing entity of the storm recovery bonds, and other affiliates of Cleco Power who have issued storm recovery bonds under the securitization provisions of the Securitization Act, as such bonds may be issued in the future.
In the event that the servicer makes changes to its current computerized customer information system which would allow the servicer to track actual storm recovery charge payments and/or otherwise monitor payment and collection activity more efficiently or accurately than is being done today, the servicing agreement will allow the servicer to substitute actual remittance procedures for the estimated remittance procedures described above and otherwise modify the remittance procedures described above as may be appropriate in the interests of efficiency, accuracy, cost and/or system capabilities. However, the servicer will not be allowed to make any modification or substitution that will materially adversely affect the storm recovery bondholders. The servicer must also give notice to us, the trustee and the rating agencies of any such computer system changes no later than 60 servicer business days after the date on which all customer accounts are billed on the new system.
The servicer will be entitled to receive an aggregate annual servicing fee for all of the storm recovery bonds outstanding in an amount equal to:
• | 0.05% of the aggregate initial principal amount of the storm recovery bonds, for so long as the servicer remains Cleco Power or any of its permitted successors or assigns or an affiliate, prorated based on the fraction of a calendar year during which the servicer provides any of the services set forth in the servicing agreement, or |
• | an amount agreed upon by the successor servicer and the trustee, but, unless the Louisiana commission consents, not more than 0.60% of the aggregate initial principal amount of the storm recovery bonds if Cleco Power, any permitted successor or assign or an affiliate is not the servicer, prorated based on the fraction of a calendar year during which the successor servicer provides any of the services set forth in the servicing agreement. |
The servicing fee for the storm recovery bonds, together with any portion of the servicing fee that remains unpaid from prior payment dates, will be paid solely to the extent funds are available therefor as described under “Description of the Storm Recovery Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus. The servicing fee for the storm recovery bonds will be paid prior to the payment of or provision for any amounts in respect of interest on and principal of the storm recovery bonds. As long as Cleco Power is the servicer, the Louisiana commission may adjust Cleco Power’s rates to take into account the extent, if any, by which its servicing fees exceed its actual incremental costs in servicing the storm recovery bonds.
In the servicing agreement, the servicer will represent and warrant to us and the Louisiana commission (for the benefit of customers), as of the issuance date of the storm recovery bonds or as of such other dates as expressly provided below, among other things, that:
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• | the servicer is duly organized, validly existing and in good standing under the laws of the state of its organization (which is Louisiana, when Cleco Power is the servicer), with the limited liability company or corporate, as the case may be, power and authority to own its properties, to conduct its business as presently conducted and to execute, deliver and carry out the terms of the servicing agreement and had at all relevant times and has the requisite power, authority and legal right to service the storm recovery property and to hold the storm recovery property records as custodian, |
• | the servicer is duly qualified to do business and is in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which it is required to do so (except where such failure would not be reasonably likely to have a material adverse effect on its business, operations or properties or adversely affect the servicing of the storm recovery property), |
• | the servicer’s execution, delivery and performance of the servicing agreement have been duly authorized by the servicer by all necessary limited liability company or corporate, as the case may be, action, |
• | the servicing agreement constitutes a legal, valid and binding obligation of the servicer, enforceable against the servicer in accordance with its terms, subject to customary exceptions relating to bankruptcy, receivership, insolvency, reorganization, moratorium and equitable principles (regardless of whether considered in a proceeding in equity or at law), |
• | the consummation of the transactions contemplated by the servicing agreement and the fulfillment of the terms will not conflict with, or result in any breach of, the terms and provisions of nor constitute a default under the servicer’s limited liability company operating agreement or articles of organization, or any material indenture as the case may be, or any material agreement to which the servicer is a party or by which it or any of its property is bound or result in the creation or imposition of any lien upon the servicer’s properties (other than any lien that may be granted under the basic documents pursuant to Section 1231 of the Securitization Act) or violate any law or any existing order, rule or regulation applicable to the servicer, |
• | except for the issuance advice letter and filings with the Louisiana commission for adjusting the amount and allocation of the storm recovery charges and filings under the Uniform Commercial Code and under the Securitization Act, no governmental approvals, authorizations, consents, orders or other actions or filings are required for the servicer to execute, deliver and perform its obligations under the servicing agreement, except those that have previously been obtained or made, |
• | except as disclosed in this prospectus, there are no proceedings pending and, to the servicer’s knowledge, there are no proceedings threatened before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the servicer or its properties, asserting the invalidity of the servicing agreement or any other underlying agreement, seeking any determination or ruling that might materially and adversely affect the performance by the servicer of its obligations under, or the validity or enforceability against the servicer of, the servicing agreement, relating to the servicer and that might materially and adversely affect the federal or state income, gross receipts or franchise tax attributes of the storm recovery bonds, or seeking to prevent the issuance of the storm recovery bonds or the consummation of any of the transactions contemplated by the servicing agreement or any other underlying agreement, and |
• | each report and certificate delivered in connection with any filing made with the Louisiana commission by the servicer on our behalf with respect to the storm recovery charges or periodic adjustments will constitute a representation and warranty by the servicer that such report or certificate, as the case may be, is true and correct in all material respects, and to the extent that such report is based upon or contains assumptions, forecasts or other predictions of future events, the representation and warranty of the servicer with respect thereto will be limited to the representation and warranty that such assumptions, forecasts or other predictions of future events are reasonable based upon historical performance and the facts known to the servicer on the date such report or certificate is delivered. |
The servicer is not responsible for any ruling, action or delay of the Louisiana commission, except those caused by the servicer’s failure to file required applications in a timely and correct manner or other breach of its duties under the servicing agreement. The servicer also is not liable for the calculation of the storm recovery charges and adjustments, including any inaccuracy in the assumptions made in the calculation, so long as the servicer has acted in good faith and has not acted in a grossly negligent manner.
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The Servicer Will Indemnify Us, Other Entities and the Louisiana Commission in Limited Circumstances
Under the servicing agreement, the servicer will agree to indemnify, defend and hold harmless us, the trustee, for itself and on behalf of the storm recovery bondholder, and related parties specified in the servicing agreement, including our managers, against any reasonable costs, reasonable expenses, obligations, payments, claims, losses, damages and liabilities of any kind whatsoever that may be imposed upon, incurred by or asserted against any of those persons as a result of:
• | the servicer’s willful misconduct, bad faith or negligence in the performance of, or reckless disregard of, its duties or observance of its covenants under the servicing agreement, |
• | the servicer’s breach of any of its representations or warranties under the servicing agreement, and |
• | litigation and related expenses relating to its status and obligations as servicer (other than any proceedings the servicer is required to institute under the servicing agreement). |
The servicer will not be liable to any such party, however, for any reasonable costs, reasonable expenses, obligations, payments, claims, losses, damages and liabilities of any kind whatsoever, resulting from the willful misconduct, bad faith or negligence of the party seeking indemnification.
In addition, the servicer will agree to indemnify the Louisiana commission (on behalf of customers), us, the trustee, for itself and on behalf of the storm recovery bondholders, and related parties specified in the servicing agreement, including our managers, in connection with any increase in servicing fees as described under “—Servicer Compensation” if that increase is the result of a servicer default arising out of the servicer’s misconduct, negligence or termination for cause of Cleco Power or an affiliate servicer in performance of its duties or observance of its covenants under the servicing agreement. Any such indemnity payments (on behalf of customers) will be remitted to the trustee promptly for deposit in the collection account. The servicer’s obligation to indemnify the Louisiana commission (on behalf of customers) will survive the termination of the servicing agreement.
The servicer will release us, our managers and the trustee from any and all claims whatsoever relating to the storm recovery property or the servicer’s servicing activities with respect thereto, other than actions, claims, and demands arising from bad faith, willful misconduct or negligence of the parties.
The Louisiana commission will enforce the servicer’s obligations imposed by the financing order, the Louisiana commission’s applicable substantive rules, and applicable statutory provisions.
Not later than five servicer business days prior to each payment date or special payment date, the servicer will deliver a written report to us, the Louisiana commission and the trustee, which shall include all of the following information, to the extent applicable and including any other information as so specified in the series supplement, as to the storm recovery bonds with respect to such payment date or special payment date or the period since the previous payment date, as applicable:
• | the storm recovery bond balance and the projected storm recovery bond balance as of the immediately preceding payment date, |
• | the amount on deposit in the capital subaccount and the excess funds subaccount and the amount required to be on deposit in the capital subaccount as of the immediately preceding payment date, |
• | the amount of the payment to storm recovery bondholders allocable to principal, if any, |
• | the amount of the payment to storm recovery bondholders allocable to interest, |
• | the aggregate outstanding amount of the storm recovery bonds, before and after giving effect to any payments allocated to principal reported as above, |
• | the difference, if any, between the aggregate outstanding amount provided above and the outstanding amount specified in the expected amortization schedule, |
• | any other transfers and payments to be made on such payment date or special payment date, including amounts paid to the trustee or to the servicer, and |
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• | the servicer’s projection of the amount on deposit in the excess funds subaccount for the payment date immediately preceding the next succeeding adjustment date. |
The servicing agreement will provide that the servicer will furnish annually to us, the Louisiana commission, the trustee and the rating agencies, on or before March 31 of each year, beginning March 31, 2023 or, if earlier, on the date on which Cleco Power’s annual report on Form 10-K is required to be filed, a report on its assessment of compliance with specified servicing criteria as required by Item 1122(a) of Regulation AB of the SEC, during the preceding 12 months ended December 31 (or preceding period since the closing date of the issuance of the storm recovery bonds in the case of the first statement), together with a certificate by an officer of the servicer certifying the statements set forth therein.
The servicing agreement will provide that a firm of independent certified public accountants will furnish to us, the Louisiana commission, the trustee and the rating agencies, on or before March 31 of each year, beginning March 31, 2023, or, if earlier, on the date on which Cleco Power’s annual report on Form 10-K is required to be filed, a statement as to compliance by the servicer during the preceding twelve months ended December 31, or the relevant portion thereof, with procedures relating to the servicing of storm recovery property. This report, which is referred to in this prospectus as the “annual accountant’s report,” will state that the accounting firm has performed certain procedures, agreed between the servicer and such accountants, in connection with the servicer’s compliance with its obligations under the sale agreement during the preceding calendar year, identifying the results of the procedures and including any exceptions to the procedures relating to the servicing of the storm recovery property. The annual accountant’s report will also indicate that the accounting firm providing the report is independent of the servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants and of the Rules of the Public Company Accounting Oversight Board. The servicing agreement also will provide for delivery to us, the Louisiana commission and the trustee, on or before March 31 of each year, beginning March 31, 2023, a certificate signed by an officer of the servicer. This certificate will state that to the best of such officer’s knowledge, the servicer has fulfilled its obligations under the servicing agreement for the preceding calendar year, or the relevant portion thereof, or, if there has been a default in the fulfillment of any relevant obligation, stating that there has been a default and describing each default. The servicer has agreed to give us, each rating agency and the trustee written notice of any servicer default under the servicing agreement.
The servicing agreement will provide that Cleco Power may not resign from the obligations and duties imposed on it as servicer unless Cleco Power delivers an opinion of independent legal counsel that the performance of its duties under the servicing agreement shall no longer be permissible under applicable law. Written notice of any such determination will be communicated to us, the trustee, the Louisiana commission and each rating agency at the earliest practicable time and shall be evidenced by an opinion of counsel. A resignation by Cleco Power as servicer will not become effective until a successor servicer has assumed the servicing obligations and duties of Cleco Power under the servicing agreement.
Except as expressly provided in the servicing agreement, neither the servicer, nor any of its managers, officers, employees and agents will be liable to us, our managers, the trustee, you or any other person for any action taken or for refraining from taking any action pursuant to the servicing agreement or for errors in judgment. However, the servicer, its managers, directors, officers, employees, and agents will be liable to the extent this liability is imposed by reason of their willful misconduct, bad faith or negligence in the performance of their duties. The servicer and any of its managers, officers, employees or agents may rely in good faith on the advice of counsel or on any document, prima facie properly executed and submitted by any person respecting any matters under the servicing agreement. In addition, the servicing agreement will provide that the servicer is under no obligation to appear in, prosecute, or defend any legal action, except as provided in the servicing agreement.
Under the servicing agreement, any person:
• | into which the servicer may be merged, converted or consolidated and which succeeds to all or substantially all of the electric transmission and distribution business of the servicer (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split), |
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• | which results from the division of the servicer into two or more persons and which succeeds to all or substantially all of the electric transmission and distribution business of the servicer (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split), |
• | which may result from any merger, conversion or consolidation to which the servicer shall be a party and which succeeds to all or substantially all of the electric transmission and distribution business of the servicer (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split), |
• | which may purchase or otherwise succeed to the properties and assets of the servicer substantially as a whole and which purchases or otherwise succeeds to all or substantially all of the electric transmission and distribution business of the servicer (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split), or |
• | which may otherwise purchase or succeed to all or substantially all of the electric transmission and distribution business of the servicer (or, if the transmission and distribution business is split, any person which the Louisiana commission designates in connection with an order relating to such split), will be the successor of the servicer under the servicing agreement. |
The servicing agreement will further require that:
• | immediately after giving effect to any transaction referred to above, the representations and warranties made by the servicer in the servicing agreement will be true and correct and no servicer default, and no event which, after notice of, lapse of time or both, would become a servicer default, will have occurred and be continuing, |
• | the successor to the servicer must execute an agreement of assumption to perform every obligation of the servicer under the servicing agreement, |
• | officers’ certificates and opinions of counsel will have been delivered to us, the Louisiana commission and the trustee stating that the transaction referred to above complies with the servicing agreement and all conditions to transfer under the servicing agreement, |
• | the servicer shall have delivered to us, the Louisiana commission and the trustee an opinion of counsel either (i) stating that, in the opinion of such counsel, all filings to be made by the servicer, including filings with the Louisiana commission pursuant to the Securitization Act and the Louisiana UCC filing officer, that are necessary fully to preserve and protect the interests of each of us and the Trustee in the storm recovery property and the proceedings have been executed and filed and are in full force and effect, and reciting the details of such filings or (ii) stating that, in the opinion of such counsel, no such action is necessary to preserve and protect such interests, |
• | prior written notice will have been received by the rating agencies, and |
• | the servicer has delivered to us, the Louisiana commission, the trustee and the rating agencies a no material adverse tax change opinion of independent tax counsel regarding such transfer. |
So long as the conditions of any such assumptions are met, then the prior servicer will automatically be released from its obligations under the servicing agreement. The servicing agreement will permit the servicer to appoint any person to perform any or all of its obligations under the servicing agreement. However, unless the appointed person is an affiliate of Cleco Power, the appointment must satisfy the rating agency condition. In all cases where an agent is appointed, the servicer will remain obligated and liable under the servicing agreement.
Servicer defaults under the servicing agreement will include, among other things:
• | any failure by the servicer to remit to the collection account, on our behalf, any remittance required to be remitted pursuant to the servicing agreement that continues unremedied for five servicer business days after written notice is received by the servicer and the Louisiana commission from us or from the trustee, |
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• | any failure by the servicer to duly observe or perform in any material respect its obligations to make storm recovery charge adjustment filings in the time and manner set forth in the servicing agreement, which failure continues unremedied for a period of five servicer business days, |
• | any failure by the servicer to duly observe or perform, in any material respect, any other covenant or agreement of the servicer set forth in the servicing agreement or any other basic document to which it is a party, which failure materially and adversely affects the storm recovery property or the timely collection of the storm recovery charges or the rights of the storm recovery bondholders and which continues unremedied for 60 days after written notice of this failure has been given to the servicer by us, the Louisiana commission or the trustee or after discovery of this failure by an officer of the servicer, as the case may be, |
• | any representation or warranty made by the servicer in the servicing agreement or any other basic document proves to have been incorrect when made, which has a material adverse effect on us or the storm recovery bondholders and which continues unremedied for 60 days after written notice of this failure has been given to the servicer by us or the trustee or after discovery of this failure by an officer of the servicer, as the case may be, or |
• | certain events of bankruptcy, insolvency or liquidation of the servicer. |
In the event a servicer default under the servicing agreement remains unremedied, the trustee, upon the instruction of the holders of a majority of the outstanding principal amount of the storm recovery bonds, shall, by written notice to the servicer, terminate all the rights and obligations of the servicer under the servicing agreement, other than the servicer’s indemnification obligation and obligation to continue performing its functions as servicer until a successor servicer is appointed. Under the servicing agreement, the servicer’s indemnity obligations to us, the trustee and the independent manager will survive its replacement as servicer. After the termination of the responsibilities and rights of the predecessor servicer as described above, the trustee will appoint a successor servicer who will succeed to all the rights and duties of the servicer under the servicing agreement and will be entitled to similar compensation arrangements. The predecessor servicer shall, on an ongoing basis, cooperate with us and successor servicer and provide whatever information is, and take whatever actions are, reasonably necessary to assist the successor servicer in performing its obligations hereunder.
In addition, when a servicer defaults, the bondholders of the storm recovery bonds (subject to the provisions of the indenture) and the trustee as beneficiary of any lien permitted by the Securitization Act will be entitled to (i) apply to the 19th Judicial District Court for the Parish of East Baton Rouge, Louisiana for sequestration and payment of revenues arising from the applicable storm recovery property, (ii) foreclose on or otherwise enforce the lien on and security interests in, storm recovery property and (iii) apply to the Louisiana commission for an order that amounts arising from the storm recovery charges be transferred to a separate account for the benefit of the storm recovery bondholders. Upon a servicer default based upon the commencement of a case by or against the servicer under the bankruptcy or insolvency laws, the trustee may be prevented from effecting a transfer of servicing. Please read “Risk Factors—Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer” and “How a Bankruptcy May Affect Your Investment” in this prospectus. The trustee may appoint, or petition a court of competent jurisdiction for the appointment of, a successor servicer which satisfies criteria specified by the rating agencies rating the storm recovery bonds.
The Louisiana commission, together with holders of storm recovery bonds evidencing not less than a majority in principal amount of the then outstanding storm recovery bonds, on behalf of all bondholders, may direct the trustee to waive in writing any default by the servicer in the performance of its obligations under the servicing agreement and its consequences, except a default in making any required remittances to the collection account under the servicing agreement. The servicing agreement provides that no waiver will impair the storm recovery bondholders’ rights relating to subsequent defaults.
Upon the event of default by the servicer under the servicing agreement relating to the servicer’s performance of its servicing functions with respect to the storm recovery charges, Cleco Power may be replaced as the servicer under the terms of the servicing agreement with our prior written consent (which we shall not unreasonably
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withhold). If the servicing fee of the successor servicer exceeds the applicable maximum servicing fee of 0.60% of the aggregate initial principal amount of the storm recovery bonds, the successor servicer shall not begin providing service until (i) the Louisiana commission approves the appointment of such successor servicer or (ii) the Louisiana commission does not act to either approve or disapprove the appointment of the successor servicer within forty-five (45) days after notice of appointment of the successor servicer is provided to the Louisiana commission. Additionally, no entity may replace Cleco Power as the servicer if the replacement would cause any of the then-current credit ratings of the storm recovery bonds to be suspended, withdrawn, or downgraded. To the extent a higher servicing fee is caused by the appointment of a successor servicer not affiliated with Cleco Power due to the negligence, misconduct or termination for cause of Cleco Power or an affiliate of Cleco Power, the servicing agreement provides that Cleco Power shall bear the increased portion, and not its customers.
Pursuant to the provisions of the servicing agreement, if for any reason a third party assumes or succeeds to the role of the servicer under the servicing agreement, the servicing agreement will require the predecessor servicer to cooperate with us, the trustee and the successor servicer in terminating the predecessor servicer’s rights and responsibilities under the servicing agreement, including the transfer to the successor servicer of all documentation pertaining to the storm recovery property and all cash amounts then held by the predecessor servicer for remittance or subsequently acquired by the predecessor servicer. The servicing agreement will provide that the predecessor servicer will be liable for all reasonable costs and expenses incurred in transferring servicing responsibilities to the successor servicer in the event the successor servicer is appointed as a result of a servicer default. In all other cases, those costs and expenses will be paid by the party incurring them. A successor servicer may resign only if it is prohibited from serving as servicer pursuant to the servicing agreement by applicable law. The predecessor servicer is obligated, on an ongoing basis, to cooperate with us and the successor servicer and provide whatever information is, and take whatever actions are, reasonably necessary to assist the successor servicer in performing its obligations under the servicing agreement.
The servicing agreement may be amended by the parties thereto, if the rating agency condition has been satisfied, with the prior written consent of the trustee and, with respect to amendments that would increase ongoing financing costs, the prior approval of the Louisiana commission. An amendment is subject to the objection of the Louisiana commission within a 30-day period and subject to the conditions set forth in the servicing agreement. We will notify the rating agencies promptly after the execution of any such amendment.
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Challenge to True Sale Treatment. Cleco Power will represent and warrant that the transfer of the storm recovery property in accordance with the sale agreement constitutes a true and valid sale and assignment of the storm recovery property by Cleco Power to us. It will be a condition of closing for the sale of the storm recovery property pursuant to the sale agreement that Cleco Power will take the appropriate actions under the Securitization Act, including filing a notice of transfer of an interest in the storm recovery property, to perfect this sale. The Securitization Act provides that a transfer of storm recovery property by an electric utility to an assignee which the parties have in the governing documentation expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an absolute transfer of all the transferor’s right, title and interest, as in a “true sale” under applicable creditors’ rights principles, and not as a pledge or other financing, of the relevant storm recovery property. We and Cleco Power will treat such a transaction as a sale under applicable law. However, we expect that the storm recovery bonds will be reflected as debt on Cleco Holdings’ consolidated financial statements. In addition, we anticipate that the storm recovery bonds will be treated as debt of Cleco Holdings for federal income tax purposes. See “The Securitization Act—Cleco Power and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs” and “Material U.S. Federal Income Tax Consequences.” In the event of a bankruptcy of a party to the sale agreement, if a party in interest in the bankruptcy were to take the position that the transfer of the storm recovery property to us pursuant to that sale agreement was a financing transaction and not a true sale under applicable creditors’ rights principles, there can be no assurance that a court would not adopt this position. Even if a court did not ultimately recharacterize the transaction as a financing transaction, the mere commencement of a bankruptcy of Cleco Power and the attendant possible uncertainty surrounding the treatment of the transaction could result in delays in payments on the storm recovery bonds.
In that regard, we note that the bankruptcy court in In re: LTV Steel Company, Inc., et al., 274 B.R. 278 (Bankr. N. D. Oh. 2001) issued an interim order that observed that a debtor, LTV Steel Company, which had previously entered into securitization arrangements with respect both to its inventory and its accounts receivable may have “at least some equitable interest in the inventory and receivables, and that this interest is property of the Debtor’s estate... sufficient to support the entry of” an interim order permitting the debtor to use proceeds of the property sold in the securitization. 274 B.R. at 285. The court based its decision in large part on its view of the equities of the case.
LTV and the securitization investors subsequently settled their dispute over the terms of the interim order and the bankruptcy court entered a final order in which the parties admitted and the court found that the pre-petition transactions constituted “true sales.” The court did not otherwise overrule its earlier ruling. The LTV memorandum opinion serves as an example of the pervasive equity powers of bankruptcy courts and the importance that such courts may ascribe to the goal of reorganization, particularly where the assets sold are integral to the ongoing operation of the debtor’s business.
Even if no creditor challenges the sale of storm recovery property to us as a true sale, a bankruptcy filing by Cleco Power could trigger a bankruptcy filing by the issuing entity with similar negative consequences for bondholders. In a recent bankruptcy case, In re General Growth Properties, Inc., 406 B.R. 171 (Bankr. S.D.N.Y. 2009), General Growth Properties, Inc. filed for bankruptcy protection, along with many of its direct and indirect subsidiaries. Those subsidiaries included many entities that had been organized as special purpose vehicles. The bankruptcy court upheld the validity of the filings of these special purpose subsidiaries as bankruptcy debtors and allowed the subsidiaries, over the objections of their own creditors, to use the creditors’ cash collateral to fund loans to the parent debtor, General Growth Properties, Inc., for its general corporate purposes. The creditors received court-determined adequate protection in the form of current interest payments and replacement liens to mitigate any diminution in value resulting from the use of the cash collateral, but the opinion serves as a reminder that bankruptcy courts may subordinate legal rights of creditors to the interests of facilitation of the reorganization of a debtor.
We and Cleco Power have attempted to mitigate the impact of a possible recharacterization of a sale of storm recovery property as a financing transaction under applicable creditors’ rights principles. This does not, however, eliminate the risk of payment delays or reductions and other adverse effects caused by a Cleco Power bankruptcy. Further, if, for any reason, a storm recovery property notice is not filed under the Securitization Act or we fail to otherwise perfect our interest in the storm recovery property, and the transfer is thereafter deemed not to constitute a true sale, we would be an unsecured creditor of Cleco Power.
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The Securitization Act provides that the creation, granting, perfection and enforcement of liens and security interests in the storm recovery property are governed by the Securitization Act and not by the Louisiana UCC (except, as to perfection, with respect to the filing of financing statements in places specified in the Louisiana UCC and to conformity of the form of financing statements with provisions of the Louisiana UCC). Under the Securitization Act, a valid and enforceable consensual security interest in the storm recovery property may be created only by the execution and delivery of a security agreement with a holder of the storm recovery bonds or a trustee or agent for the holder that refers to the specific financing order that created the storm recovery property. The security interest attaches automatically from the time value is received for the storm recovery bonds. Upon perfection through the filing of notice with a Louisiana UCC filing officer pursuant to rules established by the Secretary of State of Louisiana, the security interest shall be a continuously perfected lien and security interest in the storm recovery property, with priority in the order of filing and take precedence over any subsequent judicial or other lien creditor. The security interest will be perfected as of the date of filing.
None of this, however, mitigates the risk of payment delays and other adverse effects caused by a Cleco Power bankruptcy. Further, if, for any reason, a storm recovery property notice is not filed under the Securitization Act or we fail to otherwise perfect our interest in the storm recovery property sold pursuant to the sale agreement, and the transfer is thereafter deemed not to constitute a true sale, we would be an unsecured creditor of Cleco Power.
Consolidation of Cleco Power and Us. If Cleco Power were to become a debtor in a bankruptcy case, a party in interest might attempt to substantively consolidate the assets and liabilities of Cleco Power and us. We and Cleco Power have taken steps to attempt to minimize this risk. Please read “Cleco Securitization I LLC, The Issuing Entity” in this prospectus. However, no assurance can be given that if Cleco Power were to become a debtor in a bankruptcy case, a court would not order that our assets and liabilities be substantively consolidated with those of Cleco Power. Substantive consolidation would result in payment of the claims of the beneficial owners of the storm recovery bonds to be subject to substantial delay and to adjustment in timing and/or amount.
Status of Storm Recovery Property as Current Property. Cleco Power will represent in the sale agreement, and the Securitization Act provides, that the storm recovery property sold pursuant to the sale agreement constitutes a present contract right. Nevertheless, no assurance can be given that, in the event of a bankruptcy of Cleco Power, a court would not rule that the storm recovery property comes into existence only as Cleco Power’s customers use electricity.
If a court were to accept the argument that the storm recovery property comes into existence only as Cleco Power’s customers use electricity, no assurance can be given that a security interest in favor of the bondholders of the storm recovery bonds would attach to the storm recovery charges in respect of electricity consumed after the commencement of the bankruptcy case or that the storm recovery property has been sold to us. If it were determined that the storm recovery property had not been sold to us, and the security interest in favor of the storm recovery bondholders did not attach to the storm recovery charges in respect of electricity consumed after the commencement of the bankruptcy case, then we would have an unsecured claim against Cleco Power. If so, there would be delays and/or reductions in payments on the storm recovery bonds. Whether or not a court determined that storm recovery property had been sold to us pursuant to the sale agreement, no assurances can be given that a court would not rule that any storm recovery charges relating to electricity consumed after the commencement of the bankruptcy could not be transferred to us or the trustee.
In addition, in the event of a bankruptcy of Cleco Power, a party in interest in the bankruptcy could assert that we should pay, or that we should be charged for, a portion of Cleco Power’s costs associated with the electricity, consumption of which gave rise to the storm recovery charge receipts used to make payments on the storm recovery bonds.
Regardless of whether Cleco Power is the debtor in a bankruptcy case, if a court were to accept the argument that the storm recovery property sold pursuant to the sale agreement comes into existence only as customers use electricity, a tax or government lien or other nonconsensual lien on property of Cleco Power arising before the storm recovery property came into existence could have priority over our interest in the storm recovery property. Adjustments to the storm recovery charges may be available to mitigate this exposure, although there may be delays in implementing these adjustments.
Estimation of Claims; Challenges to Indemnity Claims. If Cleco Power were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us or the trustee against Cleco Power as seller under the sale agreement and the other documents executed in connection therewith would be unsecured claims and would be subject to
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being discharged in the bankruptcy case. In addition, a party in interest in the bankruptcy may request that the bankruptcy court estimate any contingent claims that we or the trustee have against Cleco Power. That party may then take the position that these claims should be estimated at zero or at a low amount because the contingency giving rise to these claims is unlikely to occur. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against Cleco Power based on breach of contract principles. The actual amount of these damages would be subject to estimation and/or calculation by the court.
No assurances can be given as to the result of any of the above-described actions or claims. Furthermore, no assurance can be given as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving Cleco Power.
Enforcement of Rights by the Trustee. Upon an event of default under the indenture, the Securitization Act permits the trustee to enforce the security interest in the storm recovery property sold pursuant to the sale agreement in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the Louisiana commission or the 19th Judicial District Court for the Parish of East Baton Rouge, Louisiana to order the sequestration and payment to holders of the storm recovery bonds of all revenues arising from the storm recovery charges. There can be no assurance, however, that the Louisiana commission or a district court judge would issue this order after a seller bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee may under the indenture seek an order from the bankruptcy court lifting the automatic stay with respect to this action by the Louisiana commission or a district court judge and an order requiring an accounting and segregation of the revenues arising from the storm recovery property sold pursuant to the sale agreement. There can be no assurance that a court would grant either order.
Bankruptcy of the Servicer. The servicer is entitled to commingle the storm recovery charges that it receives with its own funds until each date on which the servicer is required to remit funds to the trustee as specified in the servicing agreement. The Securitization Act provides that the relative priority of a lien created under the Securitization Act is not defeated or adversely affected by the commingling of storm recovery charges arising with respect to the storm recovery property with funds of the electric utility. In the event of a bankruptcy of the servicer, a party in interest in the bankruptcy might assert, and a court might rule, that the storm recovery charges commingled by the servicer with its own funds and held by the servicer, prior to and as of the date of bankruptcy were property of the servicer as of that date, and are therefore property of the servicer’s bankruptcy estate, rather than our property. If the court so rules, then the court would likely rule that the trustee has only a general unsecured claim against the servicer for the amount of commingled storm recovery charges held as of that date and could not recover the commingled storm recovery charges held as of the date of the bankruptcy.
However the court rules on the ownership of the commingled storm recovery charges, the automatic stay arising upon the bankruptcy of the servicer could delay the trustee from receiving the commingled storm recovery charges held by the servicer as of the date of the bankruptcy until the court grants relief from the stay. A court ruling on any request for relief from the stay could be delayed pending the court’s resolution of whether the commingled storm recovery charges are our property or are property of the servicer, including resolution of any tracing of proceeds issues.
The servicing agreement will provide that the trustee, as our assignee, together with the other persons specified therein, may vote to appoint a successor servicer that satisfies the rating agency condition. The servicing agreement will also provide that the trustee, together with the other persons specified therein, may petition the Louisiana commission or a court of competent jurisdiction to appoint a successor servicer that meets this criterion. However, the automatic stay in effect during a servicer bankruptcy might delay or prevent a successor servicer’s replacement of the servicer. Even if a successor servicer may be appointed and may replace the servicer, a successor may be difficult to obtain and may not be capable of performing all of the duties that Cleco Power as servicer was capable of performing. Furthermore, should the servicer enter into bankruptcy, it may be permitted to stop acting as the servicer.
Bankruptcy of Cleco Power. Cleco Power is not required to segregate the storm recovery charges it collects from its general funds. The Securitization Act provides that our rights to the storm recovery property are not affected by the commingling of these funds with other funds. In a bankruptcy of Cleco Power, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the Securitization Act and does not recognize our right to receive the collected storm recovery charges that are commingled with other funds of Cleco Power prior to
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or as of the date of bankruptcy, including storm recovery charges associated with another series of storm recovery bonds. If so, the collected storm recovery charges held by Cleco Power as of the date of bankruptcy would not be available to us to pay amounts owed on the storm recovery bonds. In this case, we would have only a general unsecured claim against Cleco Power for those amounts.
In addition, the bankruptcy of Cleco Power may cause a delay in or prohibition of enforcement of various rights against Cleco Power, including rights to require payments by Cleco Power, rights to recover preferential payments made by Cleco Power prior to bankruptcy, rights to require Cleco Power to comply with financial provisions of the Securitization Act or other state laws, rights to terminate contracts with Cleco Power and rights that are conditioned on the bankruptcy, insolvency or financial condition of Cleco Power.
Other risks relating to bankruptcy may be found in “Risk Factors—Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer.”
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Upon the issuance of the storm recovery bonds, we will use the net proceeds from the sale of the storm recovery bonds (after payment of upfront financing costs) to pay to Cleco Power the purchase price of Cleco Power’s rights under the financing order, which are the storm recovery property.
Cleco Power will use $100.9 million of the net proceeds from its sale of the storm recovery property to fund a restricted storm recovery reserve, which will be kept in a segregated restricted account, and $95.0 million to fund the separate restricted special Hurricane Ida reserve held in a separate segregated restricted account. The remaining proceeds (after payment of upfront financing costs payable by Cleco Power) of approximately $230 million are reimbursement to Cleco Power for storm recovery costs Cleco Power has already incurred and paid, and will be used by Cleco Power towards repayment of the interim short-term floating rates notes issued in September 2021 by Cleco Power. The all-in interest rate for the outstanding Cleco Power floating rate senior notes at March 31, 2022 was 1.416%.
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Subject to the terms and conditions in the underwriting agreement among us, Cleco Power and the underwriters, for whom J.P. Morgan Securities LLC and are acting as representatives, we have agreed to sell to the underwriters, and the underwriters have severally agreed to purchase, the principal amount of the storm recovery bonds listed opposite each underwriter’s name below:
Underwriter | | | Tranche A-1 | | | Tranche A-2 |
J.P. Morgan Securities LLC | | | $ | | | $ |
| | | | | |||
| | | | | |||
| | | | | |||
| | | $ | | | $ |
Under the underwriting agreement, the underwriters will take and pay for all of the storm recovery bonds we offer, if any is taken. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
The Underwriters’ Sales Price for the Storm Recovery Bonds
The storm recovery bonds sold by the underwriters to the public will be initially offered at the prices to the public set forth on the cover of this prospectus. The underwriters propose initially to offer the storm recovery bonds to dealers at such prices, less a selling concession not to exceed the percentage listed below for each tranche. The underwriters may allow, and dealers may reallow, a discount not to exceed the percentage listed below for each tranche.
| | | Selling Concession | | | Reallowance Discount | |
Tranche A-1 | | | % | | | % |
Tranche A-2 | | | % | | | % |
After the initial public offering, the public offering prices, selling concessions and reallowance discounts may change.
No Assurance as to Resale Price or Resale Liquidity for the Storm Recovery Bonds
The storm recovery bonds are a new issue of securities with no established trading market. They will not be listed on any securities exchange. The underwriters have advised us that they intend to make a market in the storm recovery bonds, but they are not obligated to do so and may discontinue market making at any time without notice. We cannot assure you that a liquid trading market will develop for the storm recovery bonds.
Various Types of Underwriter Transactions That May Affect the Price of the Storm Recovery Bonds
The underwriters may engage in overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids with respect to the storm recovery bonds in accordance with Regulation M under the Exchange Act. Overallotment transactions involve syndicate sales in excess of the offering size, which create a syndicate short position. Stabilizing transactions are bids to purchase the storm recovery bonds, which are permitted, so long as the stabilizing bids do not exceed a specific maximum price. Syndicate covering transactions involve purchases of the storm recovery bonds in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the storm recovery bonds originally sold by the syndicate member are purchased in a syndicate covering transaction. These overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids may cause the prices of the storm recovery bonds to be higher than they would otherwise be. Neither we, Cleco Power, the trustee, our managers nor any of the underwriters represent that the underwriters will engage in any of these transactions or that these transactions, if commenced, will not be discontinued without notice at any time.
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Certain of the underwriters and their affiliates have in the past provided, and may in the future from time to time provide, investment banking and general financing and banking services to Cleco Power and its affiliates for which they have in the past received, and in the future may receive, customary fees. In addition, each underwriter may from time to time take positions in the storm recovery bonds. J.P. Morgan Securities LLC, as structuring agent, has rendered certain structuring services to us and will receive a fee for such services and reimbursement for certain expenses in connection with such services. In accordance with FINRA Rule 5110 this structuring agent fee and the reimbursement of expenses are deemed underwriting compensation in connection with the offering.
We estimate that the registrants’ total expenses of the offering will be $ .
We and Cleco Power have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the storm recovery bonds, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters, including the validity of the storm recovery bonds and other conditions contained in the underwriting agreement, such as receipt of ratings confirmations, officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject offers in whole or in part.
We expect to deliver the storm recovery bonds against payment for the storm recovery bonds on or about the date specified in the last paragraph of the cover page of this prospectus, which will be the business day following the date of pricing of the storm recovery bonds. Since trades in the secondary market generally settle in two business days, purchasers who wish to trade storm recovery bonds on the date of pricing or the succeeding two business days will be required, by virtue of the fact that the storm recovery bonds initially will settle in T + , to specify alternative settlement arrangements to prevent a failed settlement.
We are a wholly-owned subsidiary of Cleco Power. Cleco Power is a wholly-owned operating subsidiary of Cleco Holdings. One of the underwriters, J.P. Morgan Securities LLC, also served as structuring agent to Cleco Power in connection with the structuring of the storm recovery bonds and will receive a $ fee for such services. Each of the sponsor, the initial servicer and the depositor may maintain other banking relationships in the ordinary course with The Bank of New York Mellon Trust Company National Association, the trustee.
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The following is a general discussion of the anticipated material U.S. federal income tax consequences of the purchase, ownership and disposition of the storm recovery bonds. Except as specifically provided below with respect to non-U.S. holders (as defined below), this discussion does not address the tax consequences to persons other than initial purchasers who are U.S. holders (as defined below) that acquire storm recovery bonds at original issue for cash equal to the issue price of those bonds and hold their storm recovery bonds as capital assets within the meaning of Section 1221 of the Internal Revenue Code, and it does not address all of the tax consequences relevant to investors that are subject to special treatment under the United States federal income tax laws (e.g., life insurance companies, tax-exempt organizations, financial institutions, dealers in securities, S corporations, taxpayers subject to the alternative minimum tax provisions of the Internal Revenue Code, broker-dealers and persons who hold the storm recovery bonds as part of a hedge, straddle, “synthetic security” or other integrated investment, risk reduction or constructive sale transaction). This discussion also does not address the consequences to holders of the storm recovery bonds under state, local or foreign tax laws. Please read “Material Louisiana Income Tax Considerations” in this prospectus.
This summary is based on current provisions of the Internal Revenue Code, the Treasury Regulations promulgated and proposed thereunder, judicial decisions and published administrative rulings and pronouncements of the IRS and interpretations thereof. All of these authorities and interpretations are subject to change, and any change may apply retroactively and affect the accuracy of the opinions, statements and conclusions set forth in this discussion.
U.S. Holder and Non-U.S. Holder Defined
A “U.S. holder” means a beneficial owner of a storm recovery bond that, for U.S. federal income tax purposes, is (i) a citizen or individual resident of the United States, (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (iv) a trust, if (A) a court in the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or (B) it has a valid election in place to be treated as a United States person. A “non-U.S. holder” means a beneficial owner of a storm recovery bond that is not a U.S. holder but does not include (i) an entity or arrangement treated as a partnership for U.S. federal income tax purposes, (ii) a former citizen of the United States or (iii) a former resident of the United States.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes is a holder of a storm recovery bond, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners are encouraged to consult their tax advisors about the particular U.S. federal income tax consequences applicable to them. Similarly, former citizens and former residents of the United States are encouraged to consult their tax advisors about the particular U.S. federal income tax consequences that may be applicable to them.
ALL PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISERS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF STORM RECOVERY BONDS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER LAWS.
Based upon guidance from the IRS and certain representations from us, including a representation by us that we will not make, or allow there to be made, any election to the contrary, Phelps Dunbar, L.L.P., special tax counsel, expects to render its opinion that for U.S. federal income tax purposes we will not be considered an entity separate from our sole member, Cleco Power, and the storm recovery bonds will be treated as debt obligations of Cleco Power.
Payments of Interest. Interest on the storm recovery bonds will be taxable as ordinary income when received or accrued by U.S. holders, depending upon their method of accounting. This discussion assumes that the storm recovery bonds will not be considered to be issued with original issue discount (“OID”). OID is generally defined as
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any excess of the stated price the U.S. holder will receive upon redemption of the bond at the bond’s maturity, less the price the U.S. holder pays to purchase the bond, if this difference is equal to or greater than a de minimis amount. If any series or portion of storm recovery bonds is issued with OID, prospective U.S. holders will be so informed in the related prospectus, and should thereafter consult their tax adviser to determine the federal, state, local and foreign income and any other tax consequences.
Sale or Other Taxable Disposition of the Storm Recovery Bonds. If there is a sale, exchange, redemption, retirement or other taxable disposition of a storm recovery bond, a U.S. holder generally will recognize taxable gain or loss equal to the difference between (a) the amount of cash and the fair market value of any other property received (other than amounts attributable to, and taxable as, accrued stated interest) and (b) the holder’s adjusted tax basis in the storm recovery bond. A U.S. holder’s adjusted tax basis in a storm recovery bond generally will equal its cost, reduced by any payments reflecting principal previously received with respect to the bond. Gain or loss generally will be capital gain or loss if the storm recovery bond is held as a capital asset, and will be long-term capital gain or loss if the storm recovery bond was held for more than one year at the time of disposition. If a U.S. holder sells a storm recovery bond between interest payment dates, a portion of the amount received will reflect interest that has accrued on the storm recovery bond but that has not yet been paid by the sale date and, to the extent that amount has not already been included in the U.S. holder’s income, it will be treated as ordinary interest income and not as capital gain.
3.8% Tax on “Net Investment Income”
Certain U.S. holders will be subject to an additional 3.8% tax on all or a portion of their “net investment income,” which may include the interest payments and any taxable gain realized with respect to a storm recovery bond, to the extent of their net investment income that, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married individual filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. U.S. holders are encouraged to consult their tax advisors with respect to this tax.
Information Reporting and Backup Withholding
Payments of stated interest and the proceeds of a disposition of storm recovery bonds may be reported to the IRS. These information reporting requirements, however, do not apply with respect to certain exempt U.S. holders, such as corporations.
Backup withholding (currently at a rate of 24%) may apply to payments of the foregoing amounts, unless a U.S. holder provides the applicable withholding agent with its taxpayer identification number, certified under penalties of perjury, as well as certain other information, or otherwise establishes an exemption from backup withholding. Backup withholding will also apply if a U.S. holder is notified by the IRS that the U.S. holder is subject to backup withholding because of its failure to report payment of interest and dividends properly, or if the U.S. holder otherwise fails to comply with the applicable backup withholding rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against a U.S. holder’s U.S. federal income tax liability, if any, and may entitle a U.S. holder to a refund, provided the required information is timely furnished to the IRS.
Withholding Tax on Interest Payments
Subject to the discussion below (see “—Reporting and Backup Withholding” and “—The Foreign Account Tax Compliance Act”), payments of interest income on the storm recovery bonds to a non-U.S. holder generally will be exempt from U.S. federal income and withholding tax under the “portfolio interest” exemption if the interest is not effectively connected with the non-U.S. holder’s U.S. trade or business, the non-U.S. holder properly certifies as to its non-U.S. status, as described below, and the non-U.S. holder:
• | does not actually or constructively own 10% or more of the total combined voting power of all classes of Cleco Holdings stock entitled to vote; |
• | is not a bank whose receipt of interest is in connection with an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business; and |
• | is not a “controlled foreign corporation” for U.S. federal income tax purposes that is related to us or Cleco Holdings. |
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The portfolio interest exemption applies only if the non-U.S. holder appropriately certifies as to its non-U.S. status. A holder generally can meet this certification requirement by providing a properly executed IRS Form W-8BEN or W-8BEN-E, as applicable (or appropriate substitute or successor form) to the applicable withholding agent. If the non-U.S. holder holds the storm recovery bonds through a financial institution or other agent acting on its behalf, it may be required to provide appropriate certifications to its agent. The agent then generally will be required to provide appropriate certifications to the applicable withholding agent, either directly or through other intermediaries.
If the non-U.S. holder cannot satisfy the requirements described above, payments of interest made to the non-U.S. holder will be subject to U.S. federal withholding tax, currently at a 30% rate, unless (1) it provides the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E, as applicable (or appropriate substitute or successor form) claiming an exemption from (or a reduction of) withholding under an applicable income tax treaty or (2) the payments of interest are effectively connected with its conduct of a trade or business in the United States and it meets the certification requirements described below (see “—Income or Gain Effectively Connected with a U.S. Trade or Business”).
Disposition of the Storm Recovery Bonds
Subject to the discussion below (see “—Reporting and Backup Withholding” and “—The Foreign Account Tax Compliance Act”), a non-U.S. holder generally will not be subject to United States federal income or withholding tax on gain realized on the sale, redemption, exchange, retirement or other taxable disposition of storm recovery bonds, unless:
• | the gain is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States); or |
• | the non-U.S. holder is an individual who is present in the United States for 183 days or more during the taxable year and certain other requirements are met. |
If you are a non-U.S. holder described in the first bullet point above, you generally will be subject to U.S. federal income tax as described below (see “—Income or Gain Effectively Connected with a U.S. Trade or Business”). If you are a non-U.S. holder described in the second bullet point above, you generally will be subject to U.S. federal income tax at a 30% rate (or a lower applicable income tax treaty rate) on the gain derived from the sale, redemption, exchange, retirement or other taxable disposition, which may be offset by certain U.S.-source capital losses, unless an applicable income tax treaty provides otherwise.
Income or Gain Effectively Connected with a U.S. Trade or Business
If any interest on the storm recovery bonds or gain from a sale, redemption, exchange, retirement or other taxable disposition of the storm recovery bonds is effectively connected with a U.S. trade or business conducted by a non-U.S. holder, then the non-U.S. holder generally will be subject to U.S. federal income tax on such interest or gain on a net income basis in the same manner as a U.S. holder (unless an applicable income tax treaty provides otherwise). If interest received with respect to the storm recovery bonds is effectively connected income, the U.S. federal withholding tax described above will not apply (assuming appropriate certification is provided) unless an applicable income tax treaty provides otherwise. A non-U.S. holder generally can meet the certification requirements by providing a properly executed IRS Form W-8ECI (or other applicable form) to the applicable withholding agent. In addition, if the non-U.S. holder is a corporation for U.S. federal income tax purposes, that portion of its earnings and profits that is attributable to such effectively connected income or gain, subject to certain adjustments, may be subject to a “branch profits tax” at a 30% rate (or a lower applicable income tax treaty rate).
Reporting and Backup Withholding
Payments to a non-U.S. holder of interest on a storm recovery bond, and amounts withheld from such payments, if any, generally will be required to be reported to the IRS and may also be made available to the tax authorities of the country in which a non-U.S. holder is a tax resident under the provisions of an applicable income tax treaty or agreement. Backup withholding generally will not apply to payments of interest to a non-U.S. holder if the certification described in “—Withholding Tax on Interest Payments” above is provided by the non-U.S. holder, or the non-U.S. holder otherwise establishes an exemption.
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Proceeds from a disposition of a storm recovery bond effected by the U.S. office of a U.S. or non-U.S. broker will be subject to information reporting requirements and backup withholding unless a non-U.S. holder properly certifies, under penalties of perjury, as to its non-U.S. status and certain other conditions are met, or an exemption is otherwise established. Information reporting and backup withholding generally will not apply to any proceeds from a disposition of a storm recovery bond effected outside the United States by a non-U.S. office of a broker, unless such broker has certain connections to the United States, in which case information reporting, but not backup withholding, may apply unless certain other conditions are met, or an exemption is otherwise established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against a non-U.S. holder’s U.S. federal income tax liability, if any, and may entitle a non-U.S. holder to a refund, provided the required information is timely furnished to the IRS.
The Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes a U.S. federal withholding tax (separate and apart from, but without duplication of, the withholding tax described above) at a rate of 30% on payments of U.S. source interest on, and the gross proceeds from a disposition of, certain debt obligations paid to certain non-U.S. entities, including certain foreign financial institutions and investment funds (including, in some instances, where such an entity is acting as an intermediary), unless such non-U.S. entity complies with certain withholding and reporting requirements regarding U.S. account holders and U.S. owners of such entity’s equity and debt. Pursuant to proposed U.S. Treasury Regulations (upon which taxpayers are permitted to rely until final U.S. Treasury Regulations are issued), this withholding tax generally will not apply to the gross proceeds from a sale or other disposition of instruments, such as the storm recovery bonds, that produce U.S. source interest. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these rules may be subject to different rules. Under certain circumstances, a beneficial owner of a storm recovery bond may be eligible for a refund or credit of such taxes. Prospective purchasers are encouraged to consult their tax advisors regarding the application of FATCA in their particular circumstances.
The preceding discussion of certain U.S. federal income tax consequences is for general information only and is not tax advice. Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of the storm recovery bonds, including the consequences of any proposed change in applicable laws.
Assuming that the storm recovery bonds will be treated as debt obligations of Cleco Power for U.S. federal income tax purposes, interest paid on the storm recovery bonds generally will be taxed for Louisiana income tax purposes consistently with its taxation for U.S. federal income tax purposes (although certain corporate bondholders may be entitled to a deduction from Louisiana gross income for interest received on the storm recovery bonds) and such interest received by an entity or person not otherwise subject to Louisiana corporate or individual income tax will not be subject to Louisiana income tax. Phelps Dunbar, L.L.P. expects to issue an opinion, that, for Louisiana income tax purposes (1) we will not be treated as a taxable entity separate and apart from Cleco Power, our sole member, and (2) the storm recovery bonds will constitute indebtedness of Cleco Power, assuming, in each case, that such treatment applies for U.S. federal income tax purposes. These opinions are not binding on any taxing authority or any court, and there can be no assurance that contrary positions may not be taken by any taxing authority.
This discussion is based on current provisions of the Louisiana tax statutes and regulations, judicial decisions and administrative interpretations and rulings. All of these authorities and interpretations are subject to change, and any change may apply retroactively and affect the accuracy of the opinions set forth in this discussion.
The discussion under “Material Louisiana Income Tax Consequences” is for general information only and may not be applicable depending upon a bondholder’s particular situation. It is recommended that prospective bondholders consult their own tax advisors with respect to the tax consequences to them of the acquisition, ownership and disposition of the storm recovery bonds, including the tax consequences under federal, state, local, non-U.S. and other tax laws and the effects of changes in such laws. Please read “Material U.S. Federal Income Tax Consequences.”
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The Employee Retirement Income Security Act of 1974, known as ERISA, and Section 4975 of the Internal Revenue Code impose certain requirements on employee benefit plans and other arrangements subject to ERISA or Section 4975 of the Internal Revenue Code. ERISA and the Internal Revenue Code also impose certain requirements on fiduciaries of such plans in connection with the investment of the assets of the plans. For purposes of this discussion, “plans” include employee benefit plans and other plans and arrangements that provide retirement income, including individual retirement accounts and annuities and Keogh plans, as well as some collective investment funds and insurance company general or separate accounts in which the assets of those plans, accounts or arrangements are invested. A fiduciary of an investing plan is any person who in connection with the assets of the plan:
• | has discretionary authority or control over the management or disposition of assets, or |
• | provides investment advice for a fee. |
Some plans, such as governmental plans, and certain church plans, and the fiduciaries of those plans, are not subject to ERISA requirements. Accordingly, assets of these plans may be invested in the storm recovery bonds without regard to the ERISA considerations described below, subject to the provisions of other applicable federal and state law (“applicable similar law”). Any such plan which is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code, however, is subject to the prohibited transaction rules in Section 503 of the Internal Revenue Code.
ERISA imposes certain general fiduciary requirements on fiduciaries, including:
• | investment prudence and diversification, and |
• | the investment of the assets of the plan in accordance with the documents governing the plan. |
Section 406 of ERISA and Section 4975 of the Internal Revenue Code also prohibit a broad range of transactions involving the assets of a plan and persons who have certain specified relationships to the plan, referred to as “parties in interest,” as defined under ERISA or “disqualified persons” as defined under Section 4975 of the Internal Revenue Code unless a statutory or administrative exemption is available. The types of transactions that are prohibited include but are not limited to:
• | sales, exchanges or leases of property; |
• | loans or other extensions of credit; and |
• | the furnishing of goods or services. |
Certain persons that participate in a prohibited transaction may be subject to an excise tax under Section 4975 of the Internal Revenue Code or a penalty imposed under Section 502(i) of ERISA, unless a statutory or administrative exemption is available. In addition, the persons involved in the prohibited transaction may have to cancel or unwind the transaction and pay an amount to the plan for any losses realized by the plan or profits realized by these persons. In addition, individual retirement accounts involved in the prohibited transaction may be disqualified which would result in adverse tax consequences to the owner of the account.
A fiduciary’s investment of the assets of a plan in the storm recovery bonds may cause our assets to be deemed assets of the plan. United States Department of Labor regulations at 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA (collectively, the “plan asset regulations”), provide that the assets of an entity will be deemed to be assets of a plan that purchases an interest in the entity if the interest that is purchased by the plan is an equity interest, equity participation by benefit plan investors is “significant” within the meaning of the plan asset regulations and none of the other exceptions contained in the plan asset regulations applies. An equity interest is defined in the plan asset regulations as an interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there is no authority directly on point, it is anticipated that the storm recovery bonds will be treated as indebtedness under local law without any substantial equity features.
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If the storm recovery bonds were deemed to be equity interests in us and none of the exceptions contained in the plan asset regulations were applicable, then our assets would be considered to be assets of any plans that purchase the storm recovery bonds. The extent to which the storm recovery bonds are owned by benefit plan investors will not be monitored. If our assets were deemed to constitute “plan assets” pursuant to the plan asset regulations, transactions we might enter into, or may have entered into in the ordinary course of business, might constitute non-exempt prohibited transactions under ERISA and or Section 4975 of the Internal Revenue Code.
In addition, the acquisition, holding or disposition of the storm recovery bonds by or on behalf of a plan could give rise to a prohibited transaction if we or the trustee, Cleco Power, any other servicer, AEP, any underwriter or certain of their affiliates has, or acquires, a relationship to an investing plan. Each purchaser of the storm recovery bonds will be deemed to have represented and warranted that its purchase, holding and disposition of the storm recovery bonds will not result in a non-exempt prohibited transaction under ERISA, Section 4975 of the Internal Revenue Code or applicable similar law.
Before purchasing any storm recovery bonds by or on behalf of a plan, you should consider whether the purchase, holding and disposition of storm recovery bonds might constitute or result in a prohibited transaction under ERISA, Section 4975 of the Internal Revenue Code or a violation of applicable similar law and, if so, whether any prohibited transaction exemption or similar law exemption, as the case may be, might apply to the purchase and holding of the storm recovery bonds.
If you are a fiduciary of a plan, before purchasing any storm recovery bonds, you should consider the availability of one of the Department of Labor’s prohibited transaction class exemptions, referred to as PTCEs, or one of the statutory exemptions provided by ERISA or Section 4975 of the Internal Revenue Code, which include:
• | PTCE 75-1, which exempts certain transactions between a plan and certain broker-dealers, reporting dealers and banks; |
• | PTCE 84-14, which exempts certain transactions effected on behalf of a plan by a “qualified professional asset manager;” |
• | PTCE 90-1, which exempts certain transactions between insurance company separate accounts and parties in interest; |
• | PTCE 91-38, which exempts certain transactions between bank collective investment funds and parties in interest; |
• | PTCE 95-60, which exempts certain transactions between insurance company general accounts and parties in interest; |
• | PTCE 96-23, which exempts certain transactions effected on behalf of a plan by an “in-house asset manager;” and |
• | the statutory service provider exemption provided by Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Internal Revenue Code, which exempts certain transactions between plans and parties in interest that are not fiduciaries with respect to the transaction. |
We cannot provide any assurance that any of these class exemptions or statutory exemptions will apply with respect to any particular investment in the storm recovery bonds by, or on behalf of, a plan or, even if it were deemed to apply, that any exemption would apply to all transactions that may occur in connection with the investment. Even if one of these class exemptions or statutory exemptions were deemed to apply, storm recovery bonds may not be purchased with assets of any plan if we or the trustee, Cleco Power, any other servicer, Cleco Holdings, any underwriter or any of their affiliates:
• | has investment discretion over the assets of the plan used to purchase the storm recovery bonds; or |
• | has authority or responsibility to give, or regularly gives, investment advice regarding the assets of the plan used to purchase the storm recovery bonds, for a fee and under an agreement or understanding that the advice will serve as a primary basis for investment decisions for the assets of the plan, and will be based on the particular investment needs of the plan. |
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The sale of the storm recovery bonds to a plan will not constitute a representation by us or the trustee, Cleco Power, any other servicer, Cleco Holdings, any underwriter or any of their affiliates that such an investment meets all relevant legal requirements relating to investments by such plans generally or by any particular plan, or that such an investment is appropriate for such plans generally or for a particular plan.
If you are a fiduciary which proposes to purchase the storm recovery bonds on behalf of or with assets of a plan, you should consider your general fiduciary obligations under ERISA and you should consult with your legal counsel as to the potential applicability of ERISA, the Internal Revenue Code and applicable similar law to any investment and the availability of any prohibited transaction exemption in connection with any investment.
This summary is based on current provisions of ERISA, the Internal Revenue Code, the regulations thereunder and other related guidance. All of these authorities and interpretations are subject to change, and any change may apply retroactively and affect the accuracy of the opinions, statements and conclusions set forth in this discussion.
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There are no legal or governmental proceedings pending against us, the sponsor, seller, trustee, or servicer, or of which any property of the foregoing is subject, that is material to the holders of the storm recovery bonds.
We expect that the storm recovery bonds will receive credit ratings from at least two NRSROs. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning NRSRO. Each rating should be evaluated independently of any other rating. No person or entity is obligated to maintain the rating on the storm recovery bonds and, accordingly, we can give no assurance that the ratings assigned to any tranche of the storm recovery bonds upon initial issuance will not be lowered or withdrawn by a NRSRO at any time thereafter. If a rating of any tranche of the storm recovery bonds is lowered or withdrawn, the liquidity of this tranche of the storm recovery bonds may be adversely affected. In general, ratings address credit risk and do not represent any assessment of any particular rate of principal payments on the storm recovery bonds other than the payment in full of such tranche of the storm recovery bonds by the final maturity date or tranche final maturity date, as well as the timely payment of interest.
Under Rule 17g-5 under the Exchange Act, NRSROs providing the sponsor with the requisite certification will have access to all information posted on a website by the sponsor for the purpose of determining the initial rating and monitoring the rating after the storm recovery bonds issuance date. As a result, an NRSRO other than the NRSROs hired by the sponsor (“hired NRSRO”) may issue ratings on the storm recovery bonds (“Unsolicited Ratings”), which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSROs. The Unsolicited Ratings may be issued prior to, or after, the storm recovery bonds issuance date. Issuance of any Unsolicited Rating will not affect the issuance of the storm recovery bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSROs on the storm recovery bonds might adversely affect the value of the storm recovery bonds and, for regulated entities, could affect the status of the storm recovery bonds as a legal investment or the capital treatment of the storm recovery bonds. Investors in the storm recovery bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO.
A portion of the fees paid by Cleco Power to a NRSRO that is hired to assign a rating on the storm recovery bonds is contingent upon the issuance of the storm recovery bonds. In addition to the fees paid by Cleco Power to a NRSRO at closing, Cleco Power will pay a fee to the NRSRO for ongoing surveillance for so long as the storm recovery bonds are outstanding. However, no NRSRO is under any obligation to continue to monitor or provide a rating on the storm recovery bonds.
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To the extent that we are required by law to file such reports and information with the SEC under the Exchange Act, we will file annual and current reports and other information with the SEC. We are incorporating by reference any future filings we or the sponsor, but solely in its capacity as our sponsor, make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering of the storm recovery bonds, excluding any information that is furnished to, and not filed with, the SEC. These reports will be filed under our own name as issuing entity. Under the indenture, we may voluntarily suspend or terminate our filing obligations as Issuer with the SEC, to the extent permitted by applicable law.
This prospectus is part of a registration statement we and Cleco Power have filed with the SEC relating to the storm recovery bonds. This prospectus describes the material terms of some of the documents we have filed as exhibits to the registration statement. However, this prospectus does not contain all of the information contained in the registration statement and the exhibits.
Information filed with the SEC can be inspected at the SEC’s Internet site located at http://www.sec.gov. You may also obtain a copy of our filings with the SEC at no cost, by writing to or telephoning us at the following address:
Cleco Securitization I LLC
505 Cleco Drive, Office Number 16
Pineville, Louisiana 71360
(318) 484-4183
Our SEC Securities Act file number is 333-264319 and 333-264319-01.
We or Cleco Power as depositor will also file with the SEC all of the periodic reports we or the depositor are required to file under the Exchange Act and the rules, regulations or orders of the SEC thereunder; however, neither we nor Cleco Power as depositor intend to file any such reports relating to the storm recovery bonds following completion of the reporting period required by Rule 15d-1 or Regulation 15D under the Exchange Act, unless required by law. Unless specifically stated in the report, the reports and any information included in the report will neither be examined nor reported on by an independent public accountant. A more detailed description of the information to be included in these periodic reports, please read “Description of the Storm Recovery Bonds—Website.”
The SEC allows us to “incorporate by reference” into this prospectus information we or the depositor file with the SEC. This means we can disclose important information to you by referring you to the documents containing the information. The information we incorporate by reference is considered to be part of this prospectus, unless we update or supersede that information with information that we or the depositor file subsequently that is incorporated by reference into this prospectus. We are incorporating into this prospectus any future distribution report on Form 10-D, current report on Form 8-K or any amendment to any such report which we or Cleco Power, solely in its capacity as our depositor, make with the SEC until the offering of the storm recovery bonds is completed. These reports will be filed under our own name as issuing entity. Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any separately filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute part of this prospectus.
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We expect to rely on an exclusion from the definition of “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), contained in Section 3(c)(5) of the 1940 Act, although there may be additional exclusions or exemptions available to us. As a result of such exclusion, we will not be subject to regulation as an “investment company” under the 1940 Act.
In addition, we are being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). As part of the Dodd-Frank Act, federal law prohibits a “banking entity,” which is broadly defined to include banks, bank holding companies and affiliates thereof, from engaging in proprietary trading or holding ownership interests in certain private funds. The definition of “covered fund” in the regulations adopted to implement the Volcker Rule includes (generally) any entity that would be an investment company under the 1940 Act but for the exclusion provided under Sections 3(c)(1) or 3(c)(7) thereunder. Because we expect to rely on Section 3(c)(5) of the 1940 Act, we expect to not be considered a “covered fund” within the meaning of the Volcker Rule regulations.
This offering of the storm recovery bonds is a public utility securitization exempt from the risk retention requirements imposed by Section 15G of the Exchange Act due to the exemption provided in Rule 19(b)(8) of Regulation RR.
For information regarding the requirements of the EU Securitization Regulation as to risk retention and other matters, please read “Risk Factors—Other Risks Associated with an Investment in the Storm Recovery Bonds—Regulatory provisions affecting certain investors could adversely affect the liquidity of the storm recovery bonds” in this prospectus.
Certain legal matters relating to the storm recovery bonds, including certain U.S. federal income tax matters, will be passed on by Phelps Dunbar, L.L.P., New Orleans, Louisiana, counsel to Cleco Power and us. Certain other legal matters relating to the storm recovery bonds will be passed on by Baker Botts L.L.P., Houston, Texas, special counsel to Cleco Power, and by Hunton Andrews Kurth LLP, New York, New York, counsel to the underwriters.
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NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA
THE STORM RECOVERY BONDS ARE NOT INTENDED TO BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO, AND SHOULD NOT BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO, ANY RETAIL INVESTOR IN THE EUROPEAN ECONOMIC AREA (“EEA”). FOR THESE PURPOSES, THE EXPRESSION “RETAIL INVESTOR” MEANS A PERSON WHO IS ONE (OR MORE) OF THE FOLLOWING: (1) A RETAIL CLIENT AS DEFINED IN POINT (11) OF ARTICLE 4(1) OF DIRECTIVE 2014/65/EU (AS AMENDED, “MIFID II”); (2) A CUSTOMER WITHIN THE MEANING OF DIRECTIVE (EU) 2016/97 (AS AMENDED), WHERE THAT CUSTOMER WOULD NOT QUALIFY AS A PROFESSIONAL CLIENT AS DEFINED IN POINT (10) OF ARTICLE 4(1) OF MIFID II; OR (3) NOT A QUALIFIED INVESTOR (“QUALIFIED INVESTOR”) WITHIN THE MEANING OF DIRECTIVE 2003/71/EC (AS AMENDED OR SUPERSEDED, THE “PROSPECTUS DIRECTIVE”). CONSEQUENTLY NO KEY INFORMATION DOCUMENT REQUIRED BY REGULATION (EU) NO 1286/2014 (AS AMENDED, THE “PRIIPS REGULATION”) FOR OFFERING OR SELLING THE STORM RECOVERY BONDS OR OTHERWISE MAKING THEM AVAILABLE TO RETAIL INVESTORS IN THE EEA HAS BEEN PREPARED; AND THEREFORE OFFERING OR SELLING THE STORM RECOVERY BONDS OR OTHERWISE MAKING THEM AVAILABLE TO ANY RETAIL INVESTOR IN THE EEA MAY BE UNLAWFUL UNDER THE PRIIPS REGULATION.
THIS PROSPECTUS IS NOT A PROSPECTUS FOR PURPOSES OF THE PROSPECTUS DIRECTIVE. THIS PROSPECTUS HAS BEEN PREPARED ON THE BASIS THAT ANY OFFER OF STORM RECOVERY BONDS IN ANY MEMBER STATE OF THE EEA WHICH HAS IMPLEMENTED THE PROSPECTUS DIRECTIVE (EACH, A “RELEVANT MEMBER STATE”) WILL BE MADE ONLY TO A QUALIFIED INVESTOR. ACCORDINGLY, ANY PERSON MAKING OR INTENDING TO MAKE AN OFFER IN THAT RELEVANT MEMBER STATE OF STORM RECOVERY BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED IN THIS PROSPECTUS MAY DO SO ONLY WITH RESPECT TO QUALIFIED INVESTORS. NEITHER WE NOR ANY UNDERWRITER HAS AUTHORIZED, NOR DO WE OR THEY AUTHORIZE, THE MAKING OF ANY OFFER OF STORM RECOVERY BONDS OTHER THAN TO QUALIFIED INVESTORS.
ANY DISTRIBUTOR SUBJECT TO MIFID II THAT IS OFFERING, SELLING OR RECOMMENDING THE STORM RECOVERY BONDS IS RESPONSIBLE FOR UNDERTAKING ITS OWN TARGET MARKET ASSESSMENT IN RESPECT OF THE STORM RECOVERY BONDS AND DETERMINING ITS OWN DISTRIBUTION CHANNELS FOR THE PURPOSES OF THE MIFID II PRODUCT GOVERNANCE RULES UNDER COMMISSION DELEGATED DIRECTIVE (EU) 2017/593 (AS AMENDED, THE “DELEGATED DIRECTIVE”). NEITHER WE NOR ANY UNDERWRITER MAKES ANY REPRESENTATIONS OR WARRANTIES AS TO A DISTRIBUTOR’S COMPLIANCE WITH THE DELEGATED DIRECTIVE.
EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT IT HAS NOT OFFERED, SOLD OR OTHERWISE MADE AVAILABLE, AND WILL NOT OFFER, SELL OR OTHERWISE MAKE AVAILABLE, ANY STORM RECOVERY BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED BY THIS PROSPECTUS TO ANY RETAIL INVESTOR (AS DEFINED ABOVE) IN THE EEA. FOR THIS PURPOSE, THE EXPRESSION “OFFER” INCLUDES THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION ON THE TERMS OF THE OFFER AND THE STORM RECOVERY BONDS SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE FOR THE STORM RECOVERY BONDS.
NOTICE TO RESIDENTS OF UNITED KINGDOM
IN THE UNITED KINGDOM, THIS PROSPECTUS IS BEING COMMUNICATED ONLY TO, AND IS DIRECTED ONLY AT, (1) PERSONS WHICH HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND WHICH FALL WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AS AMENDED, THE “ORDER”); (2) PERSONS WHICH FALL WITHIN ARTICLE 49(2)(A) TO (D) OF THE ORDER; OR (3) PERSONS TO WHICH IT MAY OTHERWISE LAWFULLY BE COMMUNICATED OR DIRECTED (EACH SUCH PERSON, A “RELEVANT PERSON”). ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS PROSPECTUS RELATES, INCLUDING THE STORM RECOVERY BONDS, IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS PROSPECTUS MUST NOT BE ACTED ON OR RELIED ON BY ANY PERSON WHICH IS NOT A RELEVANT PERSON.
EACH OF THE UNDERWRITERS HAS REPRESENTED AND AGREED THAT (I) IT HAS ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000, AS AMENDED (THE “FSMA”)) RECEIVED BY IT IN CONNECTION WITH THE ISSUE
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OR SALE OF THE STORM RECOVERY BONDS IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO THE ISSUING ENTITY; AND (II) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF THE FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE STORM RECOVERY BONDS IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
NOTICE TO RESIDENTS OF CANADA
THE BONDS MAY BE SOLD IN CANADA ONLY TO PURCHASERS PURCHASING, OR DEEMED TO BE PURCHASING, AS PRINCIPAL THAT ARE ACCREDITED INVESTORS, AS DEFINED IN NATIONAL INSTRUMENT 45-106 PROSPECTUS EXEMPTIONS OR SUBSECTION 73.3(1) OF THE SECURITIES ACT (ONTARIO), AND ARE PERMITTED CLIENTS, AS DEFINED IN NATIONAL INSTRUMENT 31-103 REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS. ANY RESALE OF THE STORM RECOVERY BONDS MUST BE MADE IN ACCORDANCE WITH AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE PROSPECTUS REQUIREMENTS OF APPLICABLE SECURITIES LAWS.
SECURITIES LEGISLATION IN CERTAIN PROVINCES OR TERRITORIES OF CANADA MAY PROVIDE A PURCHASER WITH REMEDIES FOR RESCISSION OR DAMAGES IF THIS PROSPECTUS (INCLUDING ANY AMENDMENT THERETO) CONTAINS A MISREPRESENTATION, PROVIDED THAT THE REMEDIES FOR RESCISSION OR DAMAGES ARE EXERCISED BY THE PURCHASER WITHIN THE TIME LIMIT PRESCRIBED BY THE SECURITIES LEGISLATION OF THE PURCHASER’S PROVINCE OR TERRITORY. THE PURCHASER SHOULD REFER TO ANY APPLICABLE PROVISIONS OF THE SECURITIES LEGISLATION OF THE PURCHASER’S PROVINCE OR TERRITORY FOR PARTICULARS OF THESE RIGHTS OR CONSULT WITH A LEGAL ADVISOR.
PURSUANT TO SECTION 3A.3 OF NATIONAL INSTRUMENT 33-105 UNDERWRITING CONFLICTS (NI 33-105), THE UNDERWRITERS ARE NOT REQUIRED TO COMPLY WITH THE DISCLOSURE REQUIREMENTS OF NI 33-105 REGARDING UNDERWRITER CONFLICTS OF INTEREST IN CONNECTION WITH THIS OFFERING.
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NOTICE TO PROSPECTIVE INVESTORS IN SWITZERLAND
THIS PROSPECTUS IS NOT INTENDED TO CONSTITUTE AN OFFER OR A SOLICITATION TO PURCHASE OR INVEST IN THE STORM RECOVERY BONDS. THE STORM RECOVERY BONDS MAY NOT BE PUBLICLY OFFERED, DIRECTLY OR INDIRECTLY, IN SWITZERLAND WITHIN THE MEANING OF THE SWISS FINANCIAL SERVICES ACT (“FINSA”) AND NO APPLICATION HAS OR WILL BE MADE TO ADMIT THE STORM RECOVERY BONDS TO TRADING ON ANY TRADING VENUE (EXCHANGE OR MULTILATERAL TRADING FACILITY) IN SWITZERLAND. NEITHER THIS PROSPECTUS NOR ANY OTHER OFFERING OR MARKETING MATERIAL RELATING TO THE STORM RECOVERY BONDS CONSTITUTES A PROSPECTUS PURSUANT TO (I) THE FINSA OR (II) THE LISTING RULES OF THE SIX SWISS EXCHANGE AG OR ANY OTHER REGULATED TRADING VENUE IN SWITZERLAND AND NEITHER THIS PROSPECTUS NOR ANY OTHER OFFERING OR MARKETING MATERIAL RELATING TO THE STORM RECOVERY BONDS MAY BE PUBLICLY DISTRIBUTED OR OTHERWISE MADE PUBLICLY AVAILABLE IN SWITZERLAND. THIS PROSPECTUS WILL NOT BE REVIEWED NOR APPROVED BY A REVIEWING BODY FOR PROSPECTUSES (PRÜFSTELLE).
NONE OF THIS PROSPECTUS OR ANY OTHER OFFERING OR MARKETING MATERIAL RELATING TO THE OFFERING, THE ISSUER OR THE STORM RECOVERY BONDS HAVE BEEN OR WILL BE FILED WITH OR APPROVED BY ANY SWISS REGULATORY AUTHORITY. IN PARTICULAR, THIS PROSPECTUS WILL NOT BE FILED WITH, AND THE OFFER OF THE STORM RECOVERY BONDS WILL NOT BE SUPERVISED BY, THE SWISS FINANCIAL MARKET SUPERVISORY AUTHORITY (“FINMA”), AND THE OFFER OF STORM RECOVERY BONDS HAS NOT BEEN AND WILL NOT BE AUTHORIZED UNDER THE SWISS FEDERAL ACT ON COLLECTIVE INVESTMENT SCHEMES (“CISA”). ACCORDINGLY, INVESTORS DO NOT HAVE THE BENEFIT OF THE SPECIFIC INVESTOR PROTECTION PROVIDED UNDER THE CISA.
THIS PROSPECTUS DOES NOT CONSTITUTE INVESTMENT ADVICE. IT MAY ONLY BE USED BY THOSE PERSONS TO WHOM IT HAS BEEN HANDED OUT IN CONNECTION WITH THE STORM RECOVERY BONDS AND MAY NEITHER BE COPIED NOR DIRECTLY OR INDIRECTLY DISTRIBUTED OR MADE AVAILABLE TO OTHER PERSONS.
NOTICE TO PROSPECTIVE INVESTORS IN HONG KONG
THE CONTENTS OF THIS PROSPECTUS HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE STORM RECOVERY BONDS. IF YOU ARE IN ANY DOUBT ABOUT ANY OF THE CONTENTS OF THIS PROSPECTUS, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.
THIS PROSPECTUS HAS NOT BEEN OR WILL NOT BE REGISTERED AS A PROSPECTUS (AS DEFINED IN THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE (CAP. 32) OF HONG KONG (“C(WUMP)O”)) IN HONG KONG NOR HAS IT BEEN APPROVED BY THE SECURITIES AND FUTURES COMMISSION OF HONG KONG PURSUANT TO THE SECURITIES AND FUTURES ORDINANCE (CAP. 571) OF HONG KONG (“SFO”).
ACCORDINGLY: (I) THE STORM RECOVERY BONDS MAY NOT BE OFFERED OR SOLD IN HONG KONG BY MEANS OF ANY DOCUMENT, OTHER THAN (A) TO “PROFESSIONAL INVESTORS” AS DEFINED IN THE SFO AND ANY RULES MADE UNDER THE SFO, OR (B) IN OTHER CIRCUMSTANCES WHICH DO NOT RESULT IN THE DOCUMENT BEING A “PROSPECTUS” AS DEFINED IN THE C(WUMP)O OR WHICH DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE C(WUMP)O; AND (II) NO PERSON MAY ISSUE OR HAVE IN ITS POSSESSION FOR THE PURPOSES OF ISSUE, WHETHER IN HONG KONG OR ELSEWHERE, ANY ADVERTISEMENT, INVITATION OR DOCUMENT RELATING TO THE STORM RECOVERY BONDS, WHICH IS DIRECTED AT, OR THE CONTENTS OF WHICH ARE LIKELY TO BE ACCESSED OR READ BY, THE PUBLIC OF HONG KONG (EXCEPT IF PERMITTED TO DO SO UNDER THE SECURITIES LAWS OF HONG KONG) OTHER THAN WITH RESPECT TO STORM RECOVERY BONDS WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS OUTSIDE HONG KONG OR ONLY TO “PROFESSIONAL INVESTORS” AS DEFINED IN THE SFO AND ANY RULES MADE UNDER THE SFO.
NOTICE TO PROSPECTIVE INVESTORS IN JAPAN
THE STORM RECOVERY BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE FINANCIAL INSTRUMENTS AND EXCHANGE ACT OF JAPAN (ACT NO. 25 OF 1948, AS AMENDED, THE “FIEA”). NEITHER THE STORM RECOVERY BONDS NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY RESIDENT OF JAPAN (AS DEFINED UNDER ITEM 5, PARAGRAPH 1, ARTICLE 6 OF THE FOREIGN EXCHANGE AND FOREIGN TRADE ACT (ACT NO. 228 OF 1949, AS AMENDED)), OR TO OTHERS FOR RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY
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RESIDENT OF JAPAN, EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF, AND OTHERWISE IN COMPLIANCE WITH, THE FIEA AND ANY OTHER APPLICABLE LAWS, REGULATIONS AND MINISTERIAL GUIDELINES OF JAPAN.
THE PRIMARY OFFERING OF THE STORM RECOVERY BONDS AND THE SOLICITATION OF AN OFFER FOR ACQUISITION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER PARAGRAPH 1, ARTICLE 4 OF THE FIEA. AS IT IS A PRIMARY OFFERING, IN JAPAN, THE STORM RECOVERY BONDS MAY ONLY BE OFFERED, SOLD, RESOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY TO, OR FOR THE BENEFIT OF CERTAIN QUALIFIED INSTITUTIONAL INVESTORS AS DEFINED IN THE FIEA (“QIIS”) IN RELIANCE ON THE QIIS-ONLY PRIVATE PLACEMENT EXEMPTION AS SET FORTH IN ITEM 2(I), PARAGRAPH 3, ARTICLE 2 OF THE FIEA. A QII WHO PURCHASED OR OTHERWISE OBTAINED THE STORM RECOVERY BONDS CANNOT RESELL OR OTHERWISE TRANSFER THE STORM RECOVERY BONDS IN JAPAN TO ANY PERSON EXCEPT ANOTHER QII.
NOTICE TO PROSPECTIVE INVESTORS IN TAIWAN
THE OFFER OF THE STORM RECOVERY BONDS HAS NOT BEEN AND WILL NOT BE REGISTERED OR FILED WITH, OR APPROVED BY, THE FINANCIAL SUPERVISORY COMMISSION OF TAIWAN AND/OR OTHER REGULATORY AUTHORITY OF TAIWAN PURSUANT TO RELEVANT SECURITIES LAWS AND REGULATIONS, AND THE STORM RECOVERY BONDS MAY NOT BE OFFERED, ISSUED OR SOLD IN TAIWAN THROUGH A PUBLIC OFFERING OR IN CIRCUMSTANCES WHICH CONSTITUTE AN OFFER WITHIN THE MEANING OF THE SECURITIES AND EXCHANGE ACT OF TAIWAN THAT REQUIRES THE REGISTRATION OR FILING WITH OR APPROVAL OF THE FINANCIAL SUPERVISORY COMMISSION OF TAIWAN. THE STORM RECOVERY BONDS MAY BE MADE AVAILABLE OUTSIDE TAIWAN FOR PURCHASE BY INVESTORS RESIDING IN TAIWAN (EITHER DIRECTLY OR THROUGH PROPERLY LICENSED TAIWAN INTERMEDIARIES), BUT MAY NOT BE OFFERED OR SOLD IN TAIWAN EXCEPT TO QUALIFIED INVESTORS VIA A TAIWAN LICENSED INTERMEDIARY, TO THE EXTENT PERMITTED UNDER APPLICABLE LAWS AND REGULATIONS. ANY SUBSCRIPTIONS OF STORM RECOVERY BONDS SHALL ONLY BECOME EFFECTIVE UPON ACCEPTANCE BY THE ISSUER OR THE RELEVANT DEALER OUTSIDE TAIWAN AND SHALL BE DEEMED A CONTRACT ENTERED INTO IN THE JURISDICTION OF INCORPORATION OF THE ISSUER OR RELEVANT DEALER, AS THE CASE MAY BE, UNLESS OTHERWISE SPECIFIED IN THE SUBSCRIPTION DOCUMENTS RELATING TO THE STORM RECOVERY BONDS SIGNED BY THE INVESTORS.
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The following definitions are used in this prospectus:
1940 Act means the Investment Company Act of 1940, as amended.
Additional storm recovery bonds means additional “storm recovery bonds” (as defined in the Securitization Act) issued by us or any other subsidiary or affiliated entity of Cleco Power pursuant to a financing order (separate and distinct from the financing order) to recover additional storm recovery costs that are eligible to be financed under the Securitization Act.
Adjustment request with regard to the storm recovery charges means a request filed by the servicer with the Louisiana commission requesting modifications to the storm recovery charges.
Bankruptcy Code means Title 11 of the United States Code, as amended.
Basic documents means the administration agreement, the sale agreement, the servicing agreement, the indenture, the series supplement, the bill of sale given by Cleco Power, as the seller, to us, the notes evidencing the storm recovery bonds, and our Articles of Organization and Limited Liability Company Operating Agreement, in each case, as amended to the date of this prospectus.
Business day means any day other than a Saturday, a Sunday or a day on which banking institutions in New Orleans, Louisiana or New York, New York are, or DTC is, authorized or obligated by law, regulation or executive order to remain closed.
Capital subaccount means that subaccount of the collection account into which the seller will contribute capital in an amount equal to 0.50% of the initial principal amount of the storm recovery bonds.
Clearstream means Clearstream Banking, Luxembourg, S.A.
Collection account means the one or more segregated trust accounts relating to the storm recovery bonds designated the collection account and held by the trustee under the indenture. The collection account shall initially be divided into subaccounts, which need not be separate accounts: a general subaccount, a capital subaccount, an excess funds subaccount and one or more class subaccounts, if any, for any tranche of the storm recovery bonds as specified in any Series Supplement.
Customers means any existing or future Louisiana commission-jurisdictional customer who remain attached to Cleco Power’s (or its successor’s or assignee’s) electric transmission or distribution lines, and who, via such lines, receive any type of service from Cleco Power (or its successors or assignees) under rate schedules or special contracts approved by the Louisiana commission.
Depositor means Cleco Power.
Designee means the person, as appointed by the Louisiana commission, who is authorized to approve, by concurrence, the final terms, structuring and pricing of the transaction as set forth in the issuance advice letter.
Direct Participants means DTC’s participants.
Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer Protection Act.
DTC means The Depository Trust Company, New York, New York, and its nominee holder, Cede & Co.
DTCC means The Depository Trust & Clearing Corporation.
EEA means the European Economic Area.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
EU Securitization Regulation means EU legislation comprising Regulation (EU) 2017/2402.
Euroclear means the Euroclear System.
European Securitization Rules means the EU Securitization Regulation together with certain related regulatory technical standards, implementing technical standards and official guidance.
Excess funds subaccount means that subaccount of the collection account into which funds are collected by the servicer in excess of amounts necessary to make the payments specified on a given payment date.
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Exchange Act means the Securities Exchange Act of 1934, as amended.
FATCA means the Foreign Account Tax Compliance Act.
Financing order means an order issued by the Louisiana commission on April 1, 2022 to Cleco Power (Financing Order U-35807-B) in Cleco Power’s Docket No. U-35807 which, among other things, governs the amount of the storm recovery bonds that may be issued and terms for collections of the storm recovery charges.
Fitch means Fitch Ratings, Inc. or any successor in interest. References to Fitch are effective so long as Fitch is a rating agency.
General subaccount means that subaccount that will hold funds held in the collection account that are not held in the other subaccounts of the collection account.
Hired NRSRO means the NRSRO hired by Cleco Power.
Indenture means the indenture to be entered into between us and the trustee, providing for the issuance of the storm recovery bonds, as the same may be amended and supplemented from time to time by one or more indentures supplemental thereto.
Indirect Participants means participants accessing the DTC system, including both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly.
Internal Revenue Code means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service of the United States.
Issuance Date means the date the storm recovery bonds are issued and sold to the underwriters.
Issuing entity means Cleco Securitization I LLC.
Katrina/Rita Securitization Bonds means the prior issuance of storm recovery bonds made in March 2009 by Cleco Katrina/Rita Hurricane Recovery Funding LLC, a special purpose, wholly owned subsidiary of Cleco Power.
kWh means kilowatt-hour.
Louisiana commission or LPSC means the Louisiana Public Service Commission.
Louisiana UCC means the Uniform Commercial Code – Secured Transactions, La. R.S. 10:9-101, et seq.
Louisiana UCC filing officer means the recorder of mortgages of Orleans Parish (or any successor by law) or the clerk of court of any other parish in Louisiana.
Moody’s means Moody’s Investors Service, Inc. or any successor in interest. References to Moody’s are effective so long as Moody’s is a rating agency.
MWh means megawatt-hour.
Nonbypassable refers to the right of the servicer to collect the storm recovery charges from all existing and future customers of Cleco Power, subject to certain limitations specified in the financing order.
NRSRO means a nationally recognized statistical rating organization.
OID means original issue discount.
Payment date means the date or dates on which interest and principal are to be payable on the storm recovery bonds.
Plan asset regulations means United States Department of Labor regulations at 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA.
Rating agencies means Moody’s, S&P and Fitch. If no such organization (or successor) is any longer in existence, “rating agency” shall be a NRSRO or other comparable person designated by us, notice of which designation shall be given to the trustee and the servicer.
Rating agency condition means, with respect to any action, at least ten business days’ prior written notification to each rating agency of such action, and written confirmation from each of S&P and Moody’s to the servicer, the
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trustee and us that such action will not result in a suspension, reduction or withdrawal of the then current rating by such rating agency of any tranche of the storm recovery bonds and that prior to the taking of the proposed action no other rating agency shall have provided written notice to us that such action has resulted or would result in the suspension, reduction or withdrawal of the then current rating of any such tranche of the storm recovery bonds; provided, that, if within such ten business day period, any rating agency (other than S&P) has neither replied to such notification nor responded in a manner that indicates that such rating agency is reviewing and considering the notification, then (i) we shall be required to confirm that such rating agency has received the rating agency condition request, and if it has, promptly request the related rating agency condition confirmation and (ii) if the rating agency neither replies to such notification nor responds in a manner that indicates it is reviewing and considering the notification within five business days following such second request, the applicable rating agency condition requirement shall not be deemed to apply to such rating agency. For the purposes of this definition, any confirmation, request, acknowledgment or approval that is required to be in writing may be in the form of electronic mail or a press release (which may contain a general waiver of a rating agency’s right to review or consent).
Record date means the date or dates with respect to each payment date on which it is determined the person in whose name each storm recovery bond is registered will be paid on the respective payment date.
Regulation AB means the rules of the SEC promulgated under Subpart 229.1100—Asset Backed Securities (Regulation AB), 17 C.F.R. §§229.1100-229.1123, as such may be amended from time to time.
Retained rights means the rights to recover prudently incurred storm recovery costs for additional Hurricane Laura related work in excess of the $1.4 million estimated amount in projected costs, to earn and recover the authorized rate of return on Cleco Power’s capital investment in us, or to receive the annual administrative fee and annual servicing fee and expenses under the contracts approved pursuant to the financing order.
S&P means S&P Global Ratings, a division of S&P Global Inc. or any successor in interest. References to S&P are effective so long as S&P is a rating agency.
Sale agreement means the sale agreement to be entered into between us and Cleco Power, pursuant to which Cleco Power sells and we purchase the storm recovery property.
SEC means the U.S. Securities and Exchange Commission.
Securitization Act means the Louisiana Electric Utility Storm Recovery Securitization Act, codified at La. R.S. 45:1226-1240, the Louisiana legislation adopted in May 2006 and amended in June 2021, providing for a financing mechanism through which electric utilities can use securitization financing for storm recovery costs.
Seller means Cleco Power.
Servicer means Cleco Power, acting as the initial servicer, and any successor or assignee servicer, which will service the storm recovery property under the servicing agreement.
Servicing agreement means the servicing agreement to be entered into between us and Cleco Power, as the same may be amended and supplemented from time to time, pursuant to which Cleco Power, as the initial servicer, undertakes to service the storm recovery property.
Sponsor means Cleco Power.
Storm recovery bonds means, unless the context requires otherwise, the Series 2022-A Storm Recovery Bonds offered pursuant to this prospectus.
Storm recovery charges means, with regard to Cleco Power, the nonbypassable amounts to be charged for the use or availability of electric services, approved by the Louisiana commission in the financing order and collected by the servicer, its successors, assignees or other collection agents as provided in the financing order to recover qualified costs pursuant to the financing order.
Storm recovery costs means the costs of an electric utility recoverable through the issuance of storm recovery bonds, including the costs of issuing, supporting and servicing the storm recovery bonds.
Storm recovery property means all of Cleco Power’s rights and interest under the financing order (including, without limitation, rights to impose, bill, charge, collect and receive the “storm recovery charges” (as defined in the Securitization Act) approved in the financing order) issued by the Louisiana commission on , 2022 (Cleco
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Power’s Docket No. U-35807) pursuant to the Securitization Act, except the rights of Cleco Power to earn and receive a rate of return on its invested capital in us, to receive administration and servicer fees, to withdraw funds from its restricted storm recovery reserves funded by the proceeds from the sale of the storm recovery property, or to use Cleco Power’s remaining portion of those proceeds.
Terms and Conditions with regard to Euroclear means the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of Euroclear, and applicable Belgian law.
Treasury Regulations means proposed or issued regulations promulgated from time to time under the Internal Revenue Code.
True-up mechanism means a provision required by the financing order whereby the servicer will apply to the Louisiana commission for adjustments to the storm recovery charges based on actual collected storm recovery charges and updated assumptions by the servicer as to future collections of storm recovery charges. The Louisiana commission will approve properly filed adjustments. Any corrections for mathematical errors will be reflected in the next true-up.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended.
Trustee means The Bank of New York Mellon Trust Company, National Association.
Unsolicited Ratings means ratings on the storm recovery bonds issued by an NRSRO other than the hired NRSRO.
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$425,000,000 Series 2022-A Senior Secured
Storm Recovery Bonds
Cleco Power LLC
Sponsor, Depositor and Initial Servicer
Cleco Securitization I LLC
Issuing Entity
Sole Structuring Agent and Joint Bookrunner
J.P. Morgan
Through and including , 2022 (the 90th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and when offering an unsold allotment or subscription.
PART II
Information Not Required in Prospectus
Item 12. | Other Expenses of Issuance and Distribution |
The following table sets forth the various expenses expected to be incurred by the registrants in connection with the issuance and distribution of the securities being registered by this prospectus, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee.
Securities and Exchange Commission registration fee | | | $39,397.50 |
Printing expenses | | | 55,000.00 |
Trustee fees and expenses | | | 50,000.00 |
Legal fees and expenses | | | 4,200,000.00 |
Accounting fees and expenses | | | 250,000.00 |
Rating Agencies’ fees and expenses | | | 685,000.00 |
Structuring agent fees and expenses | | | 500,000.00 |
Miscellaneous fees and expenses | | | 1,205,602.50 |
Total | | | $6,985,000.00 |
Item 13. | Indemnification of Directors and Officers |
CLECO SECURITIZATION I LLC
Article IV of the issuing entity's Articles of Organization, as amended to date, and Article VII of its Limited Liability Company Operating Agreement, as amended to date, provide that the management of the issuing entity is vested in its managers.
Article V of the issuing entity's Articles of Organization, as amended to date, provides that except as otherwise provided by the Louisiana Limited Liability Company Law (“LLLCL”) and except as otherwise characterized for tax and financing reporting purposes, the debts, obligations and liabilities of the issuing entity, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the issuing entity, and no member or manager shall be obligated personally for any such debt, obligation or liability of the issuing entity solely by reason of being a member or a manager. Under Section 1315B of the LLLCL, no provision of an LLC's articles of organization or operating agreement limiting or eliminating liability may limit or eliminate the liability of a member or manager for the amount of a financial benefit received by a member or manager to which he is not entitled or for an intentional violation of criminal law. Article V of the issuing entity's Articles of Organization also provides that if the LLLCL is amended to authorize any further elimination or limitation of the personal liability of our member or any manager, the liability of such member or managers will be eliminated or limited to the fullest extent provided by the LLLCL, as amended. Article V further provides that any repeal or modification of Article V will not adversely affect any right or protection of any member or any manager with respect to any events occurring prior to the time of the repeal or modification.
Article X of the issuing entity's Limited Liability Company Operating Agreement, as amended to date, provides that, subject to the determination described below, to the fullest extent permitted by law, the issuing entity shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the issuing entity, by reason of the fact that such person is or was a manager, member, officer, controlling person, employee, legal representative or agent of the issuing entity, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with the action, suit or proceeding if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the issuing entity, and, with respect to a criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful; but such person shall not be entitled to indemnification if such judgment, penalty, fine or other expense was directly caused by such person's fraud, gross negligence or willful misconduct.
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Article X of the issuing entity's Limited Liability Company Operating Agreement, as amended to date, provides that, subject to the determination described below, to the fullest extent permitted by law, the issuing entity shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the issuing entity to procure a judgment in its favor by reason of the fact that such person is or was a member, manager, officer, controlling person, employee, legal representative or agent of the issuing entity, against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by such person in connection with the defense or settlement of the actions or suit if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the issuing entity; but such person shall not be entitled to indemnification if such judgment, penalty, fine or other expense was directly caused by such person's fraud, gross negligence or willful misconduct. Indemnification may not be made for any claim, issue or matter as to which such person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the issuing entity or for amounts paid in settlement to the issuing entity, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
Article X of the issuing entity's Limited Liability Company Operating Agreement, as amended to date, provides that the issuing entity shall indemnify any person who is or was a manager, member, officer, controlling person, employee, legal representative or agent of the issuing entity, against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, to the extent that such person has been successful on the merits.
Article X of the issuing entity's Limited Liability Company Operating Agreement, as amended to date, provides that any indemnification, as well as the advance payment of expenses described below, unless ordered by a court or advanced, must be made by the issuing entity only as authorized in the specific case upon a determination that indemnification of the manager, member, officer, controlling person, employee, legal representative or agent is proper in the circumstances. The determination must be made:
• | by the member if the member was not a party to the act, suit or proceeding; or |
• | if the member was a party to the act, suit or proceeding, then by independent legal counsel in a written opinion. |
Article X of the issuing entity's Limited Liability Company Operating Agreement, as amended to date, provides that the expenses of each person who is or was a manager, member, officer, controlling person, employee, legal representative or agent, incurred in defending a civil or criminal action, suit or proceeding may be paid by the issuing entity as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such person to repay the amount if it is ultimately determined by a court of competent jurisdiction that such person is not entitled to be indemnified by the issuing entity. This shall not affect any rights to advancement of expenses to which personnel other than the member or the managers (other than the Independent Managers, as defined in the Operating Agreement) may be entitled under any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or ordered by a court pursuant to the issuing entity's Limited Liability Company Operating Agreement, as amended to date:
• | does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any agreement, decision of the member or otherwise, for either an action of any person who is or was a manager, member, officer, controlling person, employee, legal representative or agent, in the official capacity of such person or an action in another capacity while holding such position, except that indemnification and advancement, unless ordered by a court pursuant to Section 10.05 of the Operating Agreement, may not be made to or on behalf of such person if a final adjudication established that its acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action; and |
• | continues for a person who has ceased to be a member, manager, officer, employee, legal representative or agent and inures to the benefit of the successors, heirs, executors and administrators of such a person. |
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CLECO POWER LLC
Article III of Cleco Power's Second Amended and Restated Articles of Organization and Article IV of its Second Amended and Restated Operating Agreement provide that the management of Cleco Power is vested in its managers.
Section 1315A of the LLLCL provides that, subject to specified limitations, the articles of organization or a written operating agreement of a limited liability company (“LLC”) may eliminate or limit the personal liability of a member or members, if management is reserved to the members, or a manager or managers, if management is vested in one or more managers, for monetary damages for breach of any duty provided for in Section 1314 of the LLLCL. Section 1314 of the LLLCL provides that a member, if management is reserved to the members, or a manager, if management is vested in one or more managers, shall be deemed to stand in a fiduciary relationship to the LLC and its members and shall discharge his duties in good faith, with the diligence, care, judgment and skill that an ordinary prudent person in a like position would exercise under similar circumstances. Section 1314 also provides that such a member or manager:
• | is protected in discharging his duties in relying in good faith upon specified records, opinions and other information, unless he has knowledge that makes such reliance unwarranted; |
• | will not be liable for any action taken on behalf of the LLC if he performed the duties of his office in compliance with Section 1314; |
• | will not be personally liable to the LLC or its members for monetary damages unless he engaged in grossly negligent conduct or conduct that demonstrates a greater disregard of the duty of care than gross negligence; |
• | in making business judgments, fulfills his duty by making such judgments in good faith, if he does not have a conflict of interest with respect to the business judgment, is informed with respect to the subject of the business judgment to the extent the member or manager reasonably believes to be appropriate under the circumstances and rationally believes that the judgment is in the best interests of the LLC and its members; and |
• | Section 1314 further provides that a person alleging a breach of the duty owed by a member or manager to an LLC has the burden of proving the alleged breach of duty, including the inapplicability of specified provisions of Section 1314 as to the fulfillment of the duty, and, in a damage action, the burden of proving that the breach was the legal cause of damage suffered by the LLC. |
Article V of Cleco Power’s Operating Agreement provides that neither the sole member nor any manager (except with regard to such persons in their capacity as an officer of Cleco Power, and excluding any independent or special independent managers) shall have any fiduciary duty to Cleco Power or any other person, including any creditor of Cleco Power, except as otherwise required by law, and Cleco Power and the sole member of Cleco Power agree to waive, to the fullest extent permitted by law, any claim or cause of action against any such manager that could be asserted for breach of fiduciary duty or duty of loyalty, which shall replace, to the fullest extent permitted by law, such other duties and liabilities of such persons. However, with regard to any independent or special independent manager of Cleco Power (and the CEO when acting as a manager), such persons, in the performance of his or her duties as such, shall owe to Cleco Power and its sole member the same fiduciary duties as would be owed by the directors of a Louisiana corporation to the corporation and its stockholders under the laws of the state of Louisiana. Section 1315A of the LLLCL allows the articles of organization or a written operating agreement of an LLC to provide for the indemnification of a member or members, or a manager or managers, for judgments, settlements, penalties, fines or expenses incurred because he is or was a member or manager. Section 1315B provides that the indemnification provisions of Section 1315A may not limit or eliminate the liability of a member or manager for the amount of a financial benefit received by a member or manager to which he is not entitled or for an intentional violation of criminal law.
Article V of Cleco Power’s Operating Agreement also provides that any manager, including their respective affiliates and representatives (other than any person who is a full time officer or employee of Cleco Power or any of its subsidiaries, and excluding any independent or special independent managers), may engage in or possess an interest in any other business venture of any nature or description, including any business venture that is the same or similar to that of Cleco Power, and such persons shall have no duty to refrain from engaging in businesses or activities separate from Cleco Power or any of its subsidiaries that are the same or similar to, or compete directly
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or indirectly with, those of Cleco Power or its subsidiaries. Furthermore, no such person shall have any obligation to present any business opportunity to Cleco Power or its subsidiaries, even if the opportunity is one that Cleco Power or any of its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and no such person shall be liable to Cleco Power or any of its subsidiaries for breach of any fiduciary or other duty by reason of any of the foregoing.
Section 5.03 of Cleco Power’s Operating Agreement provides that Cleco Power shall, to the fullest extent permitted by law, indemnify, defend, and hold harmless the sole member, each of the managers and each officer from any liability, loss, or damage incurred by such person by reason of any act performed or omitted to be performed by such person in connection with the business of Cleco Power (including by reason of the fact that such person is or was serving or has agreed to serve at the request of Cleco Power as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise) and from liabilities or obligations of Cleco Power or the sole member imposed on such person by virtue of any such person’s status as an person who has been indemnified by Cleco Power. However, if the liability, loss, damage or claim arises out of any action or inaction of such indemnified person, Cleco Power shall indemnify such person only if, with respect to any person other than an officer, independent or special independent manager, such action or inaction did not constitute fraud or a willful breach of such person’s obligations under the Operating Agreement or if, with respect to any officer, independent or special independent manager, such person, at the time of such action or inaction, reasonably determined that his or her course of conduct was in, or not opposed to, the best interests of Cleco Power and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful.
Section 5.03 of Cleco Power's Operating Agreement further provides that:
• | Cleco Power will advance the full amount of expenses (including reasonable attorneys’ fees) incurred by any person claiming such indemnity as described above; |
• | Cleco Power may, but will not be obligated to, indemnify and advance expenses to any employee or agent of Cleco Power to the same extent and under the same conditions under which it may indemnify and advance expenses to officers as described above; |
• | Cleco Power is the indemnitor of first resort and shall be required to advance the full amount of expenses incurred by any such person seeking such indemnification who has rights to indemnification, advancement of expenses and/or insurance provided by a member of Cleco Partners GP LLC or an affiliate thereto; |
• | the right to indemnification conferred shall not be exclusive of any other right which the sole member or other person indemnified thereunder may have or thereafter acquire; |
• | Cleco Power shall purchase and maintain insurance, or cause its subsidiaries to purchase and maintain insurance at its or their expenses, to protect itself and any person who is or was serving as a manager, officer or agent of Cleco Power or is or was serving at the request of Cleco Power as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss thereunder; |
• | any indemnity by Cleco Power shall be provided out of and to the extent of Cleco Power’s assets only, without any ability of Cleco Power to call additional capital for such purpose, and the sole member shall have no personal liability on account thereof nor be required to make additional capital contributions to help satisfy such indemnity, unless such member otherwise agrees in writing or is found by a court of competent jurisdiction in a final decision to have personal liability on account thereof; |
• | the section does not affect, limit or modify the sole member’s liabilities or obligations under the Operating Agreement or any manager’s, officer’s or employee’s liabilities or obligations under any employment, consulting, confidentiality, non-compete, non-solicit, or similar agreement with Cleco Power or any of its subsidiaries; |
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• | these indemnification provisions shall apply to the resulting company in any consolidation or merger, as well as any constituent company absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power and authority to indemnify its own persons to the extent provided in Section 5.03 of the Operating Agreement; and |
• | if any portion of these provisions shall be invalidated on any ground by any court of competent jurisdiction, then Cleco Power shall nevertheless indemnify and hold harmless the sole member, each manager and officer, and any other indemnified person as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by these provisions of Cleco Power’s Operating Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. |
Item 14. | Exhibits |
List of Exhibits
EXHIBIT NO. | | | DESCRIPTION OF EXHIBIT |
1.1 | | | Form of Underwriting Agreement* |
| | | ||
| | | Articles of Organization of Cleco Securitization I LLC | |
| | | ||
| | | Form of Amended and Restated Articles of Organization of Cleco Securitization I LLC | |
| | | ||
| | | Limited Liability Company Operating Agreement of Cleco Securitization I LLC | |
| | | ||
| | | Form of Amended and Restated Limited Liability Company Operating Agreement of Cleco Securitization I LLC | |
| | | ||
| | | Form of Indenture between Cleco Securitization I LLC and the Trustee (including the forms of the storm recovery bonds and form of Series Supplement) | |
| | | ||
| | | Opinion of Phelps Dunbar, L.L.P. with respect to legality | |
| | | ||
| | | Opinion of Phelps Dunbar, L.L.P. with respect to federal tax matters | |
| | | ||
| | | Form of Servicing Agreement between Cleco Securitization I LLC and Cleco Power LLC, as Servicer | |
| | | ||
| | | Form of Purchase and Sale Agreement between Cleco Securitization I LLC and Cleco Power LLC, as Seller | |
| | | ||
| | | Form of Administration Agreement between Cleco Securitization I LLC and Cleco Power LLC, as Administrator | |
| | | ||
| | | Services and Indemnity Agreement by and among Kevin P. Burns, the independent manager of the Cleco Securitization I LLC, Global Securitization Services, LLC, Cleco Power LLC and Cleco Securitization I LLC (the “Services and Indemnity Agreement”) | |
| | | ||
| | | Amendment No. 1 to the Services and Indemnity Agreement | |
| | | ||
23.1 | | | |
| | | ||
| | | Power of Attorney of Cleco Securitization I LLC (included on signature page to this Registration Statement)** | |
| | | ||
| | | Power of Attorney of Cleco Power LLC (included on signature page to this Registration Statement)** | |
| | |
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EXHIBIT NO. | | | DESCRIPTION OF EXHIBIT |
| | | Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York Mellon Trust Company National Association | |
| | | ||
| | | Financing Order** | |
| | | ||
99.2 | | | Form of Opinion of Phelps Dunbar, L.L.P. with respect to U.S. constitutional matters and Louisiana constitutional matters*** |
| | | ||
99.3 | | | Consent of Manager Nominee*** |
| | | ||
| | | Filing Fee Table** |
* | To be filed by an exhibit to a Current Report on Form 8-K pursuant to Item 601 of Regulation S-K. |
** | Previously filed. |
*** | To be filed by amendment. |
Pursuant to Item 601(a)(1)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted schedule or similar attachment to the SEC upon request.
Item 15. | Undertakings |
The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, each registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a registrant of expenses incurred or paid by a director, officer or controlling person of such registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake that:
(1) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SF-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pineville, State of Louisiana, on the 26th day of May, 2022.
| | | CLECO POWER LLC | |
| | | ||
| | | /s/ William G. Fontenot | |
| | | William G. Fontenot |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | | | Title | | | Date |
| | | | | |||
(i) Principal Executive Officer: | | | | | ||
| | | | | |||
/s/ William G. Fontenot | | | Chief Executive Officer | | | May 26, 2022 |
William G. Fontenot | | |||||
| | | | | |||
(ii) Principal Financial Officer: | | | | | ||
| | | | | |||
/s/ Kristin L. Guillory | | | Chief Financial Officer | | | May 26, 2022 |
Kristin L. Guillory | | |||||
| | | | | |||
(iii) Principal Accounting Officer: | | | | | ||
/s/ F. Tonita Laprarie | | | Controller & Chief Accounting Officer | | | May 26, 2022 |
F. Tonita Laprarie | | |||||
| | | | | |||
(iv) Managers: | | | | | ||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Andrew Chapman | | |||||
| | | | | |||
/s/ William G. Fontenot | | | Manager | | | May 26, 2022 |
William G. Fontenot | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Paraskevas Fronimos | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Richard Gallot, Jr. | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Gerald Hanrahan | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
David Randall Gilchrist | |
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Signature | | | Title | | | Date |
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Christopher Leslie | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Jon Perry | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Aaron Rubin | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Peggy Scott | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Domingo Solis-Hernández | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Melissa Stark | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Steven Turner | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Bruce Wainer | |
By: | | | /s/ William G. Fontenot | | ||
| | | William G. Fontenot Attorney-in-fact | | |
II-8
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SF-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pineville, State of Louisiana, on the 26th day of May, 2022.
| | | CLECO SECURITIZATION I LLC | ||||||||||
| | | | | | ||||||||
| | | By: | | | /s/ William G. Fontenot | | ||||||
| | | | | Name: | | | William G. Fontenot | | ||||
| | | | | Title: | | | Manager | | ||||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following person in the capacity and on the date indicated.
Signature | | | Title | | | Date |
Managers: | | | | | ||
| | | | | |||
/s/ William G. Fontenot | | | Manager | | | May 26, 2022 |
William G. Fontenot | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
F. Tonita Laprarie | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Samantha McKee | | |||||
| | | | | |||
* | | | Manager | | | May 26, 2022 |
Stacy Stubbs | |
By: | | | /s/ William G. Fontenot | | ||
| | | William G. Fontenot Attorney-in-fact | | |
II-9