-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASCQkXpD5Mk73xOvo8bW5pzmpAMtwEwezbhmV0YnMYzDMSYjivGTBeo0Z2t/m6Uo idyOKfcpaanXOR8sKBfgNA== 0000071297-97-000061.txt : 19970924 0000071297-97-000061.hdr.sgml : 19970924 ACCESSION NUMBER: 0000071297-97-000061 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970923 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: SEC FILE NUMBER: 070-09109 FILM NUMBER: 97684260 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 U-1 1 File No. 70- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 NEW ENGLAND ELECTRIC SYSTEM 25 Research Drive Westborough, Massachusetts 01582 (Name of company filing this statement and address of principal executive office) NEW ENGLAND ELECTRIC SYSTEM (Name of top registered holding company parent of applicant) Michael E. Jesanis Robert King Wulff Treasurer Corporation Counsel 25 Research Drive 25 Research Drive Westborough, Massachusetts 01582 Westborough, Massachusetts 01582 (Names and addresses of agents for service) Item 1. Description of Proposed Transaction - -------------------------------------------- By this Application/Declaration, New England Electric System (NEES) seeks Commission authorization to enter into financing arrangements with a syndicate of participating banks (the Banks) led by Merrill Lynch Capital Corporation (MLCC), as arranger and syndication agent (the Credit Agreement) pursuant to which NEES may borrow up to $500 million. NEES also seeks authority to issue commercial paper or to otherwise engage in short-term borrowing up to $500 million. The maximum aggregate amount of debt outstanding hereunder, whether commercial paper or bank debt would not exceed $500 million at any one time. Background ---------- New England Electric System (NEES) is a voluntary association created in Massachusetts by an Agreement and Declaration of Trust dated January 2, 1926, as amended, and is a registered holding company under the Public Utility Holding Company Act of 1935 (the Act). Pursuant to Commission's order in File No. 70-8901, NEES is authorized to issue and sell short-term promissory notes to banks up to a maximum aggregate principal amount outstanding at any time not exceeding $100 million. This borrowing authority expires October 31, 1998. The authority requested in this filing is intended to supersede such existing authorization. As reported in NEES' disclosure documents, its subsidiaries, New England Power Company (NEP) and The Narragansett Electric Company (Narragansett) have entered into an asset purchase agreement for the sale of their non-nuclear generation business to U.S. Generating Company. Consummation of the sale, and receipt of the sales price, is subject to Commission approval (to be done under a separate filing), among other regulatory approvals. At the time of announcing the sale agreement (August 1997), NEES announced a share buyback program of its own common shares in an amount not to exceed 5 million shares. Funds borrowed could be used, subject to meeting margin requirements, to facilitate the share buyback. In addition, NEES may need to make investments in anticipation of receipt of the sale proceeds in order to prudently re-deploy funds obtained through the sale. NEES may also need to make contributions to NEP pending consummation of the sale. For instance, NEP may need to buy out of an independent power producer contract. The NEES oil and gas subsidiary, New England Energy Incorporated, plans to sell its assets by the end of 1997 or the beginning of 1998 and NEP will be charged for the losses incurred upon that sale. Borrowings could also be made for other general corporate purposes. The authority requested herein is for five years. NEES does not have an ownership interest in an exempt wholesale generator (EWG) or a foreign utility company (FUCO) as defined in Sections 32 and 33 of the Act. Additionally, NEES is not a party to, nor does it have any rights under, a service, sales, or construction agreement with an EWG or a FUCO. NEES shall comply with the requirements of Rule 53 of the Act in connection with EWG and FUCO acquisitions and financings. To the extent that any monies from the borrowings hereunder are used to invest in, or otherwise acquire an interest in the business of, any EWGs or FUCOs, NEES will comply with the Commission's orders in File No. 70-8783 (Release No. 35-26504 dated April 15, 1996, as supplemented by Release No. 35-26729 dated June 10, 1997). Borrowings from Banks - Credit Agreement ---------------------------------------- NEES proposes to enter into the Credit Agreement described herein with MLCC, as arranger and syndication agent, and a group of banks. MLCC has not yet put together the bank syndication. Exhibit B-1, a term sheet, provides a detailed outline of the proposed principal terms of the Credit Agreement. A draft of the Credit Agreement, Exhibit B-2 to this filing, will be filed by amendment. The Credit Agreement provides for a revolving facility of $500 million which reduces to $400 million after three years and to $300 million after four years. The term would be for five years. NEES would have the following interest rate options during the term of the Credit Agreement: (1) LIBOR Borrowings - NEES may borrow at a periodic fixed Eurodollar rate with maturities of 1, 2, 3, or 6 months at the then applicable LIBOR for such maturities plus a margin over LIBOR (the LIBOR Margin), payable at the end of each interest period or quarterly for interest periods longer than 3 months. The LIBOR Margin would vary according to one level lower than the lowest debt rating assigned by Standard & Poors or Moody's Investor Service, respectively, of any of NEP's senior secured debt rating (so long as NEP has a senior secured debt rating and otherwise, NEP's senior debt rating), Narragansett's senior secured debt rating, and Massachusetts Electric Company's senior secured debt rating. (2) Base Rate Borrowings - NEES may borrow at the highest of (i) the Administrative Agent's base rate, (ii) 1/2 of one percent per annum above the latest three-week moving average of secondary market offering rates in the United States for three-month certificates of deposit of major U.S. money market banks adjusted to the nearest 1/4 of 1 percent and (iii) 1/2 of one percent per annum above the federal funds rate. Such base rate borrowings would be payable quarterly in arrears and would be calculated on the basis of a 365/366 day year. (3) Competitive Bid Borrowings - NEES may be able to borrow at the rate obtained through Competitive Bids. NEES may request competitive bids for an aggregate outstanding amount not to exceed $100 million (of the $500 million facility). Banks may, at the request of NEES, but without obligation, bid competitively to make loans at rates determined by each Bank and with maturities requested by NEES. The Banks' bids will be accepted by NEES in order of effective cost, starting with the bid at the lowest rate. Under the Credit Agreement, a facility fee would be payable on the percentage amount of each Bank's obligation to make advances to NEES under the Credit Agreement multiplied by no more than 11 basis points plus the Applicable Percentage (the Facility Fee). The Applicable Percentage would also vary according to debt rating, as described above for the LIBOR Margin. The Facility Fee is payable upon each Bank's commitment, irrespective of usage. The Facility Fee is payable by NEES quarterly in arrears. An arrangement and syndication fee is set forth in Exhibit C. The administration of the Credit Agreement will be conducted by the Administrative Agent for an annual fee to be negotiated. The Credit Agreement will be unsecured. NEES has the option of reducing the commitments under the Credit Agreement, or making prepayments at any time without penalty. Cost of Funds ------------- Pricing for the Credit Agreement has not yet been negotiated. However, based upon the current senior secured long term debt ratings of NEES subsidiaries, the initial effective cost of funds borrowed under the Credit Agreement (including the Facility Fee) should not exceed 30 basis points over LIBOR, excluding expenses. The cost of funds (including the Facility Fee) could increase up to no more than 50 basis points over LIBOR, excluding expenses, dependent upon changes in the debt ratings of the NEES subsidiaries. Final pricing will be supplied by amendment. Borrowings from Banks - Short-term ---------------------------------- NEES may also make arrangements with certain banks for short-term lines of credit, for various purposes, including support of commercial paper. The proposed borrowings from banks by NEES will be evidenced by notes payable maturing in less than one year from the date of issuance. NEES will negotiate with banks the interest costs of such borrowings. NEES pays fees to the banks in lieu of compensating balance arrangements. The effective interest cost of borrowings from a bank will not exceed the greater of the bank's base or prime lending rate, or the rate published in the Wall Street Journal as the high federal funds rate, plus, in either case, one percent. Certain of such borrowings may be without prepayment privileges. Based on the current base lending rate of 8.25% and an equivalent or lower high federal funds rate, the effective interest costs of such borrowing would not exceed 9.25% per annum. Payment of any short-term promissory notes prior to maturity will be made on the basis most favorable to NEES, taking into account fixed maturities, interest rates, and any other relevant financial consideration. Sale of Commercial Paper to Dealers ----------------------------------- NEES proposes to issue and sell commercial paper directly to one or more nationally recognized commercial paper dealers (CP Dealer). Initially the CP Dealer will be CS First Boston Corporation and/or Merrill Lynch Money Markets Incorporated, but this may change as warranted. The commercial paper so issued and sold will satisfy the requirements of Section 3(a)(3) of the Securities Act of 1933 and be in the form of unsecured promissory notes having varying maturities of not in excess of 270 days. Actual maturities will be determined by market conditions, the effective interest cost to NEES, and NEES' cash requirements at the time of issuance. The commercial paper will be in denominations of not less than $50,000. The terms of the commercial paper will not provide for prepayment prior to maturity. The commercial paper will be purchased by the CP Dealer from the issuer at a discount which will not be in excess of the discount then prevailing for commercial paper of comparable quality and maturity which is sold to commercial paper dealers. The CP Dealer will initially reoffer the commercial paper at a discount rate not more than 1/8 of 1% per annum less than the prevailing discount rate to NEES. The effective interest cost to NEES of commercial paper will generally not exceed the effective interest cost of the base lending rate at BankBoston (formerly The First National Bank of Boston). However, the effective interest cost of such paper is based on the supply of, and demand for, that and similar paper at the time of sale. Specifically, on several previous occasions short-term money markets have become very volatile during brief periods of extraordinary demand, and the interest costs of commercial paper have exceeded bank base rates. Because such volatile market conditions usually exist for brief periods, it is not anticipated that any sale of commercial paper with interest costs in excess of bank base rates would have a significant marginal impact on the annual interest cost of NEES. Therefore, while it is not anticipated that the effective annual cost of borrowing through commercial paper will exceed the annual base rate borrowing from BankBoston, in order to obtain maximum flexibility during the periods described above, commercial paper may be issued with a maturity of not more than 90 days with an effective cost in excess of the then-existing lending rate. The decision to borrow from banks or issue commercial paper will be based on the cost of such funds and their availability for the anticipated borrowing period. Filing of Certificates of Notification --------------------------------------- Within 45 days after the end of each calendar quarter, NEES will file a certificate of notification covering the transactions effected pursuant to the authority requested herein during such quarter. Such certificate will show the dates and amounts of all new money borrowings, whether by issuance of notes to banks or by sale of commercial paper, the names of the lenders, the maximum concurrent amount of notes outstanding to banks and CP Dealers, the aggregate total outstanding at any one time, and the aggregate total outstanding at the end of such quarter. Each certificate will include, with respect to the issue and sale of commercial paper, the effective interest cost for such promissory note issued as commercial paper. The final certificate of notification will be accompanied by the required past tense opinion of counsel. Item 2. Fees, Commissions and Expenses - --------------------------------------- In addition to the fees described in Item 1, NEES will pay the fees and expenses of MLCC's counsel, Sherman & Sterling, of New York. Certain services are to be performed at the actual cost by New England Power Service Company, (NEPSCO) an affiliated service company, operating pursuant to the provisions of Section 13 of the Act and the Commission's rules thereunder. The services of NEPSCO will consist principally of services performed by the Executive and Administrative Department, the Corporate Department (including attorneys), the Treasury Department (including accountants and financial analysts), and the Office Service Department, and are estimated not to exceed $12,000. Item 3. Applicable Statutory Provisions - ---------------------------------------- Sections 6(a) and 7 of the Act are applicable to the issue and sale of notes by NEES to banks and CP Dealers. The payment of indebtedness from the proceeds of the proposed borrowings is exempted from Sections 9(a) and 12 of the Act by Rule 42. Item 4. Regulatory Approval - ---------------------------- No state commission and no Federal commission (other than the Securities and Exchange Commission) has jurisdiction over the issue and sale of the notes by NEES. Item 5. Procedure - ------------------ It is requested that the Commission take action with respect to this Application/Declaration without a hearing being held and that an order be issued allowing this Application/Declaration to become effective on or before November 15, 1997 or as soon as practicable. NEES (i) does not request a recommended decision by a hearing officer, (ii) does not request a recommended decision by any other responsible officer of the Commission, (iii) hereby specifies that the Division of Corporate Regulation may assist in the preparation of the Commission's decision, and (iv) hereby requests that there be no 30-day waiting period between the date of issuance of the Commission's order and the date on which it is to become effective. Item 6. Exhibits and Financial Statements - ------------------------------------------ (a) Exhibits B-1 Term Sheet *B-2 Draft Credit Agreement C Arrangement and Syndication Fee *F Opinion of Counsel H Proposed Form of Notice *To be supplied by amendment. (b) Financial Statements 1 Balance Sheets of NEES and of NEES and Subsidiaries Consolidated, as of June 30, 1997, on an actual basis. (1) 2 Statements of Income and Retained Earnings of NEES and of NEES and Subsidiaries Consolidated for the twelve months ended June 30, 1997. 3 Pro Forma to the Capital Structure of NEES (1) The proposed transactions will have no material effect on the Balance Sheets of NEES or of NEES and Subsidiaries Consolidated; therefore, pro forma statements, except as provided in 3, are omitted. Since the date of the balance sheets, there have been no material changes which were not in the ordinary course of business. A Financial Data Schedule is also provided. Item 7. Information as to Environmental Effects - ------------------------------------------------ The proposed transaction does not involve a major Federal action significantly affecting the quality of the human environment. SIGNATURE --------- Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned company has duly caused this statement to be signed on its behalf by the undersigned officer thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM s/Michael E. Jesanis ___________________________ Michael E. Jesanis Vice President and Treasurer Date: September 23, 1997 The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. EX-99 2 EXHIBIT INDEX Exhibit Index ------------- Exhibit Description Page - ------- ----------- ---- B-1 Term Sheet Filed herewith B-2 Draft Credit Agreement To be filed by amendment C Arrangement and Syndication Confidential Fee Treatment requested F Opinion of Counsel To be filed by amendment H Proposed Form of Notice Filed herewith Financial Statement No. Description Page - ------------- ----------- ---- 1A Balance Sheet of NEES as Filed herewith of June 30, 1997, on an actual basis 1B Balance Sheet of NEES and Filed herewith Subsidiaries Consolidated, as of June 30, 1997, on an actual basis 2A Statement of Income and Filed herewith Retained Earnings of NEES for the twelve months ended June 30, 1997 2B Statement of Income and Filed herewith Retained Earnings of NEES and Subsidiaries Consolidated for the twelve months ended June 30, 1997 3 Pro Forma of NEES Capital Filed herewith Structure 27 Financial Data Schedules for Filed herewith NEES and for NEES and Subsidiaries EX-99 3 EXHIBIT B-1 EXHIBIT B-1 NEW ENGLAND ELECTRIC SYSTEM SUMMARY OF TERMS AND CONDITIONS Capitalized terms not otherwise defined in this Summary of Terms and Conditions have the meanings set forth in the letter to which this Summary of Terms and Conditions is attached. FIVE-YEAR FACILITY Borrower: NEES, a Massachusetts trust. Amount/Type of Facility: Up to U.S.$500,000,000 revolving credit facility. Purpose: The Five-Year Facility shall be used for working capital and other general corporate purposes and may be used for certain stock repurchases. Amounts borrowed under the Five-Year Facility may be borrowed, repaid and reborrowed. Final Maturity Date: Five years from the Closing Date. Mandatory Commitment Reduction: On the third anniversary of the Closing Date, the amount available under the Five-Year Facility shall be reduced permanently to $400,000,000. On the fourth anniversary of the Closing Date, the amount available under the Five-Year Facility shall be reduced permanently to $300,000,000. Lenders: MLCC and other financial institutions acceptable to MLCC and to Borrower. Arranger and Syndication Agent: Merrill Lynch & Co. ("Merrill"), as Arranger, will act as sole and exclusive arranger and syndication agent for a syndicate of Lenders. Administrative Agent: BankBoston, or such other Lender chosen by the Borrower and acceptable to MLCC. Documentation Agent: Credit Suisse First Boston, or such other Lender chosen by the Borrower and acceptable to MLCC. Closing Date: On or prior to December 15, 1997. Optional Prepayment/ Commitment Reduction: Optional reductions in commitments or prepayments under the Facility shall be permitted at any time, in whole or in part, at the option of the Borrower, at par, subject to LIBOR breakage and/or redeployment costs. Interest Rates and Interest Periods: Payable at the Applicable Margin (as hereinafter defined) above the Eurodollar Rate (360 day basis) (adjusted for reserves) or, at the Borrower's option, the Base Rate (365/366 day basis). (a) Base Rate: means a fluctuating rate per annum equal at all times to the highest of (i) the Administrative Agent's publicly announced "base rate", (ii) 1/2 of one percent per annum above the latest three-week moving average of secondary market offering rates in the United States for three-month certificates of deposit of major U.S. money market banks adjusted to the nearest 1/4 of 1 percent and (iii) 1/2 of one percent per annum above the federal funds rate. (b) Eurodollar Rate: means the average rate per annum (rounded upward to the nearest 1/16th of one percent) at which deposits in U.S. dollars are offered by the Administrative Agent to prime banks in the London interbank market at 11:00 A.M. (London time) two business days before the first day of the Interest Period (to be defined in the loan documentation) and in amounts approximately equal to such Reference Bank's Eurodollar Advances (to be defined in the loan documentation) for a period equal to such Interest Period, adjusted for reserve requirements. Eurodollar Rate borrowings shall be available for 1, 2, 3 or 6 month interest periods. The "Applicable Margin" means a percentage per annum as determined by the Implied Debt Rating (as defined below) in effect from time to time, as set forth in the pricing grid attached hereto as Schedule I. "Implied Debt Rating" means, at any time, one level lower than the lowest of (i) the senior secured debt rating by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), of Massachusetts Electric Company ("Mass. Electric"), (ii) the senior secured debt rating by Moody's or S&P of The Narragansett Electric Company ("Narra Electric") and (iii) the senior secured debt rating by Moody's or S&P of New England Power Company ("NEP") so long as NEP has a senior secured debt rating and otherwise the senior debt rating of NEP by Moody's or S&P. During the continuance of any Default (to be defined in the loan documentation) under the loan documentation, the Applicable Margin shall increase by 2% per annum. Interest Payment: At the end of each Interest Period for each Advance, but at least quarterly. Annual Agency Fee: As agreed between the Administrative Agent and the Borrower. Facility Fees: __ basis points per annum plus the Applicable Percentage (as hereinafter defined) on the aggregate amount of each Lender's Commitment (to be defined in the loan documentation) from the Closing Date through the date of termination of the commitments, payable quarterly in arrears. The "Applicable Percentage" means a percentage per annum as determined by the Implied Debt Rating in effect from time to time, as set forth in the pricing grid attached hereto as Schedule I. Borrowings: Borrowings shall be in minimum amounts of $5,000,000 and integral multiples of $1,000,000, with respect to Eurodollar Rate Advances and $5,000,000 and integral multiples of $1,000,000 with respect to Base Rate Advances. All Advances shall be made by the Lenders ratably in proportion to their respective Commitments. Borrowings will be available on three business days' notice for Eurodollar Rate Advances and, subject to the approval of the Administrative Agent, on same business day's notice for Base Rate Advances and otherwise on one business day's notice for Base Rate Advances. Swing Line Facility: The Five-Year Facility will have a swing line subfacility (the "Swing Line Subfacility") to be provided by the Lender serving as Administrative Agent. The maximum principal amount of advances (collectively, "Swing Line Advances") outstanding at any time under the Swing Line Subfacility may not exceed $10,000,000. Each Swing Line Advance shall be in a minimum amount of $1,000,000 and integral multiples of $500,000. Borrowings under the Swing Line Subfacility will be available on same day's notice and will be made as Base Rate Advances. Competitive Bid Advance Facility: NEES may invite the Lenders under the Five-Year Facility to bid for fixed rate or Eurodollar Rate Advances for requested maturities ranging from 7 to 180 days for fixed rate borrowings and for 1, 2, 3, or 6 months for Eurodollar Rate borrowings. Each Lender may bid, or may choose not to bid, at its discretion in response to any such invitation to bid. The Borrower's notice requesting any such bids shall specify the proposed date of borrowing, amount and maturity date of borrowing, interest payment schedule, the interest rate basis to be used by the Lenders in bidding, and such other terms as the Borrower may specify. The Agent shall administer the Competitive Bids (to be defined in the loan documentation) and, in such capacity, shall advise the Lenders of the terms of the Borrower's notice. The Borrower may accept none of the bids or may accept one or more bids submitted by such Lenders, provided that (i) the Borrower may not accept bids in excess of the requested bid amount for any maturity, (ii) bids will be accepted from the bidding Lenders in order from lowest cost to highest cost and (iii) bids received at the same bid rate will be allocated among the Lenders making such bids in proportion to the amount which each Lender bid at such bid rate. While any Competitive Bid Advances are outstanding, the availability of the Five-Year Facility shall be reduced and deemed used by the amount equal to the outstanding amount of such Advances. The aggregate outstanding amount of Competitive Bid Advances will not exceed $100,000,000 and the aggregate outstanding amount of Competitive Bid Advances made by any one Lender will not exceed $50,000,000. For each Competitive Bid invitation, the Borrower will pay to the Administrative Agent a fee to be agreed upon. CONDITIONS PRECEDENT Conditions Precedent to Initial Extension of Credit: The conditions precedent to the initial extension under the Facility will be those customarily found in MLCC's credit agreements for financings and others appropriate in the judgment of MLCC for this transaction, including, without limitation, the following: (a) All loan documentation relating to the Facility, including a credit agreement incorporating substantially the terms and conditions outlined herein, shall be in form and substance satisfactory to the Lenders. (b) Delivery of promissory notes, certified resolutions, and incumbency and officers' certificates certifying truth of representations and warranties and absence of events of default and incipient defaults and Lenders' satisfaction with the charter and bylaws of the Borrower and each agreement or instrument relating thereto. (c) All governmental and third party consents and approvals (including, without limitation, SEC approvals) necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect; and no law or regulation shall be applicable in the judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the Facility. (d) NEES shall have delivered copies of audited consolidated and unaudited consolidating financial statements, in each case as at and for the fiscal year ended on December 31, 1996, and NEES shall have delivered consolidated financial statements as at and for the fiscal quarter ended June 30, 1997. (e) The Lenders shall have received satisfactory opinions of counsel to the Borrower and of counsel to the Agent. (f) All accrued fees and expenses of the Arranger and the Lenders (including the fees and expenses of counsel to the Arranger) shall have been paid. Conditions Precedent to each Borrowing: (a) All representations and warranties are true and correct on and as of the date of such Borrowing (unless such Borrowing consists solely of a renewal of an interest period or a conversion of Advances from Eurodollar Rate Advances to Base Rate Advances or Base Rate Advances to Eurodollar Rate Advances, in which cases paragraphs (b) and (c) below shall apply), before and after giving effect to such Borrowing and to the application of proceeds therefrom, as though made on and as of such date. (b) No event has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. (c) The Agent shall have received such other approvals, opinions or documents as any Lender, through the Agent, may reasonably request. REPRESENTATIONS, WARRANTIES AND COVENANTS Representations and Warranties: The Facility will contain those representations and warranties customarily found in MLCC's credit agreements for similar financings and others appropriate in the judgment of MLCC for such transaction, including, without limitation, the following: (a) Due organization, valid existence and good standing. (b) Execution, delivery and performance of the loan documents, and the transactions contemplated thereby, (i) are duly authorized and (ii) do not contravene (x) charter or by-laws or (y) any law or contractual restriction. (c) All governmental or third party authorizations, approvals (including, without limitation, regulatory approvals) or consents required for the execution, delivery and performance of the loan documentation have been obtained. (d) Loan documents have been duly executed and delivered and are legal, valid, binding and enforceable obligations. (e) Financial statements fairly present financial condition of Borrower and its subsidiaries and, are prepared in accordance with GAAP. (f) Absence of material adverse change in the business, condition (financial or otherwise), operations or properties of Borrower and its Material Subsidiaries (as defined below), taken as a whole, since December 31, 1996. (g) No pending or threatened litigation, investigation or proceeding that (i) could be reasonably expected to have a material adverse effect on (x) the business, condition (financial or otherwise), operations or properties of Borrower and its Material Subsidiaries, taken as a whole, (y) the rights and remedies of the Agent or the Lenders or (z) the ability of Borrower to perform its obligations under the loan documents or (ii) purports to affect the legality, validity or enforceability of any loan document or the consummation of the transactions contemplated thereby. (h) ERISA representations and warranties. (i) Compliance with the Investment Company Act, the Public Utility Holding Company Act, Regulation U and environmental laws. (j) Following the application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of Borrower or of Borrower and its Subsidiaries) will consist of margin stock. "Material Subsidiary" means, at any time, a Subsidiary of Borrower whose assets at such time exceed 10% of the assets of Borrower and its Subsidiaries or which contributes more than 10% of the income of Borrower and its Subsidiaries (in each case on a consolidated basis). Affirmative The Facility will contain those Covenants: affirmative covenants customarily found in MLCC's credit agreements for similar financings and others appropriate in the judgment of MLCC for this transaction, including, without limitation, the following: (a) Compliance with laws and regulations. (b) Payment of taxes and other obligations. (c) Maintenance of appropriate and adequate insurance. (d) Preservation of corporate existence, rights (charter and statutory), franchises, permits, licenses and approvals. (NEES may change its structure from a trust to a corporation with the approval of the Lenders, such approval not to be unreasonably withheld.) (e) Visitation and inspection rights. (f) NEES shall maintain ownership of 100% of NEP, Mass. Electric and Narra Electric, free and clear of all liens, claims and encumbrances. (g) Use of loan proceeds. (h) Customary financial and other reporting requirements including, without limitation, annual audited (delivered within 120 days after the end of each fiscal year) and quarterly unaudited financial statements (delivered within 60 days after the end of the first three quarters of each fiscal year), in each case consolidated for NEES, as well as notices of defaults, compliance certificates and other business and financial information as any Lender shall reasonably request. (i) Maintain (i) a senior secured debt rating by Moody's or S&P for each of Mass. Electric and Narra. Electric and (ii) a senior debt rating by Moody's or S&P of NEP. Negative The Facility will contain those Covenants: negative covenants customarily found in MLCC's credit agreements for similar financings (with such exceptions as may be agreed upon in the loan documentation) and others appropriate in the judgment of MLCC for this transaction, including, without limitation, restrictions upon: (a) Liens (exceptions to include liens in existence as of the Closing Date and certain liens incurred in the ordinary course of the Borrower's business). (b) Mergers and consolidations (exceptions to include mergers and consolidations where the Borrower is the surviving corporation, the nature of the Borrower's business does not change, and no Default or Event of Default (including, without limitation, a Default or Event of Default related to failure to satisfy the financial covenant or a Default or Event of Default described in paragraph (j) under "Events of Default" below) would result therefrom). (c) Sales, transfers and other dispositions of assets (other than (i) sales in the ordinary course of business, (ii) the sale of all assets or stock of New England Energy Incorporated, (iii), the sale of all assets or stock of Naragansett Energy Resources Company, (iv) the sale of NEP's interests in nuclear generation assets (such assets to be defined in the loan documentation), (v) the sale of NEP's interest in the "Wyman 4 Facility" (such interest to be defined in the loan documentation), (vi) the sale of assets pursuant to the purchase and sale agreement among NEP, Narra Electric and U.S. Generating Company, publicly announced in August 1997, of the non- nuclear generating business of NEP and Narra Electric (such assets to be defined in the loan documentation and to include three fossil-fuel generating stations, 15 hydroelectric stations and the entitlements under approximately 1,100 megawatts of capacity procured under power contracts with other utilities and independent power producers) and (vii) after giving effect to the sale described in the preceding clause (vi), 5% of the total assets of the Borrower and its subsidiaries, taken as a whole). (d) Changing the nature of its business (other than after giving effect to the transactions described in clauses (ii) through (vi) of the immediately preceding paragraph (c)). (e) Use of loan proceeds to buy registered stock (other than registered stock of the Borrower or a Subsidiary thereof). Financial Consolidated Total Debt (to be defined in the Covenant: loan documentation) not to exceed 65% of Consolidated Total Capitalization (to be defined in the loan documentation), measured quarterly. EVENTS OF DEFAULT Events of Default: The Facility will contain those events of default customarily found in MLCC's credit agreements for similar financings and others appropriate in the judgment of MLCC for this transaction, including, without limitation, the following: (a) The Borrower shall fail to pay any principal when due or shall fail to pay any interest under the Facility or other sum within two business days after the same becomes due. (b) Any representation or warranty of the Borrower in any of the loan documentation or in any certificate or financial information delivered pursuant thereto shall not be correct in all material respects when made or confirmed. (c) The Borrower shall fail to perform or comply with (within a specified period of time, where customary and appropriate, after notice or knowledge of such failure) any term or covenant in any of the loan documentation. (d) NEES or any of its Material Subsidiaries shall default under any debt obligation in excess of $20,000,000, if the effect of such default is to cause or permit acceleration of the maturity of such obligation. (e) Any bankruptcy, insolvency or similar proceeding shall be instituted by or, unless stayed within 60 days, against the Borrower or any of its Material Subsidiaries. (f) Any material non-monetary judgment shall be entered against the Borrower or any of its Material Subsidiaries and shall remain unsatisfied or unstayed for 60 days or enforcement action shall be taken. (g) Any judgment in excess of $20,000,000 shall be entered against NEES or any of its Material Subsidiaries and shall remain unsatisfied or unstayed for 30 days or enforcement action shall be taken. (h) Standard ERISA defaults. (i) Any of the loan documentation shall cease to be enforceable against the Borrower. (j) (i) Any person or two or more persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of voting stock (to be defined in the loan documentation and to include an interest in a corporation or in a business trust) of NEES (or other securities convertible into such voting stock) representing 20% or more of the combined voting power of all voting stock of NEES; or (ii) during any period of up to 24 consecutive months, individuals who at the beginning of such 24-month period were directors or trustees of NEES shall cease for any reason to constitute a majority of the board of directors or trustees of the Borrower. OTHER Expenses: The Borrower shall pay all of MLCC's, the Arranger's and the Administrative Agent's due diligence, syndication and all other out-of-pocket expenses incurred by them (including the fees and expenses of counsel to the Arranger), and shall pay all expenses of the Administrative Agent in connection with the administration of the loan documentation. The Borrower shall also pay the expenses of the Lenders in connection with the enforcement of any of the loan documentation. Indemnity: The Borrower agrees to indemnify and hold harmless each Indemnified Party from and against any and all claims, damages, losses and liabilities, joint or several, to which any such Indemnified Party may become subject, in each case arising out of or in connection with or relating to (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Commitment Letter, the Fee Letter, the Facility, the loans under the Facility or the use or proposed use of the proceeds of any such loan, any of the transactions contemplated by any of the foregoing or in the loan documentation and the performance by MLCC or any of its affiliates of the services contemplated by this Commitment Letter and to reimburse any Indemnified Party for any and all reasonable expenses (including, without limitation, reasonable fees and expenses of counsel) as they are incurred in connection with the investigation of or preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by or on behalf of the Borrower or any of its affiliates and whether or not any of the transactions contemplated hereby are consummated or this Commitment Letter is terminated. The Borrower will not be liable under the foregoing indemnification provisions to an Indemnified Party to the extent that any loss, claim, damage, liability or expense is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Borrower or its respective security holders or creditors related to or arising out of in connection with this Commitment Letter, the Fee Letter, the Facility, the loans under the Facility or the use or proposed use of the proceeds of any such loan, any of the transactions contemplated by any of the foregoing or in the loan documentation and the performance by MLCC or any of its affiliates of the services contemplated by this Commitment Letter except to the extent that any loss, claim, damage, liability or expense is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower agrees that, without MLCC's prior written consent, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification has been or could be sought under the indemnification provisions of this Commitment Letter (whether or not MLCC or any other Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent (i) includes an unconditional written release in form and substance satisfactory to the Indemnified Parties of each Indemnified Party from all liability arising out of such claim, action or proceeding and (ii) does not include any statement as an admission of fault, culpability or failure to act by or on behalf of an Indemnified Party. In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Borrower or any of its affiliates in which such Indemnified Party is not named as a defendant, the Borrower agrees to reimburse MLCC for all reasonable expenses incurred by it in connection with such Indemnified Party's appearing and preparing to appear as such a witness, including, without limitation, the fees and disbursements of its legal counsel, and to compensate MLCC in an amount to be mutually agreed upon. Majority Lenders: Lenders owed at least 51% of the then aggregate unpaid principal amount of the Advances owing to the Lenders under the Facility, or, if no such principal amount is then outstanding, Lenders having at least 51% of the Commitments under the Facility. Assignments and Participations: Assignments must be in a minimum amount of $5,000,000 and in integral multiples $100,000 and are subject to the consent of the Borrower and the Agent (which consent shall not be unreasonably withheld), other than in the case of an assignment to a Lender or an affiliate of such assigning Lender. Participations shall be permitted without restriction other than usual and customary restrictions on voting and consent rights of participants. Any Lender may at any time create a security interest in all or any portion of its rights under the loan documents in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. Miscellaneous: Standard yield protection (including compliance with risk-based capital guidelines, increased costs, payments free and clear of withholding taxes and interest period breakage indemnities), eurodollar illegality and similar provisions. Governing Law: New York. Counsel to Arranger: Shearman & Sterling.
SCHEDULE I NEW ENGLAND ELECTRIC SYSTEM Pricing Grid $500,000,000 Five Year Revolving Credit Facility Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 ------- ------- ------- ------- ------- ------- Implied AA-/Aa3 A+/A1 A/A2 A-/A3 BBB+/Baa1 BBB/Baa2 Debt or better or lower Rating Applicable Margin Applicable Percentage
EX-99 4 EXHIBIT H EXHIBIT H Proposed Form of Notice ----------------------- New England Electric System ("NEES"), 25 Research Drive, Westborough, Massachusetts 01582, a registered holding company, has filed an application/declaration with this Commission pursuant to Sections 6(a) and 7 of the Public Utility Holding Company Act of 1935 ("Act"). NEES proposes to issue and sell up to a maximum aggregate outstanding principal amount of $500,000,000 of any combination of long term notes to banks, short-term notes to banks, or issuance of commercial paper to commercial paper dealers, from time to time for a period of five years. NEES proposes to enter into financing arrangements with a syndicate of banks led by Merrill Lynch Capital Corporation as arranger and syndication agent (Credit Agreement). The Credit Agreement would provide for a five-year unsecured revolving facility of $500 million which would reduce to $400 million after three years and $300 million after four years. The commercial paper proposed to be issued and sold by NEES would be in the form of unsecured promissory notes having varying maturities of not in excess of 270 days. Any short-term notes will mature in less than one year from the date of issuance. NEES will negotiate with banks the interest costs of such borrowings. EX-99 5 FINANCIAL STATEMENT 1A Financial Statement 1A NEW ENGLAND ELECTRIC SYSTEM (Parent Company Only) Balance Sheet At June 30, 1997 (Unaudited)
ASSETS ------ (In Thousands) Investments: Common stocks of subsidiaries, at equity $1,647,286 Notes of subsidiaries 42,310 Other investments 3,886 ---------- Total investments 1,693,482 ---------- Current assets: Cash 12 Temporary cash investments - subsidiary company 7,100 Accounts receivable from subsidiaries 527 Interest and dividends receivable of subsidiaries 48,140 Other current assets 48 ---------- Total current assets 55,827 ---------- Deferred federal income taxes 2,978 ---------- $1,752,287 ========== CAPITALIZATION AND LIABILITIES ------------------------------ Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Issued - 64,969,652 shares $ 64,969 Paid-in capital 736,567 Retained earnings (including $643,084,000 of undistributed subsidiary earnings) 904,826 ---------- Total common share equity 1,706,362 ---------- Current liabilities: Accounts payable (including $2,000 to subsidiaries) 2,489 Other accrued expenses 1,538 Dividends payable 34,403 ---------- Total current liabilities 38,430 ---------- Other reserves and deferred credits 7,495 ---------- $1,752,287 ==========
EX-99 6 FINANCIAL STATEMENT 1B Financial Statement 1B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Balance Sheet At June 30, 1997 (Unaudited)
ASSETS ------ (In Thousands) Utility plant, at original cost $5,783,877 Less accumulated provisions for depreciation and amortization 1,921,852 ---------- 3,862,025 Construction work in progress 50,178 ---------- Net utility plant 3,912,203 ---------- Oil and gas properties, at full cost 1,291,288 Less accumulated provision for amortization 1,114,345 ---------- Net oil and gas properties 176,943 ---------- Investments: Nuclear power companies, at equity 49,464 Other subsidiaries, at equity 43,213 Other investments 103,101 ---------- Total investments 195,778 ---------- Current assets: Cash 3,955 Accounts receivable, less reserves of $20,793,000 229,588 Unbilled revenues 63,100 Fuel, materials, and supplies, at average cost 80,362 Prepaid and other current assets 78,209 ---------- Total current assets 455,214 ---------- Deferred charges and other assets 403,566 ---------- $5,143,704 ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Outstanding - 64,969,652 shares $ 64,970 Paid-in capital 736,773 Retained earnings 904,825 Treasury stock - 149,238 shares (5,185) Unrealized gain on securities, net 2,684 ---------- Total common share equity 1,704,067 Minority interests in consolidated subsidiaries 46,195 Cumulative preferred stock of subsidiaries 126,166 Long-term debt 1,484,542 ---------- Total capitalization 3,360,970 ---------- Current liabilities: Long-term debt due within one year 104,710 Short-term debt 170,825 Accounts payable 127,793 Accrued taxes 25,357 Accrued interest 24,632 Dividends payable 37,350 Other current liabilities 132,434 ---------- Total current liabilities 623,101 ---------- Deferred federal and state income taxes 724,712 Unamortized investment tax credits 90,728 Other reserves and deferred credits 344,193 ---------- $5,143,704 ==========
EX-99 7 FINANCIAL STATEMENT 2A Financial Statement 2A NEW ENGLAND ELECTRIC SYSTEM (Parent Company Only) Statement of Income Twelve Months Ended June 30, 1997 (Unaudited)
(In Thousands) Equity in earnings of subsidiaries $212,844 Interest income - subsidiaries 754 -------- Total income from subsidiaries 213,598 Other income 104 --------- Total income 213,702 Corporate and fiscal expenses (includes $1,764,000 for cost of services billed by an affiliated company) 7,065 Federal income tax benefit (434) --------- Income before interest 207,071 Interest 305 --------- Net income $ 206,766 ========= Statement of Retained Earnings Retained earnings at beginning of period $ 851,389 Net income 206,766 Dividends declared on common shares (153,329) --------- Retained earnings at end of period $ 904,826 =========
EX-99 8 FINANCIAL STATEMENT 2B Financial Statement 2B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statement of Consolidated Income Twelve Months Ended June 30, 1997 (Unaudited)
(In Thousands) Operating revenue $2,429,139 ---------- Operating expenses: Fuel for generation 373,324 Purchased electric energy 530,530 Other operation 524,489 Maintenance 131,403 Depreciation and amortization 240,618 Taxes, other than income taxes 145,063 Income taxes 138,137 ---------- Total operating expenses 2,083,564 ---------- Operating income 345,575 Other income: Equity in income of generating companies 9,978 Other income (expense), net (12,435) ---------- Operating and other income 343,118 ---------- Interest: Interest on long-term debt 109,638 Other interest 16,562 Allowance for borrowed funds used during construction (2,328) ---------- Total interest 123,872 ---------- Income after interest 219,246 Preferred dividends and net gain on reacquisition of preferred stock 5,964 Minority interests 6,791 ---------- Net income $ 206,491 ========== Average common shares 64,949,413 Net income per average common share $3.18 Dividends declared per share $2.36 Statement of Consolidated Retained Earnings Retained earnings at beginning of period $ 850,939 Net income 206,491 Dividends declared on common shares (153,055) Premium on redemption of preferred stock 450 --------- Retained earnings at end of period $ 904,825 =========
EX-99 9 FINANCIAL STATEMENT 3 Financial Statement 3 NEW ENGLAND ELECTRIC SYSTEM (Parent Company Only) Capital Structure Proformed to Include $500 Million of Short-Term Debt At June 30, 1997 (Unaudited)
(In Thousands) Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Issued - 64,969,652 shares Outstanding - 64,969,652 shares $ 64,969 Paid-in capital 736,567 Retained earnings (including $643,084,000 of undistributed subsidiary earnings) 904,826 ---------- Total common share equity $1,706,362 Short-term debt $ 500,000
EX-27 10 FDS-NEES
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, AND RETAINED EARNINGS OF NEW ENGLAND ELECTRIC SYSTEM (PARENT COMPANY), AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1997 JUN-30-1997 12-MOS PER-BOOK 0 1,693,482 55,827 2,978 0 1,752,287 64,969 736,567 904,826 1,706,362 0 0 0 0 0 0 0 0 0 0 45,925 1,752,287 0 (434) 7,065 6,631 (6,631) 213,702 207,071 305 206,766 0 206,766 153,329 0 173,514 0 0 EX-27 11 FDS-NEES AND SUBS
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 NEES CONSOLIDATED 1,000 DEC-31-1997 JUN-30-1997 12-MOS PER-BOOK 3,912,203 372,721 455,214 403,566 0 5,143,704 64,970 736,773 904,825 1,704,067 0 126,166 1,484,542 0 0 170,825 104,710 0 0 0 1,553,394 5,143,704 2,429,139 138,137 1,945,427 2,083,564 345,575 (2,457) 343,118 123,872 206,491 5,964 206,491 153,055 109,638 518,544 $3.18 $3.18 Total deferred charges includes other assets. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries. Total common stockholders equity is reflected net of treasury stock at cost and unrealized gain on securities. -----END PRIVACY-ENHANCED MESSAGE-----