POS AMC
1
AMENDMENT NO. 4 (POST-EFFECTIVE NO. 1)
File No. 70-8505
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4
(Post-Effective Amendment No. 1)
to
APPLICATION OR DECLARATION on FORM U-1
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY MOBILE ENERGY SERVICES HOLDINGS, INC.
64 Perimeter Center East 900 Ashwood Parkway - Suite 500
Atlanta, Georgia 30346 Atlanta, Georgia 30338
SOUTHERN ELECTRIC INTERNATIONAL, INC.
900 Ashwood Parkway - Suite 500
Atlanta, Georgia 30338
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent of
each applicant or declarant)
Tommy Chisholm, Secretary Thomas G. Boren, President
The Southern Company Southern Electric International,
64 Perimeter Center East Inc.
Atlanta, Georgia 30346 900 Ashwood Parkway - Suite 500
Atlanta, Georgia 30338
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W.L. Westbrook Thomas G. Boren, President
Financial Vice-President Southern Electric International,
The Southern Company Inc.
64 Perimeter Center East 900 Ashwood Parkway - Suite 500
Atlanta, Georgia 30346 Atlanta, Georgia 30338
John D. McLanahan, Esq.
Troutman Sanders
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
The Application or Declaration, as amended, and as
heretofore approved by the Commission subject to reservation of
jurisdiction over certain matters, is hereby amended by this
Post-Effective Amendment No. 1, as described below.
Item 1. Description of Proposed Transactions.
1.1 Background and Summary of Proposals. The Southern
Company ("Southern") is a registered holding company under the
Public Utility Holding Company Act of 1935 (the "Act"). By order
dated December 13, 1994 in this proceeding (Holding Company Act
Release No. 26185) (the "Original Order"), the Commission
authorized Southern to organize and acquire all of the common
stock of Mobile Energy Services Company, Inc. ("Mobile
Energy"),1 an Alabama corporation, and approved various other
transactions relating to Mobile Energy's acquisition of the
energy and recovery complex (the "Energy Complex") at Scott Paper
Company's ("Scott's") Mobile, Alabama, paper and pulp mill (the
"Mill").
Closing under the Asset Purchase Agreement and related
agreements occurred on December 16, 1994 (the "Acquisition
Closing"). At the Acquisition Closing, Mobile Energy purchased
the Energy Complex from Scott for an aggregate purchase price of
approximately $350 million, which consisted of a cash payment of
1 On May 17, 1995, Mobile Energy Services Company, Inc.
changed its corporate name to Mobile Energy Services Holdings,
Inc. Mobile Energy and Southern Electric International, Inc.,
also a wholly-owned subsidiary of Southern, have been added as
applicants or declarants under this Post-Effective Amendment.
2
approximately $265 million and the assumption by Mobile Energy of
Scott's obligations under an existing facility lease and other
agreements relating to $85 million outstanding principal amount
of variable-rate solid waste revenue refunding bonds due 2019
(the "Tax-Exempt Bonds") issued by The Industrial Development
Board of the City of Mobile, Alabama (the "Board").
In accordance with the terms of the Original Order, Southern
funded the cash portion of the purchase price by making an equity
investment in Mobile Energy of approximately $75 million, and by
advancing $190 million to Mobile Energy in the form of an interim
loan which is evidenced by Mobile Energy's promissory note (the
"Interim Note").
Under the Original Order, the Commission also authorized
Mobile Energy to enter into two separate interest rate swap
agreements to hedge against adverse interest rate movements
pending conversion or reissuance of the Tax-Exempt Bonds on a
non-recourse basis2 and the proposed sale of up to $230 million
of senior secured non-recourse notes of Mobile Energy. On
December 19, 1994, in accordance with such authorization, Mobile
Energy entered into two separate interest rate hedging agreements
with Barclays Bank PLC. The Commission reserved jurisdiction in
the Original Order over the sale of the senior notes and over
2 Under the Original Order, Mobile Energy is authorized to
enter into agreements with the Board pursuant to which the Board
would issue a new series of fixed-rate Tax-Exempt Bonds, the
proceeds of which would be applied to redeem the outstanding Tax-
Exempt Bonds.
3
Southern's related proposal to provide certain credit supports
pending completion of the record on those matters.
The Energy Complex is now operated by Southern Electric
International, Inc. ("Southern Electric"), a wholly-owned
subsidiary of Southern, under the terms of an Operations and
Maintenance Agreement between Mobile Energy and Southern
Electric.
Southern and Mobile Energy now propose to effect certain
changes to the ownership structure of the Energy Complex and to
the financing and credit support proposals described in the
Original Order. The proposed changes in the ownership structure
are designed to facilitate the possible sale to unaffiliated
third parties of as much as 50% of the equity interests in the
Energy Complex. Southern and Mobile Energy are proposing to
restructure the project ownership at this time in order to avoid
the expense and delay that would be involved in any restructuring
of the project ownership subsequent to closing on the non-
recourse project debt financing of the Energy Complex.3 Any
sale of an interest in the Energy Complex to third persons would
be the subject of a separate filing with the Commission.
The proposed modifications to the financing plan are
intended to optimize the project's non-recourse debt structure
and to fund the potential cost, if any, associated with
3 Any transfer of the Energy Complex subsequent to closing
on the sale of the non-recourse debt financing for the project
would, for example, necessitate reperfecting liens and security
interests and modifying the terms of the financing documents.
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terminating the two interest rate swap agreements that Mobile
Energy entered into with Barclays Bank PLC; to allow Southern
greater flexibility in the use of guaranties and other forms of
credit support in connection with the issuance of the senior non-
recourse project debt (including the issuance of a new series of
fixed-rate Tax-Exempt Bonds) and for other purposes, as
hereinafter described; and to provide for one or more revolving
credit facilities to fund working capital and anticipated
expenses of major maintenance to the Energy Complex.
1.2 Restructuring of Project Ownership. Under the terms of
the Master Operating Agreement entered into by and between Mobile
Energy, Scott and S.D. Warren Company (Scott and S.D. Warren
Company hereinafter being referred to as the "Mill Owners"),
Mobile Energy has the right, subject to certain limitations, to
sell, transfer or otherwise dispose of an interest in the Energy
Complex or to permit an ownership interest in Mobile Energy to be
sold, transferred or otherwise disposed. (See Master Operating
Agreement, Sec. 15.1).4 Specifically, Mobile Energy may, subject
to certain conditions, sell at least 50% of the ownership
interests of Mobile Energy or the Energy Complex to any qualified
purchaser if, in its reasonable judgment, Mobile Energy
determines that it would be necessary or desirable to cause the
Energy Complex to be a "qualifying facility" within the meaning
of the Public Utility Regulatory Policies Act of 1978, as
4 The Master Operating Agreement was previously filed as
Exhibit B-6(d) hereto.
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amended. (Master Operating Agreement, Sec. 15.1(a)(ii)). Further,
Mobile Energy may, subject to certain conditions, sell or
transfer portions of the Energy Complex or of any ownership
interest in Mobile Energy, which portions shall in each case be
less than 10% of the Energy Complex or of the ownership interests
in Mobile Energy, and which shall not exceed, in the aggregate,
50% of the Energy Complex or ownership interests in Mobile
Energy, provided that Southern shall directly or indirectly
retain ownership of at least 50% of Mobile Energy and that Mobile
Energy shall remain in control of the management of the Energy
Complex. (Master Operating Agreement, Sec. 15.1(a)(iv)).
The proposed restructuring of the equity ownership of the
Energy Complex is designed to facilitate a potential sale by
Mobile Energy to unaffiliated third parties of direct or indirect
ownership interests in the Energy Complex under either of the
circumstances described in the preceding paragraph. The
restructuring would involve the transfer of ownership of the
Energy Complex and related assets to a new subsidiary of Mobile
Energy to be named Mobile Energy Services Company, L.L.C. (the
"Project Company") which, for tax and other reasons, will be
organized under Alabama law as a limited liability company. The
Articles of Organization of Project Company and the Operating
Agreement among its members (which, for a limited liability
company, is the equivalent of a partnership agreement) are
included herewith as Exhibits A-4 and A-5, respectively.
6
Southern has considered the alternative of reducing its
equity ownership in the Energy Complex by selling some of the
common stock of Mobile Energy to third parties. However, a sale
of more than 20% of Mobile Energy's common stock would result in
the de-consolidation of Mobile Energy for income tax purposes,
with the result that net operating losses of Mobile Energy could
not be used to reduce the income tax liability of the Southern
System consolidated tax group. By transferring the Energy Complex
and the liabilities associated therewith to an entity, such as a
limited liability company, which, for tax purposes, is treated as
a partnership rather than as a corporation, all items of income,
loss and credit will be allocated to and recognized directly by
the members of the limited liability company in proportion to
their respective ownership interests.
Under Alabama law, a limited liability company must have at
least two members. Accordingly, it is proposed that Mobile Energy
and Southern Electric will organize Project Company as its
initial members. Following the organization of Project Company,
Mobile Energy will transfer, convey and assign all of its right,
title and interest in the Energy Complex and related assets to
Project Company, and Project Company will assume all liabilities
and obligations of Mobile Energy relating to the Energy Complex,
including liabilities under the Interim Note and under the
agreements with the Board, the Mill Owners, and other third
parties. Mobile Energy will concurrently declare and pay to
Southern a dividend in the form of a 1% membership interest in
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Project Company, which Southern will in turn contribute to
Southern Electric, such that, following these interrelated steps,
Mobile Energy will hold 99% of the membership interests of
Project Company and Southern Electric will hold 1% of the
membership interests.
Following the restructuring, Mobile Energy itself will not,
without obtaining a further order of the Commission, carry on any
business operations or hold any assets other than its membership
interest in Project Company.
1.3 Summary of Proposed Financing Plan. The applicants
request approval for the following financing proposals, which
supersede the financing proposals over which the Commission
reserved jurisdiction in the Original Order:
(a) The applicants request authorization for Project
Company to issue, and Mobile Energy to guaranty, up to $235
million principal amount of first mortgage bonds (the "First
Mortgage Bonds"), plus such additional principal amount of First
Mortgage Bonds (not to exceed $55 million) as may be required to
fund the cost, if any, of terminating the outstanding interest
rate hedging agreements between Mobile Energy and Barclays Bank
PLC. The net proceeds from the sale of the First Mortgage Bonds
(after deduction of the underwriting commission), together with
other available funds, will be used to repay the Interim Note
($190 million, exclusive of interest); to pay certain transaction
costs associated with the acquisition, start-up and financing of
the Energy Complex, and the costs of capital improvements made
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since the Acquisition Closing (estimated at $20-$25 million in
the aggregate); to finance the balance of the costs of certain
capital improvements (estimated at approximately $9 million)
required to be made to the Energy Complex; and to pay the cost
(if any) associated with terminating the interest rate swaps.
The terms of the First Mortgage Bonds and the collateral
documents securing the First Mortgage Bonds and other senior
indebtedness of Project Company are described in greater detail
below.
(b) It is proposed that Project Company instead of Mobile
Energy will enter into agreements with the Board in respect of
the issuance of a new series of Tax-Exempt Bonds, subject to all
other terms and conditions set forth in the Original Order.
(c) Southern requests authority to provide up to $55
million of guaranties and other forms of credit support at any
time outstanding to or on behalf of Project Company and/or Mobile
Energy (in addition to those guaranties heretofore authorized
under the terms of the Original Order), provided that the amount
thereof at any time outstanding, when added to Southern's equity
investment in Mobile Energy, will not exceed $135 million in the
aggregate.
(d) Project Company proposes to enter into a working
capital facility ("Working Capital Facility") with one or more
commercial banks or other institutional lenders, pursuant to
which Project Company may make borrowings from time to time
through 2019 in an aggregate principal amount of up to $15
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million at any time outstanding, as such amount may be escalated
for inflation.
(e) Authorization is requested for either Southern or
Mobile Energy enter into a dedicated revolving credit facility
("Major Maintenance Facility") with one or more commercial banks
or other institutional lenders to fund certain major maintenance
reserve obligations of Project Company. Borrowings at any one
time outstanding under the Major Maintenance Facility will not
exceed $13 million.
(f) Southern and Mobile Energy also propose to modify the
terms of the Interim Note delivered at the Acquisition Closing
(previously filed as Exhibit B-2 hereto), which will thereupon be
assumed by Project Company, in order to extend its maturity to
December 31, 1995, and to provide for the payment of interest
from January 1, 1995 to the date of payment at a rate equal to
the lesser of (i) Southern's effective cost of borrowing and
(ii) the prime commercial lending rate in effect from time to
time at a commercial bank designated by Southern, plus 3%.
1.4 Reasons for Increase in Project Debt Capitalization.
Under the two interest rate hedging agreements executed following
the Acquisition Closing, Mobile Energy "locked" in base fixed
rates with respect to notional amounts of $224 million, effective
May 1, 1995 (the "forward" First Mortgage Bond swap), and $85
million, effective July 1, 1995 (the "forward" Tax-Exempt Bond
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swap).5 Since the Acquisition Closing, comparable base rates
have declined markedly, with the result that there would
currently be a cost associated with reversing, or terminating,
the swaps. That potential cost, or the cash impact, of reversing
the interest rate swaps will be based on the comparable base
rates in effect on the dates on which the swaps are in fact
reversed, which will be the same date or dates on which the rates
on the First Mortgage Bonds and new series of Tax-Exempt Bonds
are fixed. Based on the notional amounts of the two swaps and
other relevant factors, the cash impact of a 100 basis point
decline in the applicable base rates would be approximately $25
million. By way of illustration, on May 9, 1995, the comparable
base rate for the two swaps was approximately 120 basis points
lower than the base rate on December 19, 1994, implying a cost
(or cash impact) of terminating the two swaps of about $30
million.
Funding the cost of terminating the two swap agreements from
the proceeds of an additional amount of First Mortgage Bonds will
have no impact on the project's debt service coverages, as
originally forecasted by Southern and Mobile Energy, because any
increase in the principal amount of senior debt attributable to
terminating the swaps will be offset by the interest rate savings
achieved in the lower interest rate environment over the
5 The interest rate swaps did not, however, lock in a
"spread" over the base reference rate that will be used in
determining the actual fixed rate for the First Mortgage Bonds
and Tax-Exempt Bonds.
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respective terms of the First Mortgage Bonds and Tax-Exempt
Bonds. Southern and Mobile Energy are filing herewith pursuant
to Rule 104 a pro forma illustration of the effect on Project
Company's debt coverage and capitalization ratios based upon an
assumed 200 basis point decline in the interest rate swap base
rates between December 19, 1994 and the date or dates on which
the swaps are reversed. (See Exhibit 6(b)(v)). The illustration
shows that the issuance and sale of an additional $50 million
principal amount of First Mortgage Bonds (i.e., in addition to
the $235 million principal amount) to fund the cost of reversing
the swaps would result in no change in the project debt coverage
ratios and no material change in the project equity requirements.
Debt, as a percentage of capitalization, would increase by only
2.8%.
1.5 Increase in Southern Company Credit Supports. In the
original Application or Declaration, Southern requested approval
to provide up to $40 million in guaranties on behalf of Mobile
Energy in connection with the sale of senior secured notes (which
are now referred to as the First Mortgage Bonds). Southern now
requests authority for an increase to $55 million in the
aggregate amount of such guaranties and other forms of credit
support (collectively, "Credit Supports") that Southern may
provide on behalf of Mobile Energy and/or Project Company,
provided that the amount thereof at any time outstanding, when
added to Southern's equity investment in Mobile Energy, shall at
no time exceed $135 million. Such Credit Supports would be
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provided on behalf of Mobile Energy and/or Project Company as
security for obligations of Project Company under the terms of
the First Mortgage Bonds and the Tax-Exempt Bonds, as well as for
certain additional purposes, as herein described.
Credit Supports may take a variety of different forms,
including a parent guaranty of indebtedness to third parties, a
capital infusion or similar agreement under which cash calls from
Southern may be made for certain defined purposes, or an
agreement to indemnify or reimburse commercial banks or other
third parties in connection with commercial letters of credit or
other forms of commercially available credit enhancement that
Mobile Energy or Project Company may require for the purposes
described in this Item 1.5. The precise form of any Credit
Support and the terms of any advance of funds to or on behalf of
Mobile Energy or Project Company pursuant to any such Credit
Support will be the subject of further negotiations with third
parties, including, among others, the trustees for the First
Mortgage Bonds and Tax-Exempt Bonds and the Mill Owners.
Accordingly, Southern requests authority to negotiate the terms
of Credit Supports and any advances pursuant thereto on a case-
by-case basis. Subject to the foregoing, Southern proposes that
any advance to or on behalf of Mobile Energy or Project Company
that is structured as a loan may be unsecured and fully
subordinated to the claims of other creditors of Mobile Energy or
Project Company, as the case may be, and that it may bear
interest at a rate equal to the lesser of (i) Southern's
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effective cost of borrowing and (ii) the prime commercial lending
rate at a money center bank designated by Southern, plus 3%.
Southern further proposes that, at its option, any direct or
indirect advance to Mobile Energy or Project Company structured
as a loan may be converted to a capital contribution through
Southern's forgiveness of indebtedness.
The proposed increase in the amount of Credit Supports will
provide Southern with greater flexibility to use Credit Supports
in lieu of cash funded debt service reserves (currently estimated
at $32 million in the aggregate) securing the First Mortgage
Bonds and the Tax-Exempt Bonds. Southern also anticipates the
need to provide Credit Supports in an aggregate amount estimated
at $13 million in lieu of, or to replace, cash funded major
maintenance reserves required under the terms of the First
Mortgage Bond documents and the Master Operating Agreement with
the Mill Owners. Other occasions may arise from time to time in
the ordinary course of Project Company's business when it would
be more economical and efficient for Southern to provide a Credit
Support in lieu of, or to replace, cash funded reserves and/or as
security to third parties providing commercial credit supports to
Project Company, such as bank letters of credit, commercial
surety arrangements, and the like.
1.6 Description of the First Mortgage Bonds. The
applicants propose to issue the First Mortgage Bonds in one or
more series on or before December 31, 1995. The First Mortgage
Bonds will be issued pursuant to an indenture (the "Indenture")
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among Project Company, Mobile Energy, as guarantor, and First
Union National Bank of Georgia, as trustee for the holders of the
First Mortgage Bonds (the "Trustee"). The form of Indenture is
included herewith as Exhibit B-4(b). The bonds will have final
maturities of from 10 to 22 years from financial closing and a
weighted average life of from 12 to 15 years; will bear interest
at a fixed rate to be determined on or before the date of
financial closing that will not exceed the sum of the yield to
maturity of an actively traded U.S. Treasury bond with a maturity
equal to the weighted average life of the First Mortgage Bonds,
plus 3-3/4%; and may not provide for optional redemption prior to
final maturity. Project Company's obligations under the First
Mortgage Bonds will be unconditionally guaranteed by Mobile
Energy.
It is currently planned that the First Mortgage Bonds will
be sold to a group of underwriters to be led by Goldman, Sachs &
Co. pursuant to an Underwriting Agreement (Exhibit B-4(a) hereto)
and reoffered by such underwriters in part directly to the public
and in part to certain securities dealers. The Registration
Statement on Form S-1 pursuant to the Securities Act of 1933 (the
"Securities Act") is filed herewith as Exhibit C. It is
anticipated that the First Mortgage Bonds will be rated
"investment grade" by one or more of the nationally recognized
independent rating agencies. Closing on the sale of the First
Mortgage Bonds and the new series of Tax-Exempt Bonds is expected
to occur on or about July 31, 1995.
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The applicants propose that, if, in their judgment, a
registered public offering of the First Mortgage Bonds cannot be
consummated on acceptable terms, the First Mortgage Bonds may, in
the alternative, be sold pursuant to a bond purchase agreement to
one or more institutional purchasers in an offering that is
intended to qualify for an exemption from registration under the
Securities Act, or pursuant to an underwriting agreement with one
or more underwriters for resale to qualified institutional buyers
pursuant to Rule 144A of the Securities Act. If the First
Mortgage Bonds are not sold in a registered public offering, the
terms of the bond purchase or underwriting agreement may include
registration rights.
1.7 Description of Revolving Credit Facilities. Under the
Working Capital Facility, Project Company may make borrowings
from time to time in an aggregate principal amount which will not
exceed $15 million at any time outstanding, as escalated by an
amount equal to the excess, if any, of the Gross Domestic Product
Implicit Price Deflator over 1 1/2%. Borrowings under the Working
Capital Facility generally will be used by Project Company to pay
for operations and maintenance costs and other routine expenses
incurred by Project Company. Each loan under the Working Capital
Facility will have a maturity date no later than ninety (90) days
after the date of borrowing, and no more than $5 million of such
loans may be scheduled to mature during any 30-day period. Under
the terms of the Working Capital Facility, Project Company will
be required to repay all amounts advanced so that no amounts are
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outstanding thereunder once during each fiscal year (other than
1995) for a period of at least five (5) consecutive days. A
draft of the Working Capital Facility is included herewith as
Exhibit B-8.
As previously indicated, Project Company will be required to
establish major maintenance reserves, estimated at approximately
$13 million in the aggregate, under the terms of the First
Mortgage Bond documents and Master Operating Agreement.
Initially, some or all of these reserve requirements will be cash
funded from the proceeds of the First Mortgage Bonds, but it is
contemplated that Southern will provide a Credit Support in lieu
of one or both of these cash funded major maintenance reserves.
If Southern should provide a Credit Support for this purpose,
Southern proposes to fund any advances thereunder from borrowings
under a dedicated Major Maintenance Facility. Alternatively,
Southern proposes to guaranty borrowings by Project Company under
the Major Maintenance Facility. A draft of the Major Maintenance
Facility is included herewith as Exhibit B-9. It is proposed
that notes issued under the Major Maintenance Facility may have
maturities not later than seven (7) years after the date of
issuance.
It is proposed that notes issued under the Working Capital
Facility and Major Maintenance Facility may bear interest at a
rate or rates that are based on various interest rate options
available to Project Company and Southern, which in no case would
be greater than the sum of the reference rate for the interest
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rate option selected by Project Company or Southern, as the case
may be, plus the applicable spread, as follows:
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Reference Rate Applicable Spread
London Interbank Offered Rate 1-1/2%
Adjusted Base Rate 1%
The Adjusted Base Rate will equal the greater of (i) the Federal
Funds Rate, plus 1/2%, and (ii) the lender's publicly announced
reference rate.
It is further contemplated that Project Company and Southern
may be required under the terms of either facility to pay a
commitment fee based on the unutilized portion of any lender's
commitment and/or maintain compensating balances. The effective
cost of borrowing under either of the foregoing interest rate
options would be increased by no more than .625% as a result of
such commitment fees and giving effect to any compensating
balances.
1.8 Description of Senior Debt Security Documents. The
obligations of Project Company to make payments on the First
Mortgage Bonds, the new series of Tax-Exempt Bonds and the
Working Capital Facility (collectively, the "Senior Secured
Debt") will be secured ratably under the terms of a Mortgage and
a Security Agreement (Exhibits B-5(a) and B-5(b), respectively)
by a lien on and security interest in substantially all of the
real and personal property interests of Project Company, subject
to the priority of the lien of the Working Capital provider on
earned receivables (i.e., revenues from the sale of electricity,
steam and liquor processing services to the Mill Owners) and
proceeds from the sale of the Energy Complex fuel inventory. The
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First Mortgage Bonds and Tax-Exempt Bonds will also be secured by
certain reserves required to be maintained under the terms of the
First Mortgage Bond and Tax-Exempt Bond indentures and/or by
Credit Supports, as described above. Except for the guaranty
provided by Mobile Energy with respect to the First Mortgage
Bonds, the obligations of Project Company to make payments on the
Senior Secured Debt will be secured solely by the assets of
Project Company. Neither Southern nor Southern Electric nor any
associate company (other than Project Company and Mobile Energy)
will have any obligation with respect to the Senior Secured Debt
of Project Company, except as may be expressly provided under the
terms of any Credit Support provided by Southern.
At financial closing, the trustees for the First Mortgage
Bonds and Tax-Exempt Bonds, the Working Capital provider, and the
Board (collectively, the "Senior Secured Parties"), Mobile
Energy, Project Company and Bankers Trust Company, as collateral
agent (the "Collateral Agent"), will enter into an Intercreditor
and Collateral Agency Agreement (the "Intercreditor Agreement").
The Collateral Agent will be responsible for the exercise of
remedies on behalf of the Senior Secured Parties following
defaults under any of the financing documents or bankruptcy
events affecting the Project Company or Mobile Energy.
Generally, actions by the Collateral Agent will require the
affirmative vote of Senior Secured Parties holding at least 33-
1/3% of the aggregate principal amount of Senior Secured Debt
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outstanding. The Intercreditor Agreement is included herewith as
Exhibit B-5(c).
1.9 Other Matters. Upon acquiring the membership interests
of Project Company, Mobile Energy will become a "holding company"
within the meaning of Section 2(a)(7) of the Act. Mobile Energy
intends to file a statement on Form U-3A-2, 17 C.F.R. Sec 259.402,
to claim exemption as a "holding company" pursuant to
Section 3(a)(1) of the Act. In this connection, it is noted that
Mobile Energy and Project Company will each be organized under
the laws of Alabama, and that all of the operating revenues of
Project Company will be derived from sales of electricity and
other services and products in Alabama.
As indicated in the original Application or Declaration,
Southern's projections indicate that it will recover its invested
capital from net distributable project revenues (i.e., revenues
less operating expenses and debt service) in a period of years
that is significantly shorter than the 25-year term of the Energy
Services Agreements. The applicants project that cash
distributions by Project Company and Mobile Energy will be made
in some years in amounts exceeding book earnings. Project
Company and Mobile Energy request that the Commission's order
expressly authorize payment of cash distributions consisting, in
part, of a return of capital to the extent permitted under
Alabama law. Under Alabama law, distributions may be made to
shareholders of a corporation from any source unless, giving
effect thereto, the corporation would not be able to pay its
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debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its
total liabilities plus the amount (if any) of preferential rights
of shareholders. The board of directors of a corporation may
determine that a distribution is not prohibited for either of
those reasons based either on financial statements that are
reasonable in the circumstances or on a fair revaluation or other
method that is reasonable in the circumstances.6
It is also anticipated that the First Mortgage Bond
documents will contain limitations and restrictions on
distributions (including payments on any shareholder loans) that
are usual and customary in a non-recourse project financing of
this type.
Item 2. Fees, Commissions and Expenses.
A statement of the fees, commissions and expenses incurred
or to be incurred in connection with the transactions proposed
herein will be filed by amendment.
Item 3. Applicable Statutory Provisions.
3.1 General Statutory Requirements. The organization of
Project Company and acquisition of its membership interests by
Mobile Energy and Southern Electric are subject to Sections 9(a)
and 10. The transfer and assignment of the Energy Complex and
6 See Alabama Business Corporations Code, Sec.10-2B-6.40(c)
and (d), Code of Alabama, 1975. A similar limitation applies to
distributions by an Alabama limited liability company. See
Alabama Corporations, Partnerships and Associations Code, Sec 10-12-
29, Code of Alabama, 1975.
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related assets by Mobile Energy to Project Company are subject to
Sections 12(d) and 12(f) of the Act and Rule 43 thereunder, and
the assumption of Mobile Energy's liabilities under the Master
Operating Agreement, Energy Services Agreements and various other
project contracts in connection therewith is subject to Section
12(b) and Rule 45.
The distribution to Southern by Mobile Energy of a 1%
membership interest in Project Company is subject to Section
12(c) and Rule 46, and Southern's contribution thereof to
Southern Electric is subject to Section 12(b) and Rule 45.
The issuance and sale of the First Mortgage Bonds and
revolving notes by Project Company and the extension and
modification to the terms of the Interim Note are, in each case,
subject to Sections 6(a) and 7 of the Act and Rule 42 thereunder,
as is Project Company's assumption of Mobile Energy's obligations
under the Interim Note and the outstanding Tax-Exempt Bonds. In
addition, Mobile Energy's guaranty of Project Company's
obligations under the First Mortgage Bonds is subject to Sections
6(a) and 7, as well as Section 12(b) and Rule 45.
The proposed Credit Supports by Southern in respect of
obligations of Mobile Energy and/or Project Company are subject
to Sections 6(a), 7, and 12(b) and Rule 45. Advances by Southern
to Project Company pursuant to the terms of any Credit Support to
fund major maintenance reserves is subject to Section 12(b) and
Rule 45.
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The payment of dividends by Project Company and Mobile
Energy out of capital or unearned surplus is subject to Section
12(c) and Rule 46 thereunder.
The proposed transactions will be carried out in accordance
with the procedures specified in Rule 24 of the Act and pursuant
to an order of the Commission with respect thereto, except that
(i) the First Mortgage Bonds may be sold (and the Interim Note
repaid with the proceeds thereof) at any time prior to December
31, 1995, and (ii) revolving notes under the Working Capital
Facility and Major Maintenance Facility may be issued from time
to time through December 31, 2019. Further, in accordance with
the Original Order, the new series of Tax-Exempt Bonds may be
issued at any time prior to December 31, 1996.
3.2 Rule 54 Analysis (Revised). Under Rule 54, in
determining whether to approve the issue or sale of a security by
a registered holding company for purposes other than the
acquisition of an "exempt wholesale generator" or "foreign
utility company", or other transactions by such registered
holding company or its subsidiaries other than with respect to
"exempt wholesale generators" or "foreign utility companies," the
Commission shall not consider the effect of the capitalization or
earnings of any subsidiary which is an "exempt wholesale
generator" or a "foreign utility company" upon the registered
holding company system if the "safe harbor" conditions of Rule 53
are satisfied.
24
Southern currently meets all of the "safe harbor" conditions
of Rule 53. Southern's "aggregate investment" in "exempt
wholesale generators" and "foreign utility companies" at
March 31, 1995 was approximately $500.1 million, representing
approximately 15.9% of Southern's "consolidated retained
earnings," as defined in Rule 53(a)(1)(ii), as of such date
($3.144 billion). Furthermore, Southern has and will continue to
comply with the record keeping requirements of Rule 53(a)(2)
concerning affiliated "exempt wholesale generators" and "foreign
utility companies." In addition, as required by Rule 53(a)(3),
no more than 2% of the employees of Southern's operating utility
subsidiaries will, at any one time, directly or indirectly,
render services to "exempt wholesale generators" and "foreign
utility companies." Finally, since none of the circumstances
described in Rule 53(b) exists, the provisions of Rule 53(a) are
not made inapplicable by Rule 53(b).
Item 4. Regulatory Approval.
The proposed transactions are not subject to the
jurisdiction of any state commission or of any federal commission
other than the Commission.
Item 5. Procedure.
The applicants request that the Commission's order be issued
as soon as the rules allow, and that there be no thirty-day
waiting period between the issuance of the Commission's order and
the date on which it is to become effective. The applicants
25
hereby waive a recommended decision by a hearing officer or other
responsible officer of the Commission and hereby consent that the
Division of Investment Management may assist in the preparation
of the Commission's decision and/or order in the matter unless
such Division opposes the matters covered hereby.
Item 6. Exhibits and Financial Statements (Partially Revised).
(a) Exhibits. (Supplemental List).
A-1(a) - Amended and Restated Articles of
Incorporation of Mobile Energy Services
Holdings, Inc. (formerly Mobile Energy
Services Company, Inc.) (See Exhibit
3.3 to Form S-1).
A-4 - Articles of Organization of Mobile
Energy Services Company, L.L.C. (See
Exhibit 3.1 to Form S-1).
A-5 - Operating Agreement among Mobile Energy,
Southern Electric and Project Company.
(See Exhibit 3.2 to Form S-1).
B-4 - First Mortgage Bond Documents.
(a) Underwriting Agreement. (See Exhibit 1
to Form S-1).
(b) Indenture among Mobile Energy, Project
Company and First Union National Bank of
Georgia, as Trustee. (See Exhibit 4.1
to Form S-1).
(c) First Supplemental Indenture among
Mobile Energy, Project Company and the
Trustee. (See Exhibit 4.3 to Form S-1).
(d) Form of First Mortgage Bond. (See
Exhibit 4.7 to Form S-1).
26
B-5 - Security Documents.
(a) Mortgage between Project Company and
Bankers Trust Company, as Collateral
Agent. (See Exhibit 4.8 to Form S-1).
(b) Security Agreement between Project
Company and Bankers Trust Company, as
Collateral Agent. (See Exhibit 4.9 to
Form S-1).
(c) Intercreditor and Collateral Agency
Agreement among the Collateral Agent,
the Senior Secured Parties, Project
Company and Mobile Energy. (See Exhibit
4.3 to Form S-1).
B-8 - Working Capital Facility. (See Exhibit
4.6 to Form S-1).
B-9 - Major Maintenance Facility. (To be
filed by amendment.)
C - Registration Statement on Form S-1 filed
pursuant to the Securities Act. (To be
filed by amendment).
F-1 - Opinion of Troutman Sanders. (To be
filed by amendment).
G-1 - Form of Federal Register Notice.
(b) Financial Statements. (Supplemental List).
(v) Illustration of Effect on Project
Capitalization and Debt Coverage Ratios of
Terminating Interest Rate Hedging Agreements.
(To be filed separately, by amendment,
pursuant to Rule 104). ("P")
Item 7. Information as to Environmental Effects.
In view of the nature of the proposed transactions as
described in Item 1 hereof, the Commission's action in this
matter will not constitute any major federal action significantly
affecting the quality of the human environment.
27
No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed
transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this Post-Effective Amendment to be signed on their behalf by the
undersigned thereunto duly authorized.
Dated: May 23, 1995
THE SOUTHERN COMPANY
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
MOBILE ENERGY SERVICES HOLDINGS, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Vice President
SOUTHERN ELECTRIC INTERNATIONAL, INC.
By: /s/Tommy Chisholm
Tommy Chisholm
Secretary
28
EX-99
2
EXHIBIT G-1
Exhibit G-1
FORM OF FEDERAL REGISTER NOTICE
The Southern Company, a registered holding company
("Southern"), and its wholly-owned subsidiaries, Southern
Electric International, Inc. ("Southern Electric") and Mobile
Energy Services Holdings, Inc. (formerly Mobile Energy Services
Company, Inc.) ("Mobile Energy"), have filed a post-effective
amendment to the application or declaration in this proceeding
pursuant to Sections 6(a), 7, 9(a), 10, 12(b), 12(c), 12(d),
12(f) and 13(b) of the Act and Rules 42, 43, 45, 46, 54, 90 and
91 thereunder.
By order dated December 13, 1994 (HCAR No. 26185) (the
"Original Order"), Southern was authorized to organize and
acquire all of the common stock of Mobile Energy, and, through
Mobile Energy, purchase the energy and recovery complex at Scott
Paper Company's ("Scott's") Mobile, Alabama pulp and paper mill
(the "Energy Complex"). In connection with the purchase of the
Energy Complex, Mobile Energy assumed certain liabilities of
Scott under agreements with The Industrial Development Board of
the City of Mobile, Alabama (the "Board") relating to $85 million
principal amount of outstanding tax-exempt bonds issued by the
Board to finance certain solid waste disposal facilities (the
"Tax-Exempt Bonds"), and Southern provided to Scott a guaranty of
Mobile Energy's obligations under the assumption agreement.
In accordance with the Original Order, Southern funded the
cash portion of the purchase price for the Energy Complex by
making an equity investment in Mobile Energy of approximately $75
million and a $190 million advance in the form of an interim loan
which is evidenced by Mobile Energy's non-interest bearing note
(the "Interim Note"). Various other related transactions were
approved in the Original Order, including a proposal for Mobile
Energy to enter into agreements with the Board for the conversion
or reissuance of the Tax-Exempt Bonds as long-term, non-recourse,
fixed-rate bonds. Jurisdiction was reserved in the Original
Order over the proposed sale of up to $230 million of senior
secured notes and certain related credit supports to be provided
by Southern in connection therewith pending completion of the
record. Mobile Energy was authorized to enter into interest-rate
swap agreements to hedge against adverse interest rate movements
pending sale of the senior secured notes and conversion or
reissuance of the Tax-Exempt Bonds. Closing under the asset
purchase agreement with Scott occurred on December 16, 1994; and,
on December 19, 1994, Mobile Energy entered into two separate
interest rate swap agreements with Barclays Bank PLC.
Southern Electric now operates the Energy Complex under the
terms of a cost-based contract with Mobile Energy. Revenues from
the project are derived by Mobile Energy from the sale of
electricity, steam and "black liquor" processing services to
Scott and S.D. Warren Company (collectively, the "Mill Owners")
pursuant to three separate energy services agreements.
Southern, Mobile Energy and Southern Electric are now
proposing to restructure the ownership of the Energy Complex and
modify the capitalization and financing plan of the project in
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various respects. Specifically, in order to facilitate a
possible sale of up to 50% of the equity ownership of the Energy
Complex to unaffiliated third persons, Mobile Energy and Southern
Electric propose to organize a new subsidiary of Mobile Energy to
which Mobile Energy will transfer, convey and assign all of its
right, title and interest in the Energy Complex and the
liabilities associated therewith (including, without limitation,
Mobile Energy's obligations under certain agreements with the
Mill Owners and under the Tax-Exempt Bond documents and Interim
Note). The new subsidiary, to be named Mobile Energy Services
Company, L.L.C. ("Project Company"), will be organized under
Alabama law as a limited liability company. Mobile Energy will
acquire and hold 99% of the membership interests of Project
Company, and Southern Electric will acquire and hold the
remaining 1% membership interest. Following the reorganization,
Mobile Energy will conduct no business other than the business of
holding its membership interest in Project Company. Any proposal
to sell any interest in the Project Company or the Energy Complex
to unaffiliated third parties would be the subject of a separate
filing with this Commission.
It is now proposed that Project Company may issue and sell
up to $235 million of senior secured notes, which will be in the
form of first mortgage bonds (the "First Mortgage Bonds"), plus
such additional amount of First Mortgage Bonds (not to exceed $55
million) as may be required to fund the cost, if any, of
terminating the two interest rate swap agreements that Mobile
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Energy entered into with Barclays Bank PLC. The First Mortgage
Bonds will be unconditionally guaranteed by Mobile Energy, but
will not be recourse to Southern or any other affiliate of
Southern except to the extent specifically provided under the
terms of any credit support provided by Southern.
Southern and Mobile Energy state that comparable interest
rates used in the interest rate swap agreements have fallen since
they were entered into in December 1994, with the result that
there would be cost (currently estimated at about $30 million)
associated with terminating the swaps at the time of closing on
the sale of the First Mortgage Bonds and issuance of a new series
of fixed-rate Tax-Exempt Bonds to redeem the outstanding Tax-
Exempt Bonds. Southern and Mobile Energy state, however, that
the increase in the principal amount of First Mortgage Bonds to
fund this payment will have no impact on the projected debt
service coverage ratios previously filed with the Commission
because the increase in principal payments on the First Mortgage
Bonds would be offset by the interest savings achieved by Project
Company in the lower interest rate environment over the life of
the First Mortgage Bonds and Tax-Exempt Bonds.
It is currently planned that the First Mortgage Bonds will
be sold to a group of underwriters led by Goldman Sachs & Co. and
resold by such underwriters in part directly to the public and in
part to certain dealers in a registered public offering. In
addition to repaying the Interim Note and funding the cost, if
any, of terminating the interest rate swap agreements, the net
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proceeds of the First Mortgage Bonds would also be used to pay or
repay transaction costs associated with the acquisition of the
Energy Complex and the financing and to finance certain capital
improvements to the Energy Complex.
Southern requests authority to provide up to $55 million in
guaranties and similar forms of credit support ("Credit
Supports") on behalf of Mobile Energy and/or Project Company,
provided that the maximum amount of Southern's exposure at any
time under all such Credit Supports plus the amount of equity
investments by Southern in Mobile Energy (currently about $75
million) shall not, in the aggregate, exceed $135 million. It is
contemplated that Credit Supports will be provided in lieu of
cash funded debt service reserves (estimated at $32 million in
the aggregate) established at financial closing for the First
Mortgage Bonds and Tax-Exempt Bonds and in lieu of major
maintenance reserves (estimated at $13 million in the aggregate)
established under the First Mortgage Bond documents and under an
agreement with the Mill Owners, and that Credit Supports may be
required from time to time in the ordinary course of Project
Company's business for other purposes. Southern states that, in
many cases, it will be more economical to provide Credit Supports
than to maintain cash reserves or cause Project Company to
purchase commercially available forms of credit enhancement, such
as bank letters of credit.
Project Company proposes to enter into a $15 million working
capital revolving credit facility (subject to escalation for
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inflation). Notes evidencing borrowings by Project Company under
the working capital facility would be secured ratably with the
First Mortgage Bonds and Tax-Exempt Bonds by a lien on and
security interest in substantially all of the assets of Project
Company, provided, however, that the working capital facility
provider will have a priority lien on project cash flows and
proceeds of the sale of the Energy Complex fuel inventory. In
addition, it is proposed that either Project Company or Southern
enter into a $13 million revolving credit facility to fund major
maintenance reserve obligations. Borrowings under this facility
would be guaranteed by Southern, if Project Company is the
primary obligor. Alternatively, if Southern is the primary
obligor, proceeds of borrowings would be advanced to Project
Company to fund major maintenance reserve obligations.
Mobile Energy, on its own behalf and on behalf of Project
Company, also requests approval to make cash distributions from
capital or unearned surplus to the extent permitted under
applicable Alabama law.
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