[Federal Register Volume 60, Number 155 (Friday, August 11, 1995)]
[Notices]
[Pages 41136-41139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19838]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26351]


Filings Under the Public Utility Holding Company Act of 1935, as 
amended (``Act'')

August 4, 1995.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated thereunder. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendments thereto is/are available for public 
inspection through the Commission's Office of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by August 28, 1995, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in case of an attorney at law, by 
certificate) should be filed with the request. Any request for hearing 
shall identify specifically the issues of fact or law that are 
disputed. A person who so requests will be notified of any hearing, if 
ordered, and will receive a copy of any notice or order issued in the 
matter. After said date, the application(s) and/or declaration(s), as 
filed or as amended, may be granted and/or permitted to become 
effective.

The Columbia Gas System, Inc. (70-8659)

    The Columbia Gas System, Inc. (``Columbia''), 20 Montchanin Road, 
Wilmington, Delaware 19807, a registered holding company, has filed an 
application-declaration under sections 6(a), 7, 9(a) and 10 of the Act.
    Columbia seeks authority to enter into interest rate hedge 
transactions to limit its exposure to a potential rise in long-term 
interest rates from now until the interest rates on its long-term debt 
are fixed upon its emergence from bankruptcy. Columbia's interest rate 
exposure is due to a projected fixed rate debt issuance of 
approximately $2.1 billion to fund Columbia's proposed plan or 
reorganization (``Columbia Plan''). An application by Columbia to issue 
this debt was filed on May 7, 1995 (File No. 70-8627) and is currently 
pending.
    Among other things, the Columbia Plan contemplates the issuance of 
up to $2.1 billion in debentures (the ``New Indenture Securities'') to 
be issued under a new form of indenture on the date the Columbia Plan 
becomes effective (the ``Effective Date''), currently anticipated to be 
December 31, 1995. The New Indenture Securities are to be issued in 
seven series, each series bearing a maturity that will range from 
approximately 5 to thirty years. The principal amount of each series 
will be substantially the same as that of each other series; provided, 
however, that no series other than series A will have an initial 
principal amount that is more than 150% of that of any other series. 
The rate of interest to be borne by the New Indenture Securities of 
each series will be determined prior to the Effective Date based on 
market rates for securities of similar maturities and debt rating and 
in accordance with the pricing methodology set forth in the Columbia 
Plan.
    Recent declines in long-term interest rates permit Columbia to lock 
in historically attractive interest rates on its New Indenture 
Securities. To take advantage of these rates, Columbia requests 
authorization to enter into certain interest rate hedging transactions 
prior to the issuance of the New Indenture Securities. These 
transactions include any or all of the following: (i) A sale of 
exchange-traded U.S. Treasury futures contracts, a forward sale of U.S. 
Treasury securities and/or a forward interest rate swap, (ii) the 
purchase of put options on U.S. Treasury securities (each a ``Put 
Options Purchase''), (iii) a Put Options Purchase in combination with 
the sale of call options on U.S. Treasury securities, or (iv) some 
combination of the above. These transactions may be executed on the 
Chicago Board of Trade (``CBOT'') with brokers through the opening of 
futures and/or options positions traded on the CBOT, the opening of 
over-the-counter positions with one or more counterparties or a 
combination of the two.
    In a sale of exchange-traded U.S. Treasury futures contracts or in 
a forward sale of U.S. Treasury securities, Columbia would ``lock-in'' 
the U.S. Treasury security component of the New Indenture Securities at 
the then current Treasury forward yield by selling U.S. Treasury 
futures and/or by selling spot U.S. Treasury securities forward. 
Columbia would then reverse its short positions on or around the 
Effective Date by purchasing the U.S. Treasury futures contracts and/or 
U.S. Treasury securities previously sold.

[[Page 41137]]

    In a forward swap, Columbia would agree to enter into a fixed-to-
floating rate swap for a period equal to the maturity of the series of 
New Indenture Securities being hedged, as of a future settlement date. 
The future settlement date will be on or around the Effective Date. In 
the swap agreement, Columbia would contract to pay a fixed rate and 
received floating-rate payments. On or about the Effective Date, 
Columbia would unwind the swap by entering into a floating-to-fixed 
rate swap for a notional amount equal to that of the swap being 
unwound.
    Any gains resulting from interest rate rises in closing the forward 
sale or sale of Treasury futures or in unwinding the swap would be 
offset ratably over the life of the New Indenture Securities being 
hedged by the higher financing cost of such securities. Any losses 
resulting from interest rate drops in closing such hedging transactions 
would be offset ratably over the life of the New Indenture Securities 
being hedged by the lower financing cost of such securities.
    Using a Put Options Purchase strategy, Columbia would buy the 
right, but not the obligation, to sell U.S. Treasury securities forward 
at a predetermined price or yield. A Put Options Purchase would protect 
Columbia from a rise in U.S. Treasury rates and would permit Columbia 
to benefit from a decline in U.S. Treasury rates. To purchase this 
right, Columbia would be required to pay an up-front option premium.
    Columbia additionally requests approval to sell call options on 
U.S. Treasury securities to earn premiums that would offset the cost of 
a Put Options Purchase. Columbia would buy the right to sell U.S. 
Treasury securities forward at a predetermined price and yield (through 
a put option purchase), and would sell the right to buy the same U.S. 
Treasury securities forward at a higher predetermined price and lower 
yield. The premiums paid for the put options would be paid for by the 
premiums received on the call options that are sold.

Alabama Power Company (70-8661)

    Alabama Power Company (``Alabama''), 600 North 18th Street, 
Birmingham, Alabama 35291, an electric utility subsidiary of The 
Southern Company, a registered holding company, has filed an 
application-declaration pursuant to sections 6(a), 7, 9(a) and 10 of 
the Act and rule 54 thereunder.
    Alabama entered into Installment Sale Agreements and supplements 
thereto (``Agreements'') with the Industrial Development Boards of 
various cities within the State of Alabama (``Boards'') to finance and 
refinance certain pollution control facilities at Alabama's plants 
located in or near such cities (``Projects''). Pursuant to the 
Agreements, the Boards purchased the then existing portions of the 
Projects, undertook to complete their construction and to sell the 
completed Projects to Alabama for a purchase price payable in semi-
annual installments over a term of years.
    Each Board issued its Series A pollution control revenue bonds 
(``Original Bonds''), and, in certain cases, subsequent series of 
pollution control revenue bonds (``Additional Bonds'') pursuant to 
various trust indentures and supplements thereto (``Indentures''), in 
various amounts, then estimated to be sufficient to cover the cost of 
construction of the Projects. To secure its obligations under the 
Agreements, Alabama granted to certain Boards a security interest in 
the Board's Project subordinate to the lien of the Indenture dated as 
of January 1, 1942, between Alabama and Chemical Bank, as Trustee, as 
supplemented and amended (``First Mortgage Indenture''). In other 
instances, Alabama issued and pledged bonds under the First Mortgage 
Indenture (``Mortgage'') (``Collateral First Mortgage Bonds'') as 
security for its obligations under the Agreements. Each Board assigned 
all its right, title and interest in the Agreement, including either 
the Collateral First Mortgage Bonds or the subordinate security 
interest, to the trustee under the Indenture (``Revenue Bond Trustee'') 
as security for the pollution control revenue bonds, including the 
Original Bonds and Additional Bonds to be issued under such Indenture.
    The proceeds of the sale of the Original Bonds and the Additional 
Bonds were deposited by the Board with the Revenue Bond Trustee. The 
proceeds have been applied to payment of the cost of construction of 
the Projects. The total cost of construction of one or more of the 
Projects may exceed the proceeds of the Original Bonds and the 
Additional Bonds. Additionally, it may be necessary or appropriate to 
refund one of more series of such bonds.
    Consequently, Alabama proposes to request that the appropriate 
Board or Boards issue up to an aggregate of $500 million principal 
amount of revenue bonds (``New Bonds'') through December 31, 2000. Upon 
issuance of the New Bonds, Alabama and the Board will execute and 
deliver to the Revenue Bond Trustee, as required by the Indenture, a 
supplement to the Agreement (``Supplemental Agreement'') providing for: 
(1) Any required revision to assure that the semi-annual purchase price 
payments will be sufficient (together with other moneys held by the 
Revenue Bond Trustee under the Indenture for that purpose) to pay the 
principal of, premium (if any), and interest on the New Bonds as they 
become due and payable; and (2) the payment of all expenses and costs 
incurred or to be incurred by virtue of the issuance of the new Bonds. 
The Board and the Revenue Bond Trustee will enter into a supplement 
(``Supplement'') to the Indenture providing for the New Bonds. The 
Supplement will provide for redemption provisions for the New Bonds 
comparable to those provided for the Original Bonds and the Additional 
Bonds.
    It is proposed that the New Bonds will mature not more than 40 
years from the first day of the month in which they are initially 
issued. The New Bonds may be entitled to the benefit of serial 
maturities and/or a mandatory redemption sinking fund calculated to 
retire a portion of the New Bonds prior to maturity.
    The effective cost to Alabama of any series of the New Bonds will 
not exceed the yield on U.S. Treasury securities having a maturity 
comparable to that of such series of New Bonds. Such effective cost 
will reflect the applicable interest rate or rates and any 
underwriters' discount or commission.
    The premium (if any) payable upon the redemption of any New Bonds 
at the option of Alabama will not exceed the greater of: (1) 5% of the 
principal amount of the New Bonds so to be redeemed; or (2) a 
percentage of such principal amount equal to the rate of interest per 
annum borne by the New Bonds.
    The Supplement may give the holders of the related New Bonds the 
right, during such time, if any, as such New Bonds bear interest at a 
fluctuating rate, to require Alabama to purchase such New Bonds from 
time to time, and arrangements may be made for the remarketing of any 
such New Bonds through a remarketing agent. Alabama also may be 
required to purchase the New Bonds, or the New Bonds may be subject to 
mandatory redemption, at any time if the interest thereon is determined 
to be subject to federal income tax. Also, in the event of taxability, 
interest on the New Bonds may be effectively converted to a higher 
variable or fixed rate, and Alabama also may be required to indemnify 
the bondholders against any other additions 

[[Page 41138]]
to interest, penalties, and additions to tax.
    Alternatively, Alabama may enter into a new Agreement with the 
appropriate Board, and such Board may enter into a new Indenture with 
the appropriate Revenue Bond Trustee pursuant to which the New Bonds 
will be issued. In such event, the Agreement and the Indenture will 
contain provisions described, below.
    In order to obtain the benefit of ratings for the New Bonds 
equivalent to the rating of Alabama's first mortgage bonds outstanding 
under the Mortgage, Alabama may determine to secure its obligations 
under the Agreements by delivering to the Revenue Bond Trustee, to be 
held as collateral, a series of Collateral First Mortgage Bonds in 
principal amount either: (1) Equal to the principal amount of the New 
bonds; or (2) equal to the sum of the principal amount of the New Bonds 
plus interest payments thereon for a specified period. The Collateral 
First Mortgage Bonds will be issued under an indenture supplemental to 
the Mortgage (``Supplemental Indenture'') to be dated as of the first 
day of the month in which the Collateral First Mortgage Bonds are to be 
issued and delivered, will mature on the maturity date of the New Bonds 
and will be nontransferable by the Revenue Bond Trustee. The Collateral 
First Mortgage Bonds in: (1) Above, would bear interest at a rate or 
rates equal to the interest rate or rates to be borne by the related 
New Bonds; and (2) above, would be non-interest bearing.
    The Supplemental Indenture will provide, however, that the 
obligation of Alabama to make payments with respect to the Collateral 
First Mortgage Bonds will be satisfied to the extent that payments are 
made under the Agreement sufficient to meet the payments when due in 
respect of the related New Bonds. The Supplemental Indenture will 
provide that, upon acceleration by the Revenue Bond Trustee of the 
principal amount of all related outstanding New Bonds under the 
Indenture, the Revenue Bond Trustee may demand the mandatory redemption 
of the related Collateral First Mortgage Bonds then held by it as 
collateral at a redemption price equal to the principal amount thereof 
plus accrued interest, if any, to the date fixed for redemption. The 
Supplemental Indenture may also provide that, upon the optional 
redemption of the New Bonds, in whole or in part, at any time after 
they have been outstanding for a specified period, a related principal 
amount of the Collateral First Mortgage Bonds will be redeemed at the 
redemption price of the New Bonds.
    In the case of interest bearing Collateral First Mortgage Bonds, 
because interest accrues in respect to the Collateral First Mortgage 
Bonds until satisfied by payments under the Agreement, ``annual 
interest charges'' in respect of such Collateral First Mortgage Bonds 
will be included in computing the ``interest earnings requirement'' of 
the Mortgage which restricts the amount of first mortgage bonds which 
may be issued and sold to the public in relation to Alabama's net 
earnings. In the case of non-interest bearing Collateral First Mortgage 
Bonds, since no interest would accrue in respect of such Collateral 
First Mortgage Bonds, the ``interest earnings requirement'' would be 
unaffected.
    The Indenture will provide that, upon deposit with the Revenue Bond 
Trustee of funds sufficient to pay or redeem all or any part of the 
related New Bonds, or open direction to the Revenue Bonds Trustee by 
Alabama to apply available funds for that purpose, or upon delivery of 
such outstanding New Bonds to the Revenue Bond Trustee by or for the 
account of Alabama, the Revenue Bond Trustee will be obligated to 
deliver to Alabama the Collateral First Mortgage Bonds then held as 
collateral in an aggregate principal amount as they relate to the 
aggregate principal amount of the New Bonds for the payment or 
redemption of which the funds have been deposited or applied or which 
shall have been so delivered.
    Alabama may determine to secure its obligations under any Agreement 
by causing an irrevocable letter of credit (``Letter of Credit'') of a 
bank (``Bank'') to be delivered to the Trustee. The Letter of Credit 
would be an irrevocable obligation of the Bank to pay to the Trustee, 
upon request, up to an amount necessary in order to pay principal of 
and premium (if any) and certain accrued interest on the related New 
Bonds when due. Any Letter of Credit issued as security for the payment 
of New Bonds will be issued pursuant to a Reimbursement Agreement 
between Alabama and the financial institution issuing such Letter of 
Credit.
    Pursuant to the Reimbursement Agreement, Alabama will agree to pay 
or cause to be paid to the financial institution, on each date that any 
amount is drawn under such institution's Letter of Credit, an amount 
equal to the amount of such drawing, whether by cash or by means of a 
borrowing from such institution pursuant to the Reimbursement 
Agreement. Any such borrowing may have a term of up to 10 years and 
will bear interest at the lending institution's prevailing rate offered 
to corporate borrowers of similar quality which will not exceed the 
prime rate or: (1) The London Interbank Offered Rate plus up to \3/8\ 
of 1%; (2) the lending institution's certificate of deposit rate plus 
up to \1/2\ of 1%; or (3) a rate not to exceed the prime rate, to be 
established by agreement with the lending institution prior to the 
borrowing. Such delivery of the Letter of Credit to the Trustee would 
obtain for the related New Bonds the benefit of a rating equivalent to 
the credit rating of the Bank.
    As an alternative to, or in conjunction with, securing its 
obligations under any Agreement as described above, and in order to 
obtain a ``AAA'' rating for the related New Bonds by one or more 
nationally recognized securities rating agencies, Alabama may cause an 
insurance company to issue a policy of insurance guaranteeing the 
payment when due of the principal of and interest on such New Bonds. 
The insurance policy would extend for the term of the related New Bonds 
and would be non-cancelable by the insurance company for any reason. 
Alabama's payment in respect of said insurance policy could be in 
various forms, including a non-refundable, one-time insurance premium 
paid at the time the policy is issued, and/or an additional interest 
percentage to be paid to the issuer in correlation with regular 
interest payments. In addition, Alabama may be obligated to make 
payments of certain specified amounts into separate escrow funds and to 
increase the amounts on deposit in such funds under certain 
circumstances. The amount in each escrow fund would be payable to the 
insurance company as indemnity for any amounts paid pursuant to the 
related insurance policy in respect of principal of or interest on the 
related New Bonds.
    It is contemplated that any New Bonds will be sold by the Board 
pursuant to arrangements with a purchaser or purchasers to be selected. 
In accordance with the laws of the State of Alabama, the interest rate 
to be borne by any series of New Bonds will be fixed by the Board and 
will be either a fixed rate, which fixed rate may be convertible to a 
rate which will fluctuate in accordance with a specified prime or base 
rate or rates or be determined through auction or remarketing 
procedures, or a fluctuating rate, which fluctuating rate may be 
convertible to a fixed rate. Bond counsel will issue an opinion that 
interest on the New Bonds will generally be exempt from federal income 
taxation. Alabama has been advised that the annual interest rates on 
obligations, the interest on which is tax exempt, recently have 

[[Page 41139]]
been and can be expected at the time of issue of any series of New 
Bonds to be approximately one to three percentage points lower that the 
rates on obligations of like tenor and comparable quality, interest on 
which is fully subject to federal income tax.
    Alabama also proposes that it may enter into arrangements providing 
for the delayed or future delivery of New Bonds to one or more 
purchasers, placement agents or underwriters. The obligations of the 
purchasers, placement agents or underwriters to purchase New Bonds 
under any such arrangements may be secured by U.S. Treasury securities, 
letters of credit or other collateral.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-19838 Filed 8-10-95; 8:45 am]
BILLING CODE 8010-01-M