[Federal Register Volume 62, Number 44 (Thursday, March 6, 1997)] [Notices] [Pages 10301-10303] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-5525] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 35-26679] Filings Under the Public Utility Holding Company Act of 1935, as amended (``Act'') February 28, 1997. 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 [[Page 10302]] 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 March 24, 1997, 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. Western Massachusetts Electric Company (70-8959) Western Massachusetts Electric Company (``WMECO'' or the ``Applicant''), a wholly owned electric utility subsidiary of Northeast Utilities, a registered holding company, located at 174 Brush Hill Avenue, West Springfield, Massachusetts 01089, has filed an application-declaration under sections 6(a), 7, 9(a) and 10 of the Act and rule 54 thereunder. WMECO requests that: (i) WMECO be allowed to organize a wholly- owned special purpose corporation to be called WMECO Receivables Corporation (``WRC'') for the sole purpose of acquiring certain of WMECO's eligible accounts receivable; (ii) WRC be allowed to issue shares of Common Stock; (iii) WMECO be allowed to acquire shares of capital stock of WRC; and (iv) WMECO be allowed to make, directly and indirectly, general and initial equity contributions to WRC. WMECO has entered into a Receivables Purchase and Sale Agreement dated as of September 11, 1996, as amended (``Existing Agreement'') under which WMECO may sell (from time to time in its discretion and subject to the satisfaction of certain conditions precedent) fractional, undivided ownership interests expressed as a percentage (``Undivided Interests'') in: (i) Billed and unbilled indebtedness of customers, as booked to Accounts 142.01 and 173 under the Federal Energy Regulatory Commission Chart of Accounts (``Receivables''); and (ii) certain related assets, including any security or guaranty for any Receivables, and collections thereon, and related records and software (``Related Assets''). The purchaser (``Purchaser'') is a special purpose Delaware corporation which acquires receivables and other assets and issues commercial paper to finance these acquisitions. A Swiss bank will act as agent (``Agent'') for the Purchaser for transactions under the Existing Agreement. The Existing Agreement is structured so that any sales made thereunder would be accounted for as sales under generally accepted accounting principles. In order for such sales made on or after January 1, 1997 to be so treated, they must comply with the requirements of the Statement of Financial Accounting Standards No. 125 (``FAS 125'') issued in June 1996. The formation of WRC is intended to satisfy certain of the requirements of FAS 125: (i) WRC, as purchaser and transferee, will be a ``qualifying special purpose entity'' within the meaning of FAS 125, and (ii) once transferred, WMECO will no longer have effective control over the assets, so that such transfers should be labeled ``true sales'' in the event of WMECO's bankruptcy or receivership. The Existing Agreement contemplates that a restructured purchase and sales program involving WRC will be in place by March 31, 1997, at which date the Existing Agreement will terminate. The restructured accounts receivable purchase and sales program will consist of two agreements which will replace the Existing Agreement, and is intended to accomplish sales to the Purchaser in a manner substantially similar to that under the Existing Agreement. Applicant states that the addition or WRC serves merely as a vehicle to isolate the Receivables as required by FAS 125, and that restructured purchase and sales arrangements are on essentially the same terms to WMECO as the Existing Agreement. Under the first agreement (``Company Agreement''), WMECO will sell or transfer as equity contributions from time to time all of its receivables and related assets to WRC. The purchase price will take into account historical loss statistics in WMECO's receivables pool. Under the second agreement (``WRC Agreement''), WRC will sell Undivided Interests to the Purchaser from time to time. Such Undivided Interests may be funded and repaid on a revolving basis. The purchase price for an Undivided Interest will be calculated according to a formula. Such formula will include reserves based on, among other things, a multiple of historical losses, a multiple of historical dilution (such as, e.g., adjustments due to billing errors), customer concentrations that exceed specified levels and carrying costs and other costs associated with the agreements. The formula will also take into account the cost of servicing, which will be returned to WMECO in the form of a servicing fee. Primarily because of the reserves, the purchase price paid by the Purchaser for Undivided Interests will be lower than the purchase price paid by WRC to WMECO for Receivables and Related Assets. WMECO states that it expects WRC to have sufficient assets to pay WMECO the full purchase price for Receivables purchased from WMECO. WMECO anticipates that the availability of Receivables and Related Assets will vary from time to time in accordance with the Energy use of its customers. Therefore, since WRC's only source of funds are its participation in the program and WMECO's capital contributions, it may not have funds available at a particular time to purchase the Receivables and Related Assets available to it. WMECO proposes to accommodate this situation by (i) allowing WRC to make the purchase and owe the balance to WMECO on a deferred basis, or (ii) by making a capital contribution to WRC in the form of the Receivables and Related Assets for which WRC lacks the purchase price funds at the time.\1\ --------------------------------------------------------------------------- \1\ WMECO also states that if WRC develops a substantial cash balance, it will likely dividend the excess cash to WMECO, so that WRC will not itself retain substantial cash balances at any one time, and substantially all of the net cash realized from the collection of Receivables will be made available to WMECO. --------------------------------------------------------------------------- Under the WRC Agreement, purchases may be funded by the Purchaser's issuance of commercial paper or drawing under its bank facilities. Initially, the aggregate purchase price paid by the Purchaser for Undivided Interests is not intended to exceed $50,000,000. The Agent will have the right to appoint a servicer on behalf of it and WRC, to administer and collect receivables and to notify the obligors of the sale of their receivables, at the Agent's option. WMECO will be appointed as the initial servicer. Certain obligations under the Company Agreement create limited recourse against WMECO. In order to secure these obligations, WMECO will grant to WRC a lien on, and security interest in, any rights which WMECO may have in respect of Receivables and Related Assets. The WRC Agreement creates comparable recourse obligations against WRC, and WMECO states that WRC will grant a security interest to the Purchaser in all rights in the Receivables retained by WRC, the Related Assets and certain other rights [[Page 10303]] and remedies (including its rights and remedies under the Company Agreement) to secure such recourse obligations.\2\ --------------------------------------------------------------------------- \2\ WMECO states that neither WRC's nor the Purchaser's recourse to WMECO will include any rights against WMECO should customer defaults on the Receivables result in collections attributable to the Undivided Interests sold to the Purchaser being insufficient to reimburse the Purchaser for the purchase price paid by it for the Undivided Interests and its anticipated yield. The Purchaser will bear the risk for any credit losses on the Receivables which exceed the reserves for such losses included in the Undivided Interests. --------------------------------------------------------------------------- WMECO and WRC will be obligated to reimburse the Purchaser and the Agent for various costs and expenses associated with the Company Agreement and the WRC Agreement. WRC will also be required to pay to the Agent certain fees for services in connection with such agreements. The arrangements under the Company Agreement and the WRC Agreement are scheduled to terminate on September 4, 2001. WRC may, upon at least five business days' notice to the Agent, terminate in whole or reduce in part the unused portion of its purchase limit in accordance with the terms and conditions of the WRC Agreement. The WRC Agreement allows the Purchaser to assign all of its rights and obligations under the WRC Agreement (including its Undivided Interests and the obligation to fund Undivided Interests) to other persons, including the providers of its bank facilities. WMECO intends that the above-described transactions will permit it, in effect, through this intermediary device, to accelerate its receipt of cash collections from accounts receivable and thereby meet its short-term cash needs. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 97-5525 Filed 3-5-97; 8:45 am] BILLING CODE 8010-01-M