[Federal Register Volume 67, Number 10 (Tuesday, January 15, 2002)]
[Notices]
[Pages 1997-2000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-942]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27489]


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

January 9, 2002.
    Notice is hereby given that the following filing has been made with 
the Commission pursuant to provisions of the Act and rules promulgated 
under the Act. All interested persons are referred to the declaration 
for complete statements of the proposed transaction summarized below. 
The declaration is available for public inspection through the 
Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
declaration should submit their views in writing by February 4, 2002, 
to the Secretary, Securities and Exchange Commission, Washington, DC 
20549-0609, and serve a copy on the relevant declarant at the address 
specified below. Proof of service (by affidavit or, in the case of an 
attorney at law, by certificate) should be filed with the request. Any 
request for hearing should identify specifically the issues of facts 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 February 4, 2002, the declaration, as filed 
or as amended, may be granted and/or permitted to become effective.

American Electric Power Company, Inc. (70-10021)

    American Electric Power Company, Inc. (``AEP''), a registered 
holding company, 1 Riverside Plaza, Columbus, Ohio 43215, has filed a 
declaration under sections 6(a), 7, 32, and 33 of the Act and rules 53 
and 54 under the Act. The Commission issued a notice of the declaration 
on January 2, 2002 (HCAR No. 27488) (``Prior Notice''). This 
supplemental notice replaces in its entirety the Prior Notice.
    AEP proposes to organize and acquire all of the common stock or 
other equity interests of one or more subsidiaries (``Financing 
Subsidiary'' or ``Financing Subsidiaries'') for the purpose of 
effecting various financing transactions from time to time through June 
30, 2004 involving the issuance and sale of up to an aggregate of $3.0 
billion (cash proceeds to AEP) in any combination of common stock, 
preferred securities, debt securities, stock purchase contracts and 
stock purchase units, as well as its common stock issuable under the 
stock purchase contracts and stock purchase units. AEP further proposes 
that it may effect directly (i.e., without Financing Subsidiary) any 
transaction involving common stock, preferred securities, debt 
securities, stock purchase contracts or stock purchase units described 
here, provided that AEP shall not issue any secured indebtedness. AEP 
will not publicly issue unsecured indebtedness or preferred securities 
in this file unless it has maintained at least an investment grade 
corporate or senior unsecured debt rating by at least one nationally 
recognized rating agency. No Financing Subsidiary or Special Purpose 
Subsidiary, as defined below, shall acquire or dispose of, directly or 
indirectly, any interest in any utility asset, as that term is defined 
under the Act. Additionally, AEP's forecasted cash flow analysis and 
capitalization forecast for the next two years, which forecasts assume 
the issuance of $1 billion of common stock out of the $3.0 billion 
total financing authority requested herein, indicate that it is 
expected that AEP's common equity will remain above 30% of its 
consolidated capitalization for each of the next three years.

I. Financing Subsidiaries

    AEP will acquire all of the outstanding shares of common stock or 
other equity interests of the Financing Subsidiary for amounts 
(inclusive of capital contributions that may be made from time to time 
to the Financing Subsidiary by AEP) aggregating up to 35% of the total 
capitalization of the Financing Subsidiary (i.e., the aggregate of the 
equity accounts and indebtedness of the Financing Subsidiary). An 
investment by AEP will not in any event be less than the minimum 
required by any applicable law. The business of the Financing 
Subsidiary will be limited to effecting financing transactions for AEP 
and its affiliates. In connection with these financing transactions, 
AEP will enter into one or more guarantee or other credit support 
agreements in favor of the Financing Subsidiary.

II. Preferred Securities

    In connection with the issuance of preferred securities, AEP or the 
Financing Subsidiary proposes to organize one or more separate special 
purpose subsidiaries (``Special Purpose Subsidiary'' or ``Special 
Purpose Subsidiaries'') as any one or any combination of (a) a limited 
liability company under the Limited Liability Company Act (the ``LLC 
Act'') of the State of Delaware or other jurisdiction considered 
advantageous by AEP, (b) a limited partnership under the Revised 
Uniform Limited Partnership Act of the State of Delaware or other 
jurisdiction considered advantageous by AEP, (c) a business trust under 
the laws of the State of Delaware or other jurisdiction considered 
advantageous by AEP, or (d) any other entity or structure, foreign or 
domestic, that is considered advantageous by AEP. In the event that any 
Special Purpose Subsidiary is organized as a limited liability company, 
AEP or the Financing Subsidiary may also organize a second special 
purpose wholly-owned subsidiary under the General Corporation Law of 
the State of Delaware or other jurisdiction (``Investment Sub'') for 
the purpose of acquiring and holding Special Purpose

[[Page 1998]]

Subsidiary membership interests so as to comply with any requirement 
under the applicable LLC Act that a limited liability company have at 
least two members. In the event that any Special Purpose Subsidiary is 
organized as a limited partnership, AEP or the Financing Subsidiary 
also may organize an Investment Sub for the purpose of acting as the 
general partner of the Special Purpose Subsidiary and may acquire, 
either directly or indirectly through the Investment Sub, a limited 
partnership interest in the Special Purpose Subsidiary to ensure that 
the Special Purpose Subsidiary will at all times have a limited partner 
to the extent required by applicable law.
    The respective Special Purpose Subsidiaries then will issue and 
sell to public or private investors at any time or from time to time 
unsecured preferred securities described below (``Preferred 
Securities''), with a specified par or stated value or liquidation 
preference per security.
    AEP, the Financing Subsidiary and/or an Investment Sub will acquire 
all of the common stock or all of the general partnership or other 
common equity interests, as the case may be, of any Special Purpose 
Subsidiary for an amount not less than the minimum required by any 
applicable law and not exceeding 21% of the total equity capitalization 
from time to time of the Special Purpose Subsidiary (i.e., the 
aggregate of the equity accounts of the Special Purpose Subsidiary) 
(the aggregate of the investment by AEP, the Financing Subsidiary and/
or an Investment Sub is referred to as the ``Equity Contribution''). 
The Financing Subsidiary may issue and sell to any Special Purpose 
Subsidiary, at any time or from time to time in one or more series, 
unsecured subordinated debentures, unsecured promissory notes or other 
unsecured debt instruments (``Note'' or ``Notes'') governed by an 
indenture or other document, and the Special Purpose Subsidiary will 
apply both the equity contribution made to it and the proceeds from the 
sale of Preferred Securities by it from time to time to purchase Notes. 
Alternatively, the Financing Subsidiary may enter into a loan agreement 
or agreements with any Special Purpose Subsidiary under which the 
Special Purpose Subsidiary will loan to the Financing Subsidiary 
(``Loan'' or ``Loans'') both the equity contribution to the Special 
Purpose Subsidiary and the proceeds from the sale of the Preferred 
Securities by the Special Purpose Subsidiary from time to time, and the 
Financing Subsidiary will issue to the Special Purpose Subsidiary Notes 
evidencing the borrowings.
    AEP or the Financing Subsidiary also proposes to guarantee 
(``Guaranty'' or ``Guaranties'') (a) payment of dividends or 
distributions on the Preferred Securities of any Special Purpose 
Subsidiary if and to the extent the Special Purpose Subsidiary has 
funds legally available, (b) payments to the Preferred Securities 
holders of amounts due upon liquidation of the Special Purpose 
Subsidiary or redemption of the Preferred Securities of the Special 
Purpose Subsidiary, and (c) certain additional amounts that may be 
payable in respect of the Preferred Securities. AEP's credit would 
support any Guaranty by the Financing Subsidiary.
    Each Note will have a term of up to 50 years. Prior to maturity, 
the Financing Subsidiary will pay interest only on the Notes at a rate 
equal to the dividend or distribution rate on the related series of 
Preferred Securities, which dividend or distribution rate may be either 
a fixed rate or an adjustable rate which may be reset by auction, 
remarketing, put or call features, a formula or formulae based upon 
certain reference rates and/or by other predetermined methods. Interest 
payments will constitute each respective Special Purpose Subsidiary's 
only income and will be used by it to pay dividends or distributions on 
the Preferred Securities issued by it and dividends or distributions on 
the common stock or the general partnership or other common equity 
interests of the Special Purpose Subsidiary. Dividend payments or 
distributions on the Preferred Securities will be made on a monthly or 
other periodic basis and must be made to the extent that the Special 
Purpose Subsidiary issuing the Preferred Securities has legally 
available funds and cash sufficient for these purposes. However, the 
Financing Subsidiary may have the right to defer payment of interest on 
any issue of Notes for up to five or more years. Each Special Purpose 
Subsidiary will have the parallel right to defer dividend payments or 
distributions on the related series of Preferred Securities for up to 
five or more years, provided that if dividends or distributions on the 
Preferred Securities of any series are not paid for up to 18 or more 
consecutive months, then the holders of the Preferred Securities of the 
series may have the right to appoint a trustee, special general partner 
or other special representative to enforce the Special Purpose 
Subsidiary's rights under the related Note and Guaranty. The dividend 
or distribution rates, payment dates, redemption and other similar 
provisions of each series of Preferred Securities will be substantially 
identical to the interest rates, payment dates, redemption and other 
provisions of the Note issued by the Financing Subsidiary with respect 
thereto. The Preferred Securities may be convertible or exchangeable 
into common stock of AEP.
    The Notes and related Guaranties will be subordinate to all other 
existing and future unsubordinated indebtedness for borrowed money of 
the Financing Subsidiary or AEP, as the case may be, and may have no 
cross-default provisions with respect to other indebtedness of the 
Financing Subsidiary or AEP. A default under any other outstanding 
indebtedness of the Financing Subsidiary or AEP would not result in a 
default under any Note or Guaranty. However, AEP and/or the Financing 
Subsidiary may be prohibited from declaring and paying dividends on its 
outstanding capital stock and making payments in respect of pari passu 
debt unless all payments then due under the Notes and Guaranties 
(without giving effect to the deferral rights discussed above) have 
been made.
    It is expected that the Financing Subsidiary's interest payments on 
the Notes will be deductible for federal income tax purposes and that 
each Special Purpose Subsidiary will be treated as either a partnership 
or a passive grantor trust for federal income tax purposes. 
Consequently, holders of the Preferred Securities and AEP (and any 
Investment Sub) will be deemed to have received distributions in 
respect of their ownership interests in the respective Special Purpose 
Subsidiary and will not be entitled to any ``dividends received 
deduction'' under the Internal Revenue Code. The Preferred Securities 
of any series, however, may be redeemable at the option of the Special 
Purpose Subsidiary issuing the series (with the consent or at the 
direction of AEP) at a price equal to their par or stated value or 
liquidation preference, plus any accrued and unpaid dividends or 
distributions, (a) at any time after a specified date not later than 
approximately 10 years from their date of issuance, or (b) upon the 
occurrence of certain events, among them that (c) the Special Purpose 
Subsidiary is required to withhold or deduct certain amounts in 
connection with dividend, distribution or other payments or is subject 
to federal income tax with respect to interest received on the Notes 
issued to the Special Purpose Subsidiary, or (d) it is determined that 
the interest payments by the Financing Subsidiary on the related Notes 
are not

[[Page 1999]]

deductible for income tax purposes, or (e) the Special Purpose 
Subsidiary becomes subject to regulation as an ``investment company'' 
under the Investment Company Act of 1940. The Preferred Securities of 
any series may also be subject to mandatory redemption upon the 
occurrence of certain events. The Financing Subsidiary also may have 
the right in certain cases or in its discretion to exchange the 
Preferred Securities of any Special Purpose Subsidiary for the Notes or 
other junior subordinated debt issued to the Special Purpose 
Subsidiary.
    In the event that any Special Purpose Subsidiary is required to 
withhold or deduct certain amounts in connection with dividend, 
distribution or other payments, the Special Purpose Subsidiary may also 
have the obligation to ``gross up'' payments so that the holders of the 
Preferred Securities issued by the Special Purpose Subsidiary will 
receive the same payment after withholding or deduction as they would 
have received if no withholding or deduction were required. In this 
event, the Financing Subsidiary's obligations under its related Note 
and Guaranty may also cover the ``gross up'' obligation. In addition, 
if any Special Purpose Subsidiary is required to pay taxes with respect 
to income derived from interest payments on the Notes issued to it, the 
Financing Subsidiary may be required to pay the additional interest on 
the related Notes as shall be necessary in order that net amounts 
received and retained by the Special Purpose Subsidiary, after the 
payment of taxes, shall result in the Special Purpose Subsidiary's 
having funds as it would have had in the absence of payment of taxes.
    In the event of any voluntary or involuntary liquidation, 
dissolution or winding up of any Special Purpose Subsidiary, the 
holders of the Preferred Securities of the Special Purpose Subsidiary 
will be entitled to receive, out of the assets of the Special Purpose 
Subsidiary available for distribution to its shareholders, partners or 
other owners, as the case may be, an amount equal to the par or stated 
value or liquidation preference of the Preferred Securities plus any 
accrued and unpaid dividends or distributions.
    The constituent instruments of each Special Purpose Subsidiary, 
including its Limited Liability Company Agreement, Limited Partnership 
Agreement or Trust Agreement, as the case may be, will provide, among 
other things, that the Special Purpose Subsidiary's activities will be 
limited to the issuance and sale of Preferred Securities from time to 
time and the lending to the Financing Subsidiary or Investment Sub of 
(a) the proceeds thereof and (b) the Equity Contribution to the Special 
Purpose Subsidiary, and certain other related activities. Accordingly, 
it is proposed that no Special Purpose Subsidiary's constituent 
instruments include any interest or dividend coverage or capitalization 
ratio restrictions on its ability to issue and sell Preferred 
Securities as each issuance will be supported by a Note and Guaranty 
and the restrictions would therefore not be relevant or necessary for 
any Special Purpose Subsidiary to maintain an appropriate capital 
structure.
    Each Special Purpose Subsidiary's constituent instruments will 
further state that its common stock or general partnership or other 
common equity interests are not transferable (except to certain 
permitted successors), that its business and affairs will be managed 
and controlled by AEP, the Financing Subsidiary and/or its Investment 
Sub (or permitted successor), and that AEP or the Financing Subsidiary 
(or permitted successor) will pay all expenses of the Special Purpose 
Subsidiary.
    The distribution rate to be borne by the Preferred Securities and 
the interest rate on the Notes will not exceed the greater of (a) 300 
basis points over U.S. Treasury securities having comparable maturities 
or (b) a gross spread over U.S. Treasury securities that is consistent 
with similar securities having comparable maturities and credit quality 
issued by other companies. Current market conditions suggest the costs 
for issuing long-term indebtedness with a three to five year maturity 
are less than or equal to the costs for issuing short-term indebtedness 
over the same time period.

III. Debt Securities

    AEP proposes that, in addition to, or as an alternative to, any 
Preferred Securities financing as described above, AEP and/or the 
Financing Subsidiary may issue and sell notes directly to public or 
private investors without an intervening Special Purpose Subsidiary 
(``Debt Securities''). Any notes so issued will be unsecured, may be 
either senior or subordinated obligations of AEP or the Financing 
Subsidiary, as the case may be, may be convertible or exchangeable into 
common stock of AEP or Preferred Securities, may have the benefit of a 
sinking fund, may have a term of up to 50 years, may have fixed or 
adjustable rates of interest which may be reset by predetermined 
methods such as auction, remarketing, put or call features and/or a 
formula or formulae based upon certain reference rates and otherwise 
will have terms and provisions substantially as described here. Debt 
Securities of the Financing Subsidiary will have the benefit of a 
guarantee or other credit support by AEP. AEP will not issue the Debt 
Securities, either directly or through the Financing Subsidiary, unless 
it has evaluated all relevant financial considerations (including, 
without limitation, the cost of equity capital) and has determined that 
to do so is preferable to issuing common stock or short-term debt. 
Current market conditions suggest the costs for issuing long-term 
indebtedness with a three to five year maturity are less than or equal 
to the costs for issuing short-term indebtedness over the same time 
period.
    The interest rate on the Debt Securities will not exceed the 
greater of (a) 300 basis points over U.S. Treasury securities having 
comparable maturities or (b) a gross spread over U.S. Treasury 
securities that is consistent with similar securities having comparable 
maturities and credit quality issued by other companies.

IV. Stock Purchase Contracts, Stock Purchase Units and Common Stock

    AEP or the Financing Subsidiary may issue and sell from time to 
time stock purchase contracts (``Stock Purchase Contracts''), including 
contracts obligating holders to purchase from AEP and/or AEP to sell to 
the holders, a specified number of shares or aggregate offering price 
of AEP common stock at a future date. The consideration per share of 
common stock may be fixed at the time the Stock Purchase Contracts are 
issued or may be determined by reference to a specific formula set 
forth in the Stock Purchase Contracts. The Stock Purchase Contracts may 
be issued separately or as part of units (``Stock Purchase Units'') 
consisting of a Stock Purchase Contract and Debt Securities, Preferred 
Securities of AEP, or debt obligations of third parties, including U.S. 
Treasury securities, securing holders' obligations to purchase the 
common stock of AEP under the Stock Purchase Contracts. The Stock 
Purchase Contracts may require holders to secure their obligations in a 
specified manner.
    AEP may issue and sell its common stock other than as a component 
or in satisfaction of a Stock Purchase Contract or Stock Purchase Unit 
(``Direct Sales'') (a) through solicitations of proposals from 
underwriters or dealers; (b) through negotiated transactions with 
underwriters or dealers; (c) directly to a limited number of purchasers 
or to a single purchaser; and/or (d) through agents. The price 
applicable to shares

[[Page 2000]]

sold in any transaction will be based on several factors, including the 
current market price of the common stock and prevailing capital market 
conditions. AEP is authorized under its restated articles of 
incorporation to issue 600,000,000 shares of common stock ($6.50 par 
value), of which 322,024,714 were issued and outstanding as of February 
1, 2001. As of September 30, 2001, AEP's consolidated capitalization 
consisted of 63.0% indebtedness, 0.7% preferred stock, 1.3% mandatorily 
redeemable preferred securities and 35.0% common equity.

V. Interest Rate Hedges

    AEP requests authorization for it and/or the Financing Subsidiary 
to enter into interest rate-hedging transactions with respect to 
existing indebtedness (``Interest Rate Hedges''), subject to certain 
limitations and restrictions, in order to reduce or manage interest 
rate cost or risk. Interest Rate Hedges would only be entered into with 
counterparties (``Approved Counterparties'') whose senior debt ratings, 
or whose parent companies'' senior debt ratings, as published by 
Standard and Poor's Ratings Group, are equal to or greater than BBB, or 
an equivalent rating from Moody's Investors' Service or Fitch Investor 
Service. Interest Rate Hedges will involve the use of financial 
instruments and derivatives commonly used in today's capital markets, 
such as interest rate swaps, options, caps, collars, floors, and 
structured notes (i.e., a debt instrument in which the principal and/or 
interest payments are indirectly linked to the value of an underlying 
asset or index), or transactions involving the purchase or sale, 
including short sales, of U.S. Treasury obligations. The transactions 
would be for fixed periods and stated notional amounts. In no case will 
the notional principal amount of any interest rate swap exceed that of 
the underlying debt instrument and related interest rate exposure. AEP 
and/or the Financing Subsidiary will not engage in speculative 
transactions. Fees, commissions and other amounts payable to the 
counterparty or exchange (excluding, however, the swap or option 
payments) in connection with an Interest Rate Hedge will not exceed 
those generally obtainable in competitive markets for parties of 
comparable credit quality.

VI. Anticipatory Hedges

    In addition, AEP requests authorization for it and/or the Financing 
Subsidiary to enter into interest rate hedging transactions with 
respect to anticipated debt offerings (``Anticipatory Hedges''), 
subject to certain limitations and restrictions. Anticipatory Hedges 
would only be entered into with Approved Counterparties, and would be 
utilized to fix and/or limit the interest rate risk associated with any 
new issuance through (a) a forward sale of exchange-traded U.S. 
Treasury futures contracts, U.S. Treasury obligations and/or a forward 
swap (``Forward Sale''); (b) the purchase of put options on U.S. 
Treasury obligations (``Put Options Purchase''); (c) a Put Options 
Purchase in combination with the sale of call options on U.S. Treasury 
obligations (``Zero Cost Collar''); (d) transactions involving the 
purchase or sale, including short sales, of U.S. Treasury obligations; 
or (e) some combination of a Forward Sale, Put Options Purchase, Zero 
Cost Collar and/or other derivative or cash transactions, including, 
but not limited to structured notes, options, caps and collars, 
appropriate for the Anticipatory Hedges. Anticipatory Hedges may be 
executed on-exchange (``On-Exchange Trades'') with brokers through the 
opening of futures and/or options positions traded on the Chicago Board 
of Trade or the Chicago Mercantile Exchange, the opening of over-the-
counter positions with one or more counterparties (``Off-Exchange 
Trades''), or a combination of On-Exchange Trades and Off-Exchange 
Trades. AEP and/or the Financing Subsidiary will determine the optimal 
structure of each Anticipatory Hedge transaction at the time of 
execution. AEP may decide to lock in interest rates and/or limit its 
exposure to interest rate increases. AEP represents that each Interest 
Rate Hedge and Anticipatory Hedge will be treated for accounting 
purposes under generally accepted accounting principles. AEP will 
comply with the then existing financial disclosure requirements of the 
Financial Accounting Standards Board associated with hedging 
transactions.\1\
---------------------------------------------------------------------------

    \1\ The proposed terms and conditions of the Interest Rate 
Hedges and Anticipatory Hedges are substantially the same as the 
Commission has approved in other cases. See Entergy Corporation, 
HCAR No. 27371 (April 3, 2001); New Century Energies, Inc., et al., 
HCAR No. 27000 (April 7, 1999); and Ameren Corp., et al., HCAR No. 
27053 (July 23, 1999).
---------------------------------------------------------------------------

VII. Use of Proceeds

    The proceeds of any financing by the Financing Subsidiary or any 
Special Purpose Subsidiary will be remitted, paid as a dividend, loaned 
or otherwise transferred to AEP or its designee. The proceeds of the 
Preferred Securities, Debt Securities, Stock Purchase Contracts and 
Stock Purchase Units will be used to acquire the securities of 
associate companies and interests in other businesses, including 
interests in exempt wholesale generators (``EWGs'') and foreign utility 
holding companies (``FUCOs''), or in any transactions permitted under 
the Act and for other general corporate purposes, including the 
reduction of short-term indebtedness. AEP had approximately $3.6 
billion outstanding short-term indebtedness as of September 30, 2001. 
No proceeds will be used to purchase generation assets currently owned 
by AEP or any affiliate unless the purchase has been approved by order 
of this Commission in File No. 70-9785 or other similar applications. 
AEP represents that no financing proceeds will be used to acquire the 
equity securities of any company or any interest in other businesses 
unless the acquisition has been approved by the Commission in this 
proceeding or in File No. 70-9353 or is in accordance with an available 
exemption under sections 32, 33 and 34 of the Act or rule 58 under the 
Act. AEP does not seek in this proceeding any increase in the amount it 
is permitted to invest in EWGs and FUCOs.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-942 Filed 1-14-02; 8:45 am]
BILLING CODE 8010-01-P