RISK FACTORS
Before investing in the Notes you should carefully consider the risks described below, as well as the other information contained in this prospectus supplement and the accompanying prospectus or incorporated by reference herein or therein from our other filings with the SEC, to which we refer you for more detailed information on our business, industry, and financial and corporate structure. These are risks we consider to be material to your decision whether to invest in the Notes. There may be risks that you view in a different way than we do, and we may omit a risk that we consider immaterial, but you consider important. If any of the risks discussed below or in our documents incorporated by reference occur, our business, cash flows, financial condition or results of operations could be materially harmed.
Risks Related to our Business, Industry and Financial Structure
For a discussion of these risks please see the risks disclosed and discussed in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report on Form10-K for the year ended December 31, 2019 and our Quarterly Report on Form10-Q for the three months ended March 31, 2020.
Risks Related to this Offering
We Must Rely on Cash from Our Subsidiaries to Make Payments on the Notes.
We conduct our operations primarily through our subsidiaries and substantially all of our consolidated assets are held by our subsidiaries. Accordingly, our cash flow and our ability to meet our obligations under the Notes are largely dependent upon the earnings of our subsidiaries and the distribution or other payment of these earnings to us in the form of dividends. Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on the Notes or to make any funds available for payment of amounts due on the Notes. Some of our subsidiaries may require a disproportional commitment of our cash flows.
Because we are a holding company, our obligations under the Notes will be effectively subordinated to all existing and future liabilities of our subsidiaries. Therefore, our rights and the rights of our creditors, including the rights of the holders of the Notes, to participate in the liquidation of assets of any subsidiary will be subject to the prior claims of the subsidiary’s creditors. To the extent that we may be a creditor with recognized claims against any of our subsidiaries, our claims would still be effectively subordinated to any security interest in, or mortgages or other liens on, the assets of the subsidiary and would be subordinated to any indebtedness, other liabilities, and preferred securities, of the subsidiary, that is senior to that held by us. As of March 31, 2020, our subsidiaries had approximately $14.2 billion of indebtedness outstanding consisting of first mortgage bonds, senior notes, securitizations, promissory notes and obligations under bank credit facilities. Our subsidiaries have no preferred securities outstanding.
We May Be Able to Issue Substantially More Debt, A Portion of Which Could Be Secured Debt.
The Indenture does not limit the amount of indebtedness we may issue; however, the limitation on liens provision of the Indenture does limit the amount of secured debt that we may issue without ratably securing the Notes. In addition to liens expressly permitted under that provision of the Indenture, which is summarized in the accompanying prospectus, we are permitted by the Indenture to pledge, mortgage, hypothecate or grant a security interest in, or permit any mortgage, pledge, security interest or other lien upon, capital stock of any subsidiary now or hereafter owned by us to secure aggregate indebtedness in an amount not to exceed 10% of our consolidated net tangible assets. As of March 31, 2020, our consolidated net tangible assets were $32.6 billion. Consequently, as of March 31, 2020, the Indenture would have allowed us to incur up to $3.3 billion of secured debt under this test. Such secured debt would be senior to the Notes and all other notes issued under the Indenture, all of which are currently unsecured. Notwithstanding this Indenture provision, we note that our current revolving credit facility generally prohibits us, subject to certain exceptions, from pledging capital stock or limited liability interests in our subsidiaries.
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