File Pursuant to Rule 424(b)(5)
Registration Nos. 333-45069
333-45069-01
333-45069-02
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 9, 1998)
$90,000,000
[LOGO] MISSISSIPPI POWER
(A SOUTHERN COMPANY)
SERIES E 5 5/8% SENIOR NOTES DUE MAY 1, 2033
-----------------
Interest payable on February 1, May 1, August 1 and November 1
-----------------
This is a public offering by Mississippi Power Company of $90,000,000 of its
Series E 5 5/8% Senior Notes due May 1, 2033.
Mississippi Power Company may redeem the Series E Senior Notes, in whole or
in part on or after May 1, 2008, as described herein on page S-6.
Mississippi Power Company plans to list the Series E Senior Notes on the New
York Stock Exchange. Trading of the Series E Senior Notes is expected to begin
on the New York Stock Exchange within 30 days after the Series E Senior Notes
are first issued.
See "Risk Factors" on page S-3 of this Prospectus Supplement for information
on certain risks related to the purchase of these securities.
Payments of principal and interest on the Series E Senior Notes when due
will be insured by a financial guaranty insurance policy to be issued by XL
Capital Assurance Inc.
[LOGO] XL CAPITAL ASSURANCE SM
-----------------
PRICE 100% AND ACCRUED INTEREST, IF ANY
-----------------
Proceeds to
Underwriting Mississippi
Discounts and Power
Price to Public Commissions Company
--------------- ----------- -------
Per Series E Senior Note 100.00% 3.15% 96.85%
Total................... $90,000,000 $2,835,000 $87,165,000
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this Prospectus Supplement or the accompanying Prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the Series E Senior Notes to purchasers on
April 29, 2003.
-----------------
MORGAN STANLEY
BANC OF AMERICA SECURITIES LLC
SUNTRUST ROBINSON HUMPHREY
April 24, 2003
In making your investment decision, you should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. We have not authorized anyone to provide you with any
other information. If you receive any unauthorized information, you must not
rely on it.
We are offering to sell the Series E Senior Notes only in places where sales
are permitted.
You should not assume that the information contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus,
including information incorporated by reference, is accurate as of any date
other than its respective date.
TABLE OF CONTENTS
Page
- ----
Prospectus Supplement
Risk Factors............................ S-3
The Company............................. S-3
Selected Financial Information.......... S-4
Use of Proceeds......................... S-5
Description of the Series E Senior Notes S-5
The Policy and the Insurer.............. S-8
Ratings................................. S-12
Underwriting............................ S-13
Experts................................. S-14
Appendix A -- Form of Policy............ A-1
Page
- ----
Prospectus
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
Selected Information........................ 3
Mississippi Power Company................... 4
The Trusts.................................. 5
Accounting Treatment........................ 5
Use of Proceeds............................. 5
Recent Results of Operations................ 5
Description of the Senior Notes............. 6
Description of the Junior Subordinated Notes 9
Description of the Preferred Securities..... 14
Description of the Guarantees............... 15
Relationship Among the Preferred Securities,
the Junior Subordinated Notes and the
Guarantees................................ 17
Plan of Distribution........................ 19
Legal Matters............................... 19
Experts..................................... 20
S-2
RISK FACTORS
Investing in the Series E Senior Notes involves risk. Please see the risk
factors in Mississippi Power Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, which is incorporated by reference in this
Prospectus Supplement. Before making an investment decision, you should
carefully consider these risks as well as other information contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus. The risks and uncertainties not presently known to Mississippi
Power Company or that Mississippi Power Company currently deems immaterial may
also impair its business operations, its financial results and the value of the
Series E Senior Notes.
THE COMPANY
Mississippi Power Company (the "Company") was incorporated under the laws of
the State of Mississippi on July 12, 1972, was admitted to do business in
Alabama on November 28, 1972 and, effective December 21, 1972, by the merger
into it of the predecessor Mississippi Power Company, succeeded to the business
and properties of the latter company. The predecessor Mississippi Power Company
was incorporated under the laws of the State of Maine on November 24, 1924 and
was admitted to do business in Mississippi on December 23, 1924 and in Alabama
on December 7, 1962. The Company has its principal office at 2992 West Beach
Boulevard, Gulfport, Mississippi 39501, telephone number (228) 864-1211. The
Company is a wholly owned subsidiary of The Southern Company ("Southern").
The Company is engaged in the generation and purchase of electric energy and
the distribution and sale of such energy within 23 counties of southeastern
Mississippi, at retail in 123 communities (including Biloxi, Gulfport,
Hattiesburg, Laurel, Meridian and Pascagoula), as well as in rural areas, and
at wholesale to one municipality, six rural electric distribution cooperative
associations and one generating and transmitting cooperative.
S-3
SELECTED FINANCIAL INFORMATION
The following selected financial data for the years ended December 31, 1998
through December 31, 2002 have been derived from the Company's financial
statements and related notes, incorporated by reference in this Prospectus
Supplement. The information set forth below is qualified in its entirety by
reference to and, therefore, should be read together with management's
discussion and analysis of results of operation and financial information, the
financial statements and related notes and other financial information
incorporated by reference in this Prospectus Supplement.
Year Ended December 31,
--------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
(Thousands, except ratios)
Operating Revenues........................... $595,131 $633,004 $687,602 $796,065 $824,165
Earnings Before Income Taxes................. 91,774 90,939 91,457 106,391 120,905
Net Income After Dividends on Preferred Stock 55,105 54,809 54,972 63,887 73,013
Ratio of Earnings to Fixed Charges(1)........ 4.47 3.96 3.97 5.05 6.58
Capitalization
As of December 31, 2002
------------------------------
Actual As Adjusted(2)
-------- ------------------
(Thousands, except percentages)
Common Stock Equity........................................................ $517,953 $517,953 59.8%
Cumulative Preferred Stock................................................. 31,809 31,809 3.7
Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Company Junior Subordinated Notes......................... 35,000 35,000 4.0
Senior Notes............................................................... 131,628 170,000 19.6
Other Long-Term Debt....................................................... 112,087 112,087 12.9
-------- -------- -----
Total, excluding amounts due within one year............................ $828,477 $866,849 100.0%
======== ======== =====
- --------
(1) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Earnings Before Income Taxes" "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction; and
(ii) "Fixed Charges" consist of "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction.
(2)Reflects (i) the redemption in March 2003 of $73,000 and the proposed
redemption in June 2003 of $51,555,000 aggregate principal amount of Series
A 6.75% Senior Insured Quarterly Notes due June 30, 2038; and (ii) the
proposed issuance of the Series E Senior Notes offered hereby.
S-4
USE OF PROCEEDS
The proceeds from the sale of the Series E Senior Notes will be applied by
the Company to repay at maturity $35,000,000 aggregate principal amount of its
Series B 6.05% Senior Notes due May 1, 2003, to redeem in June 2003 the
$51,555,000 outstanding principal amount of its Series A 6.75% Senior Insured
Quarterly Notes due June 30, 2038 and to repay a portion of its outstanding
short-term indebtedness, which aggregated approximately $19,000,000 as of April
24, 2003. The redemption is subject to the Company's closing of the sale of the
Series E Senior Notes.
DESCRIPTION OF THE SERIES E SENIOR NOTES
Set forth below is a description of the specific terms of the Series E
5 5/8% Senior Notes due May 1, 2033 (the "Series E Senior Notes"). This
description supplements, and should be read together with, the description of
the general terms and provisions of the senior notes set forth in the
accompanying Prospectus under the caption "Description of the Senior Notes."
The following description does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the description in the
accompanying Prospectus and the Senior Note Indenture dated as of May 1, 1998,
as supplemented (the "Senior Note Indenture"), between the Company and Deutsche
Bank Trust Company Americas (formerly known as Bankers Trust Company), as
trustee (the "Senior Note Indenture Trustee").
General
The Series E Senior Notes will be issued as a series of senior notes under
the Senior Note Indenture. The Series E Senior Notes will initially be issued
in the aggregate principal amount of $90,000,000. The Company may, without the
consent of the holders of the Series E Senior Notes, issue additional notes
having the same ranking and the same interest rate, maturity and other terms
(except for the issue price and issue date), including the benefit of the
Policy (as defined below), as the Series E Senior Notes. Any additional notes
having such similar terms, together with the Series E Senior Notes, will
constitute a single series of senior notes under the Senior Note Indenture.
The entire principal amount of the Series E Senior Notes will mature and
become due and payable, together with any accrued and unpaid interest thereon,
on May 1, 2033. The Series E Senior Notes are not subject to any sinking fund
provision. The Series E Senior Notes are available for purchase in
denominations of $25 and any integral multiple thereof.
Interest
Each Series E Senior Note shall bear interest at the rate of 5 5/8% per
annum (the "Securities Rate") from the date of original issuance, payable
quarterly in arrears on February 1, May 1, August 1 and November 1 of each year
(each, an "Interest Payment Date") to the person in whose name such Series E
Senior Note is registered at the close of business on the fifteenth calendar
day prior to such payment date (whether or not a Business Day). The initial
interest payment date is August 1, 2003. The amount of interest payable will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Series E Senior Notes is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), with the same force and effect as
if made on such date. "Business Day" means a day other than (i) a Saturday or
Sunday, (ii) a day on which banks in New York, New York are authorized or
obligated by law or executive order to remain closed or (iii) a day on which
the Senior Note Indenture Trustee's corporate trust office is closed for
business.
Ranking
The Series E Senior Notes will be direct, unsecured and unsubordinated
obligations of the Company ranking equally with all other unsecured and
unsubordinated obligations of the Company. The Series E Senior Notes will be
effectively subordinated to all secured debt of the Company, including its
first mortgage bonds, aggregating
S-5
approximately $65,000,000 outstanding at December 31, 2002. The Senior Note
Indenture contains no restrictions on the amount of additional indebtedness
that may be incurred by the Company.
Trading Characteristics
The Series E Senior Notes are expected to trade at a price that takes into
account the value, if any, of accrued but unpaid interest; thus, purchasers
will not pay and sellers will not receive accrued and unpaid interest with
respect to the Series E Senior Notes that is not included in the trading price
thereof. Any portion of the trading price of a Series E Senior Note received
that is attributable to accrued interest will be treated as ordinary interest
income for federal income tax purposes and will not be treated as part of the
amount realized for purposes of determining gain or loss on the disposition of
the Series E Senior Note.
The trading price of the Series E Senior Notes is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Series E Senior Notes may decline to reflect the
additional yield requirements of the purchasers. Conversely, a decline in
interest rates may increase the trading price of the Series E Senior Notes,
although any increase will be moderated by the Company's ability to call the
Series E Senior Notes at any time on or after May 1, 2008.
Special Insurance Provisions of the Senior Note Indenture
Subject to the provisions of the Senior Note Indenture, so long as the
Insurer (as defined below) is not in default under the Policy, the Insurer
shall be entitled to control and direct the enforcement of all rights and
remedies with respect to the Series E Senior Notes upon the occurrence and
continuation of an Event of Default (as defined in the Senior Note Indenture).
Optional Redemption
The Company shall have the right to redeem the Series E Senior Notes, in
whole or in part, without premium, from time to time, on or after May 1, 2008,
upon not less than 30 nor more than 60 days' notice, at a redemption price (the
"Redemption Price") equal to 100% of the principal amount to be redeemed plus
any accrued and unpaid interest to the date of redemption (the "Redemption
Date").
If notice of redemption is given as aforesaid, the Series E Senior Notes so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price together with any accrued interest thereon, and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued interest) such Series E Senior Notes shall cease to bear
interest. If any Series E Senior Note called for redemption shall not be paid
upon surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the Securities Rate. See "Description of
the Senior Notes--Events of Default" in the accompanying Prospectus.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding Series
E Senior Notes by tender, in the open market or by private agreement.
Book-Entry Only Issuance--The Depository Trust Company
DTC will act as the initial securities depository for the Series E Senior
Notes. The Series E Senior Notes will be issued only as fully-registered
securities registered in the name of Cede & Co., DTC's nominee, or such other
name as may be requested by an authorized representative of DTC. One or more
fully registered global Series E Senior Notes certificates will be issued,
representing in the aggregate the total principal amount of Series E Senior
Notes, and will be deposited with DTC.
S-6
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "1934 Act"). DTC holds and provides asset
servicing for over 2 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues and money market instruments from over 85
countries that DTC's participants ("Direct Participants") deposit with DTC. DTC
also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between Direct Participants'
accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is a wholly-owned subsidiary of The Depository Trust &
Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct
Participants of DTC and members of the National Securities Clearing
Corporation, Government Securities Clearing Corporation, MBS Clearing
Corporation and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC and
EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange,
Inc. (the "NYSE"), the American Stock Exchange LLC and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others such as both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies and clearing corporations that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants" and, together with Direct Participants,
"Participants"). The DTC rules applicable to its Participants are on file with
the Securities and Exchange Commission (the "Commission"). More information
about DTC can be found at www.dtcc.com.
Purchases of Series E Senior Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Series E
Senior Notes on DTC's records. The ownership interest of each actual purchaser
of Series E Senior Notes ("Beneficial Owner") is in turn to be recorded on the
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants through which the
Beneficial Owners purchased Series E Senior Notes. Transfers of ownership
interests in the Series E Senior Notes are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Series E Senior Notes, except in the event that use of the book-entry system
for the Series E Senior Notes is discontinued.
To facilitate subsequent transfers, all Series E Senior Notes deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Series E Senior Notes with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect
any changes in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Series E Senior Notes. DTC's records reflect only the
identity of the Direct Participants to whose accounts such Series E Senior
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Redemption notices shall be sent to DTC. If less than all of the Series E
Senior Notes are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such Series E Senior Notes
to be redeemed.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the Series E Senior Notes is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. (or such other
DTC nominee) will itself consent or vote with respect to Series E
S-7
Senior Notes. Under its usual procedures, DTC would mail an Omnibus Proxy to
the Company as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s (or such other DTC nominee's) consenting or voting rights
to those Direct Participants to whose accounts the Series E Senior Notes are
credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Payments on the Series E Senior Notes will be made to Cede & Co. or such
other nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit Direct Participants' accounts upon DTC's receipt of funds
and corresponding detail information from the Company or the Senior Note
Indenture Trustee on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers registered in "street name," and will be the responsibility of such
Participant and not of DTC or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment to Cede
& Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Company, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Participants.
Except as provided herein, a Beneficial Owner of a global Series E Senior
Note will not be entitled to receive physical delivery of Series E Senior
Notes. Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Series E Senior Notes. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Series E Senior Note.
DTC may discontinue providing its services as securities depository with
respect to the Series E Senior Notes at any time by giving reasonable notice to
the Company. Under such circumstances, in the event that a successor securities
depository is not obtained, Series E Senior Notes certificates will be printed
and delivered to the holders of record. Additionally, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository) with respect to the Series E Senior Notes. In that event,
certificates for the Series E Senior Notes will be printed and delivered to the
holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof. The Company has
no responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
THE POLICY AND THE INSURER
The Policy
Concurrently with the issuance of the Series E Senior Notes, XL Capital
Assurance Inc. (the "Insurer") will issue a financial guaranty insurance policy
relating to the Series E Senior Notes (the "Policy"). The form of the Policy is
attached to this Prospectus Supplement as Appendix A. The following summary of
the terms of the Policy does not purport to be complete and is qualified in its
entirety by reference to the Policy. Any capitalized terms used in this section
but not defined herein have the meanings ascribed to them in the Policy.
The Policy guarantees the scheduled payment of principal of and interest on
the Series E Senior Notes when due. The Policy will extend for the term of the
Series E Senior Notes and, once issued, cannot be canceled by the Insurer. The
Policy will insure payment only on the stated maturity date, in the case of
principal, and on stated dates for payment, in the case of interest. If any
Series E Senior Notes become subject to redemption and insufficient funds are
available for redemption of all such outstanding Series E Senior Notes, the
Insurer will
S-8
remain obligated to pay principal of and interest on such outstanding Series E
Senior Notes on the originally scheduled principal and interest payment dates.
In the event of any acceleration of the principal of the Series E Senior Notes,
the insured payments will be made at such times and in such amounts as would
have been made had there not been an acceleration.
In the event the Senior Note Indenture Trustee has notice that any payment
of principal of or interest on a Series E Senior Note which has become Due for
Payment on any regularly scheduled principal payment date or Interest Payment
Date and which is made to a holder by or on behalf of the Company has been
deemed a preferential transfer and theretofore recovered from its holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such holder will be
entitled to payment from the Insurer to the extent of such recovery if
sufficient funds are not otherwise available.
The Policy does not insure any risk other than Nonpayment. Specifically, the
Policy does not cover:
a. payment on acceleration, as a result of a call for redemption or as a
result of any other advancement of maturity;
b. nonpayment of principal or interest caused by the insolvency or
negligence of the Senior Note Indenture Trustee; or
c. losses suffered as a result of a holder's inability to sell Series E
Senior Notes.
Upon payment of the insurance benefits with respect to a Series E Senior
Note, the Insurer will become the owner of such Series E Senior Note or right
to payment of principal or interest on such Series E Senior Note and will be
fully subrogated to the rights to payment of the surrendering holder.
The Insurer
The information set forth below has been provided by the Insurer for use in
this Prospectus Supplement. None of the Company, the Senior Note Indenture
Trustee or any Underwriter makes any representation or warranty or assumes any
responsibility with respect to the information concerning the Insurer, its
parent or the Policy contained or incorporated into this Prospectus Supplement.
Neither the Company nor any Underwriter has made any independent investigation
of the Policy or the Insurer, and reference should be made to the information
set forth below for a description of the Policy. The Policy does not constitute
a part of the contract between the Company and the holders. Except for the
payment of the premium for the Policy to the Insurer, the Company has no
responsibility whatsoever with respect to the Policy, including the maintenance
or enforcement of the Policy or collection of amounts payable under the Policy.
The Insurer accepts no responsibility for the accuracy or completeness of
this Prospectus Supplement or any other information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of the
information regarding the Insurer and its affiliates set forth under this
heading. In addition, the Insurer makes no representation regarding the Series
E Senior Notes or the advisability of investing in the Series E Senior Notes.
General. The Insurer is a monoline financial guaranty insurance company
incorporated under the laws of the State of New York. The Insurer is currently
licensed to do insurance business in, and is subject to the insurance
regulation and supervision by, the State of New York, forty-seven other states,
the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Singapore.
The Insurer has license applications pending, or intends to file an
application, in each of those states in which it is not currently licensed.
The Insurer is an indirect wholly owned subsidiary of XL Capital Ltd, a
Cayman Islands corporation ("XL Capital Ltd"). Through its subsidiaries, XL
Capital Ltd is a leading provider of insurance and reinsurance coverages and
financial products to industrial, commercial and professional service firms,
insurance companies and other enterprises on a worldwide basis. The common
stock of XL Capital Ltd is publicly traded in the United States and listed on
the NYSE (NYSE: XL). XL Capital Ltd is not obligated to pay the debts of or
claims against the Insurer.
The Insurer was formerly known as The London Assurance of America Inc.
("London"), which was incorporated on July 25, 1991 under the laws of the State
of New York. On February 22, 2001, XL Reinsurance America Inc. ("XL Re")
acquired 100% of the stock of London. XL Re merged its former financial
guaranty subsidiary, known as XL Capital Assurance Inc. (formed September 13,
1999), with and into London, with
S-9
London as the surviving entity. London immediately changed its name to XL
Capital Assurance Inc. All previous business of London was 100% reinsured to
Royal Indemnity Company, the previous owner at the time of acquisition.
Reinsurance. The Insurer has entered into a facultative quota share
reinsurance agreement with XL Financial Assurance Ltd ("XLFA"), an insurance
company organized under the laws of Bermuda and an affiliate of the Insurer.
Pursuant to this reinsurance agreement, the Insurer expects to cede up to 90%
of its business to XLFA. The Insurer may also cede reinsurance to third parties
on a transaction-specific basis, which cessions may be any or a combination of
quota share, first loss or excess of loss. Such reinsurance is used by the
Insurer as a risk management device and to comply with statutory and rating
agency requirements and does not alter or limit the Insurer's obligations under
any financial guaranty insurance policy. With respect to any transaction
insured by the Insurer, the percentage of risk ceded to XLFA may be less than
90% depending on certain factors including, without limitation, whether the
Insurer has obtained third party reinsurance covering the risk. As a result,
there can be no assurance as to the percentage reinsured by XLFA of any given
financial guaranty insurance policy issued by the Insurer, including the Policy.
Ratings. Based on the audited financials of XLFA, as of December 31, 2002,
XLFA had total assets, liabilities, redeemable preferred shares and
shareholders' equity of $611,791,000, $245,750,000, $39,000,000 and
$327,041,000, respectively, determined in accordance with generally accepted
accounting principles in the United States ("GAAP"). XLFA's insurance financial
strength is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and
"AAA" by Standard & Poor's, a division of The McGraw-Hill Companies ("Standard
& Poor's"), and Fitch Ratings ("Fitch"). In addition, XLFA has obtained a
financial enhancement rating of "AAA" from Standard & Poor's.
The obligations of XLFA to the Insurer under the reinsurance agreement
described above are unconditionally guaranteed by XL Insurance (Bermuda) Ltd
("XLI"), a Bermuda company and one of the world's leading excess commercial
insurers. XLI is a wholly owned indirect subsidiary of XL Capital Ltd. In
addition to having an "A+" rating from A.M. Best, XLI's financial strength
rating is "Aa2" by Moody's and "AA" by Standard & Poor's and Fitch. The ratings
of XLFA and XLI are not recommendations to buy, sell or hold securities,
including the Series E Senior Notes, and are subject to revision or withdrawal
at any time by Moody's, Standard & Poor's or Fitch.
Notwithstanding the capital support provided to the Insurer described in
this section, the holders of the Series E Senior Notes will have direct
recourse against the Insurer only, and neither XLFA nor XLI will be directly
liable to the holders of the Series E Senior Notes.
Financial Strength and Financial Enhancement Ratings of the Insurer. The
Insurer's insurance financial strength is rated "Aaa" by Moody's, "AAA" by
Standard & Poor's and Fitch. In addition, the Insurer has obtained a financial
enhancement rating of "AAA" from Standard & Poor's. These ratings reflect
Moody's, Standard & Poor's and Fitch's current assessment of the Insurer's
creditworthiness and claims-paying ability as well as the reinsurance
arrangement with XLFA described under "--Reinsurance" above.
The above ratings are not recommendations to buy, sell or hold securities,
including the Series E Senior Notes, and are subject to revision or withdrawal
at any time by Moody's, Standard & Poor's or Fitch. Any downward revision or
withdrawal of these ratings may have an adverse effect on the market price of
the Series E Senior Notes. The Insurer does not guaranty the market price of
the Series E Senior Notes nor does it guaranty that the ratings on the Series E
Senior Notes will not be revised or withdrawn.
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Capitalization of the Insurer. Based on the audited statutory financial
statements for the Insurer as of December 31, 2001, the Insurer had total
admitted assets of $158,442,157, total liabilities of $48,899,461 and total
capital and surplus of $109,542,696 determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities ("SAP"). Based on the unaudited statutory financial statements for
the Insurer as of December 31, 2002 filed with the State of New York Insurance
Department, the Insurer has total admitted assets of $180,993,189, total
liabilities of $58,685,217 and total and capital surplus of $122,307,972
determined in accordance with SAP.
For further information concerning the Insurer and XLFA, see the GAAP
financial statements of the Insurer and XLFA, and the notes thereto,
incorporated by reference in this Prospectus Supplement. The financial
statements of the Insurer and XLFA are included as exhibits to the periodic
reports filed with the Commission by XL Capital Ltd and may be reviewed at the
EDGAR website maintained by the Commission. All financial statements of the
Insurer and XLFA included in, or as exhibits to, documents filed by XL Capital
Ltd pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act on or prior
to the date of this Prospectus Supplement, or after the date of this Prospectus
Supplement but prior to termination of the offering of the Series E Senior
Notes, shall be deemed incorporated by reference in this Prospectus Supplement.
Except for the financial statements of the Insurer and XLFA, no other
information contained in XL Capital Ltd's reports filed with the Commission is
incorporated by reference. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by the Insurer
are available upon request to the State of New York Insurance Department.
Regulation of the Insurer. The Insurer is regulated by the Superintendent
of Insurance of the State of New York. In addition, the Insurer is subject to
regulation by the insurance laws and regulations of the other jurisdictions in
which it is licensed. As a financial guaranty insurance company licensed in the
State of New York, the Insurer is subject to Article 69 of the New York
Insurance Law, which, among other things, limits the business of each insurer
to financial guaranty insurance and related lines, prescribes minimum standards
of solvency, including minimum capital requirements, establishes contingency,
loss and unearned premium reserve requirements, requires the maintenance of
minimum surplus to policyholders and limits the aggregate amount of insurance
which may be written and the maximum size of any single risk exposure which may
be assumed. The Insurer is also required to file detailed annual financial
statements with the New York Insurance Department and similar supervisory
agencies in each of the other jurisdictions in which it is licensed.
The extent of state insurance regulation and supervision varies by
jurisdiction, but New York and most other jurisdictions have laws and
regulations prescribing permitted investments and governing the payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liabilities for borrowings.
THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY THE INSURER, INCLUDING THE
POLICY, ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The principal executive offices of the Insurer are located at 1221 Avenue of
the Americas, New York, New York 10020 and its telephone number at this address
is (212) 478-3400.
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RATINGS
It is anticipated that Standard & Poor's and Moody's will assign the Series
E Senior Notes the ratings of "AAA" and "Aaa", respectively, conditioned upon
the issuance and delivery by the Insurer at the time of delivery of the Series
E Senior Notes of the Policy, insuring the timely payment of the principal of
and interest on the Series E Senior Notes. Such ratings reflect only the views
of such ratings agencies, and an explanation of the significance of such
ratings may be obtained only from such rating agencies at the following
addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New
York 10007; and Standard & Poor's, 25 Broadway, New York, New York 10004. There
is no assurance that such ratings will remain in effect for any period of time
or that they will not be revised downward or withdrawn entirely by said rating
agencies if, in their judgment, circumstances warrant. Neither the Company nor
any Underwriter has undertaken any responsibility to oppose any proposed
downward revision or withdrawal of a rating on the Series E Senior Notes. Any
such downward revision or withdrawal of such ratings may have an adverse effect
on the market price of the Series E Senior Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for Standard & Poor's--AAA, AA, A and BBB
and for Moody's--Aaa, Aa, A and Baa. Standard & Poor's defines "AAA" as the
highest rating assigned to a debt obligation. Moody's defines "Aaa" as
representing the best quality debt obligation carrying the smallest degree of
investment risk.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below (for whom Morgan Stanley & Co. Incorporated is acting
as Representative) and each of the Underwriters severally has agreed to
purchase the principal amount of the Series E Senior Notes set forth opposite
its name below:
Principal
Amount of
Series E
Name Senior Notes
---- --------------
Morgan Stanley & Co. Incorporated............................. $ 53,250,000
Banc of America Securities LLC................................ 11,250,000
SunTrust Capital Markets, Inc................................. 11,250,000
Advest, Inc................................................... 750,000
A.G. Edwards & Sons, Inc...................................... 750,000
Blaylock & Partners, L.P...................................... 750,000
BB&T Capital Markets, a division of Scott & Stringfellow, Inc. 750,000
Fahnestock & Co. Inc.......................................... 750,000
H&R Block Financial Advisors, Inc............................. 750,000
Janney Montgomery Scott LLC................................... 750,000
Legg Mason Wood Walker, Incorporated.......................... 750,000
McDonald Investments Inc., A KeyCorp Company.................. 750,000
McGinn, Smith & Co. Inc....................................... 750,000
Prudential Securities Incorporated............................ 750,000
Quick and Reilly, Inc......................................... 750,000
Raymond James & Associates, Inc............................... 750,000
RBC Dain Rauscher Inc......................................... 750,000
Ryan, Beck & Co. LLC.......................................... 750,000
Charles Schwab & Co., Inc..................................... 750,000
U.S. Bancorp Piper Jaffray Inc................................ 750,000
Wachovia Securities, Inc...................................... 750,000
Wells Fargo Investment Services, LLC.......................... 750,000
--------------
Total.................................................. $ 90,000,000
==============
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Series E Senior
Notes offered hereby if any of the Series E Senior Notes are purchased.
The Underwriters propose to offer the Series E Senior Notes directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement and may offer them to certain securities dealers at such
price less a concession not in excess of $.50 the principal amount per Series E
Senior Note. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.45 of the principal amount per Series E Senior
Note to certain brokers and dealers. After the Series E Senior Notes are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
Prior to this offering, there has been no public market for the Series E
Senior Notes. The Series E Senior Notes are expected to be approved for listing
on the NYSE, subject to official notice of issuance. In order to meet the
requirements for listing the Series E Senior Notes, the Underwriters will
undertake to sell the Series E Senior Notes to a minimum of 400 beneficial
holders. Trading of the Series E Senior Notes on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Series E
Senior Notes. The Representative has
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advised the Company that it intends to make a market in the Series E Senior
Notes prior to the commencement of trading on the NYSE. The Representative will
have no obligation to make a market in the Series E Senior Notes, however, and
may cease market making activities, if commenced, at any time.
The Company has agreed with the Underwriters, during the period of 15 days
from the date of the Underwriting Agreement, not to sell, offer to sell, grant
any option for the sale of, or otherwise dispose of any Series E Senior Notes,
any security convertible into, exchangeable into or exercisable for the Series
E Senior Notes or any debt securities substantially similar to the Series E
Senior Notes (except for the Series E Senior Notes issued pursuant to the
Underwriting Agreement), without the prior written consent of the
Representative. This agreement does not apply to issuances of commercial paper
or other debt securities with scheduled maturities of less than one year.
The Company estimates that it will incur offering expenses of approximately
$1,970,000, which includes the premium for the Policy.
In order to facilitate the offering of the Series E Senior Notes, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Series E Senior Notes. Specifically, the Underwriters
may over-allot in connection with the offering, creating short positions in the
Series E Senior Notes for their own account. In addition, to cover
over-allotments or to stabilize the price of the Series E Senior Notes, the
Underwriters may bid for, and purchase, Series E Senior Notes in the open
market. The Underwriters may reclaim selling concessions allowed to an
Underwriter or dealer for distributing Series E Senior Notes in the offering if
the Underwriters repurchase previously distributed Series E Senior Notes in
transactions to cover short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Series E Senior Notes above independent market levels. The Underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
Neither the Company nor any of the Underwriters makes any representation or
prediction as the direction or magnitude of any effect that the transactions
described above may have on the price of the Series E Senior Notes. In
addition, neither the Company nor any of the Underwriters makes any
representation that such transactions will be engaged in or that such
transactions, once commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "1933 Act").
The Underwriters and their affiliates engage in transactions with and, from
time to time, have performed services for, the Company and its affiliates in
the ordinary course of business.
EXPERTS
The financial statements and the related financial statement schedule as of
and for the year ended December 31, 2002 incorporated in this Prospectus
Supplement by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 2002 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated by
reference in this Prospectus Supplement and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
Certain of the Company's financial statements incorporated by reference in
this Prospectus Supplement have been audited by Arthur Andersen LLP
("Andersen"), independent public accountants, as indicated in their reports
with respect to the financial statements, and are incorporated by reference in
this Prospectus Supplement, in reliance upon the authority of Andersen as
experts in giving such reports. On March 28, 2002, Southern's Board of
Directors, upon recommendation of its Audit Committee, decided not to engage
Andersen as the
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Company's principal public accountants. The Company has not obtained a reissued
report from Andersen and has been unable to obtain, after reasonable efforts,
Andersen's written consent to incorporate by reference Andersen's reports on
the financial statements. Under these circumstances, Rule 437a under the 1933
Act permits this Prospectus Supplement to be filed without a written consent
from Andersen. The absence of such written consent from Andersen may limit a
holder's ability to assert claims against Andersen under Section 11(a) of the
1933 Act for any untrue statement of a material fact contained in the financial
statements audited by Andersen or any omission to state a material fact
required to be stated in the financial statements.
The consolidated balance sheets of the Insurer as of December 31, 2002 and
December 31, 2001 and the related consolidated statements of operations and
comprehensive income, changes in shareholder's equity and cash flows for each
of the three years in the period ended December 31, 2002, incorporated by
reference in this Prospectus Supplement, have been incorporated in this
Prospectus Supplement in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheets of XLFA as of December 31, 2002 and December 31, 2001 and
the related statements of operations and comprehensive income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002, incorporated by reference in this Prospectus
Supplement, have been incorporated in this Prospectus Supplement in reliance on
the report of PricewaterhouseCoopers, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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APPENDIX A
FORM OF POLICY
XL Capital Assurance 1221 Avenue of the Americas
New York, New York 10020
Telephone: (212) 478-3400
Facsimile: (212) 478-3597
FINANCIAL GUARANTY
INSURANCE POLICY
OBLIGOR: Policy No:
INSURED
OBLIGATIONS: Effective Date:
XL Capital Assurance Inc. (XLCA), a New York stock insurance company,
in consideration of the payment of the premium, hereby unconditionally and
irrevocably guarantees to the Trustee for the benefit of the Owners of the
Insured Obligations, the full and complete payment by the Obligor of Scheduled
Payments in respect of the Insured Obligations, subject only to the terms of
this Policy (which includes the Endorsement attached hereto).
XLCA will pay the Insured Amount to the Trustee upon the presentation
of a Payment Notice to XLCA (which Payment Notice shall include an irrevocable
assignment to XLCA of all rights and claims in respect of the relevant Insured
Obligation, as specified in the Payment Notice), on the later of (a) one (1)
Business Day following receipt by XLCA of a Payment Notice or (b) the Business
Day on which Scheduled Payments are due for payment. XLCA shall be subrogated to
the Owners' rights to payment on the Insured Obligations to the extent of any
payment by XLCA hereunder. The obligations of XLCA with respect to a Scheduled
Payment will be discharged to the extent funds to pay such Scheduled Payment are
deposited in the account specified in the Payment Notice, whether such funds are
properly applied by the Trustee or claimed by an Owner.
In addition, in the event that any Scheduled Payment which has become
due for payment and which is made to an Owner by or on behalf of the Trustee is
recovered or is recoverable from the Owner pursuant to a final order of a court
of competent jurisdiction in an Insolvency Proceeding that such payment
constitutes an avoidable preference to such Owner within the meaning of any
applicable bankruptcy law, XLCA unconditionally and irrevocably guarantees
payment of the amount of such recovery (in accordance with the Endorsement
attached hereto).
This Policy sets forth in full the undertaking of XLCA and shall not be
cancelled or revoked by XLCA for any reason, including failure to receive
payment of any premium due hereunder or under the Insurance Agreement, and may
not be further endorsed or modified without the written consent of XLCA. The
premium on this Policy is not refundable for any reason. This Policy does not
insure against loss of any prepayment or other acceleration payment which at any
time may become due in respect of any Insured Obligation, other than at the sole
option of XLCA, nor against any risk other than Nonpayment and Avoided Payment,
including any shortfalls, if any, attributable to the liability of the Obligor
for taxes or withholding taxes if any, including interest and penalties in
respect of such liability.
THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Any capitalized terms not defined herein shall have the meaning given
such terms in the Endorsement attached hereto and forming a part hereof, or in
the Insurance Agreement referenced therein. In witness whereof, XLCA has caused
this Policy to be executed as of the Effective Date.
Name: Mary Jane Constant Name: Henri N. Gourd
Title: Associate General Counsel Title: Managing Director
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Financial Guaranty Insurance Policy Endorsement
Effective Date
Attached to and forming part of
Financial Guaranty Insurance Policy No.
Obligor:
Insured Obligations:
Beneficiary:
Capitalized terms used herein and not otherwise defined herein or in the Policy
shall have the meanings assigned to them in the Insurance Agreement as defined
below.
As used herein the term "Business Day" means any day other
than Saturday or Sunday on which commercial banking institutions in New York,
New York are generally open for banking business.
As used herein the term "Insolvency Proceeding" means the
commencement, after the date hereof, of any bankruptcy, insolvency, readjustment
of debt, reorganization, marshalling of assets and liabilities or similar
proceedings by or against any Person, the commencement, after the date hereof,
of any proceedings by or against any Person for the winding up or liquidation of
its affairs, or the consent, after the date hereof, to the appointment of a
trustee, conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, reorganization, marshalling of assets and liabilities or
similar proceedings of or relating to any Person.
As used herein the term "Indenture" means the _____________
Indenture dated as of _______________ between the Obligor and ________________,
as Trustee (the "Trustee"), as amended and supplemented, including by the
___________ Supplemental Indenture dated as of _______________.
As used herein the term "Insurance Agreement" means the
Insurance Agreement dated as of _______________ by and among XLCA,
_______________ and the Trustee, as may be amended or modified from time to
time.
As used herein the term "Insured Amount" means that portion of
the Scheduled Payments that shall become due for payment but shall be unpaid by
reason of Nonpayment.
As used herein the term "Nonpayment" means, with respect to
any Payment Date, the failure of the Trustee to receive in full, in accordance
with the terms of the Indenture, that Scheduled Payment that is due for payment
with respect to such date.
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As used herein the term "Owner" means the registered owner of
any Insured Obligation as indicated in the registration books maintained by or
on behalf of the Obligor for such purpose or, if the Insured Obligation is in
bearer form, the holder of the Insured Obligation.
As used herein, the term "Payment Date" means, in the case of
scheduled interest on the Insured Obligations, each ____________, ____________,
____________ and ____________ of each year during the Term of this Policy,
beginning _____________, and, in the case of scheduled principal of the Insured
Obligations,
- -------------.
As used herein, the term "Person" means an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization, and a government or any department or
agency thereof.
As used herein the term "Scheduled Payment" means, with
respect to any Payment Date during the Term of this Policy, scheduled payments
of interest and principal, in accordance with the original terms of the Insured
Obligations and the Indenture when issued and without regard to any subsequent
amendment or modification of the Insured Obligations or the Indenture that has
not been consented to in writing by XLCA. Notwithstanding the foregoing,
"Scheduled Payments" shall in no event include payments which become due on an
accelerated basis as a result of (a) any default by the Obligor, (b) the
occurrence of an Event of Default under the Indenture, (c) mandatory or optional
redemption, in whole or in part or (d) any other cause, unless XLCA elects, in
its sole discretion, to pay such amounts in whole or in part (in which event
Scheduled Payments shall include such accelerated payments as, when, and to the
extent so elected by XLCA). In the event that it does not make such election,
Scheduled Payments shall include payments due in accordance with the original
scheduled terms without regard to any acceleration. In addition, "Scheduled
Payment" shall not include, nor shall coverage be provided under the Policy in
respect of, (i) any make whole, redemption or call premium payable in respect of
the Insured Obligations, (ii) any amounts due in respect of the Insured
Obligations attributable to any increase in interest rate, penalty or other sum
payable by the Issuer by reason of any default or event of default in respect of
the Insured Obligations, or by reason of any deterioration of the
creditworthiness of the Issuer or (iii) any taxes, withholding or other charge
imposed by any governmental authority due in connection with the payment of any
Scheduled Payment to any holder of an Insured Obligation.
As used herein the term "Term of this Policy" means the period
from and including the Effective Date to and including the first date on which
(i) all Scheduled Payments have been paid that are required to be paid by the
Obligor under the Indenture; (ii) the 91-day period during which any Scheduled
Payment could have been avoided in whole or in part as a preference payment
under applicable bankruptcy, insolvency, receivership or similar law has
expired, and (iii) if any proceedings requisite to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii) above, a
final and nonappealable order in resolution of each such proceeding has been
entered; provided, however, that if the Owners are required to return any
Avoided
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Payment (as defined below) as a result of such insolvency proceeding, then the
Term of the Policy shall terminate on the date on which XLCA has made all
payments required to be made under the terms of this Policy in respect of all
such Avoided Payments.
To make a claim under the Policy, the Trustee shall deliver to
XLCA Payment Notice in the form of Exhibit A hereto (a "Payment Notice"),
appropriately completed and executed by the Trustee. A Payment Notice under this
Policy may be presented to XLCA by (i) delivery of the original Payment Notice
to XLCA at its address set forth below, or (ii) facsimile transmission of the
original Payment Notice to XLCA at its facsimile number set forth below. If
presentation is made by facsimile transmission, the Trustee shall (x)
simultaneously confirm transmission by telephone to XLCA at its telephone number
set forth below, and (y) as soon as reasonably practicable, deliver the original
Payment Notice to XLCA at its address set forth below. Any Payment Notice
received by XLCA after 10:00 a.m., New York City time, on a Business Day, or on
any day that is not a Business Day, will be deemed to be received by XLCA at
9:00 a.m., New York City time, on the next succeeding Business Day. XLCA shall
make payments due in respect of Insured Amounts no later than 2:00 p.m. New York
City time to the Trustee upon the presentation of a Payment Notice to XLCA on
the later of (a) one (1) Business Day following receipt by XLCA of a Payment
Notice or (b) the Business Day on which Scheduled Payments are due for payment.
Subject to the foregoing, if the payment of any amount with
respect to the Scheduled Payment is voided (a "Preference Event") as a result of
an Insolvency Proceeding and as a result of such Preference Event, the Owner is
required to return such voided payment, or any portion of such voided payment,
made in respect of the Insured Obligation (an "Avoided Payment"), XLCA will pay
an amount equal to such Avoided Payment, as and when such payment would
otherwise be due pursuant to the Insured Obligation and the Indenture without
regard to acceleration or prepayment, and upon payment of such Avoided Payment
and receipt by XLCA from the Trustee on behalf of such Owner of (x) a certified
copy of a final order of a court exercising jurisdiction in such Insolvency
Proceeding to the effect that the Owner or the Trustee on behalf of the Owner is
required to return any such payment or portion thereof because such payment was
voided under applicable law, with respect to which order the appeal period has
expired without an appeal having been filed (the "Final Order"), (y) an
assignment, substantially in the form attached hereto as Exhibit B, properly
completed and executed by such Owner irrevocably assigning to XLCA all rights
and claims of such Owner relating to or arising under such Avoided Payment, and
(z) a Payment Notice in the form of Exhibit A hereto appropriately completed and
executed by the Trustee.
XLCA shall make payments due in respect of Avoided Payments no
later than 2:00 p.m. New York City time on the Business Day following XLCA's
receipt of the documents required under clauses (x) through (z) of the preceding
paragraph. Any such documents received by XLCA after 10:00 a.m. New York City
time on any Business Day or on any day that is not a Business Day shall be
deemed to have been received by XLCA at 9:00 a.m., New York City time, on the
next succeeding Business Day. All payments made by XLCA hereunder on account of
any Avoided Payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Final
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Order and not to any Owner directly (unless an Owner previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Final Order, in which case such payment shall be disbursed to the
Trustee for distribution to such Owner upon proof of such payment reasonably
satisfactory to XLCA).
XLCA hereby waives and agrees not to assert any and all rights
to require the Trustee to make demand on or to proceed against any person, party
or security prior to the Trustee demanding payment under this Policy.
No defenses, set-offs and counterclaims of any kind available
to XLCA so as to deny payment of any amount due in respect of this Policy will
be valid and XLCA hereby waives and agrees not to assert any and all such
defenses (including, without limitation, defense of fraud in the inducement or
fact, or any other circumstances which would have the effect of discharging a
surety in law or in equity), set-offs and counterclaims, including, without
limitation, any such rights acquired by subrogation, assignment or otherwise.
Upon any payment hereunder, in furtherance and not in limitation of XLCA's
equitable right of subrogation and XLCA's rights under the Insurance Agreement,
XLCA will be subrogated to the rights of the Owner in respect of which such
payment was made to receive any and all amounts due in respect of the
obligations in respect of which XLCA has made a payment hereunder. Any rights of
subrogation acquired by XLCA as a result of any payment made under this Policy
shall, in all respects, be subordinate and junior in right of payment to the
prior indefeasible payment in full of any amounts due the Owner on account of
payments due under the Insured Obligation.
This Policy is neither transferable nor assignable, in whole
or in part, except to a successor trustee duly appointed and qualified under the
Indenture. All Payment Notices and other notices, presentations, transmissions,
deliveries and communications made by the Trustee to XLCA with respect to this
Policy shall specifically refer to the number of this Policy and shall be made
to XLCA at:
XL Capital Assurance Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Surveillance
Telephone: (212) 478-3400
Facsimile: (212) 478- 3597
or such other address, telephone number or facsimile number as XLCA may
designate to the Trustee in writing from time to time. Each such Payment Notice
and other notice, presentation, transmission, delivery and communication shall
be effective only upon actual receipt by XLCA.
The obligations of XLCA under this Policy are irrevocable,
primary, absolute and unconditional, subject to satisfaction of the conditions
for making a claim under the Policy, and neither the failure of any Person to
perform any covenant or obligation in favor of XLCA (or otherwise), nor the
failure or omission to make a
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demand permitted hereunder, nor the failure of any assignment or grant of any
security interest, nor the commencement of any Insolvency Proceeding shall in
any way affect or limit XLCA's obligations under this Policy. If a successful
action or proceeding to enforce this Policy is brought by the Trustee, the
Trustee shall be entitled to recover from XLCA costs and expenses reasonably
incurred, including, without limitation, reasonable fees and expenses of
counsel.
This Policy and the obligations of XLCA hereunder shall
terminate on the expiration of the Term of this Policy. This Policy shall be
returned to XLCA by the Trustee upon the expiration of the Term of this Policy.
The Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law does not cover this Policy. The Florida
Insurance Guaranty Association created under Part II of Chapter 631 of the
Florida Insurance Code does not cover this Policy. In the event that XLCA were
to become insolvent, the California Insurance Guaranty Association, established
pursuant to Article 14.2 of Chapter 1 of Part 2 of Division 1 of the California
Insurance Code excludes from coverage any claims arising under this Policy.
THIS POLICY SHALL BE CONSTRUED, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.
In the event any term or provision of the form of this Policy
is inconsistent with the provision of this Endorsement, the provision of this
Endorsement shall take precedence and be binding.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, XL Capital Assurance Inc. has caused this Endorsement
to the Policy to be executed on the Effective Date.
Name: Mary Jane Constant Name: Henri N. Gourd
Title: Associate General Counsel Title: Managing Director
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Exhibit A to Financial Guaranty Policy No.
XL Capital Assurance Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Surveillance
PAYMENT NOTICE
UNDER Financial Guaranty Policy No.
_______________, as Trustee (the "Trustee"), hereby certifies to XL Capital
Assurance Inc. ("XLCA") with reference to that certain Financial Guaranty
Policy, No. ________, dated _______________ (the "Policy"), issued by XLCA in
favor of the Trustee under the ____________ Indenture dated as of ____________
between ____________________ and the Trustee, as amended and supplemented,
including by the ____________ Supplemental Indenture dated as of _______________
(the "Indenture"), as follows:
1. The Trustee is the trustee under the Indenture and the beneficiary on
behalf of each Owner of the Policy.
2. The Trustee is entitled to make a demand under the Policy pursuant to
the Indenture.
3. This notice relates to the [insert date] Payment Date. The amount
demanded is to be paid in immediately available funds to the [Specify Account]
at [Identify Financial Institution Holding Account] account number[_____].
[For a Payment Notice in respect of Insured Amounts other than Avoided
Payment, use paragraph 4.]
4. The Trustee demands payment of $________ which is an amount equal to the
amount by which the Scheduled Payment due on the above Payment Date exceeds the
funds made available to the Trustee to pay such Scheduled Payment.
[For a Payment Notice in respect of an Avoided Payment use the following
paragraphs [4] or [5].]
[4.] or [5.] The Trustee hereby represents and warrants, based upon
information available to it, that (i) the amount entitled to be drawn under the
Policy on the date hereof in respect of Avoided Payments is the amount paid or
to be paid simultaneously with such draw on the Policy by the Owner on account
of a Preference Event [$________] (the "Avoided Payment Amount"), (ii) the Owner
with respect to which the drawing is being made under the Policy has paid or
simultaneously with such draw on the Policy will pay such Avoided Payment
Amount, and (iii) the documents required by the Policy to be delivered in
connection with such Avoided Payment and Avoided Payment Amount have previously
been presented to XLCA or are attached hereto.
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[6] The Trustee agrees that, following payment of funds by XLCA, it shall
use reasonable efforts to procure (a) that such amounts are applied directly to
the payment of any Insured Amount which is due for payment; (b) that such funds
are not applied for any other purpose; and (c) the maintenance of accurate
records of such payments in respect of the Insured Obligation and the
corresponding claim on the Policy and the proceeds thereof.
[7] The Trustee, on behalf of itself and the Owners, hereby assigns to XLCA
all rights and claims (including rights of actions and claims in respect of
securities laws violations or otherwise) of the Trustee and the Owners with
respect to the Insured Obligation to the extent of any payments under the
Policy. The foregoing assignment is in addition to, and not in limitation of,
rights of subrogation otherwise available to XLCA in respect of such payments.
The Trustee shall take such action and deliver such instruments as may be
reasonably required by XLCA to effectuate the purposes of this paragraph [7].
[8] The Trustee, on behalf of itself and the Owners, hereby appoints XLCA
as agent and attorney-in-fact for the Trustee and the Owners in any legal
proceeding in respect of the Insured Obligation. The Trustee, on behalf of
itself and the Owners, thereby (and without limiting the generality of the
preceding sentence) agrees that XLCA may, at any time during the continuation of
any proceeding by or against any debtor with respect to which a Preference Claim
(as defined below) or other claim with respect to the Insured Obligation is
asserted under any Insolvency Proceeding, direct all matters relating to such
Insolvency Proceeding, including, without limitation, (a) all matters relating
to any claim in connection with a Insolvency Proceeding seeking the avoidance as
a preferential transfer of any payment made with respect to the obligations (a
"Preference Claim"), (b) the direction of any appeal of any order relating to
any Preference Claim and (c) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition, the Trustee, on behalf of
itself and the Owners, hereby agrees that XLCA shall be subrogated to, and the
Trustee, on behalf of itself and the Owners, hereby delegates and assigns, to
the fullest extent permitted by law, the rights of the Trustee and the Owners in
the conduct of any Insolvency Proceeding, including, without limitation, all
rights of any party to an adversary proceeding or action with respect to any
court order issued in connection with any such Insolvency Proceeding.
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Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Policy or Indenture.
IN WITNESS WHEREOF, this notice has been executed this ____ day of
________, ____.
______________________________, as Trustee
By:
----------------------------------------
Authorized Officer
Any Person Who Knowingly And With Intent To Defraud Any Insurance Company Or
Other Person Files An Application For Insurance Or Statement Of Claim Containing
Any Materially False Information, Or Conceals For The Purpose Of Misleading
Information Concerning Any Fact Material Thereof, Commits A Fraudulent Insurance
Act, Which Is A Crime, And Shall Also Be Subject To A Civil Penalty Not To
Exceed Five Thousand Dollars And The Stated Value Of The Claim For Each Such
Violation
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Exhibit B to Financial Guaranty Insurance Policy, No.
Form of Assignment
Reference is made to the Financial Guaranty Insurance Policy No.
__________, dated _______________ (together with the Endorsement attached
thereto, the "Policy"), issued by XL Capital Assurance Inc. ("XLCA") relating to
the ____________________ due ______________________________ issued by
_________________. Unless otherwise defined herein, capitalized terms used in
this Assignment shall have the meanings assigned thereto in the Policy as
incorporated by reference therein. In connection with the Avoided Payment of [$
] paid by the undersigned (the "Owner") on [ ] and the payment by XLCA in
respect of such Avoided Payment pursuant to the Policy, the Owner hereby
irrevocably and unconditionally, without recourse, representation or warranty
(except as provided below), sells, assigns, transfers, conveys and delivers all
of such Owner's rights, title and interest in and to any rights or claims,
whether accrued, contingent or otherwise, which the Owner now has or may
hereafter acquire, against any person relating to, arising out of or in
connection with such Avoided Payment. The Owner represents and warrants that
such claims and rights are free and clear of any lien or encumbrance created or
incurred by such Owner.1
Owner
1 In the event that the terms of this form of assignment are reasonably
determined to be insufficient solely as a result of a change of law or
applicable rules after the date of the Policy to fully vest all of the Owner's
right, title and interest in such rights and claims, the Owner and XLCA shall
agree on such other form as is reasonably necessary to effect such assignment,
which assignment shall be without recourse, representation or warranty except as
provided above.
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[LOGO] MISSISSIPPI POWER
(A SOUTHERN COMPANY)