As filed with the Securities and Exchange Commission on July 30, 1997.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: July 8, 1997
(Date of earliest event reported)
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-9130 CENTERIOR ENERGY CORPORATION 34-1479083
(An Ohio Corporation)
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 447-3100
1-2323 THE CLEVELAND ELECTRIC 34-0150020
ILLUMINATING COMPANY
(An Ohio Corporation)
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 622-9800
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
300 Madison Avenue
Toledo, Ohio 43652
Telephone (419) 249-5000
This combined Form 8-K is separately filed by Centerior Energy
Corporation ("Centerior"), The Cleveland Electric Illuminating Company
("Cleveland Electric") and The Toledo Edison Company ("Toledo Edison").
Centerior, Cleveland Electric and Toledo Edison are sometimes referred
to collectively as the "Companies". Cleveland Electric and Toledo
Edison are sometimes referred to collectively as the "Operating
Companies". Information contained herein relating to any individual
registrant is filed by such registrant on its behalf. No registrant
makes any representation as to information relating to any other
registrant, except that information relating to either or both of the
Operating Companies is also attributed to Centerior.
Item 5. Other Events
1. Refinancing of Mansfield SLOBs
On July 8, 1997, $873.2 million aggregate principal amount of Secured
Lease Obligation Bonds ("SLOBs") issued in 1988 were redeemed, in part,
with proceeds from the private placement of secured notes issued by
Cleveland Electric and Toledo Edison. The SLOBs were issued by a
special purpose funding corporation in connection with financing the
Operating Companies' 1987 sale/leaseback of their ownership interests in
the Bruce Mansfield Generating Plant.
The text of a press release issued on July 16, 1997 describing the SLOBs
refinancing follows.
July 16, 1997
To the Investment Community:
Centerior Energy Corporation took another step toward its strategic
objective to reduce its financing costs by completing a major debt
refinancing prior to its merger with Ohio Edison Company into a new
holding company called FirstEnergy Corp.
Attached [below] is a summary of the recently completed Bruce
Mansfield trust transaction. Highlights of the transaction include:
$ 873 million of Secured Lease Obligation Bonds (SLOB's) were
refinanced
The SLOB's were the Companies' highest coupon debt with coupons of
10.25% and 11.125%
The transaction is expected to increase net income by approximately
$12 million annually and represents a significant contribution to
FirstEnergy's strategic commitment to debt reduction
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
THE TOLEDO EDISON COMPANY
BRUCE MANSFIELD - TRUST TRANSACTION
BACKGROUND
The Secured Lease Obligation Bonds (the "SLOBs") issued in 1988 in
connection with the 1987 sale / leaseback financing transactions for the
Bruce Mansfield fossil units were the Companies' [i.e., Cleveland
Electric and Toledo Edison] highest coupon debt. Before their
redemption, two tranches of SLOBs were outstanding: $280.7 million of
10.25% bonds due 2003 and $592.5 million of 11.125% bonds due 2016.
The spread between the coupon rates of the SLOBs (which were subject to
call provisions) and market rates for the Companies' other debt
securities had continued to widen, resulting in an attractive
refinancing opportunity.
TRANSACTION
The Mansfield Capital Trust (the "Trust"), a Delaware business trust
unaffiliated with the Companies, was formed to facilitate this
refinancing. The Trust was funded by (1) loans from the Companies
representing 94% of total capital, (2) an equity contribution by a
subsidiary of the Companies (Toledo Edison Capital Corporation - TECC)
representing 3% of total capital, and (3) equity contributions from
unaffiliated investors representing the remaining 3% of total capital.
The Trust used these funds to purchase lease notes and provide cash used
to redeem the SLOBs on July 8, 1997.
The sources of the Companies' loans and TECC's equity investment were
cash, short-term debt and proceeds from a secured note private placement
described below. The transaction allows the Companies to capture the
benefit of lower interest rates through the spread between the (1)
interest rates on the Companies' loans to the Trust and return on TECC's
investment, and (2) cost of funds for the Companies and TECC.
The Companies' private placement, completed June 18, 1997, consisted of
secured notes (the "Secured Notes") in three tranches: (1) $220 million
due 7/1/2000 @ 7.19%, 85 basis points spread to three-year Treasuries,
(2) $350 million due 7/1/2004 @ 7.67%, 115 basis points spread to seven-
year Treasuries, and (3) $150 million due 7/1/2007 @ 7.13%, 58 basis
points spread to ten-year Treasuries. Payment of principal and interest
when due on the Secured Notes due 2007 is insured by a financial
guaranty insurance policy issued by AMBAC Indemnity Corporation. The
Secured Notes have not been registered under the Securities Act of 1933
and may not be offered or sold in the United States absent registration
or an applicable exemption from registration. The Secured Notes were
issued with registration rights which must be satisfied by December 1997
or interest payable on the Secured Notes will increase by .50% per annum
until the holders' registration rights are satisfied.
Following is a simplified version of the accounting treatment for the
transaction.
Certain assumptions are made with respect to interest rates and other
amounts to facilitate discussion.
ACCOUNTING
Items Use Source
Investments In
Mansfield Capital Trust $909,000 Long-term Debt $720,000
Cash and Short-term
Debt 189,000
Total $909,000 Total $909,000
Income Statement for 1998: (000's)
Amount
Income from Trust * $89,906
Less:
Interest Expense and Amortization of Transaction Expense ** $70,868
Pre-Tax Net Income $19,038
Income Taxes at 35% $ 6,663
Net Income $12,375
* Reflects interest income from the loans made by the Companies to the
Trust and earnings on TECC's equity investment in the Trust.
** Interest expense on the $720,000,000 Secured Notes and short-term
borrowings.
BENEFIT
The Trust produces cash flow and net income benefits for the Companies
consistent with their policies of reducing interest costs through
accelerating paydown of debt.
From January 1, 1997 to June 1, 1997, Centerior Energy Corporation
("Centerior") reduced fixed obligations by $53 million, including
redemption of long-term debt and preferred stock and amortization of
lease debt. Centerior's total reduction in fixed obligations from
January 1, 1994 to June 1, 1997 was $576 million.
This transaction will result in another $153 million reduction of fixed
obligations after repayment of short-term debt, bringing the total to
date for 1997 to $206 million, and the total since January 1, 1994 to
$729 million. The total fixed obligations reduction for the year-end
1997 is now expected to exceed $268 million, and the total from January
1, 1994 through 1997 is now expected to be at least $791 million.
2. Pending Merger with Ohio Edison. For additional information relating
to this topic, see "Outlook-Pending Merger with Ohio Edison" under Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Companies' Annual Report on Form 10-K for
the year ended December 31, 1996 and "Pending Merger with Ohio Edison"
under Item 5. Other Events in the Companies' Form 8-K Current Report
dated June 11, 1997.
On July 16, 1997, the Federal Energy Regulatory Commission ("FERC")
issued an order which will delay consummation of the merger of Centerior
with the Ohio Edison Company ("Ohio Edison"). FERC gave the companies
15 days to elect one of two options: proceed to concurrent trial-type
hearings with FERC and the PUCO, or revise the screening analysis and
propose appropriate mitigation measures. The FERC order suggests that
possible mitigation measures include: (1) divestiture of generation
assets, (2) creation of a regional independent system operator to manage
the two companies' combined transmission grids, (3) expansion of
transmission capacity and (4) commitment of internal transmission
capacity to alternative suppliers. The order requires a 60-day notice
and comment period once the new submissions are made.
The order also directed the companies to continue to attempt to
negotiate an adequate ratepayer protection mechanism with three
Pennsylvania municipalities which intervened but have not yet settled,
and report to FERC within 30 days the results of those negotiations,
whereupon if no settlement is reached FERC will decide the issue on the
written record or set it for hearing.
On July 30, the companies formally notified FERC of their election
to revise the screening analysis and propose appropriate mitigation
measures.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTERIOR ENERGY CORPORATION
Registrant
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
Registrant
THE TOLEDO EDISON COMPANY
Registrant
By: JANIS T. PERCIO
Janis T. Percio,
Secretary of each Registrant
July 30, 1997
5