As filed with the Securities and Exchange Commission on March 16, 2007
REGISTRATION NO. 333-[ ]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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Florida Power & Light Company
(Exact name of Registrant as specified in its charter)
Florida 59-0247775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Edward F. Tancer, Esq.
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With Copies to:
ERIC TASHMAN, ESQ.
SIDLEY AUSTIN LLP
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 772-1214
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective as determined
by market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
__________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ___________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ___________________.
If this Form is a registration statement pursuant to General Instruction
I.D. or a post-effective amendment thereto that shall become effective upon
filing with the Commission pursuant to Rule 462(e) under the Securities Act,
check the following box. / / ___________________.
If this Form is a post-effective amendment to a registration statement filed
pursuant to General Instruction I.D. filed to register additional securities
or additional classes of securities pursuant to Rule 413(b) under the
Securities Act, check the following box. / / ___________________.
CALCULATION OF REGISTRATION FEE
========================== ===================== ============================= ============================= ====================
Title of Each Class of
Securities to Be Amount to Be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Registered Registered Price Per Unit Offering Price Registration Fee
- -------------------------- --------------------- ----------------------------- ----------------------------- --------------------
$1,000,000 100% $1,000,000 (1) $30.70
Senior Secured
Storm-Recovery Bonds
========================== ===================== ============================= ============================= ====================
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
==============================================================================
The information in this prospectus supplement and the accompanying prospectus
is not complete and may be changed. The Series A Bonds may not be sold until
the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus supplement is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted.
SUBJECT TO COMPLETION
Preliminary Prospectus Supplement, dated March 16, 2007
Prospectus Supplement
(to Prospectus dated __________, 2007)
$708,000,000
FPL Recovery Funding LLC
Issuing Entity
Florida Power & Light Company
Seller, Servicer and Sponsor
Senior Secured Bonds, Series A
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Proceeds
Underwriting to
Expected Principal Scheduled Final Discounts the
Average Amount Final Maturity Interest Price to and Issuing
Tranche Life (Years) Issued Payment Date* Date Rate Public Commissions Entity
- ----------------------------------------------------------------------------------------------------------------------------
A-1 $
A-2 $
A-3 $
A-4 $
* The final maturity (i.e., the date by which the principal must be
repaid to prevent a default) of each tranche is [two years] after the
scheduled final payment date for such tranche.
The total price to the public is $______________. The total amount of
the underwriting discounts and commissions is $________. The total amount of
proceeds to the issuing entity before deduction of expenses (estimated to be
$________) is $___________.
The Series A Bonds will accrue interest from the date of issuance. We
will pay interest and principal on the Series A Bonds on [February 1] and
[August 1] of each year, beginning on [August 1, 2007].
FPL Recovery Funding LLC, or the issuing entity, is issuing $708,000,000
aggregate principal amount of Senior Secured Bonds, Series A, or the Series A
Bonds, in [four] tranches. Florida Power & Light Company, or FPL, is the
seller and initial servicer of the storm-recovery property securing the Series
A Bonds. FPL also is the administrator of the issuing entity. The Series A
Bonds are the issuing entity's senior secured obligations and are supported by
storm-recovery property. Storm-recovery property includes the right to impose,
collect and receive an irrevocable non-bypassable charge, known as a
storm-recovery charge, from all customers (individuals, corporations, other
businesses, and federal, state and local governmental entities) receiving
electric transmission or distribution service from FPL or its successors or
assignees under rate schedules approved by the Florida Public Service
Commission or Florida Commission, or under special contracts. Storm-recovery
charges are payable by customers even if the customers elect to purchase
electricity from an alternative electricity supplier following a fundamental
change in regulation of public utilities in Florida.
In 2005, the Florida legislature enacted the Storm-Recovery Financing
Act, or the Financing Act, codified as Section 366.8260, Florida Statutes. The
Financing Act authorizes the Florida Commission to issue irrevocable financing
orders supporting the issuance of storm-recovery bonds. One purpose of the
Financing Act is to lower the cost to customers associated with the long-term
financing by FPL of costs incurred in connection with the restoration of
service associated with electric power outages as a result of named tropical
storms or hurricanes that occurred during calendar year 2004 or thereafter, as
well as the funding or replenishment of storm-recovery reserves. The Florida
Commission issued an irrevocable financing order to FPL on May 30, 2006,
clarified by the Florida Commission's order issued on July 21, 2006. Pursuant
to that financing order, FPL established us to be a bankruptcy-remote special
purpose subsidiary to issue the storm-recovery bonds. In the financing order,
the Florida Commission authorized the imposition and collection of
storm-recovery charges on all customers. FPL, as initial servicer, will
collect storm-recovery charges on behalf of us and will remit the
storm-recovery charges daily to a trustee. Please read "The Storm-Recovery
Property and the Financing Act" in the accompanying prospectus.
The Florida Commission guarantees pursuant to the irrevocable financing
order, as expressly required by the Financing Act, that it will act to ensure
that storm-recovery charges are sufficient to pay principal and interest on
the Series A Bonds and other costs, including fees and expenses, in connection
with the Series A Bonds on a timely basis. The financing order further
provides that the Florida Commission's obligations pursuant to its irrevocable
financing order, including the specific actions the Florida Commission
guarantees to take, are direct, explicit, irrevocable and unconditional upon
issuance of the Series A Bonds, and are legally enforceable against the
Florida Commission, a United States public sector entity.
The Series A Bonds do not constitute a debt, liability or other legal
obligation of, or interest in, FPL or any of its affiliates (other than us).
The Series A Bonds are not a debt or general obligation of the Florida
Commission, the State of Florida or any of its political subdivisions,
agencies or instrumentalities. However, insofar as the State of Florida or any
such political subdivision, agency or instrumentality is receiving
transmission or distribution service from FPL or its successor or assignee,
such governmental entity will be obligated, in its capacity as a customer, to
pay storm-recovery charges.
All matters relating to the structuring, marketing and pricing of the
Series A Bonds have been considered jointly by FPL and the designated
personnel of the Florida Commission and their designated representative or
financial advisor.
See "Risk Factors" beginning on page __ in the accompanying prospectus
to read about some of the factors you should consider before buying the Series
A Bonds.
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Neither the Securities and Exchange Commission, any state securities
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 A Bonds through the
facilities of The Depository Trust Company against payment in New York, New
York, on ______, 2007.
[UNDERWRITERS]
Prospectus Supplement dated ___________, 2007
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS.........................................................................................S-1
THE SERIES A BONDS ......................................................................................S-8
General...............................................................................................S-8
Book-Entry Registration...............................................................................S-8
Interest Payments.....................................................................................S-8
Principal.............................................................................................S-9
Sensitivity to Credit Risk...........................................................................S-10
Weighted Average Life Sensitivity Table..............................................................S-11
Fees and Expenses....................................................................................S-12
CREDIT ENHANCEMENT......................................................................................S-12
FPSC Guaranteed True-up Mechanism For Payment of Scheduled Principal and Interest....................S-12
Collection Account and Subaccounts...................................................................S-12
How Funds in the Collection Account Will Be Allocated................................................S-13
THE INDENTURE TRUSTEE...................................................................................S-15
PLAN OF DISTRIBUTION....................................................................................S-15
RATINGS FOR THE SERIES A BONDS..........................................................................S-15
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES...........................................................S-15
General..............................................................................................S-15
RISK WEIGHTING UNDER CERTAIN INTERNATIONAL CAPITAL GUIDELINES...........................................S-15
LEGAL PROCEEDINGS.......................................................................................S-17
LEGAL MATTERS...........................................................................................S-17
[OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS]........................................................S-17
i
WHERE YOU CAN FIND INFORMATION ABOUT THIS OFFERING
This prospectus supplement and the accompanying prospectus provide
information about us, the Series A Bonds and FPL, the sponsor and servicer of
the Series A Bonds. This prospectus supplement describes the specific terms of
the Senior Secured Bonds, Series A. The accompanying prospectus describes
terms that apply to all series of the storm-recovery bonds.
References in this prospectus supplement and the accompanying prospectus
to the terms we, us, our or the issuing entity mean FPL Recovery Funding LLC.
References to bonds refer to all storm-recovery bonds, including the Series A
Bonds, which may be issued by us from time to time pursuant to the Financing
Act. References to the seller or the sponsor refer to Florida Power & Light
Company, or FPL, and any successor seller under a sale agreement described in
the accompanying prospectus. References to the servicer refer to FPL and any
successor servicer under a servicing agreement referred to in this prospectus
supplement and described in the accompanying prospectus. Unless the context
otherwise requires, the term customer means a customer receiving transmission
or distribution service from FPL or its successors or assignees under Florida
Commission-approved rate schedules or under special contracts, even if the
customer elects to purchase electricity from an alternative electricity
supplier following a fundamental change in regulation of public utilities in
Florida. References to the Florida Commission or the Commission or the FPSC
refer to the Florida Public Service Commission. References to the Financing
Act mean the Storm-Recovery Financing Act codified as Section 366.8260, 2005
Florida Statutes. You can find a glossary of some of the other defined terms
we use in this prospectus supplement and in the accompanying prospectus
commencing on page __.
We have included cross-references to sections in this prospectus
supplement and the accompanying prospectus where you can find further related
discussions. You can also find references to key topics in the table of
contents on the preceding page of this prospectus supplement and in the table of
contents on page ___ of the accompanying prospectus.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone else
to provide you with any different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not
making an offer to sell the Series A Bonds in any jurisdiction where the offer
or sale is not permitted. The information in this prospectus supplement is
current only as of the date of this prospectus supplement.
SUMMARY OF TERMS
Securities Offered:
$708,000,000 Senior Secured Bonds, Series A, scheduled to pay principal
semiannually in accordance with the expected sinking fund schedule. Each
tranche of the Series A Bonds is structured to pay principal sequentially in
accordance with the expected sinking fund schedule in this prospectus
supplement.
Issuing Entity:
FPL Recovery Funding LLC is a special purpose Delaware limited liability
company. FPL is our sole member and owns all of our equity interests. We were
formed solely for the purpose of purchasing and owning the storm-recovery
property, issuing storm-recovery bonds from time to time (including the Series
A Bonds) and performing activities incidental thereto. These are the first
storm-recovery bonds which we have issued. We may not issue storm-recovery
bonds except as authorized under the financing order, which limits the
aggregate principal amount of the bonds to $708 million. We are responsible to
the State and the Florida Commission on an ongoing basis as provided in our
organizational documents, the transaction documents and the financing order.
Please read "FPL Recovery Funding LLC, the Issuing Entity" in the accompanying
prospectus.
Our Address:
700 Universe Boulevard, Juno Beach, FL 33408
Our Telephone Number:
(561) 694-4000
The Seller, the Initial Servicer, Administrator and Sponsor:
FPL, a Florida corporation, is a rate-regulated utility engaged primarily in
the generation, transmission, distribution and sale of electric energy
throughout most of the east and lower west coasts of Florida. During 2006, FPL
provided service to a population of more than 8.5 million and served on
average approximately 4.4 million customer accounts. FPL is an operating
subsidiary of FPL Group, Inc., or FPL Group, a Florida corporation based in
Juno Beach, Florida. Neither FPL nor FPL Group is an obligor of the Series A
Bonds. For further information about FPL, please read "Florida Power & Light
Company: the Seller and Initial Servicer of the Storm-Recovery Property" in
the accompanying prospectus.
FPL's Address:
700 Universe Boulevard, Juno Beach, FL 33408
FPL's Telephone Number:
(561) 694-4000
Indenture Trustee:
______________ will act as trustee under the indenture under which the Series
A Bonds will be issued. Please read "The Indenture Trustee" in this prospectus
supplement for the indenture trustee's experience and "The Indenture Trustee"
in the accompanying prospectus for a description of the indenture trustee's
duties and responsibilities under the indenture.
Authorized Denominations:
$100,000 and integral multiples of $1,000 above that amount, except for one
bond of each tranche which may be of a smaller denomination.
Use of Proceeds:
Proceeds, net of underwriter's discount, will be used by us to acquire the
storm-recovery property from FPL. We may not use the proceeds from the sale of
the Series A Bonds for general corporate or commercial purposes. We understand
that FPL will use the net proceeds from the sale of the storm-recovery
property to pay or reimburse itself for storm-recovery costs, to fund a
reserve for payment of such costs, and to pay authorized financing
S-1
costs.
Bond Structure
Sinking fund bond; tranche [___] [____ years], [____] [___ years], [____]
[_____ years], and [____] [_____ years] are scheduled to pay principal
semi-annually and sequentially. Please read "The Series A
Bonds--Principal--Expected Sinking Fund Schedule" in this prospectus
supplement.
Security for the Series A Bonds:
The Series A Bonds are secured only by assets pledged by us under the
indenture, consisting principally of the storm-recovery property and funds on
deposit in the collection account and subaccounts. Please read "Security for
the Bonds" in the accompanying prospectus. The storm-recovery property
securing the Series A Bonds consists of the rights and interests of FPL
(excluding the right to recover taxes) under the financing order, and sold to
us in connection with the issuance of the Series A Bonds. The storm-recovery
property includes the irrevocable right to impose, collect and receive a
non-bypassable storm-recovery charge from all customers receiving transmission
or distribution service from FPL or its successors or assignees under Florida
Commission-approved rate schedules or under special contracts, even if the
customer elects to purchase electricity from an alternative electricity
supplier following a fundamental change in regulation of public utilities in
Florida. The Financing Act and the irrevocable financing order together
require that storm-recovery charges will be imposed on all such customers, and
will be reviewed and adjusted at least semiannually to ensure that
storm-recovery charges are sufficient to pay scheduled principal and interest
on the Series A Bonds, and other costs, including fees and expenses, in
connection with the Series A Bonds on a timely basis. Unless the context
otherwise requires, when we refer to storm-recovery property in this
prospectus supplement we refer to the storm-recovery property securing the
Series A Bonds. Please read "FPL's Financing Order--FPSC-Guaranteed True-Up
Mechanism" in the accompanying prospectus.
The storm-recovery property is not a receivable and the principal credit
supporting the Series A Bonds is not a pool of receivables. The storm-recovery
property is a present property right created by the Financing Act and the
financing order and is protected by the state pledge described in this
prospectus and in this prospectus supplement.
Storm-recovery property is discussed in more detail under "The Storm-Recovery
Property and the Financing Act" and "FPL's Financing Order" in the
accompanying prospectus. The storm-recovery property and all other assets that
we pledge to the indenture trustee as security for the Series A Bonds are
referred to in this prospectus supplement and the accompanying prospectus as
collateral.
Priority of Distributions:
On each payment date on which payments are due on the Series A Bonds, the
indenture trustee will allocate or pay all amounts on deposit in the general
subaccount of the collection account in the following priority, all in
accordance with a servicer's officer certificate:
1. payment of the indenture trustee's fees, expenses and any outstanding
indemnity amounts not to exceed $___ per year,
2. payment of the servicing fee, plus any unpaid servicing fees from
S-2
prior payment dates,
3. payment of the administration fee, and the fees of our independent manager,
which will be in an amount specified in an agreement between us and our
independent manager (or the allocable share of such amounts, if we issue
additional storm-recovery bonds),
4. payment of all of our other ordinary periodic operating expenses allocable
to the Series A Bonds, such as accounting and audit fees, rating agency fees,
legal fees and certain reimbursable costs of the servicer under the servicing
agreement, in an amount not to exceed $___ per year,
5. payment of the interest then due on the Series A Bonds,
6. payment of (a) the principal then required to be paid on the Series A Bonds
at final maturity or upon acceleration, and (b) principal then scheduled to be
paid on the Series A Bonds, in accordance with the expected sinking fund
schedule,
7. payment of any of our remaining unpaid operating expenses and any remaining
amounts owed pursuant to the basic documents relating to the Series A Bonds,
including all remaining indemnity amounts owed to the indenture trustee,
8. replenishment of any amounts drawn from the capital subaccount,
9. release to us of an amount equal to investment earnings on amounts in the
capital subaccount, so long as no event of default has occurred and is
continuing,
10. allocation of the remainder, if any, to the excess funds subaccount, and
11. after the Series A Bonds have been paid in full and discharged, the
balance, together with all amounts in the capital subaccount and the excess
funds subaccount, to us free and clear of the lien of the indenture.
The annual servicing fee for the Series A Bonds payable to FPL or any
affiliate thereof while it is acting as servicer shall not at any time exceed
0.05% of the original principal amount of the Series A Bonds. The annual
servicing fee for the Series A Bonds payable to any other servicer not
affiliated with FPL shall not at any time exceed 0.6% of the original
principal amount of the Series A Bonds unless such higher rate is approved by
the Florida Commission.
Non-bypassable Charges:
Under the Financing Act, the storm-recovery charges are collectible from all
existing and future customers receiving transmission or distribution service
from FPL or its successors or assignees under Florida Commission-approved
rates or special contracts. Such customers must pay storm-recovery charges
even if FPL goes out of business and its transmission and distribution
services are taken over by another utility or municipalized. Please read "The
Storm-Recovery Property and the Financing Act--The Financing Act Provides for
the Recovery of Storm-Recovery Costs and the Issuance of Storm-Recovery
Bonds--Customers Cannot Avoid Storm-
S-3
Recovery Charges" in the accompanying prospectus.
Initial Storm-Recovery Charge as a Percentage of Customer's Total Electricity
Bill:
The initial storm recovery charge relating to the Series A Bonds would
represent approximately 1% of the typical residential 1,000 kWh bill.
Credit Enhancement:
o FPSC-Guaranteed True-Up Mechanism For Payment of Scheduled Principal and
Interest--Storm-recovery charges will be reviewed and adjusted not less
often than semiannually to ensure the expected recovery of amounts
sufficient to provide for the payment of scheduled principal and
interest on the Series A Bonds and other costs, including fees and
expenses, in connection with the Series A Bonds, on a timely basis. We
sometimes refer to these adjustments as the FPSC-guaranteed true-up
mechanism or the true-up mechanism. If Series A Bonds are outstanding
following the latest scheduled final payment date for such Series A
Bonds, adjustments to the storm-recovery charges will be made quarterly
and, if Series A Bonds are outstanding after the date that is one year
before the final maturity date of the Series A Bonds, monthly, to
reconcile actual storm-recovery charge collections with payment
requirements.
The Florida Commission has guaranteed pursuant to its irrevocable
financing order, as expressly required by the Financing Act, that it
will act to ensure that storm-recovery charges are sufficient to pay
principal and interest on the Series A Bonds and other costs, including
fees and expenses, in connection with the Series A Bonds, on a timely
basis. Please read "FPL's Financing Order--FPSC-Guaranteed True-Up
Mechanism" in the accompanying prospectus.
There is no cap on the level of storm-recovery charges that may be
imposed on customers as a result of the true-up process. There is no
time limit on the authority to impose, bill and collect storm-recovery
charges.
o Collection account--The indenture trustee will hold a collection
account, divided into various subaccounts. The primary subaccounts for
credit enhancement purposes are:
- Capital subaccount--On the date of issuance, FPL, in its capacity
as our sole member, will deposit into the capital subaccount
established under the indenture an amount equal to 0.5% of the
initial principal amount of the Series A Bonds. Any shortfall in
the capital subaccount will be included in the periodic adjustment
of the storm-recovery charges and be replenished from
storm-recovery charge collections.
- Excess funds subaccount--All amounts (including all investment
earnings other than investment earnings on amounts in the capital
subaccount) that, as of a payment date, are not needed to pay debt
service on the Series A Bonds (in accordance with the expected
sinking fund schedule) and related expenses and to replenish the
capital subaccount will be held in the excess funds subaccount.
Amounts held in each of these subaccounts and investment earnings thereon
(other than investment earnings on amounts in the capital subaccount
S-4
released to us) will be available to make payments on each payment date.
Please read "Security for the Bonds--How Funds in the Collection Account Will
Be Allocated" in the accompanying prospectus.
State Pledge:
The State of Florida has pledged to storm recovery bondholders (including the
holders of the Series A Bonds) that it will not:
o alter the provisions of the Financing Act which make the storm-recovery
charges imposed by the financing order irrevocable, binding, and
nonbypassable charges;
o take or permit any action that impairs or would impair the value of
storm-recovery property; or,
o except as allowed under the Financing Act with respect to the true-up
mechanism, reduce, alter, or impair storm-recovery charges that are to
be imposed, collected, and remitted for the benefit of the bondholders
and other financing parties until any and all principal, interest,
premium, financing costs and other fees, expenses, or charges incurred,
and any contracts to be performed, in connection with the storm recovery
bonds have been paid and performed in full.
Nothing in this pledge shall preclude limitation or alteration if full
compensation is made by law for the full protection of the storm-recovery
charges collected pursuant to a financing order and of the holders of
storm-recovery bonds and any assignee or financing party entering into a
contract with the electric utility. Please read "Risk Factors--Risks
Associated with Potential Judicial, Legislative or Regulatory Actions--Future
Florida Legislative Action Might Invalidate the Bonds or the Storm-Recovery
Property" in the accompanying prospectus.
The Series A Bonds will not be a debt or general obligation of the State, the
Florida Commission or any other governmental agency or instrumentality, and
are not a charge on the full faith and credit or taxing power of the State or
any other governmental agency or instrumentality. However, the State and other
governmental entities, to the extent that they are customers, will be
obligated to pay storm-recovery charges securing the Series A Bonds.
Master Trust Structure; Issuance of Additional Series:
The indenture has been structured so that we operate as a master trust in that
we may, subject to the terms of the financing order but without your prior
review or approval, acquire additional storm-recovery property created under
the financing order and issue one or more additional series of storm-recovery
bonds which are backed by such storm-recovery property, all of which
storm-recovery bonds will be paid through collections of additional
storm-recovery charges from the same group of FPL customers. The aggregate
outstanding amount of storm-recovery bonds that may be issued by us may not
exceed $708 million, which is the aggregate amount of storm-recovery bonds
authorized under the financing order. If we issue less than $708 million of
Series A Bonds, any new series we issue may include terms and provisions
unique to that particular series. We may not issue additional storm-recovery
bonds nor may FPL sell storm-recovery property to other entities issuing
storm-recovery bonds if the issuance would result in the credit ratings on any
outstanding series of storm-recovery bonds being reduced or withdrawn. It will
be a condition of our issuance of each series of storm-recovery bonds that the
new series be rated
S-5
"Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch. Please read "Description of
the Bonds--Conditions of Issuance of Additional Series and Acquisition of
Additional Storm-Recovery Property" in the accompanying prospectus.
Allocations Among Series:
The Series A Bonds will not be subordinated in right of payment to any other
series of storm-recovery bonds issued by us. Each series of storm-recovery
bonds will be issued under a separate indenture and will be secured by its own
storm-recovery property, which will include the right to impose, collect and
receive storm-recovery charges calculated in respect of that series, and the
right to impose true-up adjustments to correct overcollections or
undercollections in respect of that series. Each series will also have its own
collection account, including any related subaccounts, into which collections
of the storm-recovery charges relating to that series will be deposited and
from which amounts will be withdrawn to pay the related series of
storm-recovery bonds. Holders of one series of storm-recovery bonds will have
no recourse to collateral for a different series. In the event that more than
one series of storm-recovery bonds is issued by us, the administration fees,
independent manager fees and other operating expenses payable by us on any
payment date will be assessed to each series on a pro rata basis, based upon
the respective outstanding amounts of each series. Please read "Security for
the Bonds--How Funds in the Collection Account Will Be Allocated" in the
accompanying prospectus.
The financing order requires storm-recovery charges to be shown as a separate
line item on the periodic bills sent to customers. Although each series will
have its own storm-recovery property reflecting the right to impose, bill,
collect and receive a separate storm-recovery charge, storm-recovery charges
relating to the Series A Bonds and storm-recovery charges relating to any
other series of storm-recovery bonds will be collected through single periodic
bills to each customer, and all storm-recovery charges might be combined into
a single line item on those periodic bills. In the event a customer does not
pay in full all amounts owed under any bill including storm-recovery charges,
FPL is required to allocate any resulting shortfalls in storm-recovery charges
ratably based on the amounts of storm-recovery charges owing in respect of the
Series A Bonds, and amounts owing in respect of any other subsequently issued
series of storm-recovery bonds. Please read "The Servicing
Agreement--Remittances to Collection Account" in the accompanying prospectus.
Internet-Based Information:
The indenture under which the Series A Bonds will be issued requires all of
the periodic reports that we file with the SEC, the principal transaction
documents and other information concerning the storm-recovery charges and
security relating to the Series A Bonds to be posted on the website associated
with FPL, currently located at www.fpl.com.
20% Risk Weighting:
If held by financial institutions subject to regulation in countries (other
than the United States) that have adopted the 1988 International Convergence
of Capital Measurement and Capital Standards of the Basel Committee on Banking
Supervision (as amended, the Basel Accord), the Series A Bonds may attract the
same risk weighting as "claims on" or "claims guaranteed by" non-central
government bodies within the United States, which are accorded a 20% risk
weighting.
S-6
We have been informed that United Kingdom's Financial Services Authority has
issued individual guidance to one or more investors in transactions not
involving us or our affiliates that an investment in bonds issued under a
Texas securitization statute similar to the Financing Act can be accorded a
20% risk weighting, which is similar to the risk weighting assigned to U. S.
Agency corporate securities (FNMA, FHLMC, etc.).
However, we cannot assure you that the Series A Bonds will attract a 20% risk
weighting treatment under any national law, regulation or policy implementing
the Basel Accord. Investors should consult their regulators before making any
investment. Please read "Risk Weighting Under Certain International Capital
Guidelines" in this prospectus supplement and "Risk Weighting Under Certain
International Capital Guidelines" in the accompanying prospectus.
Tax Treatment:
Fully taxable; treated as debt for U.S. federal income tax purposes. Please
read "Material U.S. Federal Income Tax Consequences" in this prospectus
supplement and "Material U.S. Federal Income Tax Consequences" in the
prospectus.
ERISA Eligible:
Yes, please read "ERISA Considerations" in the accompanying prospectus.
Payment Dates and Interest Accrual:
Interest is payable semiannually, [February 1 and August 1]. Interest will be
calculated on a 30/360 basis. The first scheduled interest and principal
payment date is [August 1, 2007].
Interest is due on each payment date and principal is due upon the final
maturity date for each tranche. The final maturity date of the Series A Bonds
is ___ years later than the final expected payment date.
Failure to pay the entire outstanding principal amount of the Series A Bonds
of any tranche by the final maturity date for such tranche will result in an
event of default. Please read "Description of the Bonds--Events of Default;
Rights Upon Event of Default" in the accompanying prospectus.
Optional redemption:
None. Non-callable for the life of the Series A Bonds.
Expected Settlement:
[___________, 2007], settling flat. DTC, Clearstream and Euroclear.
Average life:
Stable. There is no prepayment risk. Extension risk is statistically
insignificant. Please read "The Series A Bonds -- Weighted Average Life
Sensitivity Table" in this prospectus supplement.
Risk Factors:
You should consider carefully the risk factors beginning on page __ of the
accompanying prospectus before you invest in the Series A Bonds.
Ratings of the Bonds:
It will be a condition of issuance of the Series A Bonds that the Series A
Bonds be rated "Aaa" by Moody's Investors Service, Inc., "AAA" by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, and "AAA" by
Fitch Ratings. Please read "Ratings for the Bonds" and "Risk Factors--Other
Risks Associated with an Investment in the Bonds" in the accompanying
prospectus and "Ratings for the Series A Bonds" in this prospectus supplement.
S-7
THE SERIES A BONDS
General
We will issue the Series A Bonds in authorized denominations of
[$100,000] and in integral multiples of [$1,000] above that amount, except
that one bond of each tranche may be in a smaller denomination. The Series A
Bonds will consist of four tranches, in the initial principal amounts and
bearing the interest rates and having the scheduled final payment dates and
final maturity dates listed below. The scheduled final payment date for a
tranche of Series A Bonds is the date by which we expect to pay in full all
interest on and principal of that tranche. The final maturity date for a
tranche of Series A Bonds is the legal maturity date of that tranche. The
failure to pay principal of any tranche of Series A Bonds in full by the
scheduled final payment date for that tranche will not be an event of default
under the indenture, but failure to pay by the legal maturity of that tranche
will be an event of default.
Expected Principal Scheduled
Average Life Amount Final Final
Tranche (Years) Issued Payment Date Maturity Date Interest Rate
- ------------------------------------------------------------------------------------------------------------
A-1.............. $
A-2..............
A-3..............
A-4..............
Book-Entry Registration
After issuance of the Series A Bonds, interest and principal will be
payable through The Depository Trust Company, as agent of the beneficial
owners. See "Description of the Bonds--Book-Entry Registration" in the
accompanying prospectus.
Interest Payments
Beginning [August 1, 2007], we are required to pay interest semiannually
on the Series A Bonds on each [February 1 and August 1] (or, if any
payment date is not a business day, the following business day) of each year.
The record date (so long as the Series A Bonds are evidenced in book-entry)
for any payment of interest on and principal of the Series A Bonds will be the
business day immediately before the payment date.
Interest on each tranche of Series A Bonds will accrue from and
including the date of issuance to but excluding the first payment date, and
thereafter from and including the previous payment date to but excluding the
applicable payment date until the Series A Bonds have been paid in full, at
the interest rate indicated in the table under "General" above. Each of those
periods is referred to as an "interest accrual period." We will calculate
interest on tranches of the Series A Bonds on the basis of a 360-day year of
twelve 30-day months.
On each payment date, we will pay interest on each tranche of the Series
A Bonds equal to the following amounts:
o any interest payable but unpaid on any prior payment date, together with
interest on such unpaid interest, if any, and
o accrued interest on the principal balance of each tranche of the Series
A Bonds as of the close of business on the preceding semiannual payment
date, or the date of the original issuance of the Series A Bonds, after
giving effect to all payments of principal made on the preceding
semiannual payment date, if any.
We will pay interest on the Series A Bonds before we pay principal on
the Series A Bonds. If there is a shortfall in the amounts available in the
collection account to make interest payments on the Series A Bonds, the
indenture trustee will distribute interest pro rata to each tranche of Series
A Bonds based on the amount of interest payable on each such outstanding
tranche.
S-8
Principal
After paying fees, expenses and interest as described above, the
indenture trustee will pay, to the extent described below, principal due on
each payment date, if any, as follows:
1. to the holders of tranche A-1 Bonds, until the principal balance
of that tranche has been reduced to zero;
2. to the holders of tranche A-2 Bonds, until the principal balance
of that tranche has been reduced to zero;
3. to the holders of tranche A-3 Bonds, until the principal balance
of that tranche has been reduced to zero; and
4. to the holders of tranche A-4 Bonds, until the principal balance
of that tranche has been reduced to zero.
The indenture trustee will not pay principal on a payment date of any
tranche of Series A Bonds if making the payment would reduce the principal
balance of a tranche to an amount lower than the balance specified in the
expected sinking fund schedule for that tranche on that payment date except in
the case of an acceleration of the Series A Bonds following an event of
default.
The following expected sinking fund schedule lists the scheduled
outstanding principal balance for each tranche of Series A Bonds on each
payment date from the issuance date to the scheduled final payment date, after
giving effect to the payments expected to be made on that payment date.
S-9
Expected Sinking Fund Schedule
Tranche A-1 Tranche A-2 Tranche A-3 Tranche A-4
Payment Date Balance Balance Balance Balance
- -------------------------------------------------------------------------------------------------------------------
Initial Tranche Principal Balance
2/1/2007
8/1/2007
2/1/2008
8/1/2008
2/1/2009
8/1/2009
2/1/2010
8/1/2010
2/1/2011
8/1/2011
2/1/2012
8/1/2012
2/1/2013
8/1/2013
2/1/2014
8/1/2014
2/1/2015
8/1/2015
2/1/2016
8/1/2016
2/1/2017
8/1/2017
2/1/2018
8/1/2018
2/1/2019
We cannot assure you that the principal balance of any tranche of the
Series A Bonds will be reduced at the rate indicated in the table above. The
actual reduction in tranche principal balances may occur more slowly. The
actual reduction in tranche principal balances will not occur more quickly
than indicated in the above table, except in the case of acceleration due to
an event of default under the indenture. The Series A Bonds will not be in
default if principal is not paid as specified in the schedule above unless the
principal of any tranche is not paid in full on or before the final maturity
date of that tranche.
Sensitivity to Credit Risk
The Florida Commission determined, in the financing order, that the
FPSC-guaranteed true-up mechanism, together with the broad-based nature of the
state pledge set forth in Section 366.8260(11) of the Financing Act,
constitute a guarantee of regulatory action for the benefit of investors in
the Series A Bonds. The Florida Commission further determined that it expected
stress case analyses to show that these features will serve to effectively
eliminate for all practical purposes and circumstances any credit risk
associated with the Series A Bonds (i.e., that sufficient funds will be
available and paid to discharge all principal and interest obligations when
due). The Florida Commission directed in the financing order that this
transaction be structured consistent with this expectation. With respect to
the foregoing, interest is due on each payment date and principal is due upon
the final maturity date for each tranche. See the Financing Order, Finding of
Fact No. 81. As demonstrated in the results of the stress tests shown below,
the Commission's directive to structure the transaction to effectively
eliminate credit risk for all practical purposes and circumstances has been
met. See also "Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Statements" in the accompanying prospectus for further
information.
A difference in forecasted versus actual collections from customers
could result from variances in consumption of electricity, greater than
anticipated payment defaults by customers, or higher than expected delays in
payment by customers (anticipated days sales outstanding).
S-10
In a stress case analysis of storm-recovery charge collections, we calculated
the maximum amount that forecasted mWh consumption could drop without causing
an event of default, i.e. an insufficiency of funds to discharge all principal
at final maturity, interest on each payment date and expense obligations when
due. For purposes of this analysis, net write-offs and days sales outstanding
were assumed to increase to their highest annual level over the past 10 years.
During the first payment period, assumed to start on the day following
the issuance of the Series A Bonds, a [X%] drop in forecasted mWh sales would be
required to cause a payment default on the Series A Bonds. This is the least
favorable case. A [X%] drop in forecasted mWh sales represents [X] standard
deviations from the forecast to actual variance by revenue class experienced
by FPL over the past 10 years.
This favorable credit risk results from the broad-based nature of the
storm-recovery charge on electricity, a basic and essential commodity, which
will be imposed on all customers (individuals, corporations, other businesses,
and federal, state and local governmental entities) who receive electric
transmission or distribution service from FPL or its successors or assignees
under Florida Commission-approved rate schedules or under special contracts.
Such customers will be required to pay storm-recovery charges even if they
elect to purchase electricity from an alternative electricity supplier
following a fundamental change in regulation of public utilities in Florida.
This favorable credit risk also reflects the operation of the mandatory
true-up adjustment mechanism through which, by law, all customers share in the
liabilities of all other customers. These credit features are protected by the
state pledge. Please read "The Storm-Recovery Property and the Financing
Act--The Financing Act Provides for the Recovery of Storm-Recovery Costs and
the Issuance of Storm-Recovery Bonds--The Financing Act Contains a State
Pledge" in the accompanying prospectus.
Weighted Average Life Sensitivity Table
Changes in the expected weighted average lives of the tranches of the
Series A Bonds in relation to variances in actual energy consumption levels
(retail electric sales) from forecast levels are shown below. [Severe stress
cases on electricity consumption [as shown below] result in insignificant
changes (approximately ______ [weeks/months]), if any, in the weighted average
lives of each tranche.]
Weighted Average Life Sensitivity
WAL
Expected -5% -15%
Weighted
Avg. Life (__.__ Standard Deviations from Mean) (__.__ Standard Deviations from Mean)
("WAL") WAL Change WAL Change
Tranche (yrs) (yrs) (days) (yrs) (days)
- --------------------------------------------------------------------------------------------------------
A-1
A-2
A-3
A-4
For the purposes of preparing the above table, we have assumed, among
other things, that:
o the forecast error stays constant over the life of the Series A
Bonds;
o the servicer makes timely and accurate filings to true-up the
storm-recovery charges semiannually, quarterly in the _____ year,
and monthly in the _____ year;
o no other routine true-up adjustments are made; and
o no non-routine true-up adjustments are made.
S-11
There can be no assurance that the weighted average lives of the various
tranches of the Series A Bonds will be as shown in the above table.
Fees and Expenses
Estimated annual fees and expenses payable from the storm-recovery
charges are shown below. For the priorities in application of funds under the
indenture, please refer to in "Credit Enhancement -- How Funds in the
Collection Account will be Allocated" below and "Security for the Bonds--How
Funds in the Collection Account will be Allocated" in the accompanying
prospectus.
Estimated Annual Fees and Expenses
Trustee Fees $ 15,000
Administration Fee 125,000
Independent Manager Fee 5,000
Accounting Fees 60,000
Rating Agency Fees 20,000
Servicing Fee 354,000
Legal Fees 50,000
Miscellaneous Fees 50,000
-----------
Total $679,000
===========
CREDIT ENHANCEMENT
Credit enhancement for the Series A Bonds is intended to protect you
against losses or delays in scheduled payments on your Series A Bonds. Please
read "Risk Factors -- You May Experience Material Payment Delays or Losses due
to the Limited Sources of Payment for the Bonds and Limited Credit
Enhancement" in the accompanying prospectus.
FPSC Guaranteed True-up Mechanism For Payment of Scheduled Principal and
Interest.
The Financing Act and the irrevocable financing order together require
that storm-recovery charges on all consumers will be adjusted at least
semiannually to ensure that storm-recovery charges are sufficient to provide
for paying scheduled principal and interest on the Series A Bonds and other
costs, including fees and expenses, in connection with the Series A Bonds on a
timely basis. The Florida Commission has guaranteed that, pursuant to the
irrevocable financing order, as expressly authorized by the Financing Act, it
will act to ensure that the storm-recovery charges are sufficient to pay
principal and interest on the Series A Bonds and other costs, including fees
and expenses, in connection with the Series A Bonds on a timely basis.
There is no cap on the level of storm-recovery charges that may be
imposed on customers (or on the time during which the storm-recovery charges
may be imposed, billed or collected), including the State of Florida and other
governmental entities in their capacity as customers, as a result of the
true-up process.
Collection Account and Subaccounts
The indenture trustee will establish a collection account for the Series
A Bonds to hold the capital contribution from FPL and collected storm-recovery
charges periodically remitted to the trustee by the servicer. The collection
account will consist of various subaccounts, including the following:
o the general subaccount,
o the excess funds subaccount, and
S-12
o the capital subaccount.
Withdrawals from and deposits to these subaccounts will be made as
described below in this prospectus supplement and under "Security for the
Bonds--Collection Account and Subaccounts" and "--How Funds in the Collection
Account Will Be Allocated" in the accompanying prospectus.
The General Subaccount. The indenture trustee will deposit collected
storm-recovery charges remitted to it by the servicer with respect to the
Series A Bonds into the general subaccount. On each payment date, the
indenture trustee will allocate amounts in the general subaccount as described
under "How Funds in the Collection Account Will Be Allocated" below.
The Excess Funds Subaccount. The excess funds subaccount will be funded
on any semiannual payment date with collected storm-recovery charges and
earnings on amounts in the collection account, other than earnings on amounts
allocated to the capital subaccount, in excess of the amount necessary to pay:
o fees and expenses, including any indemnity payments, of the
indenture trustee, our independent manager, the servicer and the
administrator and other fees, expenses, costs and charges,
o principal and interest payments on the Series A Bonds, and
o any amount required to replenish any amounts drawn from the
capital subaccount.
The periodic adjustments of the storm-recovery charges, as described
above, will be calculated to eliminate any amounts held in the excess funds
subaccount.
If amounts available in the general subaccount are not sufficient to pay
the fees and expenses due on any payment date, to make required or scheduled
payments to the bondholders and, to replenish any amounts drawn from the
capital subaccount, the indenture trustee will first draw on any amounts in
the excess funds subaccount to make those payments.
The Capital Subaccount. On the date we issue the Series A Bonds, FPL
will deposit $3,540,000 into the capital subaccount as a capital contribution
to us, which is equal to 0.50% of the initial principal amount of the Series A
Bonds. The capital contribution has been set at a level sufficient to obtain
the desired federal tax treatment for the transaction. If amounts available in
the general subaccount and the excess funds subaccount are not sufficient to
make required or scheduled payments to the bondholders and to pay the fees and
expenses specified in the indenture due on any payment date, the indenture
trustee will draw on amounts in the capital subaccount to make those payments.
How Funds in the Collection Account Will Be Allocated
Amounts remitted by the servicer to the indenture trustee with respect
to the Series A Bonds, including any indemnity amounts and all investment
earnings on amounts in the subaccounts in the collection account, will be
deposited into the general subaccount of the collection account.
On each payment date on which payments are due on the Series A Bonds,
the indenture trustee will allocate or pay all amounts on deposit in the
general subaccount of the collection account in the following priority, all in
accordance with a servicer's officer certificate:
1. payment of the indenture trustee's fees, expenses and any
outstanding indemnity amounts relating to the Series A Bonds not
to exceed $___ in any calendar year,
2. payment of the servicing fee, (which, so long as FPL is the
servicer, will be $354,000 per annum), plus any unpaid servicing
fees from prior payment dates,
S-13
3. payment of the administration fee, which will be a fixed amount
specified in the administration agreement between us and FPL (or
the allocable share of such amounts, if we issue additional
storm-recovery bonds), and the fees of our independent manager,
which will be in an amount specified in an agreement between us
and our independent manager (or the allocable share of such
amounts, if we issue additional storm-recovery bonds),
4. payment of all of our other ordinary periodic operating expenses
allocable to the Series A Bonds, such as accounting and audit
fees, rating agency fees, legal fees and certain reimbursable
costs of the servicer under the servicing agreement, in a
cumulative amount not to exceed $___ in any calendar year,
5. payment of the interest then due on the Series A Bonds, including
past due interest,
6. payment of (a) the principal then required to be paid on the
Series A Bonds at final maturity or upon acceleration, and (b)
principal then scheduled to be paid on the Series A Bonds, in
accordance with the expected sinking fund schedule,
7. payment of any of our remaining unpaid operating expenses and any
remaining amounts owed pursuant to the basic documents relating to
the Series A Bonds, including all remaining indemnity amounts owed
to the indenture trustee,
8. replenishment of any amounts drawn from the capital subaccount,
9. release to us of an amount equal to investment earnings on amounts
in the capital subaccount, so long as no event of default has
occurred and is continuing,
10. allocation of the remainder, if any, to the excess funds
subaccount, and
11. after the Series A Bonds have been paid in full and discharged,
the balance, together with all amounts in the capital subaccount
and the excess funds subaccount, to us free and clear of the lien
of the indenture.
If, on any payment date, funds in the general subaccount are insufficient to
make the allocations or payments contemplated by items 1 through 8 above, the
indenture trustee will draw from amounts on deposit in the following
subaccounts in the following order up to the amount of the shortfall:
1. from the excess funds subaccount for allocations and payments
contemplated in items 1 through 8, and
2. from the capital subaccount for allocations and payments
contemplated by items 1 through 7 above.
The annual servicing fee for the Series A Bonds payable to FPL or any
affiliate thereof while it is acting as servicer shall not at any time exceed
0.05% of the original principal amount of the Series A Bonds. The annual
servicing fee for the Series A Bonds payable to any other servicer not
affiliated with FPL shall not at any time exceed 0.6% of the original
principal amount of the Series A Bonds unless such higher rate is approved by
the Florida Commission.
If, on any payment date, available collections of storm-recovery charges
allocable to the Series A Bonds, together with available amounts in the
related subaccounts, are not sufficient to pay interest due on all outstanding
Series A Bonds on that payment date, amounts available will be allocated pro
rata based on the amount of interest payable on each tranche of the Series A
Bonds.
If, on any payment date, remaining collections of storm-recovery charges
allocable to the Series A Bonds, together with available amounts in the
subaccounts, are not sufficient to pay principal due and payable on all
outstanding Series A Bonds on that payment date, amounts available will be
allocated pro rata based on the principal amount of each tranche then due and
payable. If, on any payment date, remaining collections of storm-recovery
charges allocable to the Series A Bonds, together with available amounts in
the subaccounts, are not sufficient to pay principal scheduled to be paid on
all outstanding Series A Bonds, amounts available will be allocated
sequentially to each tranche then scheduled to be paid on the payment date. If
the indenture trustee uses amounts on deposit in the capital subaccount to pay
those amounts or make those transfers, as the case may be, subsequent
adjustments to the related storm-recovery charges will take into account,
among other things, the need to replenish those amounts.
S-14
THE INDENTURE TRUSTEE
[Discussion of indenture trustee per Item 1109 of Regulation AB to come]
PLAN OF DISTRIBUTION
[To Come]
RATINGS FOR THE SERIES A BONDS
It is a condition of issuance of the Series A Bonds that the Series A
Bonds be rated "Aaa" by Moody's, "AAA" by S&P, and "AAA" by Fitch.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. No person is obligated to maintain its rating on any
bond, and, accordingly, we can give no assurance that the ratings assigned to
any tranche of Series A Bonds upon initial issuance will not be revised or
withdrawn by a rating agency at any time thereafter. If a rating of any
tranche of Series A Bonds is revised or withdrawn, the liquidity of such
tranche of Series A Bonds may be adversely affected. In general, ratings
address credit risk and do not represent any assessment of the rate of
principal payments on the Series A Bonds other than the payment in full of
each tranche of the Series A Bonds by the applicable final maturity date, as
well as the timely payment of interest.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
General
Based on Revenue Procedure 2005-62, 2005-37 IRB, it is the opinion of
Sidley Austin LLP that for U.S. federal income tax purposes, (1) we will not
be treated as a taxable entity separate and apart from the seller and (2) the
Series A Bonds will be treated as debt of FPL. This opinion is based on
certain representations made by us and FPL, on the application of current law
to the facts as established by the indenture and other relevant documents and
assumes compliance with the indenture and such other documents as in effect on
the date of issuance of the Series A Bonds. By acquiring a Series A Bond, a
Series A bondholder agrees to treat the Series A Bond as debt for United
States federal income tax purposes. Please refer to "Material U.S. Federal
Income Tax Consequences" and "Material Florida State Tax Consequences" in the
accompanying prospectus.
RISK WEIGHTING UNDER CERTAIN INTERNATIONAL CAPITAL GUIDELINES
If held by financial institutions subject to regulation in countries
(other than the United States) that have adopted the 1988 International
Convergence of Capital Measurement and Capital Standards of the Basel
Committee on Banking Supervision (as amended, the Basel Accord), the Series A
Bonds may attract the same risk weighting as "claims on" or "claims guaranteed
by" non-central government bodies within the United States, which are accorded
a 20% risk weighting.
We have been informed that the United Kingdom's Financial Services
Authority has issued individual guidance to one or more investors in
transactions not involving us or our affiliates that an investment in bonds
issued under a Texas statute similar to the Financing Act can be accorded a
20% risk weighting, which is similar to the risk weighting assigned to U. S.
Agency corporate securities (FNMA, FHLMC, etc.) and that this determination is
based in part on the following factors, which are also present in our
transaction:
o the ability to issue storm-recovery bonds has been established by
the State under the Financing Act to finance the recovery of
storm-recovery costs;
S-15
o under the Financing Act and the financing order, FPL is authorized
to establish us as a special purpose entity, responsible to the
State and the Florida Commission on an ongoing basis as provided
in our organizational documents, the transaction documents and the
financing order, to issue storm-recovery bonds;
o we are not owned by the Florida Commission or the State;
o storm-recovery bonds are payable through storm-recovery charges,
which are a financial charge, on all FPL's customers (individuals,
corporations, other businesses, and federal, state and local
governmental entities), even if these customers elect to purchase
electricity from another supplier following a fundamental change
in the regulation of public utilities in Florida;
o the amount of storm-recovery charges in respect of the
storm-recovery bonds will be approved by the Florida Commission at
a level designed to ensure repayment of the storm-recovery bonds;
o should customers fail to pay the storm-recovery charges, then
there is a true-up mechanism which allows us to recalculate the
storm-recovery charges such that those customers who do pay will
make up the difference; this increase has to be approved by the
Florida Commission; and the State of Florida is one of these
customers and therefore would be a payer of last resort so long as
it remains a customer. See "FPL's Financing Order--FPSC-Guaranteed
True-Ups: Entire Private Sector Default" in the accompanying
prospectus;
o the Florida Commission guarantees that it will take action to
ensure that the true-up mechanism is used;
o pursuant to the Financing Act, the State of Florida pledges not to
take any action that would impair the value of the storm-recovery
property, which includes our right to impose, collect and receive
storm-recovery charges and the operation of the true-up mechanism;
o the indenture trustee has a first priority lien on storm-recovery
property and associated storm-recovery charge payments;
o storm-recovery charges are directly and expressly linked to
payments of principal and interest on storm-recovery bonds;
o the obligation of customers (including the State of Florida and
local governments) to pay storm-recovery charges is unaffected by:
- the entity from which they purchase electricity, following a
fundamental change in the regulation of public utilities in
Florida,
- the quality of electricity service provided, so that
customers cannot refuse to pay storm-recovery charges
because of poor service, or
- other customers finding some entitlement not to pay or
initiating court actions, including actions against the
State of Florida, over the storm-recovery charges.
However, we cannot assure you that any or all or any of the foregoing
factors will result in the Series A Bonds attracting a 20% risk weighting
under any national law, regulation or policy implementing the Basel Accord.
Before acquiring any Series A Bonds, prospective investors that are
banks or bank holding companies, particularly those that are organized under
the laws of any country other than the United States or of any state,
territory or other political subdivision of the United States, and prospective
investors that are U.S. branches and agencies of foreign banks, should consult
all applicable laws, regulations and policies, as well as appropriate
S-16
regulatory bodies and legal counsel, to confirm that an investment in the
Series A Bonds is permissible and in compliance with any applicable investment
or other limits.
Please read "The Storm-Recovery Property and the Financing Act--The
Financing Act Authorizes Utilities to Recover Storm-Related Costs Through the
Issuance of Storm-Recovery Bonds," "The Storm-Recovery Property and the
Financing Act--The Financing Act Provides for the Issuance of Financing
Orders," "FPL's Financing Order--FPSC True-Up Mechanism" and
"--FPSC-Guaranteed True-Ups: Entire Private Sector Default" in the
accompanying prospectus for more information on certain of the points noted
above.
LEGAL PROCEEDINGS
There are no legal or governmental proceedings pending against us, FPL
or the indenture trustee, or of which any property of the foregoing is
subject, that is material to the holders of the Series A Bonds.
LEGAL MATTERS
Certain legal matters relating to us and the issuance of the Series A
Bonds will be passed upon for FPL and for us by Sidley Austin LLP, San
Francisco, California, and by Squire, Sanders & Dempsey L.L.P., Miami,
Florida, for us by Richards Layton & Finger, P.A., Wilmington, Delaware, and
for the underwriters, if any, by [__________]. Certain legal matters relating
to the federal income tax consequences of the issuance of the Series A Bonds
will be passed upon for FPL and for us by Sidley Austin LLP. Certain legal
matters relating to the Florida tax consequences of the issuance of the Series
A Bonds will be passed upon for FPL and for us by Squire, Sanders & Dempsey
L.L.P.
[OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS]
NOTICE TO RESIDENTS OF SINGAPORE
[THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS HAVE NOT
BEEN AND WILL NOT BE REGISTERED AS A PROSPECTUS WITH THE MONETARY AUTHORITY OF
SINGAPORE UNDER THE SECURITIES AND FUTURES ACT (CHAPTER 289 OF SINGAPORE) (THE
"SFA"). ACCORDINGLY, EACH UNDERWRITER REPRESENTS, WARRANTS AND AGREES THAT IT
HAS NOT OFFERED OR SOLD ANY BONDS OR CAUSED THE BONDS TO BE MADE THE SUBJECT
OF AN INVITATION FOR SUBSCRIPTION OR PURCHASE, AND WILL NOT OFFER OR SELL ANY
BONDS OR CAUSE THE BONDS TO BE MADE THE SUBJECT OF AN INVITATION FOR
SUBSCRIPTION OR PURCHASE, AND HAS NOT CIRCULATED OR DISTRIBUTED, NOR WILL IT
CIRCULATE OR DISTRIBUTE THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OR ANY OTHER DOCUMENT OR MATERIAL IN CONNECTION WITH THE OFFER OR
SALE, OR INVITATION FOR SUBSCRIPTION OR PURCHASE, OF BONDS, WHETHER DIRECTLY
OR INDIRECTLY, TO PERSONS IN SINGAPORE OTHER THAN (I) TO AN INSTITUTIONAL
INVESTOR UNDER SECTION 274 OF THE SFA, (II) TO A RELEVANT PERSON, OR ANY
PERSON PURSUANT TO SECTION 275 OF THE SFA OR (III) OTHERWISE PURSUANT TO, AND
IN ACCORDANCE WITH THE CONDITIONS OF, ANY OTHER APPLICABLE PROVISION OF THE
SFA.
EACH UNDERWRITER FURTHER REPRESENTS, WARRANTS AND AGREES TO NOTIFY
(WHETHER THROUGH THE DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS OR OTHERWISE) EACH OF THE FOLLOWING RELEVANT PERSONS
SPECIFIED IN SECTION 275 OF THE SFA WHICH HAS SUBSCRIBED OR PURCHASED BONDS
FROM OR THROUGH THAT UNDERWRITER, NAMELY A PERSON WHICH IS:
A CORPORATION (WHICH IS NOT AN ACCREDITED INVESTOR) THE SOLE BUSINESS OF
WHICH IS TO HOLD INVESTMENTS AND THE ENTIRE SHARE CAPITAL OF WHICH IS OWNED BY
ONE OR MORE INDIVIDUALS, EACH OF WHOM IS AN ACCREDITED INVESTOR; OR
A TRUST (WHERE THE TRUSTEE IS NOT AN ACCREDITED INVESTOR) WHOSE SOLE
PURPOSE IS TO HOLD INVESTMENTS AND EACH BENEFICIARY IS AN ACCREDITED INVESTOR.
THAT BONDS OF THAT CORPORATION OR THE BENEFICIARIES' RIGHTS AND INTEREST
IN THAT TRUST SHALL NOT BE TRANSFERABLE FOR 6 MONTHS AFTER THAT CORPORATION OR
THAT TRUST HAS ACQUIRED THE BONDS UNDER SECTION 275 OF THE SFA EXCEPT:
TO AN INSTITUTIONAL INVESTOR UNDER SECTION 274 OF THE SFA OR TO A
RELEVANT PERSON, OR ANY PERSON PURSUANT TO SECTION 275 OF THE SFA;
S-17
WHERE NO CONSIDERATION IS GIVEN FOR THE TRANSFER; OR
BY OPERATION OF LAW.
THE PROSPECTUS RELATING TO THE BONDS ("PROSPECTUS") WILL, PRIOR TO ANY
SALE OF SECURITIES PURSUANT TO THE PROVISIONS OF SECTION 106D OF THE COMPANIES
ACT (CAP.50), BE LODGED, PURSUANT TO SAID SECTION 106D, WITH THE REGISTRAR OF
COMPANIES IN SINGAPORE, WHICH WILL TAKE NO RESPONSIBILITY FOR ITS CONTENTS.
HOWEVER, NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS HAS BEEN AND
NOR WILL THEY BE REGISTERED AS A PROSPECTUS WITH THE REGISTRAR OF COMPANIES IN
SINGAPORE. ACCORDINGLY, THE BONDS MAY NOT BE OFFERED, AND NEITHER THIS
PROSPECTUS SUPPLEMENT NOR ANY OTHER OFFERING DOCUMENT OR MATERIAL RELATING TO
THE BONDS MAY BE CIRCULATED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, TO THE
PUBLIC OR ANY MEMBER OF THE PUBLIC IN SINGAPORE OTHER THAN TO INSTITUTIONAL
INVESTORS OR OTHER PERSONS OF THE KIND SPECIFIED IN SECTION 106C AND SECTION
106D OF THE COMPANIES ACT OR ANY OTHER APPLICABLE EXEMPTION INVOKED UNDER
DIVISION 5A OF PART IV OF THE COMPANIES ACT. THE FIRST SALE OF SECURITIES
ACQUIRED UNDER A SECTION 106C OR SECTION 106D EXEMPTION IS SUBJECT TO THE
PROVISIONS OF SECTION 106E OF THE COMPANIES ACT.
NOTICE TO RESIDENTS OF THE PEOPLE'S REPUBLIC OF CHINA
THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
LAW OF THE PEOPLE'S REPUBLIC OF CHINA (AS THE SAME MAY BE AMENDED FROM TIME TO
TIME) AND ARE NOT TO BE OFFERED OR SOLD TO PERSONS WITHIN THE PEOPLE'S
REPUBLIC OF CHINA (EXCLUDING THE HONG KONG AND MACAU SPECIAL ADMINISTRATIVE
REGIONS) UNLESS PERMITTED BY THE LAWS OF THE PEOPLE'S REPUBLIC OF CHINA.
NOTICE TO RESIDENTS OF JAPAN
THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
AND EXCHANGE LAW OF JAPAN (THE "SEL"), AND THE BONDS MAY NOT BE OFFERED OR
SOLD, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY
RESIDENT OF JAPAN (INCLUDING JAPANESE CORPORATIONS) OR TO OTHERS FOR
RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO ANY RESIDENT OF
JAPAN, EXCEPT THAT THE OFFER AND SALE OF THE BONDS IN JAPAN MAY BE MADE ONLY
THROUGH PRIVATE PLACEMENT SALE IN JAPAN IN ACCORDANCE WITH AN EXEMPTION
AVAILABLE UNDER THE SEL AND WITH ALL OTHER APPLICABLE LAWS AND REGULATIONS OF
JAPAN. IN THIS PARAGRAPH, "A RESIDENT/RESIDENTS OF JAPAN" SHALL HAVE THE
MEANING AS DEFINED UNDER THE FOREIGN EXCHANGE AND TRADE LAW OF JAPAN.
NOTICE TO RESIDENTS OF HONG KONG
EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT:
IT HAS NOT OFFERED OR SOLD AND WILL NOT OFFER OR SELL IN HONG KONG, BY
MEANS OF ANY DOCUMENT, ANY BONDS OTHER THAN (A) TO PERSONS WHOSE ORDINARY
BUSINESS IS TO BUY OR SELL BONDS, WHETHER AS PRINCIPAL OR AGENT, OR TO
"PROFESSIONAL INVESTORS" AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE
(CAP. 571) OF HONG KONG AND ANY RULES MADE UNDER THAT ORDINANCE; OR (B) IN
OTHER CIRCUMSTANCES WHICH DO NOT RESULT IN THE DOCUMENT BEING A "PROSPECTUS"
AS DEFINED IN THE COMPANIES ORDINANCE (CAP. 32) OF HONG KONG OR WHICH DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THAT ORDINANCE; AND
IT HAS NOT ISSUED OR HAD IN ITS POSSESSION FOR THE PURPOSES OF ISSUE,
AND WILL NOT ISSUE OR HAVE IN ITS POSSESSION FOR THE PURPOSES OF ISSUE,
WHETHER IN HONG KONG OR ELSEWHERE, ANY ADVERTISEMENT, INVITATION OR DOCUMENT
RELATING TO THE BONDS, WHICH IS DIRECTED AT, OR THE CONTENTS OF WHICH ARE
LIKELY TO BE ACCESSED OR READ BY, THE PUBLIC OF HONG KONG (EXCEPT IF PERMITTED
TO DO SO UNDER THE SECURITIES LAWS OF HONG KONG) OTHER THAN WITH RESPECT TO
BONDS WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS OUTSIDE HONG
KONG OR ONLY TO "PROFESSIONAL INVESTORS" AS DEFINED IN THE SECURITIES AND
FUTURES ORDINANCE (CAP. 571) OF HONG KONG AND ANY RULES MADE UNDER THAT
ORDINANCE.
NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA
IN RELATION TO EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA WHICH HAS
IMPLEMENTED THE PROSPECTUS DIRECTIVE (EACH A "RELEVANT MEMBER STATE"), EACH
UNDERWRITER
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HAS REPRESENTED AND AGREED THAT WITH EFFECT FROM AND INCLUDING THE DATE ON
WHICH THE PROSPECTUS DIRECTIVE IS IMPLEMENTED IN THAT RELEVANT MEMBER STATE
(THE "RELEVANT IMPLEMENTATION DATE") IT HAS NOT MADE AND WILL NOT MAKE AN
OFFER OF THE BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE EXCEPT THAT IT
MAY, WITH EFFECT FROM AND INCLUDING THE RELEVANT IMPLEMENTATION DATE, MAKE AN
OFFER OF BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE: (A) IN THE PERIOD
BEGINNING ON THE DATE OF PUBLICATION OF A PROSPECTUS IN RELATION TO THE BONDS,
WHICH HAS BEEN APPROVED BY THE COMPETENT AUTHORITY IN THAT RELEVANT MEMBER
STATE OR, WHERE APPROPRIATE, APPROVED IN ANOTHER RELEVANT MEMBER STATE AND
NOTIFIED TO THE COMPETENT AUTHORITY IN THAT RELEVANT MEMBER STATE, ALL IN
ACCORDANCE WITH THE PROSPECTUS DIRECTIVE, AND ENDING ON THE DATE WHICH IS 12
MONTHS AFTER THE DATE OF SUCH PUBLICATION; (B) AT ANY TIME TO LEGAL ENTITIES
WHICH ARE AUTHORIZED OR REGULATED TO OPERATE IN THE FINANCIAL MARKETS OR, IF
NOT SO AUTHORIZED OR REGULATED, WHOSE CORPORATE PURPOSE IS SOLELY TO INVEST IN
SECURITIES; (C) AT ANY TIME TO ANY LEGAL ENTITY WHICH HAS TWO OR MORE OF (I)
AN AVERAGE OF AT LEAST 250 EMPLOYEES DURING THE LAST FINANCIAL YEAR;(II) A
TOTAL BALANCE SHEET OF MORE THAN EUR43,000,000 AND (III) AN ANNUAL NET
TURNOVER OF MORE THAN EUR50,000,000, AS SHOWN IN ITS LAST ANNUAL OR
CONSOLIDATED ACCOUNTS; OR (D) AT ANY TIME IN ANY OTHER CIRCUMSTANCES WHICH DO
NOT REQUIRE THE PUBLICATION BY THE ISSUER OF A PROSPECTUS PURSUANT TO ARTICLE
3 OF THE PROSPECTUS DIRECTIVE. FOR THE PURPOSES OF THIS PROVISION, THE
EXPRESSION AN "OFFER OF THE BONDS TO THE PUBLIC" IN RELATION TO ANY BONDS IN
ANY RELEVANT MEMBER STATE MEANS THE COMMUNICATION IN ANY FORM AND BY ANY MEANS
OF SUFFICIENT INFORMATION ON THE TERMS OF THE OFFER AND THE BONDS TO BE
OFFERED SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE THE
BONDS, AS THE SAME MAY BE VARIED IN THAT MEMBER STATE BY ANY MEASURE
IMPLEMENTING THE PROSPECTUS DIRECTIVE IN THAT MEMBER STATE AND THE EXPRESSION
"PROSPECTUS DIRECTIVE" MEANS DIRECTIVE 2003/71/EC AND INCLUDES ANY RELEVANT
IMPLEMENTING MEASURE IN EACH RELEVANT MEMBER STATE.
NOTICE TO RESIDENTS OF UNITED KINGDOM
EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT (I) IT HAS ONLY
COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE
TO BE COMMUNICATED AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT
ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND
MARKETS ACT OF 2000 ("FSMA")) RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR
SALE OF THE BONDS IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT
APPLY TO US OR FPL AND (II) IT HAS COMPLIED AND WILL COMPLY WITH ALL
APPLICABLE PROVISIONS OF FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION
TO THE BONDS IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
NOTICE TO RESIDENTS OF ITALY
THE OFFERING OF THE BONDS IN ITALY HAS NOT BEEN REGISTERED WITH THE
COMMISSIONE NAZIONALE PER LA SOCIETA E LA BORSA ("CONSOB") PURSUANT TO ITALIAN
SECURITIES LEGISLATION AND, ACCORDINGLY, THE BONDS CANNOT BE OFFERED, SOLD OR
DELIVERED IN THE REPUBLIC OF ITALY ("ITALY") NOR MAY ANY COPY OF THIS
PROSPECTUS OR ANY OTHER DOCUMENT RELATING TO THE BONDS BE DISTRIBUTED IN ITALY
OTHER THAN (A) TO PROFESSIONAL INVESTORS (OPERATORI QUALIFICATI) AS DEFINED IN
ARTICLE 31, SECOND PARAGRAPH, OF CONSOB REGULATION NO. 11522 OF 1 JULY, 1998
AS SUBSEQUENTLY AMENDED OR (B) IN CIRCUMSTANCES WHICH ARE EXEMPTED FROM THE
RULES ON SOLICITATION OF INVESTMENTS PURSUANT TO ARTICLE 100 OF THE
LEGISLATIVE DECREE NO. 58 OF 24TH FEBRUARY, 1998, AS AMENDED, ITS IMPLEMENTING
CONSOB REGULATIONS AND ARTICLE 33, FIRST PARAGRAPH OF CONSOB REGULATION NO
11971 OF 14TH MAY, 1999, AS AMENDED. ANY OFFER, SALE OR DELIVERY OF THE BONDS
OR DISTRIBUTION OF COPIES OF THIS PROSPECTUS OR ANY OTHER DOCUMENT RELATING TO
THE BONDS IN ITALY MUST BE MADE (A) BY AN INVESTMENT FIRM, BANK OR
INTERMEDIARY PERMITTED TO CONDUCT SUCH ACTIVITIES IN ITALY IN ACCORDANCE WITH
LEGISLATIVE DECREE NO. 58 OF 24 FEBRUARY 1998 (THE "FINANCIAL SERVICES ACT")
AND LEGISLATIVE DECREE NO. 385 OF 1 SEPTEMBER 1993 (THE "BANKING ACT"); (B) IN
COMPLIANCE WITH ARTICLE 129 OF THE BANKING ACT AND THE IMPLEMENTING GUIDELINES
OF THE BANK OF ITALY AND (C) IN COMPLIANCE WITH ANY OTHER APPLICABLE LAWS AND
REGULATIONS AND OTHER POSSIBLE REQUIREMENTS OR LIMITATIONS WHICH MAY BE
IMPOSED BY ITALIAN AUTHORITIES. THE BONDS CANNOT BE OFFERED, SOLD OR DELIVERED
ON A RETAIL BASIS, EITHER IN THE PRIMARY OR IN THE SECONDARY MARKET, TO ANY
INDIVIDUALS RESIDING IN ITALY.
NOTICE TO RESIDENTS OF IRELAND
EACH OF THE ISSUER AND THE UNDERWRITERS HAS REPRESENTED, WARRANTED AND
UNDERTAKEN THAT: (A) IT WILL NOT SELL BONDS OTHERWISE THAN IN CONFORMITY WITH
THE PROVISIONS OF THE INVESTMENT INTERMEDIARIES ACT, 1995 OF IRELAND, AS
AMENDED, INCLUDING,
S-19
WITHOUT LIMITATION, SECTIONS 9 AND 23 (INCLUDING ADVERTISING RESTRICTIONS MADE
THEREUNDER) THEREOF AND THE CODES OF CONDUCT MADE UNDER SECTION 37 THEREOF OR,
IN THE CASE OF AN UNDERWRITER ACTING WITHIN THE TERMS OF AN AUTHORIZATION TO
DO SO FOR THE PURPOSES OF EU COUNSEL DIRECTIVE (93/22/EC OF 10TH MAY, 1993, AS
AMENDED OR EXTENDED) IT HAS COMPLIED WITH ANY CODES OF CONDUCT MADE UNDER THE
INVESTMENT INTERMEDIARIES ACT, 1995 OF IRELAND, AS AMENDED, OR, IN THE CASE OF
A CREDIT INSTITUTION EXERCISING ITS RIGHTS UNDER THE BANKING CONSOLIDATION
DIRECTIVE (2000/12/EC OF 20TH MARCH, 2000) IN CONFORMITY WITH THE CODES OF
CONDUCT OR PRACTICE MADE UNDER SECTION 117(1) OF THE CENTRAL BANK ACT, 1989,
OF IRELAND, AS AMENDED; (B) IN CONNECTION WITH OFFERS OR SALES OF BONDS, IT
HAS ONLY ISSUED OR PASSED ON, AND WILL ONLY ISSUE OR PASS ON, IN IRELAND, ANY
DOCUMENT RECEIVED BY IT IN CONNECTION WITH THE ISSUE OF SUCH BONDS TO PERSONS
WHO ARE PERSONS TO WHOM THE DOCUMENTS MAY OTHERWISE LAWFULLY BE ISSUED OR
PASSED ON; AND (C) IN RESPECT OF A LOCAL OFFER (WITHIN THE MEANING OF SECTION
38(1) OF THE INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS PROVISIONS ACT 2005
OF IRELAND) OF BONDS IN IRELAND, IT HAS COMPLIED AND WILL COMPLY WITH SECTION
49 OF INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS PROVISIONS ACT 2005 OF
IRELAND.
NOTICE TO RESIDENTS OF THE NETHERLANDS
THE BONDS MAY NOT BE OFFERED, SOLD, TRANSFERRED OR DELIVERED, WHETHER
DIRECTLY OR INDIRECTLY, TO ANY INDIVIDUAL OR LEGAL ENTITY IN THE NETHERLANDS
OTHER THAN TO INDIVIDUALS WHO, OR LEGAL ENTITIES WHICH, IN THE COURSE OF THEIR
OCCUPATION OR BUSINESS, DEAL OR INVEST IN SECURITIES (AS SET OUT IN SECTION 1
OF THE REGULATION OF 9 OCTOBER 1990 IN IMPLEMENTATION OF SECTION 14 OF THE ACT
ON THE SUPERVISION OF INVESTMENT INSTITUTIONS).
NOTICE TO RESIDENTS OF SWEDEN
THIS PROSPECTUS IS FOR THE INTENDED RECIPIENT ONLY AND MAY NOT IN ANY
WAY BE FORWARDED TO ANY OTHER PERSON OR TO THE PUBLIC IN SWEDEN. ACCORDINGLY,
EACH UNDERWRITER HAS REPRESENTED, WARRANTED AND AGREED THAT IT HAS NOT OFFERED
OR SOLD AND WILL NOT OFFER OR SELL THE BONDS IN SWEDEN IN A MANNER THAT WOULD
REQUIRE THE REGISTRATION OF A PROSPECTUS BY THE SWEDISH FINANCIAL SUPERVISORY
AUTHORITY ACCORDING TO THE FINANCIAL INSTRUMENTS TRADING ACT.
NOTICE TO RESIDENTS OF PORTUGAL
THE BONDS HAVE NOT BEEN REGISTERED WITH THE PORTUGUESE EXCHANGE
COMMISSION AND THEREFORE THE BOND OFFERING IS NOT DIRECTED TO PORTUGUESE
RESIDENT INVESTORS AND THE BONDS MAY NOT BE OFFERED OR SOLD TO THE PUBLIC IN
PORTUGAL OR UNDER CIRCUMSTANCES WHICH ARE DEEMED TO BE A PUBLIC OFFER UNDER
THE PORTUGUESE SECURITIES CODE. IN ADDITION, THE PROSPECTUS SUPPLEMENT, THE
PROSPECTUS AND ANY OTHER OFFERING MATERIALS MAY NOT BE AND ARE ONLY BEING
PUBLICLY DISTRIBUTED IN THE ABOVE NOTED JURISDICTIONS WHERE LAWFUL AND NO
PUBLICITY OR MARKETING ACTIVITIES RELATED TO THE BOND OFFERING MAY BE AND IS
NOT BEING CONDUCTED IN PORTUGAL.]
S-20
The information in this prospectus is not complete and may be changed. The
bonds may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION
Preliminary Prospectus dated March 16, 2007
Prospectus
FPL Recovery Funding LLC
Issuing Entity
Senior Secured Bonds
Issuable in Series
Florida Power & Light Company
Seller, Servicer and Sponsor
----------------
Consider carefully the risk factors beginning on page __ of this prospectus.
These securities will be backed primarily by a property right as described in
this prospectus and will be nonrecourse obligations of FPL Recovery Funding
LLC. The storm recovery bonds do not constitute a debt, liability or other
legal obligation of, or interest in, Florida Power & Light Company or any of
its affiliates (other than FPL Recovery Funding LLC).
FPL Recovery Funding LLC
o may periodically offer and sell storm-recovery bonds in one or more
series, each with one or more tranches;
o for each series of storm recovery bonds, will pledge storm-recovery
property, which is a property right established under Florida law and
created through a financing order issued by the Florida Public Service
Commission and which includes the right to impose, collect and receive
an irrevocable non-bypassable charge from all customers receiving
electric transmission or distribution service from Florida Power & Light
Company (or any successor or assignee) in amounts designed to repay that
series, to pay related financing expenses and to fund or replenish one
or more collateral accounts established for that series; and
o for each series of storm recovery bonds, will pledge other assets only
as described in this prospectus
Each series of storm recovery bonds
o will be issued pursuant to a separate indenture; and
o will be payable from amounts on deposit in one or more collateral
accounts held by the indenture trustee for that series, including
collections from the storm-recovery charges pledged for that series.
FPL Recovery Funding LLC does not intend to list the bonds on any
national securities exchange or the Nasdaq Stock Market.
Neither the Securities and Exchange Commission, any state securities
commission nor any other regulatory body has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is ______, 2007.
TABLE OF CONTENTS
Page
About This Prospectus..............................................................................................1
Cautionary Statement Regarding Forward-Looking Statements..........................................................1
Prospectus Summary.................................................................................................2
Parties to Transaction and Responsibilities.................................................................4
Flow of Funds...............................................................................................5
Allocations and Distributions.....................................................................................11
Risk Factors......................................................................................................13
You May Experience Material Payment Delays or Losses due to the Limited Sources of Payment for the Bonds
and Limited Credit Enhancement...........................................................................13
Risks Associated with Potential Judicial, Legislative or Regulatory Actions................................13
Servicing Risks............................................................................................15
Storm-Related Risks........................................................................................17
Risks Associated with Potential Bankruptcy Proceedings.....................................................17
Other Risks Associated with an Investment in the Bonds.....................................................19
The Storm-Recovery Property and the Financing Act.................................................................20
The Storm-Recovery Property................................................................................20
The Financing Act Authorizes Utilities to Recover Storm-Related Costs Through the Issuance of Storm-
Recovery Bonds...........................................................................................20
The Financing Act Provides for the Issuance of Financing Orders............................................21
The Financing Act Provides for the Creation of Storm-Recovery Property to Secure the Bonds.................21
The Financing Act Provides for the Recovery of Storm-Recovery Costs and the Issuance of Storm-Recovery
Bonds....................................................................................................22
The Bonds are Legal Investments for Florida Investors that Require Statutory Authority.....................24
FPL's Financing Order.............................................................................................24
FPL's Storm-Recovery Financing Order.......................................................................24
Storm-Recovery Charges.....................................................................................24
FPSC-Guaranteed True-Up Mechanism..........................................................................26
FPSC-Guaranteed True-Up Mechanism - Credit Risk............................................................27
FPSC-Guaranteed True-Ups: Entire Private Sector Default....................................................27
Bond Issuance Approval Process.............................................................................27
FPL Recovery Funding LLC, the Issuing Entity......................................................................28
Restricted Purpose.........................................................................................28
Our Relationship with FPL..................................................................................29
We are Responsible to the FPSC.............................................................................29
Our Management.............................................................................................29
The Managers' Compensation and Limitation on Liabilities...................................................30
We are a Separate and Distinct Legal Entity................................................................30
Administration Agreement...................................................................................31
Florida Power & Light Company: the Seller and Initial Servicer of the Storm-Recovery Property.....................31
Electric Revenues, Average Number of Customers and Billed Retail Electric Consumption......................31
Percentage Concentration Within FPL's Large Commercial Customers...........................................33
How FPL Forecasts the Number of Customers and the Amount of Electricity Consumption........................33
Forecast Variances.........................................................................................34
Credit Policy; Billing; Collections and Write-Offs; Termination of Service.................................34
Write-Off and Delinquency Experience.......................................................................35
2005 Rate Agreement........................................................................................37
Description of the Bonds..........................................................................................37
General....................................................................................................37
Interest and Principal on the Bonds........................................................................38
Third-Party Credit Enhancement.............................................................................39
Registration and Transfer of the Bonds.....................................................................39
Book-Entry Registration....................................................................................40
Definitive Bonds...........................................................................................42
Optional Redemption........................................................................................43
Conditions of Issuance of Additional Series and Acquisition of Additional Storm-Recovery Property..........43
Allocations as Between Series..............................................................................44
Access of Bondholders......................................................................................44
Reports to Bondholders.....................................................................................44
Continuing Disclosure......................................................................................45
Supplemental Indentures....................................................................................46
Covenants of the Issuing Entity............................................................................48
Events of Default; Rights Upon Event of Default............................................................50
Actions by Bondholders.....................................................................................52
Annual Report of Indenture Trustee.........................................................................53
Annual Compliance Statement................................................................................53
Satisfaction and Discharge of Indenture....................................................................53
Our Legal and Covenant Defeasance Options..................................................................54
The Indenture Trustee.............................................................................................54
Security for the Bonds............................................................................................55
General....................................................................................................55
Pledge of Collateral.......................................................................................55
Security Interest in the Collateral........................................................................56
Description of Indenture Accounts..........................................................................57
i
Page
How Funds in the Collection Account Will Be Allocated......................................................58
Right of Foreclosure.......................................................................................61
State Pledge...............................................................................................61
Weighted Average Life and Related Considerations for the Bonds....................................................61
General....................................................................................................61
The Sale Agreement................................................................................................61
Sale and Assignment of Storm-Recovery Property.............................................................61
Conditions to the Sale of Storm-Recovery Property..........................................................62
Seller Representations and Warranties......................................................................62
Covenants of the Seller....................................................................................65
Indemnification............................................................................................67
Amendment..................................................................................................68
Assumptions of the Obligations of the Seller...............................................................68
The Servicing Agreement...........................................................................................69
Servicing Procedures.......................................................................................69
Servicing Standards and Covenants..........................................................................69
The Florida Commission's Storm-Recovery Charge True-Up Adjustment Process..................................70
Remittances to Collection Account..........................................................................71
Servicing Compensation.....................................................................................71
Servicer Representations and Warranties; Indemnification...................................................72
Matters Regarding the Servicer.............................................................................73
Servicer Defaults..........................................................................................74
Rights When Servicer Defaults..............................................................................74
Waiver of Past Defaults....................................................................................75
Successor Servicer.........................................................................................75
Amendment..................................................................................................75
Evidence as to Compliance..................................................................................76
How a Bankruptcy Might Affect Your Investment.....................................................................77
Challenge to True Sale Treatment...........................................................................77
Consolidation of the Issuing Entity and FPL................................................................78
Status of Storm-Recovery Property as Current Property......................................................78
Estimation of Claims; Challenges to Indemnity Claims.......................................................78
Enforcement of Rights by the Indenture Trustee.............................................................79
Bankruptcy of the Servicer.................................................................................79
Material U.S. Federal Income Tax Consequences.....................................................................79
General....................................................................................................79
Taxation of the Issuing Entity and Characterization of the Bonds...........................................80
Tax Consequences to U.S. Holders...........................................................................80
Tax Consequences to Non-U.S. Holders.......................................................................80
Backup Withholding.........................................................................................81
Material Florida State Tax Consequences...........................................................................82
Certain State Tax Matters..................................................................................82
ERISA Considerations..............................................................................................82
General....................................................................................................82
Regulation of Assets Included in a Plan....................................................................83
Prohibited Transaction Exemptions..........................................................................83
Consultation with Counsel..................................................................................84
Use of Proceeds...................................................................................................84
Plan of Distribution..............................................................................................84
Risk Weighting of the Bonds Under Certain International Capital Guidelines........................................85
Ratings for the Bonds.............................................................................................87
Where You Can Find More Information...............................................................................87
Legal Proceedings.................................................................................................88
Legal Matters.....................................................................................................88
Glossary of Defined Terms.........................................................................................89
ii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement Florida Power &
Light Company, or FPL, has filed with the Securities and Exchange Commission,
or SEC, using a "shelf" registration process. By using this process, we may
offer the bonds in one or more offerings. This prospectus provides you with a
description of the senior secured storm-recovery bonds or bonds, we may offer.
Each time we offer bonds, we will provide a supplement to this prospectus. The
prospectus supplement will describe the specific terms of the offering. The
prospectus supplement may also add or update the information contained in this
prospectus. Please read carefully this prospectus, the prospectus supplement
and the information, if any, contained in the documents we refer to in this
prospectus under the heading "Where You Can Find More Information."
References in this prospectus and prospectus supplement to the terms we,
us, our or the issuing entity mean FPL Recovery Funding LLC. References to the
seller refer to Florida Power & Light Company, or FPL, and any successor or
assignee under a sale agreement described in this prospectus. References to
the servicer refer to FPL and any successor servicer under a servicing
agreement described in this prospectus. Unless the context otherwise requires,
the term customer means a customer receiving transmission or distribution
service from FPL or its successors or assignees under Florida
Commission-approved rate schedules or under special contracts, even if the
customer elects to purchase electricity from an alternative electricity
supplier following a fundamental change in regulation of public utilities in
Florida. References to the Florida Commission or the Commission or the FPSC
refer to the Florida Public Service Commission. References to the Financing
Act mean the Storm-Recovery Financing Act codified as Section 366.8260,
Florida Statutes. You can find a glossary of some of the other defined terms
we use in this prospectus on page ___ of this prospectus.
We have included cross-references to sections in this prospectus where
you can find further related discussions. You can also find key topics in the
table of contents on the preceding pages. Check the table of contents to
locate these sections.
You should rely only on the information contained in this prospectus and
the related prospectus supplement. We have not authorized anyone else to provide
you with any different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an
offer to sell the bonds in any jurisdiction where the offer or sale is not
permitted. The information in this prospectus is current only as of the date
of this prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and each prospectus supplement includes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events of
performance (often, but not always, through the use of words or phrases such
as "will likely result," "are expected to," "will continue," "is anticipated,"
"believe," "could," "estimated," "may," "plan," "potential," "projection,"
"target," "outlook") are not statements of historical facts and may be
forward-looking. Forward-looking statements involve estimates, assumptions and
uncertainties. Accordingly, any such statements are qualified in their
entirety by reference to important factors included in "Risk Factors" herein
(in addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements) that could have a significant
impact on our operations and financial results, and could cause our actual
results to differ materially from those contained in forward-looking
statements made by or on behalf of us in this prospectus, each prospectus
supplement, in presentations, on websites, in response to questions or
otherwise.
Any forward-looking statement speaks only as of the date on which such
statement is made, and neither we nor FPL undertakes any obligation to update
any forward-looking statement to reflect events or circumstances, including
unanticipated events, after the date on which such statement is made. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor
on the business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statement.
1
PROSPECTUS SUMMARY
This summary contains a brief description of the bonds that applies to
all series of bonds issued under this prospectus. Information that relates to
a specific series or tranche of bonds can be found in the prospectus
supplement related to that series or tranche. You will find a detailed
description of the terms of the offering of the bonds in the related
prospectus supplement.
We will purchase storm-recovery property from FPL under one or more sale
agreements and enter into one or more servicing agreements with FPL as
servicer, as described in this prospectus. References to the "sale agreement"
and to the "servicing agreement" in this prospectus and any prospectus
supplement refer to the sale agreement or the servicing agreement relating to
the series of bonds being referenced.
You should consider carefully the Risk Factors beginning on page __ of
this prospectus.
Transaction Overview:
During 2004 and 2005, Florida was struck with a series of hurricanes causing
widespread damage to infrastructure and power outages throughout the State. In
response to the damage to utility infrastructure and to address the adequacies
of reserves set aside to deal with future storm activity, the Florida
legislature enacted the Financing Act.
The Financing Act authorizes electric utilities in Florida, including FPL, to
finance on a long-term basis certain costs incurred as a result of these
storms, which are referred to under the Financing Act and in this prospectus
as storm-recovery costs, as well as reserves and financing costs, through the
issuance of storm-recovery bonds. A Florida utility must apply to the Florida
Commission, for a financing order under the Financing Act to authorize the
issuance of storm-recovery bonds. FPL applied for the first financing order
under the Financing Act, which was issued by the Florida Commission on May 30,
2006, as amended on July 21, 2006. We refer to this financing order as the
financing order. The financing order authorizes the issuance of up to
$708,000,000 in storm-recovery bonds, which are the bonds offered by this
prospectus. Please refer to "FPL's Financing Order" in this prospectus.
Pursuant to the financing order, FPL is authorized to impose a usage based,
non-bypassable charge, which is referred to under the Financing Act and in
this prospectus as a storm-recovery charge, to finance on a long-term basis
storm-recovery costs, which costs include the funding of reserves and payment
of related financing costs, including the costs of repaying the bonds. The
financing order requires that these storm-recovery charges must be adjusted no
less often than semiannually to ensure that storm-recovery charges are
sufficient to pay scheduled principal and interest on the bonds and other
costs, including fees and expenses, in connection with the bonds on a timely
basis. Under the financing order, all of FPL's customers (i.e., all customers,
including individuals, corporations, other businesses, and federal, state and
local governmental entities, who receive transmission or distribution service
from FPL or its successors or assignees under Florida Commission-approved rate
schedules or under special contracts), are required to pay storm-recovery
charges even if the customer elects to purchase electricity from an
alternative electricity supplier following a fundamental change in regulation
of public utilities in Florida. Under current law, customers of FPL cannot buy
their electricity from alternative electric suppliers.
Under the Financing Act, the right of FPL to impose, collect, receive and
adjust storm-recovery charges, together with related rights under a financing
order, constitute a property right, which FPL may sell to an affiliate, such
as us, and which we may pledge to secure the repayment of storm-recovery
bonds. This property right is referred to under the Financing Act as
storm-recovery property. The storm-recovery property is not a receivable and
the principal credit supporting the storm-recovery bonds is not a pool of
receivables.
2
The Financing Act further provides that the right to collect storm-recovery
charges is irrevocable, and not subject to reduction, impairment or adjustment
by action of the Florida Commission, other than periodic adjustments
authorized by the Financing Act and the financing order.
FPL will sell storm-recovery property created pursuant to the financing order
(excluding the right to recover taxes) to us, as the issuing entity. In this
prospectus, we refer to the storm-recovery property sold to us as
storm-recovery property. FPL will also act as the initial servicer of the
storm-recovery property and act as our administrator. We will issue bonds
under an indenture to fund the purchase of the storm-recovery property. The
bonds of each series will be secured only by the storm-recovery property sold
to us on the date of issuance of such series (or the issue date) of the bonds,
and any other collateral under the related indenture.
We may not issue additional bonds except as authorized under the financing
order and as provided in the indenture(s).
The bonds do not represent obligations of or interests in the indenture
trustee, our managers, FPL or any of their affiliates other than us. The bonds
are not a debt or general obligation of the State, the Florida Commission or
any other governmental agency or instrumentality, and are not a charge on the
full faith and credit or taxing power of the State or any other governmental
agency or instrumentality. However, the State and other governmental entities,
to the extent they are customers, will be obligated to pay storm-recovery
charges securing the bonds.
3
Parties to Transaction and Responsibilities
The following chart represents a general summary of the parties to the
transactions underlying the offering of bonds, their roles and their various
relationships to the other parties:
----------------------------------------------------------------------
Approximately 4.4 million Customer Accounts*
----------------------------------------------------------------------
| /|\ /|\
| | | Issues Financing Order;
| | | Approves Storm-Recovery
| | | Charges on Customer Bills
Pay Storm-Recovery | | Bills -----------------------------------
Charges based on | | Customers Florida Public Service
Consumption | | for Commission (FPSC)
| | Storm- -----------------------------------
| | Recovery /|\
| | Charges | Calculates Charges by
| | | Customer Rate Class to
| | | meet Payment Schedule;
| | | Prepares True-Up; Submits
\|/ | | Filings to FPSC
----------------------------------------------------------------------
Florida Power & Light Company (FPL)
(Seller and Servicer)
----------------------------------------------------------------------
| /|\
| | Issues the Bonds;
Remits Storm-Recovery | | Purchases Storm-Recovery
Charge Payments | | Property from FPL; Pledges
| | Storm-Recovery Property to
| | Indenture Trustee as
\|/ | Collateral for the Bonds
---------------------------- -----------------------------------
Indenture Trustee FPL Recovery Funding LLC
---------------------------- (Issuing Entity)
| -----------------------------------
|
Pays Principal and |
Interest |
|
\|/
------------------------------
Bondholders
------------------------------
___________________________
*On average, during 2006
4
Flow of Funds
The following chart represents a general summary of the flow of funds:
Storm-Recovery
- ---------------------- Charge Collections
Customers ---------|
|
- ---------------------- |
|
|
\|/ Storm-Recovery
----------------------- Charge Collections
Servicer:
Florida Power & Light --------|
Company (Regulated by |
FPSC) |
----------------------- |
| \|/
| ---------------------
| Indenture Trustee --------|
| --------------------- |
| | | Principal and Interest
----------------------------------- | | Payments ($)
| \|/
-------------------------- | ------------
|
Issuing Entity: -------| Bondholders
FPL Recovery Funding LLC
------------
--------------------------
Bankruptcy Remote
-----------------------------------
5
Issuing Entity:
FPL Recovery Funding LLC is a special purpose Delaware limited liability
company. FPL is our sole member and owns all of our equity interests. We were
formed solely for the purpose of purchasing and owning the storm-recovery
property, issuing storm-recovery bonds from time to time (including the bonds)
and performing activities incidental thereto. Please read "FPL Recovery
Funding LLC, the Issuing Entity" in this prospectus.
Our Address:
700 Universe Boulevard, Juno Beach, FL 33408
Our Telephone Number:
(561) 694-4000
Our Relationship with FPL:
On the issue date for the bonds, FPL will sell storm-recovery property to us
pursuant to a sale agreement between us and FPL and FPL will also service the
storm-recovery property pursuant to a servicing agreement between us and FPL.
Please read "FPL Recovery Funding, LLC, The Issuing Entity--Our Relationship
with FPL," "The Sale Agreement" and "The Servicing Agreement" in this
prospectus. FPL will also provide certain administrative services to us,
pursuant to an administration agreement.
We Are Responsible to the FPSC:
We are responsible to the Florida Commission on an ongoing basis as provided
in our organization documents, the transaction documents and the financing
order. Please read "FPL Recovery Funding, LLC, The Issuing Entity--We Are
Responsible to the FPSC" in this prospectus.
Seller, Initial Servicer and Administrator:
FPL, a Florida corporation, is a rate-regulated utility engaged primarily in
the generation, transmission, distribution and sale of electric energy
throughout most of the east and lower west coasts of Florida. During 2006, FPL
provided electric service to a population of more than 8.5 million and served on
average approximately 4.4 million customer accounts. FPL is an operating
subsidiary of FPL Group, Inc., or FPL Group, a Florida corporation based in
Juno Beach, Florida. Neither FPL nor FPL Group is an obligor of the bonds. For
further information about FPL, please read "Florida Power & Light Company: the
Seller and Initial Servicer of the Storm-Recovery Property" in this
prospectus.
FPL's Address:
700 Universe Boulevard, Juno Beach, FL 33408
FPL's Telephone Number:
(561) 694 - 4000
Indenture Trustee:
The indenture trustee for each series of bonds will be specified in the
applicable prospectus supplement.
Security for the Bonds:
The bonds are secured only by assets pledged by us under the related
indenture, consisting principally of the storm-recovery property and funds on
deposit in the collection account and subaccounts. Please read "Security for
the Bonds" in this prospectus. The storm-recovery property securing the bonds
of any series consists of the rights and interests of FPL (excluding the right
to recover taxes) under the financing order, and sold to us in connection with
the issuance of the bonds. The storm-recovery property includes the
irrevocable right to impose, collect and receive a non-bypassable
storm-recovery charge from all customers receiving transmission or
distribution service from FPL or its successors or assignees under Florida
Commission-approved rate schedules or under special contracts, even if the
customer elects to purchase electricity from an alternative electricity
supplier following a fundamental change in regulation of public utilities in
Florida. The Financing Act and the irrevocable financing order together
require that storm-recovery charges will be imposed on all such customers, and
will be reviewed and adjusted at least semiannually to ensure that
storm-recovery
6
charges are sufficient to pay scheduled principal and interest on the bonds,
and other costs, including fees and expenses, in connection with the bonds on
a timely basis. Please read "FPL's Financing Order--FPSC-Guaranteed True-Up
Mechanism" in this prospectus.
The storm-recovery property is not a receivable and the principal credit
supporting the bonds is not a pool of receivables. The storm-recovery property
is a present property right created by the Financing Act and the financing
order and is protected by the state pledge described in this prospectus and in
this Prospectus Summary.
Storm-recovery property is discussed in more detail under "The Storm-Recovery
Property and the Financing Act" and "FPL's Financing Order" in this
prospectus. The storm-recovery property and all other assets that we pledge to
an indenture trustee as security for the bonds of any series are referred to
in this prospectus as collateral.
Non-bypassable charges:
Under the Financing Act, the storm-recovery charges are collectible from all
existing and future customers receiving transmission or distribution service
from FPL or its successors or assignees under Florida Commission-approved
rates or special contracts. Such customers must pay storm-recovery charges
even if FPL goes out of business and its transmission and distribution
services are taken over by another utility or municipalized. Please read "The
Storm-Recovery Property and the Financing Act--The Financing Act Provides for
the Recovery of Storm-Recovery Costs and the Issuance of Storm-Recovery
Bonds--Customers Cannot Avoid Storm-Recovery Charges" in this prospectus.
Credit Enhancement:
Unless otherwise specified in the prospectus supplement for any series, credit
enhancement for the bonds will be as follows:
o FPSC-Guaranteed True-Up Mechanism For Payment of Scheduled Principal and
Interest--Storm-recovery charges imposed on all customers will be
reviewed and adjusted not less often than semiannually to ensure the
expected recovery of amounts sufficient to provide for the payment of
scheduled principal and interest on the bonds and other costs, including
fees and expenses, in connection with the bonds on a timely basis. We
sometimes refer to these adjustments as the FPSC-guaranteed true-up
mechanism or the true-up mechanism. If bonds are outstanding following
the latest scheduled final payment date for such bonds, adjustments to
the storm-recovery charges will be made quarterly and, if bonds are
outstanding after the date that is one year before the final maturity
date of the bonds, monthly, to reconcile actual storm-recovery charge
collections with payment requirements.
The Florida Commission has guaranteed pursuant to its irrevocable
financing order, as expressly required by the Financing Act, that it
will act to ensure that storm-recovery charges are sufficient to pay
principal and interest on the bonds and other costs, including fees and
expenses, in connection with the bonds on a timely basis. Please read
"FPL's Financing Order--FPSC-Guaranteed True-Up Mechanism."
There is no cap on the level of storm-recovery charges that may be
imposed on customers as a result of the true-up process. There is no
time limit on the authority to impose, bill and collect storm-recovery
charges.
o Collection account--Each indenture trustee will hold a collection
account, divided into various subaccounts for the series of bonds
secured under the indenture. The primary subaccounts for credit
enhancement purposes are:
7
- Capital subaccount--On the date of issuance, FPL, in its capacity
as our sole member, will deposit into the capital subaccount
established under the indenture an amount equal to 0.50% of the
initial principal amount of the bonds (or such other amount as may
be specified in the related prospectus supplement); we refer to
this as the required capital amount. Any shortfall in the capital
subaccount will be included in the periodic adjustment of the
storm-recovery charges and be replenished from storm-recovery
charge collections.
- Excess funds subaccount--All amounts (including all investment
earnings other than investment earnings on amounts in the capital
subaccount) that, as of a payment date, are not needed to pay debt
service on the bonds (in accordance with the expected sinking fund
schedule) and related expenses and to replenish the capital
subaccount will be held in the excess funds subaccount.
Amounts held in each of these subaccounts and investment earnings thereon
(other than investment earnings on amounts in the capital subaccount released
to us) will be available to make payments on each payment date. Please read
"Security for the Bonds--How Funds in the Collection Account Will Be
Allocated."
Master Trust Structure; Issuance of Additional Series:
The indenture has been structured so that we operate as a master trust in that
we may, subject to the terms of the financing order but without your prior
review or approval, acquire additional storm-recovery property created under
the financing order and issue one or more additional series of storm-recovery
bonds which are backed by such storm-recovery property, all of which
storm-recovery bonds will be paid through collections of additional
storm-recovery charges from the same group of FPL customers. The aggregate
outstanding amount of storm-recovery bonds that may be issued by us may not
exceed $708 million, which is the aggregate amount of storm-recovery bonds
authorized under the financing order. Any series may include terms and
provisions unique to that particular series. We may not issue additional
storm-recovery bonds nor may FPL sell storm-recovery property to other
entities issuing storm-recovery bonds if the issuance would result in the
credit ratings on any outstanding series of storm-recovery bonds being reduced
or withdrawn. It will be a condition of our issuance for each series of
storm-recovery bonds that the new series be rated "Aaa" by Moody's, "AAA" by
S&P and "AAA" by Fitch. Please read "Description of the Bonds--Conditions
of Issuance of Additional Series and Acquisition of Additional Storm-Recovery
Property" in this prospectus.
Allocations Among Series:
The bonds will not be subordinated in right of payment to any other series of
storm-recovery bonds issued by us. Each series of storm-recovery bonds will be
issued under a separate indenture and will be secured by its own
storm-recovery property, which will include the right to impose, collect and
receive storm-recovery charges calculated in respect of that series, and the
right to impose true-up adjustments to correct overcollections or
undercollections in respect of that series. Each series will also have its own
collection account, including any related subaccounts, into which collections
of the storm-recovery charges relating to that series will be deposited and
from which amounts will be withdrawn to pay the related series of
storm-recovery bonds. Holders of one series of storm-recovery bonds will have
no recourse to collateral for a different series. In the event that more than
one series of storm-recovery bonds is issued, the administration fees,
independent manager fees and other operating expenses payable by us on any
payment date will be assessed to each series on a pro rata basis, based upon
the respective outstanding amounts of each series. Please read "Security for
the Bonds--How Funds in the Collection Account Will Be Allocated" in this
prospectus.
8
The financing order requires storm-recovery charges to be shown as a separate
line item on the periodic bills sent to customers. Although each series will
have its own storm-recovery property reflecting the right to impose, bill,
collect and receive a separate storm-recovery charge, storm-recovery charges
relating to each series of bonds will be collected through single periodic
bills to each customer, and all storm-recovery charges might be combined into
a single line item on those periodic bills. In the event a customer does not
pay in full all amounts owed under any bill including storm-recovery charges,
FPL is required to allocate any resulting shortfalls in storm-recovery charges
ratably based on the amounts of storm-recovery charges owing in respect of
each series of bonds. Please read "The Servicing Agreement--Remittances to
Collection Account" in this prospectus.
State Pledge:
The State of Florida has pledged to storm-recovery bondholders (including the
holders of the bonds of each series) that it will not:
o alter the provisions of the Financing Act which make the storm-recovery
charges imposed by the financing order irrevocable, binding, and
nonbypassable charges;
o take or permit any action that impairs or would impair the value of
storm-recovery property; or,
o except as allowed under the Financing Act with respect to the true-up
mechanism, reduce, alter, or impair storm-recovery charges that are to
be imposed, collected, and remitted for the benefit of the bondholders
and other financing parties until any and all principal, interest,
premium, financing costs and other fees, expenses, or charges incurred,
and any contracts to be performed, in connection with the storm-recovery
bonds have been paid and performed in full.
Nothing in this pledge shall preclude limitation or alteration if full
compensation is made by law for the full protection of the storm-recovery
charges collected pursuant to a financing order and of the holders of
storm-recovery bonds and any assignee or financing party entering into a
contract with the electric utility. Please read "Risk Factors--Risks
Associated with Potential Judicial, Legislative or Regulatory Actions--Future
Florida Legislative Action Might Invalidate the Bonds or the Storm-Recovery
Property."
The bonds will not be a debt or general obligation of the State, the Florida
Commission or any other governmental agency or instrumentality, and are not a
charge on the full faith and credit or taxing power of the State or any other
governmental agency or instrumentality. However, the State and other
governmental entities, to the extent that they are customers, will be
obligated to pay storm-recovery charges securing the bonds.
Reports to Bondholders:
Pursuant to each indenture, the indenture trustee will provide to the holders
of record of the bonds regular reports prepared by the servicer containing
information concerning, among other things, us and the collateral for the
bonds. Unless and until the bonds are registered in other names, the reports
will be provided to The Depository Trust Company. The reports will be
available to beneficial owners of the bonds upon written request to the
indenture trustee. These reports will not be examined and reported upon by an
independent public accountant. Please read "Description of the Bonds--Reports
to Bondholders."
Continuing Disclosure:
Each indenture under which the bonds of a series will be issued requires all
of the periodic reports that we file with the SEC, the principal transaction
documents and other information concerning the storm-recovery charges and
security relating to such series of bonds to be posted on the website
associated with our parent company, currently
9
located at www.fpl.com.
Tax Treatment:
Fully taxable; treated as debt for U.S. federal income tax purposes. Please
read "Material U.S. Federal Income Tax Consequences" and "Material Florida
State Tax Consequences" in this prospectus.
ERISA Eligible:
Yes. Pension plans and other investors subject to ERISA may acquire the bonds
subject to specified conditions. The acquisition and holding of the bonds
could be treated as a direct or indirect prohibited transaction under ERISA.
Accordingly, by purchasing the bonds, each investor purchasing on behalf of a
pension plan will be deemed to certify that the purchase and subsequent
holding of the bonds would be exempt from the prohibited transaction rules of
ERISA. Please read "ERISA Considerations" in this prospectus.
Interest Rates; Payments of Interest and Principal:
Interest on each tranche of each series of bonds will accrue at the interest
rate specified in the prospectus supplement. On each payment date, the
indenture trustee will pay interest accrued on each tranche of bonds, and the
scheduled principal payment for that tranche, if any, to the extent funds are
available therefor, until the outstanding principal balance of that tranche is
reduced to zero.
Failure to pay the entire outstanding principal amount of the bonds of any
tranche by the final maturity date for such tranche will result in an event of
default. Please read "Description of the Bonds--Events of Default; Rights Upon
Event of Default" in this prospectus.
Payment and Record Dates:
Interest and principal payment dates of any series of bonds will be specified
in the prospectus supplement. So long as the bonds are in book-entry form, the
record date for any payment of interest on or principal of the bonds will be
the business day immediately before the payment date.
Optional Redemption:
No bonds of any series will be subject to optional redemption.
Allocation of Payments:
The following chart summarizes the allocation and distribution priority of
payments under the indenture. Please read "Security for the Bonds--How Funds
in the Collection Account Will Be Allocated."
10
ALLOCATIONS AND DISTRIBUTIONS
---------------------------------
FPL
(Servicer)
--------------------------- ---------------------------------
|
Indenture Trustee | Storm-Recovery Charges
|
--------------------------- \|/
| ---------------------------------
|
| COLLECTION
-------------------------------- ACCOUNT
---------------------------------
| application
| amounts in
| collection
\|/ account
-------------------------------------------------------------------------------------------------------------------------
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
1 2 3 4 5 6 7 8 9 10
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
Indenture Administrator: Bondholders:
Trustee: fixed principal Issuing
indenture administration Issuing Bondholders: payable as Entity: Issuing Excess
trustee's Servicer: fee Entity: Interest a result of remaining Capital Entity: funds
fees fixed ordinary for acceleration, unpaid subaccount: release of subaccount:
and certain servicing Issuing periodic applicable final operating replenishment interest Remainder
expenses fee Entity; operating payment maturity expenses, of drawn earnings to
and fixed expenses date or per amounts owed amounts on excess
indemnity fees of expected under basic capital funds
amounts independent amortization documents subaccount subaccount
managers
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
11
Ratings of the Bonds:
It will be a condition of issuance of each series of bonds that the bonds be
rated "Aaa" by Moody's Investors Service, Inc. or Moody's, "AAA" by Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies or S&P,
and "AAA" by Fitch Ratings or Fitch. Please read "Ratings for the Bonds" and
"Risk Factors--Other Risks Associated with an Investment in the Bonds" in this
prospectus.
12
RISK FACTORS
Please carefully consider all the information we have included or
incorporated by reference in this prospectus and the related prospectus
supplement, including the risks described below and the statements in
"Cautionary Statement Regarding Forward-Looking Statements," before deciding
whether to invest in the bonds.
You May Experience Material Payment Delays or Losses due to the Limited
Sources of Payment for the Bonds and Limited Credit Enhancement
You may suffer material payment delays or losses on your bonds if the
collateral securing your bonds is insufficient to pay the accrued interest on
and the principal amount of those bonds in full. The only source of funds for
payments of interest on and principal of each series of bonds will be the
collateral for that series. The collateral for each series of bonds will be
limited to:
o the storm-recovery property securing such series of bonds,
including the right to impose, collect and receive storm-recovery
charges;
o the funds on deposit in the accounts held by the indenture trustee
under the related indenture;
o our rights under various contracts we describe in this prospectus;
and
o any credit enhancement as set forth in this prospectus and in the
related prospectus supplement.
The bonds will not be insured or guaranteed by FPL, including in its
capacity as servicer, or by its parent, FPL Group, any of their respective
affiliates, the applicable indenture trustee or any other person or entity.
The bonds will be our nonrecourse obligations, secured only by the collateral.
The bonds are not a debt or general obligation of the State, the Florida
Commission or any other governmental agency or instrumentality, and are not a
charge on the full faith and credit or taxing power of the State or any other
governmental agency or instrumentality. However, the State and other
governmental entities, to the extent that they are customers, will be
obligated to pay storm-recovery charges securing the bonds.
Risks Associated with Potential Judicial, Legislative or Regulatory Actions
Future Legal Action Might Challenge or Invalidate the Financing Act or
Financing Order and Materially Adversely Affect Your Investment. The
storm-recovery property is created pursuant to the Financing Act and a
financing order issued by the Florida Commission pursuant to the Financing
Act. The Financing Act was enacted in June 2005. FPL is the first utility to
issue bonds under the Financing Act.
The Financing Act or any provisions thereof might be directly contested
in courts or otherwise become the subject of litigation. As of the date of
this prospectus, no such litigation has arisen; however, we cannot assure you
that a lawsuit challenging the validity of the Financing Act will not be filed
in the future or that, if filed, such lawsuit will not be successful. If an
invalidation of any relevant underlying legislative provision or financing
order provision were to result from such litigation, you may lose some or all
of your investment or you may experience delays in recovering your investment.
Please read "The Storm-Recovery Property and the Financing Act" in this
prospectus.
Laws with financing provisions similar to some provisions of the
Financing Act have been enacted in other states, and some of these laws have
been challenged by judicial actions. To date, none of these challenges has
succeeded; however, a court might yet overturn a similar statute in another
state, which might give rise to a challenge to the Financing Act or a
financing order. Therefore, legal activity in other states might indirectly
affect the value of your investment.
Neither we nor FPL, nor any affiliate, successor or assignee, will
indemnify you for any changes in the law, including any amendment or repeal of
the Financing Act, that might affect the value of the bonds. FPL or a
successor or assignee might, however, have to indemnify us if legal action
based on law in effect at the time of the issuance of the bonds invalidates
the storm-recovery property. Please read "The Sale
Agreement--Indemnification."
13
Future Florida Legislative Action Might Invalidate the Bonds or the
Storm-Recovery Property. Under the Financing Act, the State of Florida has
pledged not to alter the provisions of the Financing Act which make the
storm-recovery charges imposed by a financing order irrevocable, binding and
nonbypassable, or take any action which impairs or would impair the value of
the storm-recovery property. For a description of this state pledge, please
read "The Storm-Recovery Property and the Financing Act--The Financing Act
Provides for the Recovery of Storm-Recovery Costs and the Issuance of
Storm-Recovery Bonds--The Financing Act Contains a State Pledge" in this
prospectus. Despite the state pledge, the Florida legislature might attempt to
repeal the Financing Act, or attempt to amend the Financing Act, or, as
described below, the Florida Commission might take certain actions that impair
the storm-recovery property. As of the date of this prospectus, we are not
aware of any pending legislation in the Florida legislature that would affect
any provisions of the Financing Act.
In addition, the citizens of the State of Florida have the right to
amend the Florida constitution through initiative powers; however, the voters
do not have the right to amend statutes through either the initiative or
referendum power. Thus, it is possible that the voters of Florida, using their
initiative powers, might amend or repeal the constitution in a manner
affecting the Financing Act. The power to propose a revision or amendment to
the Florida Constitution by initiative may be invoked by filing a petition
signed by a number of voters in each of one-half of the congressional
districts of the State, and of the State as a whole, equal to 8% of the votes
cast in each district and in the State as a whole in the last election in
which presidential electors were chosen. If this requirement is met, the
amendment would be placed on a statewide ballot for approval by 60% of the
State voters voting at the election (unless a different approval vote is
required by the constitution for a particular amendment). We are unaware of
any efforts to amend the constitution in a manner which would affect the
Financing Act in any way.
Further, nothing in the state pledge precludes any limitation or
alteration of the Financing Act or a financing order if full compensation is
made by law for the full protection of the storm-recovery charges collected
pursuant to a financing order and of the holders of the bonds. It is unclear
what "full compensation" and "full protection" would be afforded to holders of
the bonds by the State if such limitation or alteration were attempted.
Accordingly, no assurance can be given that any such provision would not
adversely affect the market value of the bonds, or the timing or receipt of
payments with respect to bonds.
In the opinion of Sidley Austin LLP, counsel to FPL and us, with respect
to applicable federal constitutional principles relating to the impairment of
contracts, absent a demonstration that such action or inaction was necessary
to serve a significant and legitimate public purpose, the bondholders (or the
indenture trustee acting on their behalf) could successfully challenge the
constitutionality of any law subsequently passed by the Florida legislature,
any law voted by the people as a State constitutional amendment, any action of
the Florida Commission exercising legislative powers, or any refusal to take
any action required by the state pledge that limits, alters, impairs or
reduces the value of the storm-recovery property so as to impair the terms of
the indenture, the bonds, the storm-recovery charges or the rights and
remedies of bondholders (or the indenture trustee acting on their behalf) if
the repeal or amendment or the action or inaction would substantially impair
the rights of the owners of the storm-recovery property or the bondholders. In
the opinion of Squire, Sanders & Dempsey LLP, counsel to FPL and to us, under
applicable Florida constitutional principles relating to the impairment of
contracts, absent a demonstration that such action or inaction was necessary
to serve a legitimate and important public purpose, the state pledge provides
a basis upon which the bondholders (or the indenture trustee acting on their
behalf) could successfully challenge any law subsequently passed by Florida
legislature, any law voted by the people as a constitutional amendment, or any
action of the Florida Commission exercising legislative powers or any refusal
to take any action required by the state pledge determined by the court to
reduce, alter or impair the value of the storm-recovery property so as to
substantially impair the rights of the owners of the storm-recovery property
or the bondholders. However, it might be possible for the Florida legislature
to enact legislation, for the people of the State of Florida to pass a
constitutional amendment, or for the Florida Commission to take action
exercising legislative powers or to refuse to take action required by the
state pledge that would impair the rights and remedies of bondholders without
giving rise to an impairment of contract under federal and State
constitutional principles, if such action or inaction occurs in order to serve
a significant and legitimate public purpose (a legitimate and important public
purpose under Florida law), such as protecting the public health and safety,
or responding to a national or regional catastrophe affecting FPL's service
area (such as a catastrophic hurricane or series of hurricanes), or if such
action or inaction otherwise is in the valid exercise of the State's police
power.
Any such action or inaction by the State adversely affecting the
storm-recovery property or the ability to collect storm-recovery charges might
be considered a "taking" under the United States or Florida constitution. The
State may then be obligated to pay the estimated value of the storm-recovery
property at the time of the taking. We cannot assure you of the likelihood or
legal validity of any action of this type by the State, or whether the action
or inaction would be considered a taking. Even if such State action or
inaction is treated as a taking and the State provides you with an amount
deemed to be full compensation, that amount might not be sufficient for you to
fully recover your investment.
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We cannot assure you that a repeal of or amendment to the Financing Act
will not be sought or adopted or that any action or inaction by the State of
Florida adverse to your investment in the bonds will not occur. The seller and
the servicer have agreed to take legal or administrative action, including
instituting legal action, as may be reasonably necessary to attempt to block
or overturn any attempts to cause a repeal of or amendment to the Financing
Act or a modification of the financing order or storm-recovery property.
However, enforcement of any rights against the State or the Florida Commission
under the state pledge may be subject to the exercise of judicial discretion
in appropriate cases and to the limitations on legal remedies against State
and local governmental entities in Florida. These limitations might include,
for example, the necessity to exhaust administrative remedies prior to
bringing suit in a court, or limitations on type and locations of courts in
which the State or the Commission may be sued.
Except as described in "The Sale Agreement--Indemnification," neither we
nor FPL nor any successor or assignee will indemnify you for any changes in
the law, including any amendment or repeal of the Financing Act, that might
affect the value of the bonds.
The Florida Commission Might Attempt to Take Actions Which Could Reduce
the Value of Your Investment. The Financing Act provides that the financing
order issued to FPL, or any successor or assignee, is irrevocable upon
issuance of the bonds and is not subject to amendment, modification or
termination by further action of the Florida Commission, except for the
periodic true-up adjustments. Apart from the financing order, the Florida
Commission retains the power to adopt, revise or rescind rules or regulations
affecting the seller or a successor utility. The Florida Commission also
retains the power to interpret and implement the financing order. Any new or
amended regulations or orders by the Florida Commission, for example, could
affect the ability of the servicer to collect the storm-recovery charges in
full and on a timely basis. The servicer has agreed to take legal or
administrative action to resist any Florida Commission rule, regulation or
decision that would violate the state pledge. We cannot assure you that the
servicer would be successful in its efforts. Thus, future Florida Commission
rules, regulations or decisions might adversely affect the rating of the
bonds, their price or the rate of storm-recovery charge collections and,
accordingly, the amortization of bonds and their weighted average lives. As a
result, you could suffer a loss of your investment.
The servicer is required to file with the Florida Commission, on our
behalf, periodic true-up adjustments of the storm-recovery charges. The
Florida Commission is obligated under the financing order to administratively
approve the requested adjustment (including, if applicable, the correction of
any mathematical error in such calculations) within 60 days of the date of the
request for adjustment. Please read "FPL's Financing Order--FPSC- Guaranteed
True-Up Mechanism" and "The Servicing Agreement--The Florida Commission's
Storm-Recovery Charge Adjustment Process." However, true-up adjustments could
be challenged, and any such challenge could result in costly and
time-consuming litigation, and such litigation could result in a shortfall or
material delay in storm-recovery charge collections.
A Municipal Entity May Seek To Acquire Portions Of FPL's Electric
Distribution Facilities And Avoid Payment Of The Storm-Recovery Charges.
Florida law authorizes municipalities to seek to acquire portions of FPL's
electric distribution facilities through voluntary transactions or the power
of eminent domain for use as part of municipally-owned utility systems.
Although the power of eminent domain has not been used by municipalities in
Florida in recent times to acquire electric distribution systems, there was
one such voluntary transaction in 2005 and others are reportedly under
consideration. There can be no assurance that one or more municipalities will
not seek to acquire some or all of FPL's electric distribution facilities
while bonds remain outstanding. The Financing Act specifies that
storm-recovery charges approved by a financing order shall be collected by an
electric utility as well as its "successors or assignees." In the servicing
agreement, FPL has covenanted to assert in an appropriate forum that any
municipality that acquires any portion of FPL's electric distribution
facilities by eminent domain must be treated as a successor to FPL under the
Financing Act and the financing order and that customers in such
municipalities remain responsible for payment of storm-recovery charges.
However, the involved municipality might assert that it should not be treated
as a successor to FPL for these purposes and that its distribution customers
are not responsible for payment of storm-recovery charges. In any case,
we cannot assure you that the storm-recovery charges will be collected
from customers of municipally-owned utilities who were formerly customers of
FPL and that such an occurrence might not affect the timing or receipt of
payments with respect to the bonds.
Servicing Risks
Inaccurate Forecasting of Electricity Consumption or Unanticipated
Delinquencies or Charge-offs Could Result in Insufficient Funds. The
storm-recovery charges are generally assessed based on customer usage, i.e.,
kilowatt-hours of electricity consumed by customers. The storm-recovery
charges are calculated by the servicer according to the methodology
15
approved by the financing order, which includes the allocation of cost
responsibility among customer rate classes based upon the cost
responsibilities approved in FPL's most recent filed rate case. In addition,
the servicer is required to file with the Florida Commission, on our behalf,
periodic true-up adjustment requests for the storm-recovery charges. These
adjustments are intended to provide, among other things, for timely payment of
the bonds, but the frequency of these adjustments is limited. The servicer
will generally base its adjustments on any shortfalls during the prior
adjustment period and on projections of future electricity usage and the
customers' ability to pay their electric bills in full and on a timely basis.
Please read "The Servicing Agreement--The Florida Commission's Storm-Recovery
Charge Adjustment Process." If the servicer inaccurately forecasts electricity
consumption or underestimates customer delinquencies or write-offs when
setting or adjusting the storm-recovery charges, or if the effectiveness of
the adjustments is delayed for any reason, there could be a shortfall or
material delay in storm-recovery charge payments. A shortfall or material
delay in collecting storm-recovery charges could result in payments of
principal of the bonds not being made according to the expected sinking fund
schedule and a lengthened weighted average life of the bonds.
Inaccurate forecasting of electricity consumption by the servicer could
result from, among other things:
o warmer winters or cooler summers than forecasted, resulting in
less electricity consumption than forecasted;
o general economic conditions being worse than expected, causing
customers to migrate from FPL's service territory or reduce their
electricity consumption;
o the occurrence of a natural disaster, such as a hurricane, or an
act of war or terrorism or other catastrophic events unexpectedly
disrupting electrical service and reducing usage;
o unexpected problems with energy generation, transmission or
distribution resulting from a change in the market structure of
the electric industry;
o large customers unexpectedly ceasing business or departing FPL's
service territory;
o dramatic and unexpected changes in energy prices resulting in
decreased consumption;
o customers consuming less electricity than forecasted because of
increased conservation efforts or increased electric usage
efficiency; or
o large customers switching to alternative sources of energy,
including self-generation or co-generation of electric power in
some cases without using FPL's transmission or distribution
system. Self-generators that receive no transmission or
distribution service from FPL are not liable for the
storm-recovery charge. The Financing Act and financing order do
not provide for exit fees to be charged to any customers that
might leave the grid to self-generate. Please read "The
Storm-Recovery Property and the Financing Act" in this prospectus.
Inaccurate forecasting of delinquencies or charge-offs by the servicer
could result from, among other things:
o unexpected deterioration of the economy, the occurrence of a
natural disaster, an act of war or terrorism or other catastrophic
events causing greater charge-offs than expected or forcing FPL or
a successor utility to grant additional payment relief to more
customers;
o an unexpected change in law that makes it more difficult for FPL
or a successor distribution company to terminate service to
nonpaying customers, or that requires FPL or a successor to apply
more lenient credit standards for customers; or
o the unexpected introduction into the energy markets, as a result
of a fundamental change in the regulation of electric utilities in
Florida, of alternative energy suppliers who are authorized to
collect payments arising from the storm-recovery charges, but who
may fail to remit customer charges to the servicer in a timely
manner.
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Changes to Billing and Collection Practices Might Reduce the Amount of
Funds Available for Payments on the Bonds. The methodology of determining the
amount of the storm-recovery charge billed to each customer is specified in
the financing order. Although FPL may not change this methodology, FPL, as
servicer, may set, and may change, its own billing and collection arrangements
with each customer. For example, to recover part of an outstanding electricity
bill, FPL might agree to extend a customer's payment schedule or to write-off
the unpaid portion of the bill. Similarly, the Florida Commission might
require changes to these practices. Under the methodology specified in the
financing order, this might result in an extension of the customer's payment
of storm-recovery bond charges. Thus, any changes in billing and collection
practices or regulations might make it more difficult for the servicer to
collect the storm-recovery bond charge, and might adversely affect the value
of the bonds and their weighted average lives. The servicing agreement
provides, however, that the servicer will not take any action that will
adversely impair our interest in the storm-recovery property.
Storm-Related Risks
Storm Damage to the Service Area Could Impair Payment of the Bonds. FPL's
service area was impacted by seven severe hurricanes in 2004 and 2005,
disrupting FPL's operations, depleting its storm-recovery reserve and (with
storm damage to other utilities) leading the Florida legislature to enact the
Financing Act. Future storms could have similar effects. Transmission,
distribution and usage of electricity could be interrupted temporarily,
reducing the collections of storm-recovery charges. There could be
longer-lasting weather-related adverse effects on residential and commercial
development and economic activity in the FPL service area, which could cause
the per-kWh storm-recovery charge to be greater than expected. Legislative
action adverse to the bondholders might be taken in response, and such
legislation, if challenged as violative of the state pledge, might be defended
on the basis of public necessity. Please read "The Storm-Recovery Property and
the Financing Act--The Financing Act Provides for the Recovery of
Storm-Recovery Costs and the Issuance of Storm-Recovery Bonds--The Financing
Act Contains a State Pledge" and "Risk Factors--Risks Associated with
Potential Judicial, Legislative or Regulatory Actions--Future Florida
Legislative Action Might Invalidate or Impair the Bonds or the Storm-Recovery
Property" in this prospectus.
The Florida Commission May Authorize and FPL May Cause to be Issued
Additional Series of Bonds Which Could Adversely Affect Your Security
Interests. FPL may cause the issuance of storm-recovery bonds authorized under
separate financing orders under separate indentures, by another issuing
entity, without notice to you and without your prior review and approval, but
not if it would result in the credit ratings on any outstanding bonds being
reduced or withdrawn. We sometimes refer to this condition as the rating
agency condition. Any additional series of storm-recovery bonds would be
secured by a pledge of separate storm-recovery property, and this
storm-recovery property may have different characteristics than the
storm-recovery property securing the bonds of another series. We cannot assure
you that any additional series of storm-recovery bonds issued by such other
entity will not experience a default, and, in such event, it is possible that
the holders of the defaulted storm-recovery bonds (or their representatives)
may attempt to institute bankruptcy proceedings against FPL and to replace FPL
as servicer for these bonds.
Please read "Description of the Bonds--Conditions of Issuance of
Additional Series and Acquisition of Additional Storm-Recovery Property" in
this prospectus.
Risks Associated with Potential Bankruptcy Proceedings
Bankruptcy of FPL or any Successor or Assignee Could Result in Losses or
Delays in Payments on the Senior Secured Storm-Recovery Bonds. The Financing
Act provides that as a matter of Florida law:
o the rights of a selling utility in storm-recovery property
assignable under the Financing Act or a financing order, prior to
sale, are contract rights of the seller;
o the seller may make a present transfer of its rights under the
financing order, including the right to impose, bill, collect and
receive future storm-recovery charges that customers do not yet
owe, and each such transfer is considered to be a transaction in
the ordinary course of business;
o upon the transfer to us, the rights will become storm-recovery
property and storm-recovery property constitutes a present
property right, even though the imposition and collection of
storm-recovery charges depend on further acts that have not yet
occurred; and
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o a transfer of the storm-recovery property from the seller to us is
a true sale of the storm-recovery property, not a pledge of the
storm-recovery property to secure a financing by the seller.
Please read "The Storm-Recovery Property and the Financing Act" in this
prospectus. These four provisions are important to maintaining payments on the
bonds in accordance with their terms during any bankruptcy of FPL. In
addition, we have structured the transaction with the objective of keeping us
separate from FPL in the event of a bankruptcy of FPL.
The Financing Act further provides that the interest of a transferee,
purchaser, acquirer, assignee, or pledgee in storm-recovery property specified
in the financing order, and in the revenue and collections arising from that
property, is not subject to setoff, counterclaim, surcharge, or defense by the
electric utility or any other person or in connection with the reorganization,
bankruptcy, or other insolvency of the electric utility or any other entity.
A bankruptcy court generally follows state property law on issues such
as those addressed by the four provisions described above. However, a
bankruptcy court has authority not to follow state law if it determines that
the state law is contrary to a paramount federal bankruptcy policy or
interest. If a bankruptcy court in a bankruptcy of FPL refused to enforce one
or more of the State property law provisions described above for this reason,
the effect of this decision on you as a bondholder would be similar to the
treatment you would receive in a bankruptcy of FPL if the bonds had been
issued directly by FPL. A decision by the bankruptcy court that, despite our
separateness from FPL, our assets and liabilities and those of FPL should be
consolidated would have a similar effect on you as a bondholder.
We have taken steps together with FPL, as the seller, to reduce the risk
that in the event FPL or an affiliate of FPL were to become the debtor in a
bankruptcy case, a court would order that our assets and liabilities be
substantively consolidated with those of FPL or an affiliate. Nonetheless,
these steps might not be completely effective, and thus if FPL or an affiliate
of FPL were to become a debtor in a bankruptcy case, a court may order that
our assets and liabilities be consolidated with those of FPL or the affiliate.
This might cause material delays in payment of, or losses on, your bonds and
might materially reduce the value of your investment in the bonds. For
example:
o without permission from the bankruptcy court, the indenture
trustee might be prevented from taking actions against FPL or
recovering or using funds on your behalf or replacing FPL as the
servicer;
o the bankruptcy court might order the indenture trustee to exchange
the storm-recovery property for other property, which might be of
lower value;
o tax or other government liens on FPL's property that arose after
the transfer of the storm-recovery property to us might
nevertheless have priority over the indenture trustee's lien and
might be paid from storm-recovery charge collections before
payments on the bonds;
o the indenture trustee's lien might not be properly perfected in
storm-recovery property collections that were commingled with
other funds of FPL collected from customers as of the date of
FPL's bankruptcy, or might not be properly perfected in all of the
storm-recovery property, and the lien might therefore be set aside
in the bankruptcy, with the result that the bonds would represent
only general unsecured claims against FPL;
o the bankruptcy court might rule that neither our property interest
nor the indenture trustee's lien extends to storm-recovery charges
in respect of electricity consumed after the commencement of FPL's
bankruptcy case, with the result that the bonds would represent
only general unsecured claims against FPL;
o we and FPL might be relieved of the obligation to make any
payments on the bonds during the pendency of the bankruptcy case
and might be relieved of any obligation to pay interest accruing
after the commencement of the case;
o FPL might be able to alter the terms of the bonds as part of its
plan of reorganization;
o the bankruptcy court might rule that the storm-recovery charges
should be used to pay a portion of the cost of providing electric
service;
18
o the bankruptcy court might rule that the remedy provisions of the
sale agreement are unenforceable, leaving us with an unsecured
claim of actual damages against FPL which might be difficult to
prove;
o the sale of the storm-recovery property might be construed as a
financing and not a sale which might delay or limit payment on the
bonds;
o claims against FPL or any successor or assignee might be limited
in the event of a bankruptcy of the seller;
o a bankruptcy of FPL or any successor or assignee could limit the
remedies available to the indenture trustee;
o if the servicer defaults or enters bankruptcy proceedings, it
might be difficult to find a successor servicer and payments on
the bonds might be suspended;
o the servicer will commingle the storm-recovery charges with other
revenues which might obstruct access to the storm-recovery charges
in case of bankruptcy of the servicer;
o if the servicer enters bankruptcy proceedings, the collections of
the storm-recovery charges held by the servicer as of the date of
bankruptcy might constitute voidable preferences; or
o bondholders of another series of storm-recovery bonds might
attempt to obtain access to the collateral for the bonds,
resulting in losses or a delay in payment on the bonds.
Please read "How a Bankruptcy Might Affect Your Investment."
Other Risks Associated with an Investment in the Bonds
The Obligation of the Seller or Servicer to Indemnify us for a Breach of
a Representation, Warranty or Covenant Might Not be Sufficient to Protect Your
Investment. FPL is obligated under the sale agreement to indemnify us and each
indenture trustee, for itself and on behalf of the storm-recovery bondholders,
only in specified circumstances. FPL will not be obligated to repurchase the
storm-recovery property in the event of a breach of any of its
representations, warranties or covenants regarding the storm-recovery
property. Similarly, FPL is obligated under the servicing agreement to
indemnify us and the indenture trustee, for itself and on behalf of the
bondholders only in specified circumstances. Please read "The Sale Agreement"
and "The Servicing Agreement."
Neither the indenture trustee nor the bondholders will have the right to
accelerate payments on the bonds as a result of a breach under the sale
agreement or servicing agreement, absent an event of default under the
indenture as described in "Description of the Bonds--Events of Default; Rights
Upon Event of Default." Furthermore, FPL might not have sufficient funds
available to satisfy its indemnification obligations, and the amount of any
indemnification paid by FPL might not be sufficient for you to recover all of
your investment in the bonds. In addition, if FPL becomes obligated to
indemnify bondholders, the ratings on the bonds might be downgraded as a
result of the circumstances causing the breach and the fact that bondholders
will be unsecured creditors of FPL with respect to any of these
indemnification amounts. FPL will not indemnify any person for any loss,
damages, liability, obligation, claim, action, suit or payment resulting
solely from a downgrade in the ratings on the bonds, or for any consequential
damages, including any loss of market value of the bonds resulting from a
default or a downgrade of the ratings of the bonds. Please read "The Sale
Agreement--Seller Representations and Warranties" and "--Indemnification" in
this prospectus.
Absence of a Secondary Market for the Bonds Might Limit Your Ability to
Resell Bonds. The underwriters for the bonds may assist in resales of the
bonds but they are not required to do so. A secondary market for the bonds
might not develop. If a secondary market does develop, it might not continue
or there might not be sufficient liquidity to allow you to resell any of your
bonds. We do not anticipate that any bonds will be listed on any securities
exchange.
FPL's Credit Ratings May Affect the Market Value of Your Bonds. Although
FPL is not an obligor on the bonds, a downgrading of FPL's current credit
ratings might have an adverse effect, at least temporarily, on the market
value of the bonds. Credit ratings may change at any time. A rating agency has
the authority to revise or withdraw its rating based solely upon its own
judgment.
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The Ratings Are No Indication of the Expected Rate of Payment of
Principal on the Bonds and We Might Pay Principal of the Bonds Later than
Expected. Each tranche of bonds of each series will be rated by one or more
established rating agencies. A rating is not a recommendation to buy, sell or
hold bonds. The ratings merely analyze the probability that we will repay the
total principal amount of the bonds at final maturity (which is later than the
expected maturity date) and will make timely interest payments. The ratings
are not an indication that the rating agencies believe that principal payments
are likely to be paid on time according to the expected sinking fund schedule.
Thus, we might repay the principal of the bonds later than you expect, which
may materially reduce the value of your investment.
THE STORM-RECOVERY PROPERTY AND THE FINANCING ACT
The Storm-Recovery Property
In general terms, all of the rights and interests of FPL that relate to
the bonds under the financing order, upon transfer to us pursuant to the sale
agreement, are referred to in this prospectus as the storm-recovery property.
The storm-recovery property includes the right to impose, collect and receive,
through the applicable storm-recovery charges payable by customers who receive
electric transmission or distribution service from FPL or its successors or
assignees under rate schedules approved by the Florida Commission or under
special contracts, including the State and other governmental entities, an
amount sufficient to pay scheduled principal and interest and to make other
deposits in connection with the bonds. During 2006, approximately 3.9% of
FPL's total retail billed electric consumption was by industrial customers,
approximately 42.9% was by commercial customers and approximately 52.6% was by
residential customers, with other entities comprising approximately 0.5% of
FPL's total retail billed electric consumption. Except in their capacity as
customers, neither the State nor any political subdivision, agency, authority
or instrumentality of the State, nor any other entity, will be obligated to
provide funds for the payment of the bonds.
The storm-recovery property is not a receivable, and the principal
collateral securing the bonds is not a pool of receivables. Storm-recovery
charges authorized in the financing order are irrevocable and not subject to
reduction, impairment, or adjustment by further action of the Florida
Commission, except for at least semiannual true-up adjustments to correct
overcollections or undercollections and to provide for the recovery of amounts
sufficient to pay scheduled principal and interest on the bonds and other
costs, including fees and expenses, in connection with the bonds on a timely
basis. Please read "FPL's Financing Order--FPSC- Guaranteed True-Up Mechanism"
in this prospectus. All revenues resulting from storm-recovery charges are
part of the storm-recovery property.
The storm-recovery property relating to each series of bonds is
described in more detail under "The Sale Agreement--Sale and Assignment of
Storm-Recovery Property" in this prospectus.
We will issue not to exceed $708,000,000 in principal amount of the
bonds to finance the purchase of the storm-recovery property from FPL. The
servicer will bill and collect storm-recovery charges allocable to the bonds
and will remit the collections to the indenture trustee. FPL will include the
storm-recovery charges (which may relate to one or more series of bonds) as a
separate line item on its customers' bills.
Because the amount of storm-recovery charge collections will depend
largely on the amount of electricity consumed by customers of FPL or its
successor, the amount of collections may vary substantially from year to year.
Please read "Florida Power & Light Company: the Seller and Initial Servicer of
the Storm-Recovery Property" in this prospectus.
Under the Financing Act and the indenture, each indenture trustee or the
holders of the bonds have the right to foreclose or otherwise enforce the lien
on the storm-recovery property. However, in the event of foreclosure, there is
likely to be a limited market, if any, for the storm-recovery property.
Therefore, foreclosure might not be a realistic or practical remedy. Please
read "Description of the Bonds--Events of Default; Rights Upon Event of
Default" in this prospectus.
The Financing Act Authorizes Utilities to Recover Storm-Related Costs Through
the Issuance of Storm-Recovery Bonds
During 2004 and 2005, Florida was struck with a series of hurricanes
causing widespread damage to infrastructure and power outages throughout the
State. In response to the damage to utility infrastructure and to address the
adequacies of
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reserves set aside to deal with future storm activity, the Florida legislature
enacted the Storm-Recovery Financing Act, codified as Section 366.8260,
Florida Statutes.
The Financing Act gives Florida investor-owned electric utilities the
opportunity to finance the recovery of costs resulting from named tropical
storms or hurricanes that occurred during 2004, and thereafter, through the
issuance of storm-recovery bonds, which includes the bonds offered by this
prospectus. Under the Financing Act, Florida utilities may finance the costs
of (a) construction, repair and replacement of electric generation,
transmission and distribution facilities (after insurance recoveries and other
adjustments), (b) storm-recovery reserves, (c) retiring any existing
indebtedness relating to storm-recovery activities, and (d) issuing
storm-recovery bonds.
In order to finance their storm-recovery costs, reserves authorized by
the Florida Commission and financing costs, Florida utilities must apply for a
financing order under the Financing Act. As described below, FPL applied for
the first such financing order, which was issued by the Florida Commission on
May 30, 2006, and amended on July 21, 2006.
The Financing Act Provides for the Issuance of Financing Orders
The Financing Act authorizes the Florida Commission to issue financing
orders. A financing order provides for the creation of storm-recovery
property, including the right to impose, bill, collect and receive the
storm-recovery charges and the issuance of storm-recovery bonds.
In addition, each financing order will:
o authorize the transfer of storm-recovery property to the issuing
entity to secure storm-recovery bonds;
o establish procedures for establishing the initial storm-recovery
charges and for periodic true-up adjustments to storm-recovery
charges in the event of overcollection or undercollection of
storm-recovery charges;
o remain in effect until the storm-recovery bonds issued pursuant to
the order have been paid in full and the Florida
Commission-approved financing costs of such bonds have been
recovered in full; and
o remain in effect and unabated notwithstanding the reorganization,
bankruptcy, or other insolvency proceedings of the utility or its
successors or assignees.
Having issued the financing order, the Florida Commission may not, in
exercising its powers and carrying out its duties regarding any matter within
its authority, consider storm-recovery bonds issued pursuant to the financing
order to be the debt of FPL other than for federal income tax purposes,
consider the storm-recovery charges paid under the order to be the revenue of
FPL for any purpose, or consider the storm-recovery costs or financing costs
specified in the order to be the costs of FPL, nor may it determine any action
taken by FPL which is consistent with the order to be unjust or unreasonable.
The Financing Act Provides for the Creation of Storm-Recovery Property to
Secure the Bonds
The Financing Act authorizes the Florida Commission, through issuance of
a financing order, to provide for the creation of storm-recovery property to
secure repayment of storm-recovery bonds. Storm-recovery property is defined
under the Financing Act to include (i) the rights and interests of an electric
utility or its successor or assignee under a financing order, including the
right to impose, collect and receive storm-recovery charges established in the
financing order and to obtain periodic adjustments to storm-recovery charges,
and (ii) all revenues, collections, claims and rights arising from the rights
and interests described in clause (i).
Pursuant to the Financing Act and a financing order, a utility (or its
successor or assignee) is authorized to impose and collect a non-bypassable,
usage based, storm-recovery charge from all customers receiving transmission
or distribution service from the electric utility (or its successors or
assignees) under Florida Commission-approved rate schedules or under special
contracts (i.e., contracts with large industrial users), even if the customer
elects to purchase electricity from an alternative electricity supplier
following a fundamental change in regulation of public utilities in Florida.
Under current law, customers of Florida electric utilities cannot buy their
electricity from alternative electric suppliers. FPL has not entered into any
special contracts with its industrial customers.
21
The storm-recovery charge authorized to be imposed and collected
pursuant to the Financing Act and a financing order will recover, (among other
financing costs) all principal of and interest on of the bonds, and any other
costs of supporting, repaying and servicing storm-recovery bonds, as more
fully described below.
FPL's right to recover tax-related financing costs through the
storm-recovery charge will not be transferred to us. This right and the
related charges are not included in the storm-recovery property or
storm-recovery charges, as these terms are used in this prospectus.
The Financing Act Provides for the Recovery of Storm-Recovery Costs and the
Issuance of Storm-Recovery Bonds
The Financing Act contains a number of provisions designed to facilitate
recovering storm-recovery costs and the issuance of storm-recovery bonds.
A Financing Order is Irrevocable. Once storm-recovery bonds have been
issued or storm-recovery property has been transferred under an effective
financing order, the financing order, together with the storm-recovery charges
established in the order, is irrevocable and not subject to amendment,
modification or termination by the Florida Commission. The only exception is
for periodic true-up adjustments pursuant to the Financing Act in order to
correct overcollections or undercollections of storm-recovery charges and to
provide that sufficient funds are available for payments of scheduled
principal and interest on the storm-recovery bonds and other costs, including
fees and expenses, in connection with the bonds on a timely basis.
The Financing Act Contains a State Pledge. Under the Financing Act, the
State of Florida has pledged to storm-recovery bondholders, that it will not
take or permit any action that would (i) alter the provisions of the Financing
Act which make the storm-recovery charges imposed by a financing order
irrevocable, binding and nonbypassable, (ii) take any action that impairs or
would impair the value of the storm-recovery property, or (iii) except for
"true-up" adjustments discussed in the following paragraph, reduce, alter, or
impair the storm-recovery charges to be imposed, collected and remitted to the
issuing entity of storm-recovery bonds. The state pledge remains effective
until the principal, interest and premium, if any, and any other charges
incurred and contracts to be performed in connection with the related
storm-recovery bonds have been paid and performed in full. This state pledge
does not preclude any limitation or alteration of the Financing Act or a
financing order if "full compensation" is made by law for the "full
protection" of the storm-recovery charges collected pursuant to a financing
order and of the holders of the storm-recovery bonds or any financing party
entering into a contract with the electric utility. Further, even after a
financing order is effective, the Florida Commission retains the power to
interpret the financing order. Please read "Risk Factors--Risks Associated
with Potential Judicial, Legislative or Regulatory Actions" in this
prospectus.
The Florida Commission Must Approve Storm-Recovery Charges. The
Financing Act requires the Florida Commission to provide a formula-based
mechanism pursuant to which the storm-recovery charges are to be reviewed and
adjusted at least semiannually. The purposes of these adjustments are:
o to correct any overcollections or undercollections during the
preceding remittance period, and
o to provide for the recovery of amounts sufficient to timely
provide all payments of scheduled principal and interest on the
storm-recovery bonds, and related financing costs of supporting,
repaying and servicing the storm-recovery bonds.
Neither the Financing Act nor the financing order imposes any cap on the
size of storm-recovery charges or on the time during which the storm-recovery
charges may be imposed, billed or collected.
Customers Cannot Avoid Storm-Recovery Charges. The Financing Act
provides that the storm-recovery charges are non-bypassable. "Non-bypassable"
means that an electric utility collects these charges from all the existing
customers of the utility and all future customers receiving transmission or
distribution service from the utility or its successors or assignees under
Florida Commission approved rate schedules or under special contracts, even if
the customer elects to purchase electricity from an alternative electricity
suppliers following a fundamental change in regulation of public utilities in
the State. Under current law, customers of Florida electric utilities cannot
buy their electricity from alternative electric suppliers. Self-generators
that receive no transmission or distribution service from FPL are not liable
for the storm-recovery charge. The
22
Financing Act and the financing order do not provide for exit fees to be
charged to any customers that might leave the grid to self-generate.
Any successor to FPL, whether pursuant to any reorganization,
bankruptcy, or other insolvency proceeding or whether pursuant to any merger
or acquisition, sale, or other business combination, or transfer by operation
of law, as a result of electric utility restructuring or otherwise, is
required to perform and satisfy all obligations of, and will have the same
rights under the financing order as, FPL in the same manner and to the same
extent as FPL, including collecting and paying to us the revenues,
collections, payments or proceeds of the storm-recovery property.
The Financing Act Protects the Lien on Storm-Recovery Property for the
Benefit of Bondholders. The Financing Act governs whether the transfer of
storm-recovery property from the electric utility to an issuer of bonds, such
as us, will be enforceable and will be perfected under Florida law and whether
the security interest granted by us to the indenture trustee in the
storm-recovery property will be perfected under Florida law. The Financing Act
provides that a transfer of an interest in storm-recovery property to an
assignee, or a security interest, will be enforceable when:
o the financing order is issued,
o transfer documents have been executed and delivered in connection
with the issuance of bonds, and
o value has been received.
A transfer of or security interest in the storm-recovery property is
perfected by means of a filing under the Financing Act. Upon perfection, the
lien attaches both to storm-recovery property and to all proceeds of
storm-recovery property, whether the related storm-recovery charges have
accrued or not. Perfection of the indenture trustee's security interest in the
storm-recovery property is necessary in order to establish the priority of the
indenture trustee's security interests over claims of other parties to the
storm-recovery property.
The Financing Act provides that the priority of a security interest in
storm-recovery property will not be impaired by:
o later modifications to the financing order or storm-recovery
property; or
o commingling of funds arising from storm-recovery property with
other funds, and that any other security interest that may apply
to such funds are terminated when they are transferred pursuant to
the Financing Act.
The Financing Act Provides that the Transfer of Storm-Recovery Property
Is a True Sale. The Financing Act provides that an electric utility's transfer
of storm-recovery property is a "true sale" and is not a secured transaction
and that legal and equitable title passes to the transferee, if the agreement
governing that transfer expressly states that the transfer is a sale or other
absolute transfer (other than for federal and state income and franchise tax
purposes). The transfer as a sale is not affected by:
o commingling of amounts arising with respect to the storm-recovery
property with other amounts;
o retention by the electric utility of a partial or residual
interest, including an equity interest, in the storm-recovery
property, whether direct or indirect, or whether subordinate or
otherwise;
o any recourse that the transferee may have against the electric
utility other than any such recourse created, contingent upon, or
otherwise occurring or resulting from one or more of the electric
utility's customers' inability to timely pay all or a portion of
the storm-recovery charge;
o any indemnifications, obligations, or repurchase rights made or
provided by the electric utility, other than indemnity or
repurchase rights based solely upon a electric utility's
customers' inability to timely pay all or a portion of the
storm-recovery charge;
o the responsibility of the electric utility to collect
storm-recovery charges, as servicer;
23
o the treatment of the sale, conveyance, assignment, or other
transfer for tax, financial reporting, or other purposes; or
o granting or providing to holders of the bonds a preferred right to
the storm-recovery property or credit enhancement by the electric
utility or its affiliates with respect to the bonds.
Please read "Risk Factors--The Risks Associated with Potential
Bankruptcy Proceedings" and "How a Bankruptcy Might Affect Your
Investment--Bankruptcy of the Servicer" in this prospectus.
The Bonds are Legal Investments for Florida Investors that Require Statutory
Authority
Under the Financing Act, the following Florida entities may legally
invest any sinking funds, moneys, or other funds belonging to them or under
their control in the bonds:
o the State, the investment board, municipal corporations, political
subdivisions, public bodies, and public officers except for
members of the Florida Commission;
o banks and bankers, savings and loan associations, credit unions,
trust companies, savings banks and institutions, investment
companies, insurance companies, insurance associations, and other
persons carrying on a banking or insurance business;
o personal representatives, guardians, trustees, and other
fiduciaries; and
o all other persons whatsoever who are now or may hereafter be
authorized to invest in bonds or other obligations of a similar
nature.
FPL'S FINANCING ORDER
FPL's Storm-Recovery Financing Order
On May 30, 2006 the Florida Commission issued to FPL its first financing
order under the Financing Act. The Florida Commission's Order on
Reconsideration was issued July 21, 2006, which clarified certain matters in
the financing order and reaffirmed the financing order in all other respects.
(When we refer to the financing order, we mean the financing order as
clarified and affirmed.) No party appealed the financing order following
rehearing and the financing order is final and non-appealable. After issuance
of the bonds, the financing order, pursuant to the Financing Act, is
irrevocable and is not subject to amendment, modification or termination by
further action of the Florida Commission, except as contemplated by the
periodic true-up adjustments.
The financing order authorizes the issuance of storm-recovery bonds in
one or more series in an aggregate amount not to exceed $708,000,000. We will
not issue any storm-recovery bonds other than those authorized by the
financing order.
Storm-Recovery Charges
Storm-Recovery Charges Will Be Imposed in Amounts Sufficient to Pay the
Bonds and Related Costs. Under the financing order, the Florida Commission
authorizes FPL (or its successors) to impose, meter, charge, bill, collect and
receive from its customers storm-recovery charges in an amount sufficient to
retire the principal amount of the bonds in accordance with the expected
sinking fund schedule, to pay all interest on those bonds when due, to pay
fees and expenses of servicing those bonds and premiums, if any, associated
with those bonds and to fund any required credit enhancement for those bonds.
We may collect the storm-recovery charges until all such obligations are paid
in full. Under the financing order, there is no limit on the amount of the
storm-recovery charge.
Each Rate Class Will Pay a Different Storm-Recovery Charge Based upon
Ratemaking Cost-Allocation. Under the Financing Act and the financing order,
storm-recovery charges are determined by allocating the revenue requirement
payable from such charges among all customer rate classes in accordance with
the cost-of-servicer methodology used in FPL's most
24
recently filed rate case. The storm-recovery charge will be a single per
kilowatt hour charge assessed against each rate class of customers as part of
each customer's regular monthly billing.
The defined classes of customers and their respective percentage
allocations of responsibility for the payment of revenue requirements to be
recovered from the storm-recovery charges based upon the most recent filed
rate case by FPL and approved in the financing order are set forth below. The
Allocation Percentages set forth below are approximate, as the actual
allocation of payment responsibility is allocated by rate class, not the
customer classes set forth below.
Allocation
Class Percentage*
-------------------------------
Residential 63.3%
Commercial 32.1%
Industrial 1.4%
Other 3.1%
-----------
100.0%
===========
- ---------
* Note: Percentages may not add up due to rounding.
If the allocation of responsibility for storm-recovery charges changes
prior to the issuance of any series of bonds, the revised allocation will be
disclosed in the prospectus supplement related to such series of bonds.
Although the storm-recovery charges payable by each class of customers
will differ, any deficiency in the payment of such charges by any class of
customers will be included in determining the revenue requirement used in
calculating the next "true-up" adjustment for all customers. Please read
"FPL's Financing Order--FPSC- Guaranteed True-Up Mechanism" below.
The Financing Order Provides a Procedure to Calculate the Initial
Storm-Recovery Charge. The initial storm-recovery charges will be determined
in accordance with the financing order and filed with the Florida Commission
as part of the bond approval process described below. Please read "FPL's
Financing Order--Bond Issuance Approval Process" below. The approximate
initial storm-recovery charge for a typical residential customer for any
series of bonds will be set forth in the prospectus supplement for such bonds.
The storm-recovery charges will become effective for all billings on and after
the date of issue of the bonds and will be subject to periodic true-up as
described below.
FPL Will Collect the Storm-Recovery Charges as Initial Servicer.
Storm-recovery charges will be assessed by FPL, as the initial servicer, for
our benefit as owner of the storm-recovery property. Storm-recovery charges
will be based on a customer's actual consumption of electricity from time to
time. Storm-recovery charges will be collected by FPL from customers as part
of its normal collection activities. Storm-recovery charges will be deposited
by FPL into the collection account under the terms of the indenture and the
servicing agreement. FPL will deposit in the collection account estimated
payments of storm-recovery charges on each business day. The estimated
payments made by the servicer will be based upon the average number of days
each bill remains outstanding, adjusted for any expected delinquencies.
Estimated remittances will be reconciled with actual storm-recovery bond
collections at least annually, and the over- or under-collection credited to
or remitted by the servicer. Please read "The Servicing Agreement" in this
prospectus.
Partial Payments of Storm-Recovery Charges Will Be Pro-Rated. If a
customer pays only a portion of its bill, a pro-rata amount (based on all
charges billed to such customer) of storm-recovery charge revenues will be
deemed to be collected. The portion owed in respect of storm-recovery charges
may be further allocated among different series of storm-recovery bonds issued
by us pursuant to the financing order, and possibly other series of
storm-recovery bonds, issued by other special-purpose subsidiaries of FPL who
have issued storm-recovery bonds under the Financing Act, based upon the size
of the storm-recovery charges imposed with respect to each such series of
storm-recovery bonds.
25
FPSC-Guaranteed True-Up Mechanism
Storm-Recovery Charges Must Be Trued-Up At Least Semiannually. The
Financing Act and the financing order require that storm-recovery charges be
reviewed and adjusted at least semiannually. The rates at which storm-recovery
charges are billed to customers will be adjusted to correct any
overcollections or undercollections from prior periods. These adjustments are
intended to ensure the recovery of amounts sufficient to retire the principal
amount of the bonds in accordance with the expected sinking fund schedule, to
pay all interest on those bonds when due, to pay fees and expenses of
servicing those bonds and premiums, if any, associated with those bonds and to
fund any required credit enhancement for those bonds. There are no caps on the
level of storm-recovery charges that may be imposed on customers as a result
of the true-up process and there is no limit on the period of time during
which storm-recovery charges may be imposed, billed or collected.
In addition to the semiannual true-up adjustments, the servicer is also
required to implement (a) quarterly true-up adjustments if bonds are
outstanding following the latest scheduled final payment date for the bonds,
and (b) monthly true-up adjustments if bonds are outstanding after the date
that is one year before the final maturity date of the bonds, to provide for
payment of bonds and other required amounts and charges owing in connection
with the bonds on the next payment date.
The Florida Commission must be given at least 60 days' notice prior to
making a true-up adjustment. The Florida Commission's review of any such
adjustment request is limited solely to determining whether there is any
mathematical error in the application of the formula-based mechanism relating
to the appropriate amount of any overcollection or undercollection of
storm-recovery charges and the amount of the adjustment. In the financing
order, the Florida Commission has guaranteed that it will either approve the
requested true-up calculation, or inform FPL of any mathematical error in
calculation, so that the true-up is implemented within 60 days of the original
true-up filing. If no action is taken by the Florida Commission, the true-up
calculation will be deemed correct within 60 days of filing, and FPL will be
authorized to put such adjustment into effect.
The servicer is also authorized under the financing order and required
under the servicing agreement to request a non-standard true-up adjustment if,
due to the filing of a base rate application by the electric utility, the
allocation of responsibility for payment of the storm-recovery charges is
altered. In this case, the revised storm-recovery charges will be effective
simultaneously with the approval of any base rate case filing.
In addition, the financing order authorizes the servicer to seek an
amendment to the true-up mechanism if it deems it necessary or appropriate to
address any material deviations between storm-recovery charge collections and
payment requirements. Any such amendment would be subject to a 60-day approval
process, and could be undertaken only if such change would not adversely
affect the credit ratings on any outstanding bonds.
FPSC-Guaranteed True-Up Mechanism as Regulatory Guaranty. In the
financing order, the Commission determined that the FPSC-guaranteed true-up
mechanism, as required to be implemented pursuant to the financing order,
together with the broad-based nature of the state pledge, constitute a
guarantee of regulatory action for the benefit of the storm-recovery
bondholders. The financing order also provides that the true-up mechanism and
all other obligations of the Florida Commission pursuant to its irrevocable
financing order are direct, explicit, irrevocable and unconditional upon
issuance of the bonds, and are legally enforceable against the Florida
Commission, a United States public sector entity. As described under "FPL
Recovery Funding LLC, the Issuing Entity--We Are Responsible to the FPSC," the
financing order makes us accountable to the Florida Commission.
The Florida Commission guarantees pursuant to the irrevocable financing
order, as expressly required by the Financing Act, that it will act to ensure
that storm-recovery charges are sufficient to pay principal and interest on
the bonds and other costs, including fees and expenses, in connection with the
bonds on a timely basis.
FPSC-Guaranteed True-Up Mechanism and State Pledge. The State has
pledged in the Financing Act that it will not take or permit any action that
would impair the value of the storm-recovery property, or, except as permitted
in connection with a true-up adjustment authorized by the statute, reduce,
alter or impair the storm-recovery charges until the principal, interest and
premium, and any other charges incurred and contracts to be performed in
connection with the bonds, have been paid and performed in full.
26
FPSC-Guaranteed True-Up Mechanism - Credit Risk
The Florida Commission determined, in the financing order, that the
FPSC-guaranteed true-up mechanism, together with the broad-based nature of the
state pledge set forth in Section 366.8260(11) of the Financing Act,
constitute a guarantee of regulatory action for the benefit of investors in
the bonds. The Florida Commission further determined that it expected stress
case analyses to show that these features will serve to effectively eliminate
for all practical purposes and circumstances any credit risk associated with
the bonds (i.e., that sufficient funds will be available and paid to discharge
all principal and interest obligations when due). The Florida Commission
directed in the financing order that this transaction be structured consistent
with this expectation. With respect to the foregoing, interest is due on each
payment date and principal is due upon the final maturity date for each
tranche. See the Financing Order, Finding of Fact No. 81. The results of the
stress case analyses demonstrating compliance with this Florida Commission
directive will be described in any prospectus supplement relating to the
applicable series of bonds. See also "Risk Factors" and "Cautionary Statement
Regarding Forward-Looking Statements" in this prospectus for further
information.
FPSC-Guaranteed True-Ups: Entire Private Sector Default
While the following discussion is premised upon factual assumptions
which FPL and we believe are unlikely, the underlying legal principle
discussed below may have some applicability to foreign investors seeking
favorable risk weighting treatment from foreign regulators. Please read "Risk
Weighting of the Bonds Under Certain International Capital Guidelines."
In the unlikely event that all customers (other than State and local
government accounts) fail to pay the storm-recovery charges that service the
bonds, the State and local government accounts that continue to purchase
electric distribution or transmission service from FPL or its successors or
assignees under Commission approved rate schedules or special contracts,
pursuant to the Commission guaranteed true-up mechanism described above, in
their capacity as customers, would become responsible for paying
storm-recovery charges sufficient to service the bonds. Such storm-recovery
charges would be a direct claim on such governmental entities, but only in
their capacity as customers. The following diagram depicts the operation of
the Commission-guaranteed true-up mechanism if these events were ever to
occur. There is no assurance that the State or such local government agencies,
even though there is a direct claim on them, would pay such storm-recovery
charges.
--------------------------------------------- --------------------------------
Storm-Recovery Charges Calculated on All FPL Florida Public Sector
Customers Based on Electricity Consumption (State/Local/Government)
--------------------------------------------- --------------------------------
| /|\
| |
| |
| |
\|/ |
--------------------------------------------- |
Florida Public and Private Sector |
(Residential/Commercial/Industrial/Other) |
--------------------------------------------- |
| |
| |
| |
| FPSC-Guaranteed |
\|/ --------------------------
--------------------------------------------- True-Up Mechanism Charges to public sector
If all private sector fails to pay the customers increase to the
charges for whatever reason full extent needed to pay
--------------------------------------------- principal and interest and
associated expenses
Bond Issuance Approval Process
The financing order provides a procedure for the approval of the terms
of the storm-recovery bond issuance and the effectiveness of the initial
storm-recovery charges. On the first business day following the determination
of the final terms of the bonds of any series and prior to their issuance, FPL
is required to file with the Florida Commission an issuance advice letter,
which will:
27
o evidence the actual terms on which the bonds of such series will
be issued,
o show the actual dollar amount of the initial storm-recovery
charges relating to the bonds of such series, and
o certify that the structuring, marketing and pricing of each
tranche of bonds of such series in fact achieved the lowest cost
objective as set forth in the financing order.
The issuance advice letter becomes effective on the date of issuance of
the bonds unless the Florida Commission issues a "stop order," prior to 5:00
p.m. EST on the third business day after the determination of the final terms
of such bonds, that the proposed issuance does not comply with the
requirements of the Financing Act or the financing order. Unless the Florida
Commission determines that the transaction does not comply with applicable law
and the financing order (including the delivery of required certifications),
the delivery of the bonds will proceed without any further action of the
Florida Commission. The Florida Commission may not issue a "stop order" for
any other reason, including a change in market conditions after the time of
pricing.
FPL RECOVERY FUNDING LLC, THE ISSUING ENTITY
We are a special purpose limited liability company formed under the
Delaware Limited Liability Company Act pursuant to the limited liability
company agreement executed by our sole member, FPL, as such agreement may be
amended, and the filing of a certificate of formation with the Secretary of
the State of Delaware. Our limited liability company agreement restricts us
from engaging in activities other than those described in this section. We do
not have any employees, but we will pay our member for administrative services
in accordance with our limited liability company agreement. We have summarized
selected provisions of our limited liability company agreement below. [We were
originally capitalized on _________, 2007, with $_________.] On the date of
issuance of the initial series of bonds, our capital will be equal to 0.50% of
the original principal amount of such bonds. On the date of issuance of any
subsequent series of bonds, our capital will be increased by the an amount
equal to 0.50% of the original principal amount of such additional series of
bonds or such greater or lesser amount as may allow us to achieve the desired
security rating and treat such additional series of bonds as debt under the
applicable IRS regulations.
Our assets will consist of:
o the storm-recovery property purchased on the date of issue of the
bonds,
o our rights under any sale agreement, any servicing agreement
(including any amendments thereto), and the administration
agreement executed in connection with the issuance of the bonds,
o collections of storm-recovery charges that are allocated to us,
trust accounts held by one or more indenture trustees and other
credit enhancements acquired or held to ensure payment of the
bonds, and
o any money distributed by the indenture trustees from the
collection accounts in accordance with the indentures.
In the future, we may issue additional storm-recovery bonds authorized
under the financing order and acquire additional assets which will be pledged
to the payment of other storm-recovery bonds. We have covenanted not to issue
additional bonds authorized by another financing order issued by the Florida
Commission.
As of the date of this prospectus, we have not carried on any business
activities and have no operating history. Our limited liability company
agreement has been filed as an exhibit to the registration statement of which
this prospectus forms a part.
Restricted Purpose
We have been created for the sole purpose of:
o purchasing and owning the storm-recovery property and the other
collateral created pursuant to a financing order;
28
o registering and issuing storm-recovery bonds, including the bonds,
each of which may be comprised of one or more tranches;
o making payment on the storm-recovery bonds, including the bonds;
o distributing amounts released to us;
o pledging our interest in storm-recovery property and other
collateral to an indenture trustee under an indenture in order to
secure a series of bonds; and
o performing other activities that are necessary, convenient or
advisable to accomplish these purposes.
Our limited liability company agreement does not permit us to engage in
any activities not directly related to these purposes, including issuing or
investing in additional securities, borrowing money or making loans to other
persons. The list of permitted activities set forth in our limited liability
company agreement may not be altered, amended or repealed without the
affirmative vote of a majority of our managers, which vote must include the
affirmative vote of our independent manager.
Our Relationship with FPL
On each issue date for a series of bonds FPL will sell storm-recovery
property to us pursuant to a sale agreement between us and FPL. FPL will
service the storm-recovery property pursuant to a servicing agreement between
us and FPL related to one or more series of bonds. Please read "The Sale
Agreement" and "The Servicing Agreement" in this prospectus. FPL will provide
certain administrative services to us, pursuant to an administration
agreement.
We have covenanted not to issue additional bonds authorized by another
financing order issued by the Florida Commission.
We are Responsible to the FPSC
We are responsible to the State and the Florida Commission on an ongoing
basis as provided in our organization documents, the transaction documents and
the financing order. Specifically, pursuant to the financing order of the
Florida Commission,
o our organizational documents and transaction documents for the
bonds prohibit us from engaging in any activities other than
acquiring storm-recovery property, issuing storm-recovery bonds
and performing other activities as described above,
o we must respond to representatives of the Florida Commission
throughout the process of offering the bonds, and
o the servicer will file periodic adjustments to storm-recovery
charges with the Florida Commission on our behalf.
We have also agreed that all reports that we are required to file with
the SEC and reports concerning storm-recovery charge collections will be
provided to the Florida Commission. Please read "Continuing Disclosure."
Our Management
Pursuant to the our limited liability company agreement, our business
will be managed by [three] managers appointed from time to time by FPL or, in
the event that FPL transfers its interest in us, by our owner or owners.
Following the initial issuance of bonds, we will have an independent manager
who, among other things, is not and has not been for at least five years from
the date of his appointment:
o a direct or indirect legal or beneficial owner of us, our owner,
any of our respective affiliates or any of FPL's affiliates or of
any major creditor (or any affiliate of any major creditor) of any
of the foregoing,
29
o any stockholder, member, partner, director, officer, affiliate,
customer, supplier, creditor or independent contractor of, or any
person that has received any benefit from FPL (other than in such
capacity as a ratepayer or customer of FPL in the ordinary course
of business), or
o a member of the immediate family of any person described above.
The remaining managers will be employees or officers of FPL, its affiliates or
any new owner. The managers will devote the time necessary to conduct our
affairs. The following is a list of our managers as of the date of this
prospectus:
Name Age Background
--------------------------- ---- -----------------------------------
--------------------------- ---- -----------------------------------
--------------------------- ---- -----------------------------------
FPL, as our sole member, will appoint one independent manager prior to the
issuance of the initial series of bonds.
The Managers' Compensation and Limitation on Liabilities
We have not paid any compensation to any manager since we were formed.
We are not required to compensate the managers other than the independent
managers for their services on our behalf. We will pay the independent
managers annual fees from our revenues and will reimburse them for their
reasonable expenses. These expenses include the reasonable compensation,
expenses and disbursements of the agents, representatives, experts and counsel
that the independent managers may employ in connection with the exercise and
performance of their rights and duties under our limited liability company
agreement, each indenture, each sale agreement and each servicing agreement.
In the event that more than one series of storm-recovery bonds is issued, the
administration fees, independent manager fees and other operating expenses
payable by us on any payment date will be assessed to each series on a pro
rata basis, based upon the respective outstanding principal amounts of each
series. Our limited liability company agreement provides that the managers
will not be personally liable for any of our debts, obligations or
liabilities. Our limited liability company agreement further provides that,
except as described below, to the fullest extent permitted by law, we will
indemnify the managers against any liability incurred in connection with their
services as managers for us if they acted in good faith and in a manner which
they reasonably believed to be in or not opposed to our best interests. With
respect to a criminal action, the managers will be indemnified unless they had
reasonable cause to believe their conduct was unlawful. Unless ordered by a
court, we will not indemnify the managers if a final adjudication establishes
that their acts or omissions involved intentional misconduct, bad faith, fraud
or a knowing violation of the law and were material to the cause of action. We
will pay any indemnification amounts owed to the managers out of funds in the
collection account, subject to the priority of payments described in "Security
for the Bonds--How Funds in the Collection Account Will Be Allocated" in this
prospectus.
We are a Separate and Distinct Legal Entity
Under our limited liability company agreement, we may not file a
voluntary petition for relief under the bankruptcy code without a unanimous
vote of our managers, including the independent manager. FPL has agreed that
it will not cause us to file a voluntary petition for relief under the
bankruptcy code. Our limited liability company agreement requires us to
maintain our existence separate from FPL including:
o taking all reasonable steps to continue our identity as a separate
legal entity;
o making it apparent to third persons that we are an entity with
assets and liabilities distinct from those of FPL, other
affiliates of FPL, the managers or any other person and correcting
any known misunderstandings; and
o making it apparent to third persons that, except for federal and
certain other tax and accounting purposes, we are not a division
of FPL or any of its affiliated entities or any other person.
30
Our principal place of business is 700 Universe Boulevard, Juno Beach,
FL 33408 and our telephone number is (561)694-4000. Our limited liability
company agreement may be amended by us and FPL with the consent of each
indenture trustee, as well as satisfaction of the rating agency condition and
the Florida Commission condition (described below). Please read "Description
of the Bonds - Supplemental Indentures - Procedure for Obtaining Consent or
Deemed Consent of the Florida Commission."
Administration Agreement
Pursuant to an administration agreement between FPL and us, FPL will
provide or arrange for the provision of administrative services to us,
including services relating to the preparation of financial statements,
required filings with the SEC, any tax returns we might be required to file,
qualifications to do business, and minutes of our managers' meetings. We will
pay FPL a fixed fee of $125,000 per annum which will be applied to FPL's storm
reserve, and we will reimburse FPL for all costs and expenses for services
performed by unaffiliated third parties and actually incurred by FPL in
performing such services described above.
The administrator may not resign or be removed without satisfaction of
the rating agency condition and the Florida Commission condition, and without
the successor administrator assuming all of the obligations of the former
administrator under the administration agreement. The Florida Commission has
the authority to enforce all provisions of the administration agreement for
the benefit of customers.
FLORIDA POWER & LIGHT COMPANY: THE SELLER AND INITIAL SERVICER OF THE
STORM-RECOVERY PROPERTY
FPL, a Florida corporation, is a rate-regulated utility, which, during
2006, provided electric service to a population of more than 8.5 million
throughout most of the east and lower west coasts of Florida and served on
average approximately 4.4 million customer accounts. The customer base
includes a mix of residential, commercial and diversified industrial
customers. For the year ended December 31, 2006, FPL provided approximately
107,513 gigawatt hours of electricity resulting in operating revenues of
$11,988 million and operating income of $1,463 million. FPL, incorporated
under the laws of the State of Florida in 1925, is an operating subsidiary of
FPL Group. FPL Group is a holding company based in Juno Beach, Florida, whose
other major operating (indirect) subsidiary, FPL Energy, LLC, is in the
competitive energy business.
FPL is primarily regulated by the Florida Commission and the Federal
Energy Regulatory Commission, and its nuclear power plants are subject to the
jurisdiction of the Nuclear Regulatory Commission.
Where to Find Information About FPL. FPL files annual, quarterly and
other reports with the SEC as required by the Exchange Act. Reports filed with
the SEC are available for inspection without charge at the public reference
room maintained by the SEC at 100 F Street, N.E., Washington, DC 20549. Copies
of periodic reports and exhibits thereto may be obtained at the above location
at prescribed rates. Information as to the operation of the public reference
facilities is available by calling the SEC at 1-800-SEC-0330. Information
filed with the SEC can also be inspected at the SEC site on the World Wide Web
at http://www.sec.gov. Information concerning FPL is not incorporated by
reference into this prospectus.
Electric Revenues, Average Number of Customers and Billed Retail Electric
Consumption
FPL's customer base is divided into four classes: residential,
commercial, industrial and other. Several rate sub-classes are included within
each class differentiated by type and level of service, and the storm-recovery
charge will be different for each rate sub-class, based upon the allocation of
cost responsibility filed in the last FPL rate case.
The following table shows the amount of FPL's retail billed electric
revenues per customer class for each of the past five years, and the
percentage of each customer class of the total retail billed revenues.
31
Table 1
Retail Billed Electric Revenues(1) (2)
(in thousands)
2002 % 2003 % 2004 % 2005 % 2006 %
---------------------------------------------------------------------------------------------------------
Residential......... $4,085,721 58.1 $4,619,536 58.0 $4,755,319 57.0 $5,222,943 57.2 6,493,203 55.8
Commercial.......... 2,669,759 37.9 3,033,417 38.1 3,265,391 39.1 3,566,227 39.1 4,688,991 40.3
Industrial.......... 213,342 3.0 235,779 3.0 250,923 3.0 264,170 2.9 358,000 3.1
Other............... 66,355 0.9 69,988 0.9 69,848 0.8 74,838 0.8 88,596 0.8
---------------------------------------------------------------------------------------------------------
Total.......... $7,035,177 100.0 $7,958,720 100.0 $8,341,481 100.0 $9,128,178 100.0 $11,628,790 100.0
=========================================================================================================
The following table shows the average number of FPL's customers in each
customer class for the past five years and the percentage each customer class
bears to the total average number of customers.
Table 2
Average Number of Customer Accounts(2)
2002 % 2003 % 2004 % 2005 % 2006 %
---------------------------------------------------------------------------------------------------------
Residential......... 3,566,169 88.7 3,652,666 88.7 3,744,920 88.6 3,828,375 88.6 3,906,270 86.6
Commercial.......... 435,322 10.8 444,654 10.8 458,057 10.8 469,976 10.9 478,869 10.9
Industrial.......... 15,535 0.4 17,032 0.4 18,516 0.4 20,391 0.5 21,212 0.5
Other............... 2,788 0.1 2,877 0.1 3,027 0.1 3,150 0.1 3,215 0.1
---------------------------------------------------------------------------------------------------------
Total.......... 4,019,814 100.0 4,117,229 100.0 4,224,520 100.0 4,321,892 100.0 4,409,566 100.0
=========================================================================================================
The following table shows the total retail billed electric consumption
of FPL's customers in megawatt-hours (referred to as MWh) for the past five
years for each customer class and the percentage each customer class bears to
the total retail billed electric consumption.
Table 3
Retail Billed Electric Consumption(2) (3)
(MWh)
2002 % 2003 % 2004 % 2005 % 2006 %
---------------------------------------------------------------------------------------------------------
Residential......... 50,864,926 53.2 53,484,924 53.8 52,502,422 53.0 54,348,188 53.1 54,570,485 52.6
Commercial.......... 40,029,067 41.9 41,424,867 41.6 42,063,955 42.4 43,467,783 42.5 44,487,284 42.9
Industrial.......... 4,057,210 4.2 4,004,121 4.0 3,964,149 4.0 3,912,708 3.8 4,035,970 3.9
Other............... 571,687 0.6 581,747 0.6 564,346 0.6 567,759 0.6 564,827 0.5
---------------------------------------------------------------------------------------------------------
Total.......... 95,522,890 100.0 99,495,658 100.0 99,094,872 100.0 102,296,438 100.0 103,658,566 100.0
=========================================================================================================
(1) Excludes interchange power sales, the net change in unbilled revenues,
deferred or recovered clause revenues, provision for retail rate refund
and other operating revenues.
(2) Columns may not add due to rounding.
(3) Excludes interchange power sales and the net change in unbilled sales.
32
The following table shows the average retail billed revenues
(dollar/MWh) for each customer class for the past five years.
Table 4
Retail Revenue Per Billed MWh(4)
2002 2003 2004 2005 2006
-----------------------------------------------------------------
Residential
Retail Billed Electric Revenue (thousands) $4,085,721 $4,619,536 $4,755,319 $5,222,943 $6,493,203
Retail Billed MWh......................... 50,864,926 53,484,924 52,502,422 54,348,188 54,570,485
Revenue per Billed MWh.................... 0.0803 0.0864 0.0906 0.0961 0.1190
Commercial
----------
Retail Billed Electric Revenue (thousands) $2,669,759 $3,033,417 $3,265,391 $3,566,227 $4,688,991
Retail Billed MWh......................... 40,029,067 41,424,867 42,063,955 43,467,783 44,487,284
Revenue per Billed MWh.................... 0.0667 0.0732 0.0776 0.0820 0.1054
Industrial
----------
Retail Billed Electric Revenue (thousands) $213,342 $235,779 $250,923 $264,170 $358,000
Retail Billed MWh......................... 4,057,210 4,004,121 3,964,149 3,912,708 4,035,970
Revenue per Billed MWh.................... 0.0526 0.0589 0.0633 0.0675 0.0887
Other
-----
Retail Billed Electric Revenue (thousands) $66,355 $69,988 $69,848 $74,838 $88,596
Retail Billed MWh......................... 571,687 581,747 564,346 567,759 564,827
Revenue per Billed MWh.................... 0.1161 0.1203 0.1238 0.1318 0.1569
(4) Retail billed electric revenue excludes interchange power sales, the net
change in unbilled revenues, deferred or recovered clause revenues,
provision for retail rate refund and other operating revenues.
Percentage Concentration Within FPL's Large Commercial Customers
For the year ended December 31, 2006, the ten largest electric customers
represented approximately 6.8% of FPL's retail kilowatt-hour sales. In
almost all cases, the customers are in the large commercial and industrial
rate classes. There are no material concentrations in the residential class.
How FPL Forecasts the Number of Customers and the Amount of Electricity
Consumption
Accurate projections of the number of customers, consumption and retail
electric revenues are important in setting, maintaining and adjusting the
storm-recovery charge. The storm-recovery charge must be sufficient to recover
interest on and principal of the bonds, to replenish any withdrawals from the
capital subaccount and to pay the indenture trustee's fee, the servicing fee
and the other expenses and costs associated with the bonds. Please read "The
Storm-Recovery Property and the Financing Act--The Financing Act Provides for
the Recovery of Storm-Recovery Costs and the Issuance of Storm-Recovery
Bonds," "FPL's Financing Order--FPSC-Guaranteed True-Up Mechanism" and "Risk
Factors--Servicing Risks" in this prospectus.
FPL relies on econometrics as the primary tool for projecting future
levels of customer growth, energy sales, and peak demand. An econometric model
is a numerical representation, obtained through statistical estimation
techniques, of the degree of relationship between a dependent variable, e.g.,
the level of energy sales, and the independent (explanatory) variables, such
as customer growth, the local and national economy, price of electricity and
weather. A change in any of the independent variables will result in a
corresponding change in the dependent variable.
The growth in customers in FPL's service territory is the primary driver
of the projected growth in the level of energy sales. In order to project the
growth in the number of customers, FPL's projections rely on population
projections produced by the University of Florida.
33
The use of electricity and the increased number of new customers are
both linked directly to the performance of the local and national economy. FPL
relies on the outlook for the state and national economy produced by Global
Insight (formerly DRI-WEFA).
The price of electricity reflects the Florida Commission-approved base
rates and adjustment clauses. Fuel prices are a major driver in the price of
electricity. Higher projected fuel prices are accounted for in two ways, in
the higher price of electricity and in the higher levels of inflation that
result as a consequence of the high fuel prices.
Short-term fluctuations in the level of energy sales have its origin in
observed random abnormal weather conditions. FPL assumes a normal weather
outlook in developing its forecast and does not seek to forecast the future
weather conditions.
The forecast of energy sales consists of three steps. First, total Net
Energy for Load (NEL), which is energy generated net of plant use, is
projected. A more reliable econometric forecasting model is obtained for NEL,
instead of billed energy sales, since the explanatory variables can be better
matched to usage. This is so because the NEL data does not have to be attuned
to account for billing cycle adjustments, which might distort the real time
match between the production and consumption of electricity.
Second, a line loss factor and a billing cycle adjustment are applied to
the NEL to arrive at total use of electricity by the customer.
Third, revenue class models are developed to distribute the forecast of
total end-use sales of electricity to the different revenue classes
(residential, commercial, industrial, etc.). These revenue class models are
developed to obtain an objective allocation of the total energy sales among
FPL's different revenue classes. The sum of the sales for all revenue classes
will result in total energy sales. The energy sales for each revenue class are
then adjusted to reflect the total energy sales derived from the NEL model.
Forecast Variances
The table below compares actual retail billed gigawatt-hours (referred
to as GWh) for a particular year to the related forecast prepared during the
previous year for the past ten years. For example, the annual 2005 variance is
based on a forecast prepared in 2004. There can be no assurance that the
future variance between actual and expected consumption will be similar to the
historical experience set forth below.
Table 5(5)
Forecast Variance For the Amount of Retail Electricity Billed
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------
Forecast (GWh).......... 80,010 81,665 83,767 88,239 91,653 94,729 97,035 100,070 102,427 105,316
Actual (GWh)............ 79,854 85,131 84,602 87,959 90,212 95,523 99,496 99,095 102,296 103,659
Variance-%.............. -0.19% 4.24% 1.00% -.32% -1.57% 0.84% 2.54% -0.97% -0.13% -1.6%
(5) Calculations include retail billed GWh. Excludes interchange power sales
and change in unbilled sale.
If actual consumption of electricity is higher than the forecast, there
will most likely be an excess of storm-recovery charge collections. Similarly,
if actual consumption of electricity is lower than the forecast, there will
most likely be a shortfall in storm-recovery charge collections.
Credit Policy; Billing; Collections and Write-Offs; Termination of Service
Credit Policy. FPL is required to provide service to all its customers
with very minor exceptions (e.g., lack of identification, fraud, electrical
standards). FPL relies on the information provided by the customer and its
customer information system to determine whether FPL has previously served a
customer. Certain accounts are secured with deposits or guarantees as a
precautionary measure. The amount of the deposit reflects the estimated use
over a two-month period, which is what the Florida Administrative Code allows
FPL to collect. Since the vast majority of customers pay their bills within
the allotted time, FPL does not require deposits from all new customers.
34
FPL has developed criteria for establishing credit. For residential
customers, FPL uses a positive identification and credit scoring system to
determine creditworthiness of its new customers. Deposits are charged to all
commercial and industrial customers upon application for service. If a deposit
is required to establish credit, customers must provide a deposit equal to
twice the average monthly billing at the premise. Deposits may not be required
if the applicant has previously been a customer of FPL and had their deposit
waived, or if the consumer provides a deposit alternative such as an
irrevocable bank letter of credit, a surety bond, or an unconditional
guaranty/guarantor contract. Deposits may also not be required if the account
opened is an additional account for an existing customer whose deposit is
waived or if the account is a governmental agency or for temporary purposes.
Billing Process. FPL bills its customers once every 29 to 35 days and
distributes approximately an equal number of bills each business day. For the
year ended December 31, 2006, FPL mailed out an average of approximately
210,000 bills on each business day to its customers. For accounts with
potential billing error exceptions, reports are generated for manual review.
This review examines accounts that have abnormally high or low bills,
potential meter-reading errors and possible meter malfunctions.
Approximately 350,000 residential and small business customers, which
constitute approximately 8% of FPL's customers, choose to be billed using
FPL's budget billing program. For these customers FPL determines and bills and
monthly budget based on the last twelve months of billing history for each
account. The budget amount is recalculated each month and adjusted
accordingly. Overpayments or underpayments for actual usage during the prior
year are reconciled on each customer's monthly bill.
Collection and Write-Off Policy. FPL receives approximately 55% of its
total bill payments via U.S. mail. Approximately 35% of bill payments are
received via electronic payments. FPL receives the remainder of payments via
third-party pay agents and field collection. Bills are due 21 days after the
issue date at which time they are considered delinquent. Based on internal
risk scoring, customers may be sent a final notice after their bill due date
to encourage payment. The final notice becomes past due seven days thereafter.
Timing and collection follow-up is based on risk determination. FPL has
a statistically-derived behavior model that prioritizes collection accounts
based on their risk of delinquency. Depending on the risk assessment, a
telephone contact is attempted after final notice expiration to stimulate
payment or the account may be sent directly to the field collection department
for termination of service or collection of payment in the field. If service
is terminated, the customer is required to pay all final noticed amounts as
well as a $17.66 reconnection fee in order to resume service. If payment is
collected by the field collector, then a $5.11 service charge will apply.
After service termination, either due to non-payment or regular customer
request, a final bill including all unpaid amounts and net of deposits paid is
issued. Unpaid final bills are written off approximately 90 days after the
final bill is issued. Even after write-off, FPL attempts to collect on these
past debts internally as well as with the assistance of outside collection
agencies. These recoveries are netted against actual write-offs.
FPL may change its credit, billing, collections and
termination/restoration of service policies and procedures from time to time.
It is expected that any such changes would be designed to enhance FPL's
ability to bill and collect customer charges on a timely basis. Please read
"Risk Factors--Servicing Risks--Changes to Billing and Collection Practices
Might Reduce the Amount of Funds Available for Payments on the Bonds" in this
prospectus.
Write-Off and Delinquency Experience
The following tables set forth information relating to FPL's write-off
experience for the past years. Such historical information is presented
because FPL's actual experience with respect to write-offs and delinquencies
may affect the timing of storm-recovery charge collections. FPL does not
expect, but cannot assure, that the delinquency or write-off experience with
respect to storm-recovery charge collections will differ substantially from
the rates indicated. Write-off and delinquency data is affected by factors
such as the overall economy, weather and changes in collection practices. The
net write-off and delinquency experience is expected, but cannot be assured,
to be similar to FPL's previous experience. Write-offs and delinquencies are
taken into account in the true-up adjustment process.
The following table shows gross write-offs for the past ten years for
each customer class.
35
Table 6
Gross Write-Offs per Customer Class
(in thousands)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------------------------------------------------------------------------------------------
Residential $16,658 $13,622 $12,856 $11,223 $12,521 $14,665 $15,104 $16,754 $20,262 $24,590
Commercial. 2,945 2,673 2,508 2,273 2,829 2,958 2,272 2,681 2,679 3,265
Industrial 54 20 110 40 346 32 26 40 42 61
Other...... 0 0 0 89 86 0 9 6 25 38
------------------------------------------------------------------------------------------
Total.. $19,657 $16,315 $15,474 $13,625 $15,782 $17,655 $17,411 $19,481 $23,008 $27,953
==========================================================================================
The following table shows FPL's gross write-offs as a percentage of
electric billed revenues for the past ten years for each customer class.
Table 7
Gross Write-Offs as a Percentage of Billed Revenue per Customer Class
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------------------------------------------------------------------------------------------
Residential 0.49% 0.38% 0.38% 0.32% 0.30% 0.36% 0.33% 0.35% 0.39% 0.38%
Commercial 0.13% 0.12% 0.11% 0.10% 0.10% 0.11% 0.07% 0.08% 0.08% 0.08%
Industrial 0.03% 0.01% 0.06% 0.02% 0.14% 0.01% 0.01% 0.02% 0.02% 0.03%
Other.... 0.00% 0.00% 0.00% 0.12% 0.12% 0.00% 0.01% 0.01% 0.03% 0.00%
------------------------------------------------------------------------------------------
Total 0.33% 0.27% 0.26% 0.22% 0.22% 0.25% 0.22% 0.23% 0.25% 0.24%
==========================================================================================
The following table shows FPL's total net write-offs and the
corresponding percentage of total electric revenues for the past ten years.
Net write-offs include amounts recovered by FPL from payments received after an
account has been written-off by FPL (post write-off recoveries).
Table 8
Total Net Write-Offs and
Net Write-Offs as a Percentage of Billed Revenue
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
---------------------------------------------------------------------------------------------
Net Write-Offs
(in thousands) ........ $13,419 $9,537 $8,206 $6,911 $9,359 $10,141 $10,676 $12,072 $14,083 $17,902
Net Write-Offs as a % of
Billed Revenue......... 0.23% 0.16% 0.14% 0.11% 0.13% 0.14% 0.13% 0.14% 0.15% 0.15%
The following table sets forth information relating to FPL's aging of
electric accounts receivable, as a percent of accounts receivable for all
customers for the past eight years:
Table 9
Aging of Accounts Receivable
1999 2000 2001 2002 2003 2004 2005 2006
--------------------------------------------------------------------
1-30 Days........................... 90.40% 90.67% 90.89% 91.35% 91.18% 90.40% 90.54% 88.5%
31-60 Days.......................... 7.70% 7.57% 7.47% 6.88% 6.98% 7.40% 7.40% 9.3%
61-90 Days.......................... 1.45% 1.36% 1.38% 1.29% 1.27% 1.69% 1.64% 1.3%
Over 90 Days........................ 0.45% 0.40% 0.27% 0.48% 0.57% 0.51% 0.42% 0.9%
Weighted Average Days Outstanding... 21 20 21 21 22 21 22 23
The data above represent both active and inactive customer accounts as
opposed to the write-off data that reflects only customer accounts where
service is no longer being provided.
Please read "Risk Factors--Servicing Risks" in this prospectus.
36
2005 Rate Agreement
In 2005, the FPSC approved a stipulation and settlement agreement
regarding FPL's retail base rates. FPL expects the 2005 settlement agreement
to be in effect through December 31, 2009, or later until terminated on the
date new retail base rates become effective pursuant to a Florida Commission
order. The 2005 settlement agreement replaced a settlement agreement that was
effective April 15, 2002, through December 31, 2005.
The 2005 settlement agreement provides that retail base rates will not
increase during the term of the agreement except to allow recovery of the
revenue requirements of any power plant approved pursuant to the Florida
Electrical Power Plant Siting Act, codified at Sections 403.501-403.518, 2005
Florida Statutes, which achieves commercial operation during the term of the
2005 rate agreement. The 2005 settlement agreement also continues the
revenue-sharing mechanism in FPL's 2002 settlement agreement, whereby revenues
from retail base operations in excess of certain thresholds will be shared
with customers on the basis of two-thirds refunded to customers and one-third
retained by FPL. Revenues from retail base operations in excess of a second,
higher threshold will be refunded 100% to customers.
The storm-recovery charges are not part of FPL's base rates. Prudently
incurred storm costs approved by the Florida Commission are recoverable
through charges independent of and incremental to base rates.
DESCRIPTION OF THE BONDS
General
We will issue each series of bonds pursuant to a separate indenture
between us and the indenture trustee specified in the prospectus supplement
relating to the series. The particular terms of any series of bonds will be
established in the separate indenture related to such series of bonds. We have
covenanted not to issue additional bonds authorized by another financing order
issued by the Florida Commission. The following summary describes some of the
general terms and provision of the bonds of each series. Although we have
disclosed the material terms of the bonds and the indenture in this
prospectus, this summary is subject to the terms and provisions of the
indenture, the form of which is filed as an exhibit to the registration
statement of which this prospectus forms a part.
We will issue the bonds in series, each of which may be comprised of one
or more tranches. Tranches of bonds may differ as to the interest rate and the
timing, sequential order and amount of payments of principal or interest, or
both.
While the prospectus supplement will describe the specific terms of one
series of bonds (and the tranches of that series (if any)) in respect of which
this prospectus is being delivered, the terms of that series and any tranches
of such series will not be subject to the prior review of or consent of the
holders of outstanding bonds, if any. All bonds of the same series will be
identical in all respects except for the denominations, unless that series is
comprised of more than one tranche, in which case all bonds of the same
tranche will be identical in all respects except for the denominations.
All bonds that we issue will be payable solely from, and secured solely
by, a pledge of and lien on the storm-recovery property and the other
collateral as provided in the indenture for such series. Please read "Security
for the Bonds -- Pledge of Collateral" in this prospectus.
The prospectus supplement for a series of bonds will describe the
following terms of that series of bonds and, if applicable, the tranches of
that series:
o the designation of the series and, if applicable, the tranches of
that series,
o the principal amount of the series and, if applicable, the
tranches of that series,
o the storm-recovery charges applicable to such series and the
initial storm-recovery charge on a typical residential (1,000 kWh)
monthly bill upon the issuance of the bonds,
o the annual rate at which interest accrues or the method or methods
of determining such annual rate,
37
o the payment dates,
o the scheduled maturity date and the final maturity date of the
series and, if applicable, the tranches of that series,
o the issuance date of the series,
o the authorized denominations,
o the expected sinking fund schedule for principal of the series
and, if applicable, the tranches of that series,
o any other material terms of the series that are not inconsistent
with the provisions of the related indenture and that will not
result in any rating agency reducing or withdrawing its rating of
any outstanding tranche of bonds, and
o the identity of the indenture trustee.
Interest and Principal on the Bonds
Interest will accrue on the principal balance of a tranche of bonds at
the annual rate either specified in or determined in the manner specified in
the related prospectus supplement and will be payable on the payment dates
specified in the related prospectus supplement. Interest payments will be made
from collections of storm-recovery charges, including amounts available in the
excess funds subaccount and, if necessary, the amounts available in the
capital subaccount. Please read "Security for the Bonds -- How Funds in the
Collection Account Will be Allocated" in this prospectus.
Principal of the bonds of each tranche will be payable in the amounts
and on the payment dates specified in the related prospectus supplement, but
only to the extent that amounts in the collection account are available, and
subject to the other limitations described below, under "Security for the
Bonds--How Funds in the Collection Account Will Be Allocated." Each prospectus
supplement will set forth the expected sinking fund schedule for each series
of bonds and, if applicable, the tranches of that series. On any payment date,
unless an event of default has occurred and is continuing and the bonds have
been declared due and payable, the indenture trustee will make principal
payments on the bonds only until the outstanding principal balances of those
bonds have been reduced to the principal balances specified in the applicable
expected sinking fund schedule for that payment date. The indenture trustee
will retain in the excess funds subaccount for payment on later payment dates
any collections of storm-recovery charges in excess of amounts payable as
o expenses of the servicer, the independent managers and the
indenture trustee (including the servicing fee),
o payments of interest on and principal of the bonds,
o investment earnings on amounts in the capital subaccount released
to us, and
o allocations to the capital subaccount (all as described under
"Security for the Bonds--How Funds in the Collection Account Will
Be Allocated").
If the indenture trustee receives insufficient collections of storm-recovery
charges for any payment date, and amounts in the collection account (and the
applicable subaccounts of the collection account) are not sufficient to make
up the shortfall, principal of any tranche of bonds may be payable later than
expected, as described in this prospectus. Please read "Risk Factors--Other
Risks Associated with an Investment in the Bonds." The entire unpaid principal
amount of the bonds will be due and payable on the date on which an event of
default (other than a breach of the state pledge) has occurred and is
continuing, if the indenture trustee or the holders of not less than a
majority in principal amount of the bonds then outstanding have declared the
bonds to be immediately due and payable. Please read "Description of the
Bonds--Events of Default; Rights Upon Event of Default" in this prospectus.
38
Unless the context requires otherwise, all references in this prospectus
to principal of the bonds of a series include any premium that might be
payable if bonds of that series are redeemed, as described in the related
prospectus supplement.
The indenture trustee will pay on each payment date to the holders of
each tranche of bonds to the extent of available funds in the collection
account all payments of principal and interest then due. The indenture trustee
will make each payment other than the final payment with respect to any bonds
to the holders of record of the bonds of the applicable tranche on the record
date for that payment date. The indenture trustee will make the final payment
for each tranche of bonds, however, only upon presentation and surrender of
the bonds of that tranche at the office or agency of the indenture trustee
specified in the notice given by the indenture trustee of the final payment.
The indenture trustee will mail notice of the final payment to the bondholders
no later than ten days prior to the final payment date, specifying the date
set for the final payment and the amount of the payment.
The failure to pay accrued interest on any payment date (even if the
failure is caused by a shortfall in storm-recovery charges received) will
result in an event of default for the bonds unless such failure is cured
within five business days. Please read "Description of the Bonds--Events of
Default; Rights Upon Event of Default," below. Any interest not paid within
such five business day period (plus interest on the defaulted interest at the
applicable interest rate to the extent lawful) will be payable to the
bondholders on a special record date. The special record date will be at least
five business days prior to the date on which the indenture trustee is to make
a special payment (a "special payment date"). We will fix any special record
date and special payment date. At least 15 days before any special record
date, the indenture trustee will mail to each affected bondholder a notice
that states the special record date, the special payment date and the amount
of defaulted interest (plus interest on the defaulted interest) to be paid.
At the time, if any, we issue the bonds of any series in the form of
definitive bonds and not to DTC or its nominee, the indenture trustee will
make payments with respect to that tranche on a payment date or a special
payment date by check mailed to each holder of a definitive bond of the
tranche of record on the applicable record date at its address appearing on
the register maintained with respect to the bonds of that series. Upon
application by a holder of any tranche of bonds in the principal amount of
$10,000,000 or more to the indenture trustee not later than the applicable
record date, the indenture trustee will make payments by wire transfer to an
account maintained by the payee in New York, New York.
If any special payment date or other date specified for any payments to
bondholders is not a business day, the indenture trustee will make payments
scheduled to be made on that special payment date or other date on the next
succeeding business day and no interest will accrue upon the payment during
the intervening period.
Third-Party Credit Enhancement
FPL's financing order authorizes FPL to implement third-party credit
enhancement, such as guarantees, letters of credit, insurance or the like. If
we issue any series of bonds with any third-party credit enhancement, such
credit enhancement will be described in the related prospectus supplement.
Registration and Transfer of the Bonds
If specified in the related prospectus supplement, we may issue one or
more tranches of bonds in definitive form, which will be transferable and
exchangeable at the office of the registrar identified in the related
prospectus supplement. Unless otherwise specified in the related prospectus
supplement, there will be no service charge for any registration or transfer
of the bonds, but the indenture trustee may require the owner to pay a sum
sufficient to cover any tax or other governmental charge.
We will issue each tranche of bonds in the authorized denominations set
forth in the related prospectus supplement and, except as otherwise provided
in the related prospectus supplement, in integral multiples thereof.
The indenture trustee will make payments of interest and principal on
each payment date to the bondholders in whose names the bonds were registered
on the record date.
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Book-Entry Registration
Unless we specify otherwise in the related prospectus supplement, the
storm-recovery bonds will be available to investors only in the form of
book-entry storm-recovery bonds. You may hold your bonds through DTC in the
United States, Clearstream Banking, Luxembourg, S.A., referred to as
Clearstream, or Euroclear in Europe or in any other manner we describe in the
related prospectus supplement. You may hold your bonds directly with one of
these systems if you are a participant in the system or indirectly through
organizations that are participants.
The Role of DTC, Clearstream and Euroclear
Cede & Co., as nominee for DTC, will hold the global bond or bonds
representing the storm-recovery bonds. Clearstream and Euroclear will hold
omnibus positions on behalf of the Clearstream customers and Euroclear
participants, respectively, through customers' securities accounts in
Clearstream's and Euroclear's names on the books of their respective
depositaries. These depositaries will, in turn, hold these positions in
customers' securities accounts in the depositaries' names on the books of DTC.
The Function of DTC
DTC is a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System. DTC is a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entries, thereby eliminating the need for
physical movement of bonds. Direct participants of DTC include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include other organizations. Indirect access to the DTC system also is
available to others, including banks, brokers, dealers and trust companies, as
indirect participants, that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
The Function of Clearstream
Clearstream is incorporated under the laws of Luxembourg. Clearstream
holds securities for its customers and facilitates the clearance and
settlement of securities transactions between Clearstream customers through
electronic book-entry changes in accounts of Clearstream customers, thereby
eliminating the need for physical movement of securities. Transactions may be
settled by Clearstream in any of various currencies, including United States
dollars. Clearstream provides to its customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Clearstream also deals
with domestic securities markets in various countries through established
depositary and custodial relationships. Clearstream is registered as a bank in
Luxembourg and therefore is subject to regulation by the Commission de
Surveillance du Secteur Financier, which supervises Luxembourg banks.
Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations, among others, and may include the underwriters of any
series of storm-recovery bonds. Clearstream's United States customers are
limited to securities brokers and dealers and banks. Clearstream has customers
located in various countries. Indirect access to Clearstream is also available
to other institutions that clear through or maintain a custodial relationship
with an account holder of Clearstream. Clearstream has established an
electronic bridge with Euroclear Bank S.A./N.V. as the operator of the
Euroclear System in Brussels to facilitate settlement of trades between
Clearstream and Euroclear.
The Function of Euroclear
Euroclear was created in 1968 to hold securities for Euroclear
participants and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities and
any risk from lack of simultaneous transfers of securities and cash. Such
transactions may be settled in any of various currencies, including United
States dollars. The Euroclear System includes various other services,
including securities lending and borrowing and interfaces with domestic
markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described below. The Euroclear System is
operated by Euroclear Bank S.A./N.V. as the Euroclear operator. All operations
are conducted by the Euroclear operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
operator. Euroclear participants include central
40
banks and other banks, securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any series of
storm-recovery bonds. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
Terms and Conditions of Euroclear
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System. These terms and
conditions govern transfers of securities and cash within the Euroclear
System, withdrawals of securities and cash from the Euroclear System and
receipts of payments with respect to securities in the Euroclear System. All
securities in Euroclear are held on a fungible basis without attribution of
specific securities to specific securities clearance accounts. The Euroclear
operator acts under these rules and laws only on behalf of Euroclear
participants and has no record of or relationship with persons holding through
Euroclear participants.
The Rules for Transfers Among DTC, Clearstream or Euroclear Participants
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between Clearstream customers or Euroclear participants will
occur in the ordinary way in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected through
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its depositary; however, those cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines, which will
be based on European time. The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to its depositary to take action to effect final settlement on
its behalf by delivering or receiving storm-recovery bonds in DTC and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Clearstream customers and Euroclear participants
may not deliver instructions directly to Clearstream's and Euroclear's
depositaries.
Because of time-zone differences, credits of securities in Clearstream
or Euroclear as a result of a transaction with a participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and those credits or any transactions in
those securities settled during that processing will be reported to the
relevant Clearstream customer or Euroclear participant on that business day.
Cash received in Clearstream or Euroclear as a result of sales of securities
by or through a Clearstream customer or a Euroclear participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
DTC Will Be the Holder of the Storm-Recovery Bonds
Storm-recovery bondholders that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of,
or other interest in, storm-recovery bonds may do so only through participants
and indirect participants. In addition, storm-recovery bondholders will
receive all distributions of principal of and interest on the storm-recovery
bonds from the indenture trustee through the participants, who in turn will
receive them from DTC. Under a book-entry format, storm-recovery bondholders
may experience some delay in their receipt of payments because payments will
be forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC
will forward those payments to its participants, who thereafter will forward
them to indirect participants or storm-recovery bondholders. It is anticipated
that the only "bondholder" will be Cede & Co., as nominee of DTC. The
indenture trustee will not recognize storm-recovery bondholders as
bondholders, as that term is used in the indenture, and storm-recovery
bondholders will be permitted to exercise the rights of bondholders only
indirectly through the participants, who in turn will exercise the rights of
storm-recovery bondholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the storm-recovery bonds
and is required to receive and transmit distributions of principal and
interest on the storm-recovery bonds. Participants and indirect participants
41
with whom storm-recovery bondholders have accounts with respect to the
storm-recovery bonds similarly are required to make book-entry transfers and
receive and transmit those payments on behalf of their respective
storm-recovery bondholders. Accordingly, although storm-recovery bondholders
will not possess storm-recovery bonds, storm-recovery bondholders will receive
payments and will be able to transfer their interests.
Because DTC can act only on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a
storm-recovery bondholder to pledge storm-recovery bonds to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of those bonds, may be limited due to the lack of a physical
certificate for those storm-recovery bonds.
DTC has advised us that it will take any action permitted to be taken by
a storm-recovery bondholder under the indenture only at the direction of one
or more participants to whose account with DTC the storm-recovery bonds are
credited. Additionally, DTC has advised us that it will take those actions
with respect to specified percentages of the collateral amount only at the
direction of and on behalf of participants whose holdings include interests
that satisfy those specified percentages. DTC may take conflicting actions
with respect to other interests to the extent that those actions are taken on
behalf of participants whose holdings include those interests.
How Storm-Recovery Bond Payments Will Be Credited by Clearstream and Euroclear
Distributions with respect to storm-recovery bonds held through
Clearstream or Euroclear will be credited to the cash accounts of Clearstream
customers or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by its depositary. Those
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Please read "Material U.S. Federal
Income Tax Consequences" in this prospectus. Clearstream or the Euroclear
operator, as the case may be, will take any other action permitted to be taken
by a storm-recovery bondholder under the indenture on behalf of a Clearstream
customer or Euroclear participant only in accordance with its relevant rules
and procedures and subject to its depositary's ability to effect those actions
on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the storm-recovery bonds among
participants of DTC, Clearstream and Euroclear, they are under no obligation
to perform or continue to perform those procedures, and those procedures may
be discontinued at any time.
Definitive Bonds
Unless otherwise specified in the related prospectus supplement, we will
issue storm-recovery bonds in registered, certificated form to bondholders, or
their nominees, rather than to DTC, only under the circumstances provided in
the indenture, which will include: (1) DTC or us advising the indenture
trustee in writing that DTC is no longer willing or able to properly discharge
its responsibilities as nominee and depositary with respect to the book-entry
bonds of that series and that we are unable to locate a qualified successor,
(2) our electing to terminate the book-entry system through DTC, with written
notice to the indenture trustee, or (3) after the occurrence of an event of
default under the related indenture, holders of storm-recovery bonds
representing not less than a majority of the aggregate outstanding principal
amount of the storm-recovery bonds of any series maintained as book-entry
bonds advising us, the indenture trustee, and DTC in writing that the
continuation of a book-entry system through DTC (or a successor) is no longer
in the best interests of those bondholders. Upon issuance of definitive bonds
of a series, the storm-recovery bonds evidenced by such definitive bonds will
be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the indenture trustee with respect
to transfers, notices and payments.
Upon surrender by DTC of the definitive securities representing the
storm-recovery bonds and instructions for registration, the indenture trustee
will issue the storm-recovery bonds in the form of definitive bonds, and
thereafter the indenture trustee will recognize the registered holders of the
definitive bonds as bondholders under the indenture.
The indenture trustee will make payment of principal of and interest on
the storm-recovery bonds directly to bondholders in accordance with the
procedures set forth herein and in the related indenture and the related
prospectus supplement. The indenture trustee will make interest payments and
principal payments to bondholders in whose names the definitive bonds were
registered at the close of business on the related record date. The indenture
trustee will make payments by check mailed to the address of the bondholder as
it appears on the register maintained by the indenture trustee or in such
42
other manner as may be provided in the related indenture and except that
certain payments will be made by wire transfer as described in the related
indenture. The indenture trustee will make the final payment on any
storm-recovery bond, however, only upon presentation and surrender of the bond
on the final payment date at the office or agency that is specified in the
notice of final payment to bondholders. The indenture trustee will provide the
notice to registered bondholders not later than the fifth day prior to the
final payment date.
Definitive bonds will be transferable and exchangeable at the offices of
the transfer agent and registrar, which initially will be the indenture
trustee. There will be no service charge for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Optional Redemption
No bonds of any series will be subject to optional redemption.
Conditions of Issuance of Additional Series and Acquisition of Additional
Storm-Recovery Property
The indenture has been structured so that we may operate as a master
trust in that we may, subject to the terms of the financing order but without
your prior review or approval, acquire additional storm-recovery property and
issue additional series of storm-recovery bonds which are backed by such
storm-recovery property created under the financing order. All of such
storm-recovery bonds will be paid through collections of additional
storm-recovery charges from the same group of FPL customers. Each series will
have its own storm-recovery property, which will include the right to impose,
collect and receive storm-recovery charges calculated in respect of that
series, and the right to impose interim and annual true-up adjustments to
correct overcollections or undercollections in respect of that series. Each
series will be issued under a separate indenture, and have its own collection
account, including any related subaccounts, into which collections of the
storm-recovery charges relating to that series will be deposited and from
which amounts will be withdrawn to pay the related series of storm-recovery
bonds. The collateral for each series of storm-recovery bonds will be separate
from the collateral for any other series, and holders of one series of
storm-recovery bonds will have no recourse to collateral for a different
series. Although each series of storm-recovery bonds we may issue will in form
be backed by legally separate storm-recovery property, all such bonds will be
backed by storm-recovery charges imposed on the same group of customers.
Please read "--Allocations as Between Series" and "The Servicing
Agreement--Remittances to Collection Account." No series will be subordinated
to any other series except that any tranche of a particular series may be
subordinated to other tranches of such series if and to the extent set forth
in the applicable prospectus supplement. Our acquisition of storm-recovery
property and issuance of any series of storm-recovery bonds with respect
thereto after the initial acquisition and issuance is subject to the following
conditions, among others:
o all parties required to do so by the terms of the relevant
documents must have authorized, executed and delivered appropriate
documentation required by the indenture and the limited liability
company agreement, including trustee's certificates or supplements
to the limited liability company agreement;
o the seller must have irrevocably assigned all of its right, title
and interest in the additional storm-recovery property to us and
made a filing required by Section 366.8620(5)(b) of the Financing
Act with respect to the assignment;
o the seller must deliver certain certificates and opinions
specified in the indenture to the indenture trustee and to us;
o the rating agency condition must have been satisfied with respect
to the transactions and the bonds to be issued must be rated "Aaa"
by Moody's, "AAA" by S&P and "AAA" by Fitch;
o no event of default may have occurred and be continuing under the
indenture;
o as of the date of issuance, we must have sufficient funds
available to pay the purchase price for the storm-recovery
property, and all conditions to the issuance of a new series of
bonds must have been satisfied or waived;
43
o we must deliver certain certificates and opinions specified in the
indenture to the indenture trustee; and
o the Florida Commission must not have issued a "stop order." See
"FPL's Financing Order - Bond Issuance Approval Process," and the
Financing Order, Finding of Fact No. 135.
Allocations as Between Series
The financing order requires storm-recovery charges to be shown as a
separate line item on the periodic bills sent to customers. Although each
series will have its own storm-recovery property reflecting the right to
impose, bill, collect and receive a separate storm-recovery charge,
storm-recovery charges relating to the bonds and storm-recovery charges
relating to any other series of storm-recovery bonds will be collected through
single periodic bills to each customer, and all storm-recovery charges might
be combined into a single line item on those periodic bills. In the event a
customer does not pay in full all amounts owed under any bill including
storm-recovery charges, FPL is required to allocate any resulting shortfalls
in storm-recovery charges ratably based on the amounts of storm-recovery
charges owing in respect of each series of storm-recovery bonds. Please read
"The Servicing Agreement--Remittances to Collection Account" in this
prospectus.
Access of Bondholders
Upon written request of any bondholder or group of bondholders
evidencing not less than 10% percent of the aggregate outstanding principal
amount of the bonds the indenture trustee will afford the bondholder or
bondholders access during business hours to the current list of bondholders
for purposes of communicating with other bondholders with respect to their
rights under the indenture.
The indenture does not provide for any annual or other meetings of
bondholders.
Reports to Bondholders
On or prior to each payment date, special payment date or any other date
specified in the indenture for payments with respect to any tranche of bonds,
the indenture trustee will deliver to the bondholders of that tranche a
statement with respect to the payment to be made on the payment date, special
payment date or other date, as the case may be, setting forth the following
information:
o the amount of the payment to bondholders allocable to (1)
principal and (2) interest,
o the aggregate outstanding principal balance of the bonds, after
giving effect to payments allocated to principal reported
immediately above,
o the difference, if any, between the amount specified immediately
above and the principal amount scheduled to be outstanding on that
date according to the related expected sinking fund schedule,
o the amount, if any, on deposit in the capital subaccount and the
excess funds subaccount as of such payment date, after giving
effect to payments to be made on such payment date and the
required capital amount,
o the amount paid or to be paid to the indenture trustee since the
preceding payment date, after giving effect to the payments to be
made on such payment date,
o the amount paid or to be paid to the servicer since the preceding
payment date, after giving effect to the payments to be made on
such payment date, and
o any other transfers and payments made pursuant to the indenture
after given effect to the payments to be made on such payment
date.
Unless and until bonds are no longer issued in book-entry form, the
reports will be provided to the depository for the bonds, or its nominee, as
sole beneficial owner of the bonds. The reports will be available to
bondholders upon request to the
44
indenture trustee. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
financial information provided to bondholders will not be examined and
reported upon by an independent public accountant. In addition, an independent
public accountant will not provide an opinion on the financial information.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the bonds, the indenture
trustee will mail to certain persons who at any time during the calendar year
were bondholders and received any payment on the bonds, a statement containing
certain information for the purposes of the bondholder's preparation of U.S.
federal and state income tax returns. Please read "Material U.S. Federal
Income Tax Consequences."
Continuing Disclosure
For at least one year, we will be required to file periodic reports with
the SEC in respect of the bonds pursuant to the Securities Exchange Act of
1934, as amended. To the extent required under applicable SEC rules and
regulations, we will furnish or file in the periodic reports and other reports
to be filed with the SEC the following information with respect to the bonds
to the extent such information is reasonably available to us.
o statements of monthly storm-recovery charge remittances made to
the indenture trustee (to be included in the next Form 10-D or
Form 10-K filed subsequent to the respective servicer report),
o a statement reporting the balances in each collection account and
in each subaccount of each collection account as of the end of
each quarter or the most recent date available (to be included in
the next Form 10-D or Form 10-K filed),
o a statement showing the balance of outstanding bonds that reflects
the actual periodic payments made on the bonds versus the expected
periodic payments (to be included in the next Form 10-D or Form
10-K filed),
o the semiannual and monthly servicer's certificates which are
required to be submitted pursuant to the servicing agreement (to
be filed with the next Form 10-D, Form 10-K or Form 8-K filed),
o the text (or a link to the website where a reader can find the
text) of each true-up filing and the results of each true-up
filing (to be filed with the next Form 10-D, Form 10-K or Form 8-K
filed),
o any change in the long-term or short-term credit ratings of the
servicer assigned by the rating agencies below "investment grade"
ratings (to be filed or furnished in a Form 8-K), and
o material adverse legislative or regulatory developments directly
relevant to the bonds (to be filed or furnished in a Form 8-K or
Form 10-K, if appropriate).
Internet-Based Information
In addition, we will, to the extent permitted by and consistent with our
obligations under applicable law, cause to be posted on the website associated
with FPL, currently located at www.fpl.com:
o the final prospectus for each series of bonds,
o all of the information described above under Continuing
Disclosure, and
o a current organization chart for us and the servicer (unless the
servicer is not related to us in which case the servicer will post
two separate organization charts), in each case disclosing the
parent company and material subsidiaries of the servicer and us.
45
Supplemental Indentures
Modifications of the Indenture That Do Not Require the Consent of
Storm-Recovery Bondholders. From time to time, and without the consent of the
bondholders (but with prior notice to the rating agencies), we may enter into
one or more agreements supplemental to the related indenture for various
purposes described in the indenture, including:
o to correct or amplify the description of any property subject to
the indenture, or to better convey the property subject to the
indenture, or to add additional property,
o to evidence the succession of another person to us or to the
indenture trustee in accordance with the terms of the indenture,
o to add to the covenants for the benefit of the bondholders, or to
surrender any right conferred upon us,
o to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee,
o to cure any ambiguity or correct or supplement any provision in
the indenture or in any supplemental indenture which may be
inconsistent with any other provision in the indenture or in any
supplemental indenture or to make any other provisions with
respect to matters or questions arising under the indenture or in
any supplemental indenture, provided however, any such action will
not (i) adversely affect in any material respect the interests of
the bondholders or (ii) result in a reduction or withdrawal of the
then-current ratings on any tranche of bonds,
o to provide for the acceptance of the appointment by a successor
indenture trustee and do add to or change any of the provisions of
the indenture as shall be necessary to facilitate the
administration of the trusts created by such indenture,
o to modify, eliminate or add to the provision of the indenture to
such extent as may be necessary to provide for definitive bonds or
to effect the qualification of the indenture under the Trust
Indenture Act, or
o to authorize the appointment of any fiduciary for any tranche of
bonds required or advisable with the listing of any tranche on any
stock exchange and otherwise amend the indenture to incorporate
changes requested or required by any government authority, stock
exchange authority or fiduciary or any tranche in connection with
such listing.
We may also, without the consent of the bondholders, enter into one or
more other agreements supplemental to the indenture so long as (i) the
supplemental agreement does not, as evidenced by an opinion of counsel,
adversely affect the interests of any holders of bonds then outstanding in any
material respect and (ii) the rating agency condition shall have been
satisfied with respect thereto.
Modifications of the Indenture That Require the Approval of
Storm-Recovery Bondholders. In addition, we may, with the consent of
bondholders, holding not less than a majority of the aggregate outstanding
principal amount of the bonds of such tranches and series issued under the
indenture, and upon satisfaction of the rating agency condition, enter into
one or more indentures supplemental to the indenture for the purpose of, among
other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the indenture. No supplement, however,
may, without the consent of each bondholder of such tranche affected thereby,
take certain actions enumerated in the indenture, including:
o reduce in any manner the amount of, or delay the timing of,
deposits or payments on any storm-recovery bond,
o impair the right to institute suit for the enforcement of the
indenture requiring the application of funds to the payment of any
amount due on such bonds,
o reduce the percentage of the aggregate outstanding principal
amount of the bonds the holders of which are required to consent
to any supplement,
46
o modify the provisions in the indenture relating to amendments with
the consent of such bondholders to decrease any minimum percentage
of such bondholders required to approve amendments,
o reduce the portion of the outstanding amount of such bonds
required to direct the indenture trustee to direct us to sell or
liquidate the collateral or to preserve the collateral, pursuant
to the terms of the indenture,
o reduce the percentage of the outstanding amount of any tranche of
such bonds, the amount of which is required for amendments to the
sale agreement, servicing agreement or administration agreement,
o modify any of the provisions of the indenture as to affect the
amount of any payment of principal or interest on such bonds,
o decrease the required capital amount with respect to such bonds,
o decrease the portion of the aggregate principal amount of such
bonds required to amend the sections of the indenture which
specify the applicable portion necessary to amend the indenture or
the basic documents, or
o permit the creation of any lien on the collateral ranking prior to
or on a parity with the lien of the indenture.
Promptly following the execution of any supplement to any indenture, the
indenture trustee will furnish written notice of the substance of the
supplement to each bondholder holding bonds issued under the indenture. No
supplemental indenture will be effective unless the conditions set forth in
the indenture, relating to the Florida Commission's right to object (or to
issue a statement that it might object) to such supplemental indenture, have
been met. Please read "Procedure for Obtaining Consent or Deemed Consent of
the Florida Commission" below.
Notification of the Rating Agencies, the Florida Commission, the
Indenture Trustee and the Storm-Recovery Bondholders of any Modification. If
we, FPL or any other party to the applicable agreement:
o proposes to amend, modify, waive, supplement, terminate or
surrender, or agree to any other amendment, modification, waiver,
supplement, termination or surrender of, the terms of the sale
agreement or the servicing agreement, or
o waives timely performance or observance by FPL under the sale
agreement or the servicing agreement,
in each case in a way which would materially and adversely affect the
interests of storm-recovery bondholders, we must first notify the rating
agencies of the proposed amendment. Upon receiving notification regarding
satisfaction of the rating agency condition, we must thereafter notify the
indenture trustee and the Florida Commission in writing and the indenture
trustee shall notify the storm-recovery bondholders of the proposed amendment
and whether the rating agency condition has been satisfied with respect
thereto. The indenture trustee will consent to this proposed amendment,
modification, supplement or waiver only with the written consent of the
holders of a majority of the outstanding principal amount of the bonds of the
tranches materially and adversely affected thereby. In determining whether a
majority of holders have consented, bonds owned by us, FPL or any affiliate of
us or FPL shall be disregarded, except that, in determining whether the
indenture trustee shall be protected in relying upon any such consent, the
indenture trustee shall only be required to disregard any bonds it actually
knows to be so owned.
Modifications to the Indenture, Sale Agreement, the Administration
Agreement and the Servicing Agreement. With the prior written consent of the
indenture trustee, the indenture, the administration agreement, the sale
agreement and the servicing agreement may be amended, so long as the rating
agency condition is satisfied in connection therewith and the Florida
Commission condition has been satisfied, at any time and from time to time,
without the consent of the storm-recovery bondholders. However, any such
amendment may not adversely affect the interest of any storm-recovery
bondholder in any material respect without the consent of the holders of a
majority of the outstanding principal amount of the bonds.
Enforcement of the Sale Agreement, the Administration Agreement and the
Servicing Agreement. The indenture provides that we will take all lawful
actions to enforce our rights under the sale agreement, the administration
agreement, and the servicing agreement. The indenture also provides that we
will take all lawful actions to compel or secure the performance
47
and observance by FPL, the administrator and the servicer of their respective
obligations to us under or in connection with the sale agreement, the
administration agreement, and the servicing agreement. So long as no event of
default occurs and is continuing, we may exercise any and all rights,
remedies, powers and privileges lawfully available to us under or in
connection with the sale agreement, the administration agreement, and the
servicing agreement. However, if we or the servicer propose to amend, modify,
waive, supplement, terminate or surrender in any material respect, or agree to
any material amendment, modification, supplement, termination, waiver or
surrender of, the process for adjusting the storm-recovery charges, we must
notify the indenture trustee and the Florida Commission in writing and the
indenture trustee must notify the related storm-recovery bondholders of this
proposal. In addition, the indenture trustee may consent to this proposal only
with the written consent of the holders of a majority of the principal amount
of the outstanding bonds of the tranches materially and adversely affected
thereby and only if the rating agency condition is satisfied. The parties to
the servicing agreement acknowledge that the financing order provides that the
Florida Commission, acting through its authorized legal representative and for
the benefit of Florida ratepayers, may enforce the servicer's obligations
imposed under the servicing agreement pursuant to the financing order to the
extent permitted by law.
If an event of default occurs and is continuing, the indenture trustee
may, and, at the written direction of the holders of a majority of the
outstanding amount of the bonds or the Florida Commission shall, exercise all
of our rights, remedies, powers, privileges and claims against FPL, the
administrator and servicer, under or in connection with the sale agreement,
administration agreement, and servicing agreement, and any right of ours to
take this action shall be suspended.
Procedure for Obtaining Consent or Deemed Consent of the Florida
Commission. The Florida Commission must consent or acquiesce prior to the
implementation of any amendment, modification or supplement to the indenture
or the other basic documents, or any waiver of a default under any basic
document. Each of such basic documents sets forth procedures whereby we or
FPL, as the case may be, may request such consent or acquiescence. We refer to
the process, described below, for obtaining Florida Commission consent or
acquiescence as the Florida Commission condition. The Florida Commission
condition will be satisfied if, after receiving notice of any such amendment
or modification or requested waiver, the Florida Commission consents in
writing to such action or waiver, or does not object to such action or waiver
within 60 days of any requested approval for an amendment, modification or
waiver. Subject to the state pledge not to impair the value of the
storm-recovery property, the Florida Commission may object to any such
amendment, modification or waiver in its sole discretion.
Covenants of the Issuing Entity
We may not consolidate with or merge into any other entity, unless:
1. the entity formed by or surviving the consolidation or merger is
organized under the laws of the U.S. or any state of the U.S.;
2. the entity expressly assumes, by an indenture supplemental to each
indenture, the performance or observance of all of our agreements
and covenants under each indenture;
3. the entity expressly assumes all of our obligations and succeeds
to all of our rights under each sale agreement, administration
agreement and servicing agreement;
4. no default, event of default or servicer default under each
indenture has occurred and is continuing immediately after the
merger or consolidation;
5. the rating agency condition will have been satisfied with respect
to the merger or consolidation;
6. we have delivered to FPL, the indenture trustee, the servicer and
the rating agencies an opinion or opinions counsel to the effect
that the consolidation or merger (a) will not result in a material
adverse federal or state income tax consequence to us, FPL, the
indenture trustee or the then existing bondholders, (b) complies
with each indenture and (c) will result in each indenture trustee
maintaining a continuing valid perfected security interest in the
collateral pledged under the indenture;
7. any action necessary to maintain the first perfected security
interest in the storm-recovery bond collateral created by each
indenture has been taken; and
48
8. we have delivered to each indenture trustee an officer's
certificate and an opinion of counsel, each stating that all
conditions precedent in the related indenture provided for
relating to the transaction have been complied with.
We may not sell, convey, exchange, transfer or otherwise dispose of any
of our properties or assets included in the storm-recovery bond collateral to
any person or entity, unless:
o the person or entity acquiring the properties and assets
-- is a U.S. citizen or an entity organized under the laws of
the U.S. or any state of the U.S.,
-- expressly assumes, by an indenture supplemental to each
indenture, the performance or observance of all of our
agreements and covenants under the bonds,
-- expressly agrees by each such supplemental indenture that
all right, title and interest so conveyed or transferred
will be subject and subordinate to the rights of
bondholders,
-- unless otherwise specified in the supplemental indenture
referred to above, expressly agrees to indemnify, defend and
hold us harmless against and from any loss, liability or
expense arising under or related to each indenture and the
bonds, and
-- expressly agrees by means of each supplemental indenture
that the person (or if a group of persons, then one
specified person) will make all filings with the SEC (and
any other appropriate person) required by the Exchange Act
in connection with the bonds
o no default, event of default or servicer default under any
indenture has occurred and is continuing immediately after the
transactions;
o the rating agency condition has been satisfied with respect to
such transaction;
o we have delivered to FPL, each indenture trustee and the rating
agencies an opinion or opinions of outside tax counsel (as
selected by us, in form and substance reasonably satisfactory to
FPL and each indenture trustee, and which may be based on a ruling
from the IRS) to the effect that the disposition will not result
in a material adverse federal or state income tax consequence to
us, FPL, any indenture trustee or any then-existing bondholders;
o any action as is necessary to maintain a first perfected security
interest in the storm-recovery bond collateral created by each
indenture has been taken as evidenced by an opinion of counsel of
external counsel; and
o we have delivered to each indenture trustee an officer's
certificate and an opinion of counsel of external counsel, each
stating that the conveyance or transfer complies with each such
indenture and all conditions precedent therein provided for
relating to the transaction have been complied with.
We will not, among other things, for so long as any bonds of any series
are outstanding:
o except as expressly permitted by each indenture, sale agreement,
servicing agreement or any other basic document sell, transfer,
exchange or otherwise dispose of any of our assets unless directed
to do so by the indenture trustee,
o claim any credit on, or make any deduction from the principal or
premium, if any, or interest payable in respect of, such bonds
(other than amounts properly withheld from such payments under the
Internal Revenue Code or other tax laws) or assert any claim
against any present or former bondholder by reason of the payment
of the taxes levied or assessed upon any part of such
storm-recovery bond collateral,
o terminate our existence, or dissolve or liquidate in whole or in
part,
49
o permit the validity or effectiveness of any indenture to be
impaired,
o permit the lien of such indenture to be amended, hypothecated,
subordinated, terminated or discharged or permit any person to be
released from any covenants or obligations with respect to the
bonds secured thereby except as may be expressly permitted by such
indenture,
o permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance, other than the lien and security
interest granted under the related indenture, to be created on or
extend to or otherwise arise upon or burden the collateral pledged
under such indenture or any part thereof or any interest therein
or the proceeds thereof,
o permit the lien granted under any indenture not to constitute a
valid first priority security interest in the collateral pledged
under such indenture, or
o take any action which is expressly stated in the basic documents
to require notice from the rating agencies that such actions will
not result in a reduction or withdrawal of the current rating of
any outstanding tranche of bonds, without in each case obtaining
such notice.
We may not engage in any business other than financing, purchasing,
owning and managing the storm-recovery property and other related collateral
and the issuance of the bonds in the manner contemplated by the bonds, the
basic documents or certain related activities incidental thereto.
We will not issue, incur, assume, guarantee or otherwise become liable
for any indebtedness except for bonds.
We will not issue additional bonds authorized by another financing order
issued by the Florida Commission.
We will not, except as contemplated by the bonds and the related basic
documents, make any loan or advance or credit to, or guarantee, endorse or
otherwise become contingently liable in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or any
other interest in, or make any capital contribution to, any other person. We
will not, except as contemplated by the bonds and the basic documents, make
any expenditure (by long-term or operating lease or otherwise) for capital
assets (either realty or personalty).
We will not make any payments, distributions, dividends or redemptions
to any holder of our equity interests in respect of that interest for any
calendar month unless no event of default has occurred and is continuing and
any distributions do not cause the book value of our remaining equity to
decline below 0.50% of the initial principal amount of all the bonds issued
and outstanding pursuant to the indenture.
We will cause the servicer to deliver to each indenture trustee the
annual accountant's certificates, compliance certificates, reports regarding
distributions and statements to bondholders secured under such indenture
required by the related servicing agreement.
Events of Default; Rights Upon Event of Default
An "event of default" with respect to the bonds is defined in an
indenture as any one of the following events:
1. any act by the State or any of its agencies (including the Florida
Commission), officers or employees that violates or is not in
accordance with the state pledge.
2. a default for five business days in the payment of any interest on
any storm-recovery bond,
3. a default in the payment of the then unpaid principal of any
storm-recovery bond on the final maturity date,
4. a default in the observance or performance of any of our covenants
or agreements made in the indenture (other than defaults described
above) or any representation or warranty made by us in the
indenture or any certificate
50
delivered thereunder and the continuation of any default or any
incorrect representation or warranty for a period of 30 days after
the earlier of (i) notice has been given to us by the indenture
trustee, (ii) the date that written notice of the default is given
to us by the indenture trustee or to us and the indenture trustee by
the holders of at least 25% in principal amount of the outstanding
bonds or (iii) the date that we had actual knowledge of the default,
5. filing of a decree or order for relief by a court having
jurisdiction over us or any substantial part of the storm-recovery
property in an involuntary case or proceeding under any applicable
federal or state bankruptcy or similar law, or the appointment of
a receiver, liquidator or other similar official, if such decree
or order remains unstayed for 90 consecutive days, or
6. the commencement by us of a voluntary case or proceeding under any
applicable federal or state bankruptcy or similar law, or our
consent to the appointment of a receiver, liquidator or other
similar official, or our assignment for the benefit of creditors
or our failure to pay our debts as they become due or our taking
action in furtherance of any of the foregoing.
If an event of default should occur and be continuing and is known to
the indenture trustee, then, within 90 days after the occurrence of the event
of default, the indenture trustee will mail notice of such default to each
rating agency, the Florida Commission, and to each bondholder. Except for a
default in payment of principal or interest on any bond, the indenture trustee
may withhold notice if and so long as a committee of its authorized officers
in good faith determines that withholding the notice is in the interest of
bondholders.
If an event of default (other than as specified in paragraph 1 above)
should occur and be continuing, the indenture trustee or holders of not less
than a majority in principal amount of the bonds then outstanding under the
indenture may declare the unpaid principal of the bonds and all accrued and
unpaid interest thereon to be immediately due and payable. The holders of a
majority in principal amount of such bonds then outstanding may rescind that
declaration under certain circumstances set forth in the indenture.
Additionally, the indenture trustee may exercise all of our rights, remedies,
powers, privileges and claims against the seller or the servicer under or in
connection with the sale agreement, the servicing agreement and the
administration agreement. If an event of default as specified in point seven
above has occurred, the seller and/or servicer will be obligated to institute
(and each indenture trustee, for the benefit of the bondholders, will be
entitled and empowered to institute) any suits, actions or proceedings at law,
in equity or otherwise, to enforce the state pledge and to collect any
monetary damages as a result of a breach thereof, and each of the seller, the
servicer and the indenture trustee may prosecute any suit, action or
proceeding to final judgment or decree. The servicer is obligated to institute
and maintain such action or proceedings only if it is being reimbursed on a
current basis for its costs and expenses and is not required to advance its
own funds in order to bring any suits, actions or proceedings. For so long as
the legal actions were pending, the servicer would, unless otherwise
prohibited by applicable law or court or regulatory order in effect at that
time, be required to bill and collect the storm-recovery charges, perform
adjustments and discharge its obligations under the servicing agreement. The
costs of any such action would be payable by the seller pursuant to the sale
agreement.
If the bonds of a series have been declared to be due and payable
following an event of default, the indenture trustee may, in its discretion,
either sell the storm-recovery property or elect to have us maintain
possession of such storm-recovery property and continue to apply
storm-recovery charge collections as if there had been no declaration of
acceleration. There is likely to be a limited market, if any, for the
storm-recovery property following a foreclosure, in light of the event of
default, the unique nature of the storm-recovery property as an asset and
other factors discussed in this prospectus. In addition, the indenture trustee
is prohibited from selling the storm-recovery property following an event of
default, other than a default described in parts one, two or three above,
unless:
o the holders of all the outstanding bonds consent to the sale,
o the proceeds of the sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding bonds, or
o the indenture trustee determines that the proceeds of the
collateral would not be sufficient on an ongoing basis to make all
payments on the bonds as those payments would have become due if
the bonds had not been declared
51
due and payable, and the indenture trustee obtains the consent of
the holders of 66 2/3% of the aggregate outstanding amount of the
bonds.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing, the
indenture trustee will be under no obligation to exercise any of the rights or
powers under the bonds at the request or direction of any of the holders of
bonds if the indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be
incurred by it in complying with the request. Subject to the provisions for
indemnification and certain limitations contained in the indenture:
o the holders of not less than a majority in principal amount of the
outstanding bonds (or, if less than all tranches are affected, the
affected tranche or tranches) will have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the indenture trustee, and
o the holders of not less than a majority in principal amount of the
bonds then outstanding may, in certain cases, waive any default
with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of
the indenture that cannot be modified without the consent of all
of the holders of the outstanding bonds of all tranches affected
thereby.
No holder of any storm-recovery bond will have the right to institute
any proceeding with respect to such bonds, unless:
o the holder previously has given to the indenture trustee written
notice of a continuing event of default,
o the holders of not less than 25% of the principal amount of the
outstanding bonds have made written request of the indenture
trustee to institute the proceeding in its own name as indenture
trustee,
o the holder or holders have offered the indenture trustee
satisfactory indemnity,
o the indenture trustee has for 60 days failed to institute the
proceeding, and
o no direction inconsistent with the written request has been given
to the indenture trustee during the 60-day period by the holders
of a majority in principal amount of the outstanding bonds.
In addition, each indenture trustee, each bondholder and each servicer
will covenant that it will not, prior to the date which is one year and one
day after the termination of any indenture, institute against us or against
our managers or our member or members any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law, subject to
the right of a circuit court of the State of Florida to order sequestration
and payment of revenues arising with respect to the storm-recovery property.
Neither any manager nor any indenture trustee in its individual
capacity, nor any holder of any ownership interest in us, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assignees will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the bonds or for our agreements contained in any indenture.
Actions by Bondholders
Subject to certain exceptions, the holders of not less than a majority
of the aggregate outstanding amount of the bonds issued under any indenture
(or, if less than all tranches are affected, the affected tranche or tranches)
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the indenture trustee, of exercising
any trust or power conferred on the indenture trustee under the indenture;
provided that:
o the direction is not in conflict with any rule of law or with the
indenture;
o the consent of 100% of the bondholders is required to direct the
indenture trustee to sell the collateral;
52
o the indenture trustee may take any other action deemed proper by
the indenture trustee which is not inconsistent with the
direction;
o the indenture trustee need not take any action that might involve
it in liability for which it would not be adequately indemnified;
and
o the indenture trustee need not take any action that it determines
might materially and adversely affect the rights of any bondholder
not consenting to such action.
In circumstances under which any indenture trustee is required to seek
instructions from the holders of the bonds of any tranche with respect to any
action or vote, the indenture trustee will take the action or vote for or
against any proposal in proportion to the principal amount of the
corresponding tranche, as applicable, of bonds taking the corresponding
position. Notwithstanding the foregoing, each indenture allows each bondholder
to institute suit for the nonpayment of (1) the interest, if any, on its bonds
which remains unpaid as of the applicable due date and (2) the unpaid
principal, if any, of its bonds on the final maturity date therefor.
Annual Report of Indenture Trustee
If required by the Trust Indenture Act, the indenture trustee will be
required to mail each year to all bondholders a brief report issued under the
indenture. The report must state, among other things:
o the indenture trustee's eligibility and qualification to continue
as the indenture trustee under the indenture,
o any amounts advanced by it under the indenture,
o the amount, interest rate and maturity date of specific
indebtedness owing by us to the indenture trustee in the indenture
trustee's individual capacity,
o the property and funds physically held by the indenture trustee,
and
o any action taken by it that materially affects the bonds and that
has not been previously reported.
Annual Compliance Statement
We will file annually with the indenture trustee and the rating agencies
rating the bonds a written statement as to whether we have fulfilled our
obligations under the indenture to which we are a party.
Satisfaction and Discharge of Indenture
The indenture will cease to be of further effect and the indenture
trustee, on our demand and at our expense, will execute instruments
acknowledging satisfaction and discharge of the indenture, when:
o either all bonds which have already been authenticated or
delivered under the indenture, with exceptions set forth in the
indenture, have been delivered to the indenture trustee for
cancellation or we have irrevocably deposited with the indenture
trustee cash in trust for this purpose, in an amount sufficient to
make payments of principal of and interest on the bonds,
o we have paid all other sums payable by us under the indenture with
respect to the bonds, and
o we have delivered to the indenture trustee and the Florida
Commission an officer's certificate, an opinion of external
counsel, and if required by the Trust Indenture Act or the
indenture trustee, a certificate from a firm of independent
certified public accountants, each stating that there has been
compliance with the conditions precedent in the indenture relating
to the satisfaction and discharge of the indenture with respect to
the bonds.
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Our Legal and Covenant Defeasance Options
The indenture provides that we may exercise our legal defeasance option
or our covenant defeasance option with respect to such bonds issued thereunder
only if:
o we irrevocably deposit or cause to be deposited in trust with the
indenture trustee cash, U.S. government obligations or a
combination thereof for the payment of principal of and premium,
if any, and interest on such bonds to the expected maturity date
therefor, as applicable,
o we deliver to the indenture trustee a certificate from a
nationally recognized firm of independent accountants expressing
its opinion that the payments of principal and interest on the
U.S. government obligations when due and without reinvestment plus
any deposited cash will provide cash at times and in sufficient
amounts to pay in respect of such bonds:
-- principal in accordance with the expected sinking fund
schedule therefor, and
-- interest when due,
o no default has occurred and is continuing on the day of this
deposit and after giving effect thereto,
o in the case of the legal defeasance option, 95 days pass after the
deposit is made and during the 95-day period no default relating
to events of our bankruptcy, insolvency, receivership or
liquidation occurs and is continuing at the end of the period,
o in the case of the legal defeasance option, we deliver to the
indenture trustee an opinion of external counsel stating that:
-- we have received from, or there has been published by, the
Internal Revenue Service a ruling, or
-- since the date of execution of the indenture, there has been
a change in the applicable federal income tax law, and
in either case confirming that the holders of the bonds will not
recognize income, gain or loss for federal income tax purposes as
a result of the exercise of the legal defeasance option and will
be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the
legal defeasance had not occurred,
o in the case of the covenant defeasance option, we deliver to the
indenture trustee an opinion of counsel to the effect that the
holders of such bonds will not recognize income, gain or loss for
federal income tax purposes as a result of the exercise of the
covenant defeasance option and will be subject to federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if the covenant defeasance had not
occurred,
o we deliver to the indenture trustee a certificate of one of our
officers and an opinion of counsel, each stating that all
conditions precedent to the legal defeasance option or the
covenant defeasance option, as applicable, have been complied with
as required by the indenture,
o the rating agency condition will be satisfied with respect to the
exercise of any legal defeasance option or covenant defeasance
option.
THE INDENTURE TRUSTEE
The indenture trustee for each series of bonds identified in the
prospectus supplement will be the indenture trustee under the indenture. The
indenture trustee may resign at any time by so notifying us. The holders of a
majority in principal
54
amount of the bonds then outstanding under the indenture may remove the
indenture trustee by so notifying the indenture trustee and may appoint a
successor indenture trustee. We will remove an indenture trustee if the
indenture trustee ceases to be eligible to continue in this capacity under the
indenture, the indenture trustee becomes insolvent, a receiver or other public
officer takes charge of the indenture trustee or its property or the indenture
trustee becomes incapable of acting. If the indenture trustee resigns or is
removed or a vacancy exists in the office of indenture trustee for any reason,
we will be obligated promptly to appoint a successor indenture trustee
eligible under the indenture. No resignation or removal of the indenture
trustee will become effective until acceptance of the appointment by a
successor indenture trustee. We are responsible for payment of the expenses
associated with any such removal or resignation.
Each indenture trustee will at all times satisfy the requirements of the
Trust Indenture Act and Rule 3a-7 under the Investment Company Act of 1940 and
have a combined capital and surplus of at least $50 million and a long term
debt rating of "BBB-" (or the equivalent thereof) or better by all of the
rating agencies from which a rating is available. If the indenture trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business or assets to, another entity, the
resulting, surviving or transferee entity will without any further action be
the successor indenture trustee.
The indenture trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided that its conduct does not constitute willful
misconduct, negligence or bad faith. We have agreed to indemnify the indenture
trustee and its officers, directors, employees and agents against any and all
loss, liability or expense (including reasonable attorney's fees and expenses)
incurred by it in connection with the administration of the trust and the
performance of its duties under the indenture, provided that we are not
required to pay any expense or indemnify against any loss, liability or
expense incurred by the indenture trustee through the indenture trustee's own
willful misconduct, negligence or bad faith.
SECURITY FOR THE BONDS
General
The bonds issued under each indenture are payable solely from and
secured solely by a pledge of and lien on the storm-recovery property and the
other collateral as provided in the indenture. As noted under "Description of
the Bonds," we will issue the bonds pursuant to the terms of an indenture. We
will describe the material terms of the bonds in the prospectus supplement for
the series of bonds.
Pledge of Collateral
To secure the payment of principal of and interest on the bonds, we will
grant to the indenture trustee a security interest in all of our right, title
and interest (whether now owned or hereafter acquired or arising) in and to:
o the storm-recovery property,
o the sale agreement (including any bill of sale delivered
thereunder), and any servicing agreement (or any amendment to a
servicing agreement, as and to the extent it secures the bonds),
o the collection account established under the indenture, all
subaccounts of the collection account and all amounts of cash
instruments, investment property or other assets on deposit
therein or credited thereto from time to time and all financial
assets and securities entitlements carried therein or credited
thereto,
o all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments
on or under the foregoing,
o all accounts, accounts receivable, general intangibles, chattel
paper, documents, money, investment property, deposit accounts,
notes, drafts, acceptances, letters of credit, letter of credit
rights, insurance proceeds, condemnation awards, rights to payment
of any and every kind and other forms of obligations and
receivables, instruments and other property, and
o all proceeds in respect of any or all of the foregoing.
55
The security interest does not extend to:
o amounts representing investment earnings on the capital subaccount
or any other subaccount that has been released to us,
o amounts deposited in the capital subaccount or any other
subaccount that have been released to us or as we direct following
retirement of the bonds issued under the indenture, and
o amounts deposited with us on the issuance date for payment of
costs of issuance with respect to the bonds (together with any
interest earnings thereon).
We refer to the foregoing assets in which we, as assignee of the seller, will
grant the indenture trustee a security interest as the "collateral" in this
prospectus.
Security Interest in the Collateral
Section 366.8260(5) of the Financing Act provides that a valid and
enforceable security interest in storm-recovery property will attach and be
perfected only upon the later of: the issuance of a financing order, the
execution and delivery of a security agreement with the indenture trustee in
connection with issuance of a series of bonds, and the receipt of value for
bonds. Upon perfection by filing notice with the Florida Secured Transaction
Registry, established pursuant to the Florida UCC, the lien and security
interest will be continuously perfected. Section 366.8260(5) of the Financing
Act further provides that such security interest in the storm-recovery
property and all proceeds of the storm-recovery property, whether or not
billed, accrued or collected, and whether or not deposited into the collection
account and however evidenced, will have priority in the order of filing and
take precedence over any subsequent judicial or other lien creditor. No
continuation statements are necessary to maintain such perfection.
The relative priority of the lien and security interest perfected under
Section 366.8260(5) of the Financing Act is not impaired by later modification
of the financing order or the commingling of revenues arising with respect to
any storm-recovery property with other funds (subject to the tracing
requirements of federal bankruptcy law).
The financing order creates a valid and enforceable lien and security
interest in the storm-recovery property and the indenture states that it
constitutes a security agreement within the meaning of the Financing Act. The
servicer pledges in the servicing agreement to file in the Florida Secured
Transaction Registry on or before the date of issuance the filing required by
Section 366.8260(5) of the Financing Act to perfect the lien of the indenture
trustee in the storm-recovery property. The seller will represent, at the time
of issuance of the bonds, that no prior filing has been made under the terms
of Section 366.8260(5) of the Financing Act with respect to the storm-recovery
property securing the bonds to be issued other than a filing which provides
the indenture trustee with a first priority perfected security interest in the
storm-recovery property.
Certain items of the collateral may not constitute storm-recovery
property and the perfection of the indenture trustee's security interest in
those items of collateral would therefore be subject to the UCC or common law
and not Section 366.8260(5) of the Financing Act. These items consist of our
rights in
o the sale agreement, the servicing agreement and the administration
agreement,
o the capital subaccount or any other funds on deposit in the
collection account which do not constitute storm-recovery charge
collections together with all instruments, investment property or
other assets on deposit therein or credited thereto and all
financial assets and securities entitlements carried therein or
credited thereto which do not constitute storm-recovery charge
collections,
o all accounts, accounts receivable, general intangibles, chattel
paper, documents, money, investment property, deposit accounts,
notes, drafts, acceptances, letters of credit, letter of credit
rights, insurance proceeds, condemnation awards, rights to payment
of any and every kind and other forms of obligations and
receivables, instruments and other property, and
o proceeds of the foregoing items.
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As a condition to the issuance of the bonds, we will have made all
filings and taken any other action required by the UCC or common law to
perfect the lien of the indenture trustee in all the items included in
collateral which do not constitute storm-recovery property. We will also
covenant to take all actions necessary to maintain or preserve the lien and
security interest on a first priority basis. We will represent, along with the
seller, at the time of issuance of the bonds, that no prior filing has been
made with respect to the party under the terms of the UCC, other than a filing
which provides the indenture trustee with a first priority perfected security
interest in the collateral on a parity basis with that securing any
outstanding bonds.
Description of Indenture Accounts
Collection Account
Each indenture trustee will establish a collection account for the bonds
issued under the indenture to hold the capital contribution from FPL and
collected storm-recovery charges periodically remitted to the indenture
trustee by the servicer. The collection account will consist of various
subaccounts, including the following:
o the general subaccount,
o the excess funds subaccount, and
o the capital subaccount.
Additional subaccounts may be established for any tranche of floating-rate
bonds, as described in the applicable prospectus supplement. Withdrawals from
and deposits to these subaccounts will be made as described below.
All amounts in the collection account not allocated to any other
subaccount will be allocated to the general subaccount. Unless the context
indicates otherwise, references in this prospectus to the collection account
include each of the subaccounts contained therein.
Permitted Investments for Funds in the Collection Account
Funds in the collection account may be invested only in such investments
as meet the criteria of the rating agencies as being consistent with the
ratings of the bonds, which include the following eligible investments
(subject to additional restrictions in the indenture):
o direct obligations of, or obligations fully and unconditionally
guaranteed as to timely payment by, the U.S.,
o demand deposits, time deposits, certificates of deposit or
bankers' acceptances of eligible institutions,
o commercial paper (other than commercial paper issued by FPL or any
of its affiliates) having, at the time of investment or
contractual commitment to invest, a rating in the highest rating
category from each rating agency from which a rating is available,
o money market funds which have the highest rating from each rating
agency from which a rating is available,
o repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the U.S. or certain
of its agencies or instrumentalities, entered into with certain
depository institutions or trust companies, or
o any other investment permitted by each rating agency, in each case
which matures on or before the business day preceding the next
payment date.
The indenture trustee will have access to the collection account for the
purpose of making deposits in and withdrawals from the collection account in
accordance with the indenture. The servicer will select the eligible
investments in which funds will be invested, unless otherwise directed by the
issuing entity.
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The servicer will remit estimated storm-recovery charge collections to
the collection account in the manner described under "The Servicing
Agreement--Remittances to Collection Account."
General Subaccount
The general subaccount will hold all funds held in the collection
account that are not held in the other two subaccounts. The servicer will
remit all storm-recovery charge collections to the general subaccount. On each
payment date, the indenture trustee will draw on amounts in the general
subaccount to pay our expenses and to pay interest and make expected principal
payments on the bonds, and to make other payments and transfers in accordance
with the terms of the indenture. Funds in the general subaccount will be
invested in the eligible investments described above.
Excess Funds Subaccount
The servicer will allocate to the excess funds subaccount storm-recovery
charge collections available with respect to any payment date in excess of
amounts necessary to make the payments specified on such payment date. The
excess funds subaccount will also hold all investment earnings on the
collection account (other than investment earnings on the capital subaccount)
in excess of such amounts.
Capital Subaccount
In connection with the issuance of each series of bonds, the seller, in
its capacity as our sole owner, will contribute capital to us in an amount,
the required capital amount, which will be equal to 0.50% of the original
principal amount of the initial series of bonds. On the date of issuance of any
subsequent series of bonds, our capital will be increased by an amount equal
to 0.50% of the original principal amount of such additional series of bonds
or such greater or lesser amount as may allow us to achieve the desired
security rating and treat such additional series of bonds as debt under the
applicable IRS regulations. The required capital amount will be funded by the
seller and not from the proceeds of the sale of such series of bonds and will
be deposited into the capital subaccount established under the indenture for
such series of bonds.
How Funds in the Collection Account Will Be Allocated
Amounts remitted by the servicer to the indenture trustee with respect
to the bonds, including any indemnity amounts and all investment earnings on
amounts in the subaccounts in the collection account, will be deposited into
the general subaccount of the collection account.
On each payment date on which payments are due on the bonds, the
indenture trustee will allocate or pay all amounts on deposit in the general
subaccount of the collection account in the following priority, all in
accordance with a servicer's officer certificate:
1. payment of the indenture trustee's fees, expenses and any
outstanding indemnity amounts relating to the bonds, in a
cumulative amount not to exceed in any calendar year the amount
set forth in the related prospectus supplement,
2. payment of the servicing fee, which will be a fixed amount
specified in the servicing agreement, plus any unpaid servicing
fees from prior payment dates,
3. payment of the administration fee, which will be a fixed amount
specified in the administration agreement between us and FPL (or
the allocable share of such amounts, if we issue additional
storm-recovery bonds), and the fees of our independent manager,
which will be in an amount specified in an agreement between us
and our independent manager (or the allocable share of such
amounts, if we issue additional storm-recovery bonds),
4. payment of all of our other ordinary periodic operating expenses
allocable to the bonds, such as accounting and audit fees, rating
agency fees, legal fees and certain reimbursable costs of the
servicer under the servicing agreement, in a cumulative amount not
to exceed in any calendar year the amount set forth in the related
prospectus supplement,
5. payment of the interest then due on the bonds, including past due
interest,
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6. payment of (a) the principal then required to be paid on the bonds
at final maturity or upon acceleration, and (b) principal then
scheduled to be paid on the bonds,
7. payment of any of our remaining unpaid operating expenses and any
remaining amounts owed pursuant to the basic documents relating to
the bonds, including all remaining indemnity amounts owed to the
indenture trustee,
8. replenishment of any amounts drawn from the capital subaccount,
9. release to us of an amount equal to investment earnings on amounts
in the capital subaccount, so long as no event of default has
occurred and is continuing,
10. allocation of the remainder, if any, to the excess funds
subaccount, and
11. after the bonds have been paid in full and discharged, the
balance, together with all amounts in the capital subaccount and
the excess funds subaccount, to us free and clear of the lien of
the indenture.
If, on any payment date, funds in the general subaccount are insufficient
to make the allocations or payments contemplated by items 1 through 8 above,
the indenture trustee will draw from amounts on deposit in the following
subaccounts in the following order up to the amount of the shortfall:
1. from the excess funds subaccount for allocations and payments
contemplated in items 1 through 8, and
2. from the capital subaccount for allocations and payments
contemplated by items 1 through 7 above.
If, on any payment date, available collections of storm-recovery charges
allocable to the bonds, together with available amounts in the related
subaccounts, are not sufficient to pay interest due on all outstanding bonds
on that payment date, amounts available will be allocated pro rata based on
the amount of interest payable on each tranche of the bonds. If, on any
payment date, remaining collections of storm-recovery charges allocable to the
bonds, together with available amounts in the subaccounts, are not sufficient
to pay principal due and payable on all outstanding bonds on that payment
date, amounts available will be allocated pro rata based on the principal
amount of each tranche then due and payable. If, on any payment date,
remaining collections of storm-recovery charges allocable to the bonds,
together with available amounts in the subaccounts, are not sufficient to pay
principal scheduled to be paid on all outstanding bonds, amounts available
will be allocated sequentially to each tranche then scheduled to be paid on
the payment date. If the indenture trustee uses amounts on deposit in the
capital subaccount to pay those amounts or make those transfers, as the case
may be, subsequent adjustments to the related storm-recovery charges will take
into account, among other things, the need to replenish those amounts.
The indenture trustee for each series of bonds of a series will make
payments to the bondholders of a series as specified in the related prospectus
supplement.
The chart on the following page summarizes the allocation and
distribution priority of payments under the indenture.
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ALLOCATIONS AND DISTRIBUTIONS
---------------------------------
FPL
(Servicer)
--------------------------- ---------------------------------
|
Indenture Trustee | Storm-Recovery Charges
|
--------------------------- \|/
| ---------------------------------
|
| COLLECTION
-------------------------------- ACCOUNT
---------------------------------
| application
| amounts in
| collection
\|/ account
-------------------------------------------------------------------------------------------------------------------------
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
1 2 3 4 5 6 7 8 9 10
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
Indenture Administrator: Bondholders:
Trustee: fixed principal Issuing
indenture administration Issuing Bondholders: payable as Entity: Issuing Excess
trustee's Servicer: fee Entity: Interest a result of remaining Capital Entity: funds
fees fixed Issuing ordinary for acceleration, unpaid subaccount: release of subaccount:
and certain servicing Entity: periodic applicable final operating replenishment interest Remainder
expenses fee fixed operating payment maturity expenses, of drawn earnings to
and fees of expenses date or per amounts owed amounts on excess
indemnity independent expected under basic capital funds
amounts managers amortization documents subaccount subaccount
---------- ---------- ------------- ---------- ----------- ------------ ---------- --------- ---------- ----------
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Right of Foreclosure
Section 366.8260(5)(b)(6) of the Financing Act provides that if an event
of default occurs under the bonds, the holders of the bonds or their
representatives, as secured parties, may foreclose or otherwise enforce the
lien in the storm-recovery property securing the bonds as if they were secured
parties under Article 9 of the UCC, and that a court may order that amounts
arising from storm-recovery charges be transferred to a separate account for
the holders' benefit, to which their lien and security interest will apply.
Upon application by or on behalf of an indenture trustee to a circuit court in
Florida, such court shall order the sequestration and payment to the indenture
trustee (or other financing parties, e.g., a swap counterparty) of revenues
arising from the storm-recovery property.
State Pledge
The state pledge in the Financing Act is described under "The
Storm-Recovery Property and the Financing Act--The Financing Act Provides for
the Recovery of Storm-Recovery Costs and the Issuance of Storm-Recovery
Bonds--The Financing Act Contains a State Pledge" in this prospectus. The
bondholders and the indenture trustee will be entitled to the benefit of the
state pledge and we are authorized to and will include the state pledge on the
bonds. We acknowledge that any purchase by a bondholder of a storm-recovery
bond is made in reliance on the state pledge.
WEIGHTED AVERAGE LIFE AND RELATED CONSIDERATIONS FOR THE BONDS
General
The rate of principal payments, the amount of each interest payment and
the actual final payment date of each tranche of the bonds and the weighted
average life thereof will depend primarily on the timing of receipt of
collected storm-recovery charges by the indenture trustee and the true-up
mechanism. The aggregate amount of collected storm-recovery charges and the
rate of principal amortization on the bonds will depend, in part, on actual
energy usage and energy demands, and the rate of delinquencies and write-offs.
The storm-recovery charges are required to be adjusted at least semiannually
based in part on the actual rate of collected storm-recovery charges. However,
we can give no assurance that the servicer will be able to forecast accurately
actual electricity usage and the rate of delinquencies and write-offs or
implement adjustments to the storm-recovery charges that will cause collected
storm-recovery charges to be received at any particular rate. Please read
"Risk Factors--Servicing Risks--Inaccurate Forecasting of Electricity
Consumption or Unanticipated Delinquencies or Charge-offs Could Result in
Insufficient Funds" and "FPL's Financing Order--FPSC-Guaranteed True-Up
Mechanism" in this prospectus.
If the servicer receives storm-recovery charges at a slower rate than
expected, the bonds may be retired later than expected. The bonds will not be
paid at a rate faster than that contemplated in the expected sinking fund
schedule for each tranche of the bonds even if the receipt of collected
storm-recovery charges is accelerated. Instead, receipts in excess of the
amounts necessary to pay debt service on the bonds in accordance with the
applicable expected sinking fund schedules, to pay related fees and expenses
and to fund subaccounts of the collection account will be allocated to the
excess funds subaccount.
THE SALE AGREEMENT
The following summary describes the material terms and provisions of the
sale agreement pursuant to which we will purchase storm-recovery property from
the seller on each issue date. We have filed the form of sale agreement as an
exhibit to the registration statement of which this prospectus forms a part.
This summary does not purport to be complete and is subject to, and is
qualified by reference to, the provisions of the applicable sale agreement. In
this prospectus, we refer to each sale agreement, servicing agreement and
indenture, with respect to any series of bonds, as the basic documents.
Sale and Assignment of Storm-Recovery Property
On the issuance date, pursuant to the sale agreement, the seller will
sell storm-recovery property to us, subject to the satisfaction of the
conditions specified in the sale agreement and the indenture. We will finance
each purchase of storm-recovery property through the issuance of bonds. The
storm-recovery property will be sold to us without recourse, and will include
the seller's entire right, title and interest in and to the storm-recovery
property (excluding the right ot recover taxes).
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Under the Financing Act, each sale of storm-recovery property will
constitute a true sale under State law whether or not
o we have any recourse against FPL;
o FPL retains any equity interest in the storm-recovery property;
o FPL acts as a collector of storm-recovery charges relating to the
storm-recovery property; or
o FPL treats the transfer as a financing for tax, financial
reporting or other purposes.
In accordance with the Financing Act, a valid and enforceable lien and
security interest in the storm-recovery property will be created upon the
issuance of the financing order and the execution and delivery of the sale
agreement in connection with the issuance of the bonds. The lien and security
interest attaches automatically from the time that value is received for the
bonds and, on perfection through the timely filing of a notice with the
Florida Secured Transaction Registry, will be a continuously perfected lien
and security interest in the storm-recovery property. Upon the issuance of the
financing order, the execution and delivery of the sale agreement and the
related bill of sale and the filing of a notice with the Florida Secured
Transaction Registry in accordance with the Financing Act, the transfer of the
storm-recovery property will be perfected as against all third persons,
including subsequent judicial or other lien creditors.
Conditions to the Sale of Storm-Recovery Property
Our obligation to purchase storm-recovery property on the issue date for
the bonds of any series is subject to the satisfaction or waiver of each of
the following conditions,
o on or prior to the issue date, the seller must deliver to us a
duly executed bill of sale identifying storm-recovery property to
be conveyed on that date,
o on or prior to the issue date, the representations and warranties
of the seller in the sale agreement must be true and correct, the
seller may not have breached any of its covenants in the sale
agreement, and the servicer may not be in default under the
servicing agreement,
o on or prior to the issue date, we must have sufficient funds
available to pay the purchase price for storm-recovery property to
be conveyed and all conditions set forth in the indenture to the
issuance of the bonds shall have been satisfied or waived,
o on or prior to the issue date, the seller must have taken all
action required to transfer ownership of storm-recovery property
to be conveyed to us on the issue date, free and clear of all
liens other than liens created by us pursuant to the indenture;
and we or the servicer, on our behalf, must have taken any action
required for us to grant the indenture trustee a first priority
perfected security interest in the collateral and maintain that
security interest as of the issue date,
o the seller must receive and deliver to us and the indenture
trustee opinions requested by us,
o the seller must deliver to us and to the indenture trustee an
officer's certificate confirming the satisfaction of each of these
conditions, and
o the seller shall have received the purchase price.
Seller Representations and Warranties
In the sale agreement, the seller will represent and warrant to us, as
of the issue date, among other things, that:
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1. the seller is duly organized, validly existing and in good
standing under the laws of Florida, with requisite corporate or
other power and authority to own its properties and conduct its
business as of the transfer date;
2. the seller is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals,
in all jurisdictions, other than Florida, in which the ownership
or lease of property or the conduct of its business requires such
qualifications, licenses or approvals (except where a failure to
qualify or obtain such licenses and approvals would not be
reasonably likely to have a material adverse effect on the
business, operations, assets, revenues or properties of the
seller);
3. the seller has the requisite corporate power and authority to
execute and deliver the sale agreement and to carry out its terms;
the seller has full corporate power and authority to own the
storm-recovery property and sell and assign the storm-recovery
property to us, and the seller has duly authorized such sale and
assignment to us by all necessary corporate action; and the
execution, delivery and performance of the sale agreement has been
duly authorized by the seller by all necessary corporate action;
4. the sale agreement constitutes a legal, valid and binding
obligation of the seller, enforceable against it in accordance
with its terms, subject to bankruptcy, receivership, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally from time to time in effect and to general
principles of equity, regardless of whether considered in a
proceeding in equity or at law;
5. the consummation of the transactions contemplated by the sale
agreement do not conflict with the seller's organizational
documents or any indenture, or other agreement or instrument to
which the seller is a party or by which it is bound, result in the
creation or imposition of any lien upon the seller's properties
pursuant to the terms of any such indenture, agreement or other
instrument (other than any that may be granted under the basic
documents or any liens created by us pursuant to the Financing
Act) or violate any existing law or any order, rule or regulation
applicable to the seller of any court or of any federal or state
regulatory body, administrative agency or other government
instrumentality having jurisdiction over the seller or its
properties;
6. except as disclosed in the sale agreement and to the seller's
knowledge, there are no proceedings or investigations pending or,
to the seller's knowledge, threatened, before any court, federal
or state regulatory body, administrative agencies or other
governmental instrumentality having jurisdiction over the seller
or its properties:
o asserting the invalidity of the basic documents, the bonds,
the Financing Act or the financing order;
o seeking to prevent the issuance of the bonds or the
consummation of any of the transactions contemplated by the
basic documents;
o challenging the seller's treatment of the bonds as debt of
the seller for federal and state tax purposes; or
o seeking a determination that could reasonably be expected to
materially and adversely affect the performance by the
seller of its obligations under, or the validity or
enforceability of, the basic documents, the bonds or the
financing order;
7. no governmental approvals, authorizations, consents, orders or
other actions or filings, other than filings under the Financing
Act or the Uniform Commercial Code, or UCC, of Florida or
Delaware, are required for the seller to execute, deliver and
perform its obligations under the sale agreement except those
which have previously been obtained or made or are required to be
made by the servicer in the future pursuant to the servicing
agreement;
8. as to the storm-recovery property:
o all historical data for the purpose of calculating the
initial storm-recovery charges in the issuance advice letter
and initial routine true-up adjustment request are true and
correct, and the assumptions used for such calculations are
reasonable and made in good faith;
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o the transfer, sale, assignment and conveyance of the
storm-recovery property constitutes a sale or other absolute
transfer of all of the seller's right, title and interest in
the storm-recovery property to us; upon the execution of the
sale agreement, seller will have no right, title or interest
in the storm-recovery property and the storm-recovery
property would not be part of the estate of the seller as
debtor in the event of a filing of a bankruptcy petition;
and
o the seller is the sole owner of the storm-recovery property
sold to us on the transfer date and such sale will have been
made free and clear of all liens other than liens created by
us pursuant to the indenture. All actions or filings,
including filings with the Florida Secured Transaction
Registry under the Financing Act and UCC and with the
Delaware Secretary of State under the Delaware UCC,
necessary to give us a valid first priority perfected
ownership interest in the storm-recovery property and to
grant the indenture trustee a first priority perfected
ownership interest in the storm-recovery property, free and
clear of all liens of the seller or anyone else have been
made;
9. with respect to the Financing Act and the financing order:
o the financing order has been issued by the Florida
Commission in accordance with the Financing Act in
compliance with all applicable laws, rules and regulations.
The financing order became effective pursuant to the statute
and is in full force and effect and final and nonappealable,
and
o the bonds are entitled to the protections provided by the
Financing Act and the financing order is not subject to
impairment, and the right to impose, collect and adjust the
storm-recovery charge is irrevocable and not subject to
impairment or adjustment, except for the periodic
adjustments to the storm-recovery charges provided for in
the financing order;
10. under the Financing Act, the State may not take or permit any
action which would impair the value of the storm-recovery property
or reduce or alter, except for periodic adjustments allowed under
the financing order, or impair the storm-recovery charges to be
imposed, collected or remitted for the benefit of bondholders,
under all principal, interest or other charges incurred or
contracts to be performed in connection with the bonds are paid or
performed in full;
11. under the contract clauses of the State constitution and the
United States constitution, the State, including the Florida
Commission, cannot take any action that substantially impairs the
rights of the bondholders unless such action is reasonable
exercise of the State's sovereign powers and of a character to
further a legitimate public purpose and, under the takings clauses
of the State constitution and the United States constitution, the
State cannot repeal or amend the Financing Act in contravention of
the state pledge, unless just compensation, as determined by a
court of competent jurisdiction, is provided to the bondholders;
but nothing in paragraph (10) or (11) precludes any limitation or
alteration if full compensation is made by law for the full
protection of the storm-recovery charges and of the holders of the
bonds or any assignee or party entering into a contract with the
seller;
12. there is no order by a court providing for the limitation or other
impairment of the Financing Act, financing order, storm-recovery
property or storm-recovery charges, or any rights arising under
them, or that seeks to enjoy the performance of any obligations
under the financing order which is adverse to the position of the
storm-recovery bondholders;
13. no other authorization or other action of, or filing with, any
court, federal or state regulatory body, administrative agency or
other government instrumentality is required in connection with
the creation or transfer of the storm-recovery property, except
those that have been obtained or made and those that the seller,
in its capacity as servicer under the servicing agreement, is
required to make in the future pursuant to the servicing
agreement;
14. apart from amending the Constitution of the State, the voters of
the State have no right of referendum or initiative to amend,
repeal or revoke the Statute in a manner that would impair the
security of the storm-recovery bondholders;
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15. for purposes of the Financing Act, the storm-recovery property
constitutes a present property right that will continue to exist
until the bonds are paid in full and the financing costs
associated with the bonds have been recovered in full;
16. the storm-recovery property consists of (a) the irrevocable right
of the seller under the financing order to impose, collect and
receive storm-recovery charges in the amount necessary to provide
for full recovery of principal and interest on the bonds, together
with the financing costs; (b) the right under the financing order
to obtain periodic adjustments of the storm-recovery charges and
(c) all proceeds arising out of the rights and interest described
in (a) and (b). The storm-recovery property does not include any
right to any revenues, collections, claims, rights, payments,
money or proceeds of or arising from certain tax charges;
17. after giving effect to the sale of any storm-recovery property
under the sale agreement, the seller:
-- is solvent and expects to remain solvent;
-- is adequately capitalized to conduct its business and
affairs considering its size and the nature of its business
and intended purposes;
-- is not engaged and does not expect to engage in a business
for which its remaining property represents an unreasonably
small portion of its capital;
-- reasonably believes that it will be able to pay its debts as
they become due;
-- is able to pay its debts as they mature and does not intend
to incur, or believes that it will incur, indebtedness that
it will not be able to repay at its maturity; and
18. notwithstanding the foregoing, the seller makes no representation
that amounts collected will be sufficient to meet payment
obligations on the bonds or assumptions made in calculating the
storm-recovery charges will in fact be realized.
Certain of the representations and warranties that the seller makes in
the sale agreement involve conclusions of law. The seller makes those
representations and warranties in order to reflect the understanding of the
basis on which we are issuing the bonds and to reflect the agreement that if
this understanding proves to be incorrect, the seller will be obligated to
indemnify us under certain circumstances. Please read "--Indemnification"
below.
Covenants of the Seller
In each sale agreement, the seller will make the following covenants:
1. So long as any of the bonds are outstanding, the seller will keep
in full force and effect its existence as a corporation and remain
in good standing or equivalent status under the laws of the
jurisdiction of its organization, obtain and preserve its
qualifications to do business in each jurisdiction in which such
qualification is or will be necessary to protect the validity and
enforceability of the sale agreement and each other instrument or
agreement to which the seller is a party necessary to the proper
administration of the sale agreement and the transactions
contemplated thereby.
2. Except for the conveyances under the sale agreement or any lien
for the benefit of us (as the issuing entity), the bondholders or
the indenture trustee, the seller will not sell, pledge, assign or
transfer to any other person, or grant, create, incur, assume or
suffer to exist any lien on, any of the storm-recovery property,
whether existing as of the transfer date or thereafter created, or
any interest therein. The seller shall not at any time assert any
lien against or with respect to any storm-recovery property, and
will defend the right, title and interest of us and of the
indenture trustee, as our assignee in, to and under the
storm-recovery property against all claims of third parties
claiming through or under the seller.
3. The seller will use the proceeds of the sale of the storm-recovery
property in accordance with the financing order.
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4. If the seller is not the servicer and the seller receives any
collections of the storm-recovery charge with respect to the
storm-recovery property or the proceeds thereof, the seller agrees
to pay the servicer all payments received by the seller in respect
thereof as soon as practicable after receipt thereof by the
seller, but in no event later than two business days after the
seller becomes aware of such receipt.
5. The seller will notify us and the indenture trustee promptly after
becoming aware of any lien on any of the storm-recovery property,
other than the conveyances under the sale agreement or the
indenture.
6. The seller shall materially comply with its organizational or
governing documents and all laws, treaties, rules, regulations and
determinations of any governmental authority applicable to it,
except to the extent that failure to so comply would not
materially adversely affect our or the indenture trustee's
interests in the storm-recovery property under any of the basic
documents, the timing or amount of storm-recovery charges payable
by customers or of seller's material obligations under the sale
agreement.
7. So long as any of the bonds are outstanding:
-- the seller will treat the bonds as our debt and not that of
the seller, except for financial accounting and tax
purposes;
-- the seller will disclose in its financial statements that it
is not the owner of the storm-recovery property and that our
assets are not available to pay creditors of the seller or
its affiliates (other than us);
-- the seller will not own or purchase any bonds; and
-- the seller shall disclose the effects of all transactions
between us and the seller in accordance with generally
accepted accounting principles.
8. The seller agrees that, upon the sale by the seller of
storm-recovery property to us pursuant to the sale agreement:
-- to the fullest extent permitted by law, including the
Financing Act and applicable regulations of the Florida
Commission, we will have all of the rights originally held
by the seller with respect to the storm-recovery property,
including the right to collect any amounts payable by any
customer in respect of such storm-recovery property,
notwithstanding any objection or direction to the contrary
by the seller; and
-- any payment by any customer to us will discharge that
customer's obligations in respect of the storm-recovery
property to the extent of such payment, notwithstanding any
objection or direction to the contrary by the seller.
9. So long as any of the bonds are outstanding:
-- in all proceedings relating directly or indirectly to the
storm-recovery property, the seller will affirmatively
certify and confirm that it has sold all of its rights and
interests in and to such property (other than for financial
reporting or tax purposes);
-- the seller will not make any statement or reference in
respect of the storm-recovery property that is inconsistent
with our ownership interest (other than for financial
accounting or tax purposes);
-- the seller will not take any action in respect of the
storm-recovery property except as contemplated by the basic
documents; and
-- the seller will not sell storm-recovery property under a
subsequent financing order in connection with the issuance
of any additional storm-recovery bonds unless the rating
agency condition has been satisfied.
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10. The seller will execute and file such filings required by law to
fully preserve, maintain and protect our ownership interest in the
storm-recovery property.
11. The seller will institute any action or proceeding necessary to
compel performance by the Florida Commission, the State of Florida
or any of their respective agents of any of their obligations or
duties under the Financing Act, any financing order or any
issuance advice letter. The seller also agrees to take those legal
or administrative actions that may be reasonably necessary to
attempt (i) to protect us from claims, state actions or other
actions or proceedings of third parties which, if successfully
pursued, would result in a breach of any representation or
warranty of the seller in the sale agreement and (ii) to block or
overturn any attempts to cause a repeal of, modification of or
supplement to the Financing Act, the financing order, any issuance
advice letter or the rights of holders by legislative enactment or
constitutional amendment that would be materially adverse to us,
the indenture trustee or the bondholder or which would otherwise
cause an impairment of the rights of us or the holders. The costs
of any such actions or proceedings undertaken by the seller will
be reimbursed by us as an operating expense.
12. So long as any of the bonds are outstanding, the seller will pay
all material taxes, assessments and governmental charges imposed
upon it or any of its properties or assets or with respect to any
of its franchises, business, income or property before any penalty
accrues if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods,
notices or other similar requirements, result in a lien on the
storm-recovery property, provided that no such tax need be paid if
the seller or one of its affiliates is contesting the same in good
faith by appropriate proceedings promptly instituted and
diligently conducted and if the seller or such affiliate has
established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.
13. The seller will comply with all filing requirements, including any
post closing filings, in accordance with the financing order.
14. Promptly after obtaining knowledge of any breach in any material
respect of its representations and warranties in the sale
agreement, the seller will notify us and the rating agencies of
the breach.
15. Even if the sale agreement or the indenture is terminated, the
seller will not, prior to the date which is one year and one day
after the termination of the indenture, petition or otherwise
invoke or cause us to invoke the process of any court or
government authority for the purpose of commencing or sustaining a
case against us under any federal or state bankruptcy, insolvency
or similar law, appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official or any
substantial part of our property, or ordering the winding up or
liquidation of our affairs.
16. Upon our request, the seller will execute and deliver such further
instruments and do such further acts as may be necessary to carry
out more effectively the provisions and purposes of the sale
agreement.
Indemnification
The seller will indemnify and hold harmless us and the indenture trustee
(for itself and for your benefit) and any of our respective officers,
directors, employees and agents against:
o any and all amounts of principal and interest on the bonds not
paid when due or when scheduled to be paid,
o any deposits required to be made by or to us under the basic
documents or any financing order which are not made when required,
and
o any and all other liabilities, obligations, losses, claims,
damages, payment, costs or expenses incurred by any of these
persons,
in each case, as a result of a breach by the seller of any of its
representations, warranties and covenants in the sale agreement, except to the
extent of losses either resulting from the willful misconduct, bad faith or
gross negligence of such indemnified
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persons or resulting from a breach of a representation or warranty made by
such indemnified persons in the indenture or any related documents that gives
rise to the seller's breach. The seller will have a 30-day opportunity to cure
upon notice from us of a material breach of a covenant.
The seller will indemnify us and the indenture trustee (for itself and
for your benefit) and each of their respective officers, directors, employees,
managers, and agents for, and defend and hold harmless each such person from
and against, any and all taxes (other than taxes imposed on the bondholders as
a result of their ownership of the bonds) that may at any time be imposed on
or asserted against any such person as a result of (i) the sale and assignment
of the storm-recovery property to us, (ii) the acquisition or holding of the
storm-recovery property by us or (iii) the issuance and sale of the bonds by
us, including any sales, gross receipts, general corporation, single business,
personal property, privilege, franchise or license taxes, but excluding any
taxes imposed as a result of a failure of such person to withhold or remit
taxes with respect to payments on any bonds.
The seller will not be liable for any losses resulting solely from a
downgrade in the ratings on the bonds or any consequential, incidental or
indirect damages, including any loss of market value of the bonds, resulting
solely from any downgrade of the ratings of the bonds.
The seller will pay any and all taxes levied or assessed upon all or any
part of our property or assets based on existing law as of the closing date.
The Florida Commission may, subject to the outcome of an appropriate
proceeding, take such action as it considers necessary or appropriate under
its regulatory authority to require the seller to make customers whole for any
losses, including, but not limited to, losses in the form of higher
storm-recovery charges, that customers may incur by reason of (i) any failure
of the seller's material representations or warranties in the sale agreement
(except for the representations and warranties under items 9 through 16 above)
or (ii) any material breach of the seller's covenants in the sale agreement
(except for the covenants under item 11 above to the extent that they require
the seller to institute proceedings against the Florida Commission or the
State to compel performance of their obligations under the Financing Act, and
any financing order or issuance advice letter).
This indemnification will survive the resignation or removal of the
indenture trustee and the termination of the sale agreement and will rank in
priority with other general, unsecured obligations of the seller.
Please read "Risk Factors--Other Risks Associated With an Investment in
Bonds--The Obligation of the Seller or Servicer to Indemnify Us for a Breach
of a Representation, Warranty or Covenant Might Not be Sufficient to Protect
Your Investment."
Amendment
The sale agreement may be amended with the prior written consent of the
indenture trustee and the satisfaction of the rating agency condition. An
amendment is subject to the objection of the Florida Commission within the
time periods and subject to the conditions set forth in the sale agreement. We
will notify the rating agencies promptly after the execution of any such
amendment or consent. Please read "Description of the Bonds--Supplemental
Indentures--Procedure for Obtaining Consent or Deemed Consent of the Florida
Commission" in this prospectus.
Assumptions of the Obligations of the Seller
Any person (a) into which the seller may be merged or consolidated and
which succeeds to all or the major part of the electric distribution business
of the seller, (b) which results from the division of the seller into two or
more Persons and which succeeds to all or the major part of the electric
distribution business of the seller, (c) which may result from any merger or
consolidation to which the seller shall be a party and which succeeds to all
or the major part of the electric distribution business of the seller, (d)
which may succeed to the properties and assets of the seller substantially as
a whole and which succeeds to all or the major part of the electric
distribution business of the seller, or (e) which may otherwise succeed to all
or the major part of the electric distribution business of the seller, and
which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the seller under the sale agreement, shall be
the successor to the seller thereunder without the execution or filing of any
document or any further act by any of the parties so long as the conditions of
any such assumption are met. The conditions include:
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o immediately after giving effect to such transaction, no
representation or warranty made in the sale agreement will have
been breached, and no servicer default, and no event that, after
notice or lapse of time, or both, would become a servicer default
will have occurred and be continuing,
o the seller shall have delivered to us and to the indenture trustee
an officers' certificate and an opinions of counsel stating that
such consolidation, merger or succession comply with the
requirements of the sale agreement and that all conditions
precedent relating to such transaction have been complied with,
o the seller shall have delivered to the us and to the indenture
trustee an opinion of counsel stating, in the opinion of such
counsel, either (a) all filings to be made by the seller, or the
seller in its capacity as servicer, including filings under the
Financing Act and the UCC, that are necessary to preserve the
interests of us and the indenture trustee in the storm-recovery
property have been executed and filed or (b) that no such action
is necessary to preserve such interests,
o the rating agencies specified in the sale agreement will have
received prior written notice of the transaction, and
o the seller shall have delivered to us and to the indenture trustee
an opinion of an independent tax counsel to the effect that, for
federal income tax purposes, such consolidation or other
succession to, and assumption of, the obligations of the seller
will not result in a material adverse federal income tax
consequence to us or to the seller, the indenture trustee or the
holders of the outstanding bonds.
So long as the conditions of any such assumption are met, the seller
will automatically be released from its obligations under the sale agreement.
THE SERVICING AGREEMENT
The following summary describes the material terms and provisions of
each servicing agreement pursuant to which the servicer will undertake to
service the storm-recovery property purchased on an issue date. We have filed
the form of servicing agreement as an exhibit to the registration statement of
which this prospectus forms a part. This summary does not purport to be
complete and is subject to, and qualified by reference to, the provisions of
the applicable servicing agreement.
Servicing Procedures
The servicer, as our agent, will manage, service and administer, and
bill and collect payments in respect of the storm-recovery property according
to the terms of the servicing agreement. The servicer's duties will include:
calculating electricity demand and usage, billing, collecting and posting of
the storm-recovery charges; responding to inquiries of customers, the Florida
Commission or any federal, local or state government authority regarding the
storm-recovery property; accounting for the billing and collection of the
storm-recovery charges; investigating and handling delinquencies, processing
and depositing collections and making periodic remittances, furnishing
periodic reports and statements to us, the Florida Commission, the rating
agencies and to the indenture trustee; making all filings with the Florida
Commission and taking all other actions necessary to perfect our ownership
interests in and the indenture trustee's lien on the storm-recovery property;
and taking all necessary action in connection with true-up adjustments.
Notwithstanding anything to the contrary in the servicing agreement, the
duties of the servicer are qualified and limited in their entirety by the
Financing Act, the financing order and any Florida Commission regulations in
effect at the time such duties are to be performed.
The servicer will also prepare servicing reports required to be filed by
us with the SEC, as further described below. Please read "Evidence as to
Compliance" below.
Servicing Standards and Covenants
The servicing agreement will require the servicer, in servicing and
administering the storm-recovery property, to employ or cause to be employed
procedures and exercise or cause to be exercised the same care it customarily
employs and exercises in servicing and administering bill collections for its
own account and for others.
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The servicing agreement requires the servicer to (i) administer and make
collections in respect of the storm-recovery property with reasonable care and
in material compliance with applicable law and regulations, including all
Florida Commission regulations, using the same degree of care and diligence
that the servicer exercises with respect to similar assets for its own
account, (ii) follow customary standards, policies and practices for the
industry in Florida in performing its duties, (iii) use reasonable efforts
consistent with customary servicing standards to bill and collect the
storm-recovery charges, calculate the storm-recovery charge in accordance with
the Financing Act and the financing order, (iv) file such continuation
statements necessary to maintain the perfected security interest of the
indenture trustee in the storm-recovery property and (v) use reasonable
efforts to otherwise enforce and maintain the indenture trustee's rights in
respect of the storm-recovery property and comply in all material respects
with all laws and regulations applicable to it relating to the storm-recovery
property. The servicer will follow such customary and usual practices and
procedures as it shall deem necessary or advisable in its servicing of the
storm-recovery property which, in the servicer's judgment, may include the
taking of legal action, at our expense.
Following any fundamental change in the Florida energy markets which
allows alternative energy suppliers to operate in the State, the servicer
shall take reasonable steps to assure than no alternative energy supplier
bills or collects any storm-recovery charge unless such alternative energy
supplier is required to do so by an applicable law or regulation.
To the extent not undertaken by the seller under the Sale Agreement, the
servicer is responsible for instituting any proceeding to compel performance
by the State of Florida or the Florida Commission of their respective
obligations under the Financing Act or any financing order or subsequent
financing order. The servicer will take such legal or administrative actions,
including defending against or instituting and pursuing legal actions and
appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary to attempt to block or overturn any attempts to cause a
repeal of, modification of or supplement to the Financing Act, the financing
order or the rights of holders of storm-recovery property by legislative
enactment, constitutional amendment or other means that would be adverse to
bondholders. Any costs associated with such legal or administrative action
will be borne by us as a operating expense, provided, however, that the
servicer is obligated to institute and maintain such action or proceedings
only if it is being reimbursed on a current basis for its costs and expenses
in taking such actions in accordance with the related indenture, and is not
required to advance its own funds to satisfy these obligations.
In any proceedings related to the exercise of the power of eminent
domain by any municipality to acquire a portion of FPL's electric distribution
facilities, the servicer will assert that the court ordering such condemnation
must treat such municipality as a successor to FPL under the Financing Act and
the financing order.
The servicing agreement also designates the servicer as the custodian of
our records and documents.
The Florida Commission's Storm-Recovery Charge True-Up Adjustment Process
Among other things, the servicing agreement requires the servicer to
file, and the Financing Act requires the Florida Commission to approve,
semiannual true-up adjustments to the rate at which storm-recovery charges are
billed to customers. For more information on the true-up process, please read
"FPL's Financing Order--FPSC- Guaranteed True-Up Mechanism--Storm-Recovery
Charges Must be Trued-up Semiannually" in this prospectus. These adjustments
are to be based on actual storm-recovery charge collections and updated
assumptions by the servicer as to projected future billed revenue from which
storm-recovery charges are allocated, projected electricity usage during the
next period, expected delinquencies and write-offs and future payments and
expenses relating to the storm-recovery property and the bonds.
In addition, following the latest scheduled final payment date for the
bonds, adjustments will be made quarterly and, during the last year in which
the bonds of any series are outstanding, monthly, to reconcile actual
storm-recovery charge collections with payment requirements.
The servicer will request a non-standard true-up adjustment (i) if due
to the filing of a base rate application by the electric utility, the
allocation of responsibility for payment of the storm-recovery charges is
altered, or (ii) if it deems it necessary or appropriate to address any
material deviations between storm-recovery charge collections and payment
requirements.
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Each true-up adjustment will allocate the revenue requirement among all
customer classes in accordance with the cost-of-service methodology filed in
FPL's last rate case before the Florida Commission.
The servicer will calculate the storm-recovery charges necessary to
result in
o all accrued and unpaid interest being paid in full,
o the outstanding principal balance of the bonds equaling the amount
provided in the expected sinking fund schedule,
o the amount on deposit in the capital subaccount equaling the
required capital amount, and
o all other fees, expenses and indemnities of the issuing entity
being paid,
by (1) each of the next two scheduled payment dates, or (2) with respect to a
true-up adjustment occurring after the last expected maturity date for any
bonds, the earlier of the payment date preceding the next date for a true-up
adjustment and the final maturity date for those bonds.
Remittances to Collection Account
The servicer will make periodic payments on account of storm-recovery
charge collections to the indenture trustee for deposit in the collection
account. The servicer will remit estimated collection payments on the
storm-recovery charges to the collection account each business day. For a
description of the allocation of the deposits, please read "Security for the
Bonds--How Funds in the Collection Account Will Be Allocated" in this
prospectus.
The servicer will remit to the indenture trustee storm-recovery charge
collections based on its estimated system-wide charge-off percentage and the
average number of days outstanding of bills. No less often than annually, the
servicer and the indenture trustee will reconcile remittances of estimated
payments arising from storm-recovery charges with actual storm-recovery charge
payments received by the servicer to more accurately reflect the amount of
billed storm-recovery charges that should have been remitted, based on the
actual system-wide charge-off percentage. To the extent the remittances of
estimated payments arising from the storm-recovery charge exceed the amounts
that should have been remitted based on actual system-wide charge-offs, the
servicer will be entitled to withhold the excess amount from any subsequent
remittance to the indenture trustee until the balance of such excess is
reduced to zero. To the extent the remittances of estimated payments arising
from the storm-recovery charge are less than the amount that should have been
remitted based on actual system with charge-offs, the servicer will remit the
amount of the shortfall to the indenture trustee the next business day.
Although the servicer will remit estimated payments arising from the
storm-recovery charge to the indenture trustee, the servicer is not obligated
to make any payments on the bonds.
Servicing Compensation
The servicer will be entitled to receive an annual servicing fee in an
amount equal to:
o 0.05% of the initial principal amount of the bonds for so long as
the servicer remains FPL or an affiliate (to be applied to FPL's
storm reserve pursuant to the financing order); or
o if FPL or any of its affiliates is not the servicer, an amount
agreed upon by the successor servicer and the indenture trustee,
but any amount in excess of 0.60% of the initial principal amount
of the bonds must be approved by the Florida Commission.
The servicing fee shall be paid semiannually with half of the servicing
fee being paid on each payment date. The indenture trustee will pay the
servicing fee (together with any portion of the servicing fee that remains
unpaid from prior payment dates) to the extent of available funds prior to the
distribution of any interest on and principal of the bonds. Please read
"Security for Bonds--How Funds in the Collection Account Will Be Allocated" in
this prospectus.
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Servicer Representations and Warranties; Indemnification
In each servicing agreement, the servicer will represent and warrant to
us and the Florida Commission (for the benefit of customers), as of the issue
date of the bonds, among other things, that:
o the servicer is a corporation duly organized, validly existing and
is in good standing under the laws of the state of its
organization, with the corporate and authority to own its
properties, to conduct its business as such properties are
currently owned and such business is presently conducted and to
execute, deliver and carry out the terms of the servicing
agreement and has the power, authority and legal right to service
the storm-recovery property;
o the servicer is duly qualified to do business as a foreign
corporation in good standing or equivalent status, and has
obtained all necessary licenses and approvals in all
jurisdictions, other than Florida, in which the ownership or lease
of property or the conduct of its business (including the
servicing of the storm-recovery property as required by the
servicing agreement) requires such qualifications, licenses or
approvals (except where a failure to qualify and obtain such
licenses and approvals would not be reasonably likely to have a
material adverse effect on the servicer's business, operations,
assets, revenues or properties or prospects or materially and
adversely affect the servicing of the storm-recovery property);
o the servicer has the corporate power and authority to execute and
deliver the servicing agreement and to carry out its terms; and
the execution, delivery and performance of the servicing agreement
has been duly authorized by the servicer by all necessary
corporate action;
o the servicing agreement constitutes a legal, valid and binding
obligation of the servicer, enforceable against it in accordance
with its terms, subject to bankruptcy, receivership, insolvency,
reorganization, moratorium or other laws relating to or affecting
creditors' rights generally from time to time in effect and to
general principles of equity (regardless of whether considered in
a proceeding in equity or at law);
o the consummation of the transactions contemplated by the servicing
agreement and the fulfillment of its terms will not conflict with,
result in any breach of, nor constitute (with or without notice or
lapse of time) a default under the articles of incorporation or
by-laws of the servicer or any other material indenture, agreement
or other instrument to which the servicer is a party or by which
it is bound; or result in the creation or imposition of any lien
upon the servicer's properties pursuant to the terms of any such
indenture or agreement or other instrument (except as contemplated
in the indenture and as set forth in the sale agreement); or
violate any law or any order, rule or regulation applicable to the
servicer of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the servicer or its properties;
o except for filings with the Florida Commission for adjusting the
storm-recovery charges pursuant to the servicing agreement, or
filing certain financing statements, no approval, authorization,
consent, order or other action of, or filing with, any court,
federal or state regulatory body, administrative agency or other
governmental instrumentality is required in connection with the
execution and delivery by the servicer of the servicing agreement,
the performance by the servicer of the transactions contemplated
under the servicing agreement or the fulfillment by the servicer
of the terms of the servicing agreement, except those which have
previously been obtained or made;
o except as disclosed in the servicing agreement and to the
servicer's knowledge, there are no proceedings or investigations
pending or, to the servicer's knowledge, threatened against the
servicer before any court, federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the servicer or its properties: (i) seeking to
prevent issuance of the bonds or the consummation of the
transactions contemplated by the servicing agreement or any of the
other basic documents, or, if applicable, any additional indenture
or subsequent sale agreement; (ii) seeking any determination or
ruling that might materially and adversely affect the performance
by the servicer of its obligations under, or the validity or
enforceability against the servicer of, the servicing agreement or
any of the other basic documents or, if applicable, any additional
indenture or subsequent sale agreement; or (iii) relating to the
servicer and which might materially and adversely affect the
federal or state income, gross receipts or franchise tax
attributes of the bonds; and
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o each report or certificate delivered in connection with any filing
made to the Florida Commission by the servicer on our behalf with
respect to the storm-recovery charges or periodic adjustments will
constitute a representation and warranty by the servicer that each
such report or certificate, as the case may be, is true and
correct in all material respects. To the extent that any such
report or certificate is based in part or upon or contains
assumptions, forecasts or other predictions of future events, the
representation and warranty of the servicer with respect thereto
will be limited to the representation and warranty that such
assumptions, forecasts or other predictions of future events are
reasonable based upon historical performance and the facts known to
the servicer on the date such report is delivered.
The servicer is not responsible for any ruling, action or delay of the
Florida Commission, except those caused by the servicer's failure to file
required applications in a timely and correct manner or other breach of its
duties under the servicing agreement. The servicer also is not liable to us,
to the indenture trustee, or to bondholders for the calculation of the
storm-recovery charges and adjustments, including any inaccuracy in the
assumptions made in the calculation, so long as the servicer has not acted in
bad faith and has not acted in a grossly negligent manner.
The servicer will indemnify, defend and hold harmless us and the
indenture trustee (for itself and for your benefit) and the independent
managers and each of their respective officers, directors, employees and
agents from any and all liabilities, obligations, losses, damages, payments
and claims, and reasonable costs or expenses, arising from the servicer's
willful misconduct, bad faith or gross negligence in the performance of its
duties and the servicer's material breach of any of its representations or
warranties that results in a default by the servicer under the servicing
agreement. The servicer will not be liable to any such party, however, for any
liabilities, obligations, losses, damages, payments or claims, or reasonable
costs or expenses, resulting from the willful misconduct, bad faith or gross
negligence of the party seeking indemnification.
The servicer will indemnify the indenture trustee (in its own capacity)
and its respective officers, directors and agents for any and all liabilities,
obligations, losses, damages payments and claims arising from the acceptance
and performance of the trusts and the duties under the servicing agreement and
in the indenture.
This indemnification will survive the resignation or removal of the
indenture trustee and the termination of the servicing agreement and will rank
in priority with other general, unsecured obligations of the servicer.
The servicer will also indemnify the Florida Commission (on behalf of
customers) to the extent customers incur losses, including without limitation
losses associated with higher servicing fees payable to a successor servicer
because of the servicer's imprudent actions (or negligence in the case of
losses associated with such higher servicing fees), misconduct or termination
of the servicing agreement for cause. The servicer's obligation to indemnify
the Florida Commission (on behalf of customers) will survive the termination
of the servicing agreement.
The servicer releases us and our independent managers, the indenture
trustee and each of our respective officers, directors and agents from any
actions, claims and demands which the servicer, in the capacity of servicer or
otherwise, may have against those parties relating to the storm-recovery
property or the servicer's activities, other than actions, claims and demands
arising from the willful misconduct, bad faith or gross negligence of the
parties.
Matters Regarding the Servicer
FPL may not resign from its obligations and duties as servicer
thereunder, except when FPL determines that performance of its duties under
the servicing agreement is no longer permissible under applicable law.
No resignation by, or termination of, FPL as servicer will become
effective until a successor servicer has been approved by the Florida
Commission and has assumed FPL's servicing obligations and duties under the
servicing agreement.
Neither the servicer nor any of its directors, officers, employees, and
agents will be liable to us or to the indenture trustee, our managers, you or
any other person or entity, except as provided under the servicing agreement,
for taking any action or for refraining from taking any action under the
servicing agreement or for errors in judgment. However, neither the servicer
nor any person or entity will be protected against any liability that would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in the performance of its duties under the servicing agreement. The
servicer and any of its directors, officers, employees or agents may rely in
good faith on the advice of counsel reasonably acceptable to the
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indenture trustee or on any document prima facie properly executed submitted
by any person respecting any matters under the servicing agreement. In
addition, the servicing agreement will provide that the servicer is under no
obligation to appear in, prosecute, or defend any legal action, except as
provided in the servicing agreement at our expense.
Any entity which becomes the successor by merger, division, sale,
transfer, lease, management contract or otherwise to all or a major part of
the servicer's electric distribution business may assume all of the rights and
obligations of the servicer under the servicing agreement without the
execution or filing of any document. The following are conditions to the
transfer of the duties and obligations to a successor servicer:
o immediately after the transfer, no representation or warranty made
by the servicer in the servicing agreement will have been breached
and no servicer default or event which after notice of, lapse of
time or both, would become a servicer default, has occurred and is
continuing;
o the servicer has delivered to us, to the Florida Commission, the
indenture trustee and the rating agencies an officer's certificate
and an opinion of counsel stating that the transfer complies with
the servicing agreement and all conditions to the transfer under
the servicing agreement have been complied with;
o the servicer has delivered to us, to the Florida Commission, to
the indenture trustee and the rating agencies an opinion of
counsel stating either that all necessary filings, including those
with the Florida Commission, to protect our interests in all of
the storm-recovery property have been made or that no filings are
required; and
o the servicer has given prior written notice to the rating
agencies.
So long as the conditions of any such assumptions are met, then the
prior servicer will automatically be released from its obligations under the
servicing agreement.
Servicer Defaults
Servicer defaults under the servicing agreement will include, among
other things:
o any failure by the servicer to remit to the indenture trustee, on
our behalf, any funds actually collected as part of the
storm-recovery property and required to be remitted pursuant to
the servicing agreement with respect to the bonds that continues
unremedied for five business days after written notice is received
by the servicer and the Florida Commission from us or from the
indenture trustee;
o any failure by the servicer duly to observe or perform in any
material respect any other covenant or agreement of the servicer
set forth in the servicing agreement, which failure materially and
adversely affects the storm-recovery property or the rights of
storm-recovery bondholders and which continues unremedied for 60
days after written notice of this failure has been given to the
servicer by us, by the Florida Commission or by the indenture
trustee or after discovery of such failure by an officer of the
servicer;
o any representation or warranty made by the servicer in the
servicing agreement or any basic document will prove to have been
incorrect in a material respect when made, which has a material
adverse effect on us or the storm-recovery bondholders and which
material adverse effect continues unremedied for a period of 60
days after the giving of written notice to the servicer by us or
the indenture trustee after such failure is discovered by an
officer of the servicer, as the case may be; and
o events of bankruptcy, insolvency, receivership or liquidation
occurs with respect to the servicer.
Rights When Servicer Defaults
In the event of a servicer default that remains unremedied, the
indenture trustee may, or at the direction of the holders of a majority of the
outstanding principal amount of the bonds or, at the direction of the Florida
Commission, by notice then given in writing to the servicer, will terminate
all the rights and obligations (other than servicer's indemnity obligation and
obligation to continue performing its functions as servicer until a successor
servicer is appointed) of the servicer under the
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servicing agreement. In addition, upon a servicer default, then we and the
indenture trustee shall be entitled to apply to any court of competent
jurisdiction for sequestration and payment to the indenture trustee of
revenues arising with respect to the applicable storm-recovery property.
On or after the receipt by the servicer of a notice of termination, all
authority and power of the servicer under the servicing agreement, whether
with respect to the storm-recovery property, the related storm-recovery
charges or otherwise, shall, upon appointment of a successor servicer under
the servicer agreement, without further action, pass to and be vested in such
successor servicer and, without limitation, each trustee is hereby authorized
and empowered to execute and delivery, on behalf of the predecessor servicer,
as attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of the notice of termination, whether to complete the
transfer of the storm-recovery property records and related documents, or
otherwise. The predecessor servicer shall cooperate with the successor
servicer, the indenture trustee and with us in effecting the termination of
the responsibilities and rights of the predecessor servicer under the
servicing agreement, including the transfer to the successor servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor servicer for remittance, or shall thereafter be received by it
with respect to the storm-recovery property or the related storm-recovery
charges. As soon as practicable after receipt by the servicer of such notice
of termination, the servicer shall deliver the storm-recovery property records
to the successor servicer. All reasonable costs and expenses (including
attorneys' fees and expenses) incurred in connection with transferring the
storm-recovery property records to the successor servicer and amending the
servicing agreement to reflect such succession as servicer pursuant to the
servicing agreement shall be paid by the predecessor servicer upon
presentation of reasonable documentation of such costs and expenses.
Termination of FPL as servicer shall not terminate FPL's rights or obligations
under the sale agreement.
Waiver of Past Defaults
The indenture trustee, with the consent of the Florida Commission and
holders of a majority of the outstanding principal amount of the bonds may
waive in writing any default by the servicer in the performance of its
obligations under the servicing agreement and its consequences, except a
default in making any required remittances to the indenture trustee in
according with the servicing agreement. Upon any such waiver of a past
default, such default shall cease to exist, and any default of the servicer
arising therefrom shall be deemed to have been remedied for every purpose of
the servicing agreement. The servicing agreement provides that no waiver will
impair the bondholders' rights relating to subsequent defaults.
Successor Servicer
Upon the receipt of a notice of termination or upon the servicer's
resignation in accordance with the terms of the servicing agreement, the
predecessor servicer shall continue to perform its functions as servicer and
shall be entitled to receive the requisite portion of the servicing fees,
until a successor servicer has assumed in writing the obligations of the
servicer. In the event of the servicer's removal or resignation, the indenture
trustee may, and at the direction of the holders of a majority of the
principal amount of the outstanding bonds or the Florida Commission shall,
appoint a successor servicer.
The indenture trustee may appoint or, if no successor servicer has been
appointed within 30 days after the delivery of the termination notice,
petition the Florida Commission or a court of competent jurisdiction for the
appointment of, a successor servicer which is permitted to perform the duties
of the servicer pursuant to the Financing Act, the Florida Commission
regulations, the financing order and the servicing agreement, satisfies
criteria specified by the nationally recognized statistical rating agencies
rating the bonds, and enters into a servicing agreement with us having
substantially the same provisions as the servicing agreement in effect between
us and the predecessor servicer. Any successor servicer may resign only if it
is prohibited from servicing as such by applicable law.
If for any reason a third party assumes the role of the servicer under
the servicing agreement, the servicing agreement requires the servicer, on an
ongoing basis, to cooperate with us and provide whatever information is, and
take whatever actions are, reasonably necessary to assist the successor
servicer in performing its obligations under the servicing agreement.
Amendment
The servicing agreement may be amended with the prior written consent of
the indenture trustee and the satisfaction of the rating agency condition. An
amendment is subject to the objection of the Florida Commission within the
time periods
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and subject to the conditions set forth in the servicing agreement. We will
notify the rating agencies promptly after the execution of any such amendment
or consent. Please read, "Description of the Bonds--Supplemental
Indentures--Procedure for Obtaining Consent or Deemed Consent of the Florida
Commission" in this prospectus.
Evidence as to Compliance
The servicing agreement provides for delivery to us and to the indenture
trustee and the rating agencies, on or before March 31 of each year, beginning
March 31, 2008, of a certificate signed by an officer of the servicer stating
that a review of the servicer's activities during the preceding 12 months
ended December 31 (or preceding period since the closing date of the issuance
of the bonds in the case of the first statement) has been made under such
officer's supervision and that to the best of such officer's knowledge, the
service has fulfilled its obligations under the servicing agreement in all
material respects throughout the preceding twelve months ended December 31 (or
preceding period since the closing date of the issuance of the bonds in the
case of the first certificate) or, if there has been a failure to fulfill any
such obligation in any material respect, specifying each such failure known to
such officer and the nature and status thereof. The servicing agreement also
provides for the delivery to us, on or before March 31 of each year, beginning
March 31, 2008, of a report, pursuant to Regulation AB, regarding the
servicer's assessment of servicing criteria during the immediately preceding
calendar year, as required under the Exchange Act and Regulation AB. This
report will be included in our annual 10-K filing.
The servicing agreement provides that a firm of independent public
accountants, at our expense, will furnish to us, the indenture trustee, the
Florida Commission and the rating agencies on or before March 31 of each year,
beginning March 31, 2008, a statement as to compliance by the servicer with
standards relating to the servicing of the storm-recovery property during the
preceding twelve months ended December 31 (or preceding period since the
closing date of the issuance of the bonds in the case of the first statement).
This report will state that the accounting firm has performed agreed upon
procedures in connection with the servicer's compliance with the servicing
procedures of the servicing agreement, identifying the results of the
procedures and including any exceptions noted. In addition, the report will
include a report that attests to, and reports on, the assessment made by the
servicer as to its compliance with the servicing criteria set forth in (d) of
Item 1122 of Regulation AB. The report will also indicate that the accounting
firm providing the report is independent of the servicer within the meaning of
the rules of the Public Accounting Company Oversight Board.
The servicer shall cause each subservicer within the meaning of Item
1122 of Regulation AB to deliver a similar officer's certificate of compliance
(including the report of an independent certified public accountant) within
the same time frame.
The servicer will also be required to deliver to us, the Florida
Commission, the indenture trustee and the rating agencies monthly and
semiannual certificates setting forth information relating to collections of
storm-recovery charges received during the preceding calendar month or
semiannual period, as the case may be. Each semiannual certificate will be
delivered shortly before each payment date and will set forth the amount of
principal and interest payable to bondholders on such date, the difference
between the principal outstanding on the bonds and the amounts specified in
the related expected amortization schedule after giving effect to any such
payments, and the amounts on deposit in the capital subaccount and excess
funds subaccount after giving effect to all transfers and payments to be made
on such payment date.
In addition, the servicer is required to send copies of each filing or
notice evidencing a true-up adjustment to us, the indenture trustee and the
rating agencies.
You may obtain copies of the above statements and certificates by
sending a written request addressed to the indenture trustee.
You may also obtain copies of the above statements and certificates from
the website associated with FPL, currently located at www.fpl.com.
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HOW A BANKRUPTCY MIGHT AFFECT YOUR INVESTMENT
Challenge to True Sale Treatment
FPL will represent and warrant that the transfer of the storm-recovery
property in accordance with the applicable sale agreement constitutes a true
and valid sale and assignment of that storm-recovery property by FPL to us. It
will be a condition of closing for the sale of storm-recovery property
pursuant to a sale agreement that FPL will take the appropriate actions under
the Financing Act, including filing a notice of transfer of an interest in the
storm-recovery property, to perfect this sale. The Financing Act provides that
a transfer of storm-recovery property by an electric utility to an assignee
which the parties have in the governing documentation expressly stated to be a
sale or other absolute transfer, in a transaction approved in a financing order,
shall be treated as an absolute transfer of all the transferor's right, title
and interest, as in a "true sale" under applicable creditors' rights
principles, and not as a pledge or other financing, of the relevant
storm-recovery property. We and FPL will treat such a transaction as a sale
under applicable law. However, we expect that bonds will be reflected as debt
on FPL's consolidated financial statements. In addition, we anticipate that
the bonds will be treated as debt of FPL for federal income tax purposes.
Please read "The Storm-Recovery Property and the Financing Act--The Financing
Act Provides for the Recovery of Storm-Recovery Costs and the Issuance of
Storm-Recovery Bonds" and "Material U.S. Federal Income Tax Consequences." In
the event of a bankruptcy of a party to a sale agreement, if a party in
interest in the bankruptcy were to take the position that the transfer of the
storm-recovery property to us pursuant to that sale agreement was a financing
transaction and not a true sale under applicable creditors' rights principles,
there can be no assurance that a court would not adopt this position. Even if
a court did not ultimately recharacterize the transaction as a financing
transaction, the mere commencement of a bankruptcy of FPL and the attendant
possible uncertainty surrounding the treatment of the transaction could result
in delays in payments on the bonds.
In that regard, we note that the bankruptcy court in In re: LTV Steel
Company, Inc., et al., 274 B.R. 278 (Bankr. N. D. Oh. 2001) issued an interim
order that observed that a debtor, LTV Steel Company, which had previously
entered into securitization arrangements with respect both to its inventory
and its accounts receivable may have "at least some equitable interest in the
inventory and receivables, and that this interest is property of the Debtor's
estate... sufficient to support the entry of" an interim order permitting the
debtor to use proceeds of the property sold in the securitization. 274 B.R. at
285. The court based its decision in large part on its view of the equities of
the case.
LTV and the securitization investors subsequently settled their dispute
over the terms of the interim order and the bankruptcy court entered a final
order in which the parties admitted and the court found that the pre-petition
transactions constituted "true sales." The court did not otherwise overrule
its earlier ruling. The LTV memorandum opinion serves as an example of the
pervasive equity powers of bankruptcy courts and the importance that such
courts may ascribe to the goal of reorganization, particularly where the
assets sold are integral to the ongoing operation of the debtor's business.
We and FPL have attempted to mitigate the impact of a possible
recharacterization of a sale of storm-recovery property as a financing
transaction under applicable creditors' rights principles. The sale agreement
will provide that if the transfer of the applicable storm-recovery property is
thereafter recharacterized by a court as a financing transaction and not a
true sale, the transfer by FPL will be deemed to have granted to us on behalf
of ourselves and the indenture trustee a first priority security interest in
all FPL's right, title and Interest in and to the storm-recovery property and
all proceeds thereof. In addition, the sale agreement will require the filing
of a notice of security interest in the related storm-recovery property and
the proceeds thereof in accordance with the Financing Act. As a result of this
filing, we would be a secured creditor of FPL and entitled to recover against
the collateral or its value. This does not, however, eliminate the risk of
payment delays or reductions and other adverse effects caused by a FPL
bankruptcy. Further, if, for any reason, a storm-recovery property notice is
not filed under the Financing Act or we fail to otherwise perfect our interest
in the storm-recovery property, and the transfer is thereafter deemed not to
constitute a true sale, we would be an unsecured creditor of FPL.
The Financing Act provides that, except as provided in the Financing
Act, the creation, granting, perfection and enforcement of liens and security
interests in storm-recovery property are governed by the Financing Act and not
by the Florida Uniform Commercial Code. Under the Financing Act, a valid and
enforceable lien and security interest in storm-recovery property may be
created only by a financing order issued under the Financing Act and the
execution and delivery of a security agreement with a holder of bonds or an
indenture trustee or agent for the holder. The lien and security interest
attaches automatically from the time value is received for the bonds. Upon
perfection through the filing of a financing statement in the Florida Secured
Transaction Registry, the security interest shall be a continuously perfected
lien and security interest in the storm-recovery property, with priority in
the order of filing and take precedence over any subsequent judicial or other
lien
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creditor. None of this, however, mitigates the risk of payment delays and
other adverse effects caused by a FPL bankruptcy. Further, if, for any reason,
a storm-recovery property notice is not filed under the Financing Act or we
fail to otherwise perfect our interest in the storm-recovery property sold
pursuant to a sale agreement, and the transfer is thereafter deemed not to
constitute a true sale, we would be an unsecured creditor of FPL.
Consolidation of the Issuing Entity and FPL
If FPL were to become a debtor in a bankruptcy case, a party in interest
might attempt to substantively consolidate the assets and liabilities of FPL
and us. We and FPL have taken steps to attempt to minimize this risk. Please
read "FPL Recovery Funding LLC, the Issuing Entity" in this prospectus.
However, no assurance can be given that if FPL were to become a debtor in a
bankruptcy case, a court would not order that our assets and liabilities be
substantively consolidated with those of FPL. Substantive consolidation would
result in payment of the claims of the beneficial owners of the bonds to be
subject to substantial delay and to adjustment in timing and amount under a
plan of reorganization in the bankruptcy case.
Status of Storm-Recovery Property as Current Property
FPL will represent in the sale agreement, and the Financing Act
provides, that the storm-recovery property sold pursuant to such sale
agreement constitutes a current property right on the date that it is first
transferred or pledged in connection with the issuance of the bonds.
Nevertheless, no assurance can be given that, in the event of a bankruptcy of
FPL, a court would not rule that the applicable storm-recovery property comes
into existence only as retail electric customers use electricity.
If a court were to accept the argument that the applicable
storm-recovery property comes into existence only as retail electric customers
use electricity, no assurance can be given that a security interest in favor
of the bondholders of the storm-recovery bonds would attach to the related
storm-recovery charges in respect of electricity consumed after the
commencement of the bankruptcy case or that the applicable storm-recovery
property has been sold to us. If it were determined that the applicable
storm-recovery property had not been sold to us, and the security interest in
favor of the storm-recovery bondholders did not attach to the applicable
storm-recovery charges in respect of electricity consumed after the
commencement of the bankruptcy case, then we would have an unsecured claim
against FPL. If so, there would be delays and/or reductions in payments on the
bonds. Whether or not a court determined that storm-recovery property had been
sold to us pursuant to a sale agreement, no assurances can be given that a
court would not rule that any storm-recovery charges relating to electricity
consumed after the commencement of the bankruptcy could not be transferred to
us or the indenture trustee.
In addition, in the event of a bankruptcy of FPL, a party in interest in
the bankruptcy could assert that we should pay, or that we should be charged
for, a portion of FPL's costs associated with the transmission or distribution
of the electricity, consumption of which gave rise to the storm-recovery
charge receipts used to make payments on the bonds.
Regardless of whether FPL is the debtor in a bankruptcy case, if a court
were to accept the argument that storm-recovery property sold pursuant to the
applicable sale agreement comes into existence only as customers use
electricity, a tax or government lien or other nonconsensual lien on property
of FPL arising before that storm-recovery property came into existence could
have priority over our interest in that storm-recovery property. Adjustments
to the storm-recovery charges may be available to mitigate this exposure,
although there may be delays in implementing these adjustments.
Estimation of Claims; Challenges to Indemnity Claims
If FPL were to become a debtor in a bankruptcy case, claims, including
indemnity claims, by us or the indenture trustee against FPL as seller under
the applicable sale agreement and the other documents executed in connection
therewith would be unsecured claims and would be subject to being discharged
in the bankruptcy case. In addition, a party in interest in the bankruptcy may
request that the bankruptcy court estimate any contingent claims that we or
the indenture trustee have against FPL. That party may then take the position
that these claims should be estimated at zero or at a low amount because the
contingency giving rise to these claims is unlikely to occur. If a court were
to hold that the indemnity provisions were unenforceable, we would be left
with a claim for actual damages against FPL based on breach of contract
principles. The actual amount of these damages would be subject to estimation
and/or calculation by the court.
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No assurances can be given as to the result of any of the
above-described actions or claims. Furthermore, no assurance can be given as
to what percentage of their claims, if any, unsecured creditors would receive
in any bankruptcy proceeding involving FPL.
Enforcement of Rights by the Indenture Trustee
Upon an event of default under the indenture, the Financing Act permits
the indenture trustee to enforce the security interest in the storm-recovery
property sold pursuant to the applicable sale agreement in accordance with the
terms of the indenture. In this capacity, the indenture trustee is permitted
to request the Florida circuit court to order the sequestration and payment to
holders of bonds of all revenues arising from the applicable storm-recovery
charges. There can be no assurance, however, that the Florida circuit court
would issue this order after a seller bankruptcy in light of the automatic
stay provisions of Section 362 of the United States Bankruptcy Code. In that
event, the indenture trustee may under the indenture seek an order from the
bankruptcy court lifting the automatic stay with respect to this action by the
Florida circuit court and an order requiring an accounting and segregation of
the revenues arising from the storm-recovery property sold pursuant to the
applicable sale agreement. There can be no assurance that a court would grant
either order.
Bankruptcy of the Servicer
The servicer is entitled to commingle the storm-recovery charges that it
receives with its own funds until each date on which the servicer is required
to remit funds to the indenture trustee as specified in the applicable
servicing agreement, expected to be on a daily basis. The Financing Act
provides that the relative priority of a lien created under the Financing Act
is not defeated or adversely affected by the commingling of storm-recovery
charges arising with respect to the related storm-recovery property with funds
of the electric utility. In the event of a bankruptcy of the servicer, a party
in interest in the bankruptcy might assert, and a court might rule, that the
storm-recovery charges commingled by the servicer with its own funds and held
by the servicer, prior to and as of the date of bankruptcy were property of
the servicer as of that date, and are therefore property of the servicer's
bankruptcy estate, rather than our property. If the court so rules, then the
court would likely rule that the indenture trustee has only a general
unsecured claim against the servicer for the amount of commingled
storm-recovery charges held as of that date and could not recover the
commingled storm-recovery charges held as of the date of the bankruptcy.
However the court were to rule on the ownership of the commingled
storm-recovery charges, the automatic stay arising upon the bankruptcy of the
servicer could delay the indenture trustee from receiving the commingled
storm-recovery charges held by the servicer as of the date of the bankruptcy
until the court grants relief from the stay. A court ruling on any request for
relief from the stay could be delayed pending the court's resolution of
whether the commingled storm-recovery charges are our property or are property
of the servicer, including resolution of any tracing of proceeds issues.
The servicing agreement will provide that the indenture trustee, as our
assignee, may appoint a successor servicer that satisfies the rating agency
condition. However, the automatic stay in effect during a servicer bankruptcy
might delay or prevent a successor servicer's replacement of the servicer.
Even if a successor servicer may be appointed and may replace the servicer, a
successor may be difficult to obtain and may not be capable of performing all
of the duties that FPL as servicer was capable of performing. Furthermore,
should the servicer enter into bankruptcy, it may be permitted to stop acting
as servicer.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the bonds. Except as set forth below under the caption "Material U.S. Federal
Income Tax Consequences--Tax Consequences to Non-U.S. Holders," this
discussion does not address the tax consequences to persons other than initial
purchasers who are U.S. Holders (as defined below) that hold their bonds as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
and it does not address all of the tax consequences relevant to investors that
are subject to special treatment under the United States federal income tax
laws (such as life insurance companies, retirement plans, regulated investment
companies, persons who hold bonds as part of a "straddle," a "hedge" or a
"conversion transaction," persons that have a "functional currency" other than
the U.S. dollar, investors in pass-through entities and tax-
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exempt organizations). Also, except as set forth under the caption "Material
Florida State Tax Consequences," this discussion does not address the
consequences to holders of the bonds under state, local or foreign tax laws.
This discussion is based on current provisions of the Internal Revenue
Code, the Treasury Regulations promulgated and proposed thereunder (the
"Regulations"), judicial decisions and published administrative rulings and
pronouncements of the IRS and interpretations thereof. All of these
authorities and interpretations are subject to change, and any change may be
apply retroactively and affect the accuracy of the opinions, statements and
conclusions set forth in this discussion.
ALL PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND
DISPOSING OF STORM-RECOVERY BONDS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES,
AS WELL AS THE EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER LAWS.
Taxation of the Issuing Entity and Characterization of the Bonds
Based on Revenue Procedure 2005-62, 2005-37 IRB, it is the opinion of
Tax Counsel that for U.S. federal income tax purposes, (1) we will not be
treated as a taxable entity separate and apart from FPL and (2) the bonds will
be treated as debt of FPL. This opinion is based on certain representations
made by us and FPL, on the application of current law to the facts as
established by the indenture and other relevant documents and assumes
compliance with the indenture and such other documents as in effect on the
date of issuance of the bonds. By acquiring a storm-recovery bond, a
storm-recovery bondholder agrees to treat the storm-recovery bond as debt for
United States federal income tax purposes.
Tax Consequences to U.S. Holders
Interest. Interest income on the bonds will be includible in income by a
U.S. Holder when it is received, in the case of a U.S. Holder using the cash
receipts and disbursements method of tax accounting, or as it accrues, in the
case of a U.S. Holder using the accrual method of tax accounting. We expect
that the bonds will not be issued with original issue discount. If any series
of bonds is issued with original issue discount, the prospectus supplement for
that series of bonds will address the tax consequences of purchasing bonds
with original issue discount.
Sale or Retirement of Bonds. On a sale, exchange or retirement of a
storm-recovery bond, a U.S. Holder will have taxable gain or loss equal to the
difference between the amount received by the U.S. Holder and the U.S.
Holder's tax basis in the storm-recovery bond. A U.S. Holder's tax basis in
its bonds is the U.S. Holder's cost, subject to adjustments. Gain or loss will
generally be capital gain or loss, and will be long-term capital gain or loss
if the storm-recovery bond was held for more than one year at the time of
disposition. If a U.S. Holder sells the storm-recovery bond between interest
payment dates, a portion of the amount received will reflect interest that has
accrued on the storm-recovery bond but that has not yet been paid by the sale
date. To the extent that amount has not already been included in the U.S.
Holder's income, it will be treated as ordinary interest income and not as
capital gain.
Tax Consequences to Non-U.S. Holders
Withholding Taxation on Interest. Payments of interest income on the
bonds received by a Non-U.S. Holder that does not hold its bonds in connection
with the conduct of a trade or business in the United States, will generally
not be subject to United States federal withholding tax, provided that the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of FPL Group entitled to
vote, is not a controlled foreign corporation that is related to FPL Group
through stock ownership, is not an individual who ceased being a U.S. citizen
or long-term resident for tax avoidance purposes, and FPL or its paying agent
receives:
o from a Non-U.S. Holder appropriate documentation to treat the
payment as made to a foreign beneficial owner under Treasury
Regulations issued under Section 1441 of the Internal Revenue
Code;
o a withholding certificate from a person claiming to be a foreign
partnership and the foreign partnership has received appropriate
documentation to treat the payment as made to a foreign beneficial
owner in accordance with these Treasury Regulations;
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o a withholding certificate from a person representing to be a
"qualified intermediary" that has assumed primary withholding
responsibility under these Treasury Regulations and the qualified
intermediary has received appropriate documentation from a foreign
beneficial owner in accordance with its agreement with the IRS; or
o a statement, under penalties of perjury from an authorized
representative of a financial institution, stating that the
financial institution has received from the beneficial owner a
withholding certificate described in these Treasury Regulations or
that it has received a similar statement from another financial
institution acting on behalf of the foreign beneficial owner.
In general, it will not be necessary for a Non-U.S. Holder to obtain or
furnish a United States taxpayer identification number to FPL or its paying
agent in order to claim any of the foregoing exemptions from United States
withholding tax on payments of interest. Interest paid to a Non-U.S. Holder
will be subject to a United States withholding tax of 30% upon the actual
payment of interest income, except as described above and except where an
applicable income tax treaty provides for the reduction or elimination of the
withholding tax. A Non-U.S. Holder generally will be taxable in the same
manner as a United States corporation or resident with respect to interest
income if the income is effectively connected with the Non-U.S. Holder's
conduct of a trade or business in the United States. Effectively connected
income received by a Non-U.S. Holder that is a corporation may in some
circumstances be subject to an additional "branch profits tax" at a 30% rate,
or if applicable, a lower rate provided by an income tax treaty.
Capital Gains Tax Issues. A Non-U.S. Holder generally will not be
subject to United States federal income or withholding tax on gain realized on
the sale or exchange of bonds, unless:
o the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more during the taxable year and this gain
is from United States sources; or
o the gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the United States and other
requirements are satisfied.
Backup Withholding
Backup withholding of United States federal income tax may apply to
payments made in respect of the bonds to registered owners who are not "exempt
recipients" and who fail to provide certain identifying information (such as
the registered owner's taxpayer identification number) in the required manner.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in
respect of the bonds to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. A U.S. Holder
can obtain a complete exemption from the back up withholding tax by filing
Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification). Compliance with the identification procedures described above
under "--Withholding Taxation on Interest" would establish an exemption from
backup withholding for those Non-U.S. Holders who are not exempt recipients.
In addition, backup withholding of United States federal income tax may
apply upon the sale of a storm-recovery bond to (or through) a broker, unless
either (1) the broker determines that the seller is a corporation or other
exempt recipient or (2) the seller provides, in the required manner, certain
identifying information and, in the case of a Non-U.S. Holder, certifies that
the seller is a Non-U.S. Holder (and certain other conditions are met). The
sale must also be reported by the broker to the IRS, unless either (1) the
broker determines that the seller is an exempt recipient or (2) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8BEN under penalties of perjury, although in certain cases it
may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
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MATERIAL FLORIDA STATE TAX CONSEQUENCES
Certain State Tax Matters
The following summary of certain state tax matters is based on the
advice of Squire, Sanders & Dempsey L.L.P., Florida counsel to us and FPL.
Corporations that are not otherwise subject to the Florida corporate net
income tax will not become subject to the tax solely by investing in the
bonds. Therefore, such corporations will not incur any Florida corporate net
income tax liability with respect to interest payments received on the bonds.
You are urged to consult your tax advisor to determine the Florida tax
consequences of the purchase, ownership and disposition of the bonds.
The discussions under "Material U.S. Federal Income Tax Consequences"
and "Material Florida State Tax Consequences" are for general information only
and may not be applicable depending upon a bondholder's particular situation.
It is recommended that prospective bondholders consult their own tax advisors
with respect to the tax consequences to them of the acquisition, ownership and
disposition of the bonds, including the tax consequences under federal, state,
local, non-U.S. and other tax laws and the effects of changes in such laws.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, known as ERISA, and
Section 4975 of the Internal Revenue Code impose certain requirements on plans
subject to ERISA or Section 4975 of the Internal Revenue Code. ERISA and the
Internal Revenue Code also impose certain requirements on fiduciaries of a
plan in connection with the investment of the assets of the plan. For purposes
of this discussion, "plans" include employee benefit plans and other plans and
arrangements that provide retirement income, including individual retirement
accounts and annuities and Keogh plans, as well as some collective investment
funds and insurance company general or separate accounts in which the assets
of those plans, accounts or arrangements are invested. A fiduciary of an
investing plan is any person who in connection with the assets of the plan:
o has discretionary authority or control over the management or
disposition of assets, or
o provides investment advice for a fee.
Some plans, such as governmental plans, and certain church plans, and
the fiduciaries of those plans, are not subject to ERISA requirements.
Accordingly, assets of these plans may be invested in the bonds without regard
to the ERISA considerations described below, subject to the provisions of
other applicable federal and state law. Any such plan which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue
Code, however, is subject to the prohibited transaction rules in Section 503
of the Internal Revenue Code.
ERISA imposes certain general fiduciary requirements on fiduciaries,
including:
o investment prudence and diversification, and
o the investment of the assets of the plan in accordance with the
documents governing the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code also
prohibit a broad range of transactions involving the assets of a plan and
persons who have certain specified relationships to the plan, referred to as
"parties in interest," unless a statutory or administrative exemption is
available. Parties in interest include parties in interest under ERISA and
disqualified persons under the Internal Revenue Code. The types of
transactions that are prohibited include:
o sales, exchanges or leases of property;
o loans or other extensions of credit; and
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o the furnishing of goods or services.
Certain persons that participate in a prohibited transaction may be
subject to an excise tax under Section 4975 of the Internal Revenue Code or a
penalty imposed under Section 501(i) of ERISA, unless a statutory or
administrative exemption is available. In addition, the persons involved in
the prohibited transaction may have to cancel the transaction and pay an
amount to the plan for any losses realized by the plan or profits realized by
these persons. In addition, individual retirement accounts involved in the
prohibited transaction may be disqualified which would result in adverse tax
consequences to the owner of the account.
Regulation of Assets Included in a Plan
A fiduciary's investment of the assets of a plan in the bonds may cause
our assets to be deemed assets of the plan. Section 2510.3-101 of the
regulations of the U.S. Department of Labor, as modified by Section 3(42) of
ERISA, provides that the assets of an entity will be deemed to be assets of a
plan that purchases an interest in the entity only if the interest that is
purchased by the plan is an equity interest, equity participation by benefit
plan investors is significant and none of the other exceptions contained in
Section 2510.3-101 of the regulations applies. An equity interest is defined
in Section 2510.3-101 of the regulations as an interest in an entity other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Although there is no authority
directly on point and unless otherwise stated in the prospectus supplement, it
is anticipated that the bonds will be treated as indebtedness under local law
without any substantial equity features.
If the bonds were deemed to be equity interests in us and none of the
exceptions contained in Section 2510.3-101 of the regulations were applicable,
then our assets would be considered to be assets of any plans that purchase
the bonds. The extent to which the bonds are owned by benefit plan investors
will not be monitored. If our assets were deemed to constitute "plan assets"
pursuant to Section 2510.3-101 of the regulations, as modified by Section 3(42)
of ERISA, transactions we might enter into, or may have entered into in the
ordinary course of business, might constitute non-exempt prohibited
transactions under ERISA and/or Section 4975 of the Internal Revenue Code.
In addition, the acquisition or holding of the bonds by or on behalf of
a plan could give rise to a prohibited transaction if we or the indenture
trustee, FPL, any other servicer, FPL Group, any underwriter or certain of
their affiliates has, or acquires, a relationship to an investing plan. Each
purchaser of the bonds will be deemed to have represented and warranted that
its purchase and holding of the bonds will not result in a prohibited
transaction.
Before purchasing any bonds by or on behalf of a plan, you should
consider whether the purchase and holding of bonds might result in a
prohibited transaction under ERISA or Section 4975 of the Code and, if so,
whether any prohibited transaction exemption might apply to the purchase and
holding of the bonds.
Prohibited Transaction Exemptions
If you are a fiduciary of a plan, before purchasing any bonds, you
should consider the availability of one of the Department of Labor's
prohibited transaction class exemptions, referred to as PTCEs, or one of the
statutory exemptions provided by ERISA or Section 4975 of the Internal Revenue
Code, which include:
o PTCE 75-1, which exempts certain transactions between a plan and
certain broker-dealers, reporting dealers and banks;
o PTCE 84-14, which exempts certain transactions effected on behalf
of a plan by a "qualified professional asset manager";
o PTCE 90-1, which exempts certain transactions between insurance
company separate accounts and parties in interest;
o PTCE 91-38, which exempts certain transactions between bank
collective investment funds and parties in interest;
o PTCE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest;
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o PTCE 96-23, which exempts certain transactions effected on behalf
of a plan by an "in-house asset manager."; and
o the statutory service provider exemption provided by Section
408(b)(17) of ERISA and Section 4975(d)(20) of the Code, which
exempts certain transactions between plans and parties in interest
that are not fiduciaries with respect to the transaction.
We cannot provide any assurance that any of these class exemptions or
statutory exemptions will apply with respect to any particular investment in
the bonds by, or on behalf of, a plan or, even if it were deemed to apply,
that any exemption would apply to all transactions that may occur in
connection with the investment. Even if one of these class exemptions or
statutory exemptions were deemed to apply, bonds may not be purchased with
assets of any plan if we or the indenture trustee, FPL, any other servicer,
FPL Group, any underwriter or any of their affiliates:
o has investment discretion over the assets of the plan used to
purchase the bonds;
o has authority or responsibility to give, or regularly gives,
investment advice regarding the assets of the plan used to
purchase the bonds, for a fee and under an agreement or
understanding that the advice will serve as a primary basis for
investment decisions for the assets of the plan, and will be based
on the particular investment needs of the plan; or
o unless prohibited transaction class exemption 90-1 or 91-38
applied to the purchase and holding of the bonds, is an employer
maintaining or contributing to the plan.
Consultation with Counsel
If you are a fiduciary which proposes to purchase the bonds on behalf of
or with assets of a plan, you should consider your general fiduciary
obligations under ERISA and you should consult with your legal counsel as to
the potential applicability of ERISA and the Code to any investment and the
availability of any prohibited transaction exemption in connection with any
investment.
USE OF PROCEEDS
Proceeds from the sale of any series of bonds, net of underwriter's
discount, will be used by us to acquire the storm-recovery property from FPL.
We may not use the proceeds from the sale of the bonds for general corporate
or commercial purposes. We understand that FPL will use the net proceeds from
the sale of the storm-recovery property to pay or reimburse itself for
storm-recovery costs, to fund a reserve for payment of such costs, and to pay
authorized financing costs.
PLAN OF DISTRIBUTION
We may sell some or all of the bonds on a negotiated or competitive bid
basis to or through one or more underwriters or dealers. We may also sell some
or all of the bonds directly to institutional investors or other purchasers or
through agents.
The names of any underwriters, dealers or agents will be set forth in
the related prospectus supplement. We will also set forth in the relevant
prospectus supplement: the terms of the offering of the bonds; the proceeds we
will receive from the sale; any underwriting discounts and other items
constituting underwriters' compensation; any initial public offering price;
and any discounts or concessions allowed or reallowed or paid to the dealers.
We may distribute the bonds from time to time in one or more
transactions at a fixed or varying price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
We will describe the method of distribution of the bonds in the relevant
prospectus supplement. If we use underwriters with respect to an issuance of
bonds, we will set forth in the relevant prospectus supplement: the names of
the managing underwriter, if any; the name of any other underwriters; and any
underwriting discounts and other items constituting compensation of the
underwriters and dealers, if any.
84
Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time. We
anticipate that any underwriting agreement pertaining to any bonds will:
entitle the underwriters to indemnification by us and FPL against certain
civil liabilities under the Securities Act, or to contribution with respect to
payments that the underwriters may be required to make related to any such
civil liability; subject the obligations of the underwriters to certain
conditions precedent; and obligate the underwriters to purchase all bonds
offered in a particular offering if any bonds are purchased.
If we use a dealer in an offering of bonds, we will sell the bonds to
the dealer, as principal. The dealer may then resell the bonds to the public
at varying prices to be determined by the dealer at the time of resale. We
will set forth the name of the dealer and the terms of the transaction in the
related prospectus supplement.
If we use an agent in an offering of bonds, we will name the agent and
describe the terms of the agency in the related prospectus supplement. Unless
we indicate otherwise in the prospectus supplement, we will require an agent
to act on a best efforts basis for the period of its appointment.
Dealers and agents named in a prospectus supplement may be considered
underwriters of the bonds described in the prospectus supplement under the
Securities Act. We may indemnify them against certain civil liabilities under
the Securities Act and FPL. In the ordinary course of business, FPL and its
affiliates, including us, may engage in transactions with underwriters,
dealers and agents and they may perform services for FPL and its affiliates,
including us.
We may authorize agents and underwriters to solicit offers by certain
specified institutions or other persons to purchase the bonds at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in
the future or at varying prices to be determined at the time of sale or at the
time of commitment therefor. Institutions with whom such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but shall in all cases be subject to our approval. The
obligations of any purchaser under any such contract will be subject to the
condition that the purchase of the bonds shall not be prohibited at the time
of delivery under the laws of the jurisdiction to which the purchaser is
subject. The underwriters and other agents will not have any responsibility in
respect of the validity or performance of such contracts.
If underwriters or dealers are used in the sale, until the distribution
of the bonds is completed, SEC rules may limit the ability of any such
underwriters and selling group members to bid for and purchase the bonds. As
an exception to these rules, representatives of any underwriters are permitted
to engage in certain transactions that stabilize the price of the bonds while
the offering is in progress. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
bonds. If the underwriters create a short position in the bonds in connection
with the offerings (in other words, if they sell more bonds than are set forth
on the cover page of the prospectus supplement) the representatives of the
underwriters may reduce that short position by purchasing the bonds in the
open market. The representatives of the underwriters may also impose a penalty
bid on certain underwriters and selling group members. In general, purchases
of a bond for the purpose of stabilization or to reduce a short position could
cause the price of the bond to be higher than it might be in the absence of
such purchases. The imposition of a penalty bid might also have an effect on
the price of the bonds to the extent that it discourages resales of the bonds.
The bonds are a new issue of securities with no established trading
market. The bonds will not be issued on any securities exchange or the Nasdaq
stock market. No assurance can be given as to the ability of holders of the
bonds to resell the bonds.
RISK WEIGHTING OF THE BONDS
UNDER CERTAIN INTERNATIONAL CAPITAL GUIDELINES
If held by financial institutions subject to regulation in countries
(other than the United States) that have adopted the 1988 International
Convergence of Capital Measurement and Capital Standards of the Basel
Committee on Banking Supervision (as amended, the Basel Accord), the bonds may
attract the same risk weighting as "claims on" or "claims guaranteed by"
non-central government bodies within the United States, which are accorded a
20% risk weighting.
85
We have been informed that the United Kingdom's Financial Services
Authority has issued individual guidance to one or more investors in
transactions not involving us or our affiliates that an investment in bonds
issued under a Texas statute similar to the Financing Act can be accorded a
20% risk weighting, which is similar to the risk weighting assigned to U. S.
Agency corporate securities (FNMA, FHLMC, etc.) and that this determination is
based in part on the following factors, which are also present in our
transaction:
o the ability to issue storm-recovery bonds has been established by
the State under the Financing Act to finance the recovery of
storm-recovery costs;
o under the Financing Act and the financing order, FPL is authorized
to establish us as a special purpose entity, responsible to the
State and the Florida Commission on an ongoing basis as provided
in our organizational documents, the transaction documents and the
financing order, to issue storm-recovery bonds;
o we are not owned by the Florida Commission or the State;
o storm-recovery bonds are payable through storm-recovery charges,
which are a financial charge, on all FPL's customers (individuals,
corporations, other businesses, and federal, state and local
governmental entities), even if these customers elect to purchase
electricity from another supplier following a fundamental change in
the regulation of public utilities in Florida;
o the amount of storm-recovery charges in respect of the
storm-recovery bonds will be approved by the Florida Commission at
a level designed to ensure repayment of the storm-recovery bonds;
o should customers fail to pay the storm-recovery charges, then
there is a true-up mechanism which allows us to recalculate the
storm-recovery charges such that those customers who do pay will
make up the difference; this increase has to be approved by the
Florida Commission; and the State of Florida is one of these
customers and therefore would be a payer of last resort so long as
it remains a customer. See "FPL's Financing Order--FPSC-Guaranteed
True-Ups: Entire Private Sector Default" above;
o the Florida Commission guarantees that it will take action to
ensure that the true-up mechanism is used;
o pursuant to the Financing Act, the State of Florida pledges not to
take any action that would impair the value of the storm-recovery
property, which includes our right to impose, collect and receive
storm-recovery charges and the operation of the true-up mechanism;
o the indenture trustee has a first priority lien on storm-recovery
property and associated storm-recovery charge payments;
o storm-recovery charges are directly and expressly linked to
payments of principal and interest on storm-recovery bonds;
o the obligation of customers (including the State of Florida and
local governments) to pay storm-recovery charges is unaffected by:
-- the entity from which they purchase electricity, following a
fundamental change in the regulation of public utilities in
Florida,
-- the quality of electricity service provided, so that
customers cannot refuse to pay storm-recovery charges
because of poor service, or
-- other customers finding some entitlement not to pay or
initiating court actions, including actions against the
State of Florida, over the storm-recovery charges.
86
However, we cannot assure you that any or all or any of the foregoing
factors will result in the storm-recovery bonds attracting a 20% risk
weighting under any national law, regulation or policy implementing the Basel
Accord.
Before acquiring any bonds, prospective investors that are banks or bank
holding companies, particularly those that are organized under the laws of any
country other than the United States or of any state, territory or other
political subdivision of the United States, and prospective investors that are
U.S. branches and agencies of foreign banks, should consult all applicable
laws, regulations and policies, as well as appropriate regulatory bodies and
legal counsel, to confirm that an investment in the bonds is permissible and
in compliance with any applicable investment or other limits.
Please read "The Storm-Recovery Property and the Financing Act--The
Financing Act Authorizes Utilities to Recover Storm-Related Costs Through the
Issuance of Storm-Recovery Bonds," "The Storm-Recovery Property and the
Financing Act--The Financing Act Provides for the Issuance of Financing
Orders," "FPL's Financing Order--FPSC True-Up Mechanism" and
"--FPSC-Guaranteed True-Ups: Entire Private Sector Default" in this prospectus
for more information on certain of the points noted above.
RATINGS FOR THE BONDS
It is a condition of issuance of any series of bonds that the bonds be
rated "Aaa" by Moody's, "AAA" by S&P, and "AAA" by Fitch.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. No person is obligated to maintain its rating on any
note, and, accordingly, we can give no assurance that the ratings assigned to
any tranche of bonds upon initial issuance will not be revised or withdrawn by
a rating agency at any time thereafter. If a rating of any tranche of bonds is
revised or withdrawn, the liquidity of such tranche of bonds may be adversely
affected. In general, ratings address credit risk and do not represent any
assessment of the rate of principal payments on the bonds other than the
payment in full of each tranche of the bonds by the applicable final maturity
date, as well as the timely payment of interest.
WHERE YOU CAN FIND MORE INFORMATION
FPL as sponsor has filed a registration statement with the SEC relating
to the securities. This prospectus and the prospectus supplement for each
series of bonds are part of the registration statement. This prospectus does not
contain, and the applicable prospectus supplement will not contain, all of the
information in the registration statement. For further information, please see
the registration statement, as it may be amended, and the accompanying
exhibits which we have filed with the SEC. This prospectus and any applicable
prospectus supplement may summarize contracts and/or other documents. For
further information, please see the copy of the contract or other document
filed as an exhibit to the registration statement. You can obtain copies of
the registration statement from the SEC upon payment of the prescribed
charges, or you can examine the registration statement free of charge at the
SEC's offices. Reports and other information filed with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Washington, D.C. 20549. Copies of the material can be
obtained from the Public Reference Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. You can obtain information on the
operation of the Public Reference Section by calling 1-800-732-0330. The SEC
also maintains a site on the World Wide Web at "http//www.sec.gov" at which
users can view and download copies of reports, proxy and information
statements and other information filed electronically through the EDGAR
system.
We or FPL as sponsor will also file with the SEC all of the periodic
reports we are required to file under the Exchange Act and the rules,
regulations or orders of the SEC thereunder. These periodic reports will be
filed with the SEC under file number _______.
The SEC allows us to "incorporate by reference" into this prospectus
information we file with the SEC. This means we can disclose important
information to you by referring you to the documents containing the
information. The information we incorporate by reference is considered to be
part of this prospectus, unless we update or supersede that information by the
information contained in the prospectus supplement or information that we file
subsequently that is incorporated by reference into this prospectus. We are
incorporating into this prospectus any future filings, which we or FPL, as our
sponsor, make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act (excluding any annual reports on Form 10K) until the offering of
the bonds is completed. These reports will be filed under our own name as
issuing entity. Any statement contained
87
in this prospectus, in the prospectus supplement or in a document incorporated
or deemed to be incorporated by reference in this prospectus or any prospectus
supplement will be deemed to be modified or superseded for purposes of this
prospectus and the prospectus supplement to the extent that a statement
contained in this prospectus, the prospectus supplement or in any separately
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes that statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute part of this prospectus or the prospectus supplement.
LEGAL PROCEEDINGS
There are no legal or governmental proceedings pending against us, FPL
or the indenture trustee, or of which any property of the foregoing is
subject, that is material to the holders of the bonds.
LEGAL MATTERS
Certain legal matters relating to us and the issuance of the bonds will
be passed upon for FPL and for us by Sidley Austin LLP, San Francisco,
California, and by Squire, Sanders & Dempsey L.L.P., Miami, Florida, for us by
Richards Layton & Finger, P.A., Wilmington, Delaware, and for the
underwriters, if any, by [_______________]. Certain legal matters relating to
the federal income tax consequences of the issuance of the bonds will be
passed upon for FPL and for us by Sidley Austin LLP. Certain legal matters
relating to the Florida tax consequences of the issuance of the bonds will be
passed upon for FPL and for us by Squire, Sanders & Dempsey L.L.P.
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GLOSSARY OF DEFINED TERMS
"Bankruptcy Code" means Title 11 of the United States Code, as amended.
"Basel Accord" means the 1988 International Convergence of Capital
Measurement and Capital Standards of the Basel Committee on Banking
Supervision, as amended.
"Basic documents" means, with respect to any series of storm-recovery
bonds, the sale agreement, servicing agreement, indenture or bills of sale
given by the seller and the notes evidencing the storm-recovery bonds, as well
as the limited liability company agreement.
"Bonds" means the senior secured bonds offered by this prospectus.
"Business day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in[___], New York, New York, or [___] are, or DTC
is, authorized or obligated by law, regulation or executive order to remain
closed.
"Clearstream" means Clearstream Banking, Luxembourg, S.A.
"Collateral" means all of the assets of the issuing entity pledged to
the indenture trustee for the benefit of the holders of the bonds, which
includes the storm-recovery property, all rights of the issuing entity under
the sale agreement, the servicing agreement and the other documents entered
into in connection with the bonds, all rights to the collection account and
the subaccounts of the collection account, and all other property of the
issuing entity relating to the bonds, including all proceeds.
"Collection account" means the segregated trust account relating to the
bonds designated the collection account for that series and held by the
indenture trustee under the indenture.
"Customer" means any customer (individuals, corporations, other
businesses, and federal, state and local governmental entities) receiving
transmission or distribution service from FPL or its successors or assignees
under Florida Commission approved rate schedules or under special contracts,
even if the customer elects to purchase electricity from an alternative
electricity supplier following a fundamental change in regulation of public
utilities in Florida.
"DTC" means The Depository Trust Company, New York, New York, and its
nominee holder, Cede & Co.
"Eligible Institution" means (1) the corporate trust department of the
indenture trustee or a subsidiary thereof or (2) a depository institution
organized under the laws of the United States of America or any State (or any
domestic branch of a foreign bank) (A) which has either (i) a long-term
unsecured debt rating of "AAA" by S&P and "A2" by Moody's and if rated by
Fitch, "AAA" by Fitch or (ii) a certificate of deposit rating of "A-1+" by S&P
and "P-1" by Moody's, or any other long-term, short-term or certificate of
deposit rating acceptable to the rating agencies and (B) whose deposits are
insured by the Federal Deposit Insurance Corporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final maturity date" means the legal maturity date of that tranche of
bonds.
"Financing Act" means legislation, enacted by the Florida legislature in
2005 and codified as Section 366.8260, Florida Statutes.
"Financing order" means the financing order issued by the Florida
Commission on May 30, 2006, as amended on July 21, 2006.
"Fitch" means Fitch Ratings.
89
"Florida Commission condition" means, with respect to amendments,
modifications, or supplements to, or waivers of defaults under, any basic
document, obtaining from the Florida Commission its required consent or
acquiescence for the proposed action.
"FPL" means Florida Power & Light Company.
"FPL Group" means FPL Group, Inc., a Florida Corporation.
"FPSC-Guaranteed True-Up Mechanism" or "True-Up Mechanism" means the
mechanism required by the financing order whereby storm-recovery charges are
reviewed and adjusted at least semiannually. The rates at which storm-recovery
charges are billed to customers will be adjusted to correct any
overcollections or undercollections from prior periods.
"FPSC" or "Florida Commission" means Florida Public Service Commission.
"Indenture trustee" means the indenture trustee named in the applicable
prospectus supplement.
"Indenture" means the indenture to be entered into between the issuing
entity and the indenture trustee, providing for the bonds, as the same may be
amended and supplemented from time to time.
"Internal Revenue Code" or "Code " means the Internal Revenue Code of
1986, as amended.
"Issue date" means for any series of bonds the issue date specified in
the applicable indenture.
"Issuing entity" means FPL Recovery Funding LLC.
"kWh" means kilowatt-hour.
"Moody's" means Moody's Investors Service, Inc.
"MWh" means megawatt-hour.
"Nonbypassable" refers to the right of the servicer to collect the
storm-recovery charges from all existing and future customers of FPL.
"Payment date" means the date or dates on which interest and principal
are to be payable on any tranche of bonds.
"PTCE" means a prohibited transaction class exemption of the United
States Department of Labor.
"Rating agency" means any of Moody's, S&P and Fitch.
"Rating agency condition" means, with respect to any action, the
notification in writing to each rating agency of such action, and written
confirmation from each of Fitch and Standard & Poor's and, with respect to the
issuance of the bonds only, written confirmation from all of the Rating
Agencies, in all instances sent to the servicer, the indenture trustee and the
issuing entity, to the effect that such action or issuance, as applicable,
will not result in a suspension, reduction or withdrawal of the then-current
rating by such rating agency of any outstanding tranche of the bonds.
"Record date" means the date or dates with respect to each payment date
on which it is determined the person in whose name each bond is registered
will be paid on the respective payment date.
"Required capital amount" means the amount required to be funded in the
capital subaccount for the bonds, which will equal 0.50% of the principal
amount of the bonds.
"S&P" means Standard and Poor's, a Division of The McGraw-Hill
Companies.
90
"Sale agreement" means the sale agreement to be entered into on the
issue date between the issuing entity and FPL, pursuant to which FPL sells and
FPL Recovery Funding LLC buys the storm-recovery property securing the bonds
of a series.
"Scheduled final payment" means, for a tranche of bonds, the date by
which we expect to pay in full all interest on and principal of that tranche.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means FPL, as the seller of the storm-recovery property, and
each successor of FPL (in the same capacity) pursuant to the sale agreement.
"Servicer" means FPL, as the servicer of the storm-recovery property,
and each successor or assignee of FPL (in the same capacity) pursuant to the
servicing agreement.
"Servicing agreement" means a servicing agreement to be entered into on
the issue date between the issuing entity and FPL, as the same may be amended
and supplemented from time to time, pursuant to which FPL undertakes to
service storm-recovery property securing the bonds of a series.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies.
"Storm-recovery charge" means the storm bond repayment charge authorized
by the Commission to be imposed on all electric customers by FPL to recover
storm-recovery costs and other amounts pursuant to the financing order.
"Storm-recovery costs" has the meaning specified in the Financing Act.
"Storm-recovery property" means the storm-recovery property as defined
in the Financing Act and the financing order, and that is sold by the seller
to the issuing entity under the sale agreement.
"Treasury Regulations" means proposed or issued regulations promulgated
from time to time under the Internal Revenue Code.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from
time to time.
"U.S. Holder" means a holder of a storm-recovery bond that is (i) a
citizen or resident of the United States. (ii) a partnership or corporation
(or other entity treated like a corporation for federal income tax purposes)
organized in or under the laws of the United States, any State thereof or the
District of Columbia, (iii) an estate the income of which is includible in
gross income for United States federal income tax purposes regardless of its
source, (iv) a trust with respect to which both (A) a court in the United
States is able to exercise primary authority over its administration and (B)
one or more United States persons have the authority to control all of its
substantial decisions or (v) a trust that has elected to be treated as a
United States person under applicable Treasury Regulations.
91
No dealer, salesperson or other person has been
authorized to give any information or to make any
representations, other than those contained in the ===================================================
prospectus or prospectus supplement. Any such
information or any such representations are not
authorized by the issuing entity, the sponsor [or $--------------
any underwriters]. Do not rely on any such
information or any such representations.
FPL Recovery Funding LLC
The information in the prospectus or prospectus Issuing Entity
supplement is only accurate as of the date of this
prospectus supplement. Florida Power & Light Company
Seller, Servicer and Sponsor
All dealers effecting transactions in the offered
securities within 90 days after the date of this Senior Secured Bonds, Series A
prospectus supplement may be required to delivered
the prospectus and prospectus supplement, Tranche
regardless of their participation in this A-1 $__________
distribution. This is in addition to the A-2 $__________
obligations of dealers to deliver the prospectus A-3 $__________
and prospectus supplement when acting as A-4 $__________
underwriters or when selling their unsold
allotments or subscriptions.
---
-------------
PROSPECTUS SUPPLEMENT
---------------
[Underwriters]
===================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
Registration Fee.........................................$ 30.70
Printing Expenses........................................ **
Trustee Fees and Expenses................................ **
Legal Fees and Expenses.................................. **
Accountants' Fees and Expenses........................... **
Rating Agencies' Fees.................................... **
Miscellaneous............................................ **
------------
Total..........................................$ 30.70
- -----------
* All amounts, other than the Registration Fee and the Legal Fees and
Expenses, are estimates of expenses to be incurred in connection with the
issuance and distribution of a series of securities in an aggregate
principal amount assumed for these purposes to be equal to $1,000,000 of
securities registered by this Registration Statement.
** To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Statutes generally permits Florida Power
& Light Company (the "Registrant") to indemnify its directors, officers,
employees or other agents who are subject to any third-party actions because
of their service to the Registrant if such persons acted in good faith and in
a manner they reasonably believed to be in, or not opposed to, the best
interests of the Registrant. If the proceeding is a criminal one, such person
must also have had no reasonable cause to believe his conduct was unlawful. In
addition, the Registrant may indemnify its directors, officers, employees or
other agents who are subject to derivative actions against expenses and
amounts paid in settlement which do not exceed, in the judgment of the board
of directors, the estimated expense of litigating the proceeding to
conclusion, including any appeal thereof, actually and reasonably incurred in
connection with the defense or settlement of such proceeding, if such person
acted in good faith and in a manner such person reasonably believed to be in,
or not opposed to, the best interests of the Registrant. To the extent that a
director, officer, employee or other agent is successful on the merits or
otherwise in defense of a third-party or derivative action, such person will
be indemnified against expenses actually and reasonably incurred in connection
therewith. This Section also permits the Registrant to further indemnify such
persons by other means unless a judgment or other final adjudication
establishes that such person's actions or omissions which were material to the
cause of action constitute (1) a crime (unless such person had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
it unlawful), (2) a transaction from which he derived an improper personal
benefit, (3) an action in violation of Florida Statutes Section 607.0834
(unlawful distributions to shareholders), or (4) willful misconduct or a
conscious disregard for the best interests of the Registrant in a proceeding
by or in the right of the Registrant to procure a judgment in its favor or in
a proceeding by or in the right of a shareholder.
Furthermore, Florida Statutes Section 607.0831 provides, in general, that
no director shall be personally liable for monetary damages to a corporation
or any other person for any statement, vote, decision, or failure to act,
regarding corporate management or policy, unless: (a) the director breached or
failed to perform his duties as a director; and (b) the director's breach of,
or failure to perform, those duties constitutes (i) a violation of criminal
II-1
law, unless the director had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a
transaction from which the director derived an improper personal benefit,
either directly or indirectly, (iii) a circumstance under which the liability
provisions of Florida Statutes Section 607.0834 are applicable, (iv) in a
proceeding by or in the right of the corporation to procure a judgment in its
favor or by or in the right of a shareholder, conscious disregard for the best
interest of the corporation, or willful misconduct, or (v) in a proceeding by
or in the right of someone other than the corporation or a shareholder,
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety, or property. The term "recklessness," as used above,
means the action, or omission to act, in conscious disregard of a risk: (a)
known, or so obvious that it should have been known, to the director; and (b)
known to the director, or so obvious that it should have been known, to be so
great as to make it highly probable that harm would follow from such action or
omission.
The Registrant's bylaws provide generally that the Registrant shall, to
the fullest extent permitted by law, indemnify all directors and officers of
the Registrant, directors, officers, or other employees serving as a fiduciary
of an employee benefit plan of the Registrant, as well as any employees or
agents of the Registrant or other persons serving at the request of the
Registrant in any capacity with any entity or enterprise other than the
Registrant to whom the Registrant has agreed to grant indemnification (each,
an "Indemnified Person") to the extent that any such person is made a party or
threatened to be made a party or called as a witness or is otherwise involved
in any action, suit, or proceeding in connection with his status as an
Indemnified Person. Such indemnification covers all expenses incurred by any
Indemnified Person (including attorneys' fees) and all liabilities and losses
(including judgments, fines and amounts to be paid in settlement) incurred
thereby in connection with any such action, suit or proceeding.
In addition, FPL Group on behalf of the Registrant carries insurance
permitted by the laws of Florida on behalf of directors, officers, employees
or agents which may cover, among other things, liabilities under the
Securities Act.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement for the Senior Secured Bonds.*
1.2 Form of Bid and Statement of Terms Relating to Bids.*
3.1 Restated Articles of Incorporation of FPL dated March 23, 1992
(filed as Exhibit 3(i)a to Form 10-K for the year ended
December 31, 1993, File No. 1-3545)***
3.2 Amendment to FPL's Restated Articles of Incorporation dated
March 23, 1992 (filed as Exhibit 3(i)b to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.3 Amendment to FPL's Restated Articles of Incorporation dated May
11, 1992 (filed as Exhibit 3(i)c to Form 10-K for the year
ended December 31, 1993, File No. 1-3545)***
3.4 Amendment to FPL's Restated Articles of Incorporation dated
March 12, 1993 (filed as Exhibit 3(i)d to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.5 Amendment to FPL's Restated Articles of Incorporation dated
June 16, 1993 (filed as Exhibit 3(i)e to Form 10-K for the year
ended December 31, 1993, File No. 1-3545)***
3.6 Amendment to FPL's Restated Articles of Incorporation dated
August 31, 1993 (filed as Exhibit 3(i)f to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.7 Amendment to FPL's Restated Articles of Incorporation dated
November 30, 1993 (filed as Exhibit 3(i)g to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
II-2
3.8 Amendment to FPL's Restated Articles of Incorporation dated
January 20, 2004 (filed as Exhibit 3(i)j to Form 10-K for the
year ended December 31, 2003, File No. 2-27612)***
3.9 Amendment to FPL's Restated Articles of Incorporation dated
January 20, 2004 (filed as Exhibit 3(i)k to Form 10-K for the
year ended December 31, 2003, File No. 2-27612)***
3.10 Amendment to FPL's Restated Articles of Incorporation dated
February 11, 2005 (filed as Exhibit 3(i)m to Form 10-K for the
year ended December 31, 2004, File No. 2-27612)***
3.11 Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form
8-K dated May 1, 1992, File No. 1-3545)***
4.1 Form of Indenture (including forms of the Senior Secured
Bonds).*
5.1 Opinion of Sidley Austin LLP with respect to legality.*
8.1 Opinion of Sidley Austin LLP with respect to federal tax
matters.*
8.2 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to
state tax matters.*
23.1 Consent of Sidley Austin LLP (included in its opinions filed as
Exhibits 5.1, 8.1 and 99.6).*
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in its
opinions filed as Exhibits 8.2 and 99.7).*
24.1 Power of Attorney, included on page II-7.**
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of [Trustee].*
99.1 Form of Servicing Agreement.*
99.2 Form of Sale Agreement.*
99.3 Form of Administration Agreement.*
99.5 Financing Order.*
99.6 Opinion of Sidley Austin LLP with respect to federal
constitutional matters.*
99.7 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to
Florida constitutional matters. *
99.8 Certificate of Formation of FPL Recovery Funding LLC.*
99.9 Limited Liability Company Agreement of FPL Recovery Funding LLC.*
- ---------------
* To be filed by amendment.
** Included in Part II of this Registration Statement.
II-3
*** Incorporated by reference herein as indicated.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that the undertakings set forth in clauses (i), (ii)
and (iii) above do not apply if the information required to be included
in a post-effective amendment by those clauses is contained in reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
are incorporated by reference in this Registration Statement, or is
contained in a form of prospectus filed pursuant to Rule 424(b) that is
part of this Registration Statement; and provided further, however, that
the undertakings set forth in clauses (i) and (ii) above do not apply if
the information required to be included in a post-effective amendment by
those clauses is provided pursuant to Item 1100(c) of Regulation AB.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the Securities
Act to any purchaser, if the Registrant is relying on Rule 430B:
(i) each prospectus filed by the Registrant pursuant to Rule
424(b)(3) shall be deemed to be part of this Registration
Statement as of the date the filed prospectus was deemed part of
and included in this Registration Statement; and
(ii) each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5) or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to
Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the
information required by Section 10(a) of
II-4
the Securities Act shall be deemed to be part of and included in
this Registration Statement as of the earlier of the date such form
of prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof; provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date.
(5) That for purposes of determining liability of the Registrant under
the Securities Act to any purchaser in the initial distribution of the
securities, the Registrant undertakes that in a primary offering of
securities of the Registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by
means of any of the following communications, the Registrant will be a
seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) any preliminary prospectus or prospectus of the Registrant
relating to the offering required to be filed pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering prepared
by or on behalf of the Registrant or used or referred to by the
Registrant;
(iii) the portion of any other free writing prospectus relating to
the offering containing material information about the Registrant
or its securities provided by or on behalf of the Registrant; and
(iv) any other communication that is an offer in the offering made
by the Registrant to the purchaser.
(b) As to qualification of trust indentures:
The Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act, as amended (the "Trust
Indenture Act") in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust Indenture Act.
(c) As to documents subsequently filed that are incorporated by
reference:
The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) As to competitive bids:
The Registrant hereby undertakes: (1) to use its best efforts to
distribute prior to the opening of bids, to prospective bidders, underwriters,
and dealers, a reasonable number of copies of a prospectus which at that time
meets the requirements of Section 10(a) of the Securities Act, and relating to
the securities offered at competitive bidding, as contained in the
registration statement, together with any supplements thereto, and (2) to file
an
II-5
amendment to the registration statement reflecting the results of bidding, the
terms of the offering and related matters to the extent required by the
applicable form, not later than the first use, authorized by the issuer after
the opening of bids, of a prospectus relating to the securities offered at
competitive bidding, unless no further public offering of such securities by
the issuer and no reoffering of such securities by the purchasers is proposed
to be made.
(e) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
(f) As to incorporating by reference subsequent Exchange Act documents by
third parties:
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act each filing of the annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act of a third party that is
incorporated by reference in this Registration Statement in accordance with
Item 1100(c)(1) of Regulation AB shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(g) As to providing certain information through an Internet Web site:
The Registrant hereby undertakes that, except as otherwise provided by
Item 1105 of Regulation AB, information provided in response to that Item
pursuant to Rule 312 of Regulation S-T (17 CFR 232.312) through the specified
Internet address in the prospectus is deemed to be a part of the prospectus
included in this Registration Statement. In addition, the Registrant hereby
undertakes to provide to any person without charge, upon request, a copy of
the information provided in response to Item 1105 of Regulation AB pursuant to
Rule 312 of Regulation S-T through the specified Internet address as of the
date of the prospectus included in this Registration Statement if a subsequent
update or change is made to the information.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Juno Beach, State of Florida, on the
16th day of March, 2007.
FLORIDA POWER & LIGHT
By: /s/ Amando J. Olivera
-------------------------------
Name: Armando J. Olivera
Title: President and Director
BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Edward F. Tancer and R. Wade Litchfield, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Lewis Hay, III March 16, 2007
- --------------------------------------------
Name: Lewis Hay, III Chairman of the Board, Chief
Executive Officer and Direct
(Principal Executive Officer)
/s/ Moray P. Dewhurst March 16, 2007
- --------------------------------------------
Name: Moray P. Dewhurst Senior Vice President, Finance
and Chief Financial Officer and
Director (Principal Financial
Officer)
/s/ K. Michael Davis March 16, 2007
- ---------------------------------------------
Name: K. Michael Davis Vice President, Accounting,
Controller and Chief Accounting
Officer (Principal Accounting
Officer)
II-7
/s/ Antonio Rodriguez March 16, 2007
- ---------------------------------------------
Name: Antonio Rodriguez Director
/s/ Edward F. Tancer March 16, 2007
- ---------------------------------------------
Name: Edward F. Tancer Director
II-8
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
1.1 Form of Underwriting Agreement for the Senior Secured Bonds.*
1.2 Form of Bid and Statement of Terms Relating to Bids.*
3.1 Restated Articles of Incorporation of FPL dated March 23, 1992
(filed as Exhibit 3(i)a to Form 10-K for the year ended
December 31, 1993, File No. 1-3545)***
3.2 Amendment to FPL's Restated Articles of Incorporation dated
March 23, 1992 (filed as Exhibit 3(i)b to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.3 Amendment to FPL's Restated Articles of Incorporation dated May
11, 1992 (filed as Exhibit 3(i)c to Form 10-K for the year
ended December 31, 1993, File No. 1-3545)***
3.4 Amendment to FPL's Restated Articles of Incorporation dated
March 12, 1993 (filed as Exhibit 3(i)d to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.5 Amendment to FPL's Restated Articles of Incorporation dated
June 16, 1993 (filed as Exhibit 3(i)e to Form 10-K for the year
ended December 31, 1993, File No. 1-3545)***
3.6 Amendment to FPL's Restated Articles of Incorporation dated
August 31, 1993 (filed as Exhibit 3(i)f to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.7 Amendment to FPL's Restated Articles of Incorporation dated
November 30, 1993 (filed as Exhibit 3(i)g to Form 10-K for the
year ended December 31, 1993, File No. 1-3545)***
3.8 Amendment to FPL's Restated Articles of Incorporation dated
January 20, 2004 (filed as Exhibit 3(i)j to Form 10-K for the
year ended December 31, 2003, File No. 2-27612)***
3.9 Amendment to FPL's Restated Articles of Incorporation dated
January 20, 2004 (filed as Exhibit 3(i)k to Form 10-K for the
year ended December 31, 2003, File No. 2-27612)***
3.10 Amendment to FPL's Restated Articles of Incorporation dated
February 11, 2005 (filed as Exhibit 3(i)m to Form 10-K for the
year ended December 31, 2004, File No. 2-27612)***
3.11 Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form
8-K dated May 1, 1992, File No. 1-3545)***
4.1 Form of Indenture (including forms of the Senior Secured
Bonds).*
5.1 Opinion of Sidley Austin LLP with respect to legality.*
8.1 Opinion of Sidley Austin LLP with respect to federal tax
matters.*
8.2 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to
state tax matters.*
23.1 Consent of Sidley Austin LLP (included in its opinions filed as
Exhibits 5.1, 8.1 and 99.6).*
II-9
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in its
opinions filed as Exhibits 8.2 and 99.7).*
24.1 Power of Attorney, included on page II-7.**
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of [Trustee].*
99.1 Form of Servicing Agreement.*
99.2 Form of Sale Agreement.*
99.3 Form of Administration Agreement.*
99.5 Financing Order.*
99.6 Opinion of Sidley Austin LLP with respect to federal
constitutional matters.*
99.7 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to
Florida constitutional matters. *
99.8 Certificate of Formation of FPL Recovery Funding LLC.*
99.9 Limited Liability Company Agreement of FPL Recovery Funding LLC.*
- -------------
* To be filed by amendment.
** Included in Part II of this Registration Statement.
*** Incorporated by reference herein as indicated.
II-10