As filed with the Securities and Exchange Commission on May 3, 2007
REGISTRATION NOS. 333-141357 and 333-141357-01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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Florida Power & Light Company FPL Recovery Funding LLC
(Exact name of Registrant as specified in (Exact name of Registrant as
its charter) specified in its charter)
Florida Delaware
(State or other jurisdiction of incorporation (State or other jurisdiction of
or organization) incorporation or organization)
59-0247775 77-0679907
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification
No.)
700 Universe Boulevard 700 Universe Boulevard
Juno Beach, Florida 33408 Juno Beach, Florida 33408
(561) 694-4000 (561) 694-4000
(Address, including zip code, and telephone (Address, including zip code, and
number, including area code, of telephone number, including area
Registrant's principal executive offices) 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)
------------------------------------
With Copies to:
ERIC TASHMAN, ESQ. ROBERT J. REGER, JR., ESQ.
SIDLEY AUSTIN LLP THELEN REID BROWN RAYSMAN & STEINER LLP
555 CALIFORNIA STREET 875 THIRD AVENUE
SAN FRANCISCO, CALIFORNIA 94104 NEW YORK, NEW YORK, 10022
(415) 772-1214 (212) 603-2000
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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 Amount to Be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to Be Registered Registered Price Per Unit Offering Price Registration Fee
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Senior Secured Storm-Recovery $652,000,000 (1) 100% (2) $652,000,000 (2) $20,016.40 (3)
Bonds
===================================================================================================================================
(1) The Registration Statement relates to the offering from time to time of $652,000,000 aggregate principal amount of
Senior Secured Bonds.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee.
(3) A registration fee of $30.70 was previously paid with the filing of this Registration Statement on March 16, 2007
and $19,985.70 was previously paid with the filing of the Pre-Effective Amendment No.1 to this Registration
Statement on April 23, 2007.
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The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date
until the Registrants 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 May 3, 2007
Prospectus Supplement
(to Prospectus dated _____, 2007)
$652,000,000
FPL Recovery Funding LLC
Issuing Entity
Florida Power & Light Company
Depositor, Servicer and Sponsor
Senior Secured Bonds, Series A
Expected
Average Principal Scheduled
Life Amount Final Final Maturity Interest
Tranche (Years)** Issued Payment Date* Date* Rate **
- ------------- -------------- ------------------ ---------------------- ------------------------- ------------
A-1 2.02 $124,000,000 February 1, 2011 February 1, 2013
A-2 5.04 $140,000,000 August 1, 2013 August 1, 2015
A-3 7.36 $100,000,000 August 1, 2015 August 1, 2017
A-4 10.44 $288,000,000 August 1, 2019 August 1, 2021
* 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 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 February 1, 2008.
FPL Recovery Funding LLC, or the issuing entity, is issuing $652,000,000
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
depositor 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, and funds on deposit in the trust
accounts held by the indenture trustee, including the excess funds subaccount
and the capital subaccount which will hold our sponsor's capital contribution
to us in an amount equal to 0.5% of the aggregate initial principal amount of
the Series A Bonds. 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-9
General..................................................................S-9
Book-Entry Registration..................................................S-9
Interest Payments........................................................S-9
Principal...............................................................S-10
Sensitivity to Credit Risk..............................................S-12
Weighted Average Life Sensitivity Table.................................S-13
Fees and Expenses.......................................................S-14
CREDIT ENHANCEMENT........................................................S-14
FPSC Guaranteed True-up Mechanism For Payment of Scheduled
Principal and Interest..................................................S-14
Collection Account and Subaccounts......................................S-14
How Funds in the Collection Account Will Be Allocated...................S-15
PLAN OF DISTRIBUTION......................................................S-17
RATINGS FOR THE SERIES A BONDS............................................S-17
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES.............................S-17
General.................................................................S-17
RISK WEIGHTING UNDER CERTAIN INTERNATIONAL CAPITAL GUIDELINES.............S-17
LEGAL PROCEEDINGS.........................................................S-19
LEGAL MATTERS.............................................................S-19
[OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS]..........................S-19
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 depositor, servicer and
sponsor 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 and the Financing Order. Reference to storm-recovery bonds means all
storm-recovery bonds authorized under the Financing Act, including the bonds.
References to the depositor or the sponsor refer to Florida Power & Light
Company, or FPL, and any successor depositor 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: $652,000,000 Senior Secured Bonds, Series A,
scheduled to pay principal semiannually and
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. The financing order limits the
aggregate principal amount of the bonds to
$708 million, however, we only intend to issue
bonds in an aggregate principal amount equal
$652,000,000. 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 Depositor, the Initial FPL, a Florida corporation, is a rate-regulated
Servicer, Administrator and utility engaged primarily in the generation,
Sponsor: 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 Depositor
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: The Bank of New York, a New York banking
corporation, will act as trustee under the
indenture under which the Series A Bonds will
be issued.
Indenture Trustee's While this is the first storm-recovery charge
Experience: securitization transaction for which The Bank
of New York is serving as indenture trustee,
The Bank of New York has been, and currently
is, serving as indenture trustee and trustee
for numerous securitization transactions
involving pools of utility company stranded
asset receivables that are structurally
similar to the storm-recovery charges. Please
read "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.
S-1
Use of Proceeds: Proceeds, net of selling commissions, will be
used by us to acquire the storm-recovery
property from FPL. 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.
Bond Structure Sinking fund bond; tranche [A-1] [2.02 years],
[A-2] [5.4 years], [A-3] [7.36 years], and
[A-4] [10.44 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 The Series A Bonds are secured only by assets
Bonds: 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
provided that payment of indemnity
S-2
amounts will be limited to $10 million in the
aggregate unldss the issuer has satisfied the
rating agency condition,
2. payment of the servicing fee, plus any
unpaid servicing fees from 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,
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 (or
not disapproved) 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
S-3
Financing Act Provides for the Recovery of
Storm-Recovery Costs and the Issuance of
Storm-Recovery Bonds--Customers Cannot Avoid
Storm-Recovery Charges" in the accompanying
prospectus.
Initial Storm-Recovery Charge The initial storm recovery charge relating to
as a Percentage of Customer's the Series A Bonds would represent
Total Electricity Bill: 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 latest 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 or before 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.
S-4
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" 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; The indenture has been structured so that we
Issuance of Additional operate as a master trust in that we may,
Series: 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 principal outstanding amount of
bonds which are authorized under the financing
order is $708 million; however we only intend
to issue bonds in an aggregate principal
amount equal to $652 million. If we issue less
than $652 million of Series A Bonds, any new
series of bonds we issue may include terms and
provisions unique to that particular series.
We may not issue additional storm-recovery
bonds except those authorized under the
Financing Order, nor may FPL sell
storm-recovery property to other entities
issuing storm-recovery bonds if the issuance
would result in the credit
S-5
ratings on any outstanding series of 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 "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 bonds
issued by us. Each series of 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
bonds. Holders of one series of bonds will
have no recourse to collateral for a different
series. In the event that more than one series
of 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 "1988 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.
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We have been informed that the United
Kingdom's Financial Services Authority has
issued individual guidance in respect of the
1988 Basel Accord 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.).
In addition, under the new framework
established by "International Convergence of
Capital Management and Capital Standards: A
Revised Framework" (as amended, "Basel II"),
the Series A Bonds may also attract a risk
weighting of 20% on the basis that the bonds
are expected to be rated in the highest rating
category by a major credit rating agency.
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 1988 Basel Accord,
Basel II or any transitional regime. 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: Series A Bonds will be 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 Interest is payable semiannually, February 1
Accrual: and August 1. Interest will be calculated on a
30/360 basis. The first scheduled interest and
principal payment date is February 1, 2008.
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 two years later than the
scheduled final 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
S-7
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.
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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 Average Principal Scheduled Final Final
Tranche Life (Years) Amount Issued Payment Date Maturity Date Interest Rate
------- ------------ ------------- ------------ ------------- -------------
A-1................ 2.02 $124,000,000 February 1, 2011 February 1, 2013
A-2................ 5.04 140,000,000 August 1, 2013 August 1, 2015
A-3................ 7.36 100,000,000 August 1, 2015 August 1, 2017
A-4................ 10.44 288,000,000 August 1, 2019 August 1, 2021
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 February 1, 2008, 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-9
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 expected amortization schedule below sets forth the principal
balance that is scheduled to remain outstanding on each payment date for each
tranche of Series A Bonds from the assumed issuance date to the scheduled
final payment date. Similarly, the expected sinking fund schedule below sets
forth the corresponding principal payment that is scheduled to be made on each
payment date for each tranche of Series A Bonds from the assumed issuance date
to the scheduled final payment date.
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Expected Amortization Schedule
Outstanding Principal Balance Per Tranche
Tranche A-1 Tranche A-2 Tranche A-3 Tranche A-4
Payment Date Balance Balance Balance Balance
- ------------------------ --------------------- --------------------- --------------------- ---------------------
May 1, 2007* $124,000,000 $140,000,000 $100,000,000 $288,000,000
2/1/2008 99,784,541 140,000,000 100,000,000 288,000,000
8/1/2008 83,218,201 140,000,000 100,000,000 288,000,000
2/1/2009 62,786,016 140,000,000 100,000,000 288,000,000
8/1/2009 44,742,612 140,000,000 100,000,000 288,000,000
2/1/2010 22,611,047 140,000,000 100,000,000 288,000,000
8/1/2010 2,958,313 140,000,000 100,000,000 288,000,000
2/1/2011 - 119,215,680 100,000,000 288,000,000
8/1/2011 - 97,959,122 100,000,000 288,000,000
2/1/2012 - 72,503,506 100,000,000 288,000,000
8/1/2012 - 49,541,455 100,000,000 288,000,000
2/1/2013 - 22,401,525 100,000,000 288,000,000
8/1/2013 - - 98,011,670 288,000,000
2/1/2014 - - 69,191,758 288,000,000
8/1/2014 - - 43,132,977 288,000,000
2/1/2015 - - 12,493,764 288,000,000
8/1/2015 - - - 272,672,561
2/1/2016 - - - 240,117,082
8/1/2016 - - - 210,294,416
2/1/2017 - - - 175,783,895
8/1/2017 - - - 144,230,553
2/1/2018 - - - 107,698,753
8/1/2018 - - - 74,178,014
2/1/2019 - - - 35,554,081
- ---------------------
* Assumed issuance date.
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On each payment date, the indenture trustee will make principal payments
to the extent the principal balance of each tranche of Series A Bonds exceeds
the amount indicated for that payment date in the table above and to the
extent of funds available in the collection account after payment of certain
of our fees and expenses and after payment of interest.
Expected Sinking Fund Schedule
Payment Date Tranche A-1 Tranche A-2 Tranche A-3 Tranche A-4
- ----------------------------------------- ------------------ ------------------ ------------------ ------------------
Initial Tranche Principal Balance $124,000,000 $140,000,000 $100,000,000 $288,000,000
2/1/2008 24,215,459 - - -
8/1/2008 16,566,340 - - -
2/1/2009 20,432,185 - - -
8/1/2009 18,043,404 - - -
2/1/2010 22,131,565 - - -
8/1/2010 19,652,734 - - -
2/1/2011 2,958,313 20,784,320 - -
8/1/2011 - 21,256,558 - -
2/1/2012 - 25,455,616 - -
8/1/2012 - 22,962,051 - -
2/1/2013 - 27,139,930 - -
8/1/2013 - 22,401,525 1,988,330 -
2/1/2014 - - 28,819,912 -
8/1/2014 - - 26,058,781 -
2/1/2015 - - 30,639,213 -
8/1/2015 - - 12,493,764 15,327,439
2/1/2016 - - - 32,555,479
8/1/2016 - - - 29,822,666
2/1/2017 - - - 34,510,521
8/1/2017 - - - 31,553,342
2/1/2018 - - - 36,531,800
8/1/2018 - - - 33,520,739
2/1/2019 - - - 38,623,933
8/1/2019 - - - 35,554,081
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
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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). 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 79% drop in forecasted mWh sales across
all revenue classes would be required to cause a payment default on the Series
A Bonds. This is the least favorable case. A 79% drop in forecasted mWh sales
represents 42.98 standard deviations from the forecast to actual variance
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, if any, in the weighted average lives of each tranche.
Weighted Average Life Sensitivity
Expected WAL
------------------------------------------------------------------------------
Weighted -5% -15%
Avg. Life (__.__ Standard Deviations from Mean) (__.__ Standard Deviations from Mean)
------------------------------------- -------------------------------------
("WAL") WAL Change WAL Change
Tranche (yrs) (yrs) (days)* (yrs) (days)*
- -------------- --------------- --------------- -------------- --------------- ----------------
A-1 2.02 2.02 0 2.03 0
A-2 5.04 5.04 0 5.04 0
A-3 7.36 7.36 0 7.37 1
A-4 10.44 10.44 0 10.44 1
- ---------------
* Number is round to whole days
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;
o no other routine true-up adjustments are made; and
S-13
o no non-routine true-up adjustments are made.
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 "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 326,000
Legal Fees 50,000
Miscellaneous Fees 78,000
--------------
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
We 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,
S-14
o the excess funds subaccount, and
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 $3,260,000 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 provided that payment of indemnity
amounts will be limited to $10 million in the aggregate unless the
issuer has satisfied the rating agency condition,
2. payment of the servicing fee, (which, so long as FPL is the
servicer, will be $326,000 per annum), plus any unpaid servicing
fees from prior payment dates,
S-15
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,
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 (or
not disapproved) by the Florida Commission.
If, on any payment date, available amounts in the collection account
(based upon the priorities described above), 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, available amounts in the collection account
(based upon the priorities described above), are not sufficient to pay the
principal due and payable on all outstanding Series A Bonds which have
previously matured or mature on that payment date, amounts available will be
allocated pro rata based on the principal
S-16
amount of each tranche so due and payable. If, on any payment date, available
amounts in the collection account (based upon the priorities described above),
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 any amounts described above, subsequent adjustments to the
related storm-recovery charges will take into account, among other things, the
need to replenish those amounts.
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 507, 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 depositor 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 "1988 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 in respect of the 1988 Basel Accord
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:
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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" 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.
We note that the United Kingdom has, since January 1, 2007 and the
issuance of the guidance discussed above, implemented the "International
Convergence of Capital Measurement and Capital Standards: A Revised Framework"
(as amended, "Basel II"). There is a transitional period for full
implementation of the Basel II framework in the United Kingdom but in any case
the individual guidance discussed above will lapse on December 31, 2007 at the
latest and may no longer be relied upon by its original addressee beyond that
point.
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Under the new framework established by Basel II, the Series A Bonds may
also attract a risk weighting of 20% on the basis that the bonds are rated in
the highest rating category by a major credit rating agency. It is a condition
of issuance of the Series A Bonds that the bonds be rated "Aaa" by Moody's,
"AAA" by S&P, and "AAA" by Fitch. In the alternative, under the new framework
established by Basel II, the Series A Bonds may attract the same risk
weighting if the bonds are considered to be "guaranteed" by a non governmental
public sector entity. We note, however, that the analysis may be different
than that under the 1988 Basel Accord.
We note that the timetable for the implementation of Basel II differs
from country to country and it may not always be clear which regime - 1988
Basel Accord or Basel II, or any transitional regime - may be applicable at
any particular time.
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 1988 Basel Accord, Basel
II or any transitional regime.
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
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,
special Delaware counsel, and for the underwriters, if any, by Thelen Reid
Brown Raysman & Steiner LLP. Thelen Reid Brown Raysman & Steiner LLP regularly
represents FPL and its affiliates in connection with various legal matters not
related to the offering of the bonds covered by this prospectus. 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
EACH UNDERWRITER ACKNOWLEDGES THAT THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS HAVE NOT BEEN REGISTERED AS A PROSPECTUS WITH THE
MONETARY AUTHORITY OF SINGAPORE. 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
S-19
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 SECURITIES AND FUTURES ACT, CHAPTER 289 OF SINGAPORE (THE "SFA"),
OR ANY PERSON PURSUANT TO SECTION 275(1A), AND IN ACCORDANCE WITH THE
CONDITIONS SPECIFIED IN SECTION 275 FO THE SFA OR (II) TO A RELEVANT PERSON,
PURSUANT TO SECTION 275(1) OR ANY PERSON PURSUANT TO SECTION 275(IA) OF THE
SFA, AND IN ACCORDANCE WITH THE CONDITIONS SPECIFIED IN SECTION 275 OF THE SFA
OR (III) OTHERWISE PURSUANT TO, AND IN ACCORDANCE WITH THE CONDITIONS OF, ANY
OTHER APPLICABLE PROVISION OF THE SFA.
WHERE THE BONDS ARE SUBSCRIBED OR PURCHASED UNDER SECTION 275 BY A
RELEVANT PERSON WHICH IS:
(A) A CORPORATION (WHICH IS NOT AN ACCREDITED INVESTOR) (AS DEFINED IN
SECTION 4A OF THE SFA) 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
(B) A TRUST (WHERE THE TRUSTEE IS NOT AN ACCREDITED INVESTOR) WHOSE SOLE
PURPOSE IS TO HOLD INVESTMENTS AND EACH BENEFICIARY OF THE TRUST IS AN
INDIVIDUAL WHO IS AN ACCREDITED INVESTOR.
SHARES, DEBENTURES AND UNITS OF SHARES AND DEBENTURES OF THAT
CORPORATION OR THE BENEFICIARIES' RIGHTS AND INTEREST (HOWSOEVER DESCRIBED) IN
THAT TRUST SHALL NOT BE TRANSFERRED WITHIN 6 MONTHS AFTER THAT CORPORATION OR
THAT TRUST HAS ACQUIRED THE BONDS PURSUANT TO AN OFFER MADE UNDER SECTION 275
EXCEPT:
(1) TO AN INSTITUTIONAL INVESTOR (FOR CORPORATIONS, UNDER SECTION 274 OF
THE SFA) OR TO A RELEVANT PERSON, DEFINED IN SECTION 275(2) OF THE SFA, OR TO
ANY PERSON PURSUANT TO AN OFFER THAT IS MADE ON TERMS THAT SUCH RIGHTS OR
INTEREST ARE ACQUIRED AT A CONSIDERAION OF NOT LESS THAN $200,000 (OR ITS
EQUIVALENT IN A FOREIGN CURRENCY) FOR EACH TRANSACTION, WHETHER SUCH AMOUNT IS
TO BE PAID FOR IN CASH OR BY EXCHANGE OF SECURITIES OR OTHER ASSETS, AND
FURTHER FOR CORPORATIONS, IN ACCORDANCE WITH THE CONDITIONS SPECIFIED IN
SECTION 275 OF THE SFA;
(2) WHERE NO CONSIDERATION IS OR WILL BE GIVEN FOR THE TRANSFER; OR
(3) WHERE THE TRANSFER IS 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 MAY NOT BE OFFERED OR SOLD IN JAPAN
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY RESIDENT OF JAPAN OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, OTHERS FOR RE-OFFERING OR RESALE, DIRECTLY OR
INDIRECTLY, IN JAPAN OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY RESIDENT OF
JAPAN, EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF,
AND OTHERWISE IN COMPLIANCE WITH, THE SEL, AND IN COMPLIANCE WITH THE OTHER
RELEVANT LAWS AND REGULATIONS OF JAPAN.
NOTICE TO RESIDENTS OF HONG KONG
EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT:
S-20
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 "PROFESSIONAL INVESTORS"
WITHIN THE MEANING OF THE SECURITIES AND FUTURES ORDINANCE (CAP. 571) OF THE
LAWS OF HONG KONG AND ANY RULES MADE THEREUNDER; OR (B) IN CIRCUMSTANCES THAT
DO NOT RESULT IN THE DOCUMENT BEING A "PROSPECTUS" AS DEFINED IN THE COMPANIES
ORDINANCE (CAP. 32) OF THE LAWS OF HONG KONG OR THAT DO NOT CONSTITUTE AN
OFFER TO THE PUBLIC WITHIN THE MEANING OF THAT ORDINANCE;
NO INVITATION, ADVERTISEMENT, INVITATION OR DOCUMENT RELATING TO THE
BONDS, MAY BE ISSUED, WHETHER IN HONG KONG OR ELSEWHERE, THAT 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 THAT ARE INTENDED TO BE DISPOSED OF
ONLY TO PERSONS OUTSIDE HONG KONG OR ONLY TO "PROFESSIONAL INVESTORS" AS
DEFINED UNDER THE SECURITIES AND FUTURES ORDINANCE (CAP. 571) OF THE LAWS OF
HONG KONG AND ANY RULES MADE THEREUNDER 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"), THE
UNDERWRITER 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 BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE PRIOR TO THE
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, 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 AT ANY TIME:
(A) 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;
(B) TO ANY LEGAL ENTITY WHICH HAS TWO OR MORE OF (1) AN AVERAGE OF AT
LEAST 250 EMPLOYEES DURING THE LAST FINANCIAL YEAR;(2) A TOTAL BALANCE SHEET
OF MORE THAN (POUND)43,000,000 AND (3) AN ANNUAL NET TURNOVER OF MORE THAN
(POUND)50,000,000, AS SHOWN IN ITS LAST ANNUAL OR CONSOLIDATED ACCOUNTS; OR
(C) IN ANY OTHER CIRCUMSTANCES WHICH DO NOT REQUIRE THE PUBLICATION BY
THE ISSUING ENTITY OF A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS
DIRECTIVE.
FOR THE PURPOSES OF THIS PROVISION, THE EXPRESSION AN "OFFER OF
CERTIFICATES 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.
UNITED KINGDOM
THE UNDERWRITER HAS REPRESENTED AND AGREED THAT:
(A) 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 (THE "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 THE ISSUING ENTITY; AND
(B) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF
THE FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE BONDS IN, FROM
OR OTHERWISE INVOLVING THE UNITED KINGDOM.
S-21
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.
The information in the prospectus or prospectus supplement is only accurate as
of the date of this prospectus supplement.
All dealers effecting transactions in the offered securities within 90 days
after the date of this prospectus supplement may be required to delivered the
prospectus and prospectus supplement, regardless of their participation in
this distribution. This is in addition to the obligations of dealers to
deliver the prospectus and prospectus supplement when acting as underwriters
or when selling their unsold allotments or subscriptions.
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 May 3 2007
Prospectus
FPL Recovery Funding LLC
Issuing Entity
Senior Secured Bonds
Issuable in Series
Florida Power & Light Company
Depositor, Servicer and Sponsor
----------------
Consider carefully the FPL Recovery Funding LLC
risk factors beginning
on page __ of this o may periodically offer and sell
prospectus. storm-recovery bonds in one or more series,
each with one or more tranches;
These securities will
be backed primarily by o will pledge storm-recovery property, which is
a property right as a property right established under Florida
described in this law and created through a financing order
prospectus and will be issued by the Florida Public Service
nonrecourse obligations Commission and which includes the right to
of FPL Recovery impose, collect and receive an irrevocable
Funding LLC. The storm non-bypassable charge from all customers
recovery bonds do not receiving electric transmission or
constitute a debt, distribution service from Florida Power &
liability or other Light Company (or any successor or assignee
legal obligation of, or in amounts designed to repay that series, to
interest in, Florida pay related financing expenses and to fund or
Power & Light Company replenish one or more collateral accounts
or any of its established for that series; and
affiliates (other than will pledge other assets only as described
FPL Recovery Funding
LLC). o will pledge other assets only as described in
this prospectus
This prospectus may be
used to offer and sell
any of the storm-recovery
bonds only if accompanied
by the prospectus
supplement for the
related series of
storm-recovery bonds.
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..........................................................16
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......................21
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...................................................25
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...........................................28
FPL Recovery Funding LLC, the Issuing Entity..................................28
Restricted Purpose.......................................................29
Our Relationship with FPL................................................29
We are Responsible to the FPSC...........................................29
Our Management...........................................................30
The Managers' Compensation and Limitation on Liabilities.................31
We are a Separate and Distinct Legal Entity..............................31
Administration Agreement.................................................31
Florida Power & Light Company: the Depositor and Initial Servicer of
the Storm-Recovery Property.................................................32
Electric Revenues, Average Number of Customers and Billed Retail
Electric Consumption....................................................32
Percentage Concentration Within FPL's Large Commercial Customers.........34
How FPL Forecasts the Number of Customers and the Amount of
Electricity Consumption.................................................34
Forecast Variances.......................................................35
Credit Policy; Billing; Collections and Write-Offs; Termination of
Service.................................................................35
Write-Off and Delinquency Experience.....................................36
2005 Rate Agreement......................................................38
Description of the Bonds......................................................38
General..................................................................38
Interest and Principal on the Bonds......................................39
Registration and Transfer of the Bonds...................................40
Book-Entry Registration..................................................40
Definitive Bonds.........................................................43
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...................................................45
Continuing Disclosure....................................................45
Supplemental Indentures..................................................46
Covenants of the Issuing Entity..........................................49
Events of Default; Rights Upon Event of Default..........................51
Actions by Bondholders...................................................53
Annual Report of Indenture Trustee.......................................54
Annual Compliance Statement..............................................54
Satisfaction and Discharge of Indenture..................................54
Our Legal and Covenant Defeasance Options................................54
The Indenture Trustee.........................................................55
Security for the Bonds........................................................56
General..................................................................56
Pledge of Collateral.....................................................56
Security Interest in the Collateral......................................57
Description of Indenture Accounts........................................58
i
How Funds in the Collection Account Will Be Allocated....................59
Right of Foreclosure.....................................................62
State Pledge.............................................................62
Weighted Average Life and Related Considerations for the Bonds................62
General..................................................................62
The Sale Agreement............................................................62
Sale and Assignment of Storm-Recovery Property...........................62
Conditions to the Sale of Storm-Recovery Property........................63
Depositor Representations and Warranties.................................63
Covenants of the Depositor...............................................66
Indemnification..........................................................68
Amendment................................................................70
Assumptions of the Obligations of the Depositor..........................70
The Servicing Agreement.......................................................70
Servicing Procedures.....................................................71
Servicing Standards and Covenants........................................71
The Florida Commission's Storm-Recovery Charge True-Up Adjustment
Process.................................................................72
Remittances to Collection Account........................................72
Servicing Compensation...................................................73
Servicer Representations and Warranties; Indemnification.................73
Matters Regarding the Servicer...........................................75
Servicer Defaults........................................................76
Rights When Servicer Defaults............................................76
Waiver of Past Defaults..................................................77
Successor Servicer.......................................................77
Amendment................................................................77
Evidence as to Compliance................................................77
How a Bankruptcy Might Affect Your Investment.................................78
Challenge to True Sale Treatment.........................................78
Consolidation of the Issuing Entity and FPL..............................79
Status of Storm-Recovery Property as Current Property....................79
Estimation of Claims; Challenges to Indemnity Claims.....................80
Enforcement of Rights by the Indenture Trustee...........................80
Bankruptcy of the Servicer...............................................80
Material U.S. Federal Income Tax Consequences.................................81
General..................................................................81
Taxation of the Issuing Entity and Characterization of the Bonds.........81
Tax Consequences to U.S. Holders.........................................82
Tax Consequences to Non-U.S. Holders.....................................82
Backup Withholding.......................................................83
Material Florida State Tax Consequences.......................................83
Certain State Tax Matters................................................83
ERISA Considerations..........................................................83
General..................................................................83
Regulation of Assets Included in a Plan..................................84
Prohibited Transaction Exemptions........................................85
Consultation with Counsel................................................86
Use of Proceeds...............................................................86
Plan of Distribution..........................................................86
Risk Weighting of the Bonds Under Certain International Capital
Guidelines..................................................................87
Ratings for the Bonds.........................................................89
Where You Can Find More Information...........................................89
Legal Proceedings.............................................................90
Legal Matters.................................................................90
Glossary of Defined Terms.....................................................91
ii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement Florida Power &
Light Company, or FPL, and FPL Recovery Funding LLC have filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. By using this process, we may offer senior secured bonds or bonds in
one or more offerings. This prospectus provides you with a description of each
series of 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
depositor refer to Florida Power & Light Company, or FPL, as seller 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. Reference to storm-recovery bonds means all storm-recovery
bonds authorized under the Financing Act, including the bonds. 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," and "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. You will find a detailed
description of a specific series of bonds in the prospectus supplement
relating to that series.
We will purchase storm-recovery property from FPL under a sale agreement
and enter into a related servicing agreement 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 During 2004 and 2005, Florida was struck with a series
Overview: 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
and 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; however we only intend to issue bonds
in an aggregate principal amount equal to
$652,000,000. 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.
The Financing Act further provides that the right to
collect storm-recovery charges is
2
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 a series of bonds except as
authorized under the financing order and as provided
in the related indenture.
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 related series of
bonds.
3
Parties to Transaction and Responsibilities
The following chart represents a general summary of the parties to the
transactions underlying the offering of a series 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 Customers for Florida Public Service
Charges based | | Storm-Recovery Charges Commission (FPSC)
on Consumption | | ---------------------------------------------------
| | /|\
| | |
| | |
| | |
| | | Calculates Charges by Customer Rate
| | | Class to meet Payment Schedule;
| | | Prepares True-Up; Submits Filings to
| | | FPSC
| | |
| | |
\|/ | |
--------------------------------------------------------------------------------------------------------------
Florida Power & Light Company (FPL)
(Depositor, Servicer and Sponsor)
--------------------------------------------------------------------------------------------------------------
| /|\
| |
| | Issues the Bonds; Purchases Storm-
| | Recovery Property from FPL; Pledges
Remits Storm-Recovery | | Storm-Recovery Property to Indenture
Charge Collections | | Trustee as Collateral for the Bonds
| |
| |
\|/ |
------------------------------------------ -------------------------------------------------------------
FPL Recovery Funding LLC
Indenture Trustee (Issuing Entity)
------------------------------------------ -------------------------------------------------------------
|
|
|
Pays Principal and |
Interest |
|
|
\|/
- -------------------------------------------
Bondholders
- -------------------------------------------
_________________
* On average, during 2006
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Flow of Funds
The following chart represents a general summary of the flow of funds:
Storm-Recovery
Charge Payments
---------------
Customers ----|
--------------- |
|
\|/
------------------------ Storm-Recovery
Servicer: Charge Collections
Florida Power & Light -----------|
Company (Regulated by |
FPSC) |
------------------------ \|/
----------------------
Indenture Trustee ---|
---------------------- | Principal and
--------------------------------------- | | Interest
------------------------------- | | Payments($)
Issuing Entity: | |
FPL Recovery Funding LLC -----| \|/
----------------
Bankruptcy Remote Bondholders
------------------------------- ----------------
---------------------------------------
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Issuing Entity: We are 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 storm-recovery
property, issuing storm-recovery bonds from time to
time 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 On the issue date for each series of bonds, FPL will
FPL: 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 We are responsible to the Florida Commission on an
to the FPSC: 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.
Depositor, Initial FPL, a Florida corporation, is a rate-regulated
Servicer and utility engaged primarily in the generation,
Administrator: 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 Depositor 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 of each series will be secured only by
assets pledged by us under the related indenture,
consisting principally of the related storm-recovery
property and funds on deposit in the related
collection account and subaccounts. Please read
"Security for the Bonds" in this prospectus. The
storm-recovery property securing the bonds of any
series will consist 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
will include 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 financing order
together will 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
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related series of 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.
Storm-recovery property is not a receivable and the
principal credit supporting the related series of
bonds is not a pool of receivables. 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: Credit enhancement for the bonds of a series 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 related series of 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 of a series,
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
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 issued
thereunder 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 related indenture. The primary subaccounts for
credit enhancement purposes will be:
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- Capital subaccount--On or before 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 related series of 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 amount on deposit in the
related 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 related
capital subaccount) that, as of a payment
date, are not needed to pay debt service on
the bonds of a series (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 created for the related series of
bonds.
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; The indenture has been structured so that we operate
Issuance of Additional as a master trust in that we may, subject to the terms
Series: 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 under the financing order may not exceed
$708 million; however, we only intend to issue bonds
in an aggregate principal amount equal to
$652,000,000. Any series may include terms and
provisions unique to that particular series and will
be described in the related prospectus supplement. 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 they 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 The bonds of a series will not be subordinated in
Series: 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 such 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--
8
How Funds in the Collection Account Will Be Allocated"
in this 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 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 holders of
storm-recovery 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
related financing order irrevocable, binding, and
nonbypassable charges;
o take or permit any action that impairs or would
impair the value of the related 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 related
storm-recovery bonds have been paid and performed
in full.
Nothing in this pledge, which we refer to as the State
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
the related 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 related series of 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 related series of 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 related 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."
9
Continuing Disclosure: Each indenture under which the bonds of a series are
issued will require 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 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: 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; Interest on each tranche of each series of bonds will
Payments of Interest accrue at the interest rate specified in the related
and Principal: 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 Interest and principal payment dates of any series of
Dates: bonds will be specified in the related 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 related 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 for a series of
bonds. 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 of
| amounts in
| collection
| account
|
|
\|/
|------------------------------------------------------------------------------------------------------------------------|
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1 2 3 4 5 6 7 8 9 10
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Bond-
Admini- holders: Issuing
strator: principal Entity: Issuing Excess
Indenture fixed Issuing Bond- payable remaining Capital Entity: funds
Trustee: Servicer: admini- Entity: holders: as a unpaid sub- release sub-
indenture fixed stration ordinary interest result of operating account: of account:
trustee's servicing fee periodic for accele- expenses, replenish- interest Remainder
fees and fee operating appli- ration, amounts ment earnings to
expenses Issuing expenses cable final owed of drawn on excess
including Entity: payment maturity under amounts capital funds
indemnity fixed date or per basic sub- sub-
amounts fees of sinking documents account account
independent fund
manager(s) scheduling
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
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Ratings of the Bonds: It will be a condition of issuance of each series of
bonds that such 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 related
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.
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 storm-recovery 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 of a series. 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 of a
series invalidates the storm-recovery property. Please read "The Sale
Agreement--Indemnification."
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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 related series of
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 related series of bonds, or
the timing or receipt of payments with respect to such 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 alters, impairs or reduces the value of
the storm-recovery property so as to impair the terms of the related indenture,
bonds, storm-recovery charges or the rights and remedies of the related
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
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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.
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 depositor
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 your 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 FPL 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 an
electric utility'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 your bonds.
15
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 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 each related series of
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 related series of bonds not being made according to the
expected sinking fund schedule and a lengthened weighted average life of such
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
16
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.
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 related series of 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 or
materially adversely affect the bondholders.
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 related 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 the related series of 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 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 (i.e., depositor);
17
o the depositor 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
o a transfer of the storm-recovery property from the depositor 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 depositor.
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 depositor, 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 your 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 your 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 your bonds would represent
only general unsecured claims against FPL;
18
o we and FPL might be relieved of the obligation to make any
payments on your 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 your 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;
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 related storm-recovery property might be construed
as a financing and not a sale which might delay or limit payment
on your bonds;
o claims against FPL or any successor or assignee might be limited
in the event of a bankruptcy of the depositor;
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
your 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 Depositor or Servicer to Indemnify us for a Breach
of a Representation, Warranty or Covenant Might Not be Sufficient to Protect
Your Investment. FPL will be obligated under each sale agreement to indemnify
us and the related 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 such
storm-recovery property. Similarly, FPL will be obligated under each servicing
agreement to indemnify us and the related indenture trustee, for itself and on
behalf of the related bondholders only in specified circumstances. Please read
"The Sale Agreement" and "The Servicing Agreement."
Neither the indenture trustee nor the related bondholders will have the
right to accelerate payments on the related 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--Depositor Representations and Warranties" and "--Indemnification"
in this prospectus.
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Absence of a Secondary Market for the Bonds Might Limit Your Ability to
Resell Bonds. The underwriters for the bonds of a series may assist in resales
of such bonds but they are not required to do so. A secondary market for the
bonds of a series 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.
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 each tranche of a series of bonds at its final
maturity date (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 your 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 other amounts 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 related 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.
The aggregate outstanding amount of bonds that may be issued by us under
the financing order may not exceed $708 million; however, we only intend to
issue bonds in an aggregate principal amount equal to $652,000,000. 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 Depositor and Initial Servicer
of the Storm-Recovery Property" in this prospectus.
20
Under the Financing Act and the indenture, each indenture trustee or the
holders of the bonds of a series will have the right to foreclose or otherwise
enforce the lien on the related 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 reserves set aside to deal with future storm activity, the
Florida legislature enacted the 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 an 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 financing 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
21
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.
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 each related series of
bonds, and any other costs of supporting, repaying and servicing such 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 related storm-recovery bonds and other costs,
including fees and expenses, in connection with such 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.
22
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 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;
23
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;
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 related 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 of any series:
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; however,
we only intend to issue bonds in an aggregate principal amount equal to
$652,000,000. We will not issue any storm-recovery bonds other than those
authorized by the financing order.
24
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 related 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 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%
Commercial 32%
Industrial 1%
Other 3%
--------
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 related prospectus supplement.
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
25
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.
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 related 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 of a series
are outstanding following the latest scheduled final payment date for such
bonds, and (b) monthly true-up adjustments if bonds of a series are
outstanding after the date that is one year before the final maturity date of
such bonds, to provide for payment of such 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 each 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.
26
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 related bonds and other costs, including fees and expenses, in connection
with such 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 related bonds, have been paid and performed in full.
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 related 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 each
related series of 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 those 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.
27
-------------------------------------------------- -----------------------------
Storm-Recovery Charges Calculated on All FPL Florida Public Sector
Customers Based on Electricity Consumption (State/Local/Government)
-------------------------------------------------- -----------------------------
| ^
| |
v |
-------------------------------------------------- |
Florida Public and Private Sector |
(Residential/Commercial/Industrial/Other) |
-------------------------------------------------- |
| |
| FPSC-Guaranteed
v ---------------------
-------------------------------------------------- True-Up Mechanism
If all private sector fails to pay the Charges to public sector
charges for whatever reason customers increase to the
-------------------------------------------------- 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 covered by the financing order
and prior to their issuance, FPL is required to file with the Florida
Commission an issuance advice letter, which will:
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 will become effective on the date of issuance
of the related series of 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. 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:
28
o the storm-recovery property purchased on the date of issue of the
related series of bonds,
o our rights under the related sale agreement, the servicing
agreement (including any amendments thereto), and the
administration agreement executed in connection with the issuance
of such bonds,
o collections of related storm-recovery charges that are allocated
to us, trust accounts held by one or more indenture trustees and
other credit enhancements (as described in this prospectus)
acquired or held to ensure payment of such bonds, and
o any money distributed by the indenture trustees from the related
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 the financing order;
o issuing one or more series of storm-recovery bonds, each of which
may be comprised of one or more tranches;
o making payment on the storm-recovery 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 such storm-recovery property pursuant to a servicing agreement between
us and FPL related to such 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 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,
29
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 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. In
addition, we must also 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,
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
---- --- ----------
Paul Cutler 47 Treasurer and Assistant Secretary for Florida
Power & Light Company and its parent FPL
Group, Inc. as well as various other
operating subsidiaries of FPL Group, Inc.
since 2003. Mr. Cutler joined the company in
1984 as a financial analyst for Florida Power
& Light Company and has worked in a number of
financially oriented positions.
Kathy Beilhart 47 Assistant Treasurer of Florida Power & Light
Company and its parent FPL Group, Inc., as
well as various other operating subsidiaries
of FPL Group, Inc. since 2004. Joined FPL
Group, Inc. in 1997 and has worked in a
number of financially oriented positions.
Prior to joining FPL Group, Inc., Ms.
Beilhart was an Audit Manager at the firm of
Deloitte Touche, LLP, and an Internal Auditor
at Marathon Oil Company.
Wade Litchfield 44 Associate General Counsel (Regulatory) of
Florida Power & Light Company (FPL) since
2005. Joined FPL in 1988 as Senior
Attorney. From 1991 to 1998 served as an
attorney with Entergy Services, Inc., service
company for Entergy Corporation, New Orleans,
LA.
Jill Gordon 29 Vice President, Global Securitization
Services LLC since 2006. From 2000 to 2006
Ms. Gordon was an Assistant Treasurer at Lord
30
Securities Corporation where she was
responsible for the oversight and management
of a wide array of asset-backed finance
related transactions.
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, 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. 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 without a unaminous vote of our managers, including the
independent manager. 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.
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.
31
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 DEPOSITOR 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 internet 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.
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.. $7,035,17 100.0 $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.
32
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 88.6
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.
33
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 each related series of bonds, to replenish any
withdrawals from the related 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.
34
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.
35
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.
36
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.
37
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 that 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,
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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 issue 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 of the related series 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 of a series 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.
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 related
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,
39
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 of the related series 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.
Registration and Transfer of the Bonds
If specified in the related prospectus supplement, we may issue one or
more tranches of bonds of the related series 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.
Book-Entry Registration
Unless we specify otherwise in the related prospectus supplement, the
bonds will be available to investors only in the form of book-entry 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 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.
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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 (which may include the underwriters of a series of bonds), 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 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 banks and other banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters of any series of 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.
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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 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 Bonds
Bondholders that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, bonds may do so only through participants and indirect participants. In
addition, bondholders will receive all distributions of principal of and
interest on the related bonds from the indenture trustee through the
participants, who in turn will receive them from DTC. Under a book-entry
format, 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 bondholders. It is
anticipated that the only "bondholder" will be Cede & Co., as nominee of DTC.
The indenture trustee will not recognize bondholders as bondholders, as that
term is used in the indenture, and bondholders will be permitted to exercise
the rights of bondholders only indirectly through the participants, who in
turn will exercise the rights of 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 bonds and is required
to receive and transmit distributions of principal and interest on the bonds.
Participants and indirect participants with whom bondholders have accounts
with respect to the bonds similarly are required to make book-entry transfers
and receive and transmit those payments on behalf of their respective
bondholders. Accordingly, although bondholders will not possess bonds,
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 bondholder
to pledge 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 bonds.
DTC has advised us that it will take any action permitted to be taken by
a bondholder under the indenture only at the direction of one or more
participants to whose account with DTC the 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.
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How Bond Payments Will Be Credited by Clearstream and Euroclear
Distributions with respect to 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 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 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 bonds in registered, certificated form to bondholders, or their
nominees, rather than to DTC, only under the circumstances provided in the
related 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 indenture, holders of bonds representing not less than a
majority of the aggregate outstanding principal amount of the related bonds
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, the 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
bonds and instructions for registration, the indenture trustee will issue the
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 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 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 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
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 bonds which are backed by such storm-recovery property
created under
43
the financing order. All of such 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 bonds. The
collateral for each series of bonds will be separate from the collateral for
any other series, and holders of one series of bonds will have no recourse to
collateral for a different series. Although each series of 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 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 depositor 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 depositor 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;
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, including the
bonds of any series. 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 of the related series, the indenture trustee will afford
the bondholder or
44
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.
No indenture will provide for an annual or other meeting of bondholders.
Reports to Bondholders
On or prior to each payment date, special payment date or any other date
specified in the related indenture for payments with respect to any tranche of
bonds, the indenture trustee will deliver to the bondholders of that tranche a
statement prepared by the servicer 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 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 of a series, 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 each series of bonds pursuant to the Exchange Act. 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),
45
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 or any additional
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.
Please read "The Servicing Agreement--Evidence as to Compliance" below.
Supplemental Indentures
Modifications of the Indenture That Do Not Require the Consent of
Bondholders. From time to time, and without the consent of the bondholders
(but with prior notice to the rating agencies and the indenture trustee), we
may enter into one or more agreements supplemental to an 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 related
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 for the benefit of the related
bondholders and 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
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indenture, provided however, any such action will not (i)
adversely affect in any material respect the interests of the
related bondholders or (ii) result in a reduction or withdrawal of
the then-current ratings on any outstanding 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 related bondholders, enter into
one or more other agreements supplemental to the indenture so long as (i) the
supplemental indenture 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 the related 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 related 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,
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
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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
administration agreement, the sale agreement or the servicing
agreement, or
o waives timely performance or observance by FPL under the
administration agreement, the sale agreement or the servicing
agreement,
in each case in a way which would materially and adversely affect the
interests of the related 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 related 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 related storm-recovery bondholders. However, any
such amendment may not adversely affect the interest of any related
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 will provide that we will take all lawful
actions to enforce our rights under the related sale agreement, administration
agreement, and servicing agreement. The indenture will also provide that we
will take all lawful actions to compel or secure the performance and
observance by FPL, the administrator and the servicer of their respective
obligations to us under or in connection with the related sale agreement,
administration agreement, and 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 those agreements. 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 will
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 related series of bonds or the Florida Commission
shall, exercise all of our rights,
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remedies, powers, privileges and claims against FPL, the administrator and
servicer, under or in connection with the related 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 any
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, each 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 related 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
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 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,
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-- 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 priority perfected
security interest in the 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 related 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,
o permit the validity or effectiveness of any indenture to be
impaired,
o permit the lien of any 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,
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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, or
o issue any additional bonds unless such additional bonds are rated
"AAA" by S&P, "Aaa" by Moody's and "AAA" by Fitch.
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 series 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 of a series will be
defined in the related 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 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
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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 related bondholder. Except
for a default in payment of principal or interest on any bond, the related
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 related 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 depositor or the servicer
under or in connection with the related basic documents. If an event of
default as specified in paragraph 1 above has occurred, the depositor 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 depositor, 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 depositor pursuant to the related 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
will be 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 issued pursuant to the
related indenture consent to the sale,
o the proceeds of the sale are sufficient to pay in full the
principal of and the accrued interest on such 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 issued pursuant to the related indenture as
those payments would have become due if the bonds had not been
declared due and payable, and the indenture trustee obtains the
consent of the holders of 66 2/3% of the aggregate outstanding
amount of such 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 related 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
related 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
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o the holders of not less than a majority in principal amount of the
related 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 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;
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 will allow each
related bondholder to institute suit for the nonpayment of (1) the
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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, each indenture trustee will be
required to mail each year to all related 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 each indenture trustee and the rating
agencies a written statement as to whether we have fulfilled our obligations
under related indenture.
Satisfaction and Discharge of Indenture
Each 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 related 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 related 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 related bonds.
Our Legal and Covenant Defeasance Options
Each indenture will provide that we may exercise our legal defeasance
option or our covenant defeasance option with respect to the related 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
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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,
in either case confirming that the holders of the related 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, and
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 will be identified in the
related prospectus supplement. The indenture trustee may resign at any time by
so notifying us. The holders of a majority in principal 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
55
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.
Each 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 each
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 related 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 related storm-recovery property
and the other collateral as provided in the indenture. As noted under
"Description of the Bonds," we will issue each series of bonds pursuant to the
terms of a separate 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 of a
series, we will grant to the related 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 related storm-recovery property,
o the related sale agreement (including any bill of sale delivered
thereunder), and servicing agreement (or any amendment to a
servicing agreement, as and to the extent it secures the bonds),
o the related collection account established under the indenture,
all subaccounts of the collection account and 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.
No such security interest shall extend to:
o amounts representing investment earnings on the related capital
subaccount or any other subaccount that has been released to us,
o amounts deposited in the related 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 issue date for payment of costs
of issuance with respect to the bonds (together with any interest
earnings thereon).
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We refer to the foregoing assets in which we, as assignee of the depositor,
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
such 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 depositor 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 related sale agreement, servicing agreement and 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.
As a condition to the issuance of the bonds of a series, we will have
made all filings and taken any other action required by the UCC or common law
to perfect the lien of the related 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 perfected basis. We will represent,
along with the depositor, at the time of issuance of the bonds, that no prior
filing has been made with respect to either 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.
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Description of Indenture Accounts
Collection Account
Each indenture trustee will establish a collection account for the
series of bonds issued under the related 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.
Withdrawals from and deposits to these subaccounts will be made as described
below.
All amounts in a 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 each 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 related series of 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.
The servicer will remit estimated storm-recovery charge collections to
the related collection account in the manner described under "The Servicing
Agreement--Remittances to Collection Account."
General Subaccount
Each general subaccount will hold all funds held in the related
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,
58
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
related 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
eligible investments.
Excess Funds Subaccount
The servicer will allocate to each 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 related collection account (other than investment earnings on the related
capital subaccount) in excess of such amounts. The periodic adjustments of the
storm-recovery charges will be calculated to eliminate any amounts held in the
excess funds subaccount.
Capital Subaccount
In connection with the issuance of each series of bonds, on the related
issue date, the depositor, in its capacity as our sole member, 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 issue date 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 applicable IRS regulations. The required capital amount will be
funded by the depositor and not from the proceeds of the sale of such series
of bonds and will be deposited into the capital subaccount 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 related 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 related 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 provided that
payment of indemnity amounts will be limited to $10 million in the
aggregate unless the issuer has satisfied the rating agency
condition.
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 related bonds, such as accounting and audit fees,
rating agency fees, legal fees and certain reimbursable costs of
the servicer under the related servicing agreement,
5. payment of the interest then due on the related bonds, including
past due interest,
6. payment of (a) the principal then required to be paid on the
related bonds at final maturity or upon acceleration, and (b)
principal then scheduled to be paid on the bonds,
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7. payment of any of our remaining unpaid operating expenses and any
remaining amounts owed pursuant to the basic documents relating to
the related 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 related 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 related bonds, together with available amounts in the related
subaccounts, are not sufficient to pay (i) 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, (ii) 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 or (iii) 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 related capital subaccount to pay any
of these 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 each indenture.
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ALLOCATIONS AND DISTRIBUTIONS
----------------
FPL
(Servicer)
----------------
|
|
|
|
----------------------- |
Indenture Trustee | Storm-Recovery Charges
----------------------- |
| |
| \|/
| ----------------
----------------------------- COLLECTION
ACCOUNT
----------------
|
|
|
| application of
| amounts in
| collection
| account
|
|
\|/
|------------------------------------------------------------------------------------------------------------------------|
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1 2 3 4 5 6 7 8 9 10
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Bond-
Admini- holders: Issuing
strator: principal Entity: Issuing Excess
Indenture fixed Issuing Bond- payable remaining Capital Entity: funds
Trustee: Servicer: admini- Entity: holders: as a unpaid sub- release sub-
indenture fixed stration ordinary interest result of operating account: of account:
trustee's servicing fee periodic for accele- expenses, replenish- interest Remainder
fees and fee operating appli- ration, amounts ment earnings to
expenses Issuing expenses cable final owed of drawn on excess
including Entity: payment maturity under amounts capital funds
indemnity fixed date or per basic sub- sub-
amounts fees of sinking documents account account
independent fund
manager(s) scheduling
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
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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 such 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 related 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 bonds of a series and the
weighted average life thereof will depend primarily on the timing of receipt
of related 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 related bonds may be retired later than expected. The bonds of a
series will not be paid at a rate faster than that contemplated in the
expected sinking fund schedule for each tranche of bonds of a series 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 related collection
account will be allocated to the related excess funds subaccount.
THE SALE AGREEMENT
The following summary describes the material terms and provisions of
each sale agreement pursuant to which we will purchase storm-recovery property
from the depositor 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.
Sale and Assignment of Storm-Recovery Property
On the issue date, pursuant to the sale agreement, the depositor 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 a series of
bonds. The storm-recovery property will be sold to us without recourse, and
will include the depositor's entire right, title and interest in and to the
storm-recovery property (excluding the right to 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 related
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 related sale
agreement and 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 related series of bonds of any series will be subject to the satisfaction
or waiver of each of the following conditions:
o on or prior to the issue date, the depositor must deliver to us a
duly executed bill of sale identifying the storm-recovery property
to be conveyed on that date,
o on or prior to the issue date, the representations and warranties
of the depositor in the sale agreement must be true and correct,
the depositor may not have breached any of its representations,
warranties or 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 depositor must have taken all
actions required under the Financing Act and the UCC 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 depositor must receive and deliver to us and the indenture
trustee opinions requested by us,
o the depositor must deliver to us and to the indenture trustee an
officer's certificate confirming the satisfaction of each of these
conditions, and
o the depositor shall have received the purchase price.
Depositor Representations and Warranties
In each sale agreement, the depositor will represent and warrant to us
under existing law as of the related issue date, among other things, that:
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1. the depositor is a corporation 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 depositor is duly qualified to do business as a foreign
corporation 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 depositor);
3. the depositor has the requisite corporate power and authority to
execute and deliver the sale agreement and to carry out its terms;
the depositor has full corporate power and authority to own the
related storm-recovery property and sell and assign the
storm-recovery property to us, and the depositor 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 depositor by
all necessary corporate action;
4. the sale agreement constitutes a legal, valid and binding
obligation of the depositor, 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, result in any breach of any of the
terms and provisions of, or constitute a default under, the
depositor's organizational documents or any indenture, or other
material agreement or instrument to which the depositor is a party
or by which it is bound, result in the creation or imposition of
any lien upon the depositor's properties pursuant to the terms of
any such indenture, agreement or other instrument (other than any
that may be granted under the related 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
depositor of any court or of any federal or state regulatory body,
administrative agency or other government instrumentality having
jurisdiction over the depositor or its properties. The
storm-recovery property is not subject to any lien, other than the
liens created by the indenture and the Financing Act;
6. except as disclosed in the sale agreement and to the depositor's
knowledge, there are no proceedings or investigations pending or,
to the depositor's knowledge, threatened, before any court,
federal or state regulatory body, administrative agencies or other
governmental instrumentality having jurisdiction over the
depositor or its properties:
o asserting the invalidity of the related basic documents, the
related 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 depositor's treatment of the related series
of bonds as debt of the depositor for federal and state tax
purposes; or
o seeking a determination or ruling that could reasonably be
expected to materially and adversely affect the performance
by the depositor of its obligations under, or the validity
or enforceability of, the basic documents, the related
series of 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 UCC of Florida or Delaware, are required for the
depositor 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 related servicing agreement;
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8. as to the related 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;
o the transfer, sale, assignment and conveyance of the
storm-recovery property constitutes a sale or other absolute
transfer of all of the depositor's right, title and interest
in the storm-recovery property to us; upon the execution of
the related sale agreement, the depositor 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 depositor as debtor in the event of a filing of a
bankruptcy petition by or against the depositor; and
o the depositor 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 related indenture; all actions
or filings, including filings under the Financing Act and
UCC, necessary to give us a valid first priority perfected
security interest in the storm-recovery property and to
grant the indenture trustee a first priority perfected
security interest in the storm-recovery property, free and
clear of all liens of the depositor or anyone else have been
taken or 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
Financing Act 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
reduction, 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 the related
bondholders, until 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 related bondholders unless such action is a
reasonable exercise of the State's sovereign powers and of a
character reasonable and appropriate to further a significant and
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 or take any other action
in contravention of the state pledge if such action constitutes a
permanent appropriation of a substantial property interest and
deprives the related bondholders of their reasonable expectations
arising from their investments in the bonds, 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 related bondholders or any assignee or party
entering into a contract with the depositor;
12. there is no order by a court providing for the revocation,
alteration, 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 enjoin
the performance of any obligations under the financing order which
is adverse to the position of the related storm-recovery
bondholders;
13. no other approval, consent, 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
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transfer of the storm-recovery property, except those that have
been obtained or made and those that the depositor, in its
capacity as servicer under the related 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 Financing Act in a manner that would impair
the security of the related storm-recovery bondholders;
15. for purposes of the Financing Act, the storm-recovery property
constitutes a present property right that will continue to exist
until the related bonds are paid in full and the financing costs
associated with those bonds have been recovered in full;
16. the storm-recovery property consists of (a) the irrevocable right
of the depositor 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 related bonds,
together with the financing costs associated with those bonds; (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 storm-recovery property under
the related sale agreement, the depositor:
-- 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, nor believes that it will incur, indebtedness that
it will not be able to repay at its maturity; and
18. notwithstanding the foregoing, the depositor makes no
representation or warranty that amounts collected from the
storm-recovery charges 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 depositor will
make in each sale agreement will involve conclusions of law. The depositor
will make those representations and warranties in order to reflect the
understanding of the legal basis on which we are issuing the related bonds and
to reflect the agreement that if this understanding proves to be incorrect,
the depositor will be obligated to indemnify us under certain circumstances to
the same extent as if the depositor had breached its representations and
warranties under the sale agreement. Please read "--Indemnification" below.
Covenants of the Depositor
In each sale agreement, the depositor will make the following covenants:
1. So long as any of the related bonds are outstanding, the depositor
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, and will 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 depositor is a party necessary to the
proper administration of the sale agreement and the transactions
contemplated thereby.
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2. Except for the conveyances under the sale agreement or any lien
for the benefit of us (as the issuing entity), the related
bondholders or the indenture trustee, the depositor 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 related
storm-recovery property, whether existing as of the transfer date
or thereafter created, or any interest therein. The depositor will
not at any time assert any lien against or with respect to any
related 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 such storm-recovery property against all claims
of third parties claiming through or under the depositor.
3. The depositor will use the proceeds of the sale of the related
storm-recovery property in accordance with the financing order.
4. If the depositor is not the servicer and the depositor receives
any collections of the storm-recovery charges with respect to the
related storm-recovery property or the proceeds thereof, the
depositor will pay the servicer all payments received by the
depositor in respect thereof as soon as practicable after receipt
thereof by the depositor, but in no event later than two business
days after the depositor becomes aware of such receipt.
5. The depositor will notify us and the indenture trustee promptly
after becoming aware of any lien on any of the related
storm-recovery property, other than the conveyances under the
related sale agreement and indenture.
6. The depositor will 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 related storm-recovery property under any of the
related basic documents, the timing or amount of storm-recovery
charges payable by customers or of depositor's performance of its
material obligations under the sale agreement.
7. So long as any of the related bonds are outstanding:
-- the depositor will treat such bonds as our debt and not that
of the depositor, except for financial accounting and tax
reporting purposes;
-- the depositor will disclose in its financial statements that
it is not the owner of the related storm-recovery property
and that our assets are not available to pay creditors of
the depositor or its affiliates (other than us);
-- the depositor will not own or purchase any such bonds; and
-- the depositor will disclose the effects of all transactions
between us and the depositor in accordance with generally
accepted accounting principles.
8. The depositor agrees that, upon the sale by the depositor 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 depositor with respect to the related 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 depositor; and
-- any payment by any customer to us of storm-recovery charges
will discharge that customer's obligations in respect of the
related storm-recovery property to the extent of such
payment, notwithstanding any objection or direction to the
contrary by the depositor.
9. So long as any of the related bonds are outstanding:
-- in all proceedings relating directly or indirectly to the
related storm-recovery property, the depositor will
affirmatively certify and confirm that it has sold all of
its rights and interests in and to such property (other than
for financial accounting or tax reporting purposes);
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-- the depositor will not make any statement or reference in
respect of the related storm-recovery property that is
inconsistent with our ownership interest (other than for
financial accounting or tax reporting purposes);
-- the depositor will not take any action in respect of the
related storm-recovery property except as contemplated by
the basic documents; and
-- the depositor will not sell storm-recovery property in
connection with the issuance of any additional
storm-recovery bonds unless the rating agency condition has
been satisfied.
10. The depositor will execute and file, or cause to be executed and
filed, such filings required by law to fully preserve, maintain
and protect our ownership interest in the related storm-recovery
property.
11. The depositor 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 depositor 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 depositor 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 the related bondholders by
legislative enactment or constitutional amendment that would be
materially adverse to us, the indenture trustee or the bondholders
or which would otherwise cause an impairment of the rights of us
or the bondholders. The costs of any such actions or proceedings
undertaken by the depositor will be reimbursed by us as an
operating expense.
12. So long as any of the related bonds are outstanding, the depositor
will pay, and will cause each of its affiliates to 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
related storm-recovery property, provided that no such tax need be
paid if the depositor or one of its affiliates is contesting the
same in good faith by appropriate proceedings promptly instituted
and diligently conducted and if the depositor or such affiliate
has established appropriate reserves as shall be required in
conformity with generally accepted accounting principles.
13. The depositor will comply with all applicable 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 depositor will notify us and the rating agencies of
the breach.
15. Even if the related sale agreement or indenture is terminated, the
depositor will not, prior to the date which is one year and one
day after the termination of the indenture and payment in full of
the bonds and other amounts owed under the indenture, acquiesce,
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 depositor 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 depositor will indemnify and hold harmless us and the related
indenture trustee (for itself and for your benefit) and each of their
respective officers, directors, employees and agents against:
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o any and all amounts of principal and interest on the related bonds
not paid when due or when scheduled to be paid,
o any deposits required to be made by or to us under the related
basic documents or the 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 depositor 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 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 depositor's breach. The
depositor will have a 30-day opportunity to cure upon notice from us of a
material breach of a covenant.
The depositor will indemnify us and the related 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 related 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 related storm-recovery property to us, (ii) the
acquisition or holding of the related storm-recovery property by us or (iii)
the issuance and sale of the related 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 depositor will not be liable for any losses resulting solely from a
downgrade in the ratings on the bonds of a series or any consequential,
incidental or indirect damages, including any loss of market value of the
bonds of a series, resulting solely from any downgrade of the ratings of such
bonds.
The depositor 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 issue date
of the related bonds.
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 depositor to make customers whole for
any losses they incur, 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 depositor's material representations or warranties in the sale
agreement (except for the representations and warranties under items 9 through
16 above in "Depositor Representations and Warranties") or (ii) any material
breach of the depositor's covenants in the sale agreement (except for the
covenants under item 11 above in "Covenants of the Depositor" to the extent
that they require the depositor 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 pari
passu with all other general, unsecured obligations of the depositor.
The depositor and any director, officer, employee or agent of the
depositor may rely in good faith on the advice of counsel or on any document
of any kind, prima facie properly executed and submitted by any person,
respecting any matters arising hereunder. Subject to item 11 above in
"Covenants of the Depositor," and except as expressly provided in the sale
agreement, the depositor will not be under any obligations to appear in,
prosecute or defend any legal action in accordance with the sale agreement and
that in its opinion may involve it in any expense or liability; provided,
however, that nothing limits the depositor's liabilities or obligations of the
depositor to indemnify as described in this section.
Please read "Risk Factors--Other Risks Associated With an Investment in
Bonds--The Obligation of the Depositor or Servicer to Indemnify Us for a
Breach of a Representation, Warranty or Covenant Might Not be Sufficient to
Protect Your Investment."
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Amendment
Each sale agreement may be amended with the prior written consent of the
related 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 Depositor
Any person (a) into which the depositor may be merged or consolidated
and which succeeds to all or the major part of the electric distribution
business of the depositor, (b) which results from the division of the
depositor into two or more persons and which succeeds to all or the major part
of the electric distribution business of the depositor, (c) which may result
from any merger or consolidation to which the depositor shall be a party and
which succeeds to all or the major part of the electric distribution business
of the depositor, (d) which may succeed to the properties and assets of the
depositor substantially as a whole and which succeeds to all or the major part
of the electric distribution business of the depositor, or (e) which may
otherwise succeed to all or the major part of the electric distribution
business of the depositor, and which person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the
depositor under the sale agreement, shall be the successor to the depositor
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:
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 depositor shall have delivered to us and to the related
indenture trustee an officers' certificate and an opinion of
counsel stating that such consolidation, merger or succession and
each agreement of assumption comply with the requirements of the
sale agreement and that all conditions precedent relating to such
transaction have been complied with,
o the depositor shall have delivered to us and to the related
indenture trustee an opinion of counsel stating, in the opinion of
such counsel, either (a) all filings to be made by the depositor,
in its capacity as seller or 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 related
storm-recovery property have been executed and filed or (b) that
no such action is necessary to preserve such interests,
o the rating agencies will have received prior written notice of the
transaction, and
o the depositor 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 depositor
will not result in a material adverse federal income tax
consequence to us or to the depositor, the indenture trustee or
the holders of the outstanding bonds of the related series.
So long as the conditions of any such assumption are met, the depositor
will automatically be released from its obligations under the related 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.
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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 related 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 any 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
Each 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.
Each servicing agreement will require the servicer to (i) manage,
service, 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, (iv) calculate the storm-recovery charge
in accordance with the Financing Act and the financing order, (v) file such
continuation statements necessary to maintain the perfected security interest
of the indenture trustee in the storm-recovery property and use reasonable
efforts to otherwise enforce and maintain the indenture trustee's rights in
respect of the storm-recovery property, and (vi) comply in all material
respects with all applicable laws and regulations 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 that
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 depositor under the sale agreement,
the servicer will be 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 assist us in taking 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 will be 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.
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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.
Each servicing agreement will also designate the servicer as the
custodian of our records and documents.
The Florida Commission's Storm-Recovery Charge True-Up Adjustment Process
Among other things, each servicing agreement will require 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 related storm-recovery property and the related
bonds.
In addition, following the latest scheduled final payment date for the
bonds of a series, 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.
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 remit estimated storm-recovery charge collections to
the indenture trustee for deposit in the related 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 estimated
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 storm-recovery charge collections 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-
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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 storm-recovery
charge collections to the indenture trustee, the servicer will not be
obligated to make any payments on the related bonds.
Servicing Compensation
Pursuant to each servicing agreement, 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
equal to the market rate for such services at such time, but any
amount in excess of 0.60% of the initial principal amount of the
bonds must be approved , or not disapproved, 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 related bonds. Please
read "Security for Bonds--How Funds in the Collection Account Will Be
Allocated" in this prospectus.
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 related series of 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
incorporation, 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 foreign
jurisdictions, 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
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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 pursuant to the Financing Act
and the UCC, 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 otherwise set forth in the servicing agreement and to
the servicer's knowledge, there are no proceedings or
investigations pending or 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
related series of 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
o each report and 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 or certificate
is delivered.
The servicer will not be 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 will not be liable to
us, to the related indenture trustee, or to the related 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 related
indenture trustee (for itself and for the related bondholders' 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 related 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, except to the extent that any such liability,
obligation, loss, damage, payment and claim, and reasonable cost or expense,
is due to the willful misconduct, bad faith or gross negligence of the related
indenture trustee.
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This indemnification will survive the resignation or removal of the
related indenture trustee and the termination of the servicing agreement.
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 will release 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 related indenture trustee, our managers,
the related bondholders 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 indenture trustee or on any document prima facie
properly executed submitted by any person respecting any matters under the
servicing agreement. In addition, each 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, consolidation,
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
related 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 related indenture trustee and the rating agencies an opinion
of counsel stating either that all necessary filings, including
those under the Financing Act and the UCC, to fully preserve and
protect our interests in all of the storm-recovery property have
been made or that no such 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.
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Servicer Defaults
Servicer defaults under each servicing agreement will include, among
other things:
o any failure by the servicer to remit to the related indenture
trustee, on our behalf, any funds actually collected as part of
the related storm-recovery property and required to be remitted
pursuant to the servicing agreement with respect to the related
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 related storm-recovery property or the
rights of the related 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 related
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 other related basic document will prove
to have been incorrect in a material respect when made, which has
a material adverse effect on us or the related 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 related indenture trustee or 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 related
indenture trustee, at the direction of the holders of a majority of the
outstanding principal amount of the related series of storm-recovery 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 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. The
indenture trustee may not give a termination notice unless the rating agency
condition is satisfied.
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 indenture trustee is hereby
authorized and empowered to execute and deliver, 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 or any other basic document.
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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 related
series of 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 accordance 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 will provide
that no waiver will impair the related 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 related
indenture trustee, at the direction of the holders of a majority of the
principal amount of the outstanding bonds of the related series, or the
Florida Commission, shall appoint a successor servicer.
If no successor servicer has been appointed within 30 days after the
delivery of the termination notice, the indenture trustee, at the direction of
the holders of not less than a majority of the outstanding amount of the
related bonds, will 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, enters into a servicing
agreement with us having substantially the same provisions as the servicing
agreement in effect between us and the predecessor servicer and, if
applicable, its compensation is approved (or not disapproved) by the Florida
Commission. 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 a
servicing agreement, the servicing agreement will require 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
Each servicing agreement may be amended with the prior written consent
of the related 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
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
Each servicing agreement will provide for delivery to us and to the
related indenture trustee and the rating agencies, on or before March 31 of
each year, beginning March 31 of the year that is at least six months after
the related issue date, 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. Each servicing agreement will
also provide for the delivery to us, on or before March 31 of each year,
beginning March 31 of the year that is at least six months after the related
issue date, 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.
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Each servicing agreement will provide that a firm of independent public
accountants at our expense will furnish to us, the related indenture trustee,
the Florida Commission and the rating agencies on or before March 31 of each
year, beginning March 31 of the year that is at least six months after the
related issue date, a statement as to compliance by the servicer with
standards relating to the servicing of the related 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 an attestation 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 related 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 related 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 will be 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.
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 related series of 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.
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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. Each 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, each 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 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 each 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.
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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 related holders of the related 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
related 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 depositor
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.
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 an indenture, the Financing Act permits
the related 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 depositor 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 will be 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
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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.
Each servicing agreement will provide that the indenture trustee, as our
assignee, at the direction of the holders of a majority of the outstanding
amount of the bonds, shall 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-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, 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 507, it is the opinion
of Sidley Austin, LLP, tax counsel to FPL and the issuing entity, 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 issue date 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.
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Tax Consequences to U.S. Holders
Interest. Interest income on the bonds of a series 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 of a series 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;
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 penalty 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:
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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 of a series 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 depositor is a corporation or other
exempt recipient or (2) the depositor provides, in the required manner,
certain identifying information and, in the case of a Non-U.S. Holder,
certifies that the depositor 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 depositor is an exempt
recipient or (2) the depositor 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 penalty 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.
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
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
83
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
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 of a
series 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 of each series 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
84
"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 of a series 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 bonds of a series 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;
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 Internal
Revenue 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; or
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.
85
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 related storm-recovery property
from FPL. We understand that FPL will use the net proceeds from the sale of
the related 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.
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 and FPL may indemnify them against certain civil
liabilities under the Securities Act. 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 prices set forth in the prospectus supplement pursuant to delayed
delivery contracts
86
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 1988 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.
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;
87
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.
We note that the United Kingdom has, since January 1, 2007 and the
issuance of the guidance discussed above, implemented the "International
Convergence of Capital Measurement and Capital Standards: A Revised Framework"
(as amended, "Basel II"). There is a transitional period for full
implementation of the Basel II framework in the UK but in any case the
individual guidance discussed above will lapse on December 31, 2007 at the
latest and may no longer be relied upon by its original addressee beyond that
point.
Under the new framework established by Basel II, the storm-recovery
bonds may also attract a risk weighting of 20% on the basis that the bonds are
rated in the highest rating category by a major credit rating agency. It is a
condition of issuance of the bonds that the bonds be rated "Aaa" by Moody's,
"AAA" by S&P, and "AAA" by Fitch. In the alternative, under the new framework
established by Basel II, the bonds may attract the same risk weighting if the
bonds are considered to be "guaranteed" by a non governmental public sector
entity. We note, however, that the analysis may be different than that under
the 1988 Basel Accord.
We note that the timetable for the implementation of Basel II differs
from country to country and it may not always be clear which regime - 1988
Basel Accord or Basel II, or any transitional regime - may be applicable at
any particular time.
We cannot assure you that any or all 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 1988 Basel Accord, Basel
II or any transitional regime.
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.
88
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
We and FPL, as our sponsor, have jointly 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 and FPL, as our sponsor, 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 internet 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 our 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 333-141357.
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 10-K) until the offering of
the bonds is completed. These reports will be filed under our own name as
issuing entity. Any statement contained 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.
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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, special Delaware
counsel, and for the underwriters, if any, by Thelen Reid Brown Raysman &
Steiner LLP, New York, New York. Thelen Reid Brown Raysman & Steiner LLP
regularly represents FPL and its affiliates in connection with varous legal
matters not related to the offering of the bonds covered by this prospectus.
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
"administration agreement" means the administration to be entered into
on the issue date between FPL, as administrator and FPL Recovery Funding LLC.
"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, the administration
agreement or bills of sale given by the depositor and the notes evidencing the
related 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 Juno Beach, Florida 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 related indenture trustee for the benefit of the holders of the related
series of bonds, which includes the storm-recovery property, all rights of the
issuing entity under the related basic documents 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 of a series designated the collection account for that series and held
by the indenture trustee under the related 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.
"Depositor" means FPL, as the seller of the storm-recovery property, and
each successor of FPL (in the same capacity) pursuant to the sale agreement.
"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
related 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.
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"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, Inc.
"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.
"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 issuance of a series of
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 Standard & Poor's and, with respect to the issuance of a
series of bonds only, written confirmation from all of the Rating Agencies
(except in the case of Fitch, where notice shall be sufficient), 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 bonds.
92
"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 a series of bonds, which will equal 0.50% of the
principal amount of the initial series of bonds.
"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.
"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 Florida 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
depositor 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.
93
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........................................$ 20,016.40
Printing Expenses.......................................$ 20,000.00
Trustee Fees and Expenses...............................$ 25,000.00
Legal Fees and Expenses.................................$3,000,000.00
Accountants' Fees and Expenses..........................$1,920,197.00
Rating Agencies' Fees...................................$ 785,000.00
Miscellaneous...........................................$ 876,803.00
------------
Total..............................................$6,647,016.40
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* 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.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Statutes generally permits Florida
Power & Light Company ("FPL") to indemnify its directors, officers, employees
or other agents who are subject to any third-party actions because of their
service to FPL 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 FPL. If
the proceeding is a criminal one, such person must also have had no reasonable
cause to believe his conduct was unlawful. In addition, FPL 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 FPL. 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 FPL 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 FPL in a proceeding by or in the
right of FPL 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
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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.
FPL's bylaws provide generally that FPL shall, to the fullest extent
permitted by law, indemnify all directors and officers of FPL, directors,
officers, or other employees serving as a fiduciary of an employee benefit
plan of FPL, as well as any employees or agents of FPL or other persons
serving at the request of FPL in any capacity with any entity or enterprise
other than FPL to whom FPL 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 FPL 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.
Article 8 of the limited liability company agreement of FPL Recovery
Funding LLC (the "Issuing Entity" and together with FPL, the "Registrants")
provides that any person who was or is a party or is threatened to be made a
party to, or is involved in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative (each, a "Proceeding"), or any appeal in such a Proceeding or
any inquiry or investigation that could lead to such a Proceeding, by reason
of the fact that such person is or was the member, the special member or a
manager, or by reason of the fact that the member, such special member or such
manager is or was serving at the request of the Issuing Entity as a member,
director, manager, officer, partner, venturer, proprietor, trustee, employee,
agent or similar functionary of another foreign or domestic corporation,
limited liability company, partnership, joint venture, partnership, trust,
sole proprietorship, employee benefit plan or other enterprise, shall be
indemnified by the Issuing Entity to the fullest extent permitted by
applicable law against judgments, penalties, fines, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such Proceeding.
Further, to the fullest extent permitted by law, the Issuing Entity
shall indemnify and pay and advance expenses to an officer, employee or agent
of the Issuing Entity to the same extent and subject to the same conditions
under which it may indemnify and pay and advance expenses to the member, the
special member or any manager. In addition, the Board of Directors of FPL has
authorized FPL to indemnify each of the officers or employees of FPL (or any
of its affiliates) who serve as an officer of manager of the Issuing Entity,
in accordance with the FPL bylaws provisions described above, and each such
person will be an Indemnified Person as such term is defined in the third
preceding paragraph.
ITEM 16. EXHIBITS
1.1 Form of Notice of Sale (including Form of Bid and Form of Bond
Purchase Agreement).
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)***
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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)***
3.12 Certificate of Formation of FPL Recovery Funding LLC.
3.13 Limited Liability Company Agreement of FPL Recovery Funding LLC.
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 (Florida Power & Light Company).+
24.2 Power of Attorney (FPL Recovery Funding LLC).****
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of The Bank of New York (Delaware).****
99.1 Form of Servicing Agreement.
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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.
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*** Incorporated by reference herein as indicated.
**** Previously filed in connection with the filing of the Pre-Effective
Amendment No. 1 to this Registration Statement on April 23, 2007.
+ A Power of Attorney for Florida Power & Light Company was filed in
connection with the filing of this Registration Statement on March 16,
2007. An additional Power of Attorney for Florida Power & Light Company
was previously filed in connection with the filing of the Pre-Effective
Amendment No. 1 to this Registration Statement on April 23, 2007.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415:
Each 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.
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(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 Registrants are relying on
Rule 430B:
(i) each prospectus filed by the Registrants 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 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 Registrants
under the Securities Act to any purchaser in the initial distribution
of the securities, each Registrant undertakes that in a primary
offering of securities of such 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 Registrants will be sellers to the purchaser and
will be considered to offer or sell such securities to such
purchaser:
(i) any preliminary prospectus or prospectus of the Registrants
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 Registrants or used or referred
to by the Registrants;
(iii) the portion of any other free writing prospectus relating
to the offering containing material information about the
Registrants or the Issuing Entity's securities provided by or
on behalf of the Registrants; and
(iv) any other communication that is an offer in the offering
made by the Registrants to the purchaser.
(b) As to qualification of trust indentures:
II-5
The Registrants hereby undertake 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 Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act each filing of each
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:
Each 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 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 Registrants pursuant to the provisions described under Item 15 above,
or otherwise, the Registrants have 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 a Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrants 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, each of
the Registrants 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 providing certain information through an Internet Web site:
The Registrants hereby undertake 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 Registrants hereby
undertake 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, Florida
Power & Light Company 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 Amendment No. 2 to the 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 3rd day of May, 2007.
FLORIDA POWER & LIGHT COMPANY
By: *
---------------------------------------
Name: Armando J. Olivera
Title: President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
* May 3, 2007
- ----------------------------
Name: Lewis Hay, III Chairman of the Board, Chief Executive
Officer and Director (Principal Executive
Officer)
*
- ------------------------------- May 3, 2007
Name: Moray P. Dewhurst Senior Vice President, Finance and Chief
Financial Officer and Director (Principal
Financial Officer)
*
- ---------------------------- May 3, 2007
Name: K. Michael Davis Vice President, Accounting, Controller and
Chief Accounting Officer (Principal
Accounting Officer)
II-7
*
- ------------------------------ May 3, 2007
Name: Antonio Rodriguez Director
*
- ----------------------- May 3, 2007
Name: Edward F. Tancer Director
* by Edward F. Tancer
By: /s/ R. Wade Litchfield
----------------------
R. Wade Litchfield
Attorney-in-Fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FPL Recovery
Funding LLC 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
Amendment No. 2 to the 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 3rd day of May, 2007.
FPL RECOVERY FUNDING LLC
By: *
----------------------------------
Name: Moray P. Dewhurst
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
*
- ----------------------- May 3, 2007
Name: Moray P. Dewhurst President (Principal Executive Officer)
*
- ----------------------- May 3, 2007
Name: Paul I. Cutler Treasurer and Manager (Principal Financial
Officer)
*
- ----------------------- May 3, 2007
Name: K. Michael Davis Chief Accounting Officer (Principal
Accounting Officer)
*
- ------------------------ May 3, 2007
Name: Kathy A. Beilhart Assistant Treasurer and Manager
II-9
/s/ R. Wade Litchfield
- ------------------------- May 3, 2007
Name: R. Wade Litchfield Assistant Secretary and Manager
* by R. Wade Litchfield
/s/ R. Wade Litchfield
- ------------------------- May 3, 2007
Name: R. Wade Litchfield Attorney-in-Fact
II-10
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
ITEM 16. EXHIBITS
1.1 Form of Notice of Sale (including Form of Bid and Form of
Bond Purchase Agreement).
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)***
3.12 Certificate of Formation of FPL Recovery Funding LLC.
3.13 Limited Liability Company Agreement of FPL Recovery Funding
LLC.
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-11
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 (Florida Power & Light Company).+
24.2 Power of Attorney (FPL Recovery Funding LLC). ****
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York (Delaware).****
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.
- ---------------
*** Incorporated by reference herein as indicated.
**** Previously filed in connection with the filing of the Pre-Effective
Amendment No. 1 to this Registration Statement on April 23, 2007.
+ A Power of Attorney for Florida Power & Light Company was filed in
connection with the filing of this Registration Statement on March 16,
2007. An additional Power of Attorney for Florida Power & Light Company
was previously filed in connection with the filing of the Pre-Effective
Amendment No. 1 to this Registration Statement on April 23, 2007.
II-12