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Rule 424(b)(5)
Registration No. 333-65765
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 27, 1998)
$40,000,000
THE DETROIT EDISON COMPANY
GENERAL AND REFUNDING MORTGAGE BONDS, FLOATING RATE 1999 SERIES D
DUE SEPTEMBER 17, 2001
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This is an offering by The Detroit Edison Company of $40,000,0000 of its General
and Refunding Mortgage Bonds, Floating Rate 1999 Series D due September 17,
2001. The Bonds will mature and the principal amount, together with interest
accrued and unpaid thereon, will be payable on September 17, 2001. Interest on
the Bonds is payable in arrears on March 15, June 15, September 15, and December
15 of each year, commencing September 15, 1999, except that the final interest
payment date will be September 17, 2001. The Bonds will bear interest from
August 27, 1999. The per annum rate of interest will equal three-month LIBOR,
reset quarterly, plus seventeen basis points (.17%). Interest will be computed
on the basis of a 360-day year and the actual number of days in the applicable
interest period. The Bonds are not redeemable at any time prior to maturity and
will not have the benefit of any sinking fund.
Investing in the Bonds involves risks. Risk Factors begin on page S-3.
PER BOND TOTAL
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Public Offering Price.............................................................. 99.884% $ 39,953,600
Underwriting Discount.............................................................. 0.134% $ 53,600
Proceeds to The Detroit Edison Company (before expenses)........................... 99.750% $ 39,900,000
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriter for this offering expects to deliver the Bonds on August 27,
1999 through the book-entry facilities of The Depository Trust Company.
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LEHMAN BROTHERS
August 18, 1999
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the attached prospectus contain
information about our company and about the Bonds. They also refer to
information contained in other documents that we file with the Securities and
Exchange Commission. References to this prospectus supplement or the prospectus
also mean the information contained in such other documents, including our
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and our
Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30,
1999. If this prospectus supplement is inconsistent with the prospectus or the
documents that are incorporated by reference in the prospectus, rely on this
prospectus supplement.
When we refer to "Detroit Edison," "the Company," "we," "us," or "our"
in this prospectus supplement, we mean The Detroit Edison Company and its
subsidiaries, on a consolidated basis, unless the context requires otherwise.
You should rely only on the information in this prospectus supplement
or the prospectus or in documents that are incorporated by reference in the
prospectus. Neither we nor the underwriter have authorized anyone to provide any
different or additional information. We are not making an offer of the Bonds in
any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
About this Prospectus Supplement................................................................................S-2
The Company.....................................................................................................S-3
Risk Factors....................................................................................................S-3
Selected Historical Consolidated Financial Data.................................................................S-4
Ratio of Earnings to Fixed Charges..............................................................................S-4
Capitalization..................................................................................................S-4
Description of the Bonds........................................................................................S-5
Underwriting....................................................................................................S-7
Legal Opinions..................................................................................................S-7
PROSPECTUS
The Company.......................................................................................................2
Use of Proceeds...................................................................................................3
Regulatory Matters................................................................................................3
Ratio of Earnings to Fixed Charges................................................................................4
Description of Debt Securities....................................................................................4
United States Federal Income Tax Considerations..................................................................40
Plan of Distribution.............................................................................................48
Legal Opinions...................................................................................................49
Experts..........................................................................................................49
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THE COMPANY
The Detroit Edison Company has been incorporated in Michigan since 1967.
The Company is a regulated public utility that generates, purchases, transmits,
distributes and sells electric energy in a 7,600 square mile area in
Southeastern Michigan. The Company's service area includes about 13% of
Michigan's total land area and about half of its population (approximately five
million people). The Company's residential customers reside in urban and rural
areas, including an extensive shoreline along the Great Lakes and connecting
waters.
Detroit Edison's executive offices are located at 2000 2nd Avenue,
Detroit, Michigan 48226-1279. The telephone number is 313-235-8000.
RISK FACTORS
You should carefully consider the following risks, together with the
other information included or incorporated by reference in this prospectus
supplement and the attached prospectus, before buying any Bonds.
UTILITY INDUSTRY AND ENVIRONMENTAL REGULATION MAY ADVERSELY AFFECT THE
COMPANY'S OPERATING RESULTS
Various bills have been introduced in the Michigan Legislature addressing
competition in the electric markets. Detroit Edison is proceeding with the
implementation of customer choice as provided in various orders of the Michigan
Public Service Commission ("MPSC"). While Detroit Edison is unable to predict
the impact, if any, of the outcome of these legislative proceedings, applicable
MPSC orders provide for the recovery of stranded costs.
The Company is subject to extensive environmental regulation. Additional
costs may result as the effects of various chemicals on the environment
(including nuclear waste) are studied and governmental regulations are developed
and implemented. The costs of future nuclear decommissioning activities are the
subject of increased regulatory attention.
Ownership of Fermi 2, a nuclear generating unit, subjects the Company to
additional significant risks. Nuclear plants are highly regulated by a number of
governmental agencies concerned with public health and safety and environmental
protection. Consequently, Fermi 2 is subject to greater scrutiny than a
conventional fossil fueled plant.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
SIX MONTHS
ENDED
JUNE 30,(A) YEAR ENDED DECEMBER 31,
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1999 1998 1998 1997 1996 1995 1994
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(MILLIONS)
Income Summary:
Operating Revenues........... $1,917 $1,893 $3,902 $3,657 $3,642 $3,636 $3,519
Operating Income............. 449 485 970 1,003 841 1,015 986
Net Income................... 211 193 418 417 328 434 420
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(a) The Company's financial results for these interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the fiscal year.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges* were as follows for
the respective periods indicated:
FOR THE
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
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JUNE 30, 1999 1998 1997 1996 1995 1994
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2.99 3.18 3.24 2.71 3.21 3.13
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* For purposes of computing this ratio, earnings represent net income
(including allowance for both borrowed and other funds used during
construction, "AFUDC", accretion income and deferred Fermi 2 depreciation,
amortization and return) before deducting income taxes and fixed charges.
Fixed charges represent total interest charges, interest factor of rents and
amortization of debt discount, premium and expense.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1999 and as adjusted to give effect to the issuance of the
Bonds offered hereby, as well as the issuance of $39.745 million and the planned
issuance of $66.565 million of bonds in the third quarter and the planned
redemption of $106.31 million of tax-exempt obligations. Common Shareholders'
Equity is reduced due to the write-off of unamortized debt issuance costs.
JUNE 30, 1999
ACTUAL AS ADJUSTED
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(MILLIONS)
Long-Term Debt...................................... $2,883 42.2% $2,923 42.5%
Quarterly Income Debt Securities.................... 385 5.6 385 5.6
Common Shareholder's Equity......................... 3,564 52.2 3,563 51.9
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$6,832 100.0% $6,871 100.0%
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DESCRIPTION OF THE BONDS
The General and Refunding Mortgage Bonds, Floating Rate 1999 Series D
due September 17, 2001 (the "Bonds") are to be issued as a series of the
Company's General and Refunding Mortgage Bonds ("Mortgage Bonds") under and
secured by the Mortgage and Deed of Trust dated as of October 1, 1924 between
the Company and Bankers Trust Company, as Trustee, as amended and supplemented
by various supplemental indentures and as to be further amended and supplemented
by a supplemental indenture to be dated as of August 15, 1999 creating the
Bonds. Copies of the Mortgage and Deed of Trust and such supplements,
hereinafter collectively referred to as the "Mortgage", are exhibits to the
registration statement of which this prospectus supplement and the attached
prospectus are a part, and reference is hereby made to the Mortgage for full and
complete statements of the provisions thereof, including the definitions of
certain terms used, and for other information with respect to the Bonds.
The Mortgage and the general terms and provisions of the Mortgage Bonds
are more fully described in the attached prospectus. The following statements
concerning the Bonds supplement, and to the extent inconsistent therewith
replace, the description of the Mortgage Bonds set forth in the attached
prospectus. They do not purport to be complete and are qualified in their
entirety by reference to the Mortgage.
The Bonds will be senior secured obligations of the Company and will be
limited to $40,000,000 aggregate principal amount. The Bonds will rank equally
as to security with all Mortgage Bonds of all other series outstanding under the
Mortgage, except insofar as any sinking, improvement or analogous fund may be
deemed to afford additional security for the Mortgage Bonds of any series, and
except that, as provided in Section 3 of Article VI of the Mortgage, the Trustee
may, when in possession during a default, apply any residue of collections to
payment of principal of such Mortgage Bonds as are then due if all of the
Mortgage Bonds have not become due. See "Description of Debt
Securities--Provisions Applicable to General and Refunding Mortgage Bonds" in
the attached prospectus.
The Bonds will be issued only in fully-registered form in denominations
of $1,000 or any integral multiple thereof. The Bonds will be issued in
book-entry form through the facilities of The Depository Trust Company ("DTC").
Transfers or exchanges of beneficial interests in the Bonds may be effected only
through records maintained by DTC or its nominee. Settlement and secondary
trading in the Bonds will be in same-day funds. Payments of principal and
interest on the Bonds will be made to DTC in immediately available funds as
described in the attached prospectus. See "Description of Debt Securities--DTC
Book-Entry Only System" and "--Same-Day Settlement and Payment" in the attached
prospectus.
PAYMENT OF PRINCIPAL AND INTEREST
The Bonds will mature and the principal amount, together with interest
accrued and unpaid thereon, will be payable on September 17, 2001 (the "Stated
Maturity"). The Bonds will not be redeemable at any time prior to Stated
Maturity and will not have the benefit of any sinking fund.
The Bonds will bear interest at a rate per annum, reset quarterly,
equal to three-month LIBOR (as defined below) plus seventeen basis points
(.17%), as determined by the Calculation Agent (as defined below). Interest will
be computed on the basis of a 360-day year and the actual number of days in the
applicable Interest Period (as defined below). Interest is payable quarterly in
arrears on March 15, June 15, September 15, and December 15 of each year,
commencing September 15, 1999, except that the final payment of interest will be
due on September 17, 2001, instead of September 15, 2001 (each an "Interest
Payment Date"), for the period commencing on and including the immediately
preceding Interest Payment Date and ending on and including the day preceding
the next Interest Payment Date (each an "Interest Period"), with the exception
that the first Interest Period shall commence on and include August 27, 1999.
Interest is payable to the persons in whose names the Bonds are registered at
the close of business on the fifteenth calendar day, whether or not a Business
Day (as defined below), prior to the Interest Payment Date.
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The interest rate on the Bonds may not exceed the "Maximum Rate", which
is defined to mean the rate of interest equal to 15% per annum of such higher
rate as may be established from time to time by the Board of Directors of the
Company.
If any Interest Payment Date, other than at Stated Maturity, for the
Bonds would otherwise be a day that is not a Business Day, such Interest Payment
Date will be postponed to the next day that is a Business Day, except that if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding Business Day. If the Stated
Maturity for the Bonds falls on a day which is not a Business Day, payment of
principal and interest with respect to the Bonds will be paid on the next
succeeding Business Day with the same force and effect as if made on such date
and no interest on such payment will accrue from and after such date.
The interest rate for each Interest Period will be determined by the
Calculation Agent in accordance with the following provisions:
The per annum rate of interest for each Interest Period will be
three-month LIBOR on the second Business Day preceding the relevant Interest
Reset Date (as defined below) for such Interest Period (the "Interest
Determination Date") plus the applicable spread described above. The Interest
Determination Date for the first Interest Period will be August 25, 1999.
"LIBOR" for each subsequent Interest Period will be determined by the
Calculation Agent in accordance with the following provisions:
(i) On each Interest Determination Date, the Calculation Agent
will ascertain the offered rate for three-month deposits in U.S.
dollars in the London interbank market, which appears on the Telerate
Page 3750, as of 11:00 a.m. (London time) on such Interest
Determination Date.
(ii) If such rate does not appear on the Telerate Page 3750, or
the Telerate Page 3750 is unavailable, the Calculation Agent will
request each of four major banks in the London interbank market (the
"Reference Banks") to provide the Calculation Agent with its offered
quotation (expressed as a rate per annum) for three-month deposits in
U.S. dollars to leading banks in the London interbank market at
approximately 11:00 a.m. (London time) on the Interest Determination
Date. If at least two such quotations are provided, LIBOR in respect of
the Interest Determination Date, will be the arithmetic mean of such
quotations.
(iii) If less than two of the Reference Banks provide the
Calculation Agent with such offered quotations, LIBOR in respect of
that Interest Determination Date will be the arithmetic mean of the
rates quoted by three major banks in The City of New York (selected by
the Calculation Agent) at approximately 11:00 a.m., New York City time,
on that Interest Determination Date for three-month loans in U.S.
dollars to leading European banks, in a principal amount equal to an
amount of not less than $1,000,000 that is representative for a single
transaction in such market at such time; provided, however, that if the
banks selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, LIBOR will be LIBOR in effect on such
Interest Determination Date.
"Interest Reset Date" means, with respect to any Interest Period, the
first day of such Interest Period.
"Business Day" means any day (other than a Saturday or Sunday) on which
banking institutions in The City of New York are open for business and which is
also a London Banking Day.
"London Banking Day" means any day (other than a Saturday or Sunday) on
which dealings in deposits are transacted in the London interbank market.
"Telerate Page 3750" means the display designated as page "3750" on the
Bridge Telerate, Inc. (or such other page as may replace that page on that
service for the purpose of displaying the LIBOR Index on a daily basis).
All percentages resulting from any calculation on the Bonds will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward (e.g.,
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9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and U.S.
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upward).
The Company has agreed that, so long as any of the Bonds remain
outstanding, it will maintain under appointment an agent (the "Calculation
Agent"), initially Bankers Trust Company, to calculate the rate of interest
payable on the Bonds in respect of each Interest Period. If the Calculation
Agent is unable or unwilling to continue to act as such, or if the Calculation
Agent fails to establish the applicable rate of interest for any Interest
Period, or if the Company removes the Calculation Agent, the Company will
appoint the office of another bank to act as the Calculation Agent; provided,
however, that the Calculation Agent shall not resign or be removed until
acceptance of an appointment by a successor as evidenced by an appropriate
agreement entered into by the Company and such successor Calculation Agent.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting
agreement dated the date hereof, the Company has agreed to sell to Lehman
Brothers Inc., as underwriter, and the underwriter has agreed to purchase from
the Company, all of the Bonds.
The underwriting agreement provides that the obligations of the
underwriter to purchase the Bonds included in the offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriter must purchase all the Bonds if it purchases any of the Bonds.
The underwriter proposes to offer the Bonds directly to the public at
the public offering price set forth on the cover page of this prospectus
supplement. After the initial offering of the Bonds to the public, the public
offering price may be changed by the underwriter.
The Company estimates that its total expense of the offering will be
$75,000.
The Company has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1993, or to
contribute to payments the underwriter may be required to make in respect of any
of those liabilities.
The underwriter and its affiliates have from time to time provided, and
may in the future provide, investment banking and other financing services to
the Company and its affiliates.
Delivery of the Bonds is expected on or about August 27, 1999, which
will be the seventh business day following the date of pricing of the Bonds.
Under Rule 15c6-1 of the SEC under the Exchange Act, trades in the secondary
market generally are required to settle in three business days, unless the
parties to any such trade expressly agree otherwise. Accordingly, purchasers who
wish to trade Bonds on the pricing date or the next succeeding business day will
be required, by virtue of the fact that the Bonds will initially settle in T+7,
to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement. Purchasers of Bonds who wish to trade the Bonds on
the pricing date or the next succeeding business day should consult their own
advisor.
LEGAL OPINIONS
The validity of the Bonds will be passed upon for the Company by
Christopher C. Nern, Esq., Vice President and General Counsel of the Company,
and for the underwriter by Brown & Wood LLP. Brown & Wood LLP will rely upon the
opinion of Mr. Nern as to matters of Michigan law.
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