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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
or
( ) Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file number 333-74671-01
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-2555119
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
C/O BEC FUNDING LLC
800 BOYLSTON STREET, BOSTON MA 02199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-369-6000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Information required to be filed pursuant to the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934 was previously filed, on a
timely basis, in a combined report with BEC Funding LLC (Commission File Number
333-74671). In response to a recent request from the SEC staff, the information
of the above noted registrant is now being refiled under a separate and distinct
Commission File Number.
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Part I. Financial Information
Item 1. Financial Statements
MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(UNAUDITED)
September 30, 1999
ASSETS
Current Assets:
Due from BEC Funding LLC:
Interest receivable $ 8,438,607
Notes receivable - current portion due in one year 78,441,458
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Total current assets 86,880,065
Due from BEC Funding LLC:
Long-term notes receivable 646,321,230
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Total assets $733,201,295
============
LIABILITIES
Current Liabilities:
Current Portion of certificates outstanding $ 78,441,458
Interest Payable on certificates outstanding 8,438,607
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Total current liabilities 86,880,065
Long-term certificates outstanding, net
of unamortized debt discount 646,321,230
------------
Total Liabilities $733,201,295
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Net Assets Available for Trust Activities $ 0
============
The accompanying notes are an integral part of the unaudited
financial statements.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR TRUST ACTIVITIES
(UNAUDITED)
for the period from July 27, 1999 (date of inception) to September 30, 1999
Additions:
Proceeds from issuance of bonds $ 724,762,688
Interest Income 8,438,607
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Subtotal 733,201,295
Deductions:
Payment of bonds proceeds to BEC Funding LLC ($724,762,688)
Interest expense (8,438,607)
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Subtotal (733,201,295)
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Net Assets Available for Trust Activities at September 30, 1999 $ -0-
=============
The accompanying notes are an integral part of the unaudited
financial statements.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
A. OVERVIEW
NATURE OF BUSINESS
Massachusetts RRB Special Purpose Trust BEC-1 ("the Trust") was established
on July 27, 1999 as a Delaware business trust. The Massachusetts
Development Finance Agency and the Massachusetts Health and Educational
Facilities Authority formed the Trust to issue bonds pursuant to certain
provisions of Chapter 164 of the Acts of the Massachusetts General Court of
1997 (the "Electric Industry Restructuring Act"). The Trust issued
$725,000,000 of Rate Reduction Certificates ("certificates") on July 29,
1999 for the purpose of acquiring related notes from BEC Funding LLC (the
"Note Issuer"). The Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority and The Bank of
New York (Delaware), a Delaware banking corporation, acting as the Delaware
Trustee, entered into a Declaration of Trust to form the Trust. The Trust
is not an agency nor instrumentality of The Commonwealth of Massachusetts.
The Trust has minimal assets other than the notes. The Declaration of Trust
does not permit the Trust to engage in any activities other than holding
the notes, issuing the certificates, and engaging in other related
activities.
Each class of certificates represents a fractional undivided beneficial
interest in a related class of notes issued by BEC Funding LLC, including
all amounts due and to become due under the related class of notes, and
represents the right to receive the payments on the related class of notes.
The Note Issuer, the Massachusetts Development Finance Agency, the
Massachusetts Health and Educational Facilities Authority, the Trust, the
Delaware Trustee and the certificate trustee have entered into a fee and
indemnity agreement under which the Note Issuer pays the Delaware trustee's
and the certificate trustee's reasonable compensation and reasonable fees
and expenses. The fee and indemnity agreement further provides that the
Note Issuer will indemnify the Trust, the Delaware trustee, the certificate
trustee, the Massachusetts Development Finance Agency, the Massachusetts
Health and Educational Facilities Authority and the Executive Office for
Administration and Finance of The Commonwealth of Massachusetts for, and
hold them harmless against, among other things, any loss, liability or
expense incurred by them arising from the failure of any party to perform
its obligations under various transaction documents. Neither the
certificates, the notes or the property securing the notes is an obligation
of The Commonwealth of Massachusetts or any governmental agency, authority
or instrumentality of The Commonwealth of Massachusetts or of Boston Edison
Company or any of its affiliates, except for BEC Funding LLC, which is an
affiliate of Boston Edison Company.
The fiscal year of the Trust is the calendar year.
BASIS OF PRESENTATION
Substantially all expenses of the Trust are paid by the Note Issuer.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
The Trust recognizes interest revenues on the notes, which are the only
assets of the Trust, on the accrual basis.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES
The Trust is considered to be a grantor trust for income tax purposes and
accordingly there is no provision for income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
The Trust has exposure to credit risk for its notes receivable from the
Note Issuer. BEC Funding LLC is a wholly owned subsidiary of Boston Edison
Company, which is a wholly owned subsidiary of BEC Energy, which is a
wholly owned subsidiary of NSTAR. NSTAR is a holding company that was
created through a merger between BEC Energy, headquartered in Boston,
Massachusetts, and Commonwealth Energy System, headquartered in Cambridge
Massachusetts, effective August 25, 1999. Neither the notes nor the
property securing the notes is an obligation of The Commonwealth of
Massachusetts, or any governmental agency, authority or instrumentality of
The Commonwealth of Massachusetts or of Boston Edison Company or any of its
affiliates, except for BEC Funding LLC.
C. CERTIFICATES
The Trust issued $725,000,000 of Rate Reduction Certificates on July 29,
1999 (excluding debt discount in the amount of $244,858) pursuant to the
certificate indenture among the Trust, the Delaware trustee, and the
certificate trustee. The certificates were issued in minimum denominations
of $1,000 and in integral multiples of that amount. The certificates
consist of five classes as summarized in the table below:
Scheduled
Initial Certificate Final Final
Principal Interest Distribution Termination
Class Amount Rate Date Date
----- ------ ---- ---- ----
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
The scheduled final distribution date for a class of certificates is the
date by which the Trust expects to distribute in full all interest on and
principal of that class of certificates. The final termination date for a
class of certificates is the legal maturity date of that class. The failure
to distribute principal of any class of certificates in full by the final
termination date for that class is an event of default, and the certificate
trustee may, and with the written direction of the holders of at least a
majority in principal amount of all outstanding certificates shall, declare
the unpaid principal amount of all outstanding notes and accrued interest
to be due and payable.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
Interest on each class of certificates will accrue from its issuance date
at the interest rate set forth in the table above. Beginning March 15,
2000, the trust is required to distribute interest semiannually on March 15
and September 15 (or, if any distribution date is not a business day, the
following business day) of each year. On each distribution date, the
certificate trustee will distribute interest to the extent paid on the
related class of notes to the holders of each class of certificates as of
the close of business on the record date. The record date for any
distribution of interest on and principal of the certificates will be the
business day immediately before the distribution date. Each distribution
date will also be a payment date for interest on and principal of the
notes.
On each distribution date, the certificate trustee will distribute
principal as paid on the related class of notes to the holders of each
class of certificates as of the close of business on the record date.
Long-term certificate redemptions due in the next five years are scheduled
to be $78,441,458, $62,428,264, $70,225,942, $68,014,173, and $68,740,411,
for the years ending September 30, 2000, 2001, 2002, 2003, and 2004,
respectively.
D. NOTES RECEIVABLE
BEC Funding LLC, the Note Issuer, has issued to the Trust notes in the
principal amount of $725,000,000, in exchange for the net proceeds from the
sale of the certificates by the Trust. Each class of notes secures the
payment of the related class of certificates and has the same principal
balance, interest rate, amortization schedule and legal maturity date as
its related class of certificates.
The notes consist of five classes, in the initial principal amounts and
bearing the interest rates and having the scheduled maturity and final
maturity dates set forth in the table below:
Initial Note Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
----- ------ ---- ---- ----
A-1 $108,500,000 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
The scheduled maturity date for a class of notes is the date by which the
note issuer expects to distribute in full all interest on and principal of
that class of notes. The final maturity date for a class of notes is the
legal maturity date of that class.
INTEREST
Interest on each class of notes accrues from its issuance date at the
interest rate set forth in the table above. Beginning March 15, 2000, the
Note Issuer is required to pay interest semiannually on March 15 and
September 15 (or, if any payment date is not a business day, the following
business day) of each year, to the Trust. The Note Issuer will pay interest
on the notes prior to paying principal of the notes.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
On each payment date, the Note Issuer will pay interest as follows:
* if there has been a payment default, any unpaid interest payable on
any prior payment dates, together with interest at the applicable note
interest rate on any of this unpaid interest; and
* accrued interest on the principal balance of each class of notes as of
the close of business on the preceding payment date, or the date of
the original issuance of the class of notes if applicable, after
giving effect to all payments made on the preceding payment date, or
the date of the original issuance of the class of notes if applicable.
If there is a shortfall in the amounts necessary to make these interest
payments, the note trustee will distribute interest pro rata to each class
of notes based on the outstanding principal amount of that class and the
applicable interest rate. The Note Issuer will calculate interest on the
basis of a 360-day year of twelve 30-day months.
PRINCIPAL
The Note Issuer will pay principal on each payment date to the holders of
the notes in accordance with the expected amortization schedule as set
forth in the prospectus.
The Note Issuer will not, however, pay principal on a payment date on any
class of notes if making the payment would reduce the principal balance of
a class to an amount lower than that specified in the expected amortization
schedule for that class on that payment date. If an event of default under
the note indenture has occurred and is continuing, the note trustee may
declare the unpaid principal amount of all outstanding notes and accrued
interest to be due and payable.
The expected amortization schedule for the principal of each class of notes
gives effect to the payments expected to be made on each payment date and
is based upon the issuance date of the notes on July 29, 1999 and also the
following assumptions:
* payments on the certificates are made on each distribution date,
commencing March 15, 2000;
* the servicing fee equals 0.05 percent annually of the initial
principal amount of the notes, or $362,500;
* there are no net earnings on amounts on deposit in the collection
account;
* the administration fee (which is $75,000 per year, payable
semiannually) and other ongoing operating expenses are estimated to be
approximately $220,000 per annum, and these amounts are payable in
arrears, and;
* payments arising from the property securing the notes are deposited in
the collection account as expected.
There can be no assurance that the principal balances of the classes of
notes receivable and the related classes of certificates outstanding will
be reduced at the rates expected. The actual rates of reduction in class
principal balances may be slower (but cannot be faster) than those
indicated in the expected amortization schedule.
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MASSACHUSETTS RRB SPECIAL PURPOSE TRUST BEC-1
(A SPECIAL PURPOSE ENTITY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
UNAMORTIZED DEBT DISCOUNT
Unamortized debt discount in the amount of $237,312 as of September 30, 1999, is
included (net) in both Notes receivable and Certificates outstanding on the
accompanying Statement of Net Assets Available for Trust Activities.
The note trustee has established a collection account to hold amounts remitted
by the servicer of the property securing the notes. The notes are secured
primarily by transition property of the note issuer, which is the right to
assess and collect all revenues arising from a portion of the transition charge
included in the bills of all classes of retail users of Boston Edison Company's
electric distribution system within its geographic service territory as in
effect on July 1, 1997. This portion of the transition charge, which is a
usage-based charge, is referred to as the reimbursable transition costs ("RTC")
charge. The September 1999 RTC charge was approximately $0.011017 cents per
kilowatt-hour.
THE NOTE ISSUER
BEC Funding LLC is a special purpose, single member limited liability company
whose sole member is Boston Edison Company. BEC Funding LLC is a wholly owned
subsidiary of Boston Edison Company, which is a wholly owned subsidiary of BEC
Energy, which is a wholly-owned subsidiary of NSTAR.
BEC Funding LLC was organized on January 29, 1999 under the laws of the State of
Delaware for the sole purpose of acquiring and holding transition property which
BEC Funding LLC acquired on July 29, 1999 from Boston Edison Company. The
purchase price of such transition property was paid from net proceeds of the
notes issued to the Trust. The assets of BEC Funding LLC consist primarily of
transition property acquired from Boston Edison Company.
Both BEC Funding LLC's organizational documents and covenants in the note
indenture restrict its business activities to financing, purchasing, owning and
managing transition property. The organizational documents and note indenture
covenants also require that BEC Funding LLC be operated in a manner intended to
reduce the likelihood that it would be consolidated in Boston Edison Company's
bankruptcy estate if Boston Edison Company became a debtor in a bankruptcy case.
BEC Funding LLC is legally separate from Boston Edison Company. The assets and
revenues of BEC Funding LLC, including, without limitation, the transition
property, are not available to creditors of Boston Edison Company, BEC Energy
nor NSTAR.
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS FOR THE PERIOD JULY 27, 1999 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
The Trust was formed on July 27, 1999, and issued certificates in the amount of
$725,000,000 on July 29, 1999. Upon receipt of the net proceeds from the
issuance of such certificates from the Trust, BEC Funding LLC remitted net
proceeds of approximately $719,837,000 to Boston Edison Company in exchange for
transition property. As of February 29, 2000, Boston Edison Company has remitted
to BEC Funding LLC approximately $72,940,000 of non-bypassable reimbursable
transition cost ("RTC") charges collected. Such funds are held by the Note
Trustee and are restricted in their ultimate use for the debt service of BEC
Funding LLC.
The Trust is limited by its own organizational documents from engaging in any
other activities other than owning the notes, issuing the rate reduction
certificates secured by the notes, and activities related thereto. Accordingly,
income statement effects were limited primarily to income generated from the
notes and interest expense on the certificates.
As of February 29, 2000, BECo has remitted to BEC Funding LLC approximately
$72,939,000 of non-bypassable reimbursable transition cost ("RTC") charges
collected. Such funds are held by the Note Trustee and are restricted in their
ultimate use for the debt service of BEC Funding LLC. Collections of RTC
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charges billed by BECo and remitted to BEC Funding LLC are in accordance with
original estimates and were in an amount sufficient to meet debt service
requirements due on March 15, 2000. BEC Funding LLC redeemed $40,000,000 of its
outstanding Class A-1 certificates on their scheduled maturity date and
simultaneously, the Trust redeemed $40,000,000 of its outstanding Class A-1
Notes on their scheduled maturity date. The Trust relies on timely remittances
of adequate RTC collections from BEC Funding LLC (which in turn relies on timely
remittances of RTC collections from BECo) in order to meet its debt service
obligations; the Trust believes it will continue to receive timely and adequate
remittances of RTC funds in order to meet all debt service obligations.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust has exposure to credit risk for its notes receivable from the Note
Issuer, BEC Funding LLC, which is a wholly-owned subsidiary of BECo, which is a
wholly-owned subsidiary of BEC Energy, which is a wholly-owned subsidiary of
NSTAR. Neither the notes nor the property securing the notes is an obligation of
The Commonwealth of Massachusetts, or any governmental agency, authority or
instrumentality of The Commonwealth of Massachusetts or of BECo or any of its
affiliates, except for BEC Funding LLC. BEC Funding LLC is legally separate from
BECo. The assets and revenues of BEC Funding LLC, including, without limitation,
the transition property, are not available to creditors of BECo nor BEC Energy
nor NSTAR.
PART II - Other Information
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following designated exhibits are filed herewith:
Exhibit 3.1 - Declaration of Trust (incorporated by reference
to the same titled exhibit to BEC Funding LLC's
Registration Statement on Form S-3, File No.
333-74671).
Exhibit 4.1 - Note Indenture of BEC Funding LLC (incorporated by
reference to the same titled exhibit to BEC
Funding LLC's Registration Statement on Form S-3,
File No. 333-74671).
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Exhibit 4.2 - Certificate Indenture (incorporated by reference
to the same titled exhibit to BEC Funding LLC's
Registration Statement on Form S-3, File No.
333-74671).
Exhibit 4.3 - Rate Reduction Certificates (incorporated by
reference to the same titled exhibit to BEC
Funding LLC's Registration Statement on Form S-3,
File No. 333-74671).
Exhibit 10.1 - Transition Property and Purchase and Sale
Agreement (incorporated by reference to the same
titled exhibit to BEC Funding LLC's Registration
Statement on Form S-3, File No. 333-74671).
Exhibit 10.2 - Transition Property Servicing Agreement
(incorporated by reference to the same titled
exhibit to BEC Funding LLC's Registration
Statement on Form S-3, File No. 333-74671).
Exhibit 10.3 - Note Purchase Agreement (incorporated by reference
to the same titled exhibit to BEC Funding LLC's
Registration Statement on Form S-3, File No.
333-74671).
Exhibit 15.1 - Letter Re Unaudited Interim Financial Information
Exhibit 27.1 - Financial Data Schedule for the period July 27,
1999 (date of inception) to September 30, 1999.
Exhibit 99.1 - Issuance Advice Letter (incorporated by reference
to the same titled exhibit to BEC Funding LLC's
Registration Statement on Form S-3, File No.
333-74671).
Exhibit 99.2 - Report of Independent Accountants
a) Reports on Form 8-K
There were no reports on Form 8-K filed in the third quarter of 1999,
and there have been no reports on Form 8-K filed to date in 2000.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Massachusetts RRB Special Purpose Trust BEC-1
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(Registrant)
Date: March 24, 2000 By: The Bank of New York (Delaware)
as Delaware Trustee
/s/ Thomas T. Provenzano
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Name: Thomas T. Provenzano
Title: Vice President