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ISSUANCE ADVICE LETTER
July 28, 1999
ADVICE DTE 98-118
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE "DEPARTMENT") OF THE
COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Issuance Advice Letter for Electric Rate Reduction Bonds ("RRBs")
Pursuant to DTE Docket No. 98-118 (the "Financing Order"), Boston Edison Company
("Boston Edison") hereby transmits for filing, on or about the pricing date of
this series of RRBs, the initial RTC Charge for such series. This Issuance
Advice Letter is for the RRB series Massachusetts RRB Special Purpose Trust
BEC-1 Rate Reduction Certificates classes A-1, A-2, A-3, A-4 and A-5. Any
capitalized terms not defined herein shall have the meanings ascribed thereto in
the Financing Order.
PURPOSE
This filing establishes the following:
(a) the actual terms of the RRBs being issued;
(b) confirmation of ratepayer savings;
(c) the initial RTC Charge for retail users;
(d) the identification of the Transition Property to be sold to a special
purpose entity (the "SPE"); and
(e) the identification of the SPE;
BACKGROUND
In the Financing Order, the Department authorized Boston Edison to file an
Issuance Advice Letter when pricing terms for a series of RRBs have been
established. This Issuance Advice Letter filing incorporates the methodology for
determining the RTC Charge approved and authorized by the Department in the
Financing Order to establish the initial RTC Charge for a series of RRBs and
establishes the initial RTC Charge to be assessed and collected from all classes
of retail users of Boston Edison's distribution system within the geographic
service territory as in effect on July 1, 1997, whether or not energy is
purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a portion, which may become all, of the transition charge
approved by the Department. The RTC Charge is a usage-based component of the
transition charge on each retail user's monthly bill, and may include in the
future a component of any exit fee collected pursuant to M.G.L. c. 164, Section
1G(g) until the Total RRB Payment Requirements are discharged in full.
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ACTUAL TERMS OF ISSUANCE
RRB Name: Massachusetts RRB Special Purpose Trust BEC-1 Rate Reduction
Certificates
RRB Issuer: Massachusetts RRB Special Purpose Trust BEC-1
Trustee(s): The Bank of New York, as Note Trustee and Certificate Trustee;
The Bank of New York (Delaware), as Delaware Trustee
Closing Date: July 29, 1999
Bond Ratings: Aaa/AAA/AAA/AAA (Moody's/S&P/Fitch IBCA/Duff & Phelps)
Amount Issued: $725,000,000
Transaction costs of issuance: See Attachment 1
Ongoing transaction costs: See Attachment 2
Coupon Rate(s): Class A-1: 5.99%; Class A-2: 6.45%; Class A-3: 6.62%; Class A-4:
6.91%; Class A-5: 7.03%
Call Features: 5% cleanup call only
Massachusetts Tax Exempt
(yes/no): Personal income tax exempt only
Expected Principal Amortization
Schedule: See Attachment 3
Expected Final Maturity: Class A-1: 3/15/2001; Class A-2: 9/15/2003; Class A-3: 3/15/2005;
Class A-4: 9/15/2007; Class A-5: 3/15/2010
Legal Final Maturity: Class A-1: 3/15/2003; Class A-2: 9/15/2005; Class A-3: 3/15/2007;
Class A-4: 9/15/2009; Class A-5: 3/15/2012
Distributions to Investors
(quarterly or semi-annually): Semi-Annually
Annual Servicing Fee as a percent
of initial RRB principal balance: 0.05%
Overcollateralization amount
for the RRBs: 0.50% of initial RRB principal balance, or $3,625,000
Confirmation of Ratepayer Savings
The Financing Order requires Boston Edison to demonstrate, using the savings
methodology approved in that Docket, that the actual terms of the RRB
Transaction result in net savings. Attached to this Issuance Advice Letter is a
spreadsheet calculation which shows expected net savings of approximately $76
million for this series of RRBs. See Attachment 4.
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Initial RTC Charge
Table I below shows the current assumptions for each of the variables used in
the initial RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGES
Forecasted retail kWh sales expected to be realized in current period: 6,441,583,026
Percent of billed amounts expected to be charged-off: 0.67% per annum
Weighted average days sales outstanding: 45
(calculated as follows)
Percent of billed amounts collected in current month: 0.00%
Percent of billed amounts collected in second month after billing: 49.67%
Percent of billed amounts collected in third month after billing: 49.67%
Percent of billed amounts collected in fourth month after billing: 0.00%
Percent of billed amounts collected in fifth month after billing: 0.00%
Forecasted annual ongoing transaction expenses*: $365,681
Required annual overcollateralization amount: $329,545
Required Interest Payments: $30,271,829
Current RRB outstanding balance: $725,000,000
Expected RRB outstanding balance as of March 15, 2000: $685,000,000
The initial RTC Charge calculated for retail users is as follows: 1.1017(cent)/kWh
Transition Property
Transition Property is the property described in M.G.L. c. 164, Section 1H(a)
relating to the RTC Charge set forth herein, including, without limitation, the
right, title, and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by the Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by the Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter, as may be adjusted from time to time in
order to generate amounts sufficient to discharge the Total RRB Payment
Requirements, and (c) all rights to obtain periodic adjustments and non-routine
adjustments to the RTC Charge.
This RTC Charge, as adjusted from time to time, shall remain in place until the
Total RRB Payment Requirements are discharged in full.
* Ongoing transaction expenses pro-rated for the initial interest period, which
begins on the closing date (7/29/1999) and ends on the first payment date
(3/15/2000).
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IDENTIFICATION OF SPE
The owner of the Transition Property (the "SPE") will be: BEC Funding LLC. The
SPE shall be considered a financing entity for purposes of M.G.L. c.164, Section
1H.
EFFECTIVE DATE
In accordance with the Financing Order, the RTC Charge shall be automatically
effective when filed by means of this Issuance Advice Letter and will continue
to be effective, unless it is changed by a Routine True-Up Letter or a Non
Routine True-Up Letter.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at the Company's corporate headquarters.
Enclosures
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ATTACHMENT 1
TRANSACTION COSTS OF ISSUANCE
Amount
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Underwriting spread $3,066,750
Financial Advisory Fee 275,000
Rating agency fees 510,000
Accounting fees 75,000
SEC registration fee (.0278%) 201,550
DTE filing fee ($750 for first million plus $150
for each additional million) 110,100
Printing and marketing expenses 375,000
Trustee fees and counsel 60,000
Company legal fees and expenses 2,000,000
Underwriters' legal fees and expenses 425,000
Bond counsel legal fees and expenses 425,000
MassDevelopment/HEFA fees 145,000
Servicing set-up costs 450,000
SPE set-up costs 25,000
Miscellaneous costs 100,000
Expenses in connection with reducing capitalization
(including call provisions and prepayments) $26,000,000
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Total transaction costs of issuance $34,243,400*
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* Does not include original issue discount of $244,860.
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ATTACHMENT 2
ONGOING TRANSACTION COSTS (ANNUAL)
Ongoing Costs Amount
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Administration fee $ 75,000
Rating agency fees 20,000
Accounting, legal and trustees' fees 75,000
Servicing fee (.05% of initial principal balance)(1) 362,500
Overcollateralization amount 329,545
Miscellaneous(2) 50,000
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Total estimated costs $912,045
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(1) These costs will include:
- Billing, collecting and remitting the RTC Charges;
- Calculate daily amount of remittances to the SPE trustee;
- Wire transfer daily remittances to the SPE trustee;
- Prepare monthly servicer report for trustee and rating agencies;
- Prepare semi-annual servicer report for trustee;
- Manage and invest the various SPE cash accounts;
- Reflect all transactions on the financial statements;
- Perform periodic reconciliations with the trustee;
- Perform annual true-up and adjust RTC Charge, as necessary; and
- Maintain memorandum account, if any.
(2) These costs would include any contingent liabilities arising in connection
with indemnity provisions in the RRB Transaction documents.
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ATTACHMENT 3
EXPECTED AMORTIZATION SCHEDULE
A-1 A-2 A-3 A-4 A-5 Total Outstanding
Date Principal Balance Principal Balance Principal Balance Principal Balance Principal Balance Principal Balance
29-Jul-99 $108,500,000 $170,609,837 $103,390,163 $170,875,702 $171,624,298 $725,000,000
15-Mar-00 68,500,000 170,609,837 103,390,163 170,875,702 171,624,298 685,000,000
15-Sep-00 30,058,542 170,609,837 103,390,163 170,875,702 171,624,298 646,558,542
15-Mar-01 0 170,609,837 103,390,163 170,875,702 171,624,298 616,500,000
15-Sep-01 0 138,240,115 103,390,163 170,875,702 171,624,298 584,130,278
15-Mar-02 0 102,109,837 103,390,163 170,875,702 171,624,298 548,000,000
15-Sep-02 0 68,014,173 103,390,163 170,875,702 171,624,298 513,904,336
15-Mar-03 0 33,609,837 103,390,163 170,875,702 171,624,298 479,500,000
15-Sep-03 0 0 103,390,163 170,875,702 171,624,298 445,890,163
15-Mar-04 0 0 68,500,000 170,875,702 171,624,298 411,000,000
15-Sep-04 0 0 34,649,752 170,875,702 171,624,298 377,149,752
15-Mar-05 0 0 0 170,875,702 171,624,298 342,500,000
15-Sep-05 0 0 0 137,123,948 171,624,298 308,748,246
15-Mar-06 0 0 0 102,375,702 171,624,298 274,000,000
15-Sep-06 0 0 0 68,519,879 171,624,298 240,144,177
15-Mar-07 0 0 0 33,875,702 171,624,298 205,500,000
15-Sep-07 0 0 0 0 171,624,298 171,624,298
15-Mar-08 0 0 0 0 137,000,000 137,000,000
15-Sep-08 0 0 0 0 103,134,628 103,134,629
15-Mar-09 0 0 0 0 68,500,000 68,500,000
15-Sep-09 0 0 0 0 34,631,016 34,631,016
15-Mar-10 0 0 0 0 0 0
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BOSTON EDISON COMPANY
SUMMARY OF TRANSITION CHARGE
FIXED COMPONENT PILGRIM SALE - 7/13/99 CLOSING
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$ IN MILLIONS
PRE-TAX AMORTIZATION NET FIXED
RETURN ON OF COMPONENT
GENERATION TRANSMISSION ADJUSTMENT INCLUDING SECURITIZED
RELATED IN SUPPORT BASE FOR ADJ. FOR CASH
INVESTMENT & OF REMOTE TOTAL RESIDUAL RESIDUAL FLOW
LINE REGULATORY GENERATING FIXED VALUE VALUE AT
# YEAR ASSETS ASSETS COMPONENT CREDIT CREDIT 7.94%
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
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(Cols.B&C&D) (Col.J& Col.K) (Col.E& Col.F) (Col.M& Col.N)
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1 1998 $ 88 $ 121 $ 1 $ 208 ($62) $ 146
2 1999 1/1/thru 42 69 111 (33) 78
7/26
2a 1999 7/29 thru
12/31 30 49 80 (6) 72 50
3 2000 63 138 201 (22) 179 117
4 2001 54 82 136 (22) 114 111
5 2002 48 82 130 (22) 108 106
6 2003 42 82 123 (22) 101 101
7 2004 35 82 117 (22) 95 95
8 2005 29 82 111 (22) 89 90
9 2006 23 82 105 (22) 83 85
10 2007 17 82 99 (22) 77 80
11 2008 11 82 93 (22) 71 74
12 2009 6 82 87 (22) 85 69
13 2010 - - -
14 2011 - - -
15 2012 - - -
16 2013 - - -
17 2014 - - -
18 2015 - - -
19 2016 - - -
20 2017
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TOTAL AMORTIZATION 1,112
LEGEND: This is the NPV of Column G from line 2a onwards discounted at 10.88%
Securitized
Net Fixed
Component Securi-
Including tization
Adj. for Savings
Residual NPV @
Line Value Prior Securitization 7.94%
# Year Credit RVC PRVC Principal Amort. Interest $ 76
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Col. A Col. I Col. J Col. K Col. L Col. M Col. N Col. 0
(Col. G - Col. H)
(Col. G 1998-
7/31/99, Col.H
6/1/99 - 2008,
Col. G. 2010-2016
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1 1998 $ 146
2 1999 78 (33) 691
2a 1999 50 (24) 16 683 28 22 22
3 2000 117 (57) 35 597 66 50 62
4 2001 111 (57) 35 530 66 45 3
5 2002 108 (57) 35 464 66 40 2
6 2003 101 (57) 35 308 66 34 1
7 2004 95 (57) 35 332 66 29 (1)
8 2005 90 (57) 35 285 66 24 (1)
9 2006 85 (57) 35 199 66 19 (2)
10 2007 80 (57) 35 133 66 13 (3)
11 2008 74 (57) 35 66 66 6 (3)
12 2009 69 (57) 35 0 66 3 (4)
13 2010 -
14 2011 -
15 2012 -
16 2013 -
17 2014 -
18 2015 -
19 2016 -
20 2017
Net Present Value of Securitization Savings @ 7.94% - Pilgrim only $ 70.5
Net Present Value of Securitization Savings @ 7.94% - L'Energia only $ 5.3
Net Present Value of Total Securitization Savings @ 7.94% $ 75.8
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LEGEND:
Col. B per Settlement Attachment 3 at Page 242, Col. B Potential Balance to be Securitized $ 702.6
Col. C per Settlement Attachment 3 at Page 242, Col. C Actual Amount Securitized 690.7
Col. D per Settlement Attachment 3 at Page 242, Col. D Amt. to be recovered in Variable Component $ 11.9
Col. J per Transition Charge True-up
Col. K per GOL-3R3, Page 7 of 11 Col. D
Actual Market Valuation will be credited in Reconciliation Account
Check $890.7 7.94%
Note: Numbers may not foot due to rounding
The Securitization Principal, Amortization, and Interest schedule (Cols. L, M & N) is provided for
illustrative purposes.
The final amounts will vary due to the assumptions listed in Exhibit BE-3 on page 17.