ML17300A640
| ML17300A640 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 11/20/1986 |
| From: | Moore C ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR, KELEHAR & MCLEOD |
| To: | Miraglia F Office of Nuclear Reactor Regulation |
| References | |
| TAC-63147, TAC-63148, NUDOCS 8611250517 | |
| Download: ML17300A640 (52) | |
Text
REQULAT INFORNATION DISTRIBUTION STEN (RIDS)
ACCESSION NBR: 8611250517 DOC. DATE: 86/11/20 NOTARIZED: NO DOCKET 0 FACIL: STN-50-528 Palo Verde Nuclear Station> Uni t 1> Arizona Pub STN-50-529 Palo Verde Nuclear Station> Unit 2> Arizona Pub li li 05000528 05000529 AUTH. NANE AUTHOR AFFILIATION NOORE> C. L. Arizona Nuclear Pouer Prospect (formerly Arizona Public Serv NOORE> C. L. Kelehar 8r NcLeod REC IP. NANE RECIPIENT AFFILIATION NIRAQLIA,F. J. Division of Pressurized Water Reactor Licensing B (post 8
SUBJECT:
Notifies NRC of changes in terms 5 conditions of sale leaseback financing transac+ions. Suppl to 860917 pr ospec+us encl> dtd 861118.
DISTRIBUTION CODE-'005D COPIES RECEIVED: LTR ENCL SIZE:
TITLE: Licensing Submittal: Applica+ion/Qeneral Info Amdt NOTES: Standardized plant. N. Davis> NRR: iCg. 05000528 Standardized plant. N. Davis> NRR: 1Gg. 05000529 RECIPIENT COPIES RECIPIENT cop rEs ID CODE/NANE LTTR ENCL ID CODE/MANE LTTR ENCL PWR-B PD7 LA 1 1 PWR-B PD7 PD 05 2 2 LICITRA> E 01 1 1 INTERNAL: ACRS 10 3 3 ADN/LFNB AEOD/PTB 1 ELD/HDS3 11 ELD 1 1 IE/DGAVT/GAB 09
('SP 04 1 1 RQN5 1 1 EXTERNAL: LPDR 1 1 NRC PDR 02 NOTES'3 NSIC 06 1 1 TOTAL NUNBER OF COPIES REQUIRED: LTTR 19 ENCL 18
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ELEHER 6c MCLEOD, P. A.
ATTORNEYS ANO COUNSELORS AT LAW RUSSELL MOORC KATHRYN J. KUHLCN PUBLIC SERVICE BUILDING W. A. KELCHER WILLIAM B. KCLEHCR MARK STYLES MICHAEL L KCI CHER EVAN S. HOBOS P. O. DRAWER AA I BOB I972 PATRICK W. HURLEY PATRICK V. APOOACA CHARLES A. PHARRIS RICHARD B. COLE RANDOLPH L. HAMBLIN P. SCOTT EATON ALBUOUEROUEi NEW MEXICO 8'/IO3 A. H, McLCOO ARTHUR O BEACH MARGARET E. DAVIDSON I902 I9ZB JOHN M. KULIKOWSKI THOMAS E. GRIESS JOHN 9, TITTMANN THOMAS C KCLCHER PAULA Z HANSDN PCTCR H. JOHNSTON C THOMAS C. BIRD OF COUNSEL HENRY F. NARVACZ THOMAS H TOCVS CHARLES L. MDORE WILLIAM M. CASFY ROBERT. H CLARK RICHARD L. ALVIORCZ BRIAN J. O'ROURKE KURT WIHL TELEPHONE 842-6262 RONALD F. HORN RIKKI L. OUINTANA PHIL KRCHBICL HELEN G. HILLCGASS AREA CODE 505 CLYOC F. WORTHCN CAROL LISA SMITH SPCNECR RCIO JUDITH L. DURZO MICHAEL WILE T HO MAS J. 2 I M BRIE'K ELIZABETH C. WHITEFICLD JONATHAN M. DUKE ROB CRT C. CDNKLIN THOMAS F. BLUCHER RCBCCCA A HOUSTON LYNOA LATTA BARBARA ALBIN DOUGLAS E. BRYAN November 20, 1986 VIA FEDERAL EXPRESS Director of Nuclear Reactor Regulation Attention: Mr. Frank J. Miraglia, Director Division of Pressurized Water Reactor Licensing B U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Re: Sale and Leaseback Financing Transactions by Public Service Company of New Mexico-NRC Docket Nos. STN 50-528 and STN 50-529 Gentlemen:
This letter is being written in compliance with para-graph 2.B(6) of License No. NPF-41, which paragraph was added by Amendment No. 3 issued on December 26, 1985 and amended by Amendment No. 6 issued on June 2, 1986, and in compliance with paragraph 2.B(6) of License No. NPF-51, which paragraph was added by Amendment No. 2 issued on August 12, 1986.
Pursuant to paragraph 2.B(6) of each of the Licenses referred to above, the licensees are required to notify the NRC in writing prior to any change in "the terms or conditions of any lease agreements executed as part of this transaction". As previously reported, lease transactions relating to PVNGS Unit 1 with three equity investors were closed on December 31, 1985.
As previously reported, an additional Unit 1 transaction was closed on August 1, 1986, and five transactions relating to PVNGS Unit 2 were closed on August 18, 1986. A more detailed discus-sion of the previous sale and leaseback transactions is contained in the "Supplemental Application in Respect of Sale and Leaseback Transactions by Public Service Company of New Mexico", in the above-referenced dockets, dated October 15, 1986.
The debt portions of the various transactions closed in August were funded with interim debt arranged with banks. It was contemplated when the August transactions were closed that permanent debt, through a public debt offering, would replace H
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KELEH ER 6( McLEOD, R A.
November 20, 1986 Page 2 the interim debt at the appropriate time. The parties have now selected Tuesday, November 25, 1986, as the date for closing the sale of public debt which will replace the interim debt for the various August transactions. Also, in connection with certain changes in lease payments resulting from tax law changes, a small portion of the public debt will be used to refund to equity investors in the December Unit 1 transactions a portion of the equity investment previously made by them. An amount is also included in the public debt which would be used to fund future sale and leaseback transactions or, if not used, Lease Obligation Bonds in the amount not used would be required to be redeemed.
Enclosed herewith for reference is a copy of the Prospectus (dated September 17, 1986), as supplemented by Prospectus Supplement (dated November 18, 1986), which describes the public debt offering.
In connection with the November 25, 1986 closing, cer-tain of the previously executed transaction documents need to be it revised to reflect the details of the permanent debt. Also, is convenient at this time to amend or supplement several of the documents in certain respects. None of the amendments or supple-ments is deemed to be material to the previous action taken by the NRC.
Copies of the transaction documents reflecting the prior closings were provided to the NRC as follows:
Transaction Transaction Date of Letter NRC Addressee Date Transact>.on Documents Unit 1 Sale 12/31/85 1/29/86 Mr. George N. Knighton and Lease-backs (3)
Debt 7/17/86 8/4/86 Mr. Frank J. Miraglia Refunding Additional 8/1/86 8/8/86 Mr. Frank J. Miraglia Unit 1 Sale and Lease-back (1)
Unit 2 Sale 8/18/86 9/4/86 Mr. Frank J. Miraglia and Lease-backs (5)
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KELEHER Bc McLEOD, R A.
November 20, 1986 Page 3 The transaction documents which are now being amended or supple-mented, as mentioned above, are Participation Agreements, Facility Leases, documents entitled "Trust Indenture, Mortgage, Security Agreement and Assignment of Rents" and the Collateral Trust Indenture. In addition to reflecting details of the permanent debt, the amendments or supplements would: (i) allow adjustment of the sinking funds for the Lease Obligation Bonds under certain circumstances; (ii) provide that Lease Obligation Bonds held by PNM or an affiliate of PNM will be used pre-ferentially to satisfy certain sinking fund obligations; and (iii) make certain minor changes.
We plan to file the executed documents after the clos-ing, similar to the filings made with respect to the prior trans-actions.
If you have any questions, please do not hesitate to call.
Very truly yours, KELEHER 6 McLEOD, P.A.
By Charles L. Moore CLM/mu Encl.
cc: Edward S. Christenbury, Esq. (W/Encl.) (Federal Express)
Edwin J. Reis, Esq.
Mr. George W. Knighton Arthur C. Gehr, Esq.
Timothy M. Toy, Esq.
Mr. A. J. Robison N7706D
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PROSPECTUS SUPPLEMENT (To Prospectus dated September 17, 1986)
$ 460,000,000 Lease Obligation Bonds, Series 1986B, Due 1992-2016 Interest Payable January 15 and July 15 The Lease Obligation Bonds, Series /986B, Due 1992-2016 (the "Offered Bonds") willinitially be secured indirectly, as described in the accompanying Prospectus, by an assignment ofrentals under leases relating to undivided interests in up to 10.2% of Units 1 and 2 and certain common facilities of the Palo Verde 1Vuclear Generating Station to be paid by Public Service Company of New Mexico Public Service Company of New Mexico ("PNM") will be unconditionally obligated to'ake basic rental and certain other payments in amounts which will be at least sufficien to pay in full, when due, all payments of principal of, premium, if any, and interest on, the Offered Bonds, although the Offered Bonds are not direct obligations of'or guaranteed by PNM.
The Offered Bonds are being issued by First PV Funding Corporation ("First PV"), a corporation created for the sole purpose of the financing described herein and other similar financings. The Offered Bonds will mature on January 15, 1992, January 15, 1997 and January 15, 2016, and will be in the aggregate principal amounts and will bear interest at the rates shown in thc table below. For optional, sinking fund and special mandatory redemption provisions and other terms, see "CERTAIN TERMS OF THE OFFERED BONDS".
Underwriting Principal Price to Discounts and Proceeds Series of Bonds Amount Public(1) Commissions(2) (3) (1)(3) 8.05% Lease Obligation Bonds, Series 1986B, Due 1992 $ 13,988,000 100% .500% $ 13,988,000 8.95% Lease Obligation Bonds, Series 1986B, Due 1997 60,347,000 100 .625 60,347,000 10.15% Lease Obligation Bonds, Series 1986B, Due 2016 385 665 000 100 .875 385 665 000 Total $ 460,000,000 $ 460,000,000 $ 3,821,678 $ 460,000,000 (1) Plus accrued interest, if any.
(2) PNM has agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933.
(3) The underwriting discounts and commissions will be paid by PNM and not from the proceeds of the Offered Bonds.
The amount of proceeds to First PV does not reflect deduction of expenses payable by PNM, estimated at $ 814,000, in connection with the issuance of the Offered Bonds. A portion of such underwriting discounts and commissions and such expenses will be reimbursed to PNM from funds provided by" certain Lessors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Offered Bonds are offered by thc Underwriters when, as and if issued arid accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the Offered Bonds will be ready for delivery on or about November 25, 1986, at the office of Kidder, Peabody & Co. Incorporated, 10 Hanover Square, New York, New York 10005 against payment therefor in New York funds.
Kidder, Peabody 8" Co.
Incorporated Goldman, Sachs 8c Co.
Drexel Burnham Lambert Incorporated The date of this Prospectus Supplement is November 18, 1986.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR iMAINTAINTHE iMARKET PRICES OF THE SECURITIES 'OFFERED HEREBY AND OF THE, 1986A BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE~,OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIiME.
SUMMARY
INFORMATION RELATING TO PNiM The follotoirig material, tohich is p'resented he'rein solely to furnish limited info+nation regarding PNM, has been selected from the detailed information nnd financia stateinents appearing in the documents incorporated in the accompnniying Prospectus by reference or elsetohere in the accompanying Prospectus and is qualified in its entirety by reference thereto.
CONSOLIDATED FINANCIALINFORMATION (Dollars in Thousands)
Twelve Months, Year Ended Deccmbcr 31, September 30, 19SG 19S5 1984 1983 Statement of Earnings Data:
Operating Rcvcnues. $ 694,157 $ 748,9S4 $ 445,32S $ 397,474 Net Earnings $ 151,GOG $ 146,310 $ 132,840 $ 140.519 Ratio of Earnings to Fixed Chargesl 3.02 2.G3 2.32 2.81 Scplcmbcr 30, 19SG As Ad'ustcdl 1 Al I A>> I Pec>>t Capitalization:
Long-term Debt (including current maturitics) .....,. $ 1,014,465 $ 954,7G5 44.3%
Cumulative Preferred Steely:
IVith htandatory Redcniption Requirements 70,955 70,955 3.3 IVithout Mandatory Redemption Requirements . 59,000 59,000 2.7 Colnnlon Stock Equity 1.072.8GS 1.072,SGS 49.7 Total . $ 2.217,28S $ 2.157,588 100.0%
Short.term Dorrovvings $ 147,620 l For the purpose of computing this ratio, earnings have been calculated by adding, back the provision for income taxes (including, for the twelve months ended September 30, 1986 and the year ended December 31, 1985, substantial amounts of income taxes related to the Previous Sale and Leaseback Transactions) and fixed charges. Fixed charges include total interest charges (without reduction for the allowance for borrowed funds used during construction) and the interest portion of all rents.
x l t Adjusted to reflect the redemption on October 10, 1986 of 859.7 million principal amount of PNM's first'mortgage bonds. The Leases in the Previous Sale and Leaseback Transactions are operating leases (as defined u'nder generally accepted accounting principles). The'Leases in subsequent Sale and Leaseback Transactions are also expected to be operating leases.'Accordingly, neither any lease obligations nor any lease obligation'notes or bonds issued in connection witli any thereof are reflected in PNM's capitalization.
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CERTAIN TERMS OF TE1E OFFERED BONDS The following information concerning. the Offered Bonds,,supplements and should be read in conjunction with the statements under '.DESGMpTION 0F TlIE 80NDs in the accompanying Prospectus.
Capitalized terms used in this Prospectus Supplement have the same meanings as in the accompanying Prospectus. See "Gt.ossAnv" in the accompanying Prospectus.
Principal Amounts, Interest Rates, Maturities and Payment The Offered Bonds are to be issued under a Collateral Trust Indenture dated as of December 16, 1985 (the "Indenture" ) among First PV, PNM and Chemical Bank, as indenture trustee (the "Trustee" ), as previously supplemented and as to be supplemented by a Series 198GB Bond Supple-mental Indenture thereto to be datecl as of November 18, 1986 among such parties (the "Supplemental Indenture" ).
The Offered Bonds will be limited to an aggregate principal amount of $ 4G0,000,000, consisting of
$ 13,988,000 aggregate principal amount of Offered Bonds Due January 15, 1992, $ 60,347,000 aggregate principal amount of Offered Bonds Due Jamiary 15, 1997 and $ 385,6G5,000 aggregate principal amount of Olfered Bonds Due January 15, 2016 (the aggregate principal amount of Offered Bonds due on each maturity date being referred to as a "Maturity"). The Offered Bonds will bear interest from the date of their authentication and delivery at the, rate per annum for each respective Maturity shown on the cover page hereof, payable semi-annually on January 15 and July 15 in each year, commencing January 15, 1987, to the registered owners thereof at the close of business on the December 31 or June 30, as the case may be, next preceding such interest payment date, subject to certain exceptions. If the scheduled payment date for the Offered Bonds is not a business day, payment may be made on the next succeeding business day with the same effect as though made on thc date due. Interest on any overdue principal and premium, ifany, and (to the extent permitted by applicable law) any overdue interest on any Olfered Bond shall be paid, on demand, from the due date thereof at the rate equal to 1% above the interest rate on such Offered Bond. (Indenture, Sections 1.13, 2.03 and 2.10, Supplemental Indenture and form of Olfered Bond)
The principal of, premium, if any, and interest on, the Offered Bonds will be payable at the corporate trust ofBce of Chemical Bank, Paying Agent. Payment of interest may, however, be made at the option of First PV by check mailed to the address of the person entitled thereto, as shown in the bond register. (Indenture, Sections 2.03 and 2.10, and form of Offered Bond)
Sinking Fund Redemption The Indenture provides for the redemption of the Offered Bonds, on a pro rata basis for Offered Bonds of all Maturities, through operation of a sinking fund on each of the dates set forth below (other than maturity dates), at the principal amount thereof, together with interest accrued to the redemp-tion date; provided, however, that the Trustee shall first select for. redemption on any sinking fund date on which Offere Bonds Due January 15, 2016 are to be redeemed in accordance with the sinking fund relating thereto, such Offered Bonds, ifany, of such Maturity as First PV shall specify are held by PNM or an affiliate of PNM in a request delivered to the Trustee at least 40 (but not morc than 90) days prior to such sinking fund date. The principal amounts of Offered Bonds of the respective Maturities to be redeemed on such dates, as well as the principal amounts payable on the final maturity date of each Maturity, are set forth in the following table opposite such dates. (Indenture, Section 7.01, Supplemen-tal Indenture and form of Offered Bond)
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Offcrcd Bonds Duc Offered Bonds Duc Offcrcd Bonds Duc January 15, 1992 Janua 15, 1997 January 15, 2010 July 15, 1989...... 379,000 January 15, 1990... 773,000 July 15, 1990...... 1,344,000 January 15, 1991... 2,221,000 July 15, 1991 ...... 4,545,000 January 15, 1992... 4,726,000 July 15, 1992 ...... $ 4,916,000 January 15, 1993... 5,137,000 July 15, 1993...... 5,366,000 January 15, 1994...
July 15, 1994 ...... 5,607,000',857,000 January 15, 1995... 6,118,000 July 15, 1995...... G,395,000 January 15, 1996... 6,680,000 July 15, 1996...... 6,980,000 January 15, 1997... 7,291,000 July 15, 1997...... 8 7,618,000 January 15, 1998... 8,005,000 July 15, 1998...... 8,211,000 January 15, 1999... 7,383,000 July 15, 1999...... 6,891,000 January 15, 2000. '.. G,921,000 July 15, 2000 ...... 7,004,000 January 15, 2001... 6,739,000" July 15, 2001 ...... 7,065,000 January 15, 2002... 7,116,000 July 15, 2002 ...... 7,414,000 January 15, 2003... 7,439,000 July 15, 2003...... 7,783,000 January 15, 2004.... 7,839,000 July 15, 2004 ....... 8,289,000 January 15, 2005.... 8,352,000 July 15, 2005 ....... 8,830,000 January 15, 200G.... 9,063,000 July 15, 2006 ....... 9,635,000 January 15, 2007.... 9,250,000 July 15, 2007 ....... 10,2G2,000 January 15, 2008.... 9,892,000 July 15, 2008....... 12,043,000 January 15, 2009.... 11,501,000 July 15, 2009....... 12,938,000 January 15, 2010.... 12,367,000 July 15, 2010 ....... 13,904,000 January 15, 2011.... 13,301,000 July 15, 2011 ....... 14,947,000 S-4
OA'cred Bonds Duc Oil'ercd Bonds Duc Oiicre<t Bonds Duc January l5, l992 January l5, l997 January 15, 20l6 January 15, 2012.. $ 14,309,000 July 15, 2012..... 13,495,000 January 15, 2013.. 10,850,000 July 15, 2013..... 12,502,000 January 15, 2014.. 11,555,000 July 15, 2014 ..... 13,314,000 January 15, 2015.. 19,217,000 July 15, 2015..... 10,473,000 January 15, 2016.. 11,948,000 The principal amount of Oifered Bonds Due January 15, 2016 to be redeemed through operation of the sinking fund for the Offered Bonds of such Maturity may be adjusted once (upward or downward) at the discretion of First PV prior to July 15, 1997; provided, however, tint such adjustment shall not increase or reduce the average life of the Offered Bonds of such Maturity (calculated in accordance with generally accepted financial practice from the date of initial issuance) by more than two years; provided further, however, that such adjustment may only be made in connection with an adjustment to basic rent. The Trustee shall, at the expens'e of PNM, send to each holder of Olfered Bonds of such Maturity at least 20 days before the Arst sinking fund date to be affected thereby, by first class mail, a revised schedule of principal amounts of sinking fund payments applicable to such Offered Bonds. (Supplemental Indenture and fo'rm of Olfered Bon<l)
The sinking fund schedules for the OA'cred Bonds and tlie 1986A Bonds have been designed to match the amortization schedules for the Pledged Lessor Notes. In the event there shall be any partial redemption of OA'ered Bonds (other than pursuant to the sinking fund), the principal amounts of Offered Bonds to be redeemed pursuant to the sinking fund schedules indicated above after any such redemption shall be adjusted in a manner which will preserve the relationship between such amortization schedules and the sinking fund schedules for the remaining outstanding Offered Bonds.
(Supplemental Indenture)
Optional Redemption The Olfered Bonds may not be redeemed at the option of First PV prior to January, 15,J.992. On and after January 15, 1992, the Offered Bonds Due January 15, 1997 and the OAered Bonds Due January 15, 2016 may.be redeemed at the option of First PV, exercisable at the direction of a Lessor whose Pledged, Lessor Notes are then proposed to be prepaid, in whole or in part at any time with monies deposited with the Trustee, on not less than 20 nor more than 60 <lays'otice given by mail, as follows:
(a) The Offered Bonds Due January 15, 1997 may be redeemed at the following redemption prices (expressed as a percentage of principal amount), together with interest accrued to the redemption date:
Twelve xlonih llc<lenialion I eriod Beginn>ng Price January 15, 1992 102.557%
January 15, 1993 101.279 and thereafter at the principal amount thereof, together with interest accrued to the redemption <late.
(Indenture, Section 2.03, and form of Olfered Bond)
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(b) The Offered Bonds Due January 15, 2016 may be redeemed at the following redemption prices (expressed as a percentage of principal amount), together with interest accrued to the redemption date:
Twelve Afonlh Redemption Month Redemption Period Beginnin January January 15, 15,
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1992...
1993...
Prico 108.120%
107.714
'welve Period Bc innin January January 15, 15, 2002..
2003..
Prico 104.0G0%
103.G54 January 15, 1994... 107.308 January 15, 2004.. 103.248 January 15, 1995... 106.902 January 15, 2005.. 102.842 January 15, 1996... 106.496 January 15, 2006.. 102.43G January 15, 1997... 10G.090 January 15, 2007.. 102.030 January 15, 1998... 105.G84 January 15, 2008.. 101.624 January 15, 1999... 105.278 January 15, 2009 .. 101.218 January 15, 2000... 104.872 January 15, 2010.. 100.812 January 15, 2001... 104.466 January 15, 2011.. 100.406 J
and thereafter at the principal amo'unt thereof, together with interest accrued to the redemption date.
(Indenture, Section 2.03, and form of Offered Bond) b Special Mandatory Redemption Obsolescence. If a Lease shall be terminated by reason of obsolescence, which termination may not occur earlier than January 15, 1997 or later than January 15, 2013 (see "DESClttFfION OF THE LEAsEs Termination for Obsolescence" in the accompanying Prospectus), Offered Bonds Due January 15, 2016 will be redeemed, in part, in an aggregate principal amount equal to the aggregate principal amount of all Pledged Lessor Notes related to such Lease to be prepaid, at a redemption price of 100% of the principal amount thereof, together "with interest accrued to the redemption date.
(Supplemental Indenture and form of Offered Bond)
Unused Proceeds. The Supplemental Indenture provides that if proceeds of the issuance of the Olfered Bonds intended to be used in connection with future Sale and Leaseback Transactions are not so utilized by the date which is two months from issuance of such Offered Bonds, First PV may at any time (but must by the date which is three months after the expiration of such two-month period) cause the redemption of Offered Bonds in an amount equal to the amount of such proceeds not so utilized. Any such redemption shall be at a price of 101% of the principal amount of the Offered Bonds to be redeemed, together with interest thereon to the date of redemption. In connection with the issuance and sale of the Offered Bonds, PNM will agree to pay First PV a commitment fee adequate to provide any funds necessary, in excess of the amount otherwise available to First PV, to enable First PV to effect any such redemption.
Proceeds of the Offered Bonds aggregating 888,000,000 are expected to be loaned by First PV to Lessors in future Sale and Leaseback'Transactions to pay a portion of the purchase price of the Remaining Interest (see "UsE oF PBocEEDs '). Two Participation Agreements with respect to such sale and Leaseback Transactions (one relating to Unit 1 and one relating to Unit 2) have been executed with an Equity Investor, and, subject to satisfaction of various customary closing conditions, it is anticipated that such transactions will be consummated by December 31, 1986. Proceeds of Offered S-6
Bonds of the following Maturities and principal amounts are expected to be utilized in such proposed Sale and Leaseback Transactions:
Pro pe scil Proposed Unit I Sale Unit 2 Sale and Leaseback and Leaseback Transaction Transaction Offered Bonds Due January 15, 1992 . $ 3,300,000 8 1,270,000 Offered Bonds Due January 15, 1997 8,060,000 3,501,000 Offered Bonds Due January 15, 2016 48,G40,000 23,229,000 If less than all such proceeds are loaned by First PV to Lessors, Olfered Bonds of the respective Maturities will be subje'ct to mandatory redemption in amounts proportional to the proceeds not so utilized. The particular Offered Bonds to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate, which method may provide for the selection for redemption of portions of the principal amounts of Offered Bonds of any denomination larger than
$ 1,000. (Indenture, Section G.02, Supplemental Indenture and form of Offered Bond)
USE OF PROCEEDS Proceeds of the issuance of the Offered Bonds will be used as follows: (a) $ 40,000,000 thereof will be used to retire bank indebtedness incurred by First PV in an equal principal amount in connection with the August 1 Sale and Leaseback Transaction, which bank indebtedness matures on January 15, 2015 and initially bears interest at the prime rate of the lender, which interest'ate will increase to 125% of such prime rate on January 31, 1987; (b) $ 325,960,123 thereof will be used to retire bank indebtedness incurred by First PV in an equal principal amount in connection with the August 18 Sale and Leaseback Transactions, which bank indebtedness matures on January 15, 201G and initially bears interest at the prime rate of one of the lenders, which interest rate will increase to 125% of such prime rate on February 19, 1987; (c) $ 88,000,000 thereof will be held by the Trustee and temporarily invested pending the expected lending thereof by First PV to Lessors to pay a portion of the purchase price of the Remaining Interest (see",CEIITAIN,TEIthlS OF TIIE OFFERED BQNDS Special Mandatory Redemp-tion" in th'is Prospectus Supplement); and (d) the remaining approximately $ 6,000,000 thereof will be loaned by First PV to the Lessors in certain of the Previous Sale and Leaseback Transactions and used to refund an equal amount of the funds previously provided by the Equity Investors in such transactions. See INTItoDUOTloN in the accompanying Prospectus.
The proceeds to gNM from Sale and L'easeback Trarisactions with respect to the Remaining Interest are expected to be used to ofFset'uture funding requirements and will be invested until so used. PNM's utility contruction program and,operations are described generally under "PNM's CoNsTItucnoN PRooRAM AND FINANciNo REqUIREhIENTs" in the accompanying Prospectus and in the documents incorporated therein by.'reference.
RECENT DEVELOPMENTS I it The Ninety-ninth Congress adjourned in October 1986 without aniending the Price-Anderson Act.
It is not certain that the next Congress, scheduled to convene in January 1987, will revive any of the bills introduced in the Ninety-ninth Congress, or that Congress will amend the Price-Anderson Act in any respect, see "DEscRIPTloN QF TIIE PALQ vERDE NUULEAR GENERATING sTATIQN Liability and Insurance Matters" in the accompanying, Prospectus.
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UNDERWRITERS Subject to the terms and conditions contained in the Underwriting Agreement, a copy of the form of which is filed as an exhibit to the Registration Statement, as supplemented by a Pricing Agreement dated November 18, 1986, the Underwriters named below have severally agreed to purchase the respective principal amounts of the Olfered Bonds set forth below.
Oil'crcd Bonds Ollcrcd Bonds Ofl'crcd Bonds Duc January 15, Duc January 15, Duc January 15, IOG2 199i 20IG Kidder, Peabody &.Co. Incorporated .......... $ 4,662,667 $ 20,115,667 $ 79>555,000 Goldman, Sachs & Co. 4,6G2,G67 20,115,GG7 79,555,000 Drexel Burnham I lambert Incorporated ........ 4,G62,666 20,115,GGG 79,555,000 The First Boston Corporation................. 11,200,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated 11,200,000 Morgan Stanley & Co. Incorporated ........... l1,200,000 Salornon Brothers Inc . 11,200,000, Shearson Lehman Brothers Inc................ 11,200,000 Bear, Stearns & Co. Inc. 9,100,000 Alex. Brown & Sons Incorporated ............. 9,100,000 Dillon, Read & Co. Inc 9,100,000 E. F. Hutton & Company Inc. 9,100,000 PaineWebber Incorporated 9,100,000 Prudential-Bache Securities Inc................ 9,100,000 L. F. Rothschild, Unterberg, Towbin, Inc....... 9,100,000 Smith Barney, Harris Upham & Co.
Incorporated . 9,100,000 Wertheim & Co., Inc.. 9,100,000 Dean Witter Reynolds Inc. 9,100,000 Total .. $ 18,988000 SG0,347000 8385,GG5,000 PNM has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
Kidder, Peabody & Co. Incorporated, Goldman, Sachs & Co. and Drexel Burnham Lambert Incorporated, as Representatives of the several Underwriters, have advised PNM as follows:
The several Underwriters are offering the Olfered Bonds to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to dealers at a price which represents a concession of .3% of principal amount under the public offering price in the case of the OAered Bonds Due January 15, 1992, .4% in the case of the Offered Bonds Due January 15, 1997, and .5% in the case of the Offered Bonds Due January 15, 201G, of which, in each case, not in excess of .25% of principal amount may be reallowed to certain other dealers. After the initial public offering, the public oA'ering price and the concessions may be changed by the Representatives.
The Underwriting Agreement provides that the several Underwriters do not have the right to purchase less than all of the Olfered Bonds ofFered hereby and that a default by one or more Underwriters would not relieve the non-defaulting Underwriters from their several obligations. In the event of a default involving not more than 10% of the principal amount of the OAered Bonds, the non-defaulting Underwriters would be required to purchase the Offered Bonds agreed to be purchased by the defaulting Underwriters in proportion to their respective obligations. In the event of a default in S-8
excess of 10% of the principal amount of the Offered Bonds, PNM has the right to require the Underwriters to purchase less than all of the Offered Bonds.
Burnham Leasing Corporation ("Burnham"), an afliliate of Drexel Burnham Lambert Incorpo-rated, one of the Representatives'f the several Underwriters, was one of the Equity Investors in the Initial Sale and Leaseback Transactions and acquired a 2.266667% undivided interest in Unit 1 for a net equity investment of approximately $ 22,456,000. Burnham was also one of the Equity Investors in the August 1S Sale and Leaseback Transactions and acquired a 2.2666667% undivided interest in Unit 2 for an equity investment of approximately $ 26,000,000. Burnham will receive $ 2,456,000 from the proceeds of the sale of the Offered Bonds as a partial refunding of its investment in the Initial Sale and Leaseback Transactions. (See "UsE oF PHQGEEDS in this Prospectus Supplement.)
S-9
l Lease Obligation Bonds The Lease Obligation Bonds (the "Bonds") ioillinitiallybe secured indirectly, as described h'erein, by an assignment of rentals under leases relating to 'undivided interests in up to 10.2% of Units 1 and 2 and certain common facilities of the Palo Verde Nuclear Generating Station to be paid by Public SeLvice, Company of New Mexico Public Service Company of New Mexico ("PNM") will be unconditionally obligated to make basic rental and certain other payments in amounts which will be at least sufficient to pay in full, when due, all payments of principal of, premium, if any, and interest on, the Bonds, although the Bonds will not be direct obligations of or guaranteed by PNM.
.First PV Funding Corporation ("First PV"), a corporation created for the sole purpose of the financing described herein and other similar financings, intends from time to time to issue up to
$ 467,000,000 aggregate principal amount of the Bonds on terms to be. determined at, the time of sale.
For each series of Bonds for which this Prospectus is being delivered (the "Offered Bonds" ), there is an accompanying Prospectus Supplement (the "Prospectus Supplement" ) that sets forth the series designation, aggregate principal amount of the issue, interest rates; maturities, redemption terms and other special terms of the Offered Bonds.
The Bonds will be issued primarily to provide funds which will bd (a) loaned by First PV to owner trusts which will acquire from PNM and be Lessors to PNM of undivided ownership interests in Units I and 2 and certain common facilities of the Palo Verde Nuclear Generating Station, or (b) used by First PV to retire interim indebtedness previously incurred by First PV in order to enable First PV to make initial purchase money loans to Lessors who previously acquired undivided interests in Unit I or Unit 2 and such common facilities, in which latter case new loans (as described in clause (a) ) willbe made to such Lessors and the notes from such Lessors to First PV evidencing the 'prior loans will be canceled.
All such loans to be made to the Lessors will be evidenced by nonrecourse Lessor Notes issued by the Lessors which will be pledged as security for the Bonds. Such Pledged Lessor Notes will be secured by separate assignments of the basic rentals and certain other amounts payable by PNM under the Leases.
See "GI.ossARY" for definitions of certain terms used herein. See also "INTRODUcrioN", "SEcURITY AND SOURCE OF PAYMENT FOR THE BONDS >
DESCRIPTION OF THE PALO VERDE NUCLEAR GENERATINC STATIoN, DEscRIPTIoN oF THE BQNDs, DEscRIPTIoN oF THE LEAsE INDENTUREs and "DEscRIFrioN OF THE LEASES .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION To THE'CONTRARY IS A CRIMINALOFFENSE.
The Bonds will be sold through one or more of the underwriters named below or an underwriting syndicate including and represented by one or more of such firms. The net proceeds to First PV from the sale of any Offered Bonds, and any applicable commissions or discounts, are set forth in the Prospectus Supplement. See "PLAN OF DISTRIIIUTION" for indemnification arrangements for underwriters.
Kidder, Peabody P Co.
Incorporated Goldman, Sachs 8c Co.
Drexel Burnham Lambert Incorporated The date of this Prospectus is September 17, 1986.
AVAILABLEINFORMATION PNM is subject to the information requirements of the Securities Exchange Act of 1934 (the "1934 Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "SEC"). Certain information, as of particular dates, concerning directors and officers, their remuneration, and any material interest of such persons in transactions with PNM is discussed in proxy statements of PNM distributed to shareholders of PNM and filed with the SEC. Such reports, proxy statements and other information can be inspected a'nd copied at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional offices at the Everett McKinley Dirksen Building, 219 South
Dearborn Street,
Room 1204, Chicago, Illinois 60604 and 26 Federal Plaza, Room 1028, New York, New York 10278. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, PNM's common stock is listed on the New York Stock Exchange. Reports, proxy statements and other information concerning PNM can be inspected and copied at the Library of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE l
There are hereby incorporated by reference in this Prospectus the following documents previ-ously filed with the SEC pursuant to the 1934 Act:
- 1. PNM's Annual Report on Form 10-K for the year ended December 31, 1985 (the "1985 Form 10-K").
- 2. PNM's Proxy Statement/Prospectus dated April ll, 1986, in connection with its Annual Meeting of Stockholders on May 20, 1986.
- 3. PNM's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1986 and June 30, 1986. H
- 4. PNM's Current Reports on Form 8-K filed on 'February 12, 1985 (as amended by Form'8 filed April 12, 1985), January 14, 1986, March 3, 1986, June 30, 1986, July 16, 1986, July 31, 1986, September 2, 1986 and September 9, 1986.
All documents filed by'PNM pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior to the termination of the offering of Bonds contemplated hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents.
PNM hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to'above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed to Mr. A. J. Robison, Senior Vice President and Chief Financial Officer, Public Service Company of New Mexico, Alvarado Square, Albuquerque, New Mexico 87158 (telephone number (505) 848-2700).
SUMMARY
INFORMATION RELATING TO THE BONDS The'aterial set forth in the follotoing summaries is qualiped in its entirety by the detailed infortnation appearing elsewhere in this'Prospectus and in the accompanying Prospectus Snppletnent. See GLossARY for definitions of certain terins used herein.
Securities hh Offered................. Lease Oblig ation Bonds. See the accom p an ying Pros p ectus Supplem'ent.
Interest Payment Dates............ See the accompanying Prospectus Supplement.
Sinking Fund See the accompanying Prospectus Supplement.
Optional Redemption.............. See the accompanying Prospectus Supplement.
Special Mandatory Redemption..... See the accompanying Prospectus Supplement.
Use of Proceeds . The proceeds of the sale of the Bonds will be (a) loaned by First PV to Lessors and will be used by the Lessors to pay a portion of the purchase price of undivided interests in Units 1 h and 2 of the Palo Verde Nuclear Generating Station h h ("PVNGS"), or (b) used by First PV to retire interim indebt-edness previously incurred by First PV in order to enable First PV to make initial purchase money loans to Lessors who previously acquired such undivided interests. See "UsE oF PRocEEDs herein and in the accompanying Prospectus l
Supplement.
Approximately 76% to 80% of the purchase price of such undivided interests is provided by loans to the Lessors of proceeds of the sale of the Bonds. The remainder is provided h to the Lessors by Equity investors.
Security and Source of Payments ... The Bonds will initially be secured by Pledged Lessor Notes issued in connection with Sale and Leaseback Transactions with respect to PNM's undivided interest in PVNGS Units 1 and 2. The payments due on the Pledged Lessor Notes will equal all payments due on the Bonds and the 1986A Bonds.
The Pledged Lessor Notes will be secured by separate assign-ments of the right to receive basic rentals and certain other amounts payable by PNM under the Leases. See "SECURrrY AND SOURCE OF PAYMENT FOR THE BONDS .
PNM will be unconditionally obligated to pay basic rentals and make certain other payments under the Leases in amounts which will be at least sufficient to provide for the payment in full when due of principal of, premium, ifany, and interest on, the Pledged Lessor Notes and, in turn, the Bonds and the 1986A Bonds, although neither the Bonds, the 1986A Bonds nor the Pledged Lessor Notes will be direct obligations of or guaranteed by PNM. Each Lease will be a "net lease" with all such payments being required to be made without counterclaim, setoff, deduction or defense. The holders of the Bonds will have no recourse against the general credit of the Lessors in their individual capacities. See "DEscRiPTtoN oF TltE LEASES .
Although the Lease Indenture Trustee under each Lease Indenture does not have a lien on or security interest in the property which is the subject of the related Lease, each
Lessor covenants that, so long as its Lessor Notes are out-standing, it will not create or permit the creation of a lien on or otherwise encumber its interest in such property (except for certain permitted encumbrances) and will not incur any indebtedness for money borrowed except Lessor Notes. How-ever, in certain situations, the Lease Indenture Trustee under the related Lease Indenture may acquire a lien on and secur-ity interest in the property subject to the related Lease. See SECURITY AND SOURCE OF PAYMENT FOR THE BONDS .
Under certain circumstances, PNM will be required to assume all or a portion of the Pledged Lessor Notes and all obligations of the Lessors thereunder and under the related Lease Inden-tures. See "DEscRIPTIoN oF THE LEAsE INDENTUREs-Assumption by PNM".
Description of the Palo Verde Nuclear Generating Station .. PVNGS consists of three 1,270 MW units, each containing a pressurized water reactor, located 55 miles west of Phoenix, Arizona. See DEscRIPTIoN 0F THE PALo VERDE NUcLEAR GENERATING STATION .
First PV Funding Corporation .. First PV was incorporated in Delaware in September 1985 for the sole purpose of facilitating the long-term Bnancing of PNM's interest in PVNGS. The assets of First PV will consist primarily of Pledged Lessor Notes, which are payable from basic rentals and certain other payments which PNM will be unconditionally obligated to make under the Leases.
Trustee The Trustee for the Bonds will be Chemical Bank. Chemical Bank will also act as trustee in respect of the Pledged Lessor Notes under each of the Lease Indentures.
SUMMARY
INFORMATION RELATING TO PNM The following material, which is presented herein solely to fiirnish litnited infortnation regarding PNM, has been selected from the detailerl information and financial statements appearing in the documents incorporated herein by reference or elsewhere in this Prospectus and is rtualified in its entirety by reference thereto.
PNM Principal Business Electric and gas utility serving portions of New Mexico Estimated Generating Fuel fo'r 1986 (on the basis of kWh) Coal 85.2%; Nuclear 12.9%; Gas and Oil 1.9%
Estimated 1986 and 1987 Electric, Gas and Water Utility Construction Expenditures............. 8224 million and 8151 million, respectively. (See PNM s CoNGTRUcrioN PRoGRAhi AND FINANCING REQUIREMENTS".)
CONSOLIDATED FINANCIALINFORMATION (Dollars in Thousands)
'wclvc hlonths Ended Year Ended December 31, Junc 30, IOSG 1985 IOS4 1983 Statcmcnt of Earnings Data:
Operating Revcnucs. ~ 1 ~ ~ $ 703,386 $ 748,984 $ 445,328 $ 397,474 Net Earnings $ 154,760 $ 14 G,310 $ 132,840 $ 140,519 Ratio of Earnings to Fixed Charges 2.42 2.63 2.32 2.81 unc 30, IOSG As Adjustedl Actual Amount Percent Capitalization: k Long-term Debt (including current maturities) $ 1,004,G04 $ 907,427 43.4/o Cumulative Preferred Stock:
With Mandatory Redemption Requirements. 113,780 70,955 3.4 Without Mandatory Redemption Requirements 102,792 59,000 2.8 Common Stock Equity . 1,053,510 1,053,510 50.4 Total . . '2,274,686 $ 2,090,892 '100.0%
Short term IIorrowings. 91,800 f Adjusted to reflect the expected redemption or purchase of $ 97.2 million principal amount of PNM's first mortgage bonds and the redemption or purchase of 886.6 million aggregate stated value of PNM's preferred stock (see "PNM's CoNsTRUGTIoN PRoGRAhi AND FINANGING REQUIREhiENTs-Financing Considerations" ). The Leases in the Previous Sale and Leaseback. Transactions are operating leases (as defined under generally accepted accounting principles). The Leases in subsequent Sale and Leaseback Transactions are also expected to be operating leases. Accordingly, neither any lease obligations nor any lease obligation notes or bonds issued in connection with any thereof are reflected in PNM's capitalization.
GLOSSARY Certain capitalized terms used in this Prospectus have the following meanings:
"August Sale and Leaseback Transactions" means, collectively, the August 1 Sale and Leaseback Transaction and the August 18 Sale and Leaseback Transactions.
"August 1 Sale and Leaseback Transaction" means the Sale and L'easeback Transaction consum-mated on August 1, 1986 pursuant to which PNM sold approximately 11.1% of its original 10.2%
undivided ownership interest in Unit 1 and approximately 3.7% of its original undivided ownership interest in certain common facilities of PVNGS to a Lessor and leased such interest back pursuant to a Lease (see "INTHQDvcTIQN ).
"August 18 Sale and Leaseback Transactions" means the five Sale and Leaseback Transactions consummated on August 18, 1986 pursuant to which PNM sold'approximately 92.2% of its original 10.2% undivided ownership interest in Unit 2 and approximately 30.7% of its original undivided ownership interest in certain common facilities of PVNGS to Lessors and leased such interests back pursuant to separate Leases (see "INTHODvcrtoN").
"Bonds" means the $ 467,000,000 principal amount of Lease Obligation Bonds to which this Prospectus relates.
"Cure Option" means the option of PNM to cure certain specified Events of Default under the Leases upon the exercise of which PNM must (subject to certain specified conditions) assume Pledged Lessor Notes (see "DEscRIPTIoN oF THE LEAsE INDENTvHEs Assumption by PNM").
"Deemed Loss Event" means one of the events designated as such in the Leases upon the occurrence of which PNM must (subject to certain specified conditions) assume Pledged Lessor Notes (see DEscHIPTIQN oF TEIE LEAsE INDENTUHEs Assumption by PNM").
"Equity Investors" means the institutions which own the beneficial interests in the Lessors.
"Event of Loss" means one of the events designated as such in the Leases upon the occurrence of which PNM must (subject to certain specified conditions) assume Pledged Lessor Notes (see DEscHIFrIQN oF THE LEAsE INDENTvREs Assumption by PNM").
"Indenture" means the Collateral Trust Indenture, dated as of December 16, 1985, among PNM, First PV and Chemical Bank, as indenture trustee, as heretofore supplemented and amended, pursuant to which the Securities are issued.
"Initial Sale and Leaseback Transactions" means the three Sale and Leaseback Transactions consummated on December 31, 1985 pursuant to which PNM sold approximately 72.2% of its original 10.2% undivided ownership interest in Unit 1 and approximately 24.1% of its original undivided ownership interest in certain common facilities of PVNGS to Lessors and leased such interests back pursuant to separate Leases (see "INTHoovcTtoN").
"Lease" means a Lease under which PNM leases back an undivided interest in Unit 1 or Unit 2 from a Lessor.
"Lease Indenture" means a document entitled "Trust Indenture, Mortgage, Security Agreement and Assignment of Rents" between a Lessor and Chemical Bank, as indenture trustee, pursuant to which Lessor Notes are issued.
"Lease Indenture Trustee" means Chemical Bank, as trustee under the Lease Indentures.
"Lessor Notes" means all Lessor Notes issued by Lessors under the Lease Indentures, including the Pledged Lessor Notes.
"Lessor" means a trust which purchases an ownership interest in Unit 1 or Unit 2 from PNM and leases such interest back to PNM.
aggregate principal amount. First PV used $ 249,870,794 of the proceeds from the sale of the '1986A Bonds to retire the interim indebtedness incurred in connection with the Initial Sale and Leaseback Transactions, and the remaining 83,806,206 was loaned to the Lessors in the Initial,Sale and Leaseback Transactions and used to refund an equal amount of the approximately $ 74,750,000 previously provided by the Equity Investors in such transactions.
The total consideration to PNM from the August 1 Sale and Leaseback Transaction was approximately $ 50,000,000. Of the total consideration, approximately $ 10,000,000 was provided by the Equity Investor and 840,000,000 was loaned by First PV to 'the Lessor. In order to obtain the
$ 40,000,000 loaned by First PV to the Lessor, First PV borrowed an equal amount from a bank and issued its note, on the basis of the pledge of a Lessor Note in an equal principal amount, therefor.
The total consideration to PNM from the August 18 Sale and Leaseback Transactions was approximately $ 415,000,000. Of the total consideration, approximately 889,040,000 was provided by the Equity Investors and approximately $ 325,960,000 was loaned by First PV to the Lessors. In order to obtain the approximately $ 325,960,000 loaned by First PV to the Lessors, First PV borrowed an equal amount from banks and issued its notes, on the'basis of the pledge of Lessor Notes in an equal aggregate principal amount, therefor.
Should the Company sell and lease back all or any part of the Remaining Interest, the aggregate principal amount of the Bonds will be sufficient to provide the debt portion of the purchase price therefor. First PV may issue Bonds in advance of a Sale and Leaseback Transaction, in which case any such Bonds, the proceeds of the issuance of which are riot utilized in'a Sale and Leaseback Transaction on or before the date two months after the date of issuance thereof; must be redeemed on or before the date five months after the date of issuance thereof. See "DzscntrnoN, oF TH@ Bomos Special Mandatory Redemption". PNM and a Lessor may also elect to consummate a Sale and Leaseback Transaction prior to the issuance of the related Bonds using funds borrowed by First PV from banks or other sources. In such case, it is expected that Bonds would subsequently be issued in 'order to retire such interim indebtedness. See "UsE'oF PRocEEDs . It, is expected that the proceeds to PNM from future Sale and Leaseback Transactions would be approximately $ 110,000,000 if all of the Remaining Interest is sold. The actual sales prices would be confirmed by appraisal as fair market value.
NMPSC Regulation of Sale and Leaseback Transactions PNM has obtained approvals for the Sale and Leaseback Transactions from the New Mexico Public Service Commission (the "NMPSC"). In addition, ratemaking treatment for paymen'ts by PNM under the'Leases was approved by the NMPSC in August 1986. The NMPSC approval generally adapts the inventoried capacity ratemakingmethodology to Sale and Leaseback Transactions. Inventorying is designed to move incremental base load plant into New Mexico jurisdictional rate bas'e in conjunction with increased New Mexico jurisdictional'oad. 'PNM has -determined that completed Sale and Leaseback Transactions will generally reduce the amount of costs deferred under the inventorying methodology.
I USE OF PROCEEDS Proceeds of the issuance of Bonds will be (a) used by First PV to retire interim indebtedness previously incurred by First PV in order to enable First, PV to,make initial purchase money loans to Lessors who have previously acquired undivided interests, including the interim indebtedness in-curred by First PV in connection with the August Sale and Leaseback Transactions, (b) loaned by First PV to Lessors and used by the Lessors to pay a portion of the purchase price of all or a portion, of the Remaining Interest, (c) loaned, by First PV to Lessors and used to refund a portion of amounts previously provided by Equity Investors in prior Sale and Leaseback Transactions, or (d) loaned by First PV to Lessors and used to finance all or a portion of the cost of certain capital improvements to Unit 1 or 2. See the accompanying Prospectus Supplement. To the extent the Bond prodeeds'are to be used to retire interim indebtedne'ss, simultaneously'with such retirement, the Pledged Lesso'r Notes
"1986A Bonds" means First PV's Lease Obligation Bonds, Series,1986A, Due 1991-2014, issued on July 17, 1986 in the aggregate principal amount of $ 253,677,000 (see "INTRODUcrtON").
"Overed Bonds" means the series of Bonds to which a particular Prospectus Supplement relates.
"Oioner Trustee" means the institution which is the trustee of a trust which is a Lessor.
"Pledged Lessor Notes" means the Lessor Notes issued by Lessors under the Lease Indentures, which notes are pledged to the Trustee as security for, and are the source of payment for, the Bonds and the 1986A Bonds (see "sEGURITY AND soURGE oF PAYMENT F08 THE BQNDs ').
"Preoious Sale. and Leasebac/ Transactions" means, collectively, the Initial Sale and Leaseback Transactions and the August Sale and Leaseback Transactions.
means the Palo Verde Nuclear Generating Station, also known as the Arizona Nuclear
'PVNGS" Power Project (see "DEscRIPTIQN QF THE PALo VERDE NUGLEAR GENERATING STATIoN ').
"Remaining Interest" means PNM's (a) remaining interest in Unit 1 and certain common facilities (aggregating approximately 16.7% of its original 10.2% interest in Unit l. and approximately 5.6% of its original undivided ownership interest in such common facilities), and (b) remaining interest in Unit 2 and certain common facilities (aggregating approximately 7.8% of its original 10.2% interest in Unit 2 and approximately 2.6% of its original undivided ownership interest in such common facilities) (see INTRODUCTION ).
"Sale and Leaseback Transaction" means any transaction pursuant to which PNM sells and leases back an interest in Unit 1 or Unit 2.
"Securities" means debentures, notes or other evidences of indebtedness which may be issued under the Indenture.
"Triistee" means Chemical Bank, trustee under the Indenture.
"Unit 1" and "Unit 2" mean, respectively, Unit 1 and Unit 2, and, in each case, certain common facilities, of PVNGS.
INTRODUCTION PNM was incorporated in the State of New Mexico in 1917 and has its principal executive ofBces at Alvarado Square, Albuquerque, New Mexico (telephone number (505) 848-2700). PNM is a public utility engaged principally in the generation, transmission,.distribution and sale of electricity and, since January 28, 1985, in the gathering, transmission, distribution and sale of natural gas within the State of New Mexico. PNM also owns facilities for the pumping, storage, transmission, distribution and sale of water. In addition, PNM, through its subsidiaries, is engaged in a program of diversification into non-utility areas.
PNM is a participant in PVNGS, the construction of Units 1 and 2 of which has been completed.
See "DEscRrPTIQN oF THE PALo VERDE NUGLEAR GENERATING STATloN".
Sale and Leaseback Transactions On December 31, 1985, the Initial Sale and Leaseback Transactions were consummated. The total consideration to PNM from the Initial Sale and L'easeback Transactions was approximately
$ 325,000,000. Of the total consideration, approximately $ 74,750,000 was provided by Equity Investors and $ 250,250,000 was loaned by First PV to the Lessors. In order to obtain the $ 250,250,000 loaned by First PV to the Lessors, First PV borrowed an equal amount from banks and issued its notes, secu'red by Pledged Lessor Notes in an equal aggregate principal amount, therefor.
On July 17, 1986, First PV issued and sold $ 253,677,000 principal amount of Lease Obligation Bonds, Series 1986A, Due 1991-2014 (the "1986A Bonds" ) secured by Pledged Lessor Notes in an equal
pledged as security for such interim indebtedness will be canceled and new Pledged Lessor Notes will be issued and pledged as security for the Bonds. Ifthe Bond proceeds are to be utilized in connection with future Sale and Leaseback Transactions, pending the closing thereof, such proceeds will be invested by the Trustee (Chemical Bank) and held as security until used in connection with such Sale and Leaseback Transactions. If proceeds from the issuance of Bonds are not utilized either to retire interim indebtedness or in connection with a Sale and Leaseback Transaction on or before the date two months after the date of issuance thereof, such proceeds will be used to redeem Bonds on or before the date five months after the date of issuance thereof.
Each Lessor in a Sale and Leaseback Transaction borrows approximately 76% to 80% of the purchase price of its undivided interest in Unit 1 or 2, with the balance of the funds provided by Equity Investors. In connection with the Initial Sale and Leaseback Transactions, the indebtedness incurred by the Lessors for the purchase of their Unit 1 interests, after giving effect to the refunding referred to under "INTRoDUGTIoN Sale and Leaseback Transactions", represents approximately 78% of the cost thereof. The remaining 22% represents funds furnished by Equity Investors. The Equity Investor in the August 1 Sale and Leaseback Transaction provided approximately 20% of the funds required for the purchase of its interest, and the Equity Investors in the August 18 Sale and Leaseback Transactions provided an aggregate of approximately 21.5% of the funds required for the purchase of their interests.
Approximately $ 59,000,000 of the proceeds to PNM of the August 18 Sale and Leaseback Transactions is on deposit with the trustee under PNM's first mortgage bond indenture. PNM intends to apply such funds to the redemption on October 10, 1986 of PNM's outstanding First Mortgage Bonds, 17%% Series due 2011. The balance of the proceeds to PNM from the August Sale and Leaseback Transactions and from any future Sale and Leaseback Transactions is expected to be used to offset future funding requirements and will be invested'until so used. PNM's utility construction program and operations are described generally under "PNM's CoNsTRUcl'loN PRoGRAhf AND FINANG-ING REQUIREMENTs herein and in the documents incorporated herein by reference.
SUMMARY
OF DEBT SERVICE PAYMENTS PUBLIC SERVICE COMPANY OF NEW MEXICO (LESSEE)
Rental Payments Due Under 'the Leases I lt LEASE INDENTURE TRUSTEES
)
Rental Payments Debt Service for in. Excess of Pledged Debt Service Lessor Notes TRUSTEE OWNER FOR TRUSTEES THE BONDS (LESSORS)
I Rental Payments Debt Service for (
in Excess of the Bonds Debt Service EQUITY BONDHOLDERS INVESTORS 10
SECURITY AND SOURCE OF PAYMENT FOR THE BONDS The Bonds will be payable from, and secured by a pledge of, the Pledged Lesso'r Notes issued by the Lessors pursuant to their respective Lease Indentures. The aggregate principal amount of the Pledged Lessor Notes will equal the aggregate amount of the proceeds of the Bonds and the 1986A Bonds loaned to the Lessors, including any proceeds loaned to the Lessors in connection with the retirement of interim indebtedness incurred by First PV in connection with Sale and Leaseback Transactions. The Pledged Lessor Notes will be payable on such dates and in such amounts as are required to pay in full the principal of, premium, if any, and interest on, the Bonds and the 1986A Bonds when due, except in the case of an Indenture Event of Default under one or more, but not all, Lease Indentures.
I The Pledged Lessor Notes are issued under separate Lease Indentures. Each Pledged Lessor Note will be without recourse to the general credit of any Lessor in its individual capacity and, except as set forth below, will not have the benefit of a security interest in the property of the Lessor subject to the applicable Lease, but may nonetheless have recourse to such property in the event of certain payment defaults by PNM under the Lease and failure to cure such default (by making such payment) by the Lessor. Each Pledged Lessor Note will be secured under such Lease Indenture on a parity basis with other Lessor Notes which may be issued in the future thereunder. Such security will consist of an assignment of the rights of the Lessor to receive basic rentals and certain other payments under a Lease with PNM. Each Lease requires that basic rentals and certain other payments be made by PNM in such amounts and at such times as will always provide for the payment when due of the principal of, premium, if any, and interest on, all of the Pledged Lessor Notes issued under such Lessor's Lease Indenture. As such, the expected source of payment for the Pledged Lessor Notes, and thus for the Bonds and the 1986A Bonds, is the basic rentals and certain other payments to be made by PNM under the Leases. Because each Sale and Leaseback Transaction is a separate transaction, events resulting in an Indenture Event of Default under one Lease Indenture will not necessarily lead to an Indenture Event of Default under any other Lease Indenture. Each Lease is a net lease pursuant to which PNM is unconditionally obligated to make all payments thereunder without any right of counterclaim, setoff deduction or defense. Although the Lease Indenture Trustee under each Lease Indenture does not have a lien on or security interest in the property which is the subject of the related Lease, each Lessor covenants that, so long as its Lessor Notes are outstanding, it will not create or permit the creation of a lien on or otherwise encumber its interest in such property (except for certain permitted encumbrances) and will not incur any indebtedness for money borrowed except Lessor Notes.
However, in certain situations relating to the payment by PNM of amounts in respect of Events of Loss or Deemed Loss Events or exercise of the Cure Option, the Lease Indenture Trustee under the related Lease Indenture may acquire a lien on and security interest in the property subject to the related Lease.,
At the closing of each Sale and Leaseback Transaction, each of the Equity Investors in that transaction receives an opinion from independent engineers that the fair market value of its interest is at least equal to the purchase price thereof.
Additional Lessor Notes may be issued under each Lease Indenture, subject to certain conditions as provided in such Lease Indenture, (i) for the purpose of reBnancing any previously issued series of Lessor Notes, (ii) to provide funds for all or any portion of any capital improvement to Unit 1 or Unit 2, as the case may be, or related common facilities and (iii) in the event of certain changes in federal income tax law, for the purpose ofyefunding to the Lessor a portion of its initial investment.
See "DEscRIPTIQN oF THE LEAsE INDENTUREs Additional Notes".
The Indenture under which the Bonds are to be issued provides that securities in addition to the Bonds may be issued thereunder without limitation as to aggregate principal amount. Additional securities could be issued in connection with future sale and leaseback transactions, if any, involving PNM's undivided interest in PVNGS Unit 3. Payments due on lessor notes issued in connection with such future sale and leaseback transactions would equal the payments due on each series of such
additional securities. However, the 1986A Bonds, the Bonds and all additional securities will be secured by the Pledged Lessor Notes. see "DEscRIPTIQN QF THE BoNDs General" and " security and Source of Payment for the Bonds".
For further information with respect to the source of payment for the Bonds and the provisions of the Indenture and the Lease Indentures, see "DEscHIPTIQN oF THE BoNDs and "DEscHIPTIQN oF THE LEASE, INDENTVBES .
FIRST PV FUNDING CORPORATION First PV Funding Corporation was incorporated under the laws of Delaware in September 1985 for the sole purpose of facilitating the long-term financing of PNM's interest in PVNGS, The only business of First PV will be the issuance and sale of debt securities, including the Bonds and the 1986A Bonds, and the lending of the proceeds therefrom to Lessors to provide a portion of the purchase price of undivided interests in PVNGS ("purchase loans" ) in connection with Sale and Leaseback Transac-tions and similar activities in connection with sale and leaseback transactions, if any, involving PNM's undivided interest in PVNGS Unit 3. In addition, First PV will be available to make purchase loans in connection with sale and leaseback transactions relating to the significant capital improvements which will be required to be installed at PVNGS from time to time. The total of PNM's share of the cost of capital improvements for Units 1 and 2 and PNM's share of two-thirds of all PVNGS common'facilities is estimated at approximately 533 million through 1995. Individual series of securities (other than the Bonds) which may in the future be issued under the Indenture may be supported by bank letters of credit, bank lines of credit, bonds of insurance or other credit or liquidity support facilities. First PV may also engage in interest rate swaps with respect to any particular series of securities. The certificate of incorporation of First PV does not permit it to engage in any other business. 'The assets of First PV will consist primarily of the Pledged Lessor Notes and other pledged lessor notes issued to evidence purchase loans. The SEC has issued an order exempting First PV from the provisions of the Investment Company Act of 1940.
DESCRIPTION OF THE PALO VERDE NUCLEAR GENERATING STATION General PVNGS, also known as the Arizona Nuclear Power Project ("ANPP"), consists of three 1,270 MW units. PNM is participating in PVNGS with Arizona Public Service Company ("APS") (the project manager and operating agent) and two other utilities and three public power agencies. Construction of Units 1 and 2 has been completed and APS has reported that, as of June 30, 1986, construction of Unit 3 was 99.7% complete, based on construction man-hours expended and materials installed. Testing phases follow the completion of construction. As project manager, APS is responsible for maintaining schedules.
PNM's 10.2% interest as a participant in PVNGS will amount to approximately 130 MW per unit or a total of 390 MW. Through June,30, 1986, PNM had expended approximately $ 882 million (without giving effect to Sale and Leaseback Transactions) for construction of its share of PVNGS, including allowance for funds used during construction ("AFUDC"), and approximately $ 59 million for nuclear fuel. Based on PNM's current construction budget estimates, the total estimated aggregate cost, excluding costs of related transmission facilities and nuclear fuel prior to commercial operation, but including AFUDC and costs of related pollution control facilities, is expected to be approximately $ 938 million (without giving effect to Sale and 'Leaseback Transactions), resulting in an estimated cost for 390 MW of approximately $ 2,405 per kW. However, APS has advised that actual completion dates, unexpected inflationary pressures and compliance with any additional governmental procedures and regulations could cause final costs to vary substantially from these and'any later estim'ates, as could changes in the plans of the PVNGS participants.
In January 1985, nuclear fuel loading was completed at Unit 1, which was declared'in commercial service on January 28, 1986. Fuel loadin'g at Unit 2 was completed in December 1985, and Unit 2 is now expected to achieve firm power operation in September 1986. Unit 3 of PVNGS is scheduled for fuel loading in the first quarter of 1987 and for firm power operation in the third quarter of 1987. Between fuel loading and firm power operation, Units 2 and 3 must undergo extensive testing. Firm power operation represents the time when power from the units can be reliably scheduled for service to customers, although electricity would be produced prior to the firm power operation dates.
F NRC Jurisdiction PVNGS is subject to the jurisdiction of the Nuclear Regulatory Commission (the "NRC"), which has authority to issue permits and licenses and to regulate nuclear. facilities in order to protect the health and safety, of, the public from radiation hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. Before any'nuclear power plant can become operational, an operating license from the NRC is required.
The NRC has granted facility operating licenses for Units 1 and 2 (the "Unit 1 License" and 'the "Unit 2 License", respectively, and the "Licenses", collectively). The Unit 1 License has a term of 40
'years beginning December 31, 1984, and the Unit 2 License has a term of "40 years beginning December 9, 1985. Under the Licenses, APS is licensed to use and operate Units 1 and 2 while PNM and the other non-operator participants are licensed to possess Units 1 and 2. In accordance with the Licenses, the power output of both'Units has been gradually'ncreased to 100% of capability.
PNM obtained license amendments from the NRC required with respect to the Previous Sale and Leaseback Transactions. Any future Sale and Leaseback Transaction would require a further NRC license amendment.
Liability and Insurance Matters The PVNGS participants have insured against public liability claims resulting from nuclear energy hazards to the full limit ($ 665 million as of September 8, 1986) on liability under federal law (such law bein'g commonly referred to as the "Price-Anderson Act"). The maximum available private insurance of $ 160 million has been purchased, and the remaining coverage ($ 505 million as of September 8, 1986) has been provided through a mandatory industry-wide retrospective rating program, under which ht e PVNGS participants could be assessed deferred premium charges of up to $ 5 million (PNM's share of which would be 10.2%) for each PVNGS reactor which has been licensed for operation by the NRC in the event the total liability arising from any nuclear incident involving any licensed facility in t h e nation participating in such rating program exceeds $ 160 million. In the event of more than one incident, the potential $ 5 million assessment would apply to each incident, subject to a maximum annual assessment of $ 10 million (PNM's share of which would be 10.2%) for each such licensed PVNGS reactor for all incidents. The insureds under the liability insurance include PVNGS participants and "any other person or organization with respect to his legal responsibility for damage caused by the nuclear energy hazard". Such nuclear liability insurance coverage does not apply to damage to the plant facilities.
To cover possible damage to the PVNGS facilities, the PVNGS participants maintain nuclear property damage and decontamination insurance in the aggregate amount of $ 1.160 billion. PNM has also secured insurance against the increased cost of generation or purchased power resulting from an accidental outage of Unit 1, which, after a 26-week deductible period, will pay up to $ 250,382 per week for 52 weeks and up to 50% of such amount for an additional 52 weeks. PNM expects to obtain similar coverage with respect to its interest in Unit 2 when Unit 2 reaches commercial operation, In addition to the above-described policies of insurance, the PVNGS participants are parties to an
' 't greement with the NRC containing an undertaking by the NRC to indemnify the PVNGS participants from public liability arising from nuclear incidents which is in excess of the've o financial protection required of the PVNGS participants but not in excess of $ 560 million. The 13
indemnity agreement is not currently operative and will remain inoperative unless or until the level of financial protection (i.e., the aggregate amount of primary and secondary levels of liability protection) required of the PVNGS participants falls below $ 560 million.
The authority of the NRC under the Price-Anderson" Act to enter into indemnity agreements covering new nuclear facilities not then in operation or under construction will expire on August 1, 1987. This limited expiration of authority, ifnot modified by Congress, would have no effect upon the Bnancial protection and indemnity agreements in effect for plants now in operation or under construction, such as PVNGS. Nonetheless, this expiration date has served as a catalyst for proposals to amend the Price-Anderson Act in a variety of ways. Bills to extend the expiring provisions and to amend or eliminate other provisions of the Price-Anderson Act have been offered in both the United States Senate and House of Representatives. Certain Senate and House Committees have reported out bills to amend the Price-Anderson Act which would increase the limit on liability to amounts as high as
$ 6.5 billion p'er nuclear incident. The increased limit on liability would be met through an increase in the deferred premium charges assessed utilities (including PVNGS participants) participating in the industry-wide retrospective rating program.
A determination by an Equity Investor that an amendment to the Price-Anderson Act may expose such Equity Investor or the related Lessor to certain increased potential liabilities could result in the declaration of a Deemed Loss Event described in paragraph (c) under "DESCRIPTION OF THE LEhSE INDENTUIIEs Assumption by PNM". Certain of the pending bills could result in such a determina-tion. However, one of the bills currently under consideration contains a provision exempting lessors from potential liability for nuclear incidents. Ifsuch a provision is enacted into law, the possibility of such a Deemed Loss Event would be remote. PNM believes that such a provision will be part of any amendment to the Price-Anderson Act which is enacted. If a Deemed Loss Event occurs under a Lease, PNM could be required to assume the related Pledged Lessor Notes as described under DEscRIPTIQN oF THE LEAsE INDENTUIIEs Assumption by PNM", in which case PNM would also be required to pay the related Equity Investor an amount which, primarily, because of certain tax consequences, would exceed such Equity Investor's outstanding equity investment. It is not certain that Congress will amend the Price-Anderson Act; failure by Congress to act will not constitute a Deemed Loss Event.
DESCRIPTION OF THE ANPZ PARTICIPATION AGREEMENT I
The construction, operation and maintenance of PVNGS and the rights and duties of the joint owners of or participants in PVNGS are governed by the ANPP Participation Agreement. The ANPP Participation Agreement appoints APS, as the agent for all of the participants, to act as the project manager responsible for the construction of PVNGS,and'as the operating agent responsible for the operation and maintenance of PVNGS. Such agreement provides the requisite delegations of authority to APS necessary to permit APS to carry out such functions in a manner so as to comply with all laws, regulations, permits and licenses.
The ANPP Participation Agreement also establishes the rights and obligations of the participants.
One of the primary obligations assumed by the participants under the agreement is the obligation to share the costs of construction, operation, maintenance, decommissioning and capital improvements of PVNGS in accordance with their respective'generation entitlement shares. So long as a participant is not in default of its obligations under the agreement, such participant is entitled to schedule power based on its generation entitlement share of the generating capability available at the time of such scheduling.
Sales of power and energy generated by each unit through the utilization by each participant of its generation entitlement share in such unit can be made only by such participant. PVNGS, as a project, 14
on February 4, 1986. Net of underwriters'ees and 'other expenses of issuance and distribution, the proceeds to PNM were approximately $ 53.2 million. Additionally, PNM proposes to utilize short-term borrowings of approximately $ 50 million and approximately $ 5 million of proceeds from various pollution control financings. PNM also expects to generate approximately $ 47 million from its stock plans. PNM's interim financing requirements are met through issuance of bootes payable to banks and commercial paper.
PNM estimates its total external funding requirements to be approximately $ 363'million for'the period 1986-1990, including $ 151 million required for long-term debt repayments, mandatory preferred stock redemptions and repayment, of a note issued in connection with the acquisition of gas utility assets in New Mexico. The foregoing funding requirements do not include the consummated or planned redemption or purchase of approximately $ 250 million principal amount of PNM's Grst mortgage bonds and approximately $ 94 million stated value of PNM's preferred stock referred to below. PNM intends to continue its existing stock plans, which are projected to generate an average of approximately $ 46 million per year during this five-year period.. PNM will make use of its temporary cash investments to defer other funding requirements. Estimates of external funding requirements give effect to the implementation of the inventoried capacity ratemaking methodology under which PNM will defer carrying charges associated with ppecifically identiAed uncommitted generating capacity as allowed by the NMPSC.,
PNM's projection of internal cash generation in the 1986-'1990 period assumes that PNM receives timely and adequate rate relief with respect.to both retail and wholesale customers and assumes that PNM will sell significant amounts of additional uncom'mitted capacity, or energy not currently contracted for, and that reveriues from such sales will be sufBcient to offset signi6cant amounts of depreciation and property taxes for which PNM is at risk under the inventoried capacity ratemaking methodology. The internal cash projection also assumes that PNM's non-utility subsidiaries will provide their capital requirements from internally generated funds and from independent borrowings which would be nonrecourse to PNM. i The indenture under which PNM's first mortgage bonds may be issued and PNM's Restated Articles of Incorporation under which shares of its preferred stock may be issiied restrict the ability of PNM to issue additional first mortgage bonds and additional preferred stock, respectively', unless certain earnings tests provided therein are met.
Under such indenture,'NM's earnings, as defined therein, during 12 consecutive months within the preceding 15 months must be at least equivale'nt to two times its annual interest requirements on all outstanding first mortgage bonds plus any bonds proposed to be issued. In calculating such ratio, interest is imputed on the outstanding first mortgage bonds is'sued and pledged to secure PNM's guaranty of pollution control revenue bond issues at rates equal to those of the guaranteed bonds.
Subject to meeting the interest coverage requirements, PNM'may issue first mortgage bonds based on the availability of unfunded property additions of 166%% of the principal amount of the first mortgage bonds: With certain exceptions, first mortgage bonds may'also be issued on the basis of ilrst mortgage bonds previously retired. PNM presently has no plans to issue additional first mortgage bonds.
The Restated Articles of Incorporation provide that additional shares of preferred stock may not be issued without the consent of the holders of a majority of the shares of preferred stock then outstanding unless (a) the net income of PNM (as deilned) available for the payment of dividends for 12 consecutive months within the preceding 15 months has been at least two times the annual dividend requir'ements for all shares of preferred stock to be outstanding upon completion of the contemplated sale, and (b) gross income after federal income taxes available for the payment of interest charges during the same period has been equal to at least one and one-half times the annual preferred stock dividend requirements and the annual interest requirements on al!'outstanding indebtedness of PNM maturing more than 12 months after the issuance of siich additional preferred stock. For the 12 months ended June 30, 1986, such coverage ratios were 6.72 to 1 and 2.56 to 1, respectively. Such computations include interest charges attributed only to that'portion 'of pollution control revenue bond funds theretofore utilized by PNM, but 'do not take into account any interest on the pledged bonds securing
can make no sales of power or energy, and, except under certain circumstances relating to default, no participant can utilize;the generation entitlement share of any other participant.
In the event of 'a default by any'participant in'its obligations under the ANPP Participation Agreement', the non-"defaulting participants are obligated to contribute pro rata an amount equal to that due from the defaulting participant. After a default continues for six mo'nths, and subject to certain conditions, the non-defaulting participants may suspend the right of the defaulting participant to be represented on and participate in the actions of all PVNGS committees and to receive all or any part of its share of power and energy from PVNGS.'he agreement provides the participants with oversight of PVNGS and the actions of APS as project manager and operating agent through participation in three sta'nding committees: the Adminis-trative Committee, the Engineering and Operating Committee and the Auditing Committee. Gener-ally, all actions which each of the committees is authorized to take must be approved by the unanimous vote of all members entitled to vote on such co'mmittee. In the event any committee is unable or fails to agr'ee on any matter (with certain limited exceptions) which the committee is authorized to determ'ine, the project manager/operating agent is authorized and obligated to take such action and expend such funds as in its discretion are necessary for the proper construction, operation and maintenance of PVNGS, pending the resolution of such inability or failure to agree. Additionally, in the event of an operati'ng emergency, the operating agent is authorized and obligated to take such action as it, in its sole discretion, may deem prudent or necessary.
t The ANPP Participation Agreement has been amended to permit any PVNGS participant to enter into sale and leaseback financing transactions which meet specified criteria. Sale and Leaseback Transactions are structured to meet such criteria. Certain other PVNGS participants have also entered into sale and leaseback transactions with resp'ect to their respective interests in Unit 2.
PNM'S CONSTRUCTION PROGRAM AND FINANCING REQUIREMENTS Utility Construction Program PNM's five-year utility construction program for the period 1986-1990 provides for the expendi-ture of approximately $ 751 million, including AFUDC of $ 117 million. Included in such total amount are proposed expenditures during the five-year period of approximately $ 82 million for PNM's share of nuclear fuel for PVNGS. Utility construction expenditures, including AFUDC, for the years 1986 and 1987 are forecasted to be $ 224 million and $ 151'illion, respectively, and were $ 263 million in 1985.
PNM's utility construction expenditures are expected to level offat approximately $ 129 million in 1988,
$ 122 million in 1989 and $ 125 million in 1990.
PNM conducts a continuing review of its construction program. This program and the above estimates are subject to periodic revisions based upon changes in assumptions as to system load growth, rates of inflation (including costs of labor), the availability and timing of environmental and other regulatory approvals, the availability and costs of outside sources of capital and changes in project construction schedules. PNM has in the past revised its construction budget in light of such factors and w'ill effect further revisions in the future.
Financing Considerations The construction program which will be necessary to meet prospective customer service require-ments will require substantial external capital. The costs and availability of such additional capital may'e adversely affected unless revenues and net earnings can be maintained at levels which will attract capital on a favorable basis, and may be dependent upon conditions prevailing in the financial markets.
PNM, has revised its forecast of external funding requirements and its general financing plan to recognize, the effects of the Previous Sale and Leaseback Transactions and other changes resulting from its ongoing planning process. PNM now expects its 1986 external capital requirements to be approximately $ 155 million. To meet these requirements, PNM sold 1,800,000 shares of common stock 15
such debt. As of June 30, 1986, PNM could have issued $ 572,000,000 of additional preferred stock with an assumed dividend rate of 9.5%.
The Restated Articles of Incorporation also provide that unsecured indebtedness maturing more than 18 months after the issuance thereof may not be'ssued or assumed without the consent of the holders of a majority of the shares of preferred stock then outstanding if (a) immediately after such issue or assumption the total amount of all secured and unsecure'd indebtedness of PNM due more than one year after the issuance thereof shall exceed 65% of the aggregate of (i) all such indebtedness and (ii) the total of the capital and surplus of PNM, as then recorded on its books; and (b) the gross income after federal income taxes of PNM available for the payment of interest charges shall not, for a period of 1R consecutive calendar months within the 15 calendar months next preceding the issuance of such unsecured indebtedness, have been at least I/~ times the aggregate dividend requirements for one year on all shares of preferred stock outstanding and the annual interest charges on all indebtedness of PNM maturing more than 12 months after the date of the issue of such unsecured indebtedness. See "DEscatrnoN oF THE LEAsE INDENTUHEs Assumption'by PNM".
The ratio of earnings to fixed charges was 2.42 for the 12 months ended June 30, 1986, 2.63 for 1985, 2.32 for 1984, 2.81 for 1983, 2.70 for 1982 and 3.00 for 1981. For the purpose of computing this ratio, earnings have been calculated by adding back the provision for income taxes and fixed charges.
Fixed charges include total interest charges (without reduction for the allowance for borrowed funds used during construction) and the interest portion of all rents.
In June 198G, as a result of tender offers by PNM, PNM purchased approximately $ 33 million principal amount of its First Mortgage Bonds, 135% Series due 1994, approximately $ 34 million principal amount of its First Mortgage Bonds, 135% Series due 2012, and approximately $ 56 million principal, amount of its First Mortgage Bonds, 12%% Series due 2013. PNM has also acquired approximately $ 30 million principal amount of its Arst mortgage bonds through open market purchases in 1986 and proposes to redeem or purchase an additional 997.2 million aggregate principal amount of its outstanding first mortgage bonds. In response to a tender oH'er concluded on July 10, 1986, PNM purchased approximately $ 42.8 million aggregate stated value of its Cumulative Preferred Stock, 14.75% Series, and on July 28, 1986, PNM redeemed approximately 813.8 million aggregate stated value of its 1974 Series, 9.2%, $ 10 million aggregate stated value of its 1975 Series, 10.R%, and $ 20 million aggregate stated value of its 9.16% Series, Cumulative Preferred Stock. During the six month period ended June 30, 198G, PNM also purchased or redeemed approximately $ 7.2 million aggregate stated value of its Cumulative Preferred Stock.
Non-utility Subsidiary Operations The utility construction program described above does not include the proposed expenditures and financing needs of PNM's non-utility subsidiaries, Sunbelt Mining Company, Inc. ("Sunbelt" ) and Meadows Resources, Inc. ("Meadows" ). The non-utility investment program for the 198G-1990 period is projected to be $ 175 million. At June 30, 1986, Meadows had assets of approximately $ 196 million and equity of approximately $ 139 million, and Sunbelt had assets of approximately $ 97 million and equity of approximately $ 31 million. Although it is projected that the non-utility subsidiaries will provide a substantial portion of their capital requirements from internally generated sources, to the extent that ext'ernal financing may be required, such borrowings will be made independently by the subsidiaries from third-party sources and will be nonrecourse to PNM.
17
DESCRIPTION OF THE BONDS The statements under this caption are summaries and do not purport to be complete. The summaries are qualified in their entirety by reference to the Indenture, a copy of which has been Bled as, an exhibit to the Registration Statement of which this Prospectus is a part.
I ~
General The Bonds are to be issued under a Collateral Trust Indenture dated as of December 16, 1985 as heretofore supplemented and amended (the "Indenture" ) among First PV, PNM and Chemical Bank, as indenture trustee (the "Trustee" ), and as to be supplemented by one or more additional supplemental indentures (each a "Supplemental Indenture" ).
The Bonds are to be issued in fully registered form without coupons in denominations of $ 1,000 or any integral multiple thereof. Bonds may be surrendered for registration of transfer or exchange for Bonds of the same maturity at the corporate trust office of Chemical Bank, Bond Registrar. No service charge will be required of any Bondholder participating in any transfer or exchange of Bonds in respect of such transfer or exchange, but payment may be required of any tax or other governmental charges that may be imposed in connection therewith. (Indenture, Sections 2.05 and 2.08)
The Indenture provides that the aggregate principal amount of debentures, notes or other evidences of indebtedness ("Securities" ) which may be issued thereunder is unlimited. In connection with thc issuance of any series of Securities in connection with future sale and leaseback transactions involving PNM's undivided interest in PVNGS Unit 3, an equal aggregate principal amount of lessor notes (similar to the Pledged Lessor Notes) must bc pledged as security under the Indenture. A separate Supplemental Indenture will be entered into among First PV, PNM and the Trustee establishing the title, interest rate, sinking fund and redemption provisions, if any, and other specific terms of any particular series of Securities. Any additional series of Securities will be secured pari passu with the Bonds and the 1986A Bonds by all Pledged Lessor Notes and the similar lessor notes issued in respect of such Securities and may be additionally secured as described under "FIRsT PV FUNDING CORPORATION .
Principal Amounts, Interest Hates, Maturitics and Payment See the accompanying Prospectus Supplement.
Sinking Fund Redemption See the accompanying Prospectus Supplement.
Optional Redemption See the accompanying Prospectus Supplement.
Special Mandatory Redemption Each Supplemental Indenture to be entered into with respect to any series of Offered Bonds will, ifappropriate, provide that in the event that closings of Sale and Leaseback Transactions sufficient to utilize the entire proceeds of the issuance of such Bonds do not take place by the date which is two months from issuance of such Bonds, First PV may at any time (but must by the date which is three months after the expiration of such two-month period) cause the redemption of such Bonds in an amount equal to the amount of proceeds not used in a Sale and Leaseback Transaction, together with interest thereon to the date of redemption. In connection with the issuance and sale of any such Bonds, PNM will agree to pay First PV a commitment fee adequate to provide the funds, if any, necessary for First PV to effect any such redemption.
18I
Security and Source of Payment for thc Bonds p 'I First PV has been formed for the exclusive purpose of facilitating the Snancing of PNM's interest in PVNGS and thus has only nominal equity capital. As such, the source of payments of principal of, premium, if any, and interest on, the Bonds and the 1986A Bonds will be derived from payments made on Pledged Lessor Notes. The aggregate principal amount of Pledged Lessor Notes will equal the aggregate, principal amount of the Bonds and the 1986A Bonds outstanding at any time except as set forth under "Special Mandatory'Redemption" in which case the proceeds from the sale of Bonds will be held as additional security. The payment schedules for Pledged Lessor Notes will be structured to coincide as to dates and amounts with the payment schedules for the Bonds and the 1986A Bonds.
Accordingly, the timely payment of the principal of, premium, if any, and interest on, Pledged Lessor Notes will provide for the payment of the principal of, premium, ifany, and interest on, the Bonds and the 1986A Bonds when due.
The Pledged Lessor Notes will be issued under separate Lease Indentures by the Lessors without recourse to the general credit of any Lessor in its individual capacity. The Pledged Lessor Notes will be secured under separate Lease Indentures on a parity basis with other Lessor Notes which may be issued in the future thereunder. Such security will consist of an assignment of each Lessor's rights under its Lease to receive all rents payable thereunder other than certain amounts payable to the Lessors which arc not assigned as security for Pledged Lessor Notes. Although the Lease Indenture Trustee under each Lease Indenture will not have a lien on or security interest in the property which is the subject of the related Lease, each Lessor covenants that, so long as any of its Lessor Notes is outstanding, it will not create or permit the creation of a lien on or otherwise encumber its interest in such property (except for certain permitted encumbrances) and will not incur any indebtedness for money borrowed except Lessor Notes. However, in certain events relating to the payment by PNM of amounts in respect of Events of Loss or Deemed Loss Events or exercise of the Cure Option, the Lease Indenture Trustee under the related Lease Indenture may acquire a lien on and security interest in the property subject to the related Lease (see "DEscRIPTIQN oF THE LEAsE INDENTUREs Assumption by PNM").
Each Lease is or will be a net lease under which PNM will be unconditionally obligated to make basic rental and certain other payments at least sufBcicnt to'provide for the payment of the Lessor Notes of the Lessor which is a party to such Lease, without any right of counterclaim, setoff, deduction or defense on the part of PNM. Each Lease, by its terms, requires or will require that rent be paid by PNM in such amounts and at such times as will always provide for the payment of the principal of, premium, ifany, and interest on, all such Lessor Notes, including the Pledged Lessor Notes, when due.
As such, the expected sources of payment for the Pledged Lessor Notes, and thus for the Bonds and the 1986A Bonds, are the payments to be made by PNM under the Leases.
Pledged Lessor Notes issued under the separate Lease Indentures constitute separate obligations.
In the event of an Indenture Event of Default under a Lease Indenture (see "DEscREFTEQN oF THE LEAsE INDENTUREs Events of Default" ),'the Lease Indenture Trustee could accelerate the maturity of the Pledged Lessor Notes issued thereunder. Events resulting in an Indenture Event of Default under one Lease Indenture will not necessarily lead to an Indenture Event of Default under any other Lease Indenture; therefore, fewer than all Pledged Lessor Notes may be accelerated as a result of such events. However, the Trustee may not accelerate fewer than all of the Securities issued under the Indenture, including the 1986A Bonds and the Bonds, in the event of an Event of Default under the Indenture. If, all such Securities but fewer'than all Pledged Lessor Notes and similar. pledged lessor PNM's undivided notes issued in connection with any "sale and leaseback transactions involving interest in PVNGS Unit 3 (collectively, the "Pledged Collateral Notes" ) are accelerated, the aggregate of the amounts then due and owing on the outstanding Securities would be greater than the aggregate of the amounts then due and owing on all Pledged Collateral Notes. The Trustee would be entitled, however, to receive payments under unaccelerated Pledged Collateral Notes in accordance with their original terms, and PNM would continue to be obligated to pay rent under the related leases.
Additional Lessor Notes are permitted to be issued under the Lease Indentures for the purposes described under "SEGUHITY AND SQUHGE oF PAYMENT FoH THE BoNDs . Because the Lease Indentures of th'e respective Lessors permit additional Lessor Notes to be'issued 'and secured thereunder under certain conditions, it is possible that at some future time the Pledged Lessor Notes would not constitute a majorit'y" of the Lessor Notes issued and outstanding under, the Lease Inde'ntures.,
In the event of the bankruptcy of PNM, the Leases might be rejected, thereby stopping payments thereunder needed to pay the Bonds. Under Section 502(b),(6) of the Federal Bankruptcy Code, a claim by a lessor for damages resulting from the rejection of a lease of real property in connection with bankruptcy proceedings affecting the lessee may be limited to an amount equal to the rent reserved under the lease, without acceleration, for the greater of one year, or 15 percent (but not more than three years) of the remaining term of the lease, plus rent already due but unpaid. Although the Leases cover property purported to be almost exclusively personal property, there can be no assurance that a bankruptcy court could not find such Leases to be subject to these limitations. In any event, there can be no assurance that the damages for rejection of the Leases would be sufficient to repay the Bonds and the 1986A Bonds.
In the event of the bankruptcy of a Lessor or'an Equity Investor, the payments under the related Lease, or payments on the related Pledged Lessor Notes, might be retained as part of the bankrupt e'state thereby intei;rupting a portion of the flow of funds needed to pay the Bonds and the 1986A Bonds.
Merger, Consolidation and Transfer of Assets The certificate of incorporation of First PV provides, among other things, that First PV shall not (i) dissolve or liquidate, in whole or in part, or (ii) merge or consolidate with, or sell all or any part of its assets to, any person, firm, corporation, partnership or other entity unless, in the case of a merger or consolidation, the surviving corporation~ in such merger or the corporation resulting from such consolidation shall have a certificate of incorporation containing provisions identical to those of First PV's certificate of incorporation restricting the nature of its business and purposes and its ability to take certain action, and, in the case of a sale of assets, the acquiring corporation shall have assumed all the liabilities and obligations of First PV and shall have such identical provisions in its certificate of incorporation. In addition, First PV'has agreed in the'Indenture that it will not amend those provisions of its certificate of incorporation which restrict the nature of its business and its purposes or restrict its activities or which provide for its capitalization without the consent of the holders of not less than 66%duo in aggre'gate principal amourit of the Securities then outstanding. (Indenture, Section 1
5.08)
Events of Default and Notice Events of Default under the Indenture include: (a) default in the payment of any principal of, premium, if any, or interest on, any Security, including any sinking fund payment, when it becomes due and payable, and continuance of such default for a period of ten days; (b) default in the performance, or breach, of any co'venant of PNM or First PV contained in the Indenture and continuance of such'default'or breach for a period of 30 days after there has been given, by registered or certified mail, to PNM and First PV by the Trustee, or to PNM, First PV and the Trustee'by the holders of at least 25% in principal amount of outstanding Securities, a written notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Indenture; (c) the occurrence of an Indenture Event of Default under any Lease Indenture and the declaration as a'result thereof that any Pledged Lessor Note is due and payable; (d) the entry of a decree or order by a court having jurisdiction in the premises adjudging First PV a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition'of or in respect of First PV under the Federal Bankruptcy Code or any other applicable federal or state law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other'similar olricial) of First PV or of any substantial part of its property, or .
ordering the winding up or liquidation of its "affairs, and the continuance of any such decree or order 20
unstayed and in effect for a period of 60 consecutive days; or (e) the institution by First PV of proceedings to be adjudicated a bankrupt or insolvent', or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable federal or state law or law of the District of Columbia, or the consent by it to thc filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar oillcial) of First PV or of any substantial part of its property, or the making by it of an assignment for the beneGt of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by First PV in furtherance of ariy such action. (Indenture, Section 8.01) First PV has agreed in the Indenture that it will not take any corporate action which would result in its being declared a bankrupt or insolvent.
Upon the occurrence of an Event of Default under the Indenture, the Trustee may, and (i) upon the direction of the holders of not less than 25%%up in principal amount of the Securities outstanding, or (ii)'ifsuch Event of Default is of the type specified in clause (c) above (including an Event of Default under a Lease which has resulted in a default in payment of the Bonds), the Trustee shall, declare all the Securities to be immediately due and payable, but no such declaration s)mll be made in the case of a payment default which results directly from a failure by PNM to make a payment of rent under a Lease until such time as the Lessor under such Lease has been given an opportunity to exercise its rights, if any, to cure such default under the related Lease Indenture. See "DEscnipTION oF THE LEasE INDENTUBES Rights of Lessors to Cure and Purchase Lessor Notes; Substitute Lessee". In addition, upon the occurrence of an Indenture Event of Default or indenture default 'under any Lease Indenture, if the Trustee is deemed to have notice thereof, the Trustee is required to give notice to Securityholders of such fact in accordance with the provisions of the Indenture and, thereafter, each
'Securityholder shall have the right to direct the Trustee, as the holder of the Pledged Lessor Notes issued under such Lease Indenture, to vote the principal amount of such Pledged Lessor Notes in favor of directing the Lease Indenture Trustee to take specific action or refrain from taking action, all as permitted under the terms of such Lease Indenture. (Indenture, Sections 3.03 and 8.02) Under each Lease Indenture, the Lease Indenture Trustee will be required to act with respect to such matters upon direction of the holders of a majority in principal amount of all Lessor Notes outstanding thereunder.
No owner of any Security shall have any right to institute any suit, action or proceeding in equity or at law for the foreclosure of the Indenture, for the appointment of a receiver or for the enforcement of any remedy unless the Trustee shall have been notified by such Securityholder of a continuing Event of Default, the holders of not less than 25% in aggregate principal amount of Securities then outstanding shall have made written request to the Trustee and shall have offered indemnity to the Trustee as provided in the Indenture, the Trustee shall have failed to act for 60 days thereafter,and no inconsistent direction shall have been received from the holders of a majority in aggregate principal amount of the Securities outstanding during such 60-day period. Nothing contained in the Indenture, however, affects or impairs the right of any Securityholder to enforce the payment of the principal of, premium, if any, and interest on, any Security on or after the due dates thereof. (Indenture, Sections 8.09 and 8.11)
PNM and First PV are each required to deliver annually to the Trustee a written statement of their respective ofBcers to the effect that all of their respective obligations under the Indenture during the preceding fiscal year have been fulfilled, or if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. (Indenture, Section 5.10)
Rescission of Acceleration If, after the principal of the Securities has been declared to be due and payable, all arrears of interest on and the principal of, and premium, if any, on, all Securities then outstanding which shall have become due and payable otherwise than by acceleration and all other sums payable under the Indenture, except the principal of, and interest on, the Securities which'by such declaration shall have
become due and payable, are paid, and payment shall have been made of the reasonable charges of the Trustee, including the Trustee's reasonable attorney's fees, and all other Events of Default shall be cured or waived, then, and in every such case, the holders of a majority in principal amount of the Securities outstanding, by written notice to First PV and 'the Trustee, may rescind and annul such declaration and its consequences; but no such rescission sliall affect any subsequent default or impair any right consequent thereon. (Indenture, Section 8.02)
Voting of Lessor Notes The Trustee, as holder of the Pledged Lessor Notes, has the right to vote and give consents and waivers in respect of such Pledged Lessor Notes and the Lease Indentures. The Indenture provides that the Trustee shall not direct any action or cast any vote as the holder of the Pledged Lessor Notes except as directed by Securityholders and, upon receiving such directions, all such directions shall be given to the Lease Indenture Trustees, as permitted by the Lease Indenturcs. The principal amount of the Pledged Lessor Notes directing any action or being voted for or against any proposal or not being voted shall be in proportion to the principal amounts of Securities taking the corresponding position.
(Indenture, Section 3.03)
Supplemental Indentures First PV, PNM and the Trustee may enter into Supplemental Indentures without the consent of the holders of the Securities for any one or more of the following purposes: (i) to provide for the issuance of additional Securities for the purposes and subject to the conditions speci6ed in the Indenture; (ii) to evidence the succession of another corporation to PNM and the assumption by any such successor of the covenants of PNM contained in the Indenture, or to evidence the succession of another corporation to First PV and the assumption by any such successor of the covenants of First PV contained in the Indenture and the Securities; (iii) to add to the covenants of PNM or First PV, for the benefit of the holders of the Securities, or to surrender any right or power conferred in the Indenture upon PNM or First PV; (iv) to convey, transfer and assign to the Trustee, and to subject to the lien of the Indenture, additional Pledged Collateral Notes or additional properties or assets, and to correct or amplify the description of any property at any time subject to the lien of the Indenture or to assure, convey and confirm to the Trustee any property subject or required to be subject to the lien of the Indenture; (v) to modify, eliminate or add to the provisions of the Indenture to the extent necessary to continue qualification of the Indenture under the Trust Indenture Act of 1939; or (vi) to cure any ambiguity in, to correct or supplement any provision of, or to make any other provisions with respect to matters or questions arising under, the Indenture, in each case so long as such action does not adversely affect the interests of Securityholders. (Indenture, Section 11.01)
With the consent of the holders of not less than a majority in aggregate principal amount of the Securities then outstanding, First PV, PNM and the Trustee may enter into additional Supplemental Indentures, except that without the consent of the holders of all the Securities then outstanding affected thereby, no such Supplemental Indenture shall (i) change the time of payment of the principal of or any installment of interest on, or the dates or circumstances of payment of premium, if any, on, any Security or reduce the principal amount of or the interest on or any premium payable upon any redemption of any Security or change the place of payment where, or the coin or currency in which, any Security or the premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the time for payment thereof (or, in the case of redemption, on or after the redemption date), or change the dates or amounts of payments to be made through the operation of the sinking fund, (ii) permit the creation of any lien prior or equal to the lien of the Indenture with respect to any of the Pledged Collateral Notes, terminate the lien of the Indenture on the Pledged Collateral Notes (except as permitted by the Indenture) or deprive any Securityholder of the security afforded by the Indenture, (iii) reduce the percentage in principal amount of the Securities required for consent to a Supplemental Indenture, or the consent of whose holders is required for any waiver provided for in the Indenture, or (iv) modify any of the above
provisions or the provisions of the Indenture dealing with waivers of past defaults or providing that certain other provisions of the Indenture cannot be modified or waived without the consent of the Securityholders affected thereby. (Indenture, Section 11.02)
Discharge of Lien The Indenture shall cease to be of further effect when, among other things: (i) either all Securities theretofore authenticated and delivered have been delivered to the Trustee for cancellation or all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at their stated maturity within one year or are to be called for redemption within one year, and First PV has deposited or caused to be deposited with the Trustee in trust for the purpose of paying and discharging the entire indebtedness on such Securities not theretofore canceled by the Trustee, an amount sufficient to discharge such indebtedness, including principal, premium, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable), or to the stated maturity, or redemption date, as the case may be; and (ii) all other sums then due and payable thereunder have been paid. (Indenture, Section 12.01)
The Trustee The Indenture provides that in the case of any Event of Default under the Indenture, the Trustee shall exercise such of the rights and powers vested in it by the Indenture, and shall use the same degree of care and skill, as a prudent man would exercise under the circumstances in the conduct of his own affairs. The Trustee shall not be liable for any error of judgment made in good faith, unless the Trustee was negligent in ascertaining the pertinent facts, or for any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of a majority in principal amount of outstanding Securities. Subject to such provision, the Trustee shall be under no obligation to exercise any of its rights and powers under the Indenture at the request of any holder of Securities unless such holder shall have offered to the Trustee reasonable security or indemnity. The Indenture provides that the Trustee may acquire and hold Securities and, subject to certain conditions, may otherwise deal with PNM and First PV with the same rights it would have if it were not the Trustee. (Indenture, Sections 9.01, 9.03 and 9.05)
PNM maintains normal banking relationships with Chemical Bank. In addition, Chemical Bank provided a portion of the interim financing to First PV in connection with the Initial Sale and Leaseback Transactions and the August 18 Sale and Leaseback Transactions.
DESCRIPTION OF THE LEASE INDENTURES The statements under this caption are summaries and do not purport to be complete. The summaries describe the provisions of, and are qualiBed in their entirety by reference to, the Lease Indentures executed and delivered in connection with the Previous Sale and Leaseback Transactions, copies of which have been filed as exhibits to the Registration Statement. The Lease Indentures entered into in connection with the various Previous Sale and Leaseback Transactions are not identical in all respects. The provisions described below do not necessarily appear in the documentation for each Sale and Leaseback Transaction although all provisions deemed to be material are described. Ifa Lease Indenture executed and delivered in connection with a future Sale and Leaseback Transaction differs in any material respect from the Lease Indentures described below, such material differences will be set forth in the Prospectus Supplement with respect to the Offered Bonds the proceeds of the issuance of which are to be utilized in connection with such Sale and Leaseback Transaction.
General The Pledged Lessor Notes are issued under separate documents entitled "Trust Indenture, Mortgage, Security Agreement and Assignment of Rents" between the respective Lessors and Chemical Bank, as Lease Indenture Trustee (the "Lease Indentures"). The Pledged Lessor Notes are issued to First PV, but are pledged and assigned to the Trustee for the benefit of the holders of Securities.
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The aggregate principal amount of the Pledged Lessor Notes will equal the aggregate principal amount of the Bonds and the 1986A Bonds the proceeds of which are loaned to Lessors. The Pledged Lessor Notes will bear interest at rates which are equal to the interest rates on the Bonds and the 1986A Bonds of corresponding principal amounts and maturities. Payments of the principal of, premium, if any, and interest on, the Pledged Lessor Notes will be due in such amounts and at such times as are required to pay in full the principal of, premium, ifany, and interest on, the Bonds and the 1986A Bonds.
Events of Default Indenture Events of Default under each Lease Indenture include: (a) any Event of Default under the related Lease arising from PNM's failure to make a payment of basic rent under such Lease within Ave business days after the same shall become due (other than the failure of PNM to pay certain amounts to the Lessors which are not assigned as security for the Lessor Notes and subject to the rights of each Lessor to cure defaults in the payment of basic rent and to purchase Lessor Notes upon the occurrence of an Event of Default by PNM under its Lease with such Lessor as described below);
(b) an Event of Default under the related Lease arising from PNM's failure to make payments of Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option ivhen and as required by such Lease (see "Assumption by PNM"), except where the Lessor shall not have rescinded or te'rminated the Lease; (c) breach by PNM of its covenants relating to the ratings of the Bonds and the 1986A Bonds discussed under "Dascnrrnow oF YHE LEAsEs Merger; Consolidation; Maintenance of Corporate Existence"; (d) occurrence of certain bankruptcy and insolvency events w(th respect to PNM; (e) rescission or termination of the Lease by the Lessor; or (f) certain defaults by the Lessor or its related Equity Investor."(Lease Indenture, Section 6.2)
Bights of Lessors to Cure and Purchase Lessor Notes; Substitute Lessee Each Lease Indenture provides that an Indenture Event of Default thereunder is to be deemed cured if such Indenture Event of Default results from a non-payment of basic rent or supplemental rent under the related Lease, and the Lessor or its related Equity Investor shall have paid all principal of and interest on the Lessor Notes due (other, than by acceleration) on the date such rent was payable, plus interest on such amount, within 15 days after receipt by the Lessor of notice of such non-payment. (Lease Indenture, Section 6.8)
If an Indenture Event of Default has occurred under any Lease Indenture and (i) the Lessor Notes have been accelerated and (ii) the Lessor, within 30 days after receiving notice from the Lease Indenture Trustee of such Indenture Event of Default, shall have given written notice to the Lease Indenture Trustee of its intention to purchase all of the Lessor Notes, then, upon receipt within '10 business days after such notice from the Lessor of an amount equal to all of the principal of, premium, ifany, and interest on, all of the unpaid Lessor Notes issued by such Lessor (together with any interest on overdue principal and, to the extent permitted by law, interest), each holder of a Lessor Note issued by such Lessor, including the Trustee, as the holder oF the Pledged Lessor Notes, will be required to sell such Lessor Notes and its right, title and interest in and to the Lease Indenture and created thereunder to the Lessor. (Lease Indenture, Section 6.8) the'state In addition to the foregoing, ifan Event of Default has occurred under any Lease, the Lessor may terminate the Lease and arrange for a substitute lessee under a new lease substantially similar to the Lease. In connection with any such substitution, the Lessor must have cured any Indenture Event of Default under the Lease Indenture described in clause (f) under "Events of Default" aboye and such substitute lessee must assume PNM's obligations under the Lease and must have a credit rating with respect to at least one series of its debt obligations or preferred stock equal to or better than that of comparable securities of PNM immediately prior to the substitution but in no event less than "investment grade". (Lease Indenture, Section 6.8)
Notice of Events of Default; Action by Trustee; Waiver Each Lease Indenture requires the Lessor to give the Lease Indentu're Trustee prompt written notice of an 'Indenture Event of Default, Event of Default under the Lease, Deemed Loss Event or Event of Loss, to the extent it has actual knowledge thereof. In the event the Lease Indenture Trustee has actual knowledge of an Indenture Event of Default, Event of Default under the Lease, Deemed Loss Event or Event of Loss, the Lease Indenture Trustee is required to"give prompt written notice thereof to, among others, each holder of a Lessor Note, including the Trustee as the holder of the Pledged Lessor Notes. Subject to the, terms of each Lease Indenture dealing with the enforcement of remedies and the rights of the Lease Indenture Trustee to indemnification in the taking of any action, and further subject to the right of the Lessor to cure defaults and to purchase Lessor Notes as described above and certain retained rights of the Lessor with respect to the Lease, the Lease Indenture Trustee is required to take such action (including'the waiver of past defaults), or refrain from taking such action, with respect to any such Indenture Event of Default, Event of Default under the Lease, Deemed Loss Event or Event of Loss, as it shall be directed by the holders of a majority in principal amount of all Lessor Notes (a "Directive"). Ifthe Lease Indenture Trustee has not received a Directive within 20 days after the mailing by the Lease Indenture Trustee of notice of such Indenture Event of Default, Event of Default under the Lease, Deemed Loss Event'or Event of Loss, the Lease Indenture Trustee may, but is not required to, take such action, or refrain from taking such action, as it deems advisable in the best interests of holders of Lessor Notes of all series, subject to the subsequent receipt of a Directive. (Lease Indenture, Sections 6.11 and 7.1)
The Lease Indenture Trustee under any Lease Indenture may waive any indenture default or Indenture Event of Default under such Lease Indenture except an indenture default or an Indenture Event of Default (i) in. the payment of the principal of or interest on any Lessor Note or (ii) in respect of a covenant or provision of such Lease Indenture which under the Lease Indenture cannot be modified or amended without the consent of each holder of a Lessor Note then outstanding. (Lease Indenture, Section 6.7)
Acceleration and Remedies If an Indenture Event of Default shall have occurred and be continuing under any Lease Indenture, the Lease Indenture Trustee may, and upon receipt of a Directive shall, declare the unpaid principal amount of all Lessor Notes issued and outstanding under such Lease Indenturewith accrued interest thereon, to be due and payable, subject to the right of the Lessor to cure such default as described above. (Lease Indenture, Section 7.1)
Each Lease Indenture provides that if an Indenture Event of Default under such Lease Indenture has occurred and is continuing, the Lease Indenture Trustee may exercise certain rights or remedies available to it under applicable law. (Lease Indenture, Section 6.4)
Under the terms of each Lease Indenture, however, the Lessor controls the exercise of remedies against PNM under the related Lease. Accordingly, in the event of a default by PNM in the payment of basic rent and a resulting default on the related Pledged Lessor Notes, and thus the Bonds and the 1986A Bonds, the Lease Indenture Trustee would not be entitled unilaterally to exercise remedies against PNM under the related Lease. To the extent the Lessor exercises remedies available under its Lease", the Trustee as holder of the related Pledged Lessor Notes would be entitled to the proceeds of such exercise up to the unpaid amount of such Pledged Lessor Notes before the Lessor would be entitled to retain any such proceeds. (Lease Indenture, Sections 6.3 and 6."ll) t If an Indenture Event of Default under any Lease Indenture occurs and is continuing, and the maturity of the Lessor Notes has been accelerated, any sums held or received by the Lease Indenture Trustee may be applied to reimburse'he Lease Indenture Trustee for any expense or other loss incurred by it and to pay its fees and any other amounts due to the Lease Indenture Trustee prior to any payments to holders of Lessor Notes. (Lease Indenture, Section 5.3)
Assumption by PNM The Pledged Lessor Notes issued under any particular Lease Indenture must be assumed by PNM (any such assumption being subject to the following conditions, as certified to the Lease Indenture Trustee by PNM: (i) such assumption is valid under all then applicable laws; (ii) any necessary governmental approvals are obtained; (iii) no Indenture Event of Default shall have occurred and be continuing; and (iv) PNM is not insolvent at the time of such assumption) under certain circum-stances, including the following:
(a) Event of Loss Relating to PVNGS. Such Pledged Lessor Notes shall be assumed (if such conditions are met) upon the occurrence of certain events (herein, an "Event of Loss" ) relating to:
(i) loss of authority from the NRC permitting the operation, or possession by PNM, of Unit 1 or Unit 2, as the case may be (the "related Unit");
(ii) cessation of operation of the related Unit; (iii) damage to or destruction of the related Unit; (iv) condemnation of the related Unit; (v) failure to operate the related Unit at or above a specified capacity; (vi) certain nuclear events at PVNGS; and (vii) certain significant safety, maintenance or management deficiencies at PVNGS.
Pl (b) Deemed Loss Event Public Utility Regulation. Such Pledged Lessor Notes shall be assumed (if such conditions are met) if the Lessor which issued such Lessor Notes or its related Equity Investor, by reason of its ownership of an undivided interest or the lease of such undivided interest, shall be deemed by any governmental authority to be, or become subject to regulation as, an "electric utility" or a "public utility" or a "public utility holding company", under any applicable governmental rule or by reason of any governmental action, and such Lessor or Equity Investor shall have determined that the effect thereof would be adverse to it.
(c) Deemed Loss Event Material Change in Price-Anderson Act. Such Pledged Lessor Notes shall be assumed (ifsuch conditions are met) as a result of the occurrence of any change in the Price-Anderson Act of 1957, as amended, the Atomic Energy Act of 1954, as amended, the regulations of the NRC or any other applicable law, as a result of which the Lessor which issued such Lessor Notes or its related Equity Investor may be exposed to certain increased potential liabilities. See "DEsciuPTIoN oF THE PALo VERDE NUGLEAR GENEHhTING STATIoN Liability and Insurance Matters".
(d) Deemed Loss Event Decommissioning and Other Obligations. Such Pledged Lessor Notes shall be assumed (ifsuch conditions are met) as a result of the occurrence of any change in applicable law as a result of which the Lessor which issued such Lessor Notes or its related Equity Investor shall become liable in respect of (i) any portion of obligations for the decommissioning and removing from service of the related Unit, or (ii) during the Lease ter'in, any other obligations imposed upon licensees of the NRC.
(e) Deeined Loss Event Change in Laiv MaIcing Transaction Illegal. Such Pledged Lessor Notes shall be assumed (ifsuch conditions are met) as the result of any change in applicable law as a result of which the related Sale and Leaseback Transaction becomes unauthorized, illegal or otherwise contrary to applicable law.
(f) Deemed Loss Event Change in Laiv Requiring License. Such Pledged Lessor Notes shall be assumed (if such conditions are met) if, as the result of any change in applicable law or governmental action, the Lessor which issued such Lessor Notes or its related Equity Investor shall be required to become a licensee of the NRC.
(g) Deemed Loss Event Assertion ofImpermissible Control. Such Pledged Lessor Notes shall be assumed (ifsuch conditions are met) if, as the result of any change in, or new interpretation of, the License of the related Unit, applicable governmental authority shall assert that the exercise.,by the Lessor which issued such Lessor Notes or its related Equity Investor of any right under its Lease or related documents would constitute impermissible control over the related Unit or the licensees thereof.
(h) Deemed Loss I'.vent Bednction in Nuclear Liability Insurance. Such Pledged Lessor Notes shall be assumed (if such conditions are met) if the liability insurance with respect to PVNGS or the related Unit is suspended or terminated, or coverage thereunder is reduced, in a manner and under circumstances which may expose the Lessor which issued such Lessor Notes or its related Equity Investor to increased liability in respect of a nuclear incident.
(i) I."xercise of the Cure Option. Such Pledged Lessor Notes shall be assumed'(if such conditions are met) if an Event of Default under the related Lease occurs as a result of PNM's breach of certain covenants concerning its activities as a PVNGS participant and PNM shall elect to exercise its option to cure such Event of Default under the Lease (the "Cure Option" ) by, among other things, paying a specified amount to the Lessor and assuming such Pledged Lessor Notes.
Tl.e Leases,and the Lease Indentures may be amended, without the consent of the holders of the Bonds or the 1986A Bonds, to incorporate certain additional "events of loss" and "deemed loss events".
Such additional events, if any, would not be related to the creditworthiness or financial position of PNM.
Upon any assumption of the Pledged Lessor Notes, PNM will pay to the Lessor and the related Equity Investor cash in the amount provided in the Lease, which, primarily because of certain tax consequences, would exceed such Equity Investor's outstanding equity investment, and the Lessor will transfer title to the Lessor's undivided ownership interest to PNM free of any lien for the bene6t of the Pledged Lessor Notes. If, however, PNM is unable to assume the Pledged Lessor Notes because of its inability to satisfy the conditions to assumption stated above, the Lessor will grant to the Lease Indenture Trustee a security interest in the Lessor's undivided ownership interest. Thereafter, the Equity Investor will assign its beneficial interest in the Lessor trust. to PNM or its assignee. In such case, the Lease will be amended to reduce the amount of basic rent payable thereafter to an amount equal to the principal of, premium, if any, and interest payable from time to time on the related Pledged Lessor Notes. (Lease Indenture, Section 3.9)
Amendments and Supplcmcnts Each Lease Indenture Trustee may amend or supplement its Lease Indenture with the consent of the Lessor, but without the consent of the holders of any Lessor Notes (including the Trustee, as the holder of the Pledged Lessor Notes), in order to (i) cure any defect, omission or ambiguity in the Lease Indenture or for any other purpose if such action does not adversely affect the interests of the holders of Lessor Notes, (ii) grant or confer upon the Lease Indenture Trustee any additional rights, remedies, powers, authority or security which may be lawfully granted or conferred and which are not contrary to or inconsistent with the Lease Indenture, (iii) add to the covenants or agreements to be observed by the Lessor, (iv) confirm or amplify, as further assurance, any pledge created or to be cre'ated by the Lease Indenture of the properties covered thereby, or subject to the lien or pledge of the Lease Indenture additional revenues, properties or other collateral, (v) qualify the Lease Indenture under the Trust Indenture Act of .1939, (vi) evidence the appointment of any successor Lease Indenture Trustee, (vii) evidence the assumption of the'Lessor Notes by PNM as described under "Assumption by PNM" above, or (viii) evidence the issuance of additional Lessor Notes in accordance with the terms of the Lease Indenture. (Lease Indenture, Section 10.1)
Except as described in the preceding paragraph and the next to last paragraph under "Assumption by PNM", no amendment or supplement to a Lease Indenture may be made except upon receipt of a
Directive; provided that, without the consent of the holders of all of the Lessor Notes, those provisions of the Lease or the Lease Indenture which are related to the terms of the Lessor Notes or the security for the payment 'thereof may not be waived or modified. (Lease Indenture, Section 10.2)
Limitation of Liability The Pledged Lessor Notes are not direct obligations of, or guaranteed by, PNM, any Equity Investor or any Owner Trustee in its individual capacity. None of the Equity Investors, Owner Trustees in their individual capacities or the Lease Indenture Trustees shall be liable to any holder of a Pledged Lessor Note or, in the case of the Equity Investors and the Owner Trustees in their individual capacities, to the Lease Indenture Trustees for any amounts payable under the Pledged Lessor Notes or, except as provided in the Lease Indentures in the case of the Lease Indenture Trustees, for any obligation under the Lease Indentures. (Lease Indenture, Section 3.7)
Additional Notes Additional Lessor Notes may be issued under and secured by each Lease Indenture, at any time or from time to time, for cash at par for the purposes described under "SEcURm'ND SoURcE oF PAYMENT FQR THE BONDS". Before any additional Lessor Notes shall be issued thereunder, the Lessor shall have delivered to the Lease Indenture Trustee a request and aut)iorization to issue such additional Lessor Notes, which request and authorization sliall include the amount of such additional Lessor Notes and details with respect thereto. (Lease Indenture, Section 3.5) All Lessor Notes issued and outstanding under a Lease Indenture shall rank on a parity and shall be secured equally and ratably thereunder, without preference, priority or distinction of any thereof over any other by reason of difference in time of issuance or otherwise. (Lease Indenture, Section 3.6)
Lease Indenture Trustees Each Lease Indenture provides that the Lease Indenture Trustee shall not be liable under any circumstances, except for its own willful misconduct or gross negligence. Each Lease Indenture further provides that, in the case of any Indenture'Event of Default under such Lease Indenture, the Lease Indentu're Trustee shall exercise such of the rights and remedies vested in it by such Lease Indenture and shall use the same degree of care in their exercise as a prudent man would exercise or use in the circumstances in the conduct of his own affairs, provided that, ifin the opinion of the Lease Indenture Trustee such action may tend to involve expense or liability, it shall not be obligated to take such action unless it is furnished with indemnity satisfactory to it. The Lease Indenture Trustee may engage in or be interested in any financial or other transaction with PNM and the other parties to a Sale and Leaseback Transaction, provided that, if the Lease Indenture Trustee determines that any such relation is in conflict with its duties under such Lease Indenture, it shall eliminate the conflict or resign as Lease Indenture Trustee. (Lease Indenture, Sections 8.1 and 8.10)
DESCRIPTION OF THE LEASES The statements under this caption are summaries and do not purport to be complete. The summaries describe the provisions of, and are qualified in their entirety by reference to, the Leases executed and delivered in connection with the Previous Sale and Leaseback Transactions, copies of which have been filed as exhibits to th'e Registration Statement. The Leases entered into in connection with the various Previous Sale and Leaseback Transactions are not identical in all respects. The provisions described below do not necessarily appear in the documentation for each Sale and Leaseback Transaction although all provisions deemed to be material are described. Accordingly, such provisions do not necessarily appear in the referenced section of all Leases. If a Lease executed and delivered in connection with a future Sale and Leaseback Transaction differs in any material respect from the Leases described below, such material differences will be set forth in the Prospectus Supplement with respect to the Offered Bonds the proceeds of the issuance of which are to be utilized in connection with such Sale and Leaseback Transaction.
Term, and Rentals The Lessors will have acquired separate undivided ow'nership interests in Unit 1 or 2 and in certain'elated common facilities and will have leased such interests to PNM pursuant to separate Leases, each Unit 1 Lease having a term expiring on January 15, 2015, and each Unit 2 Lease having a term expiring on January 15, 2016, unless earlier terminated or extended as described below. Basic rent is required to be paid by PNM under the Leases in immediately available funds on each January 15 and July 15, unless the scheduled due date is not a business day,.in which case such basic rent is required to be paid in immediately available funds on the preceding business day with the same effect as though made on the due date. (Lease, Sections 3(a) and 3(c)) The basic rent payable under each Lease on each payment date is required to be at least equal to all principal of, premium, if any, and interest on the Lessor Notes of such Lessor then due and payable on such date. (Lease, Section 3(g) ) Except in the case of an Indenture Event of Default under the related Lease Indenture, each payment of basic rent by PNM during such time as such Lease Indenture is in effect will be made to the Lease Indenture Trustee and applied first to the payment of principal and interest due from a Lessor on its Lessor Notes on each January 15 and July 15. The balance of any payments of basic rent under the Leases, after payment of the scheduled principal and interest on the Lessor'otes, will be paid.to the respective Lessors. (Lease Indenture, Sections 2.2 and 5.1)
Net Lease The obligations of PNM under each Lease will be those of a lessee under,a "net lease". Payments of rent under the Leases by PNM are to be made without counterclaim, setoff, defense, abatement, suspension or reduction. (Lease, Section 4)
Capital Improvements PNM will incur additional costs from time to time in connection with capital improvements to Unit 1 and Unit 2. Such costs may be financed through the issuance of additional Lessor Notes (a "Supplemental Financing" ), subject to certain conditions, including the following: (i) no more than one Supplemental Financing under a Lease may be made in any calendar year and the aggregate cost of the improvements covered by such Supplemental Financing must be at least a specified amount, (ii) the total amount of all Supplemental Financings with respect to the related Unit shall not exceed a specified amount, (iii) the Bonds and 1986A Bonds then outstanding shall not be rated jess than "investment grade", (iv) such Supplemental Financing will not result in adverse tax consequences to the related Equity Investor, (v) the additional Lessor, Notes shall not have a final maturity later than the last day of the basic lease term, and (vi) no default or Event of Default under the Lease shall have occurred and be continuing. In the event of such a Supplemental Financing, the rent under the I.ease shall be increased to cover the additional debt service. (Lease, Section 8(f))
Possession, Sublease and Transfer Except in connection with certain permitted transactions involving a merger, consolidation or sale, transfer, conveyance or lease of assets or a transaction required by the ANPP Participation Agreement, PNM is not permitted to assign, sublease, transfer or encumber (except for certain permitted encumbrances) any of its rights or interests under any Lease or part with the possession of the related Unit without the prior consent of the Lessor. (Lease, Section ll)
Insurance PNM is required under the Leases to use its best efforts to cause the operating agent to carry and maintain insurance required under the ANPP Participation Agreement and is required to make all payments required. of it under the ANPP Participation Agreement in respect of such insurance. PNM is also required,to maintain, directly or through the operating agent, policies of casualty and liability
insurance with respect to the interests covered by the Leases in such amounts and with such coverage as shall be adequate in accordance with prudent utility practice. (Lease, Section 10)
Purchase and Renewal Options PNM has the option under each of the Leases to purchase the Lessor's undivided ownership interest at the end of the term of the Lease or to renew the Lease for a specified period. (Lease, Sections 12 and 13). IfPNM does not exercise its option to purchase or renew a Lease, the Lessor may terminate such Lease on any rent payment'date during the last two and one-half years of its term and elect to retain or sell its undivided ownership interest, in which case. the Lessor must pay in full all of its Pledged Lessor Notes, together with all accrued interest and any applicable premium. (Lease, Sections 14(d) and 14(e))
Events of Loss, Deemed Loss Events or Cure Option If an Event of Loss or a Deemed Loss Event occurs with respect to the related Unit or if PNM exercises the Cure Option, PNM will pay to the Lessor and the related Equity Investor cash in the amount provided in the Lease and'the Lessor will transfer title to the Lessor's undivided ownership interest to PNM free of any lien for the benefit of the Pledged Lessor Notes. If, however, PNM is unable to assume the Pledged Lessor Notes because of its inability to satisfy the conditions to such assumption, the Lessor will grant to the Lease Indenture Trustee a security interest in the Lessor's undivided ownership interest. Thereafter, the Equity Investor will assign its beneficial interest in the Lessor trust to PNM or its assignee. In such case, the Lease will be amended to reduce the amount of basic rent payable thereafter to an amount equal to the principal of, premium, if any, and interest payable from time to time on the related Pledged Lessor Notes. (Lease Indenture, Section 3.9(b);
Lease, Sections 9(c), 9(d) and 16(e))
F Termination for Obsolescence If no default or Event of Default under a Lease shall have occurred and be continuing and no Event of Loss or Deemed Loss Event shall have occurred, PNM has the option on any January 15 or July 15 not earlier than January 15, 1997 and not later than January 15, 2013 to terminate the Lease, on at least 360 days'rior written notice, ifPNM's Board of Directors determines that the related Unit is uneconomic to PNM or is economically obsolete, provided that PNM shall be disposing of all its other leased interests in the related Unit. In such event, the Lessor may elect to retain or to'sell its undivided interest in the related Unit. Ifthe Lessor elec'ts to retain such in'terest, as a condition to such retention, the Lessor must pay in full the Pledged Lessor'otes of such Lessor, together with all accrued interest and any applicable premium. If the Lessor elects to sell such interest, it will be sold to the highest bidder (which may not be PNM or an affiliate of PNM), and PNM m'ust pay to the Lessor (a) the excess, if any, of the Termination Value (being a predetermined amount at least sufficient to prepay the Pledged Lessor Notes of such Lessor) as of the Termination Date over the nct sale price and (b) all accrued and unpaid rent, including any prepayment premium payable on the Lessor Notes then due. (Lease, Sections 14(a), 14(b) and 14(c))
Events of Default Events of Default under each Lease include, among other things: (i) failure by PNM to pay Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option when due or basic rent within five days after the same becomes due or any other rent within 20 days after the same becomes due; (ii) breach by PNM of its covenants discussed under "Merger; Consolidation; Maintenance of Corporate Existence" below or breach by PNM of certain other provisions of the Lease dealing with'PNM liens, insurance and subletting and assignment; (iii) failure by PNM to perform other covenants in the Lease and'related documents, in certain cases for 30 days after notice by the Lessor or the related'Equity Investor requiring that the same'be remedied; (iv) material misrepresentations by PNM in connection with the rela/ed Sale and L'easeback 30
Transaction; (v) occurrence of certain bankruptcy and insolvency events with respect to PNM; (vi) a final judgment for the payment of money in excess of $ I,000,000 shall not be paid or appropriately stayed by PNM within 60 days after entry of such judgment; (vii) certain defaults with respect to other obligations of PNM which are in excess of $ 20,000,000 ($ 5,000,000 in the case of any PVNGS operating lease); (viii) the expiration of 20 days following receipt by PNM of a notice of default under the ANPP Participation Agreement, provided that no Event of Default shall be deemed to have occurred ifPNM is pursuing its rights under the ANPP Participation Agrecmcnt to contest the existence of such purported default; (ix) a default by PNM under the ANPP Participation Agreement in consequence of which PNM's right to receive its generation entitlement sharc in PVNGS is suspended; and (x) a determination six months prior to the end 'of the basic lease term that the relate'd Unit does not )iave a remaining economic useful life of at least five and one-half years. (Lease, Section 15)
Ifan Event of Default under any Lease has occurred and is continuing, the Lessor may declare the Lease to be in default and may exercise one or more of the remedies provided in the Lease with respect to its undivided ownership interest. These remedies include the right to repossess and use such interest, to sell or relet sucli interest free 'and clear of the rights of PNM and to retain the proceeds of such sale or lease and (unless such Event of Default is that described in (x) above) to require PNM to pay as liquidated damages'any unpaid rent due under the Lease through the payment date specified in a written notice to PNM given not earlier than ten days before such date plus one of the following, as specified by the Lessor:
(i) an amount equal to the excess, ifany, of (A) the Casualty Value as of such payment date over (B) the fair market rental value of the Lessor's undivided ownership interest until the end of the remaining useful life of the related Unit, after discounting such rental value to present value at a specified interest rate; (ii) an amount equal to the excess, ifany, of (A) the Casualty Value as of such payment date, over (B) the fair market sales value of the Lessor's undivided ownership interest; (iii) an amount equal to the excess of (A) the present value of all installments of basic rent from the date of such notice to the end of the basic term or the applicable renewal term, discounted at a specified interest rate, over (B) the present value of the fair market rental value of the Lessor's undivided ownership interest for the remainder of such basic term or renewal term, so discounted; or (iv) an amount equal to the higher of (A) the Casualty Value as of such payment date or (B) the fair market sales value of the Lessor's undivided ownership interest, upon the receipt of which the Lessor shall transfer to PNM the undivided ownership interest. (Lease, Section 16)
Merger; Consolidation; Maintenance of Corporate Existence 4
PNM has agreed that it will at all times maintain its existence as a corporation and will not, without the consent of the Equity Investors, consolidate with or merge with or into, or, except in connection with normal dividend policy of PNM,,convey, transfer, lease or dividend more than 5% of its assets to, any person, unless immediately after giving effect to such transaction, a number of conditions. are met, including the requirement that the Bonds and the 1986A Bonds (or, if the Bonds and the,1986A Bonds are not then rated, PNM's preferred stock) shall be rated at least "investment grade" by two specified rating agencies. Such requirement cannot be waived by the Equity Investors without the consent of the holders of a majority in principal amount of the outstanding Securities.
Upon the consummation of such transaction, the surviving lessee, ifother than PNM, shall succeed to, and be substituted for, and may exercise every right and power of, PNM under the Leases and other related documents, with the same effect as if such corporation had been named therein.
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EXPERTS AND LEGAL OPINIONS I Legal matters in connection with the issuance of the Bonds are being passed on for PNM by Keleher R McLeod, P.A. of Albuquerque, New Mexico and for the Underwriters by Willkie Farr R Gallagher of New York, New York. Certain legal matters in connection with the consummation of the Sale and Leaseback Transactions will be passed on for First PV by Mudge Rose Guthrie Alexander R Ferdon of New York, New York and for PNM by Mudge Rose Guthrie Alexander R Ferdon and Snell R Wilmer of Phoenix, Arizona The statements as to matters of law and legal conclusions under "Rates and Regulation" and under "Environmental Factors" under Item 1 "Business" and under Item 3 "Legal Proceedings" in the 1985 Form 10-K and under "Financing Considerations" under the heading "PNM's CoivsTIIUcTIQN PnoGHASI AND FINANGING REQUIREMENTs in this Prospectus have been reviewed by Keleher R McLeod, P.A. All such statements are set forth in reliance upon the opinion of said firm, and in reliance upon its authority as an expert.
PNM is advised that as of August 31, 1986 the members of the firm of Keleher R McLeod, P.A.
acting in connection with the offering owned 2,351 shares of common stock of PNM.
ACCOUNTANTS The consolidated financial statements and schedules of PNM as of December 31, 1985 and 1984 and for each of the years in the three-year period ended December 31, 1985 in the 1985 Form 10-K have been incorporated by reference in this Prospectus in reliance upon the reports of Peat, Marwick, Mitchell R Co., independent certified public accountants, incorporated by reference herein, and upon the authority of said firin as experts in accounting and auditing.
PLAN OF DISTRIBUTION First PV will sell the Bonds to one or more of Kidder, Peabody R Co. Incorporated, Goldman, Sachs R Co. and Drexel Burnham Lambert Incorporated or to an underwriting syndicate including and represented by one or more of such firms to be name'd in the Prospectus Supplement by which each series of Offered Bonds is to be offered.
The Prospectus Supplement with respect to the Offered Bonds will set forth the terms of the offering of the Olfered Bonds and the proceeds to First PV from such sale, any underwriting discounts and other items constituting underwriters'ompensation, any initial public offering price and any discounts or concessions allowed or reallowcd or paid to dealers. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
The Bonds will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public olfering price or at varying prices determined at the time of sale. PNM has agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933. The underwriting agreement will provide that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters will be obligated to purchase all of the Offered Bonds ifany are purchased. It will, in addition, provide that in the event of a default involving not more than 10% of the principal amount of the Offered Bonds, the non-defaulting underwriters would be required to purchase the Offered Bonds agreed to be purchased by tlie defaulting underwriters in proport'ion to their respective obligations. In the event of a default in excess of 10% of the principal amount of the Offered Bonds, First PV will have the right to sell less than all of the Olfered Bonds to the underwriters.
t Burnham Leasing Corporation ("Burnham"), an atfiliate of Drexel Burnham Lambert Incorpo-rated, one of the underwriters, was one of the Equity Investors in the Initial Sale and Leaseback 32
0-No person has been authorized to give any infor-mation or to make any representations not con- $ 46o,oroo,ooo tained in the accompanying Prospectus or this Prospectus Supplement in connection with the of- L'ease Obligation Bonds, fering of the Lease Obligation Bonds, and if given or made such information or representation must Series 1986B not be relied upon as having been authorized by Public Service Company of New Mexico or any Due 1992-2016 underwriter.
The accompanying Prospectus and this Prospec-The Offered Bonds will initially be secured, tus Supplement do not constitute an offer to sell, or indirectly, as described herein, by an assignment a solicitation of an offer to buy, the securities of rentals under leases relating to undivided offered hereby in any state to any person to whom it interests in up to 10.2% of Units 1 and 2 is unlawful to make such an offer or solicitation.
and certain common facilities of the Neither the delivery of the accompanying Prospec-Palo Verde Nuclear Generating tus and this Prospectus Supplement nor any sale Station to be paid by made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of Public Service Company of New Mexico since the date hereof.
Public Service Company CONTENTS Prospectus Supplement Page of Summary Information Relating to PNM ...... S-2 New Mexico Certain Terms of thc Olfcrcd Bonds .......... S-3 Usc of Proceeds S-7 Recent Dcvclopments S-7 Underwriters . S-8 PROSPECTUS SUPPLEMENT Prospectus Availablc Information . 2 Incorporation of Certain Documents by Rcfcrcncc .. 2 Summary'nformation Relating to the Bonds....... 3 November 18, 1986 Summary Information Relating to PNM .......... 5 Glossary. 6 Introduction. 7 Use of Procccds . 8 Summary of Debt Scrvicc Payments .............. 10 Security and Source of Payment for the Bonds ..... II First PV Funding Corporation l2 Kidder, Peabody P Co.
Description of the Palo Verde Nuclear Gcncrating Incorporated Station . l2 Description of the ANPP Participation Agreemcnt .. l4 PNM's Construction Program and Financing
...... I5 Goldman, Sachs Bc Co.
Rcquircments Description of thc Bonds l8 Description of thc Lcasc Indenturcs .............. 23 Drexel Burnham Lambert Description of the Leases . 28 Experts and Legal Opinions 32 Incorporated Accountants .. 32 Plan of Distribution . 32
Transactions and acquired a 2.266667% undivided interest in Unit 1 for an equity investment of approximately 522,456,000. Burnham also was one of the Equity Investors in the August 18 Sale and Leaseback Transaction and acquired a 2.2666667% undivided interest in Unit 2 for an equity investment of approximately $ 26,040,000.
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