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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
___________ TO _____________
COMMISSION FILE NUMBER 333-30761
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
SPECIAL PURPOSE TRUST SDG&E-1
(Issuer of the Certificates)
SDG&E FUNDING LLC
(Exact name of registrant as specified in its Certificate of Formation)
DELAWARE 95-1184800
- -----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 ASH STREET, ROOM 111,
SAN DIEGO, CALIFORNIA 92101
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 696-2328
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
California Infrastructure and Economic Development Bank Special Purpose
Trust SDG&E-1 Rate Reduction Certificates, Series 1997-1: Class A-1
5.97% Certificates; Class A-2 6.04% Certificates; Class A-3 6.07%
Certificates; Class A-4 6.15% Certificates; Class A-5 6.19%
Certificates; Class A-6 6.31% Certificates; Class A-7 6.37% Certificates
(maturing serially from 1998 to 2007, and underlying SDG&E Funding LLC
Notes of the same respective classes)
- -----------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of February 29, 2000 was $0.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
PART I
ITEM 1. BUSINESS
GENERAL
SDG&E Funding LLC (the "Note Issuer") is a special-purpose,
single-member limited liability company organized under the laws of the
State of Delaware. San Diego Gas & Electric Company ("SDG&E"), as the
sole member of the Note Issuer, owns all of the equity securities of
the Note Issuer. The Note Issuer was organized in July 1997 for the
limited purposes of holding and servicing the Transition Property (as
described below) and issuing notes secured by the Transition Property
and other limited collateral and related activities, and is restricted
by its organizational documents from engaging in other activities. The
Note Issuer's organizational documents require it to operate in a
manner such that it should not be consolidated in the bankruptcy estate
of SDG&E in the event SDG&E becomes subject to such a proceeding.
The only material business conducted by the Note Issuer has
been the acquisition of Transition Property and the issuance on
December 16, 1997 of $658,000,000 in principal amount of the SDG&E
Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (the
"Notes"), with scheduled maturities ranging from one year to ten years
and final maturities ranging from three to twelve years. The specific
interest rate and maturity of each class of Notes is specified in Note
C of the Notes to Financial Statements herein. The Notes were issued
pursuant to an Indenture between the Note Issuer and Bankers Trust
Company of California, N.A., as trustee (the "Indenture"). The Note
Issuer sold the Notes to the California Infrastructure and Economic
Development Bank Special Purpose Trust SDG&E-1, a Delaware business
trust (the "Trust"), which issued certificates corresponding to each
class of Notes (the "Certificates") in a public offering.
The Note Issuer has no employees. It has entered into a
servicing agreement (the "Servicing Agreement") with SDG&E, pursuant to
which SDG&E is required to service the Transition Property on behalf of
the Note Issuer. In addition, the Note Issuer has entered into an
Administrative Services Agreement with SDG&E pursuant to which SDG&E
performs administrative and operational duties for the Note Issuer.
TRANSITION PROPERTY
The California Public Utilities Code (the "PU Code") provides
for the creation of "Transition Property." A financing order dated
September 3, 1997 (the "Financing Order") issued by the California
Public Utilities Commission (the "CPUC"), together with the related
Issuance Advice Letter, establishes, among other things, separate
nonbypassable charges (the "FTA Charges") payable by residential
electric customers and small commercial electric customers in an
aggregate amount sufficient to repay in full the Certificates, fund the
Overcollateralization Subaccount established under the Indenture and
pay all related costs and fees. Under the PU Code and the Financing
Order, the owner of the Transition Property is entitled to collect FTA
Charges until such owner has received amounts sufficient to retire all
outstanding series of Certificates and cover related fees and expenses
and the Overcollateralization Amount described in the Financing Order.
The Transition Property is a property right under California law that
includes, without limitation, ownership of the FTA Charges and any
adjustments thereto as described in the next paragraph.
In order to enhance the likelihood that actual collections
with respect to the Transition Property are neither more nor less than
the amount necessary to amortize the Notes in accordance with their
expected amortization schedules, pay all related fees and expenses, and
fund certain accounts established pursuant to the Indenture as
required, the Servicing Agreement requires SDG&E, as the servicer of
the Transition Property (in such capacity, the "Servicer"), to seek,
and the Financing Order and the PU Code require the CPUC to approve,
periodic adjustments to the FTA Charges. Such adjustments will be based
on actual collections with respect thereto and updated assumptions by
the Servicer as to future usage of electricity by specified customers,
future expenses relating to the Transition Property, the Notes and the
Certificates, and the rate of delinquencies and write-offs. The FTA
Charges will be adjusted at least annually if there is a material
shortfall or overage in collections.
THE TRUST
The Trust was organized in November 1997 solely for the
purpose of purchasing the Notes and issuing the Certificates. It will
not conduct any other material business activities.
ITEM 2. PROPERTIES
The Note Issuer and the Trust have no tangible properties.
The primary assets of the Note Issuer and the Trust are the Transition
Property and the Notes, respectively, as described above in Item 1.
Collections related to the Transition Property and the related payments
on the Notes in 1999 and 1998 are shown on the Statements of Cash Flows
included in this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted with respect to the Note Issuer pursuant to
Instruction I of Form 10-K.
No matters were submitted for a vote or consent of holders of
Certificates in 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) There is no established public trading market for the Note
Issuer's equity securities. All of the Note Issuer's equity is owned by
SDG&E. On August 11, 1997, SDG&E transferred $400,000 to the Note
Issuer as an initial capital contribution, and SDG&E made capital
contributions to the Note Issuer aggregating to $3,290,000. The sale of
such membership interest was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
The Note Issuer has made no other sales of unregistered securities.
The Indenture prohibits the Note Issuer from making any
distributions to the sole member from the amounts allocated to the Note
Issuer unless no default has occurred and is continuing thereunder and
the book value of the remaining equity of the Note Issuer, after giving
effect to such distribution, is equal to at least 0.5% of the original
principal amount of all series of Notes which then remains outstanding.
As of December 31, 1999, the original principal amount of all series of
Notes which then remained outstanding was $526,400,000. As of December
31, 1999, the Note Issuer has not made any distributions to SDG&E. The
Note Issuer intends to make distributions to the sole member from time
to time in the future as permitted by the Indenture.
The registered owner for each class of the Certificates is
Cede & Co., as nominee of The Depository Trust Company ("DTC"). DTC has
informed the Note Issuer that as of March 27, 2000, there were
approximately 100 beneficial holders of Certificates. The Certificates
are not registered and do not trade on any established trading market.
(b) The Note Issuer's Amendment No. 4 to the Registration
Statement No. 333-30761 on Form S-3, as filed with the Securities and
Exchange Commission (the "Commission") on November 21, 1997 (the
"Registration Statement") for the sale of the Notes and the
Certificates was declared effective by the Commission on November 24,
1997. The Certificates were offered for sale beginning on December 4,
1997. Certificates in the aggregate amount of $658,000,000 were sold on
December 16, 1997. In connection with the offering of the Certificates,
Morgan Stanley, Inc. and Lehman Brothers Inc. acted as the managing
underwriters. The Trust purchased the Notes from the Note Issuer on
December 16, 1997, pursuant to a private sale in the aggregate amount
of $658,000,000. Notes and Certificates in the aggregate principal
amount of $800,000,000 were authorized and $658,000,000 have been
offered and sold to date. All of the Notes offered in the sale were
purchased. The amount of each class of Notes and Certificates
registered and the respective sale prices, which exclude the original
issue discount, are as follows:
Sale Price
Class Principal Amount Sold (Net of Discount)
- ------ --------------------------- ----------
Class A-1 Notes and Certificates $ 65,800,000.00 $ 65,797,058.74
Class A-2 Notes and Certificates 82,639,254.00 82,628,229.92
Class A-3 Notes and Certificates 66,230,948.00 66,218,105.82
Class A-4 Notes and Certificates 65,671,451.00 65,648,886.29
Class A-5 Notes and Certificates 96,537,839.00 96,536,159.24
Class A-6 Notes and Certificates 197,584,137.00 197,544,718.97
Class A-7 Notes and Certificates 83,536,371.00 83,481,128.40
--------------- ---------------
Total: $658,000,000.00 $657,854,287.38
=============== ===============
The net offering proceeds to the Trust were $654,728,789: the
$658,000,000 received in the sale of the Certificates less $3,125,498 of
underwriting discount and commission, and $145,713 of original issue
discount. The Trust used all of the net proceeds from the sale of
Certificates to purchase the Notes from the Note Issuer. The net
offering proceeds to the Note Issuer were used to purchase the
Transition Property. Compensation paid to the independent director of
the Note Issuer was $3,800. Other than the payment to the independent
director, no additional net offering proceeds were used to pay, either
directly or indirectly, any director, officer or affiliate of the Note
Issuer.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to Instruction I ("Omission of Information by
Certain Wholly Owned Subsidiaries") of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the Note Issuer's results of
operations is in an abbreviated format pursuant to Instruction I of Form
10-K.
As discussed above under "Item 1. Business", the Note Issuer
was established in July 1997 for limited purposes. As discussed above
under Item 5 (Market for Registrant's Common Equity and Related
Stockholder Matters), on December 16, 1997, the Note Issuer issued Notes
in order to purchase Transition Property. The Note Issuer is restricted
by its organizational documents from engaging in activities other than
those described in Item 1.
The Note Issuer expects to use collections with respect to the
Transition Property to make scheduled principal and interest payments on
the Notes. Interest income earned on the Transition Property is expected
to offset (1) interest expense on the Notes, (2) amortization of debt-
issuance expenses and the discount on the Notes, and (3) the fees
charged by SDG&E for servicing the Transition Property and providing
administrative services to the Note Issuer. (These agreements are
discussed in greater detail in Note D to the Financial Statements
attached hereto.)
Collections of FTA Charges since inception of the program have
met expectations. For 1999, collections of $101,401,000 resulted in an
undercollection of $1,526,000 after deducting scheduled principal and
interest payments of $101,077,000, payments of $1,521,000 for servicing
fees and other expenses, and $329,000 retained to fund the
Overcollateralization Account established under the Notes' indenture.
The undercollection was deducted from the previous surplus collections.
For 1998, collections of $115,360,000 resulted in an overcollection of
$6,423,000 after deducting scheduled principal and interest payments of
$106,556,000, payments of $2,051,000 for servicing fees and other
expenses, and $330,000 retained to fund the Overcollateralization
Account established under the Notes' indenture. The remaining excess
collections will be applied toward future payments on the Notes.
Management believes that it is reasonable to expect future collections
of FTA Charges to be sufficient to make scheduled payments on the Notes
and pay related expenses on a timely basis. The FTA Charges will be
adjusted at least annually if there is a material shortfall or overage
in collections.
The Note Issuer has no computer systems of its own and relies on
certain systems of SDG&E for information. There were only a few, very
minor Year 2000 interruptions to SDG&E's automated systems and
applications with suppliers and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Note Issuer or the Trust.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on page 10 of this Annual
Report.
Since the Trust is a pass-through entity with no assets other
than the Notes, financial statements for the Trust are not included. In
addition, Exhibit 99.1 contains financial information regarding
collections of FTA Charges by the Servicer for the fourth quarter of
1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable with respect to the Note Issuer or the Trust.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted with respect to the Note Issuer pursuant to
Instruction I of Form 10-K.
Not applicable to the Trust.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Note Issuer and
report of independent auditors are included in Item 8:
Independent Auditors' Report
Statements of Operations and Changes in Member's Equity
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedules.
None.
3. Exhibits.
The following exhibits are filed as a part of this report:
Exhibit Description
------- -----------
3.1 Certificate of Formation. (1)
3.2 Limited Liability Company Agreement. (1)
3.3 Amended and Restated Limited Liability Company Agreement. (1)
4.1 Note Indenture. (2)
4.2 Amended and Restated Declaration and Agreement of Trust. (1)
4.3 Series Supplement. (2)
4.4 Form of Note. (1)
4.5 First Supplemental Trust Agreement. (2)
4.6 Form of Rate Reduction Certificate. (2)
10.1 Transition Property Purchase and Sale Agreement. (2)
10.2 Transition Property Servicing Agreement. (2)
10.3 Note Purchase Agreement. (2)
10.4 Fee and Indemnity Agreement. (2)
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Quarterly Servicer's Certificate dated December 13, 1999.
____________________________
(1) Incorporated by reference to the same-titled exhibit to the
Note Issuer and Trust's Registration Statement on Form S-3,
as amended, File No. 333-30761.
(2) Incorporated by reference to the same-titled exhibit to the
Note Issuer and Trust's Current Report on Form 8-K filed with
the Commission on December 23, 1997.
(b) Reports on 8-K.
There were no reports on Form 8-K filed after September 30, 1999.
FINANCIAL STATEMENT INDEX
Independent Auditors' Report.............................. 11
Statements of Operations and Changes In Member's Equity... 12
Balance Sheets............................................ 13
Statements of Cash Flows.................................. 14
Notes to Financial Statements............................. 15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of SDG&E Funding LLC:
We have audited the accompanying balance sheets of SDG&E Funding
LLC as of December 31, 1999 and 1998, and the related statements of
operations and changes in member's equity and cash flows for the years
ended December 31, 1999 and 1998 and for the period from July 1, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of SDG&E Funding LLC as of
December 31, 1999 and 1998, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 and
for the period from July 1, 1997 (inception) to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 4, 2000
SDG&E FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
For the Period
For the For the From July 1, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1997
------------- ------------ ---------------
INCOME
- ------
Interest income $34,774 $40,907 $ 8
Other income 1,109 1,122 --
------ ------- -------
Total Income 35,884 42,029 8
------ ------- -------
EXPENSES
- --------
Interest expense 35,210 41,366 --
Amortization of deferred
financing costs 656 642 --
Other expenses 18 24 5
------ ------- -------
Total Expenses 35,884 42,302 5
------ ------- -------
NET(LOSS)INCOME -- (3) 3
Member's equity, beginning
of period 3,290 3,293 3,290
------ ------ -------
MEMBER'S EQUITY, DECEMBER 31 $ 3,290 $ 3,290 $ 3,293
====== ====== =======
See notes to financial statements.
SDG&E FUNDING LLC
BALANCE SHEETS
(In thousands of dollars)
At December 31 1999 1998
------------- --------------
ASSETS
- -------
Current Assets:
Cash and cash equivalents $ 565 $ 565
Current portion of
transition property 65,800 65,800
------------- -------------
Total Current Assets 66,365 66,365
Noncurrent Assets:
Transition property 453,604 519,404
Deferred financing costs 5,246 5,902
Restricted funds 8,741 9,939
------------- -------------
TOTAL ASSETS $ 533,956 $ 601,610
============= =============
LIABILITIES AND MEMBER'S EQUITY
- -------------------------------
Current Liabilities:
Current portion of
long-term debt $ 65,800 $ 65,800
Accounts payable and
accrued expenses 4,266 6,120
------------- -----------
Total Current Liabilities 70,066 71,920
Long-term debt 460,600 526,400
------------- -----------
Total Liabilities 530,666 598,320
Member's Equity 3,290 3,290
------------- -----------
TOTAL LIABILITIES AND
MEMBER'S EQUITY $ 533,956 $ 601,610
============= ===========
See notes to financial statements.
SDG&E FUNDING LLC
STATEMENTS OF CASH FLOWS
(In thousands of dollars)
For the Period
For the For the from July 1, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)Income $ -- $ (3) $ 3
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of deferred financing costs 656 642 --
Decrease (increase) in interest receivable -- 8 (8)
Increase (decrease) in accounts payable and
accrued expenses (1,854) 5,864 256
------ ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES (1,198) 6,511 251
------ ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of underlying notes -- -- 654,729
Equity contribution from San Diego Gas & Electric -- -- 3,290
Collection of transition property from SDG&E 65,800 65,800 --
Payments on long-term debt (65,800) (65,800) --
Incurrence of deferred financing costs -- (1,624) (1,649)
Decrease (increase) in restricted funds 1,198 (6,749) (3,190)
------- ------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,198 (8,373) 653,180
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of transition property -- -- (651,004)
------- ------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS -- (1,862) 2,427
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 565 2,427 --
------- ------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 565 $ 565 $ 2,427
======== ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments $ 34,668 $ 40,757 $ --
======== ======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Debt-issuance costs deducted from the note proceeds $ -- $ -- $ 3,125
======== ======== =========
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
A. Nature of Operations
The financial statements include the accounts of SDG&E Funding LLC
(SDG&E Funding), a Delaware special-purpose limited-liability company,
whose sole member is San Diego Gas & Electric Company (SDG&E), a
provider of electric and natural gas services. SDG&E is a wholly owned
subsidiary of Sempra Energy. SDG&E Funding was formed on July 1, 1997,
in order to effect the issuance of notes (the Underlying Notes)
intended to support a 10-percent electric-rate reduction. This
reduction is provided to SDG&E's residential and small commercial
customers in connection with the electric industry restructuring
mandated by California Assembly Bill 1890.
SDG&E Funding was organized for the limited purposes of issuing the
Underlying Notes and purchasing Transition Property. Transition
Property is the right to be paid a specified amount from a
nonbypassable charge levied on residential and small commercial
customers. The nonbypassable charge has been authorized by the
California Public Utility Commission (CPUC) pursuant to electric
restructuring legislation.
SDG&E Funding is restricted by its organizational documents from
engaging in any other activities. In addition, SDG&E Funding's
organizational documents require it to operate in such a manner that
it should not be consolidated in the bankruptcy estate of SDG&E in the
event that SDG&E becomes subject to such a proceeding.
SDG&E Funding is legally separate from SDG&E. The assets of SDG&E
Funding are not available to creditors of SDG&E or Sempra Energy.
SDG&E Funding will cease to exist upon the maturation or retirement of
the Underlying Notes.
B. Summary of Accounting Policies
Restricted Funds
SDG&E Funding is required to maintain funds of approximately $3
million. These funds are to be used to make scheduled payments on the
Underlying Notes and to pay other expenses of SDG&E Funding in the
event that collections of the nonbypassable charge provide
insufficient funds to make such payments.
Unamortized Debt Issuance Expense
The expenses associated with the issuance of the Underlying Notes have
been capitalized and are being amortized over the life of the
Underlying Notes.
Income Taxes
SDG&E Funding is a single-member limited-liability company.
Accordingly, all federal income tax effects and all material State of
California franchise tax effects of SDG&E Funding's activities accrue
to SDG&E.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. Actual
results could differ from these estimates.
C. Long-Term Debt
In December 1997, SDG&E Funding issued $658 million of the Underlying
Notes to the California Infrastructure and Economic Development Bank
Special Purpose Trust (the Trust). The Trust, in turn, issued pass-
through certificates known as "rate-reduction bonds" with an original
principal amount equal to the original principal amount of the
Underlying Notes. SDG&E Funding used the proceeds from the Underlying
Notes to purchase the Transition Property from SDG&E.
The Underlying Notes are secured solely by the Transition Property and
other assets of SDG&E Funding. Scheduled maturities and interest rates
for the Underlying Notes at December 31 are as follows:
Scheduled 1999 1998
Maturity Interest Amount Amount
Class Date Rate (Dollars in thousands)
- ---------------------------------------------------------------------
A-2 March 25, 2000 6.04% $ 16,839 $ 82,639
A-3 March 25, 2001 6.07% 66,231 66,231
A-4 March 25, 2002 6.15% 65,672 65,672
A-5 September 25, 2003 6.19% 96,538 96,538
A-6 September 25, 2006 6.31% 197,584 197,584
A-7 December 26, 2007 6.37% 83,536 83,536
----------- ----------
526,400 592,200
Less current portion (65,800) (65,800)
----------- -----------
Long-term debt $460,600 $526,400
=========== ===========
The carrying amounts and fair values of the Underlying Notes are $526
million and $511 million, respectively, at December 31, 1999, and $592
million and $607 million, respectively, at December 31, 1998. The fair
values of the Underlying Notes are estimated based on quoted market
prices for them or for similar issues.
The source of repayment is the nonbypassable charge authorized by the
CPUC. This nonbypassable charge is collected by SDG&E, as Servicer,
from its residential and small commercial customers. Collections of
the nonbypassable charge are deposited on a monthly basis by SDG&E
with SDG&E Funding in an account maintained by the trustee (Bankers
Trust Company). Each quarter such monies are used to make principal
and interest payments on the Underlying Notes. The debt service
requirements include an overcollateralization amount that is retained
for the benefit of the holders of the Underlying Notes. Any amounts
not required for debt service will be returned to SDG&E Funding.
D. Significant Agreements and Related Party Transactions
Under a Transition Property Servicing Agreement, SDG&E, the Servicer,
is required to manage and administer the Transition Property of SDG&E
Funding and to collect the nonbypassable charge from electric
customers on behalf of SDG&E Funding. SDG&E Funding pays a servicing
fee equal to 0.25% of the outstanding principal amount of the
Underlying Notes. The Servicer is also entitled to receive as
compensation any interest earnings on nonbypassable charge collections
prior to remittance to the Trust and any late payment charges
collected from SDG&E's customers.
The Trust was created for the limited purposes of purchasing the
Underlying Notes from SDG&E Funding, issuing the rate-reduction bonds,
and applying the proceeds from the Underlying Notes to the payment of
the rate-reduction bonds. Under a Fee and Indemnity Agreement, SDG&E
Funding is responsible for paying all fees and expenses incurred by
the Certificate Trustee (Bankers Trust Company) and the Delaware
Trustee (Bankers Trust Delaware).
E. Quarterly Financial Data (Unaudited)
Quarter ended
-----------------------------------------------
Dollars in millions March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------
1999
Income $ 9,349 $ 8,965 $ 8,849 $ 8,721
Expenses 9,349 8,965 8,849 8,721
-----------------------------------------------
Net income (loss) $ 0 $ 0 $ 0 $ 0
===============================================
1998
Income $ 12,112 $ 10,172 $ 9,925 $ 9,820
Expenses 12,115 10,172 9,925 9,820
-----------------------------------------------
Net income (loss) $ (3) $ 0 $ 0 $ 0
===============================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SDG&E Funding LLC,
as Registrant
By: /s/ Charles A. McMonagle
------------------------------
Name: Charles A. McMonagle
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- ---------- ----- ----
/s/ Charles A. McMonagle President, Chief Executive March 27, 2000
- ------------------------- Officer and Director
Charles A. McMonagle
/s/ James P. Trent Chief Financial Officer, March 27, 2000
- ------------------------ Chief Accounting Officer
James P. Trent and Director
/s/ Donald J. Puglisi Director March 27, 2000
- ------------------------
Donald J. Puglisi