As filed with the U.S. Securities and Exchange Commission on May 26, 2023

Registration Nos. 333-270078

and 333-270078-01

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 1

to

FORM SF-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

ATMOS ENERGY CORPORATION		ATMOS ENERGY KANSAS SECURITIZATION I, LLC
(Exact name of registrant, sponsor and depositor as specified in its charter)		(Exact name of registrant and issuing entity as specified in its charter)
Texas and Virginia		Delaware
(State or other jurisdiction of incorporation or organization)		(State or other jurisdiction of incorporation or organization)
001-10042
(Commission File Number)
0000731802		0001967097
(Central Index Key Number)		(Central Index Key Number)
75-1743247		92-1021026
(I.R.S. Employer Identification Number)		(I.R.S. Employer Identification Number)
1800 Three Lincoln Centre 5430 LBJ Freeway Dallas, Texas 75240 (972) 934-9227		1800 Three Lincoln Centre 5430 LBJ Freeway Dallas, Texas 75240 (972) 934-9227
(Address, including zip code, and telephone number, including area code, of depositor’s principal executive offices)		(Address, including zip code, and telephone number, including area code, of issuing entity’s principal executive offices)

 

 

Karen E. Hartsfield

Senior Vice President, General Counsel and Corporate Secretary

Atmos Energy Corporation

1800 Three Lincoln Centre

5430 LBJ Freeway

Dallas, Texas 75240

(972) 934-9227

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With Copies to:

 

Robert G. Stephens George J. Vlahakos Sidley Austin LLP 1000 Louisiana Street, Suite 5900 Houston, Texas 77002 (713) 495-4500		Michael F. Fitzpatrick, Jr., Esq. Adam R. O’Brian, Esq. Hunton Andrews Kurth LLP 200 Park Avenue New York, New York 10166 (212) 309-1000

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated May 26, 2023

PRELIMINARY PROSPECTUS

$95,000,000 Series 2023-A Senior Secured Securitized Utility Tariff Bonds

Atmos Energy Corporation

Sponsor, Depositor and Initial Servicer

Central Index Key Number: 0000731802

Atmos Energy Kansas Securitization I, LLC

Issuing Entity

Central Index Key Number: 0001967097

 

 

 

Tranche

Expected weighted average life (years)

Principal amount offered

Scheduled final payment date

Final maturity date

Interest rate

Initial price to public

Underwriting discount and commission

Proceeds to issuing entity (before expenses)

CUSIP

ISIN

A

$

95,000,000

%

%

%

$

The total initial price to the public is $        . The total amount of the underwriting discount and commission is $        . The total amount of proceeds to the issuing entity before deduction of expenses (estimated to be $        ) is $        . The distribution frequency is semi-annually. The first scheduled payment date is         , 2024.

 

Investing in the Series 2023-A Senior Secured Securitized Utility Tariff Bonds involves risks. Please read “RISK FACTORS” beginning on page 13 to read about factors you should consider before buying the securitized utility tariff bonds.

Atmos Energy Corporation (“Atmos Energy”), as “depositor”, is offering up to $95,000,000 aggregate principal amount of Series 2023-A Senior Secured Securitized Utility Tariff Bonds (the “securitized utility tariff bonds”) to be issued by Atmos Energy Kansas Securitization I, LLC, a Delaware limited liability company (the “issuing entity” or “us”) and wholly owned subsidiary of Atmos Energy. Atmos Energy is the “seller,” the “initial servicer” and the “sponsor” with regard to the securitized utility tariff bonds. The securitized utility tariff bonds are senior secured obligations of the issuing entity and will be secured by the securitized utility tariff property (the “securitized utility tariff property”) consisting of the right to impose and collect securitized utility tariff charges (the “securitized utility tariff charge”) paid by all existing and future retail customers within Atmos Energy’s service area in Kansas, as such service area exists on the date of the financing order, and as such service area may, at the discretion of Atmos Energy, be expanded or acquired as provided for in the financing order. Securitized utility tariff charges are required to be adjusted at least semi-annually, and more frequently as necessary, to correct any under-collection or over-collection of securitized utility tariff charges during the preceding six months and to ensure the projected recovery of amounts sufficient to provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds. The primary forms of credit enhancement for the securitized utility tariff bonds will be provided by such statutory true-up mechanism, as well as by general, excess funds and capital subaccounts held under the Indenture governing the securitized utility tariff bonds.

Each securitized utility tariff bond will be entitled to interest on          and          of each year, beginning on         , 2024. The first scheduled payment date is         , 2024. Interest will accrue from the date of issuance and must be paid by the purchaser of the securitized utility tariff bonds if the securitized utility tariff bonds are delivered after that date. On each payment date, scheduled principal payments shall be paid sequentially in accordance with the expected sinking fund schedule in this prospectus, but only to the extent funds are available in the collection account after payment of certain fees and expenses and after payment of interest.

The securitized utility tariff bonds represent obligations only of the issuing entity, Atmos Energy Kansas Securitization I, LLC, and are secured only by the assets of the issuing entity, consisting principally of the securitized utility tariff property and related assets to support its obligations under the securitized utility tariff bonds. Please read “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—The Security for the Securitized Utility Tariff Bonds” and “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF PROPERTY” in this prospectus. The securitized utility tariff property includes the right to impose, bill, charge, collect and receive securitized utility tariff charges from Atmos Energy’s retail customers in amounts sufficient to make payments on the securitized utility tariff bonds, as described further in this prospectus. Atmos Energy and its affiliates, other than the issuing entity, are not liable for any payments on the securitized utility tariff bonds. The securitized utility tariff bonds are not a debt or obligation of the State of Kansas or any of its political subdivisions, agencies or instrumentalities and are not a charge on its or any of its political subdivisions, agencies or instrumentalities’ full faith and credit or taxing power.

All matters relating to the structuring and pricing of the securitized utility tariff bonds have been considered by Atmos Energy and the State Corporation Commission of the State of Kansas, acting through its designated representative.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriter expects to deliver the securitized utility tariff bonds through the book-entry facilities of The Depository Trust Company for the accounts of its participants including Clearstream Banking, S.A. and Euroclear Banks SA/NV, as operator of the Euroclear System against payment on or about         , 2023. There currently is no secondary market for the securitized utility tariff bonds, and we cannot assure you that one will develop.

J.P. Morgan

Structuring agent and sole bookrunner

The date of this prospectus is                 , 2023.

TABLE OF CONTENTS

 

		Page
ABOUT THIS PROSPECTUS			iv
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION			v
PROSPECTUS SUMMARY OF TERMS			1
RISK FACTORS			13
Summary of Risk Factors			13
Discussion of Risk Factors			15
REVIEW OF SECURITIZED UTILITY TARIFF PROPERTY			33
DESCRIPTION OF THE SECURITIZED UTILITY TARIFF PROPERTY			36
Creation of Securitized Utility Tariff Property; Financing Order			36
Tariff; Securitized Utility Tariff Charges			36
Securitized Utility Tariff Charge Customer Classes			37
Billing and Collection Terms and Conditions			37
THE SECURITIZATION ACT			39
Overview			39
Atmos Energy May Securitize Qualified Extraordinary Costs and Related Upfront and Ongoing Financing Costs			39
Constitutional Matters			40
The Kansas Commission May Adjust Securitized Utility Tariff Charges			42
Securitized Utility Tariff Charges are Nonbypassable			42
The Securitization Act Protects Securitized Utility Tariff Bondholders’ Security Interest on Securitized Utility Tariff Property			43
The Securitization Act Characterizes the Transfer of Securitized Utility Tariff Property as a True Sale			43
ATMOS ENERGY’S FINANCING ORDER			44
THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR			49
About Atmos Energy			49
Atmos Energy’s Customer Base and Natural Gas Consumption Within the Service Area			49
Credit Policy			50
Billing Process and Payment Options			51
Collection, Termination of Service and Write-off Policy			51
Write-off and Delinquency Experience			51
Delinquencies			52
Competition and Alternatives to Gas as An Energy Source for Atmos Energy Customers			53
Additional Natural Gas Utility Considerations			53
Weather Rules			53
Forecasting Natural Gas Customers			54
Annual Forecast Variance			54
ATMOS ENERGY KANSAS SECURITIZATION I, LLC, THE ISSUING ENTITY			55
General			55
Restricted Purposes			56
Our Relationship with Atmos Energy			56
Managers and Officers			56
Manager Fees and Limitation on Liabilities			58
We are a Separate and Distinct Legal Entity from Atmos Energy			58
Administration Agreement			59
THE SECURITIZED UTILITY TARIFF CHARGES			60
Initial Securitized Utility Tariff Charges			60
DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS			61
General			61

 

i

TABLE OF CONTENTS

 

		Page
Payments of Interest and Principal on the Securitized Utility Tariff Bonds			61
Expected Amortization Schedule			64
Expected Sinking Fund Schedule			64
Redemption of the Securitized Utility Tariff Bonds			65
Securitized Utility Tariff Bonds Will Be Issued in Book-Entry Form			65
Definitive Certificated Securitized Utility Tariff Bonds			68
Registration and Transfer of the Securitized Utility Tariff Bonds			69
The Security for the Securitized Utility Tariff Bonds			69
The Collection Account for the Securitized Utility Tariff Bonds			70
How Funds in the Collection Account Will Be Allocated			72
How Funds in the Subaccounts Will Be Used upon Repayment of the Securitized Utility Tariff Bonds			74
Reports to Holders of the Securitized Utility Tariff Bonds			74
Website			75
We and the Trustee May Modify the Indenture			75
What Constitutes an Event of Default on the Securitized Utility Tariff Bonds			78
Our Covenants			81
Access to the List of Securitized Utility Tariff Bondholders			83
We Must File an Annual Compliance Statement			84
The Trustee Must Provide an Annual Report to All Securitized Utility Tariff Bondholders			84
What Will Trigger Satisfaction and Discharge of the Indenture			84
Our Legal Defeasance and Covenant Defeasance Options			85
No Recourse to Others			86
Governing Law			86
THE TRUSTEE			87
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE SECURITIZED UTILITY TARIFF BONDS			90
Weighted Average Life Sensitivity			90
ESTIMATED ANNUAL FEES AND EXPENSES			92
THE SALE AGREEMENT			93
Atmos Energy’s Sale and Assignment of the Securitized Utility Tariff Property			93
Conditions to the Sale of the Securitized Utility Tariff Property			94
Atmos Energy’s Representations and Warranties			94
Atmos Energy’s Covenants			99
Atmos Energy’s Obligation to Indemnify Us and the Trustee and to Take Legal Action			102
Successors to Atmos Energy			103
Amendment			103
THE SERVICING AGREEMENT			104
Servicing Procedures			104
Securitized Utility Tariff Charge Adjustment Process			105
Remittances to Collection Account			106
Servicer Compensation			107
Atmos Energy’s Representations and Warranties as Servicer			107
The Servicer Will Indemnify Us, Other Entities and the Kansas Commission in Limited Circumstances			108
Limitation on Liability of Servicer and Others			109
The Servicer Will Provide Statements to Us, the Kansas Commission and the Trustee			109
The Servicer Will Provide Assessments Concerning Compliance with the Servicing Agreement			110
Matters Regarding Atmos Energy as the Servicer			110

 

ii

TABLE OF CONTENTS

 

		Page
Events Constituting a Default by the Servicer			111
The Trustee’s Rights if the Servicer Defaults			112
Waiver of Past Defaults			112
The Replacement of Atmos Energy as Servicer with a Successor Servicer			112
The Obligations of a Successor Servicer			113
Amendment			113
HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT			114
USE OF PROCEEDS			118
PLAN OF DISTRIBUTION			119
The Underwriters’ Sales Price for the Securitized Utility Tariff Bonds			119
No Assurance as to Resale Price or Resale Liquidity for the Securitized Utility Tariff Bonds			119
Various Types of Underwriter Transactions that May Affect the Price of the Securitized Utility Tariff Bonds			119
AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			121
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			122
General			122
Taxation of the Issuing Entity and Characterization of the Securitized Utility Tariff Bonds			123
Tax Consequences to U.S. Holders			123
Tax Consequences to Non-U.S. Holders			124
MATERIAL KANSAS INCOME TAX CONSEQUENCES			127
ERISA CONSIDERATIONS			128
General			128
Regulation of Assets Included in a Plan			128
Prohibited Transaction Exemptions			129
Consultation with Counsel			130
LEGAL PROCEEDINGS			131
RATINGS FOR THE SECURITIZED UTILITY TARIFF BONDS			132
WHERE YOU CAN FIND MORE INFORMATION			133
INCORPORATION BY REFERENCE			134
INVESTMENT COMPANY ACT OF 1940 AND VOLCKER RULE MATTERS			135
RISK RETENTION			136
LEGAL MATTERS			137
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS			138
NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA			138
NOTICE TO RESIDENTS OF UNITED KINGDOM			139
NOTICE TO RESIDENTS OF CANADA			140
NOTICE TO PROSPECTIVE INVESTORS IN SWITZERLAND			141
NOTICE TO PROSPECTIVE INVESTORS IN HONG KONG			142
NOTICE TO PROSPECTIVE INVESTORS IN JAPAN			143
NOTICE TO PROSPECTIVE INVESTORS IN TAIWAN			144
GLOSSARY OF DEFINED TERMS			145

 

iii

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement filed with the Securities and Exchange Commission or SEC. This prospectus provides information about us, the securitized utility tariff bonds and Atmos Energy Corporation as depositor, sponsor and initial servicer. This prospectus describes the terms of the securitized utility tariff bonds offered hereby. You should carefully review this prospectus, any free writing prospectus the issuing entity files with the SEC, and the information, if any, contained in the documents referenced in this prospectus under the heading “WHERE YOU CAN FIND MORE INFORMATION.”

References in this prospectus to the terms “we,” “us,” “our” or “the issuing entity” mean Atmos Energy Kansas Securitization I, LLC. References to “Atmos Energy,” “the sponsor,” “the initial servicer,” “the depositor” or “the seller” mean Atmos Energy Corporation. References to “the securitized utility tariff bonds” or “the bonds” mean our Series 2023-A Senior Secured Securitized Utility Tariff Bonds offered pursuant to this prospectus. References to “the servicer” refer to Atmos Energy and any successor servicer under the servicing agreement referred to in this prospectus. References to the “Securitization Act” mean the Utility Financing and Securitization Act, established by the Kansas Legislature, which provides for the securitization of “qualified extraordinary costs” (such as fuel costs incurred during extreme weather events) by issuing “securitized utility tariff bonds.” The Securitization Act is codified at K.S.A. §§ 66-1,240 – 66-1,253. Unless the context otherwise requires, the term “retail customer” means an end-use customer in Kansas who purchases natural gas for consumption from Atmos Energy. We also refer to the State Corporation Commission of the State of Kansas as “the Kansas commission.” You can find a glossary of some of the other defined terms we use in this prospectus on page 144 of this prospectus.

We have included cross-references to sections in this prospectus where you can find further related discussions. You can also find references to key topics in the table of contents.

Neither we nor any underwriter, agent, dealer, salesperson, the Kansas commission or Atmos Energy has authorized anyone else to provide you with any different information. Neither we nor any underwriter, agent, dealer, salesperson, the Kansas commission or Atmos Energy take any responsibility for, nor provide any assurance as to the reliability of, any different information that others may give you, or to make any representation other than those contained in this prospectus or in any free writing prospectus that we prepare. We are not offering to sell the securitized utility tariff bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is current only as of the date of this prospectus.

We expect to deliver the securitized utility tariff bonds against payment for the securitized utility tariff bonds on or about the date specified in the last paragraph of the cover page of this prospectus, which will be the                  business day following the date of pricing of the securitized utility tariff bonds. Since trades in the secondary market generally settle in two business days, purchasers who wish to trade securitized utility tariff bonds on the date of pricing or the succeeding                  business days will be required, by virtue of the fact that the securitized utility tariff bonds initially will settle in T +                 , to specify alternative settlement arrangements to prevent a failed settlement.

 

iv

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements included in this prospectus are “forward-looking statements.” All statements other than statements of historical fact included in this prospectus are forward-looking statements. When used in this prospectus or other offering materials and the documents incorporated by reference herein or therein, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “guidance”, “intend”, “objective”, “plan”, “projection”, “scheduled”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our ability to pay principal and interest on the securitized utility tariff bonds when scheduled to be paid, the ability of our servicer to collect securitized utility tariff charges, the value of the securitized utility tariff property, the outcome of regulatory, administrative and legal proceedings, market conditions and other matters. These risks and uncertainties include the following:

 

•

federal, state and local regulatory and political trends and decisions, including the impact of rate proceedings before various state regulatory commissions;

 

•

increased competition from energy suppliers and alternative forms of energy;

 

•

broader use of alternative energy sources by Atmos Energy’s retail customers;

 

•

the availability and accessibility of Atmos Energy’s contracted gas supplies, interstate pipeline and/or storage services;

 

•

possible loss of Atmos Energy’s local distribution company franchises or other adverse effects caused by the actions of municipalities;

 

•

advances in technology, including technologies that increase efficiency or that improve electricity’s competitive position relative to natural gas;

 

•

the ability of Atmos Energy’s retail customers to continue paying their utility bills;

 

•

the inherent hazards and risks involved in distributing, transporting and storing natural gas;

 

•

economic conditions in Atmos Energy’s service area, including the economy’s effects on its retail customers;

 

•

the threat of cyber-attacks or acts of cyber-terrorism that could disrupt Atmos Energy’s business operations and information technology systems;

 

•

natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control;

 

•

the accuracy of the servicer’s estimates of growth in Atmos Energy’s retail customer base;

 

•

the accuracy of the servicer’s forecast of retail customers and/or the payment of securitized utility tariff charges; and

 

•

the length and severity of a pandemic or other health crisis, such as the outbreak of the Coronavirus Disease 2019 (“COVID-19”) or variants thereof, including the impact to us and Atmos Energy’s operations, customers, contractors, vendors, and employees, and the measure that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.

 

v

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors could also have material adverse effects on our future results. These and other risks are described in greater detail under the caption “Risk Factors” in this prospectus. All forward-looking statements attributable to us and Atmos Energy or to persons acting on our behalf are expressly qualified in their entirety by these factors. Those factors may affect the value of the securitized utility tariff bonds. Any such forward-looking statement speaks only as of the date on which such statement is made, and other than as required under securities laws, we undertake no obligation to update these statements whether as a result of new information, subsequent events or change in circumstances, expectations or otherwise.

 

vi

 

1

 

2

		The securitized utility tariff bonds are not obligations of the trustee, our managers, Atmos Energy or of any of their affiliates other than us. The securitized utility tariff bonds are also not debt or obligations of the State of Kansas, the Kansas commission or any other public subdivision, agency or instrumentality of the State of Kansas.
Parties to Transaction and Responsibilities:		The following chart represents a general summary of the parties to the transactions underlying the offering of the securitized utility tariff bonds, their roles and their various relationships to the other parties:

 

3

Flow of Funds:		The following chart represents a general summary of the flow of funds:
The Security for the Securitized Utility Tariff Bonds:		The securitized utility tariff bonds will be secured by the collateral pledged pursuant to the Indenture. The principal asset of the trust estate will be the securitized utility tariff property. The Securitization Act and financing order provide for the creation and establishment of the securitized utility tariff property, which is a present contract right in favor of Atmos Energy, its transferees and other financing parties, to impose, bill, charge, collect and receive securitized utility tariff charges from Atmos Energy’s existing and future retail customers, as well as to obtain periodic adjustments to such charges as provided in the financing order. In addition, the securitized utility tariff property consists of all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the aforementioned rights and interests.
		The Indenture’s trust estate will also consist of:
		•  our rights under the sale agreement pursuant to which we will acquire the securitized utility tariff property, under an administration agreement and under the bill of sale delivered by Atmos Energy pursuant to the sale agreement;
		•  our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement;
		•  the collection account for the securitized utility tariff bonds and all subaccounts of the collection account;
		•  all rights to compel the servicer to file for and obtain periodic adjustments to the securitized utility tariff charges in accordance with the Securitization Act and the financing order;

 

4

		•  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing;
		•  all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, other than any cash released to us by the trustee on any payment date to be distributed to Atmos Energy as a return of its invested capital in us; and
		•  all payments on or under and all proceeds in respect of any or all of the foregoing.
		The subaccounts consist of a capital subaccount, which will be funded at closing in an amount equal to 0.50% of the initial principal amount of the securitized utility tariff bonds, a general subaccount, into which the servicer will deposit all securitized utility tariff charge collections, and an excess funds subaccount, into which we will transfer any amounts collected and remaining on a payment date after all payments to securitized utility tariff bondholders and other parties have been made. Amounts on deposit in each of these subaccounts will be available to make payments on the securitized utility tariff bonds on each payment date. For a description of the securitized utility tariff property, please read “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF PROPERTY” in this prospectus.
		For a description of the securitized utility tariff bonds, please read “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS” in this prospectus.
The Securitized Utility Tariff Property:		In general terms, all of the rights and interests of Atmos Energy that are transferred to us pursuant to the sale agreement are referred to in this prospectus as the “securitized utility tariff property.” The securitized utility tariff property includes the right to impose, bill, charge, collect and receive securitized utility tariff charges in amounts sufficient to pay principal and interest and ongoing financing costs in connection with the securitized utility tariff bonds, to obtain periodic adjustments to such charges as provided in the financing order and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. Securitized utility tariff charges are payable by Atmos Energy’s retail customers.
		The securitized utility tariff property is the principal collateral securing the securitized utility tariff bonds. Securitized utility tariff charges authorized in a financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Kansas commission, except for semi-annual and interim true-up adjustments to correct over-collections or under-collections and to provide for the expected recovery of amounts sufficient to timely provide payments of scheduled debt service and ongoing financing costs in connection with the securitized utility tariff bonds. See “ATMOS ENERGY’S FINANCING ORDER—True-Ups.” All revenues and collections resulting from securitized utility tariff charges are part of the securitized utility tariff property.
		We will purchase the securitized utility tariff property from Atmos Energy to support the issuance of the securitized utility tariff bonds. Atmos Energy, as the initial servicer, will bill and collect the securitized utility tariff charges from current and future retail customers. Atmos Energy will include the securitized utility tariff charges in its bills to its retail customers and is required to show the securitized utility tariff charges as a separate line item.

 

5

 

6

 

7

 

8

 

9

		subaccount of the securitized utility tariff bonds, released to us free and clear of the lien of the Indenture, which funds, less an amount equal to the initial deposit into the capital subaccount plus any unpaid return on invested capital, will be distributed to Atmos Energy and credited to Atmos Energy’s retail customers in the form of a credit to their natural gas bills.
		The amount of the servicer’s fee referred to in clause 2 above will be 0.05% of the aggregate initial principal amount of the securitized utility tariff bonds (for so long as Atmos Energy is the servicer) on an annualized basis. The priority of distributions for the collected securitized utility tariff charges, as well as available amounts in the subaccounts, are described in more detail under “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—How Funds in the Collection Account Will Be Allocated.”
Credit Enhancement:		The primary forms of credit enhancement are the true-up process and funds held in the collection account and related subaccounts.
		True-up Process. Securitized utility tariff charges are required to be adjusted at least semi-annually to:
		•  Correct any under-collection or over-collection of securitized utility tariff charges during the preceding six months; and
		•  ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds.
		The servicer may also make interim true-up adjustments more frequently under certain circumstances. Please read “ATMOS ENERGY’S FINANCING ORDER—True-Ups.”
		Collection account. Under the Indenture, the trustee will hold a collection account for the securitized utility tariff bonds, divided into various subaccounts. The primary subaccounts for credit enhancement purposes are:
		•  the general subaccount—the trustee will deposit into the general subaccount all securitized utility tariff charge collections remitted to it by the servicer with respect to the securitized utility tariff bonds and investment earnings on amounts in the general subaccount;
		•  the capital subaccount—Atmos Energy will deposit an amount equal to 0.50% of the initial principal amount of the securitized utility tariff bonds into the capital subaccount on the date of issuance of the securitized utility tariff bonds; and
		•  the excess funds subaccount—any excess amount of collected securitized utility tariff charges held after the payment on a payment date of scheduled principal, interest and ongoing financing costs, and investment earnings on amounts in the excess funds subaccount of securitized utility tariff bonds will be held in the excess funds subaccount.
		Funds in each of these subaccounts will be available to make payments on the securitized utility tariff bonds on each payment date. In addition, other subaccounts may be used, including an over-collateralization subaccount or other subaccount if necessary to obtain certain tax treatment, desired ratings or otherwise increase the tangible and quantifiable benefits of the securitization. Atmos Energy may implement such subaccounts only with the agreement of the Kansas commission’s designated representative.

 

10

Reports to Holders of Securitized Utility Tariff Bonds:		Pursuant to the Indenture, the trustee shall make available electronically on its reporting website to each securitized utility tariff bondholder and the Kansas commission a statement provided and prepared by the servicer containing information concerning, among other things, us and the collateral for the securitized utility tariff bonds. Unless and until the securitized utility tariff bonds are issued in definitive certificated form, the reports for the securitized utility tariff bonds will be provided to The Depository Trust Company. The reports will be available to beneficial owners of the securitized utility tariff bonds on the reporting website of the trustee or upon written request to the trustee or the servicer. These reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Furthermore, if required by the Trust Indenture Act, the trustee will be required to mail a brief annual report to all holders of securitized utility tariff bonds containing information concerning the trustee. Please read “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—Reports to Holders of the Securitized Utility Tariff Bonds” and “—The Trustee Must Provide an Annual Report to All Securitized Utility Tariff Bondholders.”
Servicing Compensation:		We will pay the servicer on each payment date the servicing fee with respect to the securitized utility tariff bonds. As long as Atmos Energy or any affiliated entity acts as servicer, this fee will be 0.05% of the aggregate initial principal amount of the securitized utility tariff bonds on an annualized basis, plus reimbursement for its out-of-pocket costs for external accounting and legal services. If a successor servicer is appointed, the servicing fee will be negotiated by the successor servicer and the trustee, but will not, unless the Kansas commission consents, exceed 0.60% of the aggregate initial principal amount of the securitized utility tariff bonds on an annualized basis. In no event will the trustee be liable for any servicing fee in its individual capacity.
Federal Income Tax Status:		Sidley Austin LLP expects to issue an opinion, that, for U.S. federal income tax purposes (i) we will not be treated as a taxable entity separate and apart from our sole member, Atmos Energy, and (ii) the securitized utility tariff bonds will constitute indebtedness of Atmos Energy. Each beneficial owner of a securitized utility tariff bond, by acquiring a beneficial interest, agrees to treat such securitized utility tariff bond as indebtedness of our sole member secured by the collateral for federal (and, to the extent applicable, state) income tax purposes unless otherwise required by appropriate taxing authorities. Please read “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” in this prospectus.
Kansas State Income Tax Status:		Triplett Woolf Garretson, LLC, counsel to us and Atmos Energy, expects to issue an opinion, that (i) assuming that the securitized utility tariff bonds will be treated as debt obligations of Atmos Energy for U.S. federal income tax purposes, interest paid on the securitized utility tariff bonds generally will be taxed for Kansas income tax purposes consistently with its taxation for U.S. federal income tax purposes and such interest received by an entity or person not otherwise subject to Kansas corporate or individual income tax will not be subject to Kansas income tax; (ii) assuming that such treatment applies for U.S. federal income tax purposes, for Kansas income tax purposes, we will not be treated as a taxable entity separate and apart from Atmos Energy; and (iii) assuming that such treatment applies for U.S. federal income tax purposes, for Kansas income tax purposes, the securitized utility tariff bonds will constitute indebtedness of Atmos Energy. Please read “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” and “MATERIAL KANSAS INCOME TAX CONSEQUENCES” in this prospectus.

 

11

ERISA Considerations:		Employee benefit plans or other arrangements that are subject to ERISA, Section 4975 of the Internal Revenue Code or applicable similar law and investors acting on behalf of, or using assets of, such plans or arrangements may acquire the securitized utility tariff bonds subject to specified conditions. The acquisition, holding or disposition of the securitized utility tariff bonds could be treated as a direct or indirect prohibited transaction under ERISA and/or Section 4975 of the Internal Revenue Code or, in the case a plan or arrangement subject to applicable similar law, a violation of applicable similar law. Accordingly, by purchasing and holding the securitized utility tariff bonds, each investor that is or is acting on behalf of, or using assets of, such an employee benefit plan or arrangement subject to ERISA and/or Section 4975 of the Internal Revenue Code or applicable similar law will be deemed to certify by virtue of its acquisition of any securitized utility tariff bonds that the acquisition, holding and subsequent disposition of the securitized utility tariff bonds will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code or, in the case of a plan or arrangement subject to applicable similar law, a non-exempt violation of applicable similar law. For further information, please read “ERISA CONSIDERATIONS” in this prospectus.
Credit Ratings:		The securitized utility tariff bonds are expected to receive credit ratings from at least two nationally recognized rating agencies. See “RATINGS FOR THE SECURITIZED UTILITY TARIFF BONDS” in this prospectus.
Use of Proceeds:		Upon the issuance and sale of the securitized utility tariff bonds, we will use the net proceeds to pay to Atmos Energy the purchase price of Atmos Energy’s rights under the financing order, which are securitized utility tariff property.
		The net proceeds from the sale of the securitized utility tariff property (after payment of upfront financing costs) will be used by Atmos Energy to recover, finance or refinance a portion of the qualified extraordinary costs of Atmos Energy as approved by the Kansas commission. Atmos Energy’s qualified extraordinary costs related to Winter Storm Uri are currently estimated to be approximately $125 million (including related financing costs). Please read “USE OF PROCEEDS” in the prospectus.
1940 Act Registration:		We expect to rely on an exception from the definition of “investment company” under the 1940 Act contained in Section 3(c)(5)(A) under the 1940 Act, although there may be additional exclusions or exemptions available to us. We are being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.
Risk Retention:		The securitized utility tariff bonds are not subject to the 5% risk retention requirements imposed by Section 15G of the Exchange Act due to the exemption provided in Rule 19(b)(8) of the risk retention regulations in 17 C.F.R. Part 246 of the Exchange Act or Regulation RR. For information regarding the requirements of the EU Securitization Regulation as to risk retention and other matters, please read “RISK FACTORS—Other risks associated with an investment in the securitized utility tariff bonds—Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the securitized utility tariff bonds” in this prospectus.
Minimum Denomination:		$2,000, or integral multiples of $1,000 in excess thereof, except for one bond which may be of a smaller denomination.
Expected Settlement:		, 2023, settling flat. DTC, Clearstream and Euroclear.
Risk Factors:		You should consider carefully the risk factors beginning on page 13 of this prospectus before you invest in the securitized utility tariff bonds.

 

12

RISK FACTORS

Please carefully consider all the information we have included or incorporated by reference in this prospectus, including the risks described below and in “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION,” before deciding whether to invest in the securitized utility tariff bonds.

Summary of risk factors

Set forth below is a summary of the material risk factors which you should consider before deciding whether to invest in the securitized utility tariff bonds. These risks can affect the timing or ultimate payment of the securitized utility tariff bonds and the value of your investment in the securitized utility tariff bonds.

 

•

You may experience material payment delays or incur a loss on your investment in the securitized utility tariff bonds because the source of funds for payment is limited.

Risks associated with potential judicial, legislative or regulatory actions

 

•

We and Atmos Energy are not obligated to indemnify you for changes in law.

 

•

Future judicial action could reduce the value of your investment in the securitized utility tariff bonds.

 

•

Future state action could reduce the value of your investment in the securitized utility tariff bonds.

 

•

The Kansas commission might attempt to take actions that could reduce the value of your investment in the securitized utility tariff bonds.

 

•

Deregulation or restructuring in the natural gas utility market in Kansas may result in increased competition and material delays or reductions in collecting securitized utility tariff charges that could materially adversely affect the value of your investment in the securitized utility tariff bonds.

 

•

The servicer may not fulfill its obligations to act on behalf of the securitized utility tariff bondholders to protect bondholders from actions by the Kansas commission or the State of Kansas, or the servicer may be unsuccessful in any such attempt.

 

•

A municipal entity may seek to acquire portions of Atmos Energy’s distribution facilities and avoid payment of the securitized utility tariff charges.

Servicing risks

 

•

Your investment in the securitized utility tariff bonds depends on Atmos Energy or its successor or assignee, acting as servicer of the securitized utility tariff property.

 

•

Inaccurate customer count forecasting or unanticipated delinquencies or write-offs might reduce scheduled payments on the securitized utility tariff bonds.

 

•

If we have to replace Atmos Energy as the servicer, we may experience difficulties finding and using a replacement servicer.

 

•

Changes to billing and collection practices might reduce the value of your investment in the securitized utility tariff bonds.

 

•

Limits on rights to terminate service might make it more difficult to collect the securitized utility tariff charges.

 

•

Increased dependence on technology may hinder Atmos Energy’s ability to act as servicer of the securitized utility tariff property.

 

13

•

Cyber-attacks or acts of cyber-terrorism could disrupt Atmos Energy’s business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or company information.

Weather-related damage and other disaster risks

 

•

Adverse weather conditions causing damage to Atmos Energy’s operations could impair payment on the securitized utility tariff bonds.

 

•

Terrorist activities or other significant events could adversely affect payment on the securitized utility tariff bonds.

Risks to natural gas industry

 

•

Atmos Energy’s operations are subject to increased competition which could adversely affect the collection of securitized utility tariff charges.

 

•

Greenhouse gas emissions or other legislation or regulations intended to address climate change could prompt Atmos Energy’s retail customers to switch to alternative energy sources and negatively impact the collection of securitized utility tariff charges.

Risks associated with the unusual nature of the securitized utility tariff property

 

•

Future adjustments to securitized utility tariff charges by retail customer class might result in insufficient collection.

 

•

Foreclosure of the trustee’s lien on the securitized utility tariff property might not be practical, and acceleration of the securitized utility tariff bonds before maturity might have little practical effect.

Risks associated with potential bankruptcy proceedings of the seller or the servicer

 

•

The servicer will commingle the securitized utility tariff charges with other revenues it collects, which might obstruct access to the securitized utility tariff charges in case of the servicer’s bankruptcy and reduce the value of your investment in the securitized utility tariff bonds.

 

•

The bankruptcy of Atmos Energy might result in losses or delays in payments on the securitized utility tariff bonds.

 

•

The sale of the securitized utility tariff property might be construed as a financing and not a sale in a case of Atmos Energy’s bankruptcy which might delay or limit payments on the securitized utility tariff bonds.

 

•

If the servicer enters bankruptcy proceedings, the remittance of certain securitized utility tariff charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owed on the securitized utility tariff bonds.

 

•

Claims against Atmos Energy might be limited in the event of its bankruptcy.

 

•

The bankruptcy of Atmos Energy might limit the remedies available to the trustee.

Other risks associated with an investment in the securitized utility tariff bonds

 

•

Atmos Energy’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the securitized utility tariff bonds.

 

•

If the ratings on the securitized utility tariff bonds are withdrawn or revised, the value of the bonds may be adversely affected.

 

14

•

Atmos Energy’s credit ratings might affect the market value of the securitized utility tariff bonds.

 

•

The absence of a secondary market for the securitized utility tariff bonds might limit your ability to resell the securitized utility tariff bonds.

 

•

You might receive principal payments for the securitized utility tariff bonds later than you expect.

 

•

Atmos Energy may cause the issuance, by another subsidiary or affiliated entity, of additional securitized utility tariff bonds in Kansas secured by additional securitized utility tariff property that includes a nonbypassable charge on retail customers.

 

•

If the investment of collected securitized utility tariff charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the securitized utility tariff bonds later than you expect.

 

•

A deterioration in economic conditions could adversely affect Atmos Energy’s retail customers which could adversely affect the billing and collection of the securitized utility tariff charges.

 

•

Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the securitized utility tariff bonds.

Discussion of risk factors

The following discussion provides additional information regarding each of our risk factors:

You may experience material payment delays or incur a loss on your investment in the securitized utility tariff bonds because the source of funds for payment is limited.

The only source of funds for payment of the securitized utility tariff bonds will be our assets, which consist of:

 

•

the securitized utility tariff property securing the securitized utility tariff bonds, including the right to impose, bill, charge, collect and receive securitized utility tariff charges;

 

•

the funds on deposit in the accounts held by the trustee; and

 

•

our rights under various contracts we describe in this prospectus.

The securitized utility tariff bonds are not a charge on the full faith and credit or taxing power of the State of Kansas or any governmental agency or instrumentality, nor will the securitized utility tariff bonds be insured or guaranteed by Atmos Energy, including in its capacity as the sponsor, depositor, seller or initial servicer, or any of their respective affiliates (other than us), the trustee or any other person or entity. The securitized utility tariff bonds will be nonrecourse obligations, secured only by the collateral. Delays in payment on the securitized utility tariff bonds might result in a reduction in the market value of the securitized utility tariff bonds and, therefore, the value of your investment in the securitized utility tariff bonds. Thus, you must rely for payment of the securitized utility tariff bonds solely upon the collections of the securitized utility tariff charges, and funds on deposit in the accounts held by the trustee. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please read “ATMOS ENERGY KANSAS SECURITIZATION I, LLC, THE ISSUING ENTITY” in this prospectus.

Risks associated with potential judicial, legislative or regulatory actions

We and Atmos Energy are not obligated to indemnify you for changes in law.

Neither we nor Atmos Energy, nor any affiliate, successor or assignee, will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Securitization Act, that might affect the value of the securitized utility tariff bonds. Atmos Energy will agree in the sale agreement to institute any legal or administrative action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment of the Securitization Act that would be materially adverse to us, the

 

15

trustee or the securitized utility tariff bondholders. However, we cannot assure you that Atmos Energy would be able to take this action or that any such action would be successful. Although Atmos Energy or any successor assignee might be required to indemnify us if legal action based on the law in effect at the time of the issuance of the securitized utility tariff bonds invalidates the securitized utility tariff property, such indemnification obligations do not apply for any changes in law after the date the securitized utility tariff bonds are issued, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision. Please read “THE SALE AGREEMENT—Atmos Energy’s Covenants” in this prospectus.

Future judicial action could reduce the value of your investment in the securitized utility tariff bonds.

The securitized utility tariff property is the creation of the Securitization Act and the financing order that has been issued by the Kansas commission to Atmos Energy pursuant to the Securitization Act. The Securitization Act was enacted in April 2021. There is uncertainty associated with investing in bonds payable from an asset that depends for its existence on legislation because there is limited judicial or regulatory experience implementing and interpreting the legislation. The Securitization Act or any financing order or any provisions thereof might be directly contested in courts or otherwise become the subject of litigation. Because the securitized utility tariff property is a creation of the Securitization Act and the financing order, any judicial determination affecting the validity of or interpreting the Securitization Act or the financing order, the securitized utility tariff property or our ability to make payments on the securitized utility tariff bonds might have an adverse effect on the value of the securitized utility tariff bonds or cause a delay in the recovery of your investment. As of the date of this prospectus, no such litigation has arisen; however, we cannot assure you that a lawsuit challenging the validity of the Securitization Act or any financing order will not be filed in the future or that, if filed, such lawsuit will not be successful. If an invalidation of any relevant underlying legislative provision or any financing order provision were to result from such litigation, you might lose some or all of your investment or might experience delays in recovering your investment. Please read “THE SECURITIZATION ACT—Constitutional Matters” in this prospectus.

Other states have passed laws with financing provisions similar to some provisions of the Securitization Act, and some of these laws have been challenged by judicial actions or utility commission proceedings. To date, none of these challenges has succeeded, but future judicial challenges might be made. An unfavorable decision regarding another state’s law would not automatically invalidate the Securitization Act or the financing order, but it might provoke a challenge to the Securitization Act or the financing order, establish a legal precedent for a successful challenge to the Securitization Act or the financing order or heighten awareness of the political and other risks of the securitized utility tariff bonds, and in that way may limit the liquidity and value of the securitized utility tariff bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the securitized utility tariff bonds.

Future state action could reduce the value of your investment in the securitized utility tariff bonds.

Despite the State’s pledge and the Kansas commission’s pledge in the Securitization Act and the financing order, respectively, not to take or permit certain actions that would impair the value of the securitized utility tariff property or the securitized utility tariff charges, the Kansas legislature might attempt to repeal or amend the Securitization Act in a manner that limits or alters the securitized utility tariff property so as to reduce its value. For a description of the State’s pledge, please read “THE SECURITIZATION ACT—Atmos Energy May Securitize Qualified Extraordinary Costs and Related Upfront and Ongoing Financing Costs” in this prospectus. As of the date of this prospectus, we are not aware of any pending legislation in the Kansas legislature that would affect any provisions of the Securitization Act.

It might be possible for the Kansas legislature to repeal or amend the Securitization Act notwithstanding the State’s pledge if the legislature acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety, or responding to a national or regional catastrophe or emergency affecting

 

16

Atmos Energy’s service area, or if such action or inaction otherwise is in the valid exercise of the State’s police power. Similarly, it might be possible for the Kansas commission to repeal or amend the financing order notwithstanding the Kansas commission’s pledge if it acts in order to serve a significant and legitimate public purpose. Any such action, as well as the costly and time-consuming litigation that likely would ensue, might adversely affect the price and liquidity, the dates of payment of interest and principal and the weighted average lives of the securitized utility tariff bonds. Moreover, the outcome of any litigation cannot be predicted. Accordingly, you might incur a loss on or delay in recovery of your investment in the securitized utility tariff bonds.

Except as described in “THE SALE AGREEMENT—Atmos Energy’s Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus, neither we, Atmos Energy, nor any of its successors, assignees or affiliates will indemnify you for any change in law, including any amendment or repeal of the Securitization Act, that might affect the value of the securitized utility tariff bonds.

If an action of the Kansas legislature or the Kansas commission adversely affecting the securitized utility tariff property or the ability to collect securitized utility tariff charges were considered a “taking” under the United States or Kansas Constitutions, the State of Kansas might be obligated to pay compensation in an amount equal to the estimated value of the securitized utility tariff property at the time of the taking. However, even in that event, there is no assurance that any amount provided as compensation would be sufficient for you to recover fully your investment in the securitized utility tariff bonds or to offset interest lost pending such recovery.

Nothing in the State’s or Kansas commission’s pledge precludes any limitation or alteration of the Securitization Act or the financing order if full compensation is made by law for the full protection of the securitized utility tariff charges collected pursuant to the financing order and of the securitized utility tariff bondholders. It is unclear what “full compensation” and “full protection” would be afforded to the securitized utility tariff bondholders by the State of Kansas or the Kansas commission if such limitation or alteration were attempted.

Unlike the citizens of some other states, the citizens of the State of Kansas currently do not have the constitutional right to adopt or revise state laws by initiative or referendum. Thus, absent an amendment to the Kansas Constitution, the Securitization Act cannot be amended or repealed by direct action of the electorate of the State of Kansas.

The enforcement of any rights against the State of Kansas or the Kansas commission under their respective pledges may be subject to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against state and local governmental entities in Kansas. These limitations might include, for example, the necessity to exhaust administrative remedies prior to bringing suit in a court, or limitations on type and locations of courts in which the State of Kansas or the Kansas commission may be sued, or limitations on awards or collection of damages.

The Kansas commission might attempt to take actions that could reduce the value of your investment in the securitized utility tariff bonds.

The Securitization Act provides that for a financing order issued to create securitized utility tariff property, the financing order must provide that the financing order is irrevocable and that the Kansas commission may not directly or indirectly, by any subsequent action, amend, modify or terminate a financing order or reduce, impair, postpone, terminate or otherwise adjust the securitized utility tariff charges authorized under a financing order, except for the true-up adjustments to the securitized utility tariff charges. In addition, the Kansas commission had pledged in the financing order that it will not amend, modify, or rescind the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust the securitized utility tariff charges. However, the Kansas commission retains the power to adopt, revise or rescind rules or regulations affecting Atmos Energy or a successor utility. The Kansas commission also retains the power to interpret the financing order granted to

 

17

Atmos Energy, and in that capacity might be called upon to rule on the meanings of provisions of the financing order that might need further elaboration. Any new or amended regulations or orders from the Kansas commission might adversely affect the ability of the servicer to disconnect customers for nonpayment, assess late fees, impose deposit requirements or collect the securitized utility tariff charges in full and on a timely basis, which may negatively impact the rating of the securitized utility tariff bonds or their price and, accordingly, the amortization of the securitized utility tariff bonds and their weighted average lives.

The servicer is required to file with the Kansas commission, on our behalf, certain periodic true-up adjustments of the securitized utility tariff charges. The Kansas commission has 30 days after the date of a true-up adjustment filing to confirm the mathematical accuracy of the servicer’s adjustment and to confirm that there are no clerical errors. Any true-up adjustment filed with the Kansas commission will take effect on its proposed effective date, which shall not be less than 30 days after filing. Please read “ATMOS ENERGY’S FINANCING ORDER—True-ups” and “—Adjustments to Allocation of Securitized Utility Tariff Charges” in this prospectus. True-up adjustment procedures may be challenged in the future. Challenges to or delays in the true-up process might adversely affect the market perception and valuation of the securitized utility tariff bonds. Also, any litigation might materially delay securitized utility tariff charge collections due to delayed implementation of true-up adjustments and might result in missing payments or payment delays and lengthened weighted average life of the securitized utility tariff bonds.

Deregulation or restructuring in the natural gas utility market in Kansas may result in increased competition and material delays or reductions in collecting securitized utility tariff charges that could materially adversely affect the value of your investment in the securitized utility tariff bonds.

Future deregulation of the natural gas utility market in Kansas could change how natural gas services are provided to retail customers and allow new competitive market entrants to provide retail natural gas service, provide metering services, provide billing services or collect payments (including the securitized utility tariff charges) from retail customers. We cannot predict if or when it will be subject to changes in legislation or regulation, nor can it predict the impact of these changes. Poor performance, inaction, failure to abide by contractual obligations, commingling of funds, lack of creditworthiness, insolvency or other unforeseen problems with respect to any service provider could result in material delays or reductions in calculating and collecting securitized utility tariff charges and therefore material delays or reductions of payments of principal and interest on the securitized utility tariff bonds and could materially reduce the value of your investment in the securitized utility tariff bonds.

The servicer may not fulfill its obligations to act on behalf of the securitized utility tariff bondholders to protect bondholders from actions by the Kansas commission or the State of Kansas, or the servicer may be unsuccessful in any such attempt.

The servicer will agree in the servicing agreement to take any action or proceeding reasonably necessary to compel performance by the Kansas commission and the State of Kansas of any of their obligations or duties under the securitization provisions of the Securitization Act or the financing order, including any actions reasonably necessary to block or overturn any attempts to cause a repeal, or modification of, or supplement to the securitization provisions of the Securitization Act or the financing order or the rights of bondholders in the securitized utility tariff property by executive action, legislative enactment, constitutional amendment or other means that would be adverse to the bondholders. The servicer, however, may not be able to take those actions for a number of reasons, including due to legal or regulatory restrictions, financial constraints and practical difficulties in successfully challenging any such legislative enactment or constitutional amendment. Additionally, any action the servicer is able to take may not be successful. Any such failure to perform its obligations or to successfully compel performance by the Kansas commission or the State of Kansas could negatively affect bondholders’ rights and result in a loss of their investment in the securitized utility tariff bonds.

 

18

A municipal entity may seek to acquire portions of Atmos Energy’s gas distribution facilities and avoid payment of the securitized utility tariff charges.

Kansas law authorizes municipalities to seek to acquire portions of a utility’s gas distribution facilities through voluntary transactions or the power of expropriation for use as part of municipally owned utility systems. There can be no assurance that one or more municipalities will not seek to acquire some or all of Atmos Energy’s gas distribution facilities while the securitized utility tariff bonds remain outstanding. The Securitization Act specifies that securitized utility tariff charges approved by a financing order shall be collected by a utility as well as its “successors or assignees.” In the servicing agreement, Atmos Energy has covenanted to assert in an appropriate forum that any municipality that acquires any portion of Atmos Energy’s gas distribution facilities by expropriation, including upon the expiration of any franchise agreement, must be treated as a successor to Atmos Energy under the Securitization Act and the financing order. However, the involved municipality might assert that it should not be treated as a successor to Atmos Energy for these purposes and that its distribution customers are not responsible for payment of securitized utility tariff charges. In any case, we cannot assure you that the securitized utility tariff charges will be collected from customers of municipally owned utilities who were formerly retail customers of Atmos Energy and that such an occurrence might not affect the timing or receipt of payments with respect to the securitized utility tariff bonds.

Servicing risks

Your investment in the securitized utility tariff bonds depends on Atmos Energy or its successor or assignee, acting as servicer of the securitized utility tariff property.

Atmos Energy, as initial servicer, will be responsible for, among other things, calculating, billing and collecting the securitized utility tariff charges from its retail customers, submitting requests to the Kansas commission to adjust these charges, monitoring the collateral for the securitized utility tariff bonds and taking certain actions in the event of non-payment by a retail customer. The trustee’s receipt of collections in respect of the securitized utility tariff charges, which will be used to make payments on the securitized utility tariff bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems that the servicer has in place for securitized utility tariff charge billings and collections, the operations to provide service to the relevant customers, together with the regulations of the Kansas commission governing utilities such as Atmos Energy might, in particular circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. If the servicer fails to make securitized utility tariff charge collections for any reason, then the servicer’s payments to the trustee in respect of the securitized utility tariff charges might be delayed or reduced. In that event, our payments on the securitized utility tariff bonds might be delayed or reduced.

Inaccurate customer count forecasting or unanticipated delinquencies or write-offs might reduce scheduled payments on the securitized utility tariff bonds.

The securitized utility tariff charges are generally assessed based on forecasted customer counts for each retail customer class. The amount and the rate of securitized utility tariff charge collections will depend on the actual number of retail customers and the amount of securitized utility tariff charge collections and write-offs for each retail customer class. The securitized utility tariff charges are calculated by the servicer according to the methodology approved in the financing order, which includes the allocation of cost responsibility among retail customer classes. If the servicer inaccurately forecasts customer counts (including forecasts within each retail customer class) or underestimates customer delinquency or write-off data when setting or adjusting the securitized utility tariff charges, there could be a shortfall or material delay in securitized utility tariff charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average lives of the securitized utility tariff bonds. Please read “ATMOS ENERGY’S FINANCING ORDER—True-Ups” and “—Adjustments to Allocation of Securitized Utility Tariff Charges” in this prospectus.

The servicer’s use of inaccurate delinquency or write-off rates might also result from, among other things, unexpected deterioration of the economy or the occurrence of a natural disaster or extreme weather, an act of

 

19

terrorism, cyberattack or other catastrophic event or the unanticipated declaration of a moratorium on terminating natural gas service to retail customers in the event of such occurrences, any of which would cause greater delinquencies or write-offs than expected or force Atmos Energy to grant additional payment relief to more retail customers, or any other change in law that makes it more difficult for Atmos Energy to terminate service to nonpaying retail customers or that requires Atmos Energy to apply more lenient credit standards in accepting retail customers. For example, under its emergency powers, the State legislature or the Kansas commission could impose a moratorium on the payment of consumer bills.

If we have to replace Atmos Energy as the servicer, we may experience difficulties finding and using a replacement servicer.

If Atmos Energy ceases to service the securitized utility tariff property, it might be difficult to find a successor servicer. Under the financing order, the annual servicing fee payable to a successor servicer is capped and the payment of compensation in excess of the cap is dependent upon Kansas commission approval. Also, any successor servicer might have less experience and ability than Atmos Energy and might experience difficulties in collecting securitized utility tariff charges and determining appropriate adjustments to the securitized utility tariff charges and billing and/or payment arrangements may change, resulting in delays or disruptions in collections. A successor servicer might charge fees that, while permitted under the financing order, are substantially higher than the fees paid to Atmos Energy as the initial servicer. Although a true-up adjustment may be required to allow for the increase in fees, there could be a gap between the incurrence of those fees and the implementation of the true-up adjustment to adjust for the increase that might adversely affect distributions from the collection account. In the event of the commencement of a case by or against the servicer under the Bankruptcy Code or similar laws, we and the trustee might be prevented from effecting a transfer of servicing due to operation of the Bankruptcy Code. Any of these factors and others might delay the timing of payments and may reduce the value of your investment. Please read “THE SERVICING AGREEMENT” in this prospectus.

Changes to billing and collection practices might reduce the value of your investment in the securitized utility tariff bonds.

The financing order specifies the methodology for determining the amount of the securitized utility tariff charges we may impose. The servicer may not change this methodology without approval from the Kansas commission. However, the servicer may set its own billing and collection arrangements with its customers, provided that these arrangements comply with the Kansas commission’s customer safeguards. For example, to recover part of an outstanding bill, the servicer may agree to extend a customer’s payment schedule or to write-off the remaining unpaid portion of the bill, including the securitized utility tariff charges. Also, the servicer may change billing and collection practices, which might adversely impact the timing and amount of retail customer payments and might reduce securitized utility tariff charge collections, thereby limiting our ability to make scheduled payments on the securitized utility tariff bonds. Separately, the Kansas commission might require changes to these practices. Any changes in billing and collection practices regulations might make it more difficult for the servicer to collect the securitized utility tariff charges and adversely affect the value of your investment in the securitized utility tariff bonds. Please read “THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR—Forecasting Natural Gas Customers,” “—Billing Process and Payment Options” and “—Collection, Termination of Service and Write-off Policy” in this prospectus.

Consumer protection measures may limit the ability of Atmos Energy to collect all charges owed by consumers, including the securitized utility tariff charges. In addition, the State legislature or the Kansas commission may take actions in response to pandemics, natural disasters, adverse weather events or any other situation which may adversely affect the timing of securitized utility tariff charge collections. Any such action could result in a shortfall or material delay in securitized utility tariff charge collections, which in turn might result in missed or delayed payments of principal and interest, lengthened weighted average life of the securitized utility tariff bonds and downgrade of the credit ratings on the securitized utility tariff bonds.

 

20

In addition, COVID-19 or any future pandemic may impact the ability of Atmos Energy to maintain operations at the same level as it was able prior to the pandemic. For instance, a large portion of Atmos Energy’s workforce, including employees of their contractors, may be unable to perform their job functions effectively due to illness, family illness, quarantine requirements, social distancing, telework requirements and other impacts of the COVID-19 or any future pandemic. Such potential impacts may limit the ability of Atmos Energy to service the securitized utility tariff charges.

Limits on rights to terminate service might make it more difficult to collect the securitized utility tariff charges.

If Atmos Energy, as the servicer, is billing retail customers for securitized utility tariff charges, it may terminate service to the retail customer for non-payment of securitized utility tariff charges pursuant to the applicable rules of the Kansas commission. Nonetheless, the rules and regulations of the Kansas commission, which may change from time to time, regulate and control the right to disconnect service. For example, gas utilities generally may not terminate service to a customer (i) on a holiday or weekend day or (ii) during certain extreme weather conditions. To the extent these retail customers do not pay for their gas service, Atmos Energy will not be able to collect securitized utility tariff charges from these retail customers.

In addition, Atmos Energy may be limited in the future in its ability to terminate service or collect securitized utility tariff charges. The Kansas commission, in response to a federal mandate or otherwise, could impose restrictions on the rates Atmos Energy charges to provide its services, including the inability to implement approved rates, or delay actions with respect to Atmos Energy’s base rate case and filings.

Increased dependence on technology may hinder Atmos Energy’s ability to act as servicer of the securitized utility tariff property.

Over the last several years, Atmos Energy has implemented or acquired a variety of technological tools including both Atmos Energy-owned information technology and technological services provided by outside parties. These tools and systems support critical functions including, scheduling and dispatching of service technicians, automated meter reading systems, customer care and billing, operational plant logistics, management reporting, and external financial reporting. The failure of these or other similarly important technologies, or Atmos Energy’s inability to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder its business operations and adversely impact its ability to act as servicer of the securitized utility tariff property.

Although Atmos Energy has, when possible, developed alternative sources of technology and built redundancy into its computer networks and tools, there can be no assurance that these efforts would protect against all potential issues related to the loss of any such technologies.

Cyber-attacks or acts of cyber-terrorism could disrupt Atmos Energy’s business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or company information.

Atmos Energy’s business operations and information technology systems may be vulnerable to an attack by individuals or organizations intending to disrupt its business operations and information technology systems, even though Atmos Energy has implemented policies, procedures and controls to prevent and detect these activities. Atmos Energy uses its information technology systems to manage its distribution and intrastate pipeline and storage operations and other business processes. Disruption of those systems could adversely impact Atmos Energy’s ability to safely deliver natural gas to its customers, operate its pipeline and storage systems or otherwise service the securitized utility tariff property.

In addition, Atmos Energy uses its information technology systems to protect confidential or sensitive customer, employee and company information developed and maintained in the normal course of its business. Any attack on such systems that would result in the unauthorized release of customer, employee or other confidential or sensitive data could have a material adverse effect on Atmos Energy’s business reputation,

 

21

increase its costs and expose Atmos Energy to additional material legal claims and liability, which could impact Atmos Energy’s ability to service the securitized utility tariff property.

Weather-related damage and other disaster risks

Adverse weather conditions causing damage to Atmos Energy’s operations could impair payment on the securitized utility tariff bonds.

Atmos Energy has weather-normalized rates for approximately 96 percent of its residential and commercial revenues in its distribution operations, which substantially mitigates the adverse effects of warmer-than-normal weather for meters in those service areas. However, there is no assurance that Atmos Energy will continue to receive such regulatory protection from adverse weather in its rates in the future. Atmos Energy’s operations were impacted by Winter Storm Uri and might be impacted by tornadoes, thunderstorms, ice storms, windstorms, flooding, earthquakes, prolonged droughts and the occurrence of wildfires, among other events. There could be longer-lasting weather-related adverse effects on residential and commercial development and economic activity in Atmos Energy’s service area, which could reduce the retail customer count and cause the securitized utility tariff charges to be greater than expected as a percentage of base rates of remaining retail customers. Legislative action adverse to the securitized utility tariff bondholders might be taken in response, and such legislation, if challenged as violative of the State pledge, might be defended on the basis of public necessity.

Terrorist activities or other significant events could adversely affect payment on the securitized utility tariff bonds.

The threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas that could affect Atmos Energy’s customer count and cause the securitized utility tariff charges to be greater than expected as a percentage of base rates of remaining customers. Also, companies in the natural gas industry may face a heightened risk of exposure to actual acts of terrorism, which could subject Atmos Energy’s operations to increased risks. As a result, the availability of insurance covering such risks may become more limited, which could increase the risk that an event could adversely affect Atmos Energy’s business operations, ability to act as servicer, and payment on the securitized utility tariff bonds.

Risks to natural gas industry

Atmos Energy’s operations are subject to increased competition which could adversely affect the collection of securitized utility tariff charges.

In residential and commercial customer markets, Atmos Energy’s distribution operations compete with other energy products, such as electricity and propane. Increases in the price of natural gas could negatively impact Atmos Energy’s competitive position by decreasing the price benefits of natural gas to the consumer. This could have the potential to cause a decline in the number of Atmos Energy’s retail customers. A decline in Atmos Energy’s retail customers receiving natural gas by means of Atmos Energy’s distribution facilities would cause the securitized utility tariff charges to the remaining retail customers to increase, and thereby increase the risk of nonpayment by retail customers.

In the case of industrial customers, such as manufacturing plants, adverse economic conditions, including higher gas costs, could cause these customers to use alternative sources of energy, such as electricity, or bypass Atmos Energy’s systems in favor of special competitive contracts with lower per-unit costs. Although currently natural gas is relatively more efficient than electricity and cheaper than electricity on a per unit basis, and switching energy sources entails significant upfront costs, changes in the competitive position of natural gas relative to electricity and other energy products have the potential to cause a decline in the number of Atmos Energy’s retail customers. A decline in Atmos Energy’s retail customers receiving natural gas by means of Atmos Energy’s distribution facilities would cause the securitized utility tariff charges to the remaining retail customers to increase, and thereby increase the risk of nonpayment by retail customers.

 

22

Greenhouse gas emissions or other legislation or regulations intended to address climate change could prompt Atmos Energy’s retail customers to switch to alternative energy sources and negatively impact the collection of securitized utility tariff charges.

Federal, regional and/or state legislative and/or regulatory initiatives may attempt to control or limit the causes of climate change, including greenhouse gas emissions, such as carbon dioxide and methane. Such laws or regulations could impose costs tied to greenhouse gas emissions, operational requirements or restrictions, or additional charges to fund energy efficiency activities. They could also provide a cost advantage to alternative energy sources, impose costs or restrictions on end users of natural gas, or result in other costs or requirements, such as costs associated with the adoption of new infrastructure and technology to respond to new mandates. The focus on climate change could adversely impact the reputation of fossil fuel products or services. The occurrence of the foregoing events could put upward pressure on the cost of natural gas relative to other energy sources, increase Atmos Energy’s costs and the prices it charges to retail customers, reduce the demand for natural gas, and impact the competitive position of natural gas and the ability to serve new or existing retail customers.

Any or all of these items might prompt Atmos Energy’s retail customers to switch to alternative sources to meet their energy requirements and disconnect from Atmos Energy’s gas distribution system. This could reduce Atmos Energy’s retail customer count, resulting in higher securitized utility tariff charges for Atmos Energy’s remaining retail customers. This, in turn, could adversely impact the billing and collection of securitized utility tariff charges, thereby increasing the risk of nonpayment by retail customers.

Risks associated with the unusual nature of the securitized utility tariff property

Future adjustments to securitized utility tariff charges by retail customer class might result in insufficient collection.

The retail customers who pay the securitized utility tariff charges are divided into customer classes. Securitized utility tariff charges will be allocated among retail customer classes and assessed in accordance with the retail customer billing mechanism specified in the financing order. The true-up adjustment methodology approved in the financing order is cross collateralized across retail customer classes and requires that any delinquencies or under-collections in one retail customer class will be taken into account in the application of the true-up mechanism to adjust the securitized utility tariff charges for all retail customers, not just the class of retail customers from which the delinquency or under-collection arose. Nonetheless, if enough retail customers in a class fail to pay securitized utility tariff charges or cease to be retail customers, the servicer might have to substantially increase the securitized utility tariff charges for the remaining retail customers in that retail customer class and for other retail customer classes as well. These increases could lead to further unanticipated failures by the remaining retail customers to pay securitized utility tariff charges, thereby increasing the risk of a shortfall in funds to pay interest and principal on the securitized utility tariff bonds.

Foreclosure of the trustee’s lien on the securitized utility tariff property might not be practical, and acceleration of the securitized utility tariff bonds before maturity might have little practical effect.

Under the Securitization Act and the Indenture, the trustee or the securitized utility tariff bondholders have the right to foreclose or otherwise enforce the lien on the securitized utility tariff property securing the securitized utility tariff bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the securitized utility tariff property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of the securitized utility tariff bonds will be due and payable upon acceleration of the securitized utility tariff bonds before maturity, securitized utility tariff charges likely would not be accelerated and the nature of our business will result in the principal of the securitized utility tariff bonds being paid as funds become available.

Risks associated with potential bankruptcy proceedings of the seller or the servicer

For a detailed discussion of the following bankruptcy risks, please read “HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT” in this prospectus.

 

23

The servicer will commingle the securitized utility tariff charges with other revenues it collects, which might obstruct access to the securitized utility tariff charges in case of the servicer’s bankruptcy and reduce the value of your investment in the securitized utility tariff bonds.

The servicer will remit collected securitized utility tariff charges (the “daily remittance”) to the trustee for deposit to the general subaccount of the collection account as soon as reasonably practicable, but in no event later than two servicer business days following such date. The servicer will not segregate the securitized utility tariff charges from the other funds it collects from customers or its general funds. The securitized utility tariff charges will be segregated only when the servicer pays them to the trustee.

Despite this requirement, the servicer might fail to remit the full amount of the securitized utility tariff charges to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of securitized utility tariff charge collections available to make payments on the securitized utility tariff bonds.

The Securitization Act provides that the priority of a security interest perfected in securitized utility tariff property is not impaired by the commingling of the funds arising from securitized utility tariff charges with any other funds of the servicer. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law does not recognize our right to collections of the securitized utility tariff charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the securitized utility tariff charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owed on the securitized utility tariff bonds. In this case, we would have only a general unsecured claim against the servicer for those amounts. This decision could cause material delays in payments of principal or interest, or losses, on the securitized utility tariff bonds and could materially reduce the value of your investment in the securitized utility tariff bonds. Please read “HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT” in this prospectus.

The bankruptcy of Atmos Energy might result in losses or delays in payments on the securitized utility tariff bonds.

The Securitization Act and the financing order provide that as a matter of Kansas state law:

 

•

the rights and interests of a selling utility under a financing order, including the right to impose, bill, charge, collect and receive securitized utility tariff charges, are contract rights of the seller;

 

•

the seller may make a present transfer of its rights under a financing order, including the right to impose, bill, charge, collect and receive future securitized utility tariff charges that retail customers do not yet owe;

 

•

the securitized utility tariff property constitutes a present contract right, even though the imposition and collection of securitized utility tariff charges depend on further acts that have not yet occurred; and

 

•

a transfer of the securitized utility tariff property from the seller, or its affiliate, to us, under an agreement that expressly states the transfer is a sale or other absolute transfer, is a true sale of the securitized utility tariff property and not a pledge of the securitized utility tariff property to secure a financing by the seller.

Please read “THE SECURITIZATION ACT” in this prospectus. These provisions are important to maintaining payments on the securitized utility tariff bonds in accordance with their terms during any bankruptcy of Atmos Energy. In addition, the transaction has been structured with the objective of keeping us legally separate from Atmos Energy and its affiliates in the event of a bankruptcy of Atmos Energy or any such affiliates.

A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above. However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a Atmos Energy

 

24

bankruptcy refused to enforce one or more of the state property law provisions described above, the effect of this decision on you as a beneficial owner of the securitized utility tariff bonds might be similar to the treatment you would receive in a Atmos Energy bankruptcy if the securitized utility tariff bonds had been issued directly by Atmos Energy. A decision by the bankruptcy court that, despite our separateness from Atmos Energy, our assets and liabilities and those of Atmos Energy should be substantively consolidated would have a similar effect on you as a bondholder.

We have taken steps together with Atmos Energy, as the seller, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with those of Atmos Energy or an affiliate. Nonetheless, these steps might not be completely effective, and thus if Atmos Energy or an affiliate were to become a debtor in a bankruptcy case, a court might order that our assets and liabilities be substantively consolidated with those of Atmos Energy or such affiliate. This might cause material delays in payment of, or losses on, the securitized utility tariff bonds and might materially reduce the value of your investment in the securitized utility tariff bonds. For example:

 

•

without permission from the bankruptcy court, the trustee might be prevented from taking actions against Atmos Energy or recovering or using funds on your behalf or replacing Atmos Energy as the servicer;

 

•

the bankruptcy court might order the trustee to exchange the securitized utility tariff property for other property of lower value;

 

•

tax or other government liens on Atmos Energy’s property might have priority over the trustee’s lien and might be paid from collected securitized utility tariff charges before payments on the securitized utility tariff bonds;

 

•

the trustee’s lien might not be properly perfected in the collected securitized utility tariff charges prior to or as of the date of Atmos Energy bankruptcy, with the result that the securitized utility tariff bonds would represent only general unsecured claims against Atmos Energy;

 

•

the bankruptcy court might rule that neither our property interest nor the trustee’s lien extends to securitized utility tariff charges in respect of natural gas consumed after the commencement of Atmos Energy’s bankruptcy case, with the result that the securitized utility tariff bonds would represent only general unsecured claims against Atmos Energy;

 

•

we and Atmos Energy might be relieved of any obligation to make any payments on the securitized utility tariff bonds during the pendency of the bankruptcy case and might be relieved of any obligation to pay interest accruing after the commencement of the bankruptcy case;

 

•

Atmos Energy might be able to alter the terms of the securitized utility tariff bonds as part of Atmos Energy’s plan of reorganization;

 

•

the bankruptcy court might rule that the securitized utility tariff charges should be used to pay, or that we should be charged for, a portion of the cost of providing natural gas service;

 

•

the bankruptcy court might rule that the remedy provisions of the sale agreement are unenforceable, leaving us with an unsecured claim for actual damages against Atmos Energy that may be difficult to prove or, if proven, to collect in full;

 

•

if the servicer defaults or enters bankruptcy proceedings, it might be difficult to find a successor servicer and payments on the securitized utility tariff bonds might be suspended;

 

•

the mere fact of a servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the securitized utility tariff bonds and on the value of the securitized utility tariff bonds; or

 

•

the servicer will commingle the securitized utility tariff charges with other revenues it collects, which might obstruct access to the securitized utility tariff charges in case of the bankruptcy of the servicer and reduce the value of your investment in the securitized utility tariff bonds.

 

25

Please read “HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT.”

The sale of the securitized utility tariff property might be construed as a financing and not a sale in a case of Atmos Energy’s bankruptcy which might delay or limit payments on the securitized utility tariff bonds.

The Securitization Act provides that the characterization of a transfer of securitized utility tariff property as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and Atmos Energy will treat the transaction as a sale under applicable law, although for financial reporting and federal and state tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of Atmos Energy, a party in interest in the bankruptcy might assert that the sale of the securitized utility tariff property to us was a financing transaction and not a “sale or other absolute transfer” and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the transaction as a financing, we expect that we would, on behalf of ourselves and the trustee, be treated as a secured creditor of Atmos Energy in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against Atmos Energy. See “—The servicer will commingle the securitized utility tariff charges with other revenues it collects, which might obstruct access to the securitized utility tariff charges in case of the servicer’s bankruptcy and reduce the value of your investment in the securitized utility tariff bonds” above. Even if we had a security interest in the securitized utility tariff property, we might not have access to the related securitized utility tariff charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of the securitized utility tariff bonds might be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to us of the securitized utility tariff charge collections and therefore the amount and timing of funds available to us to pay securitized utility tariff bondholders.

If the servicer enters bankruptcy proceedings, the remittance of certain securitized utility tariff charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owed on the securitized utility tariff bonds.

In the event of a bankruptcy of the servicer, a party in interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement, constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that securitized utility tariff charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. Also, if we are considered to be an “insider” of the servicer, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, we or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, we would expect that the amount of any future securitized utility tariff charges would be increased through the true-up mechanism to recover such amount, though this would not eliminate the risk of payment delays or losses on your investment in the securitized utility tariff bonds.

Claims against Atmos Energy might be limited in the event of its bankruptcy.

If the seller, Atmos Energy, were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement could be unsecured claims and would be disposed of in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against Atmos Energy and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A

 

26

party in interest in the bankruptcy of Atmos Energy might challenge the enforceability of the indemnity provisions in the sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against Atmos Energy based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving Atmos Energy.

The bankruptcy of Atmos Energy might limit the remedies available to the trustee.

Upon an event of default for the securitized utility tariff bonds under the Indenture, the Securitization Act permits the trustee to enforce the security interest in the securitized utility tariff property in accordance with the terms of the Indenture. In this capacity, the trustee is permitted to request the Kansas commission or a court of appropriate jurisdiction for an order of sequestration and payment to all securitized utility tariff bondholders of all revenues arising with respect to the related securitized utility tariff property. There can be no assurance, however, that the Kansas commission or such court would issue this order after a Atmos Energy bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the Kansas court, and an order requiring an accounting and segregation of the revenues arising from the securitized utility tariff property. There can be no assurance that a court would grant either order.

Other risks associated with an investment in the securitized utility tariff bonds

Atmos Energy’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the securitized utility tariff bonds.

Atmos Energy is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the securitized utility tariff bondholders, only in specified circumstances and will not be obligated to repurchase any securitized utility tariff property in the event of a breach of any of its representations, warranties or covenants regarding the securitized utility tariff property. Similarly, Atmos Energy is obligated under the servicing agreement to indemnify us and the trustee, for itself and on behalf of the securitized utility tariff bondholders only in specified circumstances. Please read “THE SALE AGREEMENT” and “THE SERVICING AGREEMENT” in this prospectus.

Neither the trustee nor the securitized utility tariff bondholders will have the right to accelerate payments on the securitized utility tariff bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the Indenture governing the securitized utility tariff bonds as described in “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—What Constitutes an Event of Default on the Securitized Utility Tariff Bonds.” Furthermore, Atmos Energy might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by Atmos Energy might not be sufficient for you to recover all of your investment in the securitized utility tariff bonds. In addition, if Atmos Energy becomes obligated to indemnify securitized utility tariff bondholders, the ratings on the securitized utility tariff bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that securitized utility tariff bondholders will be unsecured creditors of Atmos Energy with respect to any of these indemnification amounts. Atmos Energy will not indemnify any person for any loss, damages, liability, obligation, claim, action, suit or payment resulting solely from a downgrade in the ratings on the securitized utility tariff bonds, or for any consequential damages, including any loss of market value of the securitized utility tariff bonds resulting from a default or a downgrade of the ratings of the securitized utility tariff bonds. Please read “THE SALE AGREEMENT—Atmos Energy’s Representations and Warranties” and “—Atmos Energy’s Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus.

 

27

If the ratings on the securitized utility tariff bonds are withdrawn or revised, the value of the bonds may be adversely affected.

We expect that the securitized utility tariff bonds will receive credit ratings from two nationally recognized statistical rating organizations (“NRSRO”). A rating is not a recommendation to buy, sell or hold the securitized utility tariff bonds.

The ratings merely analyze the probability that we will repay the total principal amount of the securitized utility tariff bonds at the final maturity date (which is later than the scheduled final payment date) and will make timely interest payments. The ratings are not an indication that the rating agencies believe that principal payments are likely to be paid on time according to the expected sinking fund schedule.

Under Rule 17g-5 of the Exchange Act, NRSROs providing Atmos Energy, as the sponsor, with the requisite certification will have access to all information posted on a website by Atmos Energy for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the securitized utility tariff bonds. As a result, an NRSRO other than an NRSRO hired by Atmos Energy (the “hired NRSRO”) may issue ratings on the securitized utility tariff bonds (“Unsolicited Ratings”), which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSROs. The Unsolicited Ratings may be issued prior to, or after, the issuance date of the securitized utility tariff bonds. Issuance of any Unsolicited Rating will not affect the issuance of the securitized utility tariff bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSRO on the securitized utility tariff bonds might adversely affect the value of the securitized utility tariff bonds and, for regulated entities, could affect the status of the securitized utility tariff bonds as a legal investment or the capital treatment of the securitized utility tariff bonds. Investors in the securitized utility tariff bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO. None of Atmos Energy, us, the underwriter or any of our or their affiliates will have any obligation to inform you of any Unsolicited Ratings assigned after the date of this prospectus. In addition, if we or Atmos Energy fail to make available to a non-hired NRSRO any information provided to any hired rating agency for the purpose of assigning or monitoring the ratings on the securitized utility tariff bonds, a hired NRSRO could withdraw its ratings on the securitized utility tariff bonds, which could adversely affect the market value of the securitized utility tariff bonds and/or limit your ability to resell the securitized utility tariff bonds.

Atmos Energy’s credit ratings might affect the market value of the securitized utility tariff bonds.

Although Atmos Energy is not an obligor on the securitized utility tariff bonds, a downgrading of the credit ratings on the debt of Atmos Energy might have an adverse effect on the market value of the securitized utility tariff bonds. Atmos Energy is rated by S&P Global Ratings, a division of S&P Global Inc. and Moody’s Investors Service, Inc. Credit ratings may change at any time by the rating agencies. A NRSRO has the authority to revise or withdraw its rating based solely upon its own judgment.

The absence of a secondary market for the securitized utility tariff bonds might limit your ability to resell the securitized utility tariff bonds.

The underwriter for the securitized utility tariff bonds might assist in resales of the securitized utility tariff bonds, but it is not required to do so. A secondary market for the securitized utility tariff bonds might not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of the securitized utility tariff bonds. We do not anticipate that the securitized utility tariff bonds will be listed on any securities exchange. Please read “PLAN OF DISTRIBUTION” in this prospectus.

You might receive principal payments for the securitized utility tariff bonds later than you expect.

The amount and the rate of collection of the securitized utility tariff charges for the securitized utility tariff bonds, together with the related securitized utility tariff charge adjustments, will generally determine whether there is a delay in the scheduled repayments for the securitized utility tariff bond principal. If the servicer collects

 

28

the securitized utility tariff charges at a slower rate than expected, it might have to request adjustments of the securitized utility tariff charges. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the securitized utility tariff bonds. Please read “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS” in this prospectus.

Atmos Energy may cause the issuance, by another subsidiary or affiliated entity, of additional securitized utility tariff bonds in Kansas secured by additional securitized utility tariff property that includes a nonbypassable charge on retail customers.

Any new issuance of securitized utility tariff bonds by another subsidiary or affiliated entity of Atmos Energy in Kansas may include terms and provisions that would be unique to that particular issuance. In the event a retail customer does not pay in full all amounts owed under any bill, including securitized utility tariff charges, Atmos Energy, as servicer, is required to allocate any resulting shortfalls in securitized utility tariff charges ratably based on the amounts of securitized utility tariff charges owed in respect of the securitized utility tariff bonds, and amounts owed in respect of other securitized utility tariff bonds. However, if a dispute arises with respect to the allocation of such securitized utility tariff charges or other delays occur on account of the administrative burdens of making such allocation, we cannot assure you that any issuance of other securitized utility tariff bonds by another subsidiary or affiliated entity of Atmos Energy in Kansas would not cause reductions or delays in payment of principal and interest on the securitized utility tariff bonds.

If the investment of collected securitized utility tariff charges and other funds held by the trustee in the collection account results in investment losses or the investments become illiquid, you may receive payment of principal and interest on the securitized utility tariff bonds later than you expect.

Funds held by the trustee in the collection account will be invested in eligible investments at the written direction of the servicer. Eligible investments include commercial paper, money market funds and repurchase obligations with respect to United States treasuries, among other items. Although the eligible investments as defined in the Indenture governing the securitized utility tariff bonds have traditionally been viewed as highly liquid with a low probability of loss, illiquidity and losses have been experienced by investors in certain eligible investments as a result of disruptions in the financial markets in recent years. If investment losses or illiquidity is experienced, you might experience a delay in payments of principal and interest on the securitized utility tariff bonds and a decrease in the value of your investment in the securitized utility tariff bonds.

A deterioration in economic conditions could adversely affect Atmos Energy’s retail customers which could adversely affect the billing and collection of securitized utility tariff charges.

Any adverse changes in economic conditions could adversely affect the financial resources of many of Atmos Energy’s retail customers. As a result, Atmos Energy’s retail customers could seek to use less gas and it may be more difficult for them to pay their gas bills. This would likely lead to slower collections and increased risk of nonpayment by retail customers. Additionally, should economic conditions deteriorate, Atmos Energy’s industrial customers could seek alternative energy sources. This could reduce Atmos Energy’s retail customer count, resulting in higher securitized utility tariff charges for Atmos Energy’s remaining retail customers. This, in turn, could adversely impact the billing and collection of securitized utility tariff charges, thereby increasing the risk of nonpayment by retail customers.

Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the securitized utility tariff bonds.

European Union (“EU”) legislation comprising Regulation (EU) 2017/2402 (as amended, the “EU Securitization Regulation”) and certain related regulatory technical standards, implementing technical standards and official guidance (together, the “European Securitization Rules”) imposes certain restrictions and obligations with regard to securitizations (as such term is defined for purposes of the EU Securitization Regulation). The

 

29

European Securitization Rules are in force throughout the EU (and are expected also to be implemented in the non-EU member states of the European Economic Area).

Pursuant to the European Securitization Rules, EU Institutional Investors investing in a securitisation (as so defined) must, amongst other things, verify that (a) certain credit-granting requirements are satisfied, (b) the originator, sponsor or original lender retains on an ongoing basis a material net economic interest which, in any event, shall not be less than 5%, determined in accordance with Article 6 of the EU Securitization Regulation, and discloses that risk retention, (c) the originator, sponsor or relevant securitization special purpose entity has, where applicable, made available information as required by Article 7 of the EU Securitization Regulation and (d) they have carried out a due-diligence assessment that enables the EU Institutional Investors to assess the risks involved, considering at least (i) the risk characteristics of the securitisation position and the underlying exposures and (ii) all the structural features of the securitization that can materially impact the performance of the securitisation position.

EU Institutional Investors include: (a) insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC, as amended, (b) institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 (subject to certain exceptions), and certain investment managers and authorized entities appointed by such institutions, (c) alternative investment fund managers as defined in Directive 2011/61/EU which manage and/or market alternative investment funds in the EU, (d) certain internally managed investment companies authorized in accordance with Directive 2009/65/EC, and managing companies as defined in that Directive, (e) credit institutions as defined in Regulation (EU) No 575/2013 (CRR) (and certain consolidated affiliates thereof); and (f) investment firms as defined in CRR (and certain consolidated affiliates thereof).

With respect to the United Kingdom (UK), relevant UK-established or UK-regulated persons (as described below) are subject to the restrictions and obligations of the EU Securitization Regulation as it forms part of UK domestic law by operation of the European Union (Withdrawal) Act 2018 (as amended, the “EUWA”), and as amended by the Securitisation (Amendment) (EU Exit) Regulations 2019, and as further amended from time to time, the UK Securitization Regulation. The UK Securitization Regulation, together with (a) all applicable binding technical standards made under the UK Securitization Regulation, (b) any EU regulatory technical standards or implementing technical standards relating to the EU Securitization Regulation (including such regulatory technical standards or implementing technical standards that are applicable pursuant to any transitional provisions of the EU Securitization Regulation) forming part of UK domestic law by operation of the EUWA, (c) all relevant guidance, policy statements or directions relating to the application of the UK Securitization Regulation (or any binding technical standards) published by the Financial Conduct Authority (the “FCA”) and/or the Prudential Regulation Authority (the “PRA”) (or their successors), (d) any guidelines relating to the application of the EU Securitization Regulation that are applicable in the UK, (e) any other transitional, saving or other provision relevant to the UK Securitization Regulation by virtue of the operation of the EUWA and (f) any other applicable laws, acts, statutory instruments, rules, guidance or policy statements published or enacted relating to the UK Securitization Regulation, in each case, as may be further amended, supplemented or replaced, from time to time, are referred to in this prospectus as the UK Securitization Rules.

Article 5 of the UK Securitization Regulation places certain conditions on investments in a “securitisation” (as defined in the UK Securitization Regulation) by a UK Institutional Investor. UK Institutional Investors include: (a) an insurance undertaking as defined in section 417(1) of the Financial Services And Markets Act 2000 (as amended, the “FSMA”), (b) a reinsurance undertaking as defined in section 417(1) of the FSMA, (c) an occupational pension scheme as defined in section 1(1) of the Pension Schemes Act 1993 that has its main administration in the UK, or a fund manager of such a scheme appointed under section 34(2) of the Pensions Act 1995 that, in respect of activity undertaken pursuant to that appointment, is authorized for the purposes of section 31 of the FSMA, (d) an alternative investment fund manager as defined in regulation 4(1) of the Alternative Investment Fund Managers Regulation 2013 that markets or manages alternative investments funds (as defined in regulation 3 of the Alternative Investment Fund Managers Regulation 2013) in the UK, (e) a

 

30

management company as defined in section 237(2) of the FSMA, (f) an undertaking for collective investment in transferable securities as defined by section 236A of the FSMA, which is an authorized open ended investment company as defined in section 237(3) of the FSMA, and (g) a CRR firm as defined in Regulation (EU) No 575/2013, as it forms part of UK domestic law by virtue of the EUWA (and certain consolidated affiliates thereof).

Prior to investing in (or otherwise holding an exposure to) a “securitisation position” (as defined in the UK Securitization Regulation), a UK Institutional Investor, other than the originator, sponsor or original lender (each as defined in the UK Securitization Regulation), must, among other things: (a) verify that, where the originator or original lender is established in a third country (i.e. not within the UK), the originator or original lender grants all the credits giving rise to the underlying exposures on the basis of sound and well-defined criteria and clearly established processes for approving, amending, renewing and financing those credits and has effective systems in place to apply those criteria and processes to ensure that credit granting is based on a thorough assessment of the obligor’s creditworthiness, (b) verify that, if established in the third country (i.e. not within the UK), the originator, sponsor or original lender retains on an ongoing basis a material net economic interest that, in any event, shall not be less than 5%, determined in accordance with Article 6 of the UK Securitization Regulation, and discloses the risk retention to the affected investors, (c) verify that, where established in a third country (i.e. not within the UK), the originator, sponsor or relevant securitization special purpose entity, where applicable, made available information that is substantially the same as that which it would have made available under Article 7 of the UK Securitization Regulation (which sets out certain transparency requirements) if it had been established in the UK and has done so with such frequency and modalities as are substantially the same as those with which it would have made information available if it had been established in the UK, and (d) carry out a due-diligence assessment that enables the UK Institutional Investors to assess the risks involved, considering at least (i) the risk characteristics of the securitisation position and the underlying exposures and (ii) all the structural features of the securitization that can materially impact the performance of the securitisation position.

We and Atmos Energy do not believe that the securitized utility tariff bonds fall within the definition of a “securitization” for purposes of the EU Securitization Regulation or the UK Securitization Regulation as there is no tranching of credit risk associated with exposures under the transactions described in this prospectus. Therefore, we and Atmos Energy believe such transactions are not subject to the European Securitization Rules or the UK Securitization Rules. As such, neither we nor Atmos Energy, nor any other party to the transactions described in this prospectus, intend, or are required under the transaction documents, to retain a material net economic interest in respect of such transactions, or to take, or to refrain from taking, any other action, in a manner prescribed or contemplated by the European Securitization Rules or the UK Securitization Rules. In particular, no such Person undertakes to take, or to refrain from taking, any action for purposes of compliance by any investor (or any other Person) with any requirement of the European Securitization Rules or the UK Securitization Rules to which such investor (or other Person) may be subject at any time.

However, if a competent authority were to take a contrary view and determine that the transactions described in this prospectus do constitute a securitization for purposes of the EU Securitization Regulation or the UK Securitization Regulation, then any failure by an EU Institutional Investor or a UK Institutional Investor (as applicable) to comply with any applicable European Securitization Rules or UK Securitization Rules (as applicable) with respect to an investment in the securitized utility tariff bonds may result in the imposition of a penalty regulatory capital charge on that investment or of other regulatory sanctions and remedial measures.

Consequently, the securitized utility tariff bonds may not be a suitable investment for EU Institutional Investors or UK Institutional Investors. As a result, the price and liquidity of the securitized utility tariff bonds in the secondary market may be adversely affected.

Prospective investors are responsible for analyzing their own legal and regulatory position and are advised to consult with their own advisors and any relevant regulator or other authority regarding the scope, applicability and compliance requirements of the European Securitization Rules and the UK Securitization Rules, and the

 

31

suitability of the securitized utility tariff bonds for investment. Neither we nor Atmos Energy, nor any other party to the transactions described in this prospectus, make any representation as to any such matter, or have any liability to any investor (or any other Person) for any non-compliance by any such Person with the European Securitization Rules, the UK Securitization Rules or any other applicable legal, regulatory or other requirements.

 

32

REVIEW OF SECURITIZED UTILITY TARIFF PROPERTY

Pursuant to the rules of the SEC, Atmos Energy, as sponsor, has performed, as described below, a review of the securitized utility tariff property underlying the securitized utility tariff bonds. As required by these rules, the review was designed and effected to provide reasonable assurance that disclosure regarding the securitized utility tariff property is accurate in all material respects. Atmos Energy did not engage a third party in conducting its review.

The securitized utility tariff bonds will be secured under the Indenture by the Indenture’s trust estate. The principal asset of the Indenture’s trust estate is the securitized utility tariff property. The securitized utility tariff property is a present contract right authorized and created pursuant to the securitization provisions of the Securitization Act and an irrevocable financing order. The securitized utility tariff property includes the irrevocable right to impose, bill, charge, collect and receive nonbypassable securitized utility tariff charges in amounts sufficient to timely pay scheduled principal and interest and ongoing financing costs in connection with the securitized utility tariff bonds. The securitized utility tariff charges are nonbypassable charges that will be paid by all existing and future retail customers receiving natural gas service from Atmos Energy or its successors or assignees under the rate schedules or special contracts approved by the Kansas commission, even if a retail customer elects to purchase natural gas from an alternative natural gas supplier following a fundamental change in regulation of public utilities in Kansas; provided, however, if a customer disconnects from Atmos Energy’s gas distribution system and ceases to purchase natural gas by switching to an alternative source of energy that meets all of its energy needs, such customer would no longer be a retail customer and would not be subject to paying securitized utility tariff charges. During the 12 months ended September 30, 2022, approximately 68% of Atmos Energy’s total gas deliveries were to residential retail customers and approximately 32% were to non-residential retail customers.

The securitized utility tariff property is not a static pool of receivables or assets. Securitized utility tariff charges authorized in the financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Kansas commission except that securitized utility tariff charges are subject to semi-annual and other interim true-up adjustments to correct any over-collections or under-collections of securitized utility tariff charges during the previous six months and to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds. All revenues and collections resulting from securitized utility tariff charges provided for in the financing order are part of the securitized utility tariff property. The securitized utility tariff charges will be calculated on a fixed monthly charge per retail customer. The securitized utility tariff property is described in more detail under “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF PROPERTY” in this prospectus.

In the financing order, the Kansas commission, among other things:

 

•

orders that Atmos Energy, as servicer, shall impose and collect from all Atmos Energy retail customers the securitized utility tariff charges that are nonbypassable in an amount calculated as provided in the financing order;

 

•

orders that upon the transfer of the securitized utility tariff property to us by Atmos Energy, we shall be the owner of the rights to the securitized utility tariff property and that Atmos Energy as servicer is merely the collection agent for us; and

 

•

pledges that it will act under the financing order as expressly authorized by the securitization provisions of the Securitization Act to ensure the projected recovery of securitized utility tariff charge revenues are sufficient to provide timely payment of the scheduled principal of and interest on the securitized utility tariff bonds.

Please read “THE SECURITIZATION ACT” and “ATMOS ENERGY’S FINANCING ORDER” in this prospectus for more information.

The characteristics of securitized utility tariff property are unlike the characteristics of assets underlying mortgage and other commercial asset securitizations because securitized utility tariff property is a creature of statute and state regulatory commission proceedings. Because the nature and characteristics of the securitized

 

33

utility tariff property and many elements of the securitized utility tariff bond securitization are set forth and constrained by the securitization provisions of the Securitization Act, Atmos Energy, as sponsor, does not select the assets to be securitized in ways common to many securitizations. Moreover, the securitized utility tariff bonds do not contain origination or underwriting elements similar to typical mortgage or other loan transactions involved in other forms of asset-backed securities. The securitization provisions of the Securitization Act and the Kansas commission require the imposition on, and collection of securitized utility tariff charges from, existing and future retail customers receiving natural gas service from Atmos Energy or it successors or assignees under Kansas commission-approved rate schedules or under special contracts, even if a retail customer elects to purchase natural gas from an alternative natural gas supplier following a fundamental change in regulation of public utilities in Kansas subject to certain exceptions discussed elsewhere in this prospectus. Since the securitized utility tariff charges are assessed against all retail customers and the true-up adjustment mechanism adjusts for the impact of retail customer defaults, the collectability of the securitized utility tariff charges is not ultimately dependent upon the credit quality of particular Atmos Energy retail customers, as would be the case in the absence of the true-up adjustment mechanism.

The review by Atmos Energy of the securitized utility tariff property underlying the securitized utility tariff bonds has involved a number of discrete steps and elements as described in more detail below. First, Atmos Energy has analyzed and applied the securitization provisions of the Securitization Act’s requirements for securitization of qualified extraordinary costs in seeking approval of the Kansas commission for the issuance of the financing order and in its application for a financing order with respect to the characteristics of the securitized utility tariff property to be created pursuant to the financing order. Atmos Energy worked with its counsel in preparing the application for a financing order and with the Kansas commission on the terms of the financing order. Moreover, Atmos Energy worked with its counsel, its structuring agent and counsel to the underwriter in preparing the legal agreements that provide for the terms of the securitized utility tariff bonds and the security for the securitized utility tariff bonds. Atmos Energy has analyzed economic issues and practical issues for the scheduled payment of the securitized utility tariff bonds in terms of impacts of economic factors, potentials for disruptions due to weather or catastrophic events and its own forecasts for retail customer growth as well as the historic accuracy of its prior forecasts.

In light of the unique nature of the securitized utility tariff property, Atmos Energy has taken (or prior to the offering of the securitized utility tariff bonds, will take) the following actions in connection with its review of the securitized utility tariff property and the preparation of the disclosure for inclusion in this prospectus describing the securitized utility tariff property, the securitized utility tariff bonds and the proposed securitization:

 

•

reviewed the securitization provisions of the Securitization Act, the rules and regulations of the Kansas commission as they relate to the securitized utility tariff property in connection with the preparation and filing of the application with the Kansas commission for the approval of the financing order in order to confirm that the application and proposed financing order satisfied applicable statutory and regulatory requirements;

 

•

actively participated in the proceeding before the Kansas commission relating to the approval of the requested financing order;

 

•

compared the financing order, as issued by the Kansas commission, to the securitization provisions of the Securitization Act and the rules and regulations of the Kansas commission as they relate to the securitized utility tariff property to confirm that the financing order met such requirements;

 

•

compared the proposed terms of the securitized utility tariff bonds to the applicable requirements in the securitization provisions of the Securitization Act, the financing order and the regulations of the Kansas commission to confirm that they met such requirements;

 

•

prepared and reviewed the agreements to be entered into in connection with the issuance of the securitized utility tariff bonds and compared such agreements to the applicable requirements in the securitization provisions of the Securitization Act, the financing order and the regulations of the Kansas commission to confirm that they met such requirements;

 

34

•

reviewed the disclosure in this prospectus regarding the securitization provisions of the Securitization Act, the financing order and the agreements to be entered into in connection with the issuance of the securitized utility tariff bonds, and compared such descriptions to the relevant securitization provisions of the Securitization Act, the financing order and such agreements to confirm the accuracy of such descriptions;

 

•

consulted with legal counsel to assess if there is a basis upon which the securitized utility tariff bondholders (or the trustee acting on their behalf) could successfully challenge the constitutionality of any legislative action by the State of Kansas (including the Kansas commission) that could repeal or amend the securitization provisions of the Securitization Act that could substantially impair the value of the securitized utility tariff property, or substantially reduce, alter or impair the securitized utility tariff charges;

 

•

reviewed the process and procedures in place for it, as servicer, to perform its obligations under the servicing agreement, including without limitation, billing and collecting the securitized utility tariff charges to be provided for under the securitized utility tariff property, forecasting securitized utility tariff charge revenues, preparing and filing applications for true-up adjustments to the securitized utility tariff charges and enforcing credit standards;

 

•

reviewed the methodology and procedure of the true-up mechanism for adjusting securitized utility tariff charge levels to meet the scheduled payments on the securitized utility tariff bonds; and

 

•

with the assistance of its structuring agent and the underwriter, prepared financial models in order to set the initial securitized utility tariff charges to be provided for under the securitized utility tariff property at a level sufficient to pay on a timely basis scheduled principal and interest on the securitized utility tariff bonds.

In connection with the preparation of such models, Atmos Energy:

 

•

reviewed (i) the historical natural gas usage and retail customer growth within Atmos Energy’s retail customer base and (ii) forecasts of expected sales and retail customer growth; and

 

•

analyzed the sensitivity of the weighted average life of the securitized utility tariff bonds in relation to variances in actual retail customer count from forecasted levels and in relation to the true-up mechanism in order to assess the probability that the weighted average life of the securitized utility tariff bonds may be extended as a result of such variances, and in the context of the operation of the true-up mechanism for adjustment of securitized utility tariff charges to address under- or over-collections in light of scheduled payments on the securitized utility tariff bonds.

As a result of this review, Atmos Energy has concluded that:

 

•

the securitized utility tariff property, the financing order and the agreements to be entered into in connection with the issuance of the securitized utility tariff bonds meet in all material respects the applicable statutory and regulatory requirements;

 

•

the disclosure in this prospectus regarding the securitization provisions of the Securitization Act, the financing order and the agreements to be entered into in connection with the issuance of the securitized utility tariff bonds is as of its date, accurate in all material respects;

 

•

the servicer has adequate processes and procedures in place to perform its obligations under the servicing agreement;

 

•

securitized utility tariff charge revenues, as adjusted from time to time as provided in the securitization provisions of the Securitization Act and the financing order, are expected to be sufficient to pay on a timely basis scheduled principal and interest on the securitized utility tariff bonds; and

 

•

the design and scope of Atmos Energy’s review of the securitized utility tariff property as described above is effective to provide reasonable assurance that the disclosure regarding the securitized utility tariff property in this prospectus is accurate in all material respects.

 

35

DESCRIPTION OF THE SECURITIZED UTILITY TARIFF PROPERTY

Creation of Securitized Utility Tariff Property; Financing Order

The Securitization Act defines securitized utility tariff property as, “All rights and interests of a public utility, its successor or assignee under a financing order, including the right to impose, bill, charge, collect and receive securitized utility tariff charges authorized under the financing order and to obtain periodic adjustments to such charges authorized under this section and as provided in the financing order; and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the rights and interests specified in the financing order, regardless of whether such revenues, collections, claims, rights to payment, payments, money or proceeds are imposed, billed, received, collected or maintained together with or commingled with other revenues, collections, rights to payment, payments, money or proceeds.” The securitized utility tariff bonds will be secured by the securitized utility tariff property, as well as the other collateral described under “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—The Security for the Securitized Utility Tariff Bonds.”

In addition to the right to impose, bill, charge, collect and receive securitized utility tariff charges, the financing order:

 

•

Authorizes the transfer of the securitized utility tariff property to us and the issuance of securitized utility tariff bonds;

 

•

Establishes procedures for periodic true-up adjustments to securitized utility tariff charges in the event of over-collection or under-collection; and

 

•

Provides and pledges that after the earlier of the transfer of the securitized utility tariff property to an assignee or the issuance of the securitized utility tariff bonds authorized by the financing order, the financing order is irrevocable and may not be amended, modified, or terminated by any subsequent action of the Kansas commission.

A form of issuance advice letter and a form of tariff (called the “Winter Event Securitized Cost Recovery Rider” or “WESCR”) are attached to the financing order. We will complete and file both documents with the Kansas commission immediately after the pricing of the securitized utility tariff bonds. The issuance advice letter confirms to the Kansas commission the interest rate and expected sinking fund schedule for the securitized utility tariff bonds and sets forth the actual dollar amount of the initial securitized utility tariff charges as described below under “ATMOS ENERGY’S FINANCING ORDER—Issuance Advice Letter.” The Kansas commission’s review of the issuance advice letter will be limited to determining that the final structuring, terms and pricing of the securitized utility tariff bonds are consistent with the criteria established in the financing order and that the mathematical calculations are accurate.

Tariff; Securitized Utility Tariff Charges

The tariff establishes the initial securitized utility tariff charges. It also implements the procedures for periodic adjustments to the securitized utility tariff charges, the payment of securitized utility tariff charges and the semi-annual procedures allowing Atmos Energy as servicer to reconcile the amount of securitized utility tariff charge remittances with the periodic payment requirement.

The securitized utility tariff charges will be payable by all existing or future retail customers receiving natural gas service from Atmos Energy or its successors or assignees under Kansas commission-approved rate schedules or under special contracts, even if a retail customer elects to purchase natural gas from an alternative natural gas supplier following a fundamental change in regulation of public utilities in Kansas.

For purposes of billing securitized utility tariff charges, each retail customer will be designated as a customer belonging to one of the securitized utility tariff charge retail customer classes set forth below. Under

 

36

the terms of the financing order, Atmos Energy will allocate the securitized utility tariff charges among the securitized utility tariff charge retail customer classes based on the percentage of the total estimated February 2021 sales volumes, as follows:

Securitized Utility Tariff Charge Retail Customer Classes

 

Retail Customer Class		Estimate of February 2021 Usage (Mcf)				Allocation Percentage
Residential:			23,505,675				75.015%
Non-residential:
Commercial/Public Authority			7,572,483				24.167%
School Sales Service			82,668				0.264%
Industrial Sales Service			50,073				0.160%
Small Generator			31				0.000%
Irrigation Engine			123,509				0.394%
TOTAL			31,334,439				100.000%

The nonbypassable charge applicable to each securitized utility tariff charge retail customer class for any period will be determined based on the allocation percentage of such class, the amount necessary to make payments on the securitized utility tariff bonds for the related period, and as set forth in the Winter Event Securitized Cost Recovery Rider, contained in the form of tariff, attached to the financing order as Appendix B. Securitized utility tariff charges will be calculated on a fixed monthly charge per retail customer, which will be adjusted semi-annually pursuant to the true-up adjustment methodology approved in the financing order. The per retail customer charge will initially be calculated using the retail customer count reported in the most recent Atmos Energy Annual Report filed with the Kansas commission and will be updated semi-annually. The true-up adjustment methodology approved in the financing order is cross collateralized across retail customer classes and requires that any delinquencies or under-collections in one retail customer class will be taken into account in the application of the true-up mechanism to adjust the securitized utility tariff charges for all retail customers, not just the class of retail customers from which the delinquency or under-collection arose.

The securitized utility tariff charges will be reflected as a separate line item on retail customers’ bills and identified as “Winter Event Securitized Cost.” These securitized utility tariff charges will be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Kansas commission.

Atmos Energy estimates that on an annualized basis the initial securitized utility tariff charges would represent approximately                % of the total bill received by an average residential customer based on rates as of                .

Billing and Collection Terms and Conditions

Generally, bills are rendered monthly to all customers and are payable within 28 days from mailing for residential customers and within 28 days of mailing for nonresidential customers. Billing will begin with the first cycle of the month following the issuance of the securitized utility tariff bonds. Customers are billed in established cycles, with the total number of days between meter readings generally ranging from 28 to 32 days.

Atmos Energy, as the initial servicer of the securitized utility tariff property will bill and collect the securitized utility tariff charges as described in the servicing agreement, and remit those amounts to the trustee on our behalf. We are a Delaware limited liability company subsidiary special purpose entity created by Atmos Energy to facilitate the securitization. The servicer will perform these functions for us in accordance with the

 

37

servicing agreement by and between Atmos Energy, as the initial servicer, and us. If the servicer defaults on its obligations under the servicing agreement, the trustee may appoint a successor servicer, subject to the terms and conditions of the servicing agreement.

The securitized utility tariff bonds will be issued pursuant to an indenture and series supplement administered by the trustee. The Indenture will include provisions for a collection account and subaccounts for the collection and administration of the securitized utility tariff charges and payment or funding of the principal and interest on the securitized utility tariff bonds and other costs. We will establish a collection account as a trust account to be held by the trustee as collateral for the payment of the scheduled principal, interest, and other costs approved in the financing order. The collection account will include the general subaccount, the capital subaccount, and the excess funds subaccount, and may include other subaccounts. The servicer will remit securitized utility tariff charges to the trustee, which will deposit such remittances into a general subaccount. Upon issuance of the securitized utility tariff bonds, Atmos Energy will make a capital contribution to us and we will deposit such contribution into a capital subaccount. The capital subaccount will serve as collateral for timely payments of principal and interest on the securitized utility tariff bonds. An excess funds subaccount will hold any securitized utility tariff charge remittances and investment earnings on the collection account (other than earnings attributable to the capital subaccount and released under the terms of the Indenture) in excess of the amounts needed to pay principal and interest on the securitized utility tariff bonds and to pay ongoing costs related to the securitized utility tariff bonds (including replenishing the capital subaccount). Any balance in or allocated to the excess funds subaccount on a true-up adjustment date will be subtracted from the payments to be made on the next payment date for purposes of the true-up adjustment. The servicer is required to make semi-annual adjustments to the securitized utility tariff charges to correct any under-collection or over-collection of securitized utility tariff charges during the preceding six months and ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds. If remitted securitized utility tariff charges are insufficient to make payments of principal and interest on the securitized utility tariff bonds and other components of the periodic payment requirement, then the excess funds subaccount, and the capital subaccount will be drawn down, in that order, to make those payments. The servicer may perform periodic true-ups as necessary to ensure that the amount collected from securitized utility tariff charges is sufficient to service the securitized utility tariff bonds. Within the 30-day period that follows the scheduled payment date that is one year prior to the scheduled final payment date and quarterly thereafter, there will be quarterly true-up adjustments for the securitized utility tariff bonds that remain outstanding.

The obligation to pay securitized utility tariff charges is not subject to any right of set-off, counterclaim or surcharge in connection with the bankruptcy or insolvency of Atmos Energy or any other entity. Securitized utility tariff charges are “nonbypassable” in accordance with the provisions set forth in the Securitization Act and the financing order.

 

38

THE SECURITIZATION ACT

Overview

In April 2021, the Kansas Legislature established the Securitization Act (a Kansas senate substitute for House Bill 2072 (Volume 40 - Issue 16 - April 22, 2021), as codified at K.S.A. §§ 66-1,240 - 66-1,253), providing for a financing mechanism through which certain utilities can use securitization financing to recover qualified extraordinary costs (as defined in the Securitization Act) resulting from Winter Storm Uri, by issuing securitized utility tariff bonds. Securitized utility tariff bonds must be approved in a financing order issued by the Kansas commission. A Kansas utility subject to the jurisdiction of the Kansas commission must apply to the Kansas commission in order to obtain a financing order under the Securitization Act to authorize the issuance of securitized utility tariff bonds.

In February 2021, Kansas experienced sub-zero temperatures brought by Winter Storm Uri, which led to a significant increase in demand for electricity and natural gas. On February 14, 2021, a State of Disaster Emergency was issued by Kansas Governor Kelly due to expected prolonged low temperatures and the strain on natural gas and utility providers; at the time, wholesale natural gas prices were reflecting increases from 10 to 100 times their normal rates. On February 15, 2021, the Kansas commission issued an Emergency Order in Docket No. 21-GIMX-303-MIS (Docket 21-303), directing jurisdictional natural gas utilities to coordinate efforts and take all reasonably feasible, lawful, and appropriate actions to ensure adequate transportation of natural gas to interconnected, non-jurisdictional Kansas utilities. Jurisdictional natural gas utilities were ordered to do everything necessary to ensure that natural gas service continued to be provided to their customers in Kansas. The Kansas commission authorized every jurisdictional natural gas distribution utility to defer extraordinary costs incurred during the Winter Event to a regulatory asset account. On May 25, 2022, Atmos Energy applied for a financing order under the Securitization Act, which was issued by the Kansas commission on October 25, 2022.

Under the Securitization Act and the financing order, Atmos Energy retail customers will pay securitized utility tariff charges, which are nonbypassable charges included in their monthly charges. Securitized utility tariff charges will fund payments of principal and interest on the securitized utility tariff bonds, together with related financing costs. Securitized utility tariff charges will be collected by Atmos Energy, as initial servicer, or its successor, as provided for in the financing order and servicing agreement. Pursuant to the financing order, securitized utility tariff charges are required to be adjusted at least semi-annually, and more frequently as necessary, to ensure the recovery of amounts sufficient to timely provide all payment of the scheduled principal, interest and other required amounts in connection with the securitized utility tariff bonds during the preceding six-month period.

Atmos Energy May Securitize Qualified Extraordinary Costs and Related Upfront and Ongoing Financing Costs

Atmos May Issue Securitized Utility Tariff Bonds to Recover Atmos Energy’s Qualified Extraordinary Costs.

Under the Securitization Act, the Kansas commission may issue financing orders approving the issuance of securitized utility tariff bonds to recover certain costs of a natural gas utility, including qualified extraordinary costs and related upfront and ongoing financing costs. A utility, its successors or an assignee of a utility may issue securitized utility tariff bonds. The Securitization Act requires the proceeds of the securitized utility tariff bonds to be used for the purposes of recovering or financing qualified extraordinary costs and related upfront and ongoing costs, as determined by the Kansas commission. Securitized utility tariff bonds are secured by or payable from securitized utility tariff property, which includes the right to impose, bill, charge, collect and receive securitized utility tariff charges, to obtain periodic adjustments to such charges as provided in the financing order and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. Under the financing order, the securitized utility tariff bonds may have a legal maximum maturity of 32 years from the issuance date of the bonds.

 

39

Securitized utility tariff charges and related financing costs will be allocated to Atmos Energy retail customer classes based on the class percentage of the total estimated February 2021 sales volumes. Securitized utility tariff charges can be imposed only when and to the extent that securitized utility tariff bonds are issued.

The Securitization Act contains a number of provisions designed to facilitate the securitization of qualified extraordinary costs and related upfront and ongoing financing costs.

Creation of Securitized Utility Tariff Property.

The Securitization Act and financing order provide for the creation and establishment of the securitized utility tariff property, which is a present contract right in favor of Atmos Energy, its transferees and other financing parties, to impose, bill, charge, collect and receive securitized utility tariff charges from Atmos Energy’s existing and future retail customers, as well as to obtain periodic adjustments to such charges as provided in the financing order.

A Financing Order is Irrevocable.

A financing order, once effective, together with the securitized utility tariff charges authorized in such financing order, is irrevocable and not subject to amendment, modification or termination by the Kansas commission, except for adjustments pursuant to the Securitization Act in order to correct over-collections or under-collections and to ensure the projected recovery of amounts sufficient to provide timely payment of debt service and all other upfront and ongoing financing costs in connection with the related securitized utility tariff bonds. Although a financing order is irrevocable, the Securitization Act allows for Atmos Energy (or any assignee) to apply for one or more new financing orders to provide for refinancing, retiring and refunding securitized utility tariff bonds upon a showing that statutory criteria are met.

State and Commission Pledges.

The State of Kansas and its agencies, including the Kansas commission, have pledged and agreed with bondholders, the owners of the securitized utility tariff property and other financing parties that, pursuant to the Securitization Act, the state and its agencies will not: (a) alter the statute that authorizes the Kansas commission to create an irrevocable contract right or chose in action by the issuance of a financing order, to create securitized utility tariff property and to make the securitized utility tariff charges imposed by a financing order irrevocable, binding or nonbypassable charges for all existing and future retail customers within the service area of the public utility, (b) take or permit any action that impairs or would impair the value of securitized utility tariff property or the security for the securitized utility tariff bonds, or revises the Securitized Utility Tariff Costs (as defined in the Securitization Act) for which recovery is authorized, (c) impair the rights and remedies of the securitized utility tariff bondholders, assignees and other financing parties in any way, or (d) except for changes made pursuant to the true-up adjustment mechanism expressly allowed by law, reduce, alter, or impair the securitized utility tariff charges to be imposed, billed, charged, collected, and remitted for the benefit of the securitized utility tariff bondholders, any assignee, and any other financing parties, until any and all principal, interest, premium, financing costs and other fees, expenses or charges incurred and any contracts to be performed in connection with the related securitized utility tariff bonds have been paid and performed in full.

The Kansas commission has jurisdiction over Atmos Energy and its application for a financing order to recover qualified extraordinary costs and related financing costs pursuant to K.S.A. § 66-1,241(b).

Constitutional Matters

To date, no federal or Kansas cases addressing the repeal or amendment of the Securitization Act or securitization provisions analogous to those contained in the Securitization Act have been decided. There have been cases in which courts have applied the Contract Clause of the United States Constitution to strike down

 

40

legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing other types of bonds issued by public instrumentalities or private issuers, or otherwise substantially impairing or eliminating the security for bonds or other indebtedness. Based upon this case law, Sidley Austin LLP, as counsel to Atmos Energy and us, expects to deliver an opinion, prior to the closing of the offering of the securitized utility tariff bonds described in this prospectus, to the effect that, under federal law principles, the State pledge described above unambiguously indicates the State’s intent to be bound with the securitized utility tariff bondholders and, subject to all of the qualifications, limitations and assumptions set forth in its opinion, supports the conclusion that the State pledge constitutes a binding contractual relationship between the State and the securitized utility tariff bondholders for purposes of the Federal Contract Clause and, with regard to Kansas, Husch Blackwell LLP, as Kansas counsel to Atmos Energy and us, expects to deliver an opinion to the effect that Kansas courts apply the Federal Contract Clause in these circumstances.

Subject to all of the qualifications, limitations and assumptions set forth in each respective opinion, including that any impairment of the contract be “substantial,” the opinion of Sidley Austin LLP is expected to state that a reviewing court of competent jurisdiction would hold that the State of Kansas could not constitutionally repeal or amend the Securitization Act or take any other action contravening the State pledge and creating an impairment (without, as the Securitization Act requires, providing full compensation by law for the full protection of the securitized utility tariff charges to be collected pursuant to the financing order and full protection of the securitized utility tariff bondholders), unless such court would determine that such impairment is a necessary and reasonably tailored exercise of the State of Kansas’ sovereign powers to serve a significant and legitimate public purpose justifying such action.

Sidley Austin LLP, subject to all of the qualifications, limitations and assumptions (including the assumption that any impairment would be “substantial”) set forth in its opinion, is also expected to state in its opinion that the Kansas commission’s pledge (i) constitutes part of the binding contractual obligation of the State of Kansas for purposes of the Federal Contract Clause, and (ii) provides a basis upon which the securitized utility tariff bondholders could challenge successfully any action by the Kansas commission related to the exercise of a legislatively granted power, including the rescission or amendment of the financing order, if that exercise created an impairment, on the same basis as other actions of the State that create an impairment as described above.

In addition, any action of the Kansas legislature adversely affecting the securitized utility tariff property or the ability to collect securitized utility tariff charges may be considered a “taking” under the United States or Kansas Constitutions. Sidley Austin LLP has advised us that it is not aware of any federal, and Husch Blackwell LLP has advised us that it is not aware of any Kansas, court cases addressing the applicability of the Takings Clause of the United States or Kansas Constitution respectively in a situation analogous to that which would be involved in an amendment or repeal of the Securitization Act. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Securitization Act, since, for example, a court might determine that a Contract Clause analysis rather than a Takings Clause analysis should be applied. Assuming a Takings Clause analysis were applied under the United States Constitution or the Kansas Constitution, Sidley Austin LLP and Husch Blackwell LLP respectively expect to render an opinion, prior to the closing of the offering of the securitized utility tariff bonds described in this prospectus, to the effect that, under the existing case law of the respective courts each opinion is covering, a reviewing court of competent jurisdiction would hold (or with respect to the opinion of Husch Blackwell LLP, more likely than not, would hold), subject to all of the qualifications, limitations and assumptions set forth in each respective opinion, if it concludes that the securitized utility tariff property is protected by the Takings Clause of the United States Constitution (or the Takings Clause of the Kansas Constitution with respect to the opinion of Husch Blackwell LLP), that the State would be required to pay just compensation to the securitized utility tariff bondholders, as determined by such court, if the Kansas legislature repealed or amended the Securitization Act or took any other action contravening the State pledge, if the court determines doing so constituted a permanent appropriation of a substantial property interest of the securitized utility tariff bondholders in the securitized utility tariff property or denied all economically productive use of the securitized utility tariff property, destroyed the securitized utility tariff property other than in response to emergency conditions or substantially reduced, altered, limited or impaired the value of the securitized utility tariff property so as to unduly interfere with the reasonable

 

41

expectations of the Holders arising from their investments in the securitized utility tariff bonds. In examining whether action of the Kansas legislature amounts to a regulatory taking, both federal and state courts will consider the character of the governmental action, the economic impact of the governmental action on the securitized utility tariff bondholders, and the extent to which the governmental action interferes with distinct investment-backed expectations. There is no assurance, however, that, even if a court were to award just compensation, it would be sufficient for you to recover fully your investment in the securitized utility tariff bonds.

In connection with the foregoing, Sidley Austin LLP has advised us that issues relating to the Contract and Takings Clause of the United States Constitution, and Husch Blackwell LLP has advised us that issues relating to the Takings Clause of the Kansas Constitution, are essentially decided on a case-by-case basis and that the courts’ determinations, in most cases, appear to be strongly influenced by the facts and circumstances of the particular case, and has further advised us that there are no reported controlling judicial precedents that are directly on point. The opinions described above will be subject to the qualifications included in them. The degree of impairment necessary to meet the standards for relief under a Takings Clause analysis or Contract Clause analysis could be substantially in excess of what a securitized utility tariff bondholder would consider material.

In addition, Sidley Austin LLP expects to render an opinion, prior to the closing of the offering of the securitized utility tariff bonds described in this prospectus, to the effect that under existing case law, a reviewing court of competent jurisdiction would hold that the Securitization Act is constitutional in all material respects under the United States Constitution and, subject to all of the qualifications, limitations and assumptions set forth in its opinion, that the State pledge does not constitute an impermissible attempt to “contract away” the police power of the State of Kansas, and will not be disregarded under the reserved powers doctrine, and Husch Blackwell LLP expects to render an opinion, prior to the closing of the offering of the securitized utility tariff bonds described in this prospectus, to the effect that the Securitization Act has been duly enacted by the Kansas legislature and is in effect as of the closing of the offering, and that Husch Blackwell LLP is not aware of any constitutional infirmities with respect to the Securitization Act.

We and Atmos Energy will file a copy of each of the Sidley Austin LLP and Husch Blackwell LLP opinions as exhibits to an amendment to the registration statement of which this prospectus is a part, or to one of our periodic filings with the SEC.

For a discussion of risks associated with potential judicial, legislation or regulatory actions, please read “RISK FACTORS—Risks associated with potential judicial, legislative or regulatory actions.”

The Kansas Commission May Adjust Securitized Utility Tariff Charges

The Securitization Act authorizes the Kansas commission to provide, and the Kansas commission has provided, in the financing order, that securitized utility tariff charges be adjusted at least semi-annually. These true-up adjustments are designed to:

 

•

Correct any over-collections or under-collections during the preceding six months; and

 

•

Ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds.

Securitized Utility Tariff Charges are Nonbypassable

The Securitization Act provides that the securitized utility tariff charges are nonbypassable subject to the terms of the financing order. Under the financing order, “nonbypassable” means Atmos Energy is required to collect and must remit, consistent with the financing order, the nonbypassable securitized utility tariff charges that are applied to all existing and future retail customers within Atmos Energy’s service area in Kansas, as such service area exists on the date of the financing order, and as such service area may, at the discretion of Atmos

 

42

Energy, be expanded or acquired as provided for in the financing order. If a customer disconnects from Atmos Energy’s gas distribution system and ceases to purchase natural gas by switching to an alternative source of energy that meets all of its energy needs, such customer would no longer be a retail customer and would not be subject to paying securitized utility tariff charges. While existing transportation customers at the time of the issuance of the securitized utility tariff bonds are not subject to the securitized utility tariff charges, retail customers who become transportation customers when securitized utility tariff charges are being recovered are required to pay a settlement fee prior to becoming a transportation customer. The settlement fee owed by the customer is to be based on the estimated present value of the expected charges the customer would have paid as a retail customer over the remaining period in which the securitized utility tariff charge is being recovered. The settlement fee will not be securitized utility tariff charges, but will be credited to Atmos Energy’s other retail customers once per year.

The Securitization Act Protects Securitized Utility Tariff Bondholders’ Security Interest on Securitized Utility Tariff Property

The Securitization Act provides that a valid and enforceable security interest in securitized utility tariff property will attach only after the issuance of a financing order, the execution and delivery of a security agreement in connection with the issuance of the securitized utility tariff bonds, the debtor having rights in the securitized utility tariff property or the power to transfer rights in the securitization utility tariff property and the receipt of value for the securitized utility tariff bonds. The security interest attaches automatically at the time when all of the foregoing conditions have been met without physical delivery of collateral or other act.

Upon perfection by filing a financing statement, under K.S.A. § 66-1,245(d), the security interest will be a perfected security interest in the securitized utility tariff property and will have priority in the order of perfection and take precedence over all claims of lien creditors and all competing security interests and other claims other than any security interest previously perfected. The servicer pledges in the servicing agreement to maintain the effectiveness of such financing statement.

The Securitization Act (K.S.A. §§ 66-1,245(e) and (f)) provides that priority of transfers of and security interests in securitized utility tariff property will not be affected by:

 

•

The commingling of funds arising from securitized utility tariff charges with other funds; or

 

•

Any later change in the securitized utility tariff charges pursuant to the true-up adjustment mechanism.

Furthermore, any other security interest that may apply to those funds will be terminated when they are transferred to a segregated account for an assignee or a financing party.

The Securitization Act Characterizes the Transfer of Securitized Utility Tariff Property as a True Sale

The Securitization Act (K.S.A. § 66-1,246(a)) provides that any sale, assignment or other transfer of securitized utility tariff property is a “true sale” of and an absolute transfer and not a pledge of or secured transaction relating to, the seller’s right, title, and interest in, to, and under the securitized utility tariff property if the documents governing the transaction expressly state that the transaction is a sale or other absolute transfer other than for federal and state income tax purposes. The Securitization Act (K.S.A. § 66-1,246(a)) provides that for all purposes other than federal and state income tax purposes, the parties’ characterization of a transaction as a sale of an interest in securitized utility tariff property is conclusive that the transaction is a true sale and that ownership has passed to the party characterized as the purchaser, regardless of whether the purchaser has possession of any documents evidencing or pertaining to such interest in securitized utility tariff property.

 

43

ATMOS ENERGY’S FINANCING ORDER

Background. In mid-February 2021, Kansas experienced sub-zero temperatures brought by Winter Storm Uri, which led to a significant increase in demand for electricity and natural gas. On February 14, 2021, a State of Disaster Emergency was issued by Kansas Governor Kelly due to expected prolonged low temperatures and the strain on natural gas and utility providers; at the time, wholesale natural gas prices were reflecting increases from 10 to 100 times their normal rates. On February 15, 2021, pursuant to K.S.A. § 77-536(a), the Kansas commission issued an Emergency Order in Docket No. 21-GIMX-303-MIS (Docket 21-303), directing jurisdictional natural gas utilities to take all reasonably feasible, lawful, and appropriate actions to ensure adequate transportation of natural gas to interconnected, non-jurisdictional Kansas utilities. Jurisdictional natural gas utilities were ordered to do everything necessary to ensure that natural gas service continued to be provided to their customers in Kansas. The Kansas commission authorized every jurisdictional natural gas distribution utility to defer extraordinary costs incurred during the winter event to a regulatory asset account.

In April 2021, the Kansas Legislature established the Utility Financing and Securitization Act (referred to in this prospectus as the Securitization Act), providing for a financing mechanism through which certain utilities can use securitization financing to recover “qualified extraordinary costs” (as defined in the Securitization Act) resulting from Winter Storm Uri, by issuing securitized utility tariff bonds. Securitized utility tariff bonds must be approved in a financing order issued by the Kansas commission. This provision of Kansas law, the Securitization Act—a Kansas senate substitute for House Bill 2072 (Volume 40 - Issue 16 - April 22, 2021)—is codified at K.S.A. §§ 66-1,240 - 66-1,253. A Kansas utility subject to the jurisdiction of the Kansas commission must apply to the Kansas commission in order for a financing order under the Securitization Act to authorize the issuance of securitized utility tariff bonds.

On May 25, 2022, Atmos Energy applied for a financing order under the Securitization Act. Under the Securitization Act and the financing order, Atmos Energy retail customers will pay securitized utility tariff charges, which are nonbypassable charges included in their monthly charges. Securitized utility tariff charges will fund payments of principal and interest on the securitized utility tariff bonds, together with related financing costs. Securitized utility tariff charges will be collected by Atmos Energy, as initial servicer, or its successor, as provided for in the financing order. Securitized utility tariff charges are required to be adjusted at least semi-annually, and more frequently as necessary, to ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal, interest and other required amounts in connection with the securitized utility tariff bonds during the preceding six-month period.

On October 25, 2022, the Kansas commission issued its final order determining that Atmos Energy is entitled, pursuant to the Securitization Act, to finance, through the issuance of securitized utility tariff bonds in one or more tranches with an estimated aggregate principal amount equal to approximately $92.7 million (the qualified extraordinary costs less related financing costs and interest expense). The financing order also: (1) authorizes the issuance of securitized utility tariff bonds in an aggregate amount not to exceed the qualified extraordinary costs and financing costs (2) approves the creation of the securitized utility tariff property consisting of the right to impose and collect securitized utility tariff charges in an amount to be calculated as provided in the financing order; (3) approves the form of tariff, as provided in the financing order, to implement securitized utility tariff charges; (4) approves the securitization of the securitized utility tariff charges associated with the qualified extraordinary costs and financing costs, including the upfront financing costs and ongoing financing costs estimates (subject to review of the Kansas commission’s designated representative); and (5) approves the review of the structure of the proposed securitization financing through a pre-issuance review and an issuance advice letter process. The financing order became final and nonappealable on November 9, 2022.

Atmos Energy has filed the financing order with the SEC as an exhibit to the registration statement of which this prospectus forms a part.

Issuance of Securitized Utility Tariff Bonds. The financing order authorizes Atmos Energy to cause us to issue securitized utility tariff bonds in an estimated aggregate principal amount of $92,684,233, plus an

 

44

additional amount that reflects the actual amount of qualified extraordinary costs incurred by Atmos Energy to be set forth in the issuance advice letter. Securitized utility tariff bonds are limited to a term of not longer than 32 years and are secured by or payable from securitized utility tariff property. The net proceeds from the sale of the securitized utility tariff bonds must be used to directly or indirectly to recover, finance or refinance qualified extraordinary costs.

Collection of Securitized Utility Tariff Charges. The financing order authorizes Atmos Energy to collect securitized utility tariff charges from its retail customers in an amount sufficient to provide for recovery of Atmos Energy’s qualified extraordinary costs and upfront and ongoing financing costs, which include principal and interest and certain ongoing fees and expenses associated with the securitized utility tariff bonds.

There is no “cap” on the level of securitized utility tariff charges that may be imposed on retail customers to pay on a timely basis scheduled principal and interest on the securitized utility tariff bonds. There is also no limit on how long securitized utility tariff charges may be imposed; pursuant to the financing order, the charges will be imposed until the securitized utility tariff bonds and all related financing costs have been paid in full.

Issuance Advice Letter. Following the determination of the final terms of the securitized utility tariff bonds and prior to their issuance, Atmos Energy is required to submit an issuance advice letter to the Kansas commission no later than the end of the first day after the pricing of the securitized utility tariff bonds. The issuance advice letter will:

 

•

Demonstrate compliance with the provisions of the financing order;

 

•

Indicate the final structure of the securitized utility tariff bonds;

 

•

Provide the dollar amount of the initial securitized utility tariff charges and other information specific to the securitized utility tariff bonds;

 

•

Provide the best available estimate of total ongoing financing costs;

 

•

Report the initial securitized utility tariff charges and other information specific to the securitized utility tariff bonds to be issued, as the Kansas commission requires;

 

•

Require Atmos Energy to update the benefit analysis to verify that the final structure of the securitization satisfies the statutory financial tests;

 

•

Certify to the Kansas commission that the structure and pricing of the securitized utility tariff bonds results in the lowest securitized utility tariff charges consistent with market conditions at the time that the securitized utility tariff bonds are priced utilizing the lowest cost standard; and

 

•

Specify the scheduled final payment dates of the securitized utility tariff bond tranches and the legal maturity for the securitized utility tariff bond tranches.

The initial securitized utility tariff charges and the final terms of the securitized utility tariff bonds set forth in the issuance advice letter shall become effective on the date of issuance of the securitized utility tariff bonds (which shall not occur prior to the fifth business day after pricing) unless prior to noon on the fourth business day after pricing the Kansas commission issues a disapproval letter finding that the proposed issuance advice letter does not comply with the Securitization Act and the financing order.

Form of Tariff: Winter Event Securitized Cost Rider (WESCR). Atmos Energy is required, prior to the issuance of any securitized utility tariff charges, to complete and file rate schedules in the form of tariff attached to the financing order. The WESCR establishes the initial securitized utility tariff charges. The WESCR also implements the procedures for periodic adjustments to the securitized utility tariff charges.

True-Ups. The financing order provides that securitized utility tariff charges will be reviewed and adjusted semi-annually to:

 

•

Correct any over-collections or under-collections during the preceding six months; and

 

45

•

Ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the securitized utility tariff bonds.

Amounts remaining unpaid after final legal maturity of the securitized utility tariff bonds may be recovered but only to the extent that the securitized utility tariff charges are attributable to services rendered prior to the final legal maturity of the securitized utility tariff bonds.

In addition to semi-annual true-up adjustments, true-up adjustments may be made by the servicer more frequently at any time during the term of the securitized utility tariff bonds to correct any under-collection or over-collection to ensure timely payment of securitized utility tariff bonds as scheduled. In the event an interim true-up is necessary, the interim true-up adjustment should be filed by the 15th day of the current month for implementation in the first billing cycle of the following month. In no event would such interim true-up adjustments occur more frequently than every six months; provided, however, that there shall be quarterly true-up adjustments for the securitized utility tariff bonds remaining outstanding during the year immediately preceding the scheduled final payment date for the securitized utility tariff bonds.

Any delinquencies or under-collections in one retail customer class will be taken into account in the true-up mechanism to adjust the securitized utility tariff charges for all retail customers of Atmos Energy, not just the class of retail customers from which the delinquency or under-collection arose.

The financing order requires the servicer to make true-up adjustment filings with the Kansas commission. True-up adjustment filings must set forth the servicer’s calculation of the true-up adjustment to the securitized utility tariff charges. The Kansas commission has 30 days after the date of a true-up adjustment filing to confirm the mathematical accuracy of the servicer’s adjustment and to confirm that there are no clerical errors. Any true-up adjustment filed with the Kansas commission should be effective on its proposed effective date, which shall be not less than 30 days after filing. Any necessary corrections to the true-up adjustment, due to mathematical or clerical errors in the calculation of such adjustment or otherwise, must be made in future true-up adjustment filings.

The financing order provides that upon issuance of securitized utility tariff bonds or transfer of the securitized utility tariff property to the issuing entity, whichever occurs first, the financing order and the securitized utility tariff charges authorized by the financing order will become irrevocable and not subject to reduction, impairment, or adjustment by further act of the Kansas commission, except for any true-up adjustments made in accordance with the true-up adjustment mechanism in the financing order; provided, however, that such irrevocability shall not preclude the Kansas commission from extending the deadline for the issuance of securitized utility tariff bonds if requested to do so by Atmos Energy.

For more discussion of the true-up mechanism, see “THE SERVICING AGREEMENT—Securitized Utility Tariff Charge Adjustment Process” in this prospectus.

State and Commission Pledges. The State of Kansas and its agencies, including the Kansas commission, have pledged and agreed with bondholders that, pursuant to the Securitization Act, the state and its agencies will not: (a) alter the statute that authorizes the Kansas commission to create an irrevocable contract right or chose in action by the issuance of a financing order, to create securitized utility tariff property and to make the securitized utility tariff charges imposed by a financing order irrevocable, binding or nonbypassable charges for all existing and future retail customers within the service area of the public utility, (b) take or permit any action that impairs or would impair the value of securitized utility tariff property or the security for the securitized utility tariff bonds, or revises the Securitized Utility Tariff Costs (as defined in the Securitization Act) for which recovery is authorized, (c) impair the rights and remedies of the securitized utility tariff bondholders, assignees and other financing parties in any way, or (d) except for changes made pursuant to the true-up adjustment mechanism expressly allowed by law, reduce, alter, or impair the securitized utility tariff charges to be imposed, billed, charged, collected, and remitted for the benefit of the securitized utility tariff bondholders, any assignee, and any

 

46

other financing parties, until any and all principal, interest, premium, financing costs and other fees, expenses or charges incurred and any contracts to be performed in connection with the related securitized utility tariff bonds have been paid and performed in full.

The Kansas commission has jurisdiction over Atmos Energy and its application for a financing order to recover qualified extraordinary costs and related financing costs pursuant to K.S.A. § 66-1,241(b).

The Securitization Act and financing order provides that securitized utility tariff property (whether associated with a single bond series covering the entire qualified extraordinary costs or with one of multiple bond series covering only a portion of the qualified extraordinary costs) constitutes a present property right for purposes of contracts concerning the sale or pledge of property and the property will continue to exist until securitized utility tariff bonds issued pursuant to the financing order have been paid in full and all financing costs and other costs of such securitized utility tariff bonds have been recovered in full. In addition, the interests of an assignee or pledgee in securitized utility tariff property (as well as the revenues and collections arising from the property) are not subject to setoff, counterclaim, surcharge, or defense by the utility or any other person or in connection with the bankruptcy of the utility or any other entity. The State of Kansas has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Kansas commission to create an irrevocable contract right or chose in action by the issuance of a financing order, to create securitized utility tariff property, and to make the securitized utility tariff charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that impairs or would impair the value of the securitized utility tariff property, or, except for adjustments discussed in “—True-ups” and “The Servicing Agreement—Securitized Utility Tariff Charge Adjustment Process,” reduce, alter or impair the securitized utility tariff charges to be imposed, billed, charged, collected and remitted for the benefit of the securitized utility tariff bondholders, any assignee, and any other financing parties, until any and all principal, interest, premium, financing costs and other fees, expenses or charges incurred and any contracts to be performed in connection with the related securitized utility tariff bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if full compensation is made by law for the full protection of the securitized utility tariff charges collected pursuant to the financing order and the full protection of the bondholders and any assignee or financing party. Please read “RISK FACTORS—Risks associated with potential judicial, legislative or regulatory actions.”

Adjustments to Allocation of Securitized Utility Tariff Charges. The financing order provides that Atmos Energy will allocate securitized utility tariff charges to its retail customer classes based on each retail customer classes’ percentage of the total estimated February 2021 sales volumes (“initial percentages”). The initial percentages will remain in effect throughout the life of the securitized utility tariff bonds; provided, however, if the customer count for a particular retail class declines by more than 10 percent from that identified in the 2021 Annual Report, then the allocation factors will be recalculated using the most recent 12-month weather normalized volume for each retail customer class. Furthermore, retail customer classes are cross-collateralized in the true-up adjustment mechanism, that is, projected revenue shortfalls in one retail customer class are remedied by adjustments to the securitized utility tariff charges for each retail customer class, not only the retail customer class with the projected revenue shortfalls. Please read “—Additional Other Similar Bonds.”

Any delinquencies or under-collections in one retail customer class will be taken into account in the true-up mechanism to adjust the securitized utility tariff charge for all retail customers of Atmos Energy, not just the class of retail customers from which the delinquency or under-collection arose.

Servicing Agreement. In the financing order, the Kansas commission authorized Atmos Energy, as the initial servicer, to enter into the servicing agreement which is described under “THE SERVICING AGREEMENT” in this prospectus.

Additional Other Similar Bonds. Atmos Energy, upon receipt of an additional financing order, may finance qualified extraordinary costs through the issuance of additional securitized utility tariff bonds in Kansas issued

 

47

by another subsidiary or affiliated entity of Atmos Energy pursuant to a separate financing order and secured by separate securitized utility tariff property.

Binding on Successors. The financing order, along with the securitized utility tariff charges authorized in the financing order, is binding on:

 

•

Atmos Energy;

 

•

Any successor to Atmos Energy;

 

•

Any other entity responsible for billing and collecting securitized utility tariff charges on behalf of us; and

 

•

Any successor to the Kansas commission.

 

48

THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR

About Atmos Energy

Background Information. Atmos Energy, headquartered in Dallas, Texas, and incorporated in Texas and Virginia, is the country’s largest natural-gas-only distributor based on number of customers. Atmos Energy serves approximately 3.3 million residential, commercial, public authority and industrial customers located primarily in the South. At September 30, 2022, Atmos Energy had 4,791 employees, including 173 employees in Kansas. Atmos Energy, as a regulated utility, is subject to the regulations and oversight of various state and local regulatory authorities as well as the United States Department of Transportation. Additionally, Atmos Energy’s operations are also subject to state and federal laws regulation environmental matters. Generally, Atmos Energy, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the “servicer,” will service the securitized utility tariff property securing the securitized utility tariff bonds under a servicing agreement with us. Neither Atmos Energy nor any other affiliate (other than us) is an obligor on the securitized utility tariff bonds.

Service Area. As of September 30, 2022, Atmos Energy owned approximately 4,100 miles of pipeline and served 107 communities in Kansas. Atmos Energy’s service area in Kansas includes all territory within the State of Kansas subject to the jurisdiction of the Kansas commission in which Atmos Energy provides natural gas distribution service as of October 25, 2022 (the date of the financing order). As of September 30, 2022, Atmos Energy supplied natural gas service to approximately 139,000 customers in Kansas, of which approximately 99.65% will be subject to the securitized utility tariff charges. During its fiscal year 2022, Atmos Energy had $43 million in capital expenditures and spent $467,000 towards charitable giving in Kansas.

Municipalization. Kansas securitization legislation allows a natural gas public utility, in its sole discretion, to apply to the Kansas commission for a financing order to recover qualified extraordinary costs through the issuance of bonds. The Securitization Act specifies that securitized utility tariff charges approved by a financing order shall be collected by a utility as well as its “successors or assignees.” In the servicing agreement, Atmos Energy has covenanted to assert in an appropriate forum that any municipality that acquires any portion of Atmos Energy’s natural gas distribution facilities by expropriation, including upon the expiration of any franchise agreement, must be treated as a successor to Atmos Energy under the Securitization Act and the financing order. However, the involved municipality might assert that it should not be treated as a successor to Atmos Energy for these purposes and that its distribution customers are not responsible for payment of securitized utility tariff charges. Please read “RISK FACTORS—Risks associated with potential judicial, legislative or regulatory actions—A municipal entity may seek to acquire portions of Atmos Energy’s gas distribution facilities and avoid payment of the securitized utility tariff charges” in this prospectus.

Executive Offices. Atmos Energy’s principal executive offices are located at 1800 Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240. The phone number at this address is (972)-934-9227.

Where to Find Information About Atmos Energy. Atmos Energy is required to file periodic reports with the SEC. These SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov, and are also available free of charge at Atmos Energy’s website, www.atmosenergy.com, under “Publications and SEC Filings” under the “Investors” tab under “Our Company.” Except as specifically provided in this prospectus, no other information contained on or accessible through Atmos Energy’s website constitutes part of this prospectus.

Atmos Energy’s Retail Customer Base and Natural Gas Consumption Within the Service Area

The following tables show the natural gas usage billed to retail customers, natural gas billed revenues and number of retail customers by residential and non-residential customer types for the five preceding years ended September 30, within Kansas. There can be no assurances that the retail natural gas sales, retail natural gas revenues and number of retail customers or the composition of any of the foregoing will remain at or near the levels reflected in the following tables.

 

49

Natural Gas Sales Volumes (as Measured by MMcf)

 

Retail Customer		2018								2019								2020								2021								2022
Residential			10,313				71%				11,025				72%				10,021				70%				10,486				70%				9,803				68%
Non-residential			4,172				29%				4,269				28%				4,320				30%				4,396				30%				4,686				32%
Total			14,485				100%				15,294				100%				14,341				100%				14,882				100%				14,489				100%

Total Natural Gas Sales Revenues by Retail Customer Type (in $000s)

 

Retail Customer		2018								2019								2020								2021								2022
Residential		$	94,285				75%			$	85,759				76%			$	82,945				75%			$	81,980				75%			$	98,634				71%
Non-residential			31,778				25%				27,450				24%				28,378				25%				27,350				25%				39,328				29%
Total		$	126,063				100%			$	113,209				100%			$	111,323				100%			$	109,330				100%			$	137,962				100%

Average Number of Customers by Retail Customer Type

 

Retail Customer		2018								2019								2020								2021								2022
Residential			124,270				92%				125,219				92%				126,261				92%				127,836				93%				128,997				93%
Non-residential			10,225				8%				10,268				8%				10,242				8%				10,326				7%				10,334				7%
Total			134,495				100%				135,487				100%				136,503				100%				138,162				100%				139,331				100%

Credit Policy

Atmos Energy is required to service all applicants in its service area, subject to certain exceptions enumerated by the Kansas commission. To minimize credit risk, Atmos Energy assesses the credit worthiness of new customers, requires deposits when necessary, assesses late fees, pursues collection activities and disconnects service for nonpayment. After disconnection, accounts are written off when deemed uncollectible. At each reporting period, Atmos Energy assesses the allowance for uncollectible accounts based on historical experience, current conditions and consideration of expected future conditions. Circumstances that could affect allowance estimates include but are not limited to customer issues, natural gas prices, customer deposits, and general economic conditions. In connection with the COVID-19 pandemic, Atmos Energy suspended its activity of disconnecting due to non-payment beginning in 2020. Atmos Energy resumed disconnecting due to non-payment in July 2021.

 

50

Billing Process and Payment Options

Atmos Energy reads meters and bills customers on a monthly cycle basis. Atmos Energy estimates volumes from the last meter read to the balance sheet date and accrues revenue for gas delivered but not yet billed. Atmos Energy customers have a variety of payment options, including autopay, website/phone, mailing in checks, and payment stations. The graph below is illustrative of the utilization of various payment options by Atmos Energy’s customers for fiscal year 2022.

 

Collection, Termination of Service and Write-off Policy

Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority, and other customers. Accounts receivable balances include unbilled amounts which represent a customer’s consumption of gas from the date of the last cycle through the last day of the month. The receivable balances are short term and generally do not extend beyond one month.

In response to the COVID-19 pandemic, regulators issued collection moratoriums, which required Atmos Energy to temporarily suspend customer collection activities and to stop charging late fees. After regulators lifted these moratoriums, Atmos Energy resumed customer collection activities during the third quarter of fiscal 2021. These regulatory orders influenced Atmos Energy’s bad debt expense and writeoffs from fiscal 2020 through 2022.

Atmos Energy is actively working with customers experiencing financial hardship to offer flexible payment options and to direct them to aid agencies for financial assistance. The allowance for uncollectible accounts reflects the expected impact on the customers’ ability to pay. The allowance for uncollectible accounts also reflects the fact that Atmos Energy has the ability to recover the gas cost portion of uncollectible accounts through Atmos Energy’s gas cost recovery mechanisms in five states, which covers approximately 81% of Atmos Energy’s residential and commercial customers.

Write-off and Delinquency Experience

The following tables set forth information relating to the total billed revenues and write-off experience for the past five years. Such historical information is presented because Atmos Energy’s actual experience with respect to write-offs and delinquencies may be indicative of its future experience, which will affect the timing of securitized utility tariff charge collections. Atmos Energy does not expect, but there can be no certainty, that the delinquency or write-off experience with respect to securitized utility tariff charge collections will differ substantially from the rates indicated. Write-off and delinquency data is affected by factors such as the overall economy, weather and changes in collection practices. The net write-off and delinquency experience is expected, but there can be no certainty, to be similar to Atmos Energy’s previous experience.

 

51

The following table sets forth information relating to Atmos Energy’s average days sales outstanding for all retail customers in its service area in Kansas for the past five fiscal years. Average days sales outstanding is a measure of the average number of days that Atmos Energy takes to collect its revenue.

Annual Average Days Sales Outstanding ¹

 

		2018				2019				2020				2021				2022
Average Days			28.4				23.9				22.7				26.7				25.1

 

1	Days sales outstanding figures calculated using booked residential and commercial sales revenues (i.e., excludes unbilled revenues) and represents averages for the period presented.

The following table sets forth information relating to Atmos Energy’s gross and net write-offs for residential and non-residential retail customers in its service area in Kansas for the past five fiscal years.

Write-offs as a Percentage of Revenues (in $000s)¹

 

Total Residential and Non-Residential		2018				2019				2020				2021				2022
Total Gross Write-offs		$	537			$	630			$	507			$	323			$	767
Total Net Write-offs		$	456			$	558			$	435			$	276			$	723
Total Revenue		$	126,063			$	113,209			$	111,323			$	109,330			$	137,962
Gross Write-Off (%)			0.43%				0.56%				0.46%				0.30%				0.56%
Net Write-offs (% of Revenue)			0.36%				0.49%				0.39%				0.25%				0.52%

 

1	Revenues include taxes.

Delinquencies

The following tables set forth information relating to the delinquency experience of Atmos Energy for residential and non-residential retail customers in its service area in Kansas for the past five fiscal years.

Average Delinquencies as a Percentage of Revenues for the Period Shown (Residential)¹

 

		2018				2019				2020				2021				2022
31 - 60 days past due			0.33%				0.22%				0.14%				0.31%				0.29%
61 - 90 days past due			0.18%				0.16%				0.14%				0.23%				-0.01%
90+ days past due			0.37%				0.23%				0.24%				1.27%				0.52%
Total			0.88%				0.61%				0.52%				1.81%				0.80%

Average Delinquencies as a Percentage of Revenues for the Period Shown (Non-residential)¹

 

		2018				2019				2020				2021				2022
31 - 60 days past due			0.17%				0.06%				0.13%				0.16%				0.13%
61 - 90 days past due			0.02%				0.02%				0.07%				0.11%				0.02%
90+ days past due			-0.04%				-0.01%				-0.04%				0.47%				0.08%
Total			0.15%				0.07%				0.16%				0.74%				0.23%

 

52

Average Delinquencies as a Percentage of Revenues for the Period Shown (Total)¹

 

		2018				2019				2020				2021				2022
31 - 60 days past due			0.29%				0.18%				0.14%				0.27%				0.24%
61 - 90 days past due			0.14%				0.13%				0.12%				0.20%				0.00%
90+ days past due			0.27%				0.17%				0.17%				1.07%				0.40%
Total			0.70%				0.48%				0.43%				1.54%				0.64%

 

1	Delinquency calculations are based on arrears and revenue data provided by Atmos Energy. Data represents average past due amounts as of quarter end for each fiscal year, shown as a percentage of revenues for the full fiscal year.

Competition and Alternatives to Gas as An Energy Source for Atmos Energy Customers

Atmos Energy competes with other natural gas suppliers and suppliers of alternative fuels for sales to industrial customers. Atmos Energy competes in every aspect of the business with alternative energy sources including electricity. Electric utilities offer electricity as a rival energy source for the space heating, water heating and cooking markets. Promotional incentives, improved equipment efficiencies and promotional rates all contribute to the acceptability of electrical equipment. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets. Atmos Energy’s pipeline and storage operations have historically faced competition from other existing intrastate pipelines seeking to provide transportation and other services for customers. Over the last few years, new pipelines have been completed which has increased the level of competition in this segment of Atmos Energy’s business.

Additional Natural Gas Utility Considerations

An objective of Atmos Energy’s supply-sourcing strategy is to provide value to its customers through reliable, competitively priced and flexible natural gas supply and transportation from multiple production areas and suppliers. This strategy is designed to mitigate the impact on Atmos Energy’s supply from physical interruption, financial difficulties of a single supplier, natural disasters and other unforeseen force majeure events, as well as to ensure that adequate supply is available to meet the variations of customer demand.

Atmos Energy maintains supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Atmos Energy does not anticipate problems with securing natural gas supply to satisfy customer demand.

Weather Rules

Kansas statutory requirements and the rules and regulations of the Kansas commission, which may change from time to time, regulate and control the right to disconnect service. The Kansas commission enforces specific weather rules on Atmos Energy in extreme weather conditions. A natural gas utility must not disconnect service for a residential customer on a day when the temperature is predicted to fall below 35 degrees Fahrenheit within the following 48 hours, according to the applicable local National Weather Service forecast. To the extent these customers do not pay for their natural gas service, Atmos Energy will not be able to collect securitized utility tariff charges from these customers. Weather moratoriums prohibit Atmos Energy from disconnecting a customer for a short period of time during a weather event, typically a few days.

 

53

Forecasting Natural Gas Customers

For all classes, including residential and small commercial, Atmos Energy forecasts natural gas customer counts based on trends and reasonable expectations of future growth. Past data for residential and commercial customers shows trends to be at a consistent rate of increase for Atmos Energy’s service area. Historically, the number of Atmos Energy’s larger industrial customers has not changed significantly and Atmos Energy does not usually forecast any industrial customer growth unless there is a known customer coming into its service area.

Once per year (typically in the fourth quarter), Atmos Energy completes a five-year forecast of customers where the models are completely re-estimated and where large individual customers are evaluated. The output of this exercise is the customer count and sales forecast that underlies Atmos Energy’s annual five-year business plan. This forecast is typically the first step in a multi-stage planning process that determines customer growth, average volume usage, and revenue.

Annual Forecast Variance

The following table sets forth information related to annual forecast variance for retail customer counts in Atmos Energy’s service area in Kansas by customer type (residential or non-residential) for the past five fiscal years. Variances between actual customer counts and forecasted customer counts can be caused by a number of factors such as: the timing of completion of new housing development (i.e., when meter connected), delinquent customers not disconnected due to COVID-19 moratoriums during 2020 and 2021, the timing of completion of Atmos Energy capital projects, abnormal weather conditions (i.e., colder or warmer than normal) impacting the timing of when a customer reconnects or disconnects service, and the health of the overall economy.

Annual Forecast Variance for Retail Customer Count by Customer Type

 

		2018				2019				2020				2021				2022
Residential
Forecast			123,591				124,765				125,334				126,054				128,419
Actual			124,270				125,219				126,261				127,836				128,997
Variance (%)			0.55%				0.36%				0.74%				1.41%				0.45%
Non-residential
Forecast			9,974				10,088				9,984				10,258				10,152
Actual			10,225				10,268				10,242				10,326				10,334
Variance (%)			2.52%				1.78%				2.58%				0.66%				1.79%
Total
Forecast			133,565				134,853				135,318				136,312				138,571
Actual			134,495				135,487				136,503				138,162				139,331
Variance (%)			0.70%				0.47%				0.88%				1.36%				0.55%

 

54

ATMOS ENERGY KANSAS SECURITIZATION I, LLC, THE ISSUING ENTITY

General

We are a special purpose limited liability company formed under the Delaware Limited Liability Company Act pursuant to a limited liability company agreement executed by our sole member, Atmos Energy, and the filing of a certificate of formation with the Secretary of State of Delaware. We were formed on October 28, 2022.

We have been organized as a wholly owned special purpose limited liability company subsidiary of Atmos Energy for the limited purposes described under “—Restricted Purposes” below. At the time of the issuance of the securitized utility tariff bonds, our assets will consist primarily of the securitized utility tariff property and the other collateral held under the Indenture and the series supplement for the securitized utility tariff bonds.

Our limited liability agreement will be amended and restated prior to the issuance date and references in this prospectus to the LLC Agreement mean our amended and restated limited liability company agreement. The LLC Agreement restricts us as the issuing entity from engaging in activities other than those activities related to the purposes described in this section or those authorized by the terms of the basic documents or the other agreements referenced under “—Restricted Purposes” below. Other than purchasing the securitized utility tariff property and issuing the securitized utility tariff bonds, we have no business operations, but we will pay our sole member Atmos Energy an administration fee for its out-of-pocket expenses incurred by it in connection with its services to us in accordance with the LLC Agreement. Selected provisions of the LLC Agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part, are summarized below. On the date of issuance of the securitized utility tariff bonds, our capital will be equal to                 % of the initial principal amount of the securitized utility tariff bonds issued on the issuance date or such other amount as may allow the securitized utility tariff bonds to achieve the desired security rating and treat the securitized utility tariff bonds as debt under applicable guidance issued by the Internal Revenue Service, which we also refer to as the IRS.

As of the date of this prospectus, we have not carried on any business activities and have no operating history. Our fiscal year end is September 30.

Our assets will consist of:

 

•

the securitized utility tariff property;

 

•

our rights under the sale agreement, under the administration agreement and under the bill of sale delivered by Atmos Energy under the sale agreement;

 

•

our rights under the servicing agreement and any subservicing, agency, administration, intercreditor or collection agreements executed in connection with the servicing agreement;

 

•

the collection account and all subaccounts of the collection account;

 

•

all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing; and

 

•

all payments on or under and all proceeds in respect of any of the foregoing.

The Indenture provides that the securitized utility tariff property, as well as our other assets, will be pledged by us to the trustee to secure our obligations in respect of the securitized utility tariff bonds. Pursuant to the Indenture, the collected securitized utility tariff charges remitted to the trustee by the servicer must be used to pay principal of and interest on the securitized utility tariff bonds and our other obligations specified in the Indenture.

 

55

Restricted Purposes

We have been created for the sole purpose of:

 

•

Acquiring securitized utility tariff property;

 

•

financing, purchasing, owning, administering, managing and servicing the securitized utility tariff property and the other collateral for the securitized utility tariff bonds;

 

•

authorizing, executing, issuing, delivering and registering the securitized utility tariff bonds;

 

•

making payment on the securitized utility tariff bonds;

 

•

distributing amounts released to us;

 

•

managing, selling, assigning, pledging, collecting amounts due on, or otherwise dealing in securitized utility tariff property and the other collateral for the securitized utility tariff bonds;

 

•

negotiating, executing, assuming and performing our obligations under the basic documents and any other agreement, instrument or document relating to the above activities;

 

•

pledging our interest in the securitized utility tariff property and the other collateral for the securitized utility tariff bonds to a trustee under the Indenture and one or more series supplements in order to secure the securitized utility tariff bonds; and

 

•

performing activities that are necessary, suitable or convenient to accomplish these purposes.

The LLC Agreement and the Indenture do not permit us to engage in any activities not directly related to these purposes, including issuing securities (other than the securitized utility tariff bonds), acquiring obligations or making loans to other persons. The list of permitted activities set forth in the LLC Agreement may not be altered, amended or repealed without the affirmative vote of a majority of our managers, which vote must include the affirmative vote of our independent manager. The LLC Agreement and the Indenture will prohibit us from issuing any securitized utility tariff bonds (as such term is defined in the Securitization Act) other than the securitized utility tariff bonds being offered pursuant to this prospectus.

Our Relationship with Atmos Energy

On the issuance date for the securitized utility tariff bonds, Atmos Energy will sell the securitized utility tariff property to us pursuant to the sale agreement between us and Atmos Energy. Atmos Energy will service such securitized utility tariff property pursuant to the servicing agreement between us and Atmos Energy related to the securitized utility tariff bonds. Atmos Energy will provide certain administrative services to us pursuant to the administration agreement between us and Atmos Energy.

Managers and Officers

Pursuant to the LLC Agreement, our business will be managed initially by three or more managers (with such number being increased or decreased from time to time in the sole and absolute discretion of Atmos Energy as permitted by the LLC Agreement), with one of the managers being an independent manager, in each case appointed from time to time by Atmos Energy or, in the event Atmos Energy transfers its interest in us, by the owner or owners of us. Following the issuance of the securitized utility tariff bonds, we will have at least one independent manager, who, among other things, is an individual who (1) has prior experience as an independent director, independent manager or independent member for special-purpose entities, (2) is employed by a nationally recognized company that provides professional independent managers and other corporate services in the ordinary course of its business, (3) is duly appointed as an independent manager and (4) is not and has not been for at least five years from the date of his or her or their appointment, and while serving as an independent manager will not be, any of the following:

 

•

a member, partner, or equity holder, manager, director, officer, agent, consultant, attorney, accountant, advisor or employee of us, Atmos Energy or any of their respective equity holders or affiliates (other than as an independent manager or special member of the Company or similar roles for any other

 

56

special purpose bankruptcy remote entity); provided, that the indirect or beneficial ownership of stock of Atmos Energy or its affiliates through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an independent manager;

 

•

a creditor, supplier or service provider (including provider of professional services) to us, Atmos Energy or any of their respective equity holders or affiliates (other than a nationally-recognized company that routinely provides professional independent managers and other corporate services to us, Atmos Energy or any of their affiliates in the ordinary course of its business);

 

•

a family member of any of the foregoing; or

 

•

a person who controls (whether directly, indirectly or otherwise) any of the foregoing.

A natural person who otherwise satisfies the foregoing requirements and satisfies the first requirement listed above by reason of being the independent manager or director of a special purpose entity affiliated with us shall be qualified to serve as an independent manager of us, provided that such fees that such individual earns in any given year constitute in the aggregate less than five percent of such individual’s annual income for that year.

Atmos Energy, as our sole member, has appointed Orlando C. Figueroa as the independent manager of the issuing entity. None of our managers or officers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K. None of our managers or officers beneficially own any equity interest in us.

The following is a list of our managers and executive officers as of the date of this prospectus:

 

Name		Age		Background
John K. Akers (Manager)		59		John K. (Kevin) Akers was named President and Chief Executive Officer and was appointed to the Board of Directors of Atmos Energy effective October 1, 2019. Mr. Akers joined Atmos Energy in 1991. Mr. Akers assumed increased responsibilities over time and was named President of the Mississippi Division in 2002. He was later named President of the Kentucky/Mid-States Division in May 2007, a position he held until December 2016. Effective January 1, 2017, Mr. Akers was named Senior Vice President, Safety and Enterprise Services and was responsible for customer service, facilities management, safety and supply chain management. In November 2018, Mr. Akers was named Executive Vice President and assumed oversight responsibility for Atmos Pipeline-Texas.
Christopher T. Forsythe (Manager)		51		Christopher T. Forsythe was named Senior Vice President and Chief Financial Officer of Atmos Energy effective February 1, 2017. Mr. Forsythe joined Atmos Energy in June 2003 and prior to this promotion, served as Atmos Energy’s Vice President and Controller from May 2009 through January 2017. Prior to joining Atmos Energy, Mr. Forsythe worked in public accounting for 10 years.
Orlando C. Figueroa (Independent Manager)		62		Independent Manager of the issuing entity since May 2023. Mr. Figueroa has over 25 years’ US and global capital markets experience. As a Senior Managing Director and a Co-Founder of Citadel SPV, Mr. Figueroa is primarily responsible for leading the business development efforts of the company and managing its

 

57

Name		Age		Background
				strategic partnerships globally. Prior to founding Citadel SPV, Mr. Figueroa was a senior executive and member of the global structured finance board of a leading provider of corporate governance services, responsible for oversight of the Americas region. During his career, Mr. Figueroa has served as a director on the boards of over 2,000 special purpose vehicles spanning various asset classes. He also served on the Executive Board of Directors of the American Securitization Forum (the “ASF”) and acted as Chairman of the ASF’s Membership Committee from 2008-2010. Mr. Figueroa currently serves on the Advisory Board of Deal Catalyst’s Private Lending team and the Board of Directors of The Cameron Kravitt Foundation, a not-for-profit charitable foundation.

Manager Fees and Limitation on Liabilities

We will not compensate our managers, other than the independent manager, for their services on behalf of us. To the extent permitted by law, we will reimburse the managers for reasonable out-of-pocket expenses incurred by them in connection with their service to us. This reimbursement will be determined by our managers without regard to our income, and we will consider this reimbursement an operating expense. We will pay the annual fee of the independent manager in accordance with the LLC Agreement, which fee will initially be $3,000 per year. Such fee of the independent manager will be determined without regard to our income, and will be considered one of our operating expenses subject to limitations in the financing order. These expenses include the reasonable compensation, expenses and disbursements of the agents, representatives, experts and counsel that the independent manager may employ in connection with the exercise and performance of his or her rights and duties under the LLC Agreement.

The LLC Agreement provides that to the extent permitted by law, the managers will not be personally liable for any of our debts, obligations or liabilities. The LLC Agreement further provides that, except as described below, to the fullest extent permitted by law, we will indemnify the managers against any liability incurred in connection with their services as managers for us if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests. With respect to a criminal action, the managers will be indemnified unless they had reasonable cause to believe their conduct was unlawful. We will not indemnify any manager for any judgment, penalty, fine or other expense directly caused by such manager’s fraud, gross negligence or willful misconduct. In addition, unless ordered by a court, we will not indemnify the managers if a final adjudication establishes that their acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. We will not indemnify managers in an action brought by us. We will pay any indemnification amounts owed to the managers out of funds in the accounts held under the Indenture for the securitized utility tariff bonds, subject to the priority of payments described under “DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS—How Funds in the Collection Account Will Be Allocated” in this prospectus.

We are a Separate and Distinct Legal Entity from Atmos Energy

The LLC Agreement provides that we may not file a voluntary petition for relief under the Bankruptcy Code, without the affirmative vote of Atmos Energy, our sole member, and the affirmative vote of all of our

 

58

managers, including the independent manager. Atmos Energy has agreed that it will not cause us to file a voluntary petition for relief under the Bankruptcy Code. This does not guarantee, however, that we will not become a debtor under the Bankruptcy Code. The LLC Agreement requires us, except for financial reporting purposes (to the extent required by generally accepted accounting principles) and for federal income tax purposes, and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, to maintain our existence separate from Atmos Energy including:

 

•

taking all necessary steps to continue our identity as a separate legal entity;

 

•

making it apparent to third persons that we are an entity with assets and liabilities distinct from those of Atmos Energy, affiliates of Atmos Energy or any other Person; and

 

•

making it apparent to third persons that, except for federal and certain other tax purposes, we are not a division of Atmos Energy or any of its affiliated entities or any other Person.

Our principal place of business is 1800 Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240 and our telephone number at such address is (972) 934-9227.

Administration Agreement

Atmos Energy will, pursuant to an administration agreement between Atmos Energy and us, provide administrative services to us, including services relating to the preparation of financial statements, required filings with the SEC, any tax returns we might be required to file under applicable law, qualifications to do business, and minutes of our managers’ meetings. We will pay Atmos Energy a fixed fee of $100,000 per annum, payable in installments of $50,000 on each payment date for performing these services (which will be pro-rated for the first payment date), plus we will reimburse Atmos Energy for all costs and expenses for services performed by unaffiliated third parties and actually incurred by Atmos Energy in performing such services.

 

59

THE SECURITIZED UTILITY TARIFF CHARGES

Atmos Energy will be the initial servicer of the securitized utility tariff property. Billing will begin with the first billing cycle of the month following the issuance of the securitized utility tariff bonds. Securitized utility tariff charges will be calculated on a fixed monthly charge per retail customer, pursuant to the method described in the Winter Event Securitized Cost Recovery Rider. The fixed monthly per retail customer securitized utility tariff charge will be adjusted semi-annually pursuant to the true-up adjustment mechanism. In addition to semi-annual true-up adjustments, true-up adjustments may be made by the servicer more frequently at any time during the term of the securitized utility tariff bonds to correct any under-collection to ensure timely payment of securitized utility tariff bonds as scheduled. In the event an interim true-up is necessary, the interim true-up adjustment should be filed by the 15th day of the current month for implementation in the first billing cycle of the following month. The securitized utility tariff charge per retail customer initially will be calculated using the retail customer count reported in the most recent Atmos Energy Annual Report and will be updated semi-annually. If the customer count for a particular retail class declines by more than 10 percent from that identified in the 2021 Annual Report, then the allocation factors will be recalculated using the most recent 12-month weather normalized volume for each retail customer class. The securitized utility tariff charges shall be collected over the expected life of the securitized utility tariff bonds. However, securitized utility tariff charges shall be collected until all of the securitized utility tariff bonds and related ongoing financing costs are paid in full.

The initial securitized utility tariff charges listed in the table below will be imposed on Atmos Energy’s retail customers in each securitized utility tariff charge customer class at the applicable rate for the class determined pursuant to the financing order. These securitized utility tariff charges may be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Kansas commission. Please read “ATMOS ENERGY’S FINANCING ORDER” in this prospectus.

Initial Securitized Utility Tariff Charges

Each retail customer will be designated as a customer belonging to a securitized utility tariff charge retail customer class. Under the terms of the financing order, Atmos Energy will allocate the securitized utility tariff charges among the securitized utility tariff charge retail customer classes based on the percentage of the total estimated February 2021 sales volumes, as shown in the table below.

 

Retail Customer Class		Estimate of February 2021 Usage (Mcf)				Allocation Percentage
Residential			23,505,675				75.015%
Non-Residential:
Commercial/Public Authority			7,572,483				24.167%
School Sales Service			82,668				0.264%
Industrial Sales Service			50,073				0.160%
Small Generator			31				0.000%
Irrigation Engine			123,509				0.394%
TOTAL			31,334,439				100.000%

 

60

DESCRIPTION OF THE SECURITIZED UTILITY TARIFF BONDS

General

We have summarized selected provisions of the Indenture and the securitized utility tariff bonds below. This summary is subject to the terms and provisions of the Indenture and the series supplement for the securitized utility tariff bonds, forms of which we have filed with the SEC as an exhibit to the registration statement of which this prospectus forms a part. You should carefully read the summary below and the terms and provisions of the Indenture that may be important to you before investing in the securitized utility tariff bonds. Please read “WHERE YOU CAN FIND MORE INFORMATION” in this prospectus.

The securitized utility tariff bonds are not a debt, liability or other obligation of the State of Kansas, the Kansas commission or of any other political subdivision, governmental agency, authority or instrumentality of the State of Kansas and do not represent an interest in or legal obligation of Atmos Energy or any of its affiliates other than us. Neither Atmos Energy nor any of their affiliates will guarantee or insure the securitized utility tariff bonds. The financing order authorizing the issuance of the securitized utility tariff bonds does not constitute a pledge of the full faith and credit of the State of Kansas, the Kansas commission or of any other political subdivision of the State. The issuance of the securitized utility tariff bonds under the Securitization Act will not directly, indirectly or contingently obligate the State of Kansas, the Kansas commission or any other political subdivision of the State to levy or to pledge any form of taxation for the securitized utility tariff bonds or to make any appropriation for their payment.

We will issue the securitized utility tariff bonds and secure their payment under an Indenture that we will enter into with the trustee. We will issue the securitized utility tariff bonds in minimum denominations of $2,000 and in integral multiples of $1,000 in excess thereof, except that we may issue one bond in a smaller denomination. The initial principal amount, scheduled final payment date, final maturity date and interest rate for the securitized utility tariff bonds are stated in the table below. In no event shall the scheduled final payment date for the securitized utility tariff bonds exceed 10 years from the date of issuance of the securitized utility tariff bonds. The legal final maturity of the securitized utility tariff bonds shall not exceed 12 years from the date of issuance of the securitized utility tariff bonds.

 

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

A

$

%

The scheduled final payment date for the securitized utility tariff bonds is the date when the outstanding principal balance will be reduced to zero if we make payments according to the expected amortization schedule. The final maturity date for the securitized utility tariff bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding securitized utility tariff bonds. The failure to pay principal by the final maturity date is an event of default for the securitized utility tariff bonds, but the failure to pay principal by the scheduled final payment date will not be an event of default. Please read “—Payments of Interest and Principal on the Securitized Utility Tariff Bonds” and “—What Constitutes an Event of Default on the Securitized Utility Tariff Bonds” in this prospectus.

Payments of Interest and Principal on the Securitized Utility Tariff Bonds

Interest will accrue on the principal balance of the securitized utility tariff bonds at the interest rate of                 %. Beginning                 , 2024, we will make payments on the securitized utility tariff bonds semi-annually on                 and                 of each year, or, if that day is not a business day, the following business day (each, a “payment date”). Interest payments on the securitized utility tariff bonds will be made from collections of the securitized utility tariff charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount.

 

61