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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 storm recovery bonds. These risks can affect the timing or ultimate payment of the storm recovery bonds and the value of your investment in the storm recovery bonds.

 

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

Risks associated with potential judicial, legislative or regulatory actions

 

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

 

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Future judicial action could reduce the value of your investment in the storm recovery bonds.

 

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Future state action could reduce the value of your investment in the storm recovery bonds.

 

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The Louisiana Commission might attempt to take actions that could reduce the value of your investment in the storm recovery bonds.

 

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The servicer may not fulfill, or may be unsuccessful in any attempt to fulfill, its obligations to act on behalf of the storm recovery bondholders to protect bondholders from actions by the Louisiana Commission or the State of Louisiana.

 

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A municipal entity may seek to acquire portions of SWEPCO’s electric distribution facilities and avoid payment of the storm recovery charges.

Servicing Risks

 

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Your investment in the storm recovery bonds depends on SWEPCO or its successor or assignee, acting as servicer of the storm recovery property.

 

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Inaccurate forecasting of base rate revenue or unanticipated delinquencies or write-offs might reduce scheduled payments on the storm recovery bonds.

 

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

 

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Changes to billing and collection practices might result in delays in collections which may reduce the value of your investment in the storm recovery bonds.

 

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Limits on rights to terminate service might make it more difficult to collect the storm recovery charges.

 

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If the servicer enters bankruptcy proceedings, the remittance of storm recovery charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the storm recovery bonds.

Storm related risks

 

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Storm damage to SWEPCO’s service territories could impair payment of the storm recovery bonds.

Risks associated with the unusual nature of the storm recovery property

 

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Future adjustments to the storm recovery charges by customer class might result in insufficient collection.

 

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

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

 

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

 

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The bankruptcy of SWEPCO might result in losses or delays in payments on the storm recovery bonds.

 

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The sale of the storm recovery property might be construed as a financing and not a sale in a case of SWEPCO’s bankruptcy which might delay or limit payments on the storm recovery bonds.

 

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If the servicer enters bankruptcy proceedings, the remittance of certain storm recovery 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 storm recovery bonds.

 

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Claims against SWEPCO might be limited in the event of a bankruptcy of the seller.

 

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The bankruptcy of SWEPCO might limit the remedies available to the trustee.

Other risks associated with an investment in the storm recovery bonds

 

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SWEPCO’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the storm recovery bonds.

 

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The credit ratings are no indication of the expected rate of payment of principal on the storm recovery bonds.

 

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The storm recovery bonds’ credit ratings might affect the market value of the storm recovery bonds.

 

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Alternatives to purchasing electricity through SWEPCO’s distribution facilities may be more widely utilized by customers in the future.

 

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The absence of a secondary market for the storm recovery bonds might limit your ability to resell the storm recovery bonds.

 

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You might receive principal payments for the storm recovery bonds later than you expect.

 

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SWEPCO may cause the issuance, by another subsidiary or affiliated entity, of additional storm recovery bonds secured by additional storm recovery property that includes a nonbypassable charge on customers.

 

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SWEPCO’s operations are subject to risks beyond its control, including cyber-security intrusions, terrorist attacks or other catastrophic events, which could limit SWEPCO’s operations and ability to service the storm recovery property.

 

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If the investment of collected storm recovery 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 storm recovery bonds later than you expect.

 

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Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the storm recovery bonds.

 

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RISK FACTORS

Please carefully consider all the information we have included or incorporated by reference in this prospectus, including the risks described below and the statements in “Cautionary Statement Regarding Forward-Looking Information,” before deciding whether to invest in the storm recovery bonds.

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

The only source of funds for payment of the storm recovery bonds will be our assets, which consist of:

 

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the storm recovery property securing the storm recovery bonds, including the right to impose, bill, charge, collect and receive storm recovery charges;

 

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

 

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our rights under various contracts we describe in this prospectus.

The storm recovery bonds are not a charge on the full faith and credit or taxing power of the State of Louisiana or any governmental agency or instrumentality, nor will the storm recovery bonds be insured or guaranteed by SWEPCO, including in its capacity as the sponsor, depositor, seller or initial servicer, or by its parent, AEP, any of their respective affiliates (other than us), the trustee or any other person or entity. The storm recovery bonds will be nonrecourse obligations, secured only by the collateral. Delays in payment on the storm recovery bonds might result in a reduction in the market value of the storm recovery bonds and, therefore, the value of your investment in the storm recovery bonds. Thus, you must rely for payment of the storm recovery bonds solely upon the collections of the storm recovery 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 “SWEPCO Storm Recovery Funding LLC, The Issuing Entity” in this prospectus.

RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS

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

Neither we nor SWEPCO, 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 storm recovery bonds. SWEPCO 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 supplement to the Securitization Act that would be materially adverse to us, the trustee or the storm recovery bondholders. However, we cannot assure you that SWEPCO would be able to take this action or that any such action would be successful. Although SWEPCO 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 storm recovery bonds invalidates the storm recovery property, such indemnification obligations do not apply for any changes in law after the date the storm recovery 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—SWEPCO’s Covenants” in this prospectus.

Future judicial action could reduce the value of your investment in the storm recovery bonds.

The storm recovery property is a creation of the Securitization Act and the financing order that has been issued by the Louisiana Commission to SWEPCO pursuant to the Securitization Act. The Securitization Act was enacted in May 2006. 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.

 

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The Securitization Act or any financing order or any provision thereof might be directly contested in courts or otherwise become the subject of litigation. Because the storm recovery 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 storm recovery property or our ability to make payments on the storm recovery bonds might have an adverse effect on the value of the storm recovery 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 storm recovery bonds, and in that way may limit the liquidity and value of the storm recovery bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the storm recovery bonds.

Future state action could reduce the value of your investment in the storm recovery bonds.

Despite their pledges in the Securitization Act and the financing order, respectively, not to take or permit certain actions that would impair the value of the storm recovery property or the storm recovery charges, the Louisiana legislature might attempt to repeal or amend the Securitization Act in a manner that limits or alters the storm recovery property so as to reduce its value. For a description of the State of Louisiana’s pledge, please read “The Securitization Act-SWEPCO and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs” in this prospectus. As of the date of this prospectus, we are not aware of any pending legislation in the Louisiana legislature that would affect any provisions of the Securitization Act.

It might be possible for the Louisiana legislature to repeal or amend the Securitization Act notwithstanding the State of Louisiana’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 SWEPCO’s Louisiana Commission-jurisdictional area territories, or if such action or inaction otherwise is in the valid exercise of the State of Louisiana’s police power. Similarly, it might be possible for the Louisiana Commission to repeal or amend the financing order notwithstanding the Louisiana 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 storm recovery 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 storm recovery bonds.

Except as described in “The Sale Agreement —SWEPCO’s Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus, neither we, SWEPCO, 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 storm recovery bonds.

If an action of the Louisiana legislature or the Louisiana Commission adversely affecting the storm recovery property or the ability to collect storm recovery charges were considered a “taking” under the United States or Louisiana Constitutions, the State of Louisiana might be obligated to pay compensation in an amount equal to the estimated value of the storm recovery 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 storm recovery bonds or to offset interest lost pending such recovery.

 

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Nothing in the State of Louisiana’s or Louisiana 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 storm recovery charges collected pursuant to the financing order and of the holders of the storm recovery bonds. It is unclear what “full compensation” and “full protection” would be afforded to the holders of storm recovery bonds by the State of Louisiana or the Louisiana Commission if such limitation or alteration were attempted.

Unlike the citizens of some other states, the citizens of the State of Louisiana currently do not have the constitutional right to adopt or revise state laws by initiative or referendum. However, Louisiana citizens may vote to amend the Louisiana State Constitution through a majority vote on a state constitutional amendment included on the ballot by action of the Louisiana State Legislature. In order to place a state constitutional amendment on the ballot, a ballot measure on such a proposed amendment must be passed by a two-thirds majority vote by both houses of the Louisiana State Legislature during a single legislative session. Absent an amendment to the Louisiana Constitution, the Securitization Act cannot be amended or repealed by direct action of the electorate of the State of Louisiana.

The enforcement of any rights against the State of Louisiana or the Louisiana 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 Louisiana. 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 Louisiana or the Louisiana Commission may be sued, or limitations on awards or collection of damages.

The Louisiana Commission might attempt to take actions that could reduce the value of your investment in the storm recovery bonds.

The Securitization Act provides that for a financing order issued to create storm recovery property, the financing order must provide that the financing order is irrevocable and that the Louisiana Commission may not directly or indirectly, by any subsequent action, rescind or amend a financing order or reduce, alter or impair the storm recovery charges authorized under a financing order, except for the true-up adjustments to the storm recovery charges. In addition, pursuant to its constitutional plenary authority and the Securitization Act, the Louisiana 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 storm recovery charges. However, the Louisiana Commission retains the power to adopt, revise or rescind rules or regulations affecting SWEPCO or a successor utility. The Louisiana Commission also retains the power to interpret the financing order granted to SWEPCO, 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 Louisiana Commission might adversely affect the ability of the servicer to disconnect customers for nonpayment, assess late fees, impose deposit requirements or collect the storm recovery charges in full and on a timely basis, which may negatively impact the rating of the storm recovery bonds or their price and, accordingly, the amortization of the storm recovery bonds and their weighted average lives.

The servicer is required to file with the Louisiana Commission, on our behalf, certain periodic true-up adjustments of the storm recovery charges. The Louisiana Commission is obligated under the financing order to administratively approve the requested adjustment (including, if applicable, the correction of any mathematical error in such calculations) within 15 days of the date of the request for adjustment. Please read “SWEPCO’s Financing Order—True-Ups” and “—Adjustments to Allocation of Storm Recovery 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 storm recovery bonds. Also, any litigation might materially delay storm recovery 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 storm recovery bonds.

The servicer may not fulfill, or may be unsuccessful in any attempt to fulfill, its obligations to act on behalf of the storm recovery bondholders to protect bondholders from actions by the Louisiana Commission or the State of Louisiana.

The servicer will agree in the servicing agreement to take any action or proceeding reasonably necessary to compel performance by the Louisiana Commission and the State of Louisiana 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

 

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of the Securitization Act or the financing order or the rights of bondholders in the storm recovery 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 Louisiana Commission or the State of Louisiana could negatively affect bondholders’ rights and result in a loss of their investment in the storm recovery bonds.

A municipal entity may seek to acquire portions of SWEPCO’s electric distribution facilities and avoid payment of the storm recovery charges.

Louisiana law authorizes municipalities to seek to acquire portions of an electric utility’s electric 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 SWEPCO’s electric distribution facilities while the storm recovery bonds remain outstanding. The Securitization Act specifies that storm recovery charges approved by a financing order shall be collected by an electric utility as well as its “successors or assignees.” In the servicing agreement, SWEPCO has covenanted to assert in an appropriate forum that any municipality that acquires any portion of SWEPCO’s electric distribution facilities by expropriation, including upon the expiration of any franchise agreement, must be treated as a successor to SWEPCO under the Securitization Act and the financing order and that customers in such municipalities remain responsible for payment of storm recovery charges. However, the involved municipality might assert that it should not be treated as a successor to SWEPCO for these purposes and that its distribution customers are not responsible for payment of storm recovery charges. In any case, we cannot assure you that the storm recovery charges will be collected from customers of municipally owned utilities who were formerly customers of SWEPCO and that such an occurrence might not affect the timing or receipt of payments with respect to the storm recovery bonds.

SERVICING RISKS

Your investment in the storm recovery bonds depends on SWEPCO or its successor or assignee, acting as servicer of the storm recovery property.

SWEPCO, as initial servicer, will be responsible for, among other things, calculating, billing and collecting the storm recovery charges from its customers, submitting requests to the Louisiana Commission to adjust these charges, monitoring the collateral for the storm recovery bonds and taking certain actions in the event of non-payment by a customer. The trustee’s receipt of collections in respect of the storm recovery charges, which will be used to make payments on the storm recovery 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 storm recovery charge billings and collections, together with the regulations of the Louisiana Commission governing electric utilities such as SWEPCO 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 storm recovery charge collections for any reason, then the servicer’s payments to the trustee in respect of the storm recovery charges might be delayed or reduced. In that event, our payments on the storm recovery bonds might be delayed or reduced.

Inaccurate forecasting of, or changes in, base rate revenue or unanticipated delinquencies or write-offs might reduce scheduled payments on the storm recovery bonds.

The storm recovery charges are assessed and added to customer bills as a percentage of a customer’s base rate revenue. The amount and the rate of storm recovery charge collections will depend in part on actual electricity usage and the amount of collections and write-offs. If the servicer inaccurately forecasts base rate revenue or uses inaccurate customer delinquency or write-off data when setting or adjusting the storm recovery charges or if the Louisiana Commission subsequently decreases the rates and charges that make up SWEPCO’s base rate revenues, or if the effectiveness of the adjustments is delayed for any reason, there could be a shortfall or material delay in storm recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the storm recovery bonds. Please read “SWEPCO’s Financing Order—True-Ups” and “—Adjustments to Allocation of Storm Recovery Charges” in this prospectus.

 

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SWEPCO’s base revenue forecast is developed by applying the load forecast for each customer class, through the next budget year (typically only the first two years of the forecast horizon), to estimated price-load relationships. These price-load relationships are regression models that estimate class-level average base rate revenue realizations as a function of either monthly kWh consumption per customer (for the residential and commercial classes) or monthly kWh sales (for all other classes). The functions are estimated based on monthly data taken from SWEPCO’s billing system. While SWEPCO monitors the accuracy of its forecast by conducting variance analysis on a monthly basis while taking into account weather impacts on kWh sales and other deviations from such forecast within the customer count, inaccurate forecasting of base rate revenue by the servicer might result from, among other things, unanticipated weather or economic conditions, resulting in less base rate revenue than forecast using systematic patterns; general economic conditions causing customers to leave SWEPCO or reduce the base rate revenue from such customers; the occurrence of a natural disaster, such as a hurricane or winter storm, or an act of terrorism, cyberattack or other catastrophic event, including pandemics, unexpectedly disrupting electrical service and reducing base rate revenues and demand; changes in the market structure of the electric industry; customers consuming less electricity than anticipated because of increased energy prices, increased conservation efforts, economic conditions or unanticipated increases in electric usage efficiency; or customers unexpectedly switching to alternative sources of energy, including self-generation of electric power. Please read “The Depositor, Seller, Initial Service and Sponsor—Forecasting Base Rate Revenue” in this prospectus for additional information about SWEPCO’s base revenue forecast.

The servicer’s use of inaccurate delinquency or write-off rates might result also from, among other things, unexpected deterioration of the economy or the occurrence of a natural disaster or extreme weather, an act of terrorism, cyberattack or other catastrophic event or the unanticipated declaration of a moratorium on terminating electric service to customers in the event of any such occurrences, any of which would cause greater delinquencies or write-offs than expected or force SWEPCO to grant additional payment relief to more customers, or any other change in law that makes it more difficult for SWEPCO to terminate service to nonpaying customers or that requires SWEPCO to apply more lenient credit standards in accepting customers.

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

If SWEPCO ceases to service the storm recovery 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 Louisiana Commission approval. Also, any successor servicer might have less experience and ability than SWEPCO and might experience difficulties in collecting storm recovery charges and determining appropriate adjustments to the storm recovery 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 SWEPCO 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.

SWEPCO has entered into the SWEPCO Receivables Purchase Agreement and the corresponding SWEPCO Receivables Agency Agreement, and may enter in the future, financing arrangements involving the sale of its accounts receivable. With respect to the SWEPCO Receivables Purchase Agreement, such agreement will, upon the issuance of the storm recovery bonds, be subject to the intercreditor agreement described under “SWEPCO Storm Recovery Funding LLC, The Issuing Entity—Intercreditor Agreement.” SWEPCO will agree with us in the sale agreement that if it becomes a party to any future trade receivables purchase and sale arrangement or similar arrangement under which it sells all or any portion of its accounts receivables, or if SWEPCO hereafter causes storm recovery property or other

 

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similar property to be created under a separate financing order and acts as servicer for such storm recovery property, or similar property, consisting of non-bypassable charges payable by SWEPCO’s customers comparable to those sold by the seller pursuant to the sale agreement, in connection with a separate issuance of bonds, SWEPCO and the other parties to such arrangement shall enter into a joinder or amendment to the intercreditor agreement or into a separate intercreditor agreement in connection therewith and the terms the documentation evidencing such trade receivables purchase and sale arrangement or similar arrangement will expressly exclude the storm recovery charges from any receivables or other assets pledged or sold under such arrangement and the rating agency condition shall be satisfied. Although the storm recovery charges are not subject to such receivables financings, the storm recovery charges and accounts receivable are owed by the same customers, including those comprising the customer classes described herein and are expected to be collected for the foreseeable future under a single bill with respect to such customers. As required by the sale agreement, each intercreditor agreement will provide that, in the event the trustee has the right to replace SWEPCO as servicer or the investors have the right to replace SWEPCO as collection agent for the accounts receivable financing, the trustee (acting at the written direction of the holders of a majority in principal amount of the storm recovery bonds) and the investors’ agent will act jointly in the exercise of such rights and neither party will be entitled to replace SWEPCO under its agreement without the consent of the other party (which consent, in the case of the trustee, shall be at the written direction of the holders of a majority in principal amount of the storm recovery bonds). The intercreditor agreement, or any similar agreement executed after the issuance of the storm recovery bonds in accordance with the requirements of the sale agreement, may therefore make it more difficult for the trustee to replace SWEPCO following a servicer default. Conversely, if a default were to occur under the SWEPCO Receivables Agency Agreement or similar agreement executed by SWEPCO in the future, such a default may increase the possibility of SWEPCO being replaced as servicer under the servicing agreement, even if SWEPCO is not in default under the servicing agreement.

Changes to billing and collection practices might result in delays in collections which may reduce the value of your investment in the storm recovery bonds.

The financing order specifies the methodology for determining the amount of the storm recovery charges we may impose. The servicer may not change this methodology without approval from the Louisiana Commission. However, the servicer may set its own billing and collection arrangements with its customers, provided that these arrangements comply with the Louisiana 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 storm recovery charges. Also, the servicer may change billing and collection practices, which might adversely impact the timing and amount of customer payments and might reduce storm recovery charge collections, thereby limiting our ability to make scheduled payments on the storm recovery bonds. Separately, the Louisiana 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 storm recovery charges and adversely affect the value of your investment in the storm recovery bonds. Please read “The Depositor, Seller, Initial Servicer and Sponsor—Forecasting Base Rate Revenue” in this prospectus.

Consumer protection measures may limit the ability of SWEPCO to collect all charges owed by customers, including the storm recovery charges. In addition, the State legislature or the Louisiana Commission may take additional actions in response to a pandemic or other situation which may adversely affect the timing of storm recovery charge collections. For example, under its emergency powers, the State legislature or the Louisiana Commission could impose a moratorium on the payment of customer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana Commission, SWEPCO suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the Louisiana Commission issued an order ending the moratorium on disconnections effective July 16, 2020. SWEPCO resumed disconnections and late fees beginning October 1, 2020. Any such action could result in a shortfall or material delay in storm recovery charge collections, which in turn might result in missed or delayed payments of principal and interest, lengthened weighted average life of the storm recovery bonds and downgrade of the credit ratings on the storm recovery bonds.

 

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In addition, any future pandemic may impact the ability of SWEPCO to maintain operations at the same level as it was able prior to the pandemic. For instance, a large portion of SWEPCO’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 any future pandemic. Such potential impacts may limit the ability of SWEPCO to bill and collect the storm recovery charges.

Limits on rights to terminate service might make it more difficult to collect the storm recovery charges.

If SWEPCO, as the servicer, is billing customers for storm recovery charges, it may terminate service to the customer for non-payment of storm recovery charges pursuant to the applicable rules of the Louisiana Commission. Nonetheless, the rules and regulations of the Louisiana Commission, which may change from time to time, regulate and control the right to disconnect service. For example, electric utilities generally may not terminate service to a customer (i) on a holiday or weekend day, (ii) during certain extreme weather conditions or (iii) during a federal government shutdown who timely provides proof that such customer is a federal government employee whose pay is suspended. To the extent these customers do not pay for their electric service, SWEPCO will not be able to collect storm recovery charges from these customers.

In addition, SWEPCO may be limited in the future in its ability to terminate service or collect storm recovery charges. The Louisiana Commission, in response to a federal mandate or otherwise, could impose restrictions on the rates SWEPCO charges to provide its services, including the inability to implement approved rates, or delay actions with respect to SWEPCO’s base rate case and filings. For example, under its emergency powers, the State legislature or the Louisiana Commission could impose a moratorium on the payment of customer bills. Beginning on March 13, 2020, and as a result of an executive order of the Louisiana Commission, SWEPCO suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the Louisiana Commission issued an order ending the moratorium on disconnections effective July 16, 2020. SWEPCO resumed disconnections and late fees beginning October 1, 2020.

If the servicer enters bankruptcy proceedings, the remittance of storm recovery charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the storm recovery 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 or intercreditor 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 storm recovery 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 storm recovery charges would be increased through the statutory true-up mechanism to recover such amount, though this would not eliminate the risk of payment delays or losses on your investment in the storm recovery bonds.

STORM-RELATED RISKS

Storm damage to SWEPCO’s service territories could impair payment of the storm recovery bonds.

SWEPCO’s service territories were impacted by hurricanes in 2020 and 2021, as well as a winter storm in 2021 and severe storms in 2023. Transmission, distribution and usage of electricity could be interrupted temporarily, reducing the collections of storm recovery charges. There could be longer-lasting weather-related adverse effects on residential

 

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and commercial development and economic activity in SWEPCO’s service territories, which could cause the per-kWh storm recovery charge to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as violative of the State of Louisiana’s or the Louisiana Commission’s pledge, might be defended on the basis of public necessity. Please read “The Securitization Act—SWEPCO and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs—State and Louisiana Commission Pledges” and “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state action could reduce the value of your investment in the storm recovery bonds” in this prospectus.

RISKS ASSOCIATED WITH THE UNUSUAL NATURE OF THE STORM RECOVERY PROPERTY

Future adjustments to storm recovery charges by customer class might result in insufficient collection.

The customers who pay the storm recovery charges are divided into customer classes. Storm recovery charges will be allocated among customer classes and assessed in accordance with the formula specified in the financing order.

A shortfall in the collections of storm recovery charges in one customer class may be corrected by making adjustments to the storm recovery charges payable by that customer class and any other customer class; provided that storm recovery charges that the financing order allocates to distribution function customers may not be allocated to transmission customers. Accordingly, if enough customers in a customer class fail to pay storm recovery charges or cease to be customers, the servicer might have to substantially increase the storm recovery charges for the remaining customers in that customer class and for other customer classes (subject to such restriction on allocations to transmission customers). These increases could lead to further unanticipated failures by the remaining customers to pay storm recovery charges, thereby increasing the risk of a shortfall in funds to pay interest and principal on the storm recovery bonds.

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

Under the Securitization Act and the indenture, the trustee or the storm recovery bondholders have the right to foreclose or otherwise enforce the lien on the storm recovery property securing the storm recovery bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of the storm recovery bonds will be due and payable upon acceleration of the storm recovery bonds before maturity, storm recovery charges likely would not be accelerated and the nature of our business will result in the principal of the storm recovery bonds being paid as funds become available. If there is an acceleration of the storm recovery bonds, all outstanding tranches of the storm recovery bonds will be paid pro rata; therefore, some tranches might be paid earlier than expected and some tranches might be paid later than expected.

 

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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.

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

The servicer will be required to remit collections to the trustee on our behalf each business day based on estimated daily collections, using a weighted average balance of days outstanding on SWEPCO’s retail bills. The servicer will not segregate the storm recovery charges from the other funds it collects from customers or its general funds. The storm recovery 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 storm recovery 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 storm recovery charge collections available to make payments on the storm recovery bonds.

The Securitization Act provides that the priority of a security interest perfected in storm recovery property is not impaired by the commingling of the funds arising from storm recovery 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 storm recovery charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the storm recovery charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owed on the storm recovery 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 storm recovery bonds and could materially reduce the value of your investment in the storm recovery bonds. Please read “How a Bankruptcy May Affect Your Investment” in this prospectus.

The bankruptcy of SWEPCO might result in losses or delays in payments on the storm recovery bonds.

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

 

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

 

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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 storm recovery charges that customers do not yet owe,

 

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

 

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a transfer of the storm recovery 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 storm recovery property and not a pledge of the storm recovery 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 storm recovery bonds in accordance with their terms during any bankruptcy of SWEPCO. In addition, the transaction has been structured with the objective of keeping us legally separate from SWEPCO and its affiliates in the event of a bankruptcy of SWEPCO or any such affiliates.

 

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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 SWEPCO 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 storm recovery bonds might be similar to the treatment you would receive in a SWEPCO bankruptcy if the storm recovery bonds had been issued directly by SWEPCO. A decision by the bankruptcy court that, despite our separateness from SWEPCO, our assets and liabilities and those of SWEPCO should be consolidated would have a similar effect on you as a bondholder.

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

 

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

 

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the bankruptcy court might order the trustee to exchange the storm recovery property for other property, of lower value;

 

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tax or other government liens on SWEPCO’s property might have priority over the trustee’s lien and might be paid from collected storm recovery charges before payments on the storm recovery bonds;

 

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the trustee’s lien might not be properly perfected in the collected storm recovery property collections prior to or as of the date of SWEPCO’s bankruptcy, with the result that the storm recovery bonds would represent only general unsecured claims against SWEPCO;

 

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the bankruptcy court might rule that neither our property interest nor the trustee’s lien extends to storm recovery charges in respect of electricity consumed after the commencement of SWEPCO’s bankruptcy case, with the result that the storm recovery bonds would represent only general unsecured claims against SWEPCO;

 

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we and SWEPCO might be relieved of any obligation to make any payments on the storm recovery 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;

 

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SWEPCO might be able to alter the terms of the storm recovery bonds as part of its plan of reorganization;

 

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the bankruptcy court might rule that the storm recovery charges should be used to pay, or that we should be charged for, a portion of the cost of providing electric service;

 

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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 SWEPCO that may be difficult to prove or, if proven, to collect in full;

 

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

 

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

 

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•

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

Please read “How a Bankruptcy May Affect Your Investment.”

The sale of the storm recovery property might be construed as a financing and not a sale in a case of SWEPCO’s bankruptcy which might delay or limit payments on the storm recovery bonds.

The Securitization Act provides that the characterization of a transfer of storm recovery 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 SWEPCO 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 SWEPCO, a party in interest in the bankruptcy might assert that the sale of the storm recovery 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 SWEPCO in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against SWEPCO. See “— The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the storm recovery bonds” above. Even if we had a security interest in the storm recovery property, we would not likely have access to the related storm recovery 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 storm recovery 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 storm recovery charge collections and therefore the amount and timing of funds available to us to pay storm recovery bondholders.

If the servicer enters bankruptcy proceedings, the remittance of certain storm recovery 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 storm recovery 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 voidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that storm recovery 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 voidable 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 storm recovery 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 storm recovery bonds.

Claims against SWEPCO might be limited in the event of a bankruptcy of the seller.

If the seller 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 would 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 the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A party in interest in the bankruptcy of SWEPCO, as the seller, 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 the seller

 

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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 SWEPCO.

The bankruptcy of SWEPCO might limit the remedies available to the trustee.

Upon an event of default for the storm recovery bonds under the indenture, the Securitization Act permits the trustee to enforce the security interest in the storm recovery property in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the 19th Judicial District Court of Louisiana to order the sequestration and payment to all storm recovery bondholders of all revenues arising with respect to the related storm recovery property. There can be no assurance, however, that the 19th Judicial District Court of Louisiana would issue this order after a SWEPCO 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 Louisiana court, and an order requiring an accounting and segregation of the revenues arising from the storm recovery property. There can be no assurance that a court would grant either order.

OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE STORM RECOVERY BONDS

SWEPCO’s indemnification obligations under the sale agreement and the servicing agreement are limited and might not be sufficient to protect your investment in the storm recovery bonds.

SWEPCO is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the storm recovery bondholders, only in specified circumstances and will not be obligated to repurchase any storm recovery property in the event of a breach of any of its representations, warranties or covenants regarding the storm recovery property. Similarly, SWEPCO is obligated under the servicing agreement to indemnify us, the independent managers and the trustee, for itself and on behalf of the storm recovery bondholders only in specified circumstances. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus.

Neither the trustee nor the storm recovery bondholders will have the right to accelerate payments on the storm recovery bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture governing the storm recovery bonds as described in “Description of the Storm Recovery Bonds-What Constitutes an Event of Default on the Storm Recovery Bonds.” Furthermore, SWEPCO might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by SWEPCO might not be sufficient for you to recover all of your investment in the storm recovery bonds. In addition, if SWEPCO becomes obligated to indemnify storm recovery bondholders, the ratings on the storm recovery bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that storm recovery bondholders will be unsecured creditors of SWEPCO with respect to any of these indemnification amounts. SWEPCO 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 storm recovery bonds, or for any consequential damages, including any loss of market value of the storm recovery bonds resulting from a default or a downgrade of the ratings of the storm recovery bonds. Please read “The Sale Agreement—SWEPCO’s Representations and Warranties” and “—SWEPCO’s Obligation to Indemnify Us and the Trustee and to Take Legal Action” in this prospectus.

The credit ratings are no indication of the expected rate of payment of principal on the storm recovery bonds.

We expect that the storm recovery bonds will receive credit ratings from at least two nationally recognized statistical rating organizations (“NRSRO”). A rating is not a recommendation to buy, sell or hold the storm recovery bonds. The ratings merely analyze the probability that we will repay the total principal amount of the storm recovery 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.

 

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Under Rule 17g-5 of the Exchange Act, NRSROs providing SWEPCO, as the sponsor, with the requisite certification will have access to all information posted on a website by SWEPCO for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the storm recovery bonds. As a result, an NRSRO other than the NRSRO hired by SWEPCO (the “hired NRSRO”) may issue ratings on the storm recovery 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 storm recovery bonds. Issuance of any Unsolicited Rating will not affect the issuance of the storm recovery bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSRO on the storm recovery bonds might adversely affect the value of the storm recovery bonds and, for regulated entities, could affect the status of the storm recovery bonds as a legal investment or the capital treatment of the storm recovery bonds. Investors in the storm recovery 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 SWEPCO, us, the underwriters or any of 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 SWEPCO 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 storm recovery bonds, a hired NRSRO could withdraw its ratings on the storm recovery bonds, which could adversely affect the market value of the storm recovery bonds and/or limit your ability to resell the storm recovery bonds.

The storm recovery bonds’ credit ratings might affect the market value of the storm recovery bonds.

A downgrading of the credit ratings on the storm recovery bonds might have an adverse effect on the market value of the storm recovery bonds. Credit ratings may change at any time. A NRSRO has the authority to revise or withdraw its rating based solely upon its own judgment.

Alternatives to purchasing electricity through SWEPCO’s distribution facilities may be more widely utilized by customers in the future.

Broader use of distributed generation by SWEPCO’s customers may result from customers’ changing perceptions of the merits of utilizing existing generation technology or from technological developments resulting in smaller-scale, more fuel efficient, more environmentally friendly and/or more cost effective distributed generation. Storm recovery charges, which generally are base rate revenue-based, are applied to all existing and future Louisiana Commission-jurisdictional area customers who remain attached to SWEPCO’s (or its successor’s or assignee’s) electric transmission or distribution lines, and who, via such lines, receive any type service from SWEPCO (or its successor or assignee) under rate schedules or special contracts approved by the Louisiana Commission. Storm recovery charges will not be imposed on customers who do not receive transmission or distribution services from SWEPCO. Any customer who self-generates or co-generates electricity will be assessed storm recovery charges based upon the total firm and standby load served by SWEPCO. Technological developments and/or more widespread use of distributed generation might allow greater numbers of customers to reduce or eliminate their payment of storm recovery charges.

The absence of a secondary market for the storm recovery bonds might limit your ability to resell the storm recovery bonds.

The underwriters for the storm recovery bonds might assist in resales of the storm recovery bonds, but they are not required to do so. A secondary market for the storm recovery 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 storm recovery bonds. We do not anticipate that the storm recovery bonds will be listed on any securities exchange. Please read “Plan of Distribution” in this prospectus.

 

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You might receive principal payments for the storm recovery bonds later than you expect.

The amount and the rate of collection of the storm recovery charges for the storm recovery bonds, together with the related storm recovery charge adjustments, will generally determine whether there is a delay in the scheduled repayments of the storm recovery bonds principal. If the servicer collects the storm recovery charges at a slower rate than expected, it might have to request adjustments of the storm recovery 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 such tranche of storm recovery bonds. Please read “Description of the Storm Recovery Bonds” in this prospectus.

SWEPCO may cause the issuance, by another subsidiary or affiliated entity, of additional storm recovery bonds secured by additional storm recovery property that includes a nonbypassable charge on customers.

Any new issuance of storm recovery bonds by another subsidiary or affiliated entity of SWEPCO may include terms and provisions that would be unique to that particular issuance. SWEPCO has covenanted in the sale agreement that the satisfaction of the rating agency condition and the execution and delivery of an amendment or possible joinder to the intercreditor agreement are conditions precedent to the sale of additional storm recovery property or similar property consisting of nonbypassable charges payable by customers comparable to the storm recovery property to another subsidiary or affiliated entity. Please read “Sale Agreement—Covenants of the Seller” in this prospectus.

In the event a customer does not pay in full all amounts owed under any bill, including storm recovery charges, SWEPCO, as servicer, is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owed in respect of the storm recovery bonds, and amounts owed in respect of additional storm recovery bonds. However, if a dispute arises with respect to the allocation of such storm recovery charges or other delays occur on account of the administrative burdens of making such allocation, we cannot assure you that any new issuance of storm recovery bonds by another subsidiary or affiliated entity of SWEPCO would not cause reductions or delays in payment of principal and interest on your storm recovery bonds.

SWEPCO’s operations are subject to risks beyond its control, including cyber-security intrusions, terrorist attacks or other catastrophic events, which could limit SWEPCO’s operations and ability to service the storm recovery property.

SWEPCO operates in an industry that requires the use of sophisticated information technology systems and network infrastructure, which control an interconnected system of generation, distribution, and transmission systems shared with third parties. SWEPCO’s continued efforts to integrate, consolidate, and streamline its operations have also resulted in increased reliance on current and recently completed projects for technology systems, including but not limited to, a customer information and billing system, automated meter reading systems, and other similar technological tools and initiatives.

SWEPCO has been subject to attempted cyberattacks from time to time, but these attacks have not had a material impact on its system or business operations. A successful physical or cyber-security intrusion may occur despite SWEPCO’s security measures or those that it requires its vendors to take, which include compliance with reliability standards and critical infrastructure protection standards. Despite the implementation of security measures, all assets and systems are potentially vulnerable to disability, failures, or unauthorized access due to physical or cyber-security intrusions caused by human error, vendor bugs, terrorist attacks, or other malicious acts. If SWEPCO’s assets or systems were to fail, be physically damaged, or be breached, and were not recovered in a timely manner, SWEPCO may be unable to perform critical business functions, including the distribution of electricity and the metering and billing of customers, all of which could materially affect SWEPCO’s ability to bill and collect storm recovery charges or otherwise service the storm recovery property.

 

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If the investment of collected storm recovery 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 storm recovery 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 money market funds having a rating from Moody’s and S&P of “Aaa-mf” and “AAAm,” respectively. Although investments in these money market funds have traditionally been viewed as highly liquid with a low probability of principal loss, illiquidity and principal losses have been experienced by investors in certain of these funds 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 storm recovery bonds and a decrease in the value of your investment in the storm recovery bonds.

Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the storm recovery bonds.

Investors should be aware, and in some cases are required to be aware, of certain restrictions and obligations with regard to any securitisation (as such term is defined for purposes of the relevant legislation) imposed:

 

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in the European Union (“EU”), pursuant to Regulation (EU) 2017/2402 (as amended, the “EU Securitization Regulation”);

 

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in the non-EU member states of the European Economic Area (“EEA”), pursuant to the EU Securitization Regulation, to the extent (if at all) implemented or applicable in such member states; and

 

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in the United Kingdom (“UK”), pursuant to Regulation (EU) 2017/2402, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended, the “EUWA”) and as amended (including by the Securitisation (Amendment) (EU Exit) Regulations 2019) (the “UK Securitization Regulation”).

The EU Securitization Regulation imposes certain requirements (the “EU Investor Requirements”) with respect to “institutional investors” (as such term is defined for purposes of the EU Securitization Regulation), being: (a) insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC; (b) subject to certain exceptions, institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341, 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 management companies as defined in that Directive; and (e) credit institutions and investment firms as defined in Regulation (EU) No 575/2013 (as amended, the “EU CRR”) (and, in addition, the EU CRR makes provision as to the application of the EU Investor Requirements to certain consolidated affiliates, wherever established or located, of entities that are subject to the EU CRR).

The UK Securitization Regulation imposes certain requirements (the “UK Investor Requirements”) with respect to “institutional investors” (as such term is defined for purposes of the UK Securitization Regulation), being: (a) insurance undertakings and reinsurance undertakings as defined in the Financial Services and Markets Act 2000 (as amended, the “FSMA”); (b) occupational pension schemes as defined in the Pension Schemes Act 1993 that have their main administration in the UK, and certain fund managers of such schemes; (c) AIFMs as defined in the Alternative Investment Fund Managers Regulations 2013 which market or manage AIFs (as defined in such Regulations) in the UK; (d) UCITS as defined in the FSMA, which are authorized open ended investment companies as defined in the FSMA, and management companies as defined in the FSMA; (e) CRR firms as defined in Regulation (EU) No 575/2013, as it forms part of UK domestic law by virtue of the EUWA and as amended (the “UK CRR”); and (f) FCA investment firms as defined in the UK CRR (and, in addition, the UK CRR makes provision as to the application of the UK Investor Requirements to certain consolidated affiliates, wherever established or located, of entities that are subject to the UK CRR).

 

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Any person subject to the EU Investor Requirements or the UK Investor Requirements (an “SR Investor”) is required (amongst other things), prior to investing in a securitization, to verify certain matters, including 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 in the securitization which, in any event, will not be less than 5%, in accordance with the EU Securitization Regulation or the UK Securitization Regulation (as applicable to the relevant SR Investor), and discloses that risk retention, and (c) the originator, sponsor or securitization special purpose entity has, where applicable, made available information in accordance with the EU Securitization Regulation or the UK Securitization Regulation (as applicable).

Failure by an SR Investor to comply with the EU Securitization Regulation or the UK Securitization Regulation (as applicable) with respect to an investment in the storm recovery bonds may (in the case of an SR Investor that is subject to regulatory capital requirements) result in the imposition of a penalty regulatory capital charge on that investment, and may (in any case) result in other regulatory sanctions being imposed or corrective action being required.

Neither we nor SWEPCO nor any other party to the transactions described in this prospectus, intends, at any time, to retain a material net economic interest in such transactions, or to take any other action with regard to such transactions, in a manner prescribed or contemplated by the EU Securitization Regulation or the UK Securitization Regulation. In particular, no such party undertakes to take any action, or refrain from taking any action, for purposes of, or in connection with, compliance by any prospective investor (or any other Person) with any applicable requirement thereof.

Consequently, the storm recovery bonds may not be a suitable investment for an SR Investor. As a result, the price and liquidity of the storm recovery bonds in the secondary market may be adversely affected.

It is expected that, with effect from November 1, 2024, the UK Securitization Regulation and certain related measures will be repealed, and certain new laws, rules and guidance (the “Future UK Securitization Rules”) will be implemented. The scope and requirements of the Future UK Securitization Rules will be broadly similar to those of the UK Securitization Regulation and grandfathering such related measures, but there will be differences between the two regimes, some of which may be significant for affected parties. The Future UK Securitization Rules will (amongst other things) make provision with regard to the “” of any securitization in respect of which the securities were issued during the period from January 1, 2019 to October 31, 2024 (inclusive), such that, to the extent (and subject to the conditions) specified in the Future UK Securitization Rules, the relevant securitization will continue to be subject to the UK Securitization Regulation and the applicable related measures, notwithstanding their repeal.

Neither we nor SWEPCO, nor any other party to the transactions described in this prospectus, intends, at any time, to take any action in respect of such transactions for purposes of, or in connection with, any Person’s compliance with any Future UK Securitization Rules.

Prospective investors are responsible for analyzing their own legal and regulatory position and should consult with their own advisors and any relevant regulator or other authority, and make their own assessment, regarding the suitability of the storm recovery bonds for investment, and, in particular, the scope and applicability of the EU Securitization Regulation and the UK Securitization Regulation and any equivalent or similar requirements (including the Future UK Securitization Rules) and their compliance (where applicable) with any requirement thereof.

REVIEW OF STORM RECOVERY PROPERTY

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

The storm recovery bonds will be secured under the indenture by the indenture’s trust estate. The principal asset of the indenture’s trust estate is the storm recovery property. The storm recovery property is a present contract right authorized and created pursuant to the securitization provisions of the Securitization Act and an irrevocable financing order. The storm recovery property includes the irrevocable right to impose, bill, charge, collect and receive

 

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nonbypassable storm recovery charges in amounts sufficient to pay scheduled principal and interest and ongoing financing costs in connection with the storm recovery bonds, but excludes the Retained Rights of SWEPCO. The storm recovery charges are payable by all existing and future Louisiana Commission-jurisdictional area customers who remain attached to SWEPCO’s (or its successor’s or assignee’s) electric transmission and distribution lines and who, via such lines and subject to certain limitations specified in the securitization provisions of the Securitization Act and the financing order, receive any type of service from SWEPCO (or its successor) under rate schedules or special contracts approved by the Louisiana Commission. Storm recovery charges will be added to each customer’s bill as an adjustment which will be calculated as a percentage of the customer’s base rate revenue for the financing of storm recovery costs, storm damage reserve costs and financing costs. During the twelve months ended December 31, 2023, approximately 46% of SWEPCO’s total deliveries in the Louisiana Commission-jurisdictional area were to residential customers, approximately 36% were to commercial / small industrial customers and approximately 18% were to industrial customers. During the twelve months end December 31, 2023, approximately 96% were to retail customers at distribution voltage and 4% were to customers at transmission voltage. During the twelve months ended December 31, 2023, municipal-specific rate codes comprised approximately 2% of SWEPCO’s total retail electric revenues in the Louisiana Commission-jurisdictional area.

The storm recovery property is not a static pool of receivables or assets. Storm recovery charges authorized in the financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Louisiana Commission except that storm recovery charges are subject to semi-annual true-up adjustments to correct over-collections or under-collections, interim true-up adjustments to correct for under-collections and to provide the expected recovery of amounts sufficient to timely provide all scheduled payments of debt service and other required amounts and charges in connection with the storm recovery bonds. There is no “cap” on the level of storm recovery charges that may be imposed on electricity customers to meet scheduled principal of and interest on the storm recovery bonds. All revenues and collections resulting from storm recovery charges provided for in the financing order are part of the storm recovery property. The storm recovery property is described in more detail under “Description of the Storm Recovery Property” in this prospectus.

In the financing order, the Louisiana Commission, among other things:

 

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orders that SWEPCO, as servicer, shall impose and collect from all Louisiana Commission-jurisdictional area customers required to pay or collect storm recovery charges under the financing order, storm recovery charges in an amount sufficient to provide for the timely recovery of our costs approved in the financing order (including payment of principal and interest on the storm recovery bonds and all other financing costs related to the storm recovery bonds on a timely basis),

 

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orders that upon the transfer of the storm recovery property to us by SWEPCO, we shall be the owner of the rights to the storm recovery property and that SWEPCO as servicer is merely the collection agent for us, and

 

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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 storm recovery charge revenues are sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all other financing costs.

Please read “The Securitization Act” and “SWEPCO’s Financing Order” in this prospectus for more information.

The characteristics of storm recovery property are unlike the characteristics of assets underlying mortgage and other commercial asset securitizations because storm recovery property is a creature of statute and state regulatory commission proceedings. Because the nature and characteristics of the storm recovery property and many elements of the storm recovery bonds securitization are set forth and constrained by the securitization provisions of the Securitization Act, SWEPCO, as sponsor, does not select the assets to be securitized in ways common to many securitizations. Moreover, the storm recovery 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 Louisiana Commission require the imposition on, and collection of storm recovery charges from, all existing and future electric customers located within the Louisiana Commission-jurisdictional area. Since the storm recovery charges are assessed against all such customers and the true-up adjustment mechanism adjusts for the impact of customer defaults, the collectability of the storm recovery charges is not ultimately dependent upon the credit quality of particular SWEPCO customers, as would be the case in the absence of the true-up adjustment mechanism.

 

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The review by SWEPCO of the storm recovery property underlying the storm recovery bonds has involved a number of discrete steps and elements as described in more detail below. First, SWEPCO has analyzed and applied the securitization provisions of the Securitization Act’s requirements for securitization of storm recovery costs in seeking approval of the Louisiana Commission for the issuance of the financing order and in its application for a financing order with respect to the characteristics of the storm recovery property to be created pursuant to the financing order. SWEPCO worked with its counsel in preparing the application for a financing order and with the Louisiana Commission on the terms of the financing order. Moreover, SWEPCO worked with its counsel and counsel to the underwriters in preparing the legal agreements that provide for the terms of the storm recovery bonds and the security for the storm recovery bonds. SWEPCO has analyzed economic issues and practical issues for the scheduled payment of the storm recovery bonds.

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

 

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reviewed the securitization provisions of the Securitization Act, the rules and regulations of the Louisiana Commission as they relate to the storm recovery property in connection with the preparation and filing of the application with the Louisiana 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;

 

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actively participated in the proceeding before the Louisiana Commission relating to the approval of the requested financing order;

 

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compared the financing order, as issued by the Louisiana Commission, to the securitization provisions of the Securitization Act and the rules and regulations of the Louisiana Commission as they relate to the storm recovery property to confirm that the financing order met such requirements;

 

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compared the proposed terms of the storm recovery bonds to the applicable requirements in the securitization provisions of the Securitization Act, the financing order and the regulations of the Louisiana Commission to confirm that they met such requirements;

 

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prepared and reviewed the agreements to be entered into in connection with the issuance of the storm recovery 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 Louisiana Commission to confirm that they met such requirements;

 

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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 storm recovery 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;

 

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

 

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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 storm recovery charges to be provided for under the storm recovery property, forecasting storm recovery charge revenues, preparing and filing applications for true-up adjustments to the storm recovery charges and enforcing credit standards;

 

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reviewed the operation of the true-up mechanism for adjusting storm recovery charge levels to meet the scheduled payments on the storm recovery bonds; and

 

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with the assistance of the underwriters, prepared financial models in order to set the initial storm recovery charges to be provided for under the storm recovery property at a level sufficient to pay on a timely basis scheduled principal and interest on the storm recovery bonds.

In connection with the preparation of such models, SWEPCO:

 

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reviewed (i) the historical electric usage and customer growth within SWEPCO’s customer base and (ii) forecasts of expected energy sales and customer growth; and

 

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analyzed the sensitivity of the weighted average life of the storm recovery bonds in relation to variances in actual electricity consumption levels (electric sales at distribution voltage) from forecasted levels and in relation to the true-up mechanism in order to assess the probability that the weighted average life of the storm recovery 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 storm recovery charges to address under- or over-collections in light of scheduled payments on the storm recovery bonds.

As a result of this review, SWEPCO has concluded that:

 

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

 

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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 storm recovery bonds is as of its date, accurate in all material respects;

 

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

 

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storm recovery 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 storm recovery bonds; and

 

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the design and scope of SWEPCO’s review of the storm recovery property as described above is effective to provide reasonable assurance that the disclosure regarding the storm recovery property in this prospectus is accurate in all material respects.

DESCRIPTION OF THE STORM RECOVERY PROPERTY

Creation of Storm Recovery Property; Financing Order

The Securitization Act defines storm recovery property as the rights and interests of an electric utility or successor or assignee of the electric utility under a financing order, including the right to impose, bill, charge, collect and receive storm recovery charges authorized in the financing order and to obtain periodic adjustments to such charges as may be provided in the financing order. The storm recovery bonds will be secured by the storm recovery property, as well as the other collateral described under “Description of the Storm Recovery Bonds—The Security for the Storm Recovery Bonds.”

 

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In addition to the right to impose, bill, charge, collect and receive storm recovery charges, the financing order:

 

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authorizes the transfer of the storm recovery property to us and the issuance of storm recovery bonds;

 

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establishes procedures for periodic true-up adjustments to storm recovery charges in the event of over-collection or under-collection and interim true-up adjustments if the servicer forecast insufficient storm recovery charge collections; and

 

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provides and pledges that after the earlier of the transfer of the storm recovery property to an assignee or the issuance of storm recovery 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 Louisiana Commission (except for the true-up mechanism adopted by the Louisiana Commission or in connection with a refinancing or refunding; provided, however, that for the avoidance of any doubt we do not have the right to redeem the storm recovery bonds before their scheduled maturity date).

A form of issuance advice letter and a form of rate schedule rider are attached to the financing order. We will complete and file both documents with the Louisiana Commission immediately after the pricing of the storm recovery bonds. The issuance advice letter confirms to the Louisiana Commission the interest rate and expected sinking fund schedule for the storm recovery bonds and sets forth the actual dollar amount of the initial storm recovery charges as described below under “SWEPCO’s Financing Order—Issuance Advice Letter.” The Louisiana Commission’s review of the issuance advice letter will be limited to determining that the final structuring, terms and pricing of the storm recovery bonds are consistent with the criteria established in the financing order and that the mathematical calculations are accurate.

Rate Schedule Rider; Storm Recovery Charges

The rate schedule rider establishes the initial storm recovery charges. It also implements the procedures for periodic adjustments to the storm recovery charges, the payment of storm recovery charges and the semi-annual procedures allowing SWEPCO as servicer to reconcile the amount of storm recovery charges remittances with the periodic payment requirement.

The storm recovery charges will be payable by all existing and future Louisiana Commission-jurisdictional area customers who remain attached to SWEPCO’s (or its successor’s or assignee’s) electric transmission or distribution lines, and who, via such lines, receive any type of service from SWEPCO (or its successor or assignee) under rate schedules or special contracts approved by the Louisiana Commission.

For purposes of billing storm recovery charges, each customer will be designated as a customer belonging to one of the storm recovery charge customer classes set forth below split among the transmission and distribution functions. In accordance with the financing order there will be a blended 17.7% transmission allocation and a blended 82.3% distribution allocation, with the customer class allocations within each function updated with future base rate proceedings without modifying the allocation between the transmission function and the distribution function. Under the terms of the financing order, SWEPCO will initially allocate the storm recovery charges among the storm recovery charge customer classes as follows:

Storm Recovery Charge Customer Classes

 

 

Customer Class		Transmission Function (17.7%)				Distribution Function (82.3%)
Residential			55.08	%			56.67	%
Commercial / Small Industrial			41.76	%			40.11	%
Transmission			2.10	%			0.00	%
Municipal			1.00	%			1.20	%
Lighting			0.05	%			2.01	%
Total*			100.00	%			100.00	%

 

*	Totals may not add up due to rounding.

 

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The financing order provides that, if updated customer class allocation factors are approved by the Louisiana Commission in a future base rate proceeding, the functional customer class allocation factors will be updated in the subsequent rate schedule rider factor filing following the base rate case final order. Base rate revenue includes all retail base rate revenues with the exception of revenues associated with miscellaneous services, fees, fuel costs and facility rentals. Facilities charges paid by customers taking service in accordance with lighting rates providing for such charges will be considered base rate revenues.

The nonbypassable charge applicable to each storm recovery charge customer class for any period will be determined based on the allocation percentage of such class and the periodic billing requirement, which includes the amount necessary to make payments on the storm recovery bonds for the related period, and the most recent annual base revenue forecast. The periodic billing requirement represents the aggregate dollar amount of the storm recovery charges that must be billed so that the projected storm recovery charge collections will be timely and sufficient to meet the entire aggregate periodic payment requirement for that period, based upon: (i) forecast usage data for the period; (ii) forecast uncollectibles for the period; and (iii) forecast lags in collection of billed storm recovery charges for the period. In the true-up process, the over- or under-collection from any prior period will be added to or subtracted from, as the case may be, the periodic billing requirement for the upcoming period. The transmission customer class, all of which take service at transmission voltage, shall be allocated none of the 82.3% distribution portion of the periodic billing requirements.

The true-up adjustment methodology approved in the financing order requires that any delinquencies or under-collections in one customer class will be taken into account in the application of the true-up mechanism to adjust the storm recovery charges for all customers, not just the class of customers from which the delinquency or under-collection arose.

The storm recovery charges will be calculated as a percentage of each customer’s base rate revenue for all of the financing of storm recovery costs, storm damage reserve costs and financing costs. The percentage of the total bill received by an average customer that such storm recovery charges represent, is set forth below. These storm recovery charges will be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Louisiana Commission.

The initial storm recovery charge would represent approximately   % of the total bill for a typical 1,000 kWh/month Louisiana Commission-jurisdictional area residential customer as of June 30, 2024.

Billing and Collection Terms and Conditions

SWEPCO bills its customers, on average, every business day based on a 21 day cycle calendar. Residential and most commercial customers are billed in established cycles, with the total number of days between meter readings ranging from 28 to 30 days. Commercial and industrial customers with more complex billing arrangements (normally dictated by contractual terms) are manually billed on a calendar month basis.

Storm recovery charges for customers choosing to self-generate or co-generate will be assessed based on the total amount, in the aggregate, of their firm and standby load served by SWEPCO. Customers utilizing standby service will continue to pay a proportional share of the storm recovery charges, which will include a customer component so that even accounts which may for various reasons require no energy usage on a monthly basis will contribute to the collection of storm recovery charges.

Storm recovery charges will be collected by the servicer. Storm recovery charges will be deposited by the servicer into the collection account under the terms of the indenture and the servicing agreement. The servicer will deposit in the collection accounts payments of storm recovery charges each business day based on estimated daily collections (subject to subsequent reconciliation with actual customer receipts) in accordance with the procedures described below under “The Servicing Agreement —Remittances to Collection Account.”

 

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So long as the intercreditor agreement is in effect, SWEPCO will allocate, or cause to be allocated, amounts owed to us and the other recipients of remittances described therein in accordance with the terms of the intercreditor agreement. Any amounts collected by SWEPCO that represent partial payments of, (A) if the intercreditor agreement remains in effect, the portion of the customer bill allocable to storm recovery charges pursuant to the terms of the intercreditor agreement, or (B) otherwise, the amount paid by a customer will be applied to all charges on such customer’s bill, including without limitation electric service charges and all storm recovery charges (under the financing order or future financing orders) and all similar securitization charges, based, as to a bill with charges covering more than one month, on the chronological order of billing, and, as to those charges with the same billing date, on a pro-rata basis. In addition, subject to any applicable intercreditor agreement, in the event SWEPCO sponsors future offerings of storm recovery bonds or other securitization bonds, partial collections representing storm recovery charges and any other similar securitization charges shall be allocated among all such securitization bonds on a pro-rata basis based upon the amounts billed with respect to each issuance of securitization bonds, provided that late fees and charges may be allocated to the servicer as provided in the rate schedule rider.

THE SECURITIZATION ACT

Overview

In May 2006, the Louisiana Legislature established the Louisiana Electric Utility Storm Recovery Securitization Act, providing for a financing mechanism though which electric utilities can use securitization financing for storm recovery costs, including the financing of storm recovery reserves, by issuing “storm recovery bonds.” Storm recovery bonds must be approved in a financing order issued by the Louisiana Commission. This provision of Louisiana law, the Securitization Act, as amended, is codified at La. R.S. 45:1226-1240. A Louisiana electric utility subject to the jurisdiction of the Louisiana Commission needs to apply to the Louisiana Commission in order for a financing order under the Securitization Act to authorize the issuance of storm recovery bonds.

SWEPCO’s service territory in Louisiana was struck by two hurricanes: Laura (August 27, 2020) and Delta (October 9, 2020), causing substantial damage to SWEPCO’s transmission and distribution facilities. In 2021, SWEPCO’s service territories were impacted by winter storm Uri (February 14, 2021), causing power outages due to prolonged freezing temperatures. On June 16, 2023, hurricane-force straight-line winds left nearly a quarter of a million customers without power in SWEPCO’s three retail service territories. SWEPCO has already funded and paid most of the storm recovery costs relating to these storms. SWEPCO applied for a financing order under the Securitization Act, which was issued on July 3, 2024, following a vote of the Louisiana Commission on June 19, 2024. The financing order became final and nonappealable on August 20, 2024.

Under the Securitization Act and the financing order, SWEPCO’s customers will pay storm recovery charges, which are nonbypassable charges included in their monthly charges for electric service. Storm recovery charges will fund payments of principal and interest on the storm recovery bonds, together with related financing costs. Storm recovery charges will be collected by SWEPCO, as initial servicer, or its successor, as provided for in the financing order. Storm recovery 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 storm recovery bonds for each of the next two succeeding bond payment dates (or, in the case of certain quarterly true-up adjustments, the period ending on the next bond payment date).

SWEPCO and Other Utilities May Securitize Storm Recovery Costs and Related Financing and Ongoing Costs

We May Issue Storm Recovery Bonds to Recover SWEPCO’s Storm Recovery Costs.

Under the Securitization Act and the plenary power granted to the Louisiana Commission under the Louisiana Constitution, the Louisiana Commission may issue financing orders approving the issuance of storm recovery bonds,

 

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such as the storm recovery bonds, to recover certain costs of an electric utility, including storm recovery costs, upfront and ongoing financing costs associated with the issuance of storm recovery bonds, and the cost of funding storm recovery reserves. A utility, its successors or a third-party assignee of a utility may issue storm recovery bonds. The Securitization Act requires the proceeds of the storm recovery bonds to be used for the purposes of recovering or financing storm recovery costs, financing costs and costs to replenish or fund storm recovery reserves, solely as determined by the Louisiana Commission. The storm recovery bonds are secured by and payable from storm recovery property, which includes the right to impose, bill, charge, collect and receive storm recovery charges, to obtain periodic adjustments to such charges as provided in the financing order (but excludes the Retained Rights of SWEPCO) and all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the foregoing rights and interests. The storm recovery property does not include SWEPCO’s rights to earn and recover the authorized rate of return on SWEPCO’s capital investment in us, or to receive the annual administrative fee and annual servicing fee and expenses under the contracts approved pursuant to the financing order (collectively, the “Retained Rights”). Under the financing order, the storm recovery bonds may have a legal maximum maturity of approximately 15 years. Under SWEPCO’s 2024 revenue requirement order, storm recovery costs generally are to be allocated to customers in the same manner as the corresponding facilities and related expenses are allocated in SWEPCO’s base rates. Storm recovery charges can be imposed only when and to the extent that storm recovery bonds are issued.

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

Creation of Storm Recovery Property.

As authorized by the Securitization Act, and provided by the financing order, as of the effective date of the financing order, there was created and established for SWEPCO storm recovery property, which is a contract right in favor of SWEPCO, its transferees and other financing parties, to impose, bill, charge, collect and receive storm recovery charges from SWEPCO’s customers.

A Financing Order is Irrevocable.

A financing order, once effective, together with the storm recovery charges authorized in such financing order, is irrevocable and not subject to amendment or modification by the Louisiana Commission, except for true-up 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 storm recovery bonds. Although a financing order is irrevocable, the Securitization Act allows for applicants to apply for one or more new financing orders to provide for retiring and refunding storm recovery bonds if such retirement or refunding would result in lower storm recovery charges.

State and Louisiana Commission Pledges.

The State of Louisiana has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana Commission to create a contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that would impair the value of the storm recovery property, or, except for true-up adjustments discussed in “SWEPCO’s Financing Order—True-ups” and “The Servicing Agreement —Storm Recovery Charge Adjustment Process,” reduce, impair, postpone, terminate or otherwise adjust the storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the related storm recovery bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”

The Louisiana Commission has jurisdiction over SWEPCO pursuant to Article 4, Section 21, of the Louisiana Constitution. The plenary powers granted to the Louisiana Commission under the Louisiana Constitution means that the Louisiana Commission has power independent of the State legislature. Accordingly, independent from and in

 

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addition to the pledge contained in the Securitization Act, the Louisiana Commission has pledged in the financing order that (i) the financing order is irrevocable until the indefeasible (i.e., not voidable) payment in full of the storm recovery bonds and the related financing costs, and (ii) it may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order, provided that nothing in clause (ii) shall preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”

Constitutional Matters

To date, no federal or Louisiana 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 federal courts have applied the Contract Clause of the United States Constitution and Louisiana courts have applied the Contract Clause of the Louisiana Constitution to strike down 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, counsel to SWEPCO and us, expects to deliver an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that, for the purposes of the Contract Clause of the United States Constitution, the State Pledge described above unambiguously indicates the State of Louisiana’s intent to be bound with the storm recovery bondholders and, subject to all of the qualifications, limitations and assumptions set forth in its opinion, supports the conclusion that, for the purposes of the Contract Clause of the United States Constitution, the State Pledge constitutes a binding contractual relationship between the State of Louisiana and the storm recovery bondholders for purposes of the Federal Contract Clause and, with regard to Louisiana, Wilkinson, Carmody & Gilliam, as Louisiana counsel to SWEPCO and us, expects to deliver an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that Louisiana courts would treat the Contract Clause of the Louisiana Constitution in the same manner as the Federal Contract Clause in these circumstances. Subject to all of the qualifications, limitations and assumptions set forth in such opinion, including that any impairment of the contract be “substantial,” each of the opinion of Sidley Austin LLP, with respect to the Contract Clause of the United States Constitution, and the opinion of Wilkinson, Carmody & Gilliam, with respect to the Contract Clause of the Louisiana Constitution, is expected to state that (a) a reviewing court of competent jurisdiction would hold that the State of Louisiana 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 storm recovery charges to be collected pursuant to the financing order and full protection of the storm recovery bondholders), unless such court would determine that such impairment clearly is a reasonable and necessary exercise of the State of Louisiana’s sovereign powers based upon reasonable conditions and of a character reasonable and appropriate to the emergency or other significant and legitimate public purpose justifying such action and (b) a reviewing court of competent jurisdiction would conclude that the Louisiana Commission pledge (i) creates a binding contractual obligation of the State of Louisiana for purposes of the Contract Clause of the United States Constitution (in the case of the opinion of Sidley Austin LLP) or of the Contract Clause of the Louisiana Constitution (in the case of the opinion of Wilkinson, Carmody & Gilliam) and (ii) provides a basis upon which the storm recovery bondholders could challenge successfully on appeal any such action by the Louisiana Commission of a legislative character, including the rescission or amendment of the financing order, that such court determines violates the Louisiana Commission pledge in a manner that substantially impairs or would substantially impair the value of the storm recovery property, or substantially reduces, alters or impairs the value of the storm recovery property or the storm recovery charges, prior to the time that the storm recovery bonds are paid and performed in full, unless there is a judicial finding that the Louisiana Commission action clearly is exercised for a public end and is reasonably necessary to the accomplishment of that public end so as not to be arbitrary, capricious or an abuse of authority.

In addition, any action of the Louisiana legislature adversely affecting the storm recovery property or the ability to collect storm recovery charges may be considered a “taking” under the United States or Louisiana Constitutions. Sidley Austin LLP has advised us that it is not aware of any federal, and Wilkinson, Carmody & Gilliam has advised us that it is not aware of any Louisiana, court cases addressing the applicability of the Takings Clause of the United

 

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States or Louisiana 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, because, 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 Louisiana Constitution, Sidley Austin LLP and Wilkinson, Carmody & Gilliam, respectively, expect to render an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that, under the existing case law, a reviewing court of competent jurisdiction would hold, subject to all of the qualifications, limitations and assumptions set forth in each respective opinion, if it concludes that the storm recovery property is protected by the Takings Clause of the United States Constitution (or the Takings Clause of the Louisiana Constitution with respect to the opinion of Wilkinson, Carmody & Gilliam), that the State of Louisiana would be required to pay just compensation to bondholders, as determined by such court, if the State 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 storm recovery bondholders in the storm recovery property and deprived the storm recovery bondholders of their reasonable expectations arising from their investments in the storm recovery bonds. In examining whether action of the Louisiana 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 storm recovery 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 storm recovery bonds.

In connection with the foregoing, Sidley Austin LLP has advised us that issues relating to the Contract and Takings Clauses of the United States Constitution, and Wilkinson, Carmody & Gilliam has advised us that issues relating to the Contract and Takings Clauses of the Louisiana 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 each 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 storm recovery bondholder would consider material.

In addition, Sidley Austin LLP expects to render an opinion, prior to the closing of the offering of the storm recovery 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 Louisiana, and will not be disregarded under the reserved powers doctrine, and Wilkinson, Carmody & Gilliam expects to render an opinion, prior to the closing of the offering of the storm recovery bonds described in this prospectus, to the effect that the Securitization Act has been duly enacted by the Louisiana legislature and is in effect as of the closing of the offering, and that Wilkinson, Carmody & Gilliam is not aware of any constitutional infirmities with respect to the Act.

We and SWEPCO will file a copy of each of the Sidley Austin LLP and Wilkinson, Carmody & Gilliam 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 Louisiana Commission May Adjust Storm Recovery Charges

The Securitization Act authorizes the Louisiana Commission to provide, and the Louisiana Commission has provided, in the financing order, that storm recovery charges be adjusted at least semi-annually (and, beginning 12 months prior to the scheduled final payment date of the last maturing tranche of bonds, quarterly). The purposes of these adjustments are:

 

•

to correct any over-collections or under-collections during the preceding six months, and

 

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•

to ensure the projected recovery of amounts sufficient to provide timely payment of debt service and all other financing costs (including any necessary replenishment of the capital subaccount) during each of the next two succeeding bond payment dates (or, in the case of the quarterly adjustments, the period ending on the next bond payment date).

Storm Recovery Charges Are Nonbypassable

The Securitization Act provides that the storm recovery charges are nonbypassable subject to the terms of the financing order. Under the financing order, “nonbypassable” means SWEPCO and any other entity providing electric transmission or distribution services are required to collect and must remit, consistent with the financing order, the nonbypassable storm recovery charges that are applied to all existing and future Louisiana Commission-jurisdictional area customers who remain attached to SWEPCO’s (or its successor’s or assignee’s) electric transmission or distribution lines, and who, via such lines, receive any type service from SWEPCO (or its successor or assignee) under rate schedules or special contracts approved by the Louisiana Commission, even if the customer elects to purchase electricity from alternative electricity suppliers due to a fundamental change in the regulation of public utilities in Louisiana or due to any other reason. Any customer who self-generates or co-generates electricity will be assessed storm recovery charges based upon the total firm and standby load served by SWEPCO. Customers utilizing standby service will continue to pay a proportional share of the storm recovery charges, so that even accounts which require no energy usage on a monthly basis will pay some storm recovery charges. Any customer who completely severs interconnection with SWEPCO may become exempt from continued payment of the storm recovery charges. The Louisiana Commission will ensure that such obligations are undertaken and performed by SWEPCO or any other entity providing electric transmission and distribution services, or in the event that transmission and distribution services are not provided by a single entity, by an entity providing transmission or distribution services to SWEPCO’s Louisiana Commission-jurisdictional area customers designated by the Louisiana Commission in connection with an order relating to such split. If the retail sale and distribution of electricity in Louisiana becomes restructured so that customers may elect to receive their supply service from another provider, such selection of another provider will not allow such customers to bypass the storm recovery charge, so long as they continue to be attached to SWEPCO’s transmission or distribution lines. In the event of such restructuring, those customers who choose another provider for partial or full electricity supply requirements, but remain attached to SWEPCO transmission or distribution lines, would be assessed storm recovery charges at the highest peak demand imposed on SWEPCO’s system by demand metered customers and the highest peak consumption level of customers who are not demand metered, in each case during the twelve months immediately preceding the switch.

The Securitization Act Protects the Storm Recovery Bondholders’ Security Interest on Storm Recovery Property

The Securitization Act provides that a valid and enforceable security interest in storm recovery 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 storm recovery bonds and the receipt of value for the storm recovery bonds. The security interest attaches automatically at the time when all of the foregoing conditions have been met.

Upon perfection by filing a financing statement, under Section 1231(D) of the Securitization Act and otherwise in accordance with the Louisiana Uniform Commercial Code, the security interest will be a perfected security interest in the storm recovery property and all proceeds of the storm recovery property, whether accrued or not, and will have priority in the order of perfection and take precedence over any subsequent lien creditor. The servicer pledges in the servicing agreement to file all necessary continuation statements.

The Securitization Act provides that priority of transfers of and security interests in storm recovery property will not be impaired by:

 

•

commingling of funds arising from storm recovery charges with other funds, or

 

•

modifications to the financing order.

Please read “Risk Factors—Risks Associated with the Unusual Nature of the Storm Recovery Property.”

 

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The Securitization Act Characterizes the Transfer of Storm Recovery Property as a True Sale

The Securitization Act provides that an electric utility’s or an assignee’s transfer of storm recovery property is a “true sale” under Louisiana law and is not a secured transaction, and that the transferor’s right, title, and interest in, to, and under the storm recovery property passes to the transferee, if the agreement governing that transfer expressly states that the transfer is a sale or other absolute transfer. Please read “The Sale Agreement” and “Risk Factors—Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer.”

SWEPCO’S FINANCING ORDER

Background. SWEPCO’s service territory was struck by two hurricanes: Laura (August 27, 2020) and Delta (October 9, 2020), causing substantial damage to SWEPCO’s transmission and distribution facilities. In 2021, SWEPCO’s service territories were impacted by winter storm Uri (February 14, 2021), causing power outages due to prolonged freezing temperatures. On June 16, 2023, hurricane-force straight-line winds left nearly a quarter of a million customers without power in SWEPCO’s three retail service territories. On October 18, 2021, SWEPCO made a filing with the Louisiana Commission requesting authorization for SWEPCO to securitize its storm recovery costs for hurricanes Laura and Delta and winter storm Uri. On July 31, 2023, SWEPCO made a supplemental filing with the Louisiana Commission requesting an increase in the amount to recover the costs for hurricane Laura and hurricane Delta, winter storm Uri and a separate storm reserve to cover costs associated with the June 2023 storms and for future storms. On July 3, 2024, the Louisiana Commission issued its final order determining that SWEPCO is entitled, pursuant to the Securitization Act, to finance, through the issuance of storm recovery bonds in the amount of up to $343.0 million, equal to the sum of: (a) up to $180.0 million of Louisiana Commission-jurisdictional area storm recovery costs, plus (b) the costs of a storm recovery reserve in the amount of $150.0 million as an amount segregated on the balance sheet on SWEPCO as a liability (but not in a separately managed bank account), plus (c) upfront financing costs, which are estimated at $6.6 million, and are subject to further review by the Louisiana Commission, plus (d) on-going carrying charges, which are estimated at $6.4 million, plus or minus (e) adjustments pursuant to the issuance advice letter, including to reflect the costs of any approved credit enhancement and any approved rounding. The financing order also authorized: (1) SWEPCO’s proposed financing structure and issuance of the storm recovery bonds; (2) creation of the storm recovery property, including the right for the imposition, collection and periodic adjustments of storm recovery charges sufficient to pay the storm recovery bonds and associated financing costs; (3) the sale of the storm recovery property by SWEPCO to us; and (4) a rate schedule rider to implement the storm recovery charges. The financing order became final and nonappealable on August 20, 2024, and the revenue requirement order became final and nonappealable on August 20, 2024.

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

The financing order provides that the true-up mechanism and all other obligations of the State of Louisiana and the Louisiana Commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State of Louisiana and the Louisiana Commission.

Issuance of Storm Recovery Bonds. The financing order authorizes SWEPCO to cause us to issue storm recovery bonds in an aggregate principal amount of up to $343.0 million.

Collection of Storm Recovery Charges. The financing order authorizes SWEPCO to collect storm recovery charges from its customers in an amount sufficient at all times to provide for recovery of SWEPCO’s remaining unrecovered storm recovery costs and upfront and ongoing financing costs, which include principal and interest and certain ongoing fees and expenses associated with the storm recovery bonds.

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

 

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Issuance Advice Letter. Following the determination of the final terms of the storm recovery bonds and prior to their issuance, SWEPCO is required to submit to the Louisiana Commission no later than two (2) business days after the pricing of the storm recovery bonds an issuance advice letter, which will:

 

•

demonstrate compliance with the standards of the financing order,

 

•

evidence the actual financial terms on which the storm recovery bonds will be issued, including the estimated total upfront financing costs and the estimated ongoing financing costs of administrating and supporting the storm recovery bonds,

 

•

to the extent necessary, adjust for the change in carrying charges to account for the number of days between the actual issuance date of the storm recovery bonds and the date used to calculate the storm recovery costs,     , 2024,

 

•

show the actual dollar amount of the initial storm recovery charges for each customer rate class relating to the storm recovery bonds,

 

•

identify us,

 

•

certify that the structure and pricing of the storm recovery bonds complies with the terms of the financing order, including without limitation, a certification attached to the issuance advice letter from each of the bookrunning underwriters providing that, based on its review of the final terms of the storm recovery bonds and its assumptions and qualifications stated therein, the marketing, pricing and structuring (including the sizing and principal amortization of each tranche of storm recovery bonds) have resulted in the lowest yield to bondholders consistent with market conditions at the time of pricing and the terms of the financing order, and

 

•

provide an updated analysis of the net present value benefit to customers or the degree of customer rate mitigation, as compared to traditional methods of finance.

Both the issuance advice letter and the accompanying rate schedule rider become effective on the date of issuance of the storm recovery bonds.

Subsequently, within one business day of receipt of the issuance advice letter, a designee of the Louisiana Commission (the “designee”) shall either (a) approve the final terms, structuring and pricing of the transaction by executing a concurrence and delivering a copy to SWEPCO or (b) reject the issuance advice letter and state the reasons therefor. The designee’s review of and concurrence with the issuance advice letter will be limited to determining that (i) the final structuring, terms and pricing of the storm recovery bonds in the issuance advice letter are consistent with the criteria established in the financing order and (ii) the mathematical calculations are accurate. The designee shall approve the final issuance advice letter if he or she determines that those two standards are met and such approval will be final, irrevocable and incontestable without need of further action by the Louisiana Commission. The designee’s approval by means of executing of a concurrence shall establish and evidence the binding approval by the Louisiana Commission of the structuring, terms and pricing of the storm recovery bonds. A change in market conditions between the date and time of the actual pricing of the storm recovery bonds and that of the designee’s review of the issuance advice letter shall not constitute grounds for rejecting the issuance advice letter.

Rate Schedule Rider. We are required, prior to the issuance of any storm recovery charges, to complete and file a rate schedule rider in the form attached to the financing order. The rate schedule rider establishes the initial storm recovery charges. They also implement the procedures for periodic adjustments to the storm recovery charges.

True-Ups. The financing order provides that storm recovery charges will be reviewed and adjusted semi-annually to:

 

•

correct, over a period covering the next two succeeding bond payment dates, any under-collections or over-collections, for any reason, during the preceding six months, and

 

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•

ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all other required amounts in connection with the storm recovery bonds for each of the next two succeeding bond payment dates (or in the case of quarterly true-up adjustments, the period ending on the next bond payment date).

Beginning 12 months prior to the scheduled final payment date of the storm recovery bonds, mandatory true-up adjustments will be made quarterly until all storm recovery bonds and associated financing costs are paid in full.

In addition, the servicer may also make interim true-up adjustments more frequently at any time during the term of the storm recovery bonds if the servicer forecasts that storm recovery charge collections will be insufficient to make on a timely basis all scheduled payments of interest and other financing costs (including any necessary replenishment of the capital subaccount) in respect of the storm recovery bonds during the current or next succeeding payment period or bring all principal payments on schedule over the next two succeeding payment dates.

If required by the ratings agencies to obtain the highest credit ratings, the servicing agreement may also provide for quarterly true-up adjustments as and when so required.

Any delinquencies or under-collections in one customer class, as applied generally across both the transmission and distribution functions, will be taken into account in the true-up mechanism to adjust the storm recovery charges for all customers of SWEPCO, not just the class of customers from which the delinquency or under-collection arose.

The financing order requires the servicer to request Louisiana Commission approval of an amendment to the true-up mechanism that it deems necessary or appropriate to address any material deviations between storm recovery charge collections and the periodic revenue requirement. No such change shall cause any of the then-current credit ratings of the storm recovery bonds to be suspended, withdrawn or downgraded.

The financing order provides that the true-up mechanism and all other obligations of the State of Louisiana and the Louisiana Commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State of Louisiana and the Louisiana Commission.

For more discussion of the true-up mechanism, see “The Servicing Agreement—Storm Recovery Charge Adjustment Process” in this prospectus.

Louisiana Commission Pledge. The State of Louisiana has pledged in the financing order that (i) the financing order is irrevocable until the indefeasible (i.e., not voidable) payment in full of the storm recovery bonds and (ii) it may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order, provided that nothing in clause (ii) shall preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party.

State Pledge and True-Up Mechanism. The State of Louisiana has pledged in the Securitization Act that it will not alter the provisions of the part of the Securitization Act which authorizes the Louisiana Commission to create a contract right by the issuance of a financing order, to create storm recovery property, and to make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable charges, take or permit any action that would impair the value of the storm recovery property, or, except for true-up adjustments discussed in “—True-ups” and “The Servicing Agreement—Storm Recovery Charge Adjustment Process,” reduce, alter or impair the storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds have been paid and performed in full. However, nothing will preclude limitation or alteration if and when full compensation is made for the full protection of the storm recovery charges collected pursuant to the financing order and the full protection of the storm recovery bondholders and any assignee or financing party. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”

 

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Adjustments to Allocation of Storm Recovery Charges. The financing order provides that, if updated customer class allocation factors are approved by the Louisiana Commission in a future base rate proceeding, the functional customer class allocation factors will be updated in the subsequent rate schedule rider factor filing following the base rate case final order.

Any delinquencies or under-collections in one customer class, as applied generally across both the transmission and distribution functions, will be taken into account in the true-up mechanism to adjust the storm recovery charge for all customers of SWEPCO, not just the class of customers from which the delinquency or under-collection arose.

Servicing Agreement. In the financing order, the Louisiana Commission authorized SWEPCO, as the initial servicer, to enter into the servicing agreement which is described under “The Servicing Agreement” in this prospectus.

Binding on Successors and Assignees. The financing order, along with the storm recovery charges authorized in the financing order, is binding on:

 

•

SWEPCO,

 

•

any successor to SWEPCO or assignee of SWEPCO that provides transmission or distribution services to SWEPCO’s Louisiana Commission-jurisdictional area customers, and

 

•

if SWEPCO or its successor or assignee no longer owns and operates both the transmission and distribution systems, then any entity that provides transmission or distribution services to SWEPCO’s Louisiana Commission-jurisdictional area customers designated by the Louisiana Commission in connection with an order relating to such split.

THE DEPOSITOR, SELLER, INITIAL SERVICER AND SPONSOR

About SWEPCO

Background Information. SWEPCO is a regulated electric utility engaged principally in the generation, purchase, transmission, distribution, and sale of electricity in northwestern and central Louisiana, western Arkansas, east Texas and the panhandle area of north Texas. As of December 31, 2023, SWEPCO served approximately 234,806 Louisiana Commission-jurisdictional area customers in central and northwestern Louisiana through its retail business. SWEPCO is a Delaware corporation and a wholly owned subsidiary of AEP, a public utility holding company. SWEPCO, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the “servicer,” will service the storm recovery property securing the storm recovery bonds under a servicing agreement with us. Neither SWEPCO nor AEP nor any other affiliate (other than us) is an obligor on the storm recovery bonds.

Municipalization. Louisiana law authorizes municipalities to seek to acquire portions of an electric utility’s electric distribution facilities through voluntary transactions or the power of expropriation for use as part of municipally owned utility systems. The Securitization Act specifies that storm recovery charges approved by a financing order shall be collected by an electric utility as well as its “successors or assignees.” In the servicing agreement, SWEPCO has covenanted to assert in an appropriate forum that any municipality that acquires any portion of SWEPCO’s electric distribution facilities in the State of Louisiana by exercise of the power of expropriation, including upon the expiration of any franchise agreement applicable to SWEPCO’s operations in the State of Louisiana, must be treated as a successor to SWEPCO under the Securitization Act and the financing order and that customers in such municipalities remain responsible for payment of storm recovery charges. However, the involved municipality might assert that it should not be treated as a successor to SWEPCO for these purposes and that its distribution customers are not responsible for payment of storm recovery charges. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—A municipal entity may seek to acquire portions of SWEPCO’s electric distribution facilities in the State of Louisiana and avoid payment of the storm recovery charges” in this prospectus.

 

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Service Territories. SWEPCO provides integrated electric utility services, including generation, transmission, distribution and sale of electricity, to approximately 234,806 Louisiana Commission-jurisdictional area customers in northwestern and central Louisiana through its retail business. As of December 31, 2023, SWEPCO had 25,500 miles of distribution lines and 4,130 miles of transmission lines. For SWEPCO Louisiana, their portion of the distribution system consisted of 13,500 circuit miles of distribution lines. As of December 31, 2023, SWEPCO owned or partially owned 12 generating plants, consisting of 22 generating units for an aggregate net generating capacity of 5,009 MW. SWEPCO also has additional generation and capacity through power purchase agreements and capacity purchase agreements. During 2023, SWEPCO’s owned generating capacity was 5,009 MW and power purchase agreement capacity was 469 MW. The generating and power purchase agreement capacity by fuel mix was the following: coal and lignite - 32.70%; natural gas - 44.0%; and renewables (wind) - 23.3%.

Executive Offices. SWEPCO’s principal executive offices are located at 1 Riverside Plaza, Columbus, Ohio 43215. The phone number at this address is (614) 716-1000.

Where to Find Information About SWEPCO. Our sponsor and sole member, SWEPCO, together with AEP, a public utility holding company that wholly owns SWEPCO, voluntarily files 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. AEP maintains a website at https://www.aep.com/, where it posts SWEPCO’s and AEP’s SEC filings. Except as provided in this prospectus, no other information contained on that website constitutes part of this prospectus.

Servicing Experience

The storm recovery bonds are the first issuance of bonds SWEPCO has sponsored that are secured by storm recovery property created under the Securitization Act; however, AEP through its other subsidiaries has prior experience as servicer in the issuance of bonds similar to the storm recovery bonds, including the issuance of the following:

(i) $696,920,000 aggregate principal amount of ratepayer-backed bonds by The Oklahoma Development Finance Authority, a public trust and instrumentality of the State of Oklahoma, issued September 7, 2022, for the purpose of allowing Public Service Company of Oklahoma (“PSO”) to recover certain costs it incurred as a result of winter storm Uri, where PSO, a subsidiary of AEP, acted as servicer (the “2022 ODFA-PSO RBB Bonds”);

(ii) $235,282,000 aggregate principal amount of senior secured system restoration bonds by AEP Texas Restoration Funding LLC, a wholly owned special purpose subsidiary of AEP Texas Inc. (“AEP Texas”), issued on September 18, 2019, for the purpose of allowing AEP Texas to recover certain distribution-related system restoration costs in its Central Division related to Hurricane Harvey and certain other weather-related events occurring after December 2008 but prior to Hurricane Harvey, where AEP Texas, a subsidiary of AEP, acted as the servicer (the “2019 AEP Texas SRC Bonds”);

(iii) $380,300,000 aggregate principal amount of senior secured consumer rate relief bonds by Appalachian Consumer Rate Relief Funding LLC, a wholly owned special purpose subsidiary of Appalachian Power Company (“APCo”), issued on November 15, 2013, for the purpose of allowing APCo to recover certain uncollected expanded net energy costs and associated financing costs, where APCo, a subsidiary of AEP, acted as the servicer (the “2013 APCo CRR Bonds”);

(iv) $267,408,000 aggregate principal amount of senior secured phase-in recovery bonds by Ohio Phase-In-Recovery Funding LLC, a wholly owned special purpose subsidiary of Ohio Power Company (“OPCo”), issued on August 1, 2013, for the purpose of allowing OPCo to recover certain uncollected previously approved phase-in costs and associated financing costs, where OPCo, a subsidiary of AEP, acted as the servicer (the “2013 OPCo PIR Bonds”); and

(v) $800,000,000 aggregate principal amount of senior secured transition bonds by AEP Texas Central Transition Funding III LLC, a wholly owned special purpose subsidiary of AEP Texas, issued on March 14, 2012, for the purpose of allowing AEP Texas’s Central Division to recover certain costs related to its transition-to-competition in the State of Texas, where AEP Texas, a subsidiary of AEP, acted as the servicer (the “2012 AEP TCC Transition Bonds” and together with the 2022 ODFA-PSO RBB Bonds, the 2019 AEP Texas SRC Bonds, the 2013 APCo CRR Bonds, the 2013 OpCo PIR Bonds, the “prior securitizations”).

 

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The underlying structure of the prior securitizations is comparable to the underlying structure of the storm recovery bonds, with the exception of the use in 2022 of an issuing entity created by the State of Oklahoma rather than a special purpose wholly-owned subsidiary of the applicable AEP subsidiary. AEP’s servicing obligations are substantially similar to its previous servicer experience identified above.

SWEPCO’s Retail Customer Base and Electric Energy Base Rate Revenue

The following tables show total revenue, electric base rate revenue, average retail customers and sales of electricity for each of SWEPCO’s Louisiana Commission-jurisdictional area customer classes for the five preceding years. There can be no assurances that the total revenue, base rate revenue, average number of retail customers and retail electricity sales, or the composition of any of the foregoing, will remain at or near the levels reflected in the following tables.

Total Revenue by Customer Class⁽¹⁾

 

		2019				2020				2021				2022				2023
Residential		$	302,991,738			$	289,368,760			$	340,994,897			$	393,427,938			$	358,829,841
Commercial / Small Industrial		$	271,934,107			$	251,177,226			$	295,548,853			$	343,221,864			$	307,972,189
Transmission		$	14,906,489			$	13,525,740			$	17,575,400			$	23,309,836			$	18,231,008
Municipal		$	8,143,352			$	8,003,519			$	9,330,519			$	11,393,062			$	9,960,065
Lighting		$	13,280,349			$	13,422,418			$	14,712,712			$	15,334,856			$	14,914,827
Total		$	611,256,035			$	575,497,663			$	678,162,381			$	786,687,556			$	709,907,930

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

Base Rate Revenue by Customer Class⁽¹⁾

 

		2019				2020				2021				2022				2023
Residential		$	210,469,084			$	206,894,170			$	222,212,837			$	246,517,741			$	266,525,814
Commercial / Small Industrial		$	172,532,543			$	164,513,870			$	173,781,406			$	194,628,907			$	209,883,497
Transmission		$	7,531,010			$	7,310,794			$	8,149,423			$	10,152,366			$	10,134,174
Municipal		$	5,077,762			$	5,107,933			$	5,306,964			$	6,324,349			$	6,560,544
Lighting		$	10,527,842			$	10,824,150			$	11,225,204			$	11,537,035			$	12,477,631
Total(2)		$	406,138,240			$	394,650,916			$	420,675,835			$	469,160,398			$	505,581,660

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Totals may not add due to rounding.

 

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Average Retail Customers by Customer Class⁽¹⁾⁽²⁾

 

		2019				2020				2021				2022				2023
Residential			204,015				205,668				206,164				206,970				207,252
Commercial / Small Industrial			25,409				25,369				25,414				25,652				25,758
Transmission			2				2				2				2				2
Municipal			1,619				1,628				1,622				1,622				1,618
Lighting			137				147				168				174				176
Total			231,182				232,814				233,370				234,420				234,806

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Calculated as the average of the end-of-month customer counts for the applicable period.

Billed and Accrued MWh⁽¹⁾

 

		2019				2020				2021				2022				2023
Residential			2,903,239				2,760,120				2,847,883				2,990,160				2,840,020
Commercial / Small Industrial			3,175,002				2,912,559				2,901,470				3,077,157				3,002,822
Transmission			246,974				218,453				236,288				287,680				250,001
Municipal			96,081				97,486				95,212				103,897				99,889
Lighting			87,433				86,489				82,166				77,763				72,039
Total(2)			6,508,730				6,075,106				6,163,019				6,536,657				6,264,771

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Totals may not add due to rounding.

Forecasting Base Rate Revenue

SWEPCO produces a base rate revenue forecast semi-annually for planning purposes. These forecasts are the basis for earnings projections and capacity/generation planning. Base rate revenues are defined as non-fuel revenues with rider revenues removed so that only the customer charge, kWh charges, kW charges, and other demand-related charges are included.

SWEPCO’s base rate revenue forecast is developed by applying the load forecast for each customer class, through the next budget year (typically only the first two years of the forecast horizon), to estimated price-load relationships. These price-load relationships are regression models that estimate class-level average base rate revenue realizations as a function of either monthly kWh consumption per customer (for the residential and commercial classes) or monthly kWh sales (for all other classes). But the functions may occasionally be nonlinear due to either the nature of on-peak/off-peak pricing structures or tariff price tiers. The functions are estimated based on monthly data taken from SWEPCO’s billing system. Due to the combination of fixed and variable charges inherent in these revenues, these functions are generally downward sloping since the higher fixed charges make up less of the revenue collected as more energy is consumed. The final estimated functions maintain their estimated slopes but are shifted to ensure they pass through data since the most recent base rate case. Once these functions have been estimated, the projected monthly kWh sales from the load forecast are applied to arrive at the projected monthly base rate revenue value.

In producing a base rate revenue forecast, SWEPCO employs regression analysis of customer end-use electricity demand. This method considers economic trends, changes in competing and complimentary fuel prices and changes in appliance saturations, as well as changes in appliance efficiencies such as those mandated by legislation. Weather patterns are also accounted for in weather-sensitive classes . This method captures customer response to changes in the economic environment as well as trends in customer preferences. Peak demand forecasts are then generated using the load forecast as a basis.

 

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The forecast cycle completed during the third quarter is typically adopted as SWEPCO’s official budget. SWEPCO monitors the accuracy of each forecast by conducting variance analysis on a monthly basis while taking into account weather impacts on kWh sales and other deviations from the forecast.

The following table shows the annual variance of forecasted base rate revenue versus actual base rate revenue for each of SWEPCO’s Louisiana Commission-jurisdictional area customer classes for the five preceding years. There can be no assurances that the variance levels will remain at or near the levels reflected in the following table.

 

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Annual Forecast Variance For Base Rate Revenue⁽¹⁾

 

 

		Base Revenue ($)
		2019				2020				2021				2022				2023
Residential
Forecast		$	212,053,428			$	217,824,553			$	229,116,054			$	254,200,266			$	275,188,270
Actual		$	210,469,084			$	206,894,170			$	222,212,837			$	246,517,741			$	266,525,814
Variance			-0.75	%			-5.02	%			-3.01	%			-3.02	%			-3.15	%
Commercial / Small Industrial
Forecast		$	184,724,724			$	184,392,627			$	171,524,111			$	220,623,489			$	224,836,519
Actual		$	172,532,543			$	164,513,870			$	173,781,406			$	194,628,907			$	209,883,497
Variance			-6.60	%			-10.78	%			1.32	%			-11.78	%			-6.65	%
Transmission
Forecast		$	7,856,536			$	8,124,574			$	8,214,382			$	11,999,287			$	11,295,625
Actual		$	7,531,010			$	7,310,794			$	8,149,423			$	10,152,366			$	10,134,174
Variance			-4.14	%			-10.02	%			-0.79	%			-15.39	%			-10.28	%
Municipal
Forecast		$	5,482,171			$	5,742,982			$	5,204,969			$	6,949,269			$	7,009,341
Actual		$	5,077,762			$	5,107,933			$	5,306,964			$	6,324,349			$	6,560,544
Variance			-7.38	%			-11.06	%			1.96	%			-8.99	%			-6.40	%
Lighting
Forecast		$	10,877,140			$	11,489,264			$	11,277,485			$	12,986,149			$	13,861,708
Actual		$	10,527,842			$	10,824,150			$	11,225,204			$	11,537,035			$	12,477,631
Variance			-3.21	%			-5.79	%			-0.46	%			-11.16	%			-9.98	%
Total
Forecast		$	420,994,000			$	427,574,000			$	425,337,000			$	506,758,459			$	532,191,463
Actual		$	406,138,241			$	394,650,917			$	420,675,834			$	469,160,398			$	505,581,660
Variance			-3.53	%(2)			-7.70	%(3)			-1.10	%			-7.42	%(4)			-5.00	%(4)

 

(1)	Forecast sales are temperature normal. Numbers not exact due to rounding. Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)

For purposes of the 2019 variance calculation, accounting adjustments made to revenues but not assigned to tariffs were dropped to correctly allocate revenues by customer classes. These adjustments amounted to approximately $58 million over the 5-year period with the largest adjustment being in 2019, at approximately $22.4 million. The additional amount of revenue not included for purposes of the customer class actual data, but reported in financial results, would have resulted in a variance of approximately 1.8% for the 2019 forecast.

(3)	In 2020, the variance was due to underperformance related to the economic impacts of the COVID-19 pandemic, which included a sharp decline in demand for electric power by non-residential customers.

(4)	In 2022 and 2023, the variance was due to timing and delays associated with the approval of SWEPCO’s rate case.

Credit Policy; Billing Process; Collections Process; Termination of Service

SWEPCO bills its customers directly, and its current credit policies, billing process, and termination of service policies are described below. All information below pertains only to SWEPCO’s customers.

Credit Policy

SWEPCO is required to provide electric utility service to applicants within its designated service territories once outstanding debts are cleared and any deposit requirements are met. Using information provided by the Customer Information System (CORS, SWEPCO’s Customer Order Request System), SWEPCO determines whether SWEPCO has previously provided service to an applicant. Certain accounts are secured with deposits or guarantees as a precautionary measure. The amount of the deposit for residential customers is twice the average bill if there is a 12-month history as the premise Louisiana Commission rules require SWEPCO to pay simple interest at a rate determined annually, currently, at a rate of 5% for any cash deposits held by SWEPCO on a customer’s account. SWEPCO does not accept third party guarantors for commercial accounts. SWEPCO’s current business practices require industrial and commercial customers to provide deposits equal to two times the average monthly bill based on the location history.

 

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Louisiana Commission rules require SWEPCO to pay simple interest at a rate determined annually, currently, at a rate of 5.00% for any cash deposits held by SWEPCO on a customer’s account. Cash deposits are accounted for as an obligation, but are not required to be escrowed, and are available in working capital.

Billing Process

SWEPCO bills its customers, on average, every business day based on a 21 day cycle calendar. For the year ended December 31, 2023, SWEPCO mailed an average of 27,512 bills on each business day to its customers. Bill due dates are based on the read date and cycle date, as applicable. For accounts with potential billing error exceptions, reports are generated for manual review. This review examines accounts that have abnormally high or low bills, potential meter reading errors, possible meter malfunctions and/or unbilled accounts. Louisiana Commission rules require that each bill provided to customers shall include a payment due date that shall not be less than 20 days after issuance. SWEPCO’s billing system is designed to identify special tariffs and collections. SWEPCO, by order of the Louisiana Commission, is required to identify various charges, including the storm recovery charge, on its customers’ bills as specific line items. SWEPCO tracks collection of various fees and tariffs to ensure that collections are aligned with their intended purpose.

Collection, Termination of Service and Write-Off Policy

In 2023, SWEPCO received approximately 17% of payments by mail, 8% from walk-in payments, and 75% electronically, either bank draft or electronic funds transfer. Walk-in payments are accepted by 178 customer service pay station offices located throughout our service territories. Customer bills are due and payable upon receipt and considered past due if not paid within 20 calendar days from the bill date. If the bill is not paid by the date indicated on the statement, and the customer’s payment history makes the past-due amount eligible for collection activity, a disconnect notice is generated on the 3rd calendar (business) day after the past due date. The disconnect notice gives the customer an additional 7 calendar days to pay the bill. On the last day to pay indicated on the disconnect notice, a courtesy call may be attempted by the Customer Service Office. If the bill is not paid or if the customer has not called for extended payment arrangements, a disconnect order will be generated on the next business day. If the customer is disconnected, payment of the past due amount is required prior to restoration of service. In addition, the customer may be subject to an additional deposit and/or reconnection fee.

The rules and regulations of the Louisiana Commission (which may change from time to time) regulate and control the right to disconnect service. For example, electric utilities generally may not terminate service to a customer (i) on a holiday or weekend, or (ii) during certain extreme weather conditions.

Write-off and Delinquency Experience

The following table shows gross write-offs for electricity and gross write-offs as a percentage of total revenue for the past five years for SWEPCO’s Louisiana Commission-jurisdictional area customers.

Gross Write-Offs as a Percentage of Total Revenues⁽¹⁾⁽²⁾

 

 

		Year ended December 31,
		2019				2020				2021				2022				2023
Total Revenues ($000)		$	611,256			$	575,498			$	678,162			$	786,688			$	709,908
Gross Write-Offs ($000)		$	2,653			$	2,086			$	3,746			$	3,088			$	4,373
Percentage of Total Revenue			0.43	%			0.36	%			0.55	%			0.39	%			0.62	%

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Numbers not exact due to rounding.

The following table shows, for its Louisiana Commission-jurisdictional area territories, total SWEPCO net write-offs for electricity and total net write-offs as a percentage of total revenue for the past five years. Net write-offs include amounts recovered by SWEPCO from deposits, bankruptcy proceedings and payments received after an account has been either written-off by SWEPCO or transferred to one of its external collection agencies.

 

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Net Write-Offs as a Percentage of Total Revenues⁽¹⁾⁽²⁾

 

 

		Year ended December 31,
		2019				2020				2021				2022				2023
Total Revenues ($000)		$	611,256			$	575,498			$	678,162			$	786,688			$	709,908
Net Write-Offs ($000)		$	1,977			$	1,227			$	2,787			$	2,341			$	3,581
Percentage of Total Revenue			0.32	%			0.21	%			0.41	%			0.30	%			0.50	%

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Numbers not exact due to rounding.

Delinquencies

The following table sets forth information relating to the delinquency experience of SWEPCO for residential, commercial, industrial and governmental Louisiana Commission-jurisdictional area customers for the past five years:

Delinquencies as a Percentage of Total Revenues⁽¹⁾⁽²⁾

 

 

As of December 31,		2019				2020				2021				2022				2023
31 - 60 days past due			1.4210	%			1.3963	%			1.4276	%			1.3628	%			1.3530	%
61 - 90 days past due			0.1262	%			0.2715	%			0.1507	%			0.1868	%			0.2124	%
90+ days past due			0.0512	%			0.2766	%			0.1498	%			0.1446	%			0.2269	%
Total			1.5984	%			1.9444	%			1.7281	%			1.6942	%			1.7923	%

 

(1)	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers.

(2)	Delinquencies are calculated based upon the past due amounts as of December 31 for each year as a percentage of total billed electric base rate revenue for the relevant year. Totals may not add due to rounding.

SWEPCO does not anticipate delinquency of storm recovery charge collections to materially differ from the approximated rates indicated above.

Average Days Sales Outstanding

The following table sets forth information relating to SWEPCO’s average days sales outstanding for all electric customers in its service territories for the past five years. Days sales outstanding is a measure of the average number of days that SWEPCO takes to collect its revenue. The average number of days for the collection of storm recovery charges relating to the storm recovery bonds is expected to be similar to SWEPCO’s revenue collection experience. The days sales outstanding numbers in the following table were generally calculated using a formula which we calculated as follows: on a billing cycle basis, the sum for all retail customers of the number of days between a bill being sent to a retail customer and such bill being paid multiplied by the amount of the bill paid by such retail customer, divided by the total amount paid by all retail customers for such billing cycle.

Average Days Sales Outstanding*

 

 

YEAR		Average Days Sales Outstanding
2019			27
2020			26
2021			27
2022			29
2023			29

 

*	Calculations based on SWEPCO’s Louisiana Commission-jurisdictional area customers. Numbers not exact due to rounding. Days Sales Outstanding excludes customers on deferred financing agreements/payment plans.

 

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SWEPCO STORM RECOVERY FUNDING LLC, THE ISSUING ENTITY

General

We are a special purpose limited liability company formed under the Louisiana Limited Liability Company Act pursuant to the limited liability company operating agreement executed by our sole member or owner, SWEPCO, and the filing of articles of organization with the Secretary of State of the State of Louisiana. We have filed our articles of organization and our limited liability company operating agreement with the SEC as exhibits to the registration statement of which this prospectus forms a part.

Our articles of organization and our limited liability company operating agreement will be amended and restated prior to the issuance date and all subsequent references in this prospectus to the articles of organization and the limited liability company operating agreement mean our amended and restated articles of organization and our amended and restated limited liability company agreement, respectively. We have summarized selected provisions of our limited liability company operating agreement below.

As of the date of this prospectus, we have not carried on any business activities and have no operating history. Our fiscal year is the calendar year. Immediately following the issuance of the storm recovery bonds, our assets will include:

 

•

the storm recovery property,

 

•

our rights under the sale agreement, under the administration agreement and under the bill of sale delivered by SWEPCO pursuant to 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 or all of the foregoing.

The indenture provides that the storm recovery property, as well as our other assets, other than any cash released to us by the trustee semi-annually from earnings on the capital subaccount, will be pledged by us to the trustee. Pursuant to the indenture, the collected storm recovery charges remitted to the trustee by the servicer must be used to pay principal and interest on the storm recovery bonds and our other obligations specified in the indenture.

Our Purpose

We were created for the specific purposes of:

 

•

purchasing and owning the storm recovery property and other storm recovery bond collateral,

 

•

registering and issuing the storm recovery bonds,

 

59

•

pledging our interest in the storm recovery property and other storm recovery bond collateral to the trustee pursuant to the terms of the indenture in order to secure the storm recovery bonds,

 

•

making payments on the storm recovery bonds, if any,

 

•

distributing amounts released to us, and

 

•

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

Our limited liability company operating agreement does not permit us to engage in any activities not directly related to these purposes, including issuing securities, borrowing money or making loans to other persons. The list of permitted activities set forth in our limited liability company operating 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 member and each independent manager.

Our Relationship with SWEPCO

On the date of issuance of the storm recovery bonds, SWEPCO will sell the storm recovery property to us pursuant to the sale agreement between us and SWEPCO. Pursuant to the servicing agreement between us and SWEPCO, SWEPCO will serve as the initial servicer of the storm recovery property. We will pay SWEPCO fixed fees for performing these services. Pursuant to an administration agreement between us and SWEPCO, SWEPCO will provide administrative services to us, for which we will also pay SWEPCO a fixed fee for performing these services.

Our Managers

Pursuant to our limited liability company operating agreement, our affairs will be managed by managers, whom we refer to in this prospectus as our “managers.” SWEPCO will appoint our managers from time to time or, in the event SWEPCO transfers its interest in us, the new owner or owners will appoint our managers. Prior to the issuance of the storm recovery bonds, and thereafter at all times until the storm recovery bonds are paid in full we will have at least two independent manager who, among other things, is not and has not been for at least five years prior to the date of his or her appointment:

 

•

a direct or indirect legal or beneficial owner of us, SWEPCO, any of our affiliates or any of SWEPCO’s affiliates,

 

•

a relative, supplier, employee, officer, director or manager (other than as an independent director or manager of us), contractor or material creditor of us, SWEPCO or any of our or its affiliates, or

 

•

a person who controls SWEPCO or any of its affiliates (whether directly, indirectly or otherwise) or any creditor, employee, officer, director, manager or material supplier or contractor of SWEPCO or its affiliates (other than a nationally recognized company that routinely provides professional independent directors or independent managers and other corporate services to us, SWEPCO or any of its affiliates in the ordinary course of business); provided, that the indirect or beneficial ownership of stock of SWEPCO or its affiliates through a 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.

The managers (other than the independent managers) will be employees or officers of SWEPCO or AEP. The managers will devote the time necessary to conduct our affairs. SWEPCO, as our sole member, will appoint the independent managers prior to the issuance of the storm recovery bonds. Sean Emerick and Will Bleier are expected to be appointed as the independent managers.

None of our managers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K.

 

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

 

Name		Age		Background
Julie A. Sherwood		53		Manager of the issuer. Vice president and treasurer of SWEPCo, treasurer of AEP and senior vice president treasury and risk of the Service Corporation since January 1, 2021. Joined the Service Corporation in 2004 and was appointed as director, external financial reporting in 2004, appointed director-investor relations in 2007, became vice president of market operations in 2014 and senior vice president-commercial operations in 2018. Treasurer of certain other AEP System companies.

Manager Fees and Limitation on Liabilities

As of the date of this prospectus, we have not paid any compensation to any manager since the date we were formed. We will not compensate our managers, other than our independent manager, for their services performed on our behalf. The independent manager will be paid a manager’s fee from our assets.

Our limited liability company operating agreement provides that to the extent permitted by law, our managers will not be liable for our debts, obligations or liabilities.

Under our limited liability company operating agreement, we indemnify our managers to the fullest extent permitted by law against expenses incurred by them in connection with an action, suit or proceeding if they acted in good faith and in a manner in which they reasonably believed to be in or not opposed to our best interests, except for such judgments, penalties, fines or other expenses that were directly caused by their fraud, gross negligence, willful misconduct, or in the case of an independent manager, bad faith.

We Are a Separate and Distinct Legal Entity from SWEPCO

Under our limited liability company operating agreement, we may not file a voluntary petition for relief under the Bankruptcy Code without prior unanimous consent of our managers (including our independent managers). SWEPCO has agreed that it will not cause us to file a voluntary petition for relief under the Bankruptcy Code and, further, that it will not withdraw from or otherwise cease to be our member unless an acceptable new member is substituted until all storm recovery bonds issued pursuant to the financing order and all financing costs have been paid in full. Our limited liability company operating agreement, except for financing reporting purposes and for federal and state income tax purposes, requires us to:

 

•

take all steps necessary to continue our identity as a separate legal entity,

 

•

make it apparent to third persons that we are an entity with assets and liabilities distinct from those of SWEPCO, other affiliates of SWEPCO, or any other person, and

 

•

make it apparent to third persons that we are not a division of SWEPCO or any of its affiliates or any other person.

Our principal place of business is 428 Travis Street, Shreveport, Louisiana 71101, and our telephone number at such address is (318) 673-3075.

Administration Agreement

SWEPCO will, pursuant to an administration agreement between SWEPCO 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 SWEPCO a fixed fee of $100,000 per annum, which shall be prorated based on the fraction of a calendar year during which SWEPCO provides any of the services set forth in the administration agreement, on each payment date for performing these services, plus we will reimburse SWEPCO for all costs and expenses for services performed by unaffiliated third parties and actually incurred by SWEPCO in performing such services.

 

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Intercreditor Agreement

SWEPCO is a party to the SWEPCO Receivables Purchase Agreement, under which SWEPCO sells a portion of its accounts receivable to AEP Credit, a SWEPCO affiliate, which in turn sells percentage interests in such receivables to financial institutions pursuant to the AEP Receivables Purchase Agreement. SWEPCO has been appointed under the terms of the SWEPCO Receivables Agency Agreement as each of AEP Credit’s and the Receivables Admin Agent’s agent for purposes of collecting and servicing the SWEPCO receivables sold under this arrangement. Although the storm recovery charges are not subject to such receivable financial arrangement, the storm recovery charges and accounts receivable are owed by some of the same customers and are expected to be collected for the foreseeable future under a single bill with respect to those customers. The Receivables Admin Agent for such receivables financing arrangement will, prior to the issuance of the storm recovery bonds, execute the intercreditor agreement with SWEPCO, us and the trustee. The intercreditor agreement will, among other things, provide that (i) the storm recovery charges are excluded from the assets sold under the receivables financing arrangement, (ii) in the event the accounts receivable investors have the right to replace SWEPCO as collection agent upon the occurrence of certain events, such investors will not replace SWEPCO without the consent of the trustee (acting at the written direction of the holders of a majority in principal amount of the storm recovery bonds), and (iii) in the event that the trustee (acting at the written direction of the holders of a majority in principal amount of the storm recovery bonds), has the right to replace SWEPCO as servicer under the servicing agreement, the trustee (acting at the written direction of the holders of a majority in principal amount of the storm recovery bonds) will not replace SWEPCO without the consent of the Receivables Admin Agent for the accounts receivable investors.

If SWEPCO becomes a party to any future trade receivables purchase and sale arrangement or similar arrangement under which it sells all or any portion of its accounts receivables, or if SWEPCO hereafter causes storm recovery property or other similar property to be created under a separate financing order and acts as servicer for such storm recovery property, or similar property, consisting of non-bypassable charges payable by SWEPCO’s customers comparable to those sold by the seller pursuant to the sale agreement, in connection with a separate issuance of bonds, SWEPCO and the other parties to such arrangement shall enter into a joinder or amendment to the intercreditor agreement or into a separate intercreditor agreement in connection therewith, and the terms of the documentation evidencing such trade receivables purchase and sale arrangement or similar arrangement shall expressly exclude the storm recovery charges from any receivables or other assets pledged or sold under such arrangement and the rating agency condition shall be satisfied. See “RISK FACTORS—SERVICING RISKS—If we have to replace SWEPCO as the servicer, we may experience difficulties finding and using a replacement servicer.”

THE STORM RECOVERY CHARGES

SWEPCO will be the initial servicer of the storm recovery bonds. Beginning on the first day of the first billing cycle of the revenue month for SWEPCO that begins after the date we issue the storm recovery bonds (which date shall not occur prior to the third business day after pricing of the storm recovery bonds), the initial storm recovery charges will be imposed on SWEPCO’s customers in each storm recovery charge customer class at the applicable rate for the class determined pursuant to the financing order. These storm recovery charges may be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Louisiana Commission. Please read “SWEPCO’s Financing Order” in this prospectus.

 

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DESCRIPTION OF THE STORM RECOVERY BONDS

General

We have summarized selected provisions of the indenture and the storm recovery bonds below. This summary is subject to the terms and provisions of the indenture and the series supplement for the storm recovery 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 storm recovery bonds. Please read “Where You Can Find More Information” in this prospectus.

The storm recovery bonds are not a debt, liability or other obligation of the State of Louisiana, the Louisiana Commission or of any other political subdivision, governmental agency, authority or instrumentality of the State of Louisiana and do not represent an interest in or legal obligation of AEP, SWEPCO or any of their affiliates, other than us. None of AEP, SWEPCO or any of their affiliates will guarantee or insure the storm recovery bonds. The financing order authorizing the issuance of the storm recovery bonds does not constitute a pledge of the full faith and credit of the State of Louisiana, the Louisiana Commission or of any other political subdivision of the State. The issuance of the storm recovery bonds under the Securitization Act will not directly, indirectly or contingently obligate the State of Louisiana, the Louisiana Commission or any other political subdivision of the State to levy or to pledge any form of taxation for the storm recovery bonds or to make any appropriation for their payment.

We will issue the storm recovery bonds and secure their payment under an indenture that we will enter into with the trustee. We will issue the storm recovery 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 each tranche in a smaller denomination. The initial principal amount, scheduled final payment date, final maturity date and interest rate for each tranche of the storm recovery bonds are stated in the table below. In no event shall the scheduled final payment date for any tranche of the storm recovery bonds exceed approximately 15 years from the date of issuance of the storm recovery bonds. The legal final maturity date of any tranche of storm recovery bonds shall not exceed  years from the date of issuance of the storm recovery bonds.

 

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered*

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

A-1

$

%

A-2

$

%

 

*	Principal amounts are approximate and subject to change.

The scheduled final payment date for each tranche of the storm recovery bonds is the date when the outstanding principal balance of that tranche will be reduced to zero if we make payments according to the expected amortization schedule for that tranche. The final maturity date for each tranche of storm recovery bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding bonds of that tranche. The failure to pay principal of any tranche of storm recovery bonds by the final maturity date for that tranche is an event of default for the storm recovery bonds, but the failure to pay principal of any tranche of bonds by the respective scheduled final payment date will not be an event of default. Please read “Description of the Storm Recovery Bonds - Payments of Interest and Principal on the Storm Recovery Bonds” and “What Constitutes an Event of Default on the Storm Recovery Bonds” in this prospectus.

 

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Payments of Interest and Principal on the Storm Recovery Bonds

Interest will accrue on the principal balance of a tranche of storm recovery bonds at the interest rate of  % with regard to the first tranche, and  % with regard to the second tranche. Beginning  , 2025, we will make payments on the storm recovery 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 storm recovery bonds will be made from collections of the storm recovery charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount.

On each payment date, we will pay interest on each tranche of the storm recovery bonds equal to the following amounts:

 

•

any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any, and

 

•

accrued interest on the principal balance of each tranche of the storm recovery bonds from the close of business on the preceding payment date, or the date of the original issuance of the storm recovery bonds, after giving effect to all payments of principal made on the preceding payment date, if any.

We will pay interest on the storm recovery bonds before we pay principal on the storm recovery bonds. If there is a shortfall in the amounts available in the collection account to make interest payments on the storm recovery bonds, the trustee will distribute interest pro rata to each tranche of storm recovery bonds based on the amount of interest payable on each such outstanding tranche. We will calculate the interest on the storm recovery bonds on the basis of a 360-day year consisting of twelve 30-day months.

The failure to pay accrued interest on a tranche of storm recovery bonds on any payment date (even if the failure is caused by a shortfall in storm recovery charges received) will result in an event of default of storm recovery bonds unless such failure is cured within five business days. If interest is not paid within that five-day period, we will pay such defaulted interest (plus interest on such defaulted interest at the applicable interest rate to the extent lawful) to the persons who are storm recovery bondholders on a special record date (as defined in the indenture). The special record date will be at least fifteen business days prior to the date on which the trustee is to make a special payment (a special payment date). We will fix any special record date and special payment date and, at least 10 days before such special record date, we will mail to each affected storm recovery bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on such defaulted interest) to be paid. An event of default under any tranche of storm recovery bonds will automatically trigger an event of default under the storm recovery bonds. See “What Constitutes an Event of Default on the Storm Recovery Bonds” below.

On any payment date with respect to the storm recovery bonds, we generally will pay principal of storm recovery bonds only until the outstanding principal balance has been reduced to the principal balance specified for that payment date in the expected amortization schedule for that tranche, but only to the extent funds are available. Accordingly, principal of any tranche of storm recovery bonds may be paid later, but generally not sooner, than reflected in the expected amortization schedule for such tranche, except in the case of an acceleration. Please read “Risk Factors—Other Risks Associated with an Investment in the Storm Recovery Bonds” and “Weighted Average Life and Yield Considerations for the Storm Recovery Bonds” in this prospectus.

The trustee will retain in the excess funds subaccount for payment on later payment dates any collections of storm recovery charges in excess of amounts payable as:

 

•

fees, expenses and indemnities of the servicer (including the servicing fee), the independent manager and the trustee,

 

•

payments of interest and principal on the storm recovery bonds,

 

•

allocations to the capital subaccount, and

 

•

investment earnings on amounts in the capital subaccount released to us.

 

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If the trustee receives insufficient collections of storm recovery charges for the storm recovery bonds for any payment date, and amounts in the collection account (and the applicable subaccounts of that collection account) are not sufficient to make up the shortfall, principal of a tranche of storm recovery bonds may be paid later than expected, as described in this prospectus. The failure to make a scheduled payment of principal on the storm recovery bonds of a tranche because there are not sufficient funds in the collection account does not constitute a default or an event of default under the indenture, except for the failure to make the scheduled payment of principal due upon the final maturity of that tranche of the storm recovery bonds.

The trustee will pay on each payment date to the storm recovery bondholders of a particular tranche to the extent of available funds in the collection account, all payments of principal and interest then due on such storm recovery bonds (other than special payments as defined in the indenture). The trustee will make each such payment to the storm recovery bondholders, other than the final payment, on the applicable payment date. If the storm recovery bonds are ever issued in definitive certificated form, however, the final payment with respect to the storm recovery bonds will be made only upon presentation and surrender of such storm recovery bond at the office or agency of the trustee specified in the notice given by the trustee with respect to such final payment. The trustee will provide notice of the final payment to the storm recovery bondholders no later than five days prior to the final payment date, specifying that such final payment will be payable only upon presentation and surrender of such storm recovery bond and the place where such storm recovery bond may be presented and surrendered for payment.

The storm recovery bonds will originally be issued in book-entry form, and we do not expect that the storm recovery bonds will be issued in definitive certificated form. At the time, if any, we issue the storm recovery bonds in the form of definitive storm recovery bonds and not to The Depository Trust Company (“DTC”) or its nominee, the trustee will make payments as described below under “Definitive Certificated Storm Recovery Bonds.”

On each payment date, the amount to be paid as principal on the storm recovery bonds of a tranche will equal without duplication:

 

•

the unpaid principal amount of such tranche due on the final maturity date of that tranche, plus

 

•

the unpaid principal amount of such tranche due upon acceleration following an event of default, plus

 

•

the unpaid and previously scheduled payments of principal on such tranche, plus

 

•

the principal scheduled to be paid on such tranche on that payment date;

but only to the extent funds are available in the collection account (including all applicable subaccounts) after payment of certain of our fees and expenses and after payment of interest as described in the section above. To the extent funds are so available, we will make scheduled payments of principal on the storm recovery bonds of each tranche in the following order:

 

1.

to the holders of the tranche A-1 storm recovery bonds, until the principal balance of that tranche has been reduced to zero, and

 

2.

then to the holders of the tranche A-2 storm recovery bonds, until the principal balance of that tranche has been reduced to zero.

However, we will not pay principal of any tranche of the storm recovery bonds on any payment date if making the payment would reduce the principal balance of that tranche to an amount lower than the amount specified in the expected amortization schedule below for that tranche on that payment date. Any excess funds remaining in the collection account after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the collection account will be retained in the excess funds subaccount until applied on a subsequent payment date.

The entire unpaid principal amount of a tranche of storm recovery bonds will be due and payable:

 

•

on the final maturity date of that tranche, and

 

•

if an event of default under the indenture occurs and is continuing and the trustee or the holders of a majority in principal amount of the storm recovery bonds have declared the storm recovery bonds to be immediately due and payable.

 

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If there is a shortfall in the amounts available to make principal payments on the storm recovery bonds that are due and payable at a tranche’s final maturity date or upon an acceleration following an event of default under the indenture, the trustee will distribute principal from the collection account pro rata to each tranche of the storm recovery bonds based on the principal amount of such tranche then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the storm recovery bonds that are scheduled to be paid, and if more than one tranche is scheduled to be paid on such payment date, the trustee will distribute principal from the collection account sequentially in the numerical order of such tranches.

However, the nature of our business will result in payment of principal upon an acceleration of the storm recovery bonds being made only as funds become available. Please read “Risk Factors—Risks Associated with the Unusual Nature of the Storm Recovery Property” and “—You may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited.”

If any special payment date or other date specified herein for distribution of any payments to storm recovery bondholders is not a business day, payments scheduled to be made on such special payment date or other date may be made on the next succeeding business day, and no interest will accrue upon such payment during the intervening period. “Business day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York or Shreveport, Louisiana, are, or DTC is, required or authorized by law or executive order to remain closed.

Neither we nor SWEPCO makes any representation or warranty that any amounts actually collected arising from storm recovery charges will in fact be sufficient to meet payment obligations on the storm recovery bonds or that assumptions made in calculating storm recovery charges will in fact be realized.

The expected amortization schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for each tranche of the storm recovery bonds from the issuance date to the scheduled final payment date. Similarly, the expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for each tranche of the storm recovery bonds from the issuance date to the scheduled final payment date. In establishing these schedules, we have made the assumptions specified in the bullet points under the weighted average life sensitivity table below under “Weighted Average Life and Yield Considerations for the Storm Recovery Bonds,” among other assumptions.

Expected Amortization Schedule

Outstanding Principal Balance Per Tranche*

 

 

Payment Date		Tranche A-1 Amount				Tranche A-2 Amount
Initial Principal Amount		$				$

 

*	Principal amounts are approximate and subject to change. Totals may not add up due to rounding.

 

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On each payment date, the trustee will make principal payments to the extent the principal balance of each tranche of the storm recovery bonds exceeds the amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest. If sufficient funds are available on each payment date, principal payments will be in the amounts indicated for each payment date in the expected sinking fund schedule below.

Expected Sinking Fund Schedule*

 

 

Date		Tranche A-1				Tranche A-2
Total Payments		$				$

 

*	Totals may not add up due to rounding.

We cannot assure you that principal payments will be made or that the principal balance of any tranche of the storm recovery bonds will be reduced by the amounts indicated in the schedules above. Principal payments and the actual reduction in tranche principal balances may occur more slowly. Principal payments and the actual reduction in tranche principal balances will not occur more quickly than indicated in the above schedules, except that the total outstanding principal balance of and interest accrued on the storm recovery bonds may be accelerated upon an event of default under the indenture. The storm recovery bonds will not be in default if principal is not paid as specified in the schedules above unless the principal of any tranche is not paid in full on or before the final maturity date of that tranche.

 

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Redemption of the Storm Recovery Bonds

There are no redemption rights associated with the storm recovery bonds.

Storm Recovery Bonds Will Be Issued in Book-Entry Form

The storm recovery bonds will be available to investors only in the form of book-entry storm recovery bonds. You may hold your bonds through DTC in the United States, Clearstream Banking, Luxembourg, S.A., referred to as Clearstream, or Euroclear in Europe. You may hold the storm recovery bonds directly with one of these systems if you are a participant in the system or indirectly through organizations that are participants.

The Role of DTC, Clearstream and Euroclear. Cede & Co., as nominee for DTC, will hold the global bond or bonds representing the storm recovery bonds. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream customers and Euroclear participants, respectively, through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries. These depositaries will, in turn, hold these positions in customers’ securities accounts in the depositaries’ names on the books of DTC.

The Function of DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org. The contents of such websites do not constitute a part of the registration statement of which this prospectus forms a part.

The Function of Clearstream. Clearstream is incorporated under the laws of Luxembourg. Clearstream holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream customers through electronic book-entry changes in accounts of Clearstream customers, thereby eliminating the need for physical movement of securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in Luxembourg and therefore is subject to regulation by the Luxembourg Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream’s customers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of the storm recovery bonds. Clearstream’s U.S. customers are limited to securities brokers and dealers and banks. Clearstream has customers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has established an electronic bridge with Euroclear to facilitate settlement of trades between Clearstream and Euroclear.

 

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The Function of Euroclear. The Euroclear System (“Euroclear”) was created in 1968 in Brussels. Euroclear holds securities and book-entry interests in securities for Euroclear participants and facilitates the clearance and settlement of securities transactions between Euroclear participants, and between Euroclear participants and participants of certain other securities intermediaries through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Such transactions may be settled in any of various currencies, including United States dollars. Euroclear includes various other services, including, among other things, safekeeping, administration, clearance and settlement, securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. Euroclear is operated by Euroclear Bank SA/NV. Euroclear participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of the storm recovery bonds. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.

Terms and Conditions of Euroclear. Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of Euroclear, and applicable Belgian law (collectively, the “Terms and Conditions”). These Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants.

The Rules for Transfers Among DTC, Clearstream or Euroclear Participants. Transfers between DTC participants will occur in accordance with DTC rules. Transfers between Clearstream customers or Euroclear participants will occur in the ordinary way in accordance with their applicable rules and operating procedures and will be settled using procedures applicable to conventional securities held in registered form.

Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream customers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving storm recovery bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream customers and Euroclear participants may not deliver instructions directly to Clearstream’s and Euroclear’s depositaries.

Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream customer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream customer or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.

DTC Will Be the Holder of the Storm Recovery Bonds. Storm recovery bondholders that are not Direct Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, storm recovery bonds may do so only through Direct Participants and Indirect Participants. In addition, storm recovery bondholders will receive all distributions of principal of and interest on the storm recovery bonds from the trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, storm recovery bondholders may experience some delay in their receipt of payments because payments will be remitted by the trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its Direct Participants, who thereafter will forward them to Indirect Participants or storm recovery bondholders. It is anticipated that the only “bondholder” will be Cede & Co., as nominee of DTC. The trustee will not recognize storm recovery bondholders as bondholders, as that term is used in the indenture, and storm recovery bondholders will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of storm recovery bondholders through DTC.

 

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Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers of book-entry certificates among participants on whose behalf it acts with respect to the storm recovery bonds and is required to receive and transmit distributions of principal and interest on the storm recovery bonds. Direct Participants and Indirect Participants with whom storm recovery bondholders have accounts with respect to the storm recovery bonds similarly are required to make book-entry transfers and receive and transmit those payments on behalf of their respective storm recovery bondholders. Accordingly, although storm recovery bondholders will not possess storm recovery bonds, storm recovery bondholders will receive payments and will be able to transfer their interests.

Because DTC can act only on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a storm recovery bondholder to pledge storm recovery bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those bonds, may be limited due to the lack of a physical certificate for those storm recovery bonds.

DTC has advised us that it will take any action permitted to be taken by a storm recovery bondholder under the indenture only at the direction of one or more participants to whose account with DTC the storm recovery bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of participants whose holdings include those interests.

Except as required by law, none of any underwriter, the servicer, SWEPCO, the trustee, us or any other party will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the certificates held by Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial interests.

How Storm Recovery Bond Payments Will Be Credited by Clearstream and Euroclear. Distributions with respect to storm recovery bonds held through Clearstream or Euroclear will be credited to the cash accounts of Clearstream customers or Euroclear participants in accordance with the relevant system’s rules and procedures, to the extent received by its depositary. Those distributions will be subject to tax reporting in accordance with relevant U.S. tax laws and regulations. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus. Clearstream or the Euroclear operator, as the case may be, will take any other action permitted to be taken by a storm recovery bondholder under the indenture on behalf of a Clearstream customer or Euroclear participant only in accordance with its relevant rules and procedures and subject to its depositary’s ability to effect those actions on its behalf through DTC.

Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the storm recovery bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.

Definitive Certificated Storm Recovery Bonds

The Circumstances That Will Result in the Issuance of Definitive Certificated Storm Recovery Bonds. The storm recovery bonds will be issued in fully registered, certificated form to beneficial owners of storm recovery bonds or other intermediaries, rather than to DTC or its nominee, only under the circumstances provided in the indenture, which includes any event where:

 

•

we advise the trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities under any letter of representation executed by us in favor of DTC, and we are unable to locate a qualified successor,

 

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•

we, at our option, advise the trustee in writing that we elect to terminate the book-entry system through DTC, or

 

•

after the occurrence of an event of default under the indenture, storm recovery bondholders representing at least a majority of the outstanding principal balance of the storm recovery bonds maintained in book-entry form advise us, the trustee and DTC through the financial intermediaries and the DTC participants in writing that the continuation of a book-entry system through DTC, or a successor to DTC, is no longer in the storm recovery bondholders’ best interest.

The Delivery of Definitive Certificated Storm Recovery Bonds. Upon the occurrence of any event described in the immediately preceding paragraph (unless otherwise specified), we will be required to notify DTC, the trustee, and all affected beneficial owners of storm recovery bonds in writing of the occurrence of the event and of the availability through DTC of definitive certificated storm recovery bonds to such owners of storm recovery bonds. Upon surrender by DTC to the trustee of the global bond or bonds in the possession of DTC that had represented the applicable storm recovery bonds and receipt of instructions for re-registration, the trustee will authenticate and deliver definitive certificated storm recovery bonds to the beneficial owners, and the trustee will recognize the holders of the definitive certificate storm recovery bonds as bondholders under the indenture.

The Payment Mechanism for Definitive Certificated Storm Recovery Bonds. Payments of principal of, and interest on, definitive certificated storm recovery bonds will be made by the trustee, as paying agent, in accordance with the procedures set forth in the indenture. These payments will be made directly to holders of definitive certificated storm recovery bonds in whose names the definitive certificated storm recovery bonds were registered at the close of business on the related record date. The trustee will make the final payment for each tranche of the storm recovery bonds, however, only upon presentation and surrender of the storm recovery bonds of that tranche at the office or agency of the trustee specified in the notice given by the trustee of the final payment. The trustee will provide notice of the final payment to the storm recovery bondholders no later than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.

The Transfer or Exchange of Definitive Certificated Storm Recovery Bonds. Definitive certificated storm recovery bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which will initially be U.S. Bank Trust Company, National Association. No service charge will be imposed for any registration of transfer or exchange, but we and the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection with the transfer or exchange.

Registration and Transfer of the Storm Recovery Bonds

We will only issue the storm recovery bonds in definitive form under limited circumstances as described above, which will be transferable and exchangeable as described above under “Definitive Certificated Storm Recovery Bonds.” There will be no service charge for any registration or transfer of the storm recovery bonds, but the trustee may require the owner to pay a sum sufficient to cover any tax or other governmental charge.

We will issue each tranche of storm recovery bonds in the minimum initial denominations and integral multiples set forth in this prospectus.

The trustee will make payments of interest and principal on each payment date to the storm recovery bondholders in whose names the storm recovery bonds were registered on the applicable record date.

The Security for the Storm Recovery Bonds

To secure the payment of principal, premium, if any, and interest on, and any other amounts owed in respect of, the storm recovery bonds pursuant to the indenture, we will grant to the trustee for the benefit of the storm recovery bondholders a security interest in all of our right, title and interest, whether now owned or later acquired, in and to the following collateral, which collectively constitutes the trust estate under the indenture:

 

•

the storm recovery property,

 

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